Broken energy market needs more than a quick fix

There is no let up for the energy companies this week with Ofgem publishing their latest analysis of company profits, Labour launching a new plan and the Tories playing catch up.

The Ofgem report is a useful resource and shows that the profits of the big six energy companies increased from £221m in 2009 to £1.19bn in 2012. In the current climate Ofgem also want to be seen to be tough on the companies, so the decision to send back network business plans has to be viewed in that light.

TUC General Secretary Frances O’Grady said:

“Ofgem shows excess profits are the real source of soaring energy bills. With the government prepared to cap pension charges and pay-day loan interest, they should do the same for energy bills, and stop suggesting that anyone who supports a price cap lives in a Maoist commune. We also need to ask hard questions about why some ministers have been prepared to go along with energy company bosses in blaming green levies and help for the less well-off, when what has gone wrong is profit grabbing in a bust market.”

Then we had the ‘did they, didn’t they’ ping pong, with No.10 denying reports that they had asked the Big Six companies not to raise prices until 2015 as ‘utterly misleading’. However, today’s Guardian says, “It is understood there has not been a ministerial letter to this effect but officials are putting pressure on the companies not to announce any more price rises for another 18 months.”

The Prime Minister is clearly trying to play catch up with Ed Miliband’s pledge on energy prices and we can expect announcements in the Chancellor’s Autumn Statement next week. Sadly, this is likely to focus on green levies, a distraction strategy from the big issues. The "green crap" as the PM is alleged to have described it, includes ECO – the energy companies obligation to insulate housing.  Polly Toynbee identifies many of the faults with the badly designed scheme, but as she says, “A more damaging quick-fix electoral sweetener is hard to imagine.”

The Labour leader kept up the pressure this week with the launch of their energy green paper that sets out how Labour will reset the market during the price freeze. The plan includes the establishment of an Energy Security Board to delivery new capacity and a new regulator, “with real teeth to prevent overcharging”. Ed Miliband said, “In the past three years it has become clear to everyone but this government that the energy market is broken. Prices are rising year on year without justification. And Britain is not getting the investment in energy we need to secure supplies for the future.”

I think the Labour plan is a definite move the right direction, but it still relies too heavily on fixing the broken market. What we need is a more radical plan that recognises the need for different ownership models, including public ownership, to break the dominance of the big energy companies.

Cross posted at Utilities Scotland

Audit report shows workers taking brunt of cuts

Today’s Audit Scotland report on the public sector workforce shows clearly how it’s the workforce that have taken the brunt of spending cuts.

It shows that staff costs have been cut by over £1bn between 2009/10 and 2011/12. And that doesn’t include the savings from pay restraint.

26,600 whole time equivalent (WTE) posts were cut between March 2009 and March 2013 (7%). Some 9,665 were transferred to arms length bodies outside the public sector. 15,816 WTE left through early departure schemes, although these have been reducing in recent years.  Councils made the biggest reduction (10%) while the NHS had the smallest cut (1%).

The report, if anything, understates the picture because the numbers are converted into WTE. In terms of real people (headcount), 48,700 have gone (excluding the financial sector) since the height of public sector employment just before the financial crash - 5,500 people in the last year alone.

Given the scale of early departure schemes it might be expected that the numbers of older staff would be reducing. However, the report shows that the only age group that is increasing is 50-59yrs, up by 5%. Probably due to recruitment freezes the numbers of younger workers are falling. The chart below illustrates this change.

The report sets out the range of methods used by public bodies to reduce workforce costs with pay restrictions, vacancy management and early retirement the most common. More than a third of councils used compulsory redundancy. There is some criticism of the level of evaluation of early departure schemes.

Future workforce changes are inevitable given the budget cuts to come. The report outlines a range of ways this might be achieved, including considering service delivery cuts. The report recommends better national and local workforce planning.

Overall, the report is a useful description of what has happened to the public service workforce in Scotland. The recommendations are largely sensible, but little more than a sticking plaster over the impact of spending cuts to come.

Mick Jagger should make us think about ageing population

We are told this week that Mick Jagger is delighted with the prospect of becoming a great-grandfather, according to his granddaughter Assisi who is expecting her first child in April. I highlight this news story in contrast to the regular media stories that forecast doom and gloom over our ageing population.

There is no doubt that demographic change will bring many policy challenges and I participated in a round table discussion hosted by The Herald on this very issue yesterday. However, the phrase 'demographic time bomb' ignores many of the benefits to individuals and communities. Older people remain significant economic contributors as well as important carers, of young and old, in their own right. Many of the voluntary organisations that make up the fabric of our society would collapse without the support of older people.

There is also some recent academic work that argues that we may be exaggerating the impact on health services because we are likely to be healthier into old age. 60 is the new 50, as Mick Jagger might illustrate. There is also a lot a focus on nursing home costs, but this only applies to a tiny proportion of older people.

Of course, none of this means that we shouldn't address the policy implications of an ageing population. The additional public spending impact is estimated at £2.5bn in Scotland by 2030. When I was working with the Christie Commission we were told that £1.5bn might be released from unplanned hospital admissions to help pay for this. With the increasing demand for beds that is now looking a remote prospect and I don't see any replacement plan in the current care integration proposals.

One aspect we do need to focus on is the workforce that cares for older people. We are seeing a race to the bottom in terms of pay and training, with care being viewed as the new retail in job terms. I was discussing this with a group of home care staff recently. Most of the younger staff told me that they would leave as soon as they could get a better job - little prospect of the essential continuity of care that many older people need. Others described minimal training before being expected to address complex care needs. Even more worrying, those on zero or nominal hour contracts said they wouldn't flag up safety or abuse issues for fear of losing hours.

Demographic change has positive implications for our society and we shouldn't over emphasise the negatives. What we should do is start serious planning. Respecting and developing the workforce is a good place to start.

Action on blacklisting

Today is the National Day of Action against Blacklisting. The practice of Blacklisting by construction and other employers has resulted in ordinary union members losing their livelihoods for standing up for their workmates basic rights, especially health and safety.

The unions most affected have run an excellent campaign against blacklisting and they have been helped by the Westminster Scottish Affairs Committee's investigation. As the committee's interim report states:

"we wish to make it absolutely clear that we believe, on the evidence that we have seen so far, that the process of blacklisting by a secret and unaccountable process was and is morally indefensible and that those firms and individuals involved in operating the system should have known this."

We know a lot about blacklisting in the construction industry because the information came to light as a result of an investigation by the Information Commissioner. The Scottish Affairs Committee report describes the actions of companies in detail. What we do not know is if this type of illegal activity is being undertaken today and in other industries involving UNISON members.

The striking point about blacklisting is that it involves firms that are household names such as Balfour Beatty, Skanska and McAlpine. They are also firms that make £millions every year at the taxpayers expense, through public contracts. That's why the campaign has focused on tackling blacklisting through public procurement.

Today, the Scottish Government has released new rules on procurement that we hope will address this issue. I was involved with other colleagues in drafting them and the Scottish Government deserves credit for taking serious action.

The key points are as follows:

• any company which engages in or has engaged in the blacklisting of employees or potential employees should be considered to have committed an act of grave misconduct in the course of its business and should be excluded from bidding for a public contract unless it can demonstrate that it has taken appropriate remedial steps;
• we have included three new questions in the standard Pre-Qualification Questionnaire (sPQQ) which requires suppliers to disclose if they have breached relevant legislation;
• we have also included a new contract clause in our standard terms and conditions which provides for termination of the contract if a supplier is found to have breached relevant legislation during the course of that contract; and
• this guidance applies to all public sector contracts regardless of value, although for lower value contracts pre-qualification procedures are unlikely to apply.

The definition of blacklisting is wider than just the Blacklisting Regulations. It includes any discrimination against union members in recruitment, a scope that is more likely to encompass actions taken against UNISON members.

The Procurement Reform (Scotland) Bill, currently progressing through the Scottish Parliament will be an opportunity to give these rules statutory force. However, the important point is that it sends out a very clear message to companies that if they get involved in blacklisting or other discrimination against union members, they will be excluded from government contracts.

Another encouraging point is that parliamentarians at Westminster and Holyrood both contributed to this outcome. Now that is progress!

 

Auditors trash police centralisation process

Today’s Audit Scotland report finds that the Scottish Police Authority and Police Scotland face continuing challenges in delivering the savings required. In particular, their limited flexibility in managing police officer and staff numbers. That’s polite auditor criticism of the political police officer target imposed on Police Scotland.

The report also confirms some key UNISON criticisms of the process leading up to the centralisation of Scotland’s police forces. In particular, that the savings estimates were based on an Outline Business Case that has never been updated or moved on to a Full Business Case.

“Both KPMG and PwC highlighted significant 
concerns about financial management in addition to the issues identified by the gateway reviews. 
A number of recommendations from these reviews were not fully implemented, including the gateway review recommendation to update and use the business case to test the validity and realism of programme assumptions.”

In addition, the report highlights the confusion over the roles of the SPA and Police Scotland - a confusion that was played out in public over many months. UNISON Scotland drew attention to the potential for conflict, given the lack of clarity, while the Bill progressed through Parliament.

The report says:

“There were a number of areas of tension, including:

·   different interpretations of the Act, the Scottish Government’s intention behind the Act, and what this meant for the role of the SPA in terms of ‘maintaining’ the police service

·   the lack of good baseline information on non-operational police activity; in particular, the lack of comprehensive financial information to identify how savings outlined in the OBC would be achieved

·   a lack of shared understanding and expectations over what effective scrutiny of the police service looked like in practice

·   the Scottish Government’s changing position over the way the SPA should operate.”

The report goes on to express concern that a number of governance issues still need to be progressed.

This report articulates what everyone close to the process knows. This was a badly planned and rushed centralisation of a vital public service, with flawed legislation and a confused governance structure. The estimated savings were optimistic and more importantly, not worked up in sufficient detail. Add to all that political targets on police officer numbers that makes a nonsense of the statutory duty of Best Value.

Huge challenges remain, but even at this stage it would help if the Scottish Government stopped its political interference and allowed Police Scotland to adopt a balanced workforce.

Positive aspects of the constitutional change debate

The debate on constitutional change has been widely characterised as not living up to its historical importance. While parts of the debate have resembled, as Sir Tom Farmer put it, “a playground fight”, there are positive aspects of the debate that deserve credit. We are sometimes too quick in Scotland to condemn ourselves.

Of course there are negatives. The recent TV debate was a playground fight and the Pavlovian response of some supporters on Twitter and in the comment sections of newspapers are shocking.  Why some people think they will win over the undecided through slogans and abuse is beyond my understanding.

And yes, anyone who has to deal with the Scottish Government understands that independence is the primary focus. It’s not that their eye is off the ball - that is the ball!

The formal ‘Yes’ and ‘Better Together’ campaigns come in for a lot of stick; largely unfairly in my view. It’s their job to promote their case and rebut the other side - an essential base line for the debate. No one is seriously expecting objective analysis, so accept their role and treat the outputs accordingly.

My main point is, that these negatives are masking some very positive debate and discussion in Scotland that probably wouldn’t have happened without the Referendum. I have done workshops and events across Scotland on the constitutional issue. It is certainly the case that these events have been dominated by questions about the consequences of independence. Anyone in the ‘Yes’ camp, who thinks that these matters can wait until the first election after independence, is living in cloud cuckoo land. Trade union members are rightly used to evaluating an offer and they will treat the White Paper and greater devolution proposals accordingly. 

However, the discussion doesn’t stop, or even start at independence or devolution. There is a real appetite to talk about the sort of Scotland they want to live in. It is not true that the debate is simply limited to shouting slogans.

My own union UNISON has promoted its ‘Fairer Scotland’ paper, as has the STUC with the ‘Just Scotland’ initiative. Civil society organisations like SCDI, SCVO and many others have done the same. Some commentators argue that Civil Scotland has gone missing or is somehow irrelevant to a wider debate that the Internet has facilitated. Again, this is a gross simplification. This debate is different to the devolution campaigns because there is not a common position. But that doesn’t mean there isn’t a debate and Civil Scotland is playing its role in facilitating it. Just because these organisations don’t buy into a particular commentator’s view of the world, doesn’t mean that they are irrelevant.

Of course social media is facilitating a wider debate, but it isn’t totally replacing traditional dialogue. If you look carefully at Twitter and blogs in the morning, they rely heavily on traditional media and good quality journalism. Twitter is great for a quick reaction and the blogosphere develops the analysis, but our media institutions are still the bedrock of debate.

Then we have the heavyweight analysis provided by books. The Referendum has sparked a range of publications that provide high quality analysis and ideas. Just because the contributors have a preference for one side or the other; doesn’t devalue the analysis or the ideas for anyone other than the blinkered. Books like ‘Scotland’s Future’, edited by Andrew Goudie, and ‘Scotland’s Choices’ by McLean and Gallagher are good examples of the genre. Equally, I often turn to the late Stephen Maxwell’s ‘Arguments for Independence’ because, while committed to independence, he understood the need to examine and explain what it might mean in some detail. The Economic and Social Research Council has also funded excellent academic analysis.

For those on the left, the referendum has forced us to think beyond the next piece of legislation or manifesto. ‘Time to Choose: Scotland’s Road to Socialism’, edited by Gregor Gall, was a good starting point and the Reid Foundation’s ‘Common Weal’, offers the prospect of new and different approaches.

The Red Paper Collective has recently brought together the mainstream left in their publication ‘Class, Nation and Socialism: The Red Paper on Scotland 2014’. This is a book about the politics of social and economic change rather than simply constitutional change. There is plenty of vision and ideas, but laced with a pragmatic view of the possible, not the improbable. It also seeks to do what is often missing in the current national dialogue – putting the debate in a UK context. There are also those outwith Scotland who recognise the strength of our debate, as Owen Jones makes clear in his introduction to this book.

Some argue that all of this discussion is limited to the chattering classes. Well, to a degree that will always be the case, but I would argue the debate has gone further. Many union members and activists don’t fall into that category and yet they have been willing and able to contribute to the debate. Let’s also not forget the broader understanding it can generate. As one activist said to me recently, “Thanks Dave, I never thought I would care, let alone understand, the difference between monetary and fiscal policy!”

Another, admittedly unscientific example, was a night out with some non-political pals. Without any prompting from me, they had a discussion about constitutional issues, including the currency, borders and the EU. I also noticed that three of the tables near me had at least short discussions on similar issues. Now, it may just be the pubs I drink in, but I think there is at least the start of a debate about the future of Scotland outwith the chatterati.

In many ways the most important date in the Referendum is the 19^th September 2014. The day after the vote is the time when Scotland needs to take action. After the debate I believe we are having, the status quo won’t be good enough

Fuel poverty - better or worse in an Independent Scotland?

Fuel poverty – better or worse in an independent Scotland? That was the question posed to a panel I participated in at the Energy Action Scotland annual conference today. I covered some of the issues in the energy chapter of the latest Red Book and I remain pretty sceptical that the independence on offer will make any difference. And by independence I mean the likely Scottish Government offer, not a wish list from others in the Yes camp who have no political road map for implementing their vision.

Fuel poverty is an everyday reality for many people in Scotland with older people, those with disabilities or long term illnesses and those on low incomes, especially at risk. The consequences are misery, discomfort, ill health and debt. Around 900,000 households in Scotland – more than 1 in 3 – are estimated to be in fuel poverty, which means they are unable to afford adequate warmth in the home. The causes are a combination of poor energy efficiency of the dwelling, low disposable household income and the high price of domestic fuel.

Energy efficiency is of course already largely devolved and measures have been introduced by successive administrations since 1999. We can argue about the scale and effectiveness of those measures, but the solutions are already in our own hands.

Low disposable income is largely a reserved matter, as it is closely linked to the welfare system and broader economic policy. The shift from wages into profits since the Thatcher era is a major concern, not just for fuel poverty, but also because of the wider economic impact. The UK economy grew by £60bn over the past four years, yet household disposable income per person dropped by £500. That's why the cost of living and wages is a rising political issue. In theory independence could make a difference here, as I don't believe the Scottish Parliament would have countenanced many of the current welfare cuts and the Bedroom Tax in particular.

However, I remain sceptical that the independence on offer indicates a radical shift in policy. Scottish Government support for the Scottish Living Wage is a positive indicator that they get the importance of increasing disposable income, although their reluctance to use procurement to extend the scope is a big negative. The broader case for a rebalancing of the economy doesn't feature much in SNP thinking and their economic polices remain firmly in the neo-liberal camp. The language on welfare reform is positive, but there is no indication that they are prepared to take any radical action on tax to pay for it. In fact quite the opposite. Their actions in government, such as the regressive Council Tax freeze and post-independence tax announcements indicate a low tax economy. You simply can't have Scandinavian levels of welfare and public services unless you are prepared to have a difficult conversation on tax with the people of Scotland.

That leaves the issue of energy policy, vital because the price of energy is the biggest driver of fuel poverty. Now, I am a big critic of the UK Government's energy policy and supportive of many of the Scottish government's concerns, as in Fergus Ewing’s rant to the Energy Secretary this week, particularly transmission charges and decarbonisation targets. I therefore find the Scottish Government’s position on energy policy post-independence surprising, to put it mildly. Despite their criticisms they want to remain within the UK electricity market.

This effectively means handing over the key levers of energy policy to another country, taking independence lite to new levels. There's nothing that says the UK has to use renewables to meet emissions targets – or, more importantly, Scottish renewables. There are alternatives, such as rigging the market to favour English nuclear stations – oh yes, they have just done that!

The Scottish Government energy minister Fergus Ewing responds to this by pointing to the EU single market and cooperation models such as the Irish SEM. He also argues that UK ministers would end up accepting a continuation of the current single energy market across the UK after independence, on the grounds that, without Scottish energy feeding into the national grid, the “lights would go out” in England. This is a pretty bold claim with not much evidence to support it, given the Chancellor’s ‘dash for gas’ through fracking and England's access to the continent’s power supplies through interconnectors.

Developments in interconnector access are another blow to Fergus Ewing’s argument. The Scotland-Norway interconnector is running into difficulty after SSE pulled out and the Norwegian state grid operator appears more interested in a link to England. National Grid’s submission to the Commons Energy and Climate Change Committee said England and Wales could meet their renewable and carbon emissions targets without any contribution from Scotland.

I might be persuaded if the independence on offer was a planned energy policy that provides safe, secure and sustainable generation, which contributes to the economic future of Scotland and eliminates fuel poverty. This should include a more diverse generation ownership model and a bigger role for local government as we see in parts of continental Europe. Not to mention public ownership. Even a majority of Tory voters now favour renationalisation of energy companies. In Scotland, energy generation is dominated by big business and I don't see any willingness to tackle that issue. Fergus Ewing's rush to parrot the energy companies response to Ed Miliband's price freeze, indicates another status quo position.

In conclusion, I accept that it is possible to pursue different energy, economic and welfare policies under independence that could seriously tackle fuel poverty. The primary requirement as ever is political will. However, the proximity of almost the only energy trading partner creates real challenges for those advocating independence and they will need to do much better than, ‘the lights will go out in England’ if they are going to convince me of the merits of their case. A balanced energy strategy that ensures security of supply, builds a more diverse industry and eliminates fuel poverty, would be a good start.

Fiscal powers for a purpose

The IFS briefing 'Taxing an Independent Scotland' has drawn predictable fire from elements of  the Indy 'Yes' camp for highlighting some of the fiscal realities. However, it actually provides a much more important analysis of what you can do with fiscal powers, whatever the outcome of the referendum.

They start by setting out what most objective analysts agree on. Scotland's onshore revenues are lower than in the UK as a whole, but that could be covered by oil revenues for at least a few years post independence. How long depends on whose oil revenue estimates you chose to believe.

This still leaves the immediate fiscal problems that beset the UK as much as Scotland. The scary figure headline £2.5bn 'black hole' is explained as follows: "if the government of an independent Scotland felt the need to introduce tax rises or spending cuts equivalent to those pencilled in for the UK as a whole for 2016–17 and 2017–18, that would require £2.5 billion of new measures. If it also wanted to offset the decline in oil revenues by 2017–18 forecast by the OBR, that would require a further £3.4 billion, making £5.9 billion in total."

Of more interest to me is the briefing's examination of the differences in taxation between Scotland and the rest of the UK. In particular, our more equal distribution of income and the higher take from income than property. Scottish onshore revenue comes less from taxes on wealth and property than the UK's as a whole (partly because council tax rates in Scotland are about 20% lower than in England), and more from VAT and taxes on alcohol and tobacco. At least our sins are good for tax revenue! 

I covered the IFS take on council tax reform in a post on the 'Public Works' blog yesterday. This would be even more important in an independent Scotland, because of the risk of cross border flows. The paper also highlights the risk of tax competition, not just Corporation Tax, but more widely, with a detailed impact assessment on each tax. I take from this analysis the risk that workers both sides of the border would be dragged into a race to the bottom. It doesn't look much like Scandinavia for Scotland or England. Another reason, as the Red Paper Collective has said, for the rest of the UK to take greater interest in the constitutional debate.

There is more encouragement later in the paper for those arguing for independence or much greater fiscal autonomy. This is because current UK taxes may not be optimal for Scottish circumstances. Our more equal income distribution, less congested roads etc. The paper provides a wealth of data on yields that is enormously helpful when considering these issues. Their recommended solutions may not be to everyone's taste, including mine, but they concede that these are legitimate political choices.

The important point here is that it enables a focus on what we do with powers, not just arguing over a list of them. As Anas Sarwar puts it in today's Herald, "No matter which side you are on, this is a change referendum, a choice between two very different visions of the future". However, the choices may be more nuanced than simply nationalist and Labour.

We should at least be grateful to the IFS for providing the tools for a more rational debate on the fiscal consequences of those competing visions.

Scotland needs a pay rise and the living wage is one way of achieving it

Scottish Living Wage Week is an opportunity to focus on expanding the scope of the living wage across Scotland.

Today has seen a welcome increase in the living wage rate to £7.65 (outside London). In comparison the adult minimum wage rate is £6.31 an hour.

The Scottish Living Wage is good news for workers as they get higher wages that also improves health and job motivation. It’s good for employers because it reduces turnover, improves productivity and attracts better staff through reputational gain. The wider community benefits through lower benefit cost, less stress on the NHS and cash into the local economy.

The Institute of Fiscal studies has calculated sub-living wage employers cost the taxpayer £6bn a year in in-work benefits alone. The indirect cost on poverty is around £25bn a year. A new report for UNISON by Landman Economics looks at the economic benefits and calculates that 58,000 additional jobs across the UK could be created by the stimulus impact of the living wage. This shows that the living wage is an economic win-win, strengthening the case for making it a statutory provision.

Almost all the public sector in Scotland is now committed to paying the Scottish Living Wage with less than 3% of the workforce not covered. The challenge is to extend the scope to more parts of the voluntary and private sector. The Scottish Government has agreed to financially support a project to extend accreditation and this is very welcome. A field worker should be able to explain the benefits to a wider range of employers and help them achieve accreditation.

However, the key next step is to promote the Scottish Living Wage outwith the public sector through procurement. The Procurement Reform Bill recently introduced into the Scottish Parliament should include a requirement that all contracting authorities stipulate payment of the Scottish Living Wage as a condition for performance of the contract. In addition, there should be a Code of Practice for the promotion of the Living Wage in procurement, giving guidance on the legal position, good practice, uprating, accreditation, s52 statutory guidance and the PPP protocol on the two tier workforce. The Scottish Living Wage Campaign and the STUC will be lobbying the Scottish Parliament on Thursday, November 7, calling for changes to public sector procurement.

For those who argue that companies can’t afford the living wage, think again. Figures from the Office for National Statistics (ONS) show that the UK’s biggest companies increased their cash reserves by £83bn between 2007 and 2012. But some employers are refusing to use this cash to offer decent wage rises that would increase demand in the economy. Instead, workers are suffering the longest wage squeeze in over a century and in-work poverty continues to grow. Ed Miliband is even proposing tax breaks for companies that pay the living wage, opening up the prospect of making it even more affordable.

Fair pay is by far the most effective way to tackle the cost of living crisis and make work pay. Scotland and the UK need a pay rise and extending the living wage is an important way to achieve it.