US government shutdown and the private health lobby

The US government shutdown should remind us of the power of the US private health care lobby and why we don't want it here.

 

I was listening to an American political analyst on the radio this morning commenting on the US Government shutdown. This astonishing mess is caused by the Republicans wanting to shut down Obama's modest health care reforms, before they even start. He starkly described the USA political system as being as dysfunctional as Italy. 

That may well be true, but for me it demonstrated something else about the US political system - the lobby power of the private health care lobby. A few years ago we sponsored a showing of Michael Moore's film 'Sicko' at the Glasgow Film Theatre, followed by a debate on healthcare. We had politicians from all the political parties on the panel, but they all agreed on one thing - thank god for the NHS!

This film shows just how powerful the lobby is in protecting their massive profits that results in the most expensive health care system in the world. Billions spent on administration rather than care - a system that excludes millions from health care and bankrupts even more. Health bills are the major cause of bankruptcy in the USA. My favourite clip is Moore taking public service workers, including firefighters who survived 9/11, to Cuba to get free health care that they couldn't get at home.

So why does this matter in the UK. Well in England the NHS is moving rapidly in the same direction. Under the guise of competition, the English NHS is allowing the very same health care corporations to get a very big foot in the door. Once there, they will defend their profits in same way as they do in America. The Tories will be bought and paid for, just as the Republicans are in the USA. 

In Scotland, we should be very grateful for devolution and the political consensus on the NHS. We resisted the New Labour reforms  and scrapped the Tory trust model that placed marketing managers before nurses. The political consensus has largely held, to the level that commercialisation is actually unlawful in some circumstances. Private contractors have largely been banished and services brought back in house, reuniting the health care team. Only the CBI is left arguing for privatisation, an issue I was sparring with them over at the Health Committee last week. Even they are largely going through the motions at the behest of English member companies. The only significant blemish is the PPP hospitals and community facilities that waste scarce £millions every year. Sadly, they are likely to do so for years to come as the SNP introduce new PPP schemes through the hub Initiative and so called NPD model.

Of course we are not entirely exempt from the consequences of Tory NHS privatisation in England. The aim is to cut spending and that has a knock on effect on Scottish budget allocations. That's why Scots joined their colleagues in Manchester on Sunday in the largest demonstration Manchester police had seen for a generation.

So when we look in astonishment as the richest country on the planet closes down its government. Remember that the cause is private health care corporations and their lobbying muscle. Then vow to redouble our efforts to campaign against it happening here.

Red Ed and keeping the lights on

If Ed Miliband achieved anything this week, it's putting energy back on the political map.

His plan to freeze gas and electricity prices for 20 months has brought a storm of protest from the right wing press and the energy companies. This is what he actually said:

"If we win the election 2015 the next Labour government will freeze gas and electricity prices until the start of 2017. Your bills will not rise. It will benefit millions of families and millions of businesses. That’s what I mean by a government that fights for you. That’s what I mean when I say Britain can do better than this. Now the companies aren’t going to like this because it will cost them more but they have been overcharging people for too long because of a market that doesn’t work. It’s time to reset the market. So we will pass legislation in our first year in office to do that, and have a regulator that will genuinely be on the customers’ side but also enable the investment we need. That’s how Britain will do better than this."

We are told this is unaffordable, will halt investment and result in California type blackouts. Really? If so Scottish homes are in immediate danger of power cuts. ScottishPower is currently offering a deal that will fix your energy price until when? Yes, you guessed it 2017!

Even the Daily Telegraph has been promoting fixed energy deals to 2017 and beyond through its commercial partners. So energy price caps are a great idea until Ed Miliband proposes it, in which case it’s dangerous socialist nonsense! Just imagine the Torygraph's outrage if trade unions threatened blackouts because we disagreed with government policy. Now you mention it......

The emergency price freeze, the party claims, will save the average household £120 and businesses £1,800, and cost the big six energy companies £4.5 billion over the duration of the measure. This is legitimate payback for years of profiteering.

The price we are paying to heat our homes is increasingly unrelated to the cost of that energy on the wholesale markets. In 2009 wholesale energy prices fell by 46%, yet during the same period energy bills dropped by just 5%. Profits of the Big 6 energy companies have risen by 74% since 2009, while prices have risen by 13%. Consumer groups and the Commons select committee have all pointed to the lack of transparency in energy prices.

The one valid point SSE made in their reaction was, “The Labour Party should put policy costs into general taxation, taking them off energy bills. This would wipe £110 off the average person’s bill and shift the cost away from those who can’t afford to pay and on to those who can". 

Putting the cost of energy policy onto domestic bills is a regressive form of taxation.

The lights won't go off because the other big commitment in Ed's speech was a million green jobs created through the shift to a low carbon economy. As the TUC's Philip Pearson explains, the Energy Bill will be in force in 2015 and that sets out all the pre-conditions developers need to deliver the necessary generating capacity. Labour's planned Energy Security Board is also aimed at addressing this issue.

The power companies should be careful what they wish for. The public are much more red than Ed on this issue, with 69% supporting the renationalisation of the energy industry. That is a measure of just how far the companies have lost public trust. It will be interesting to see if, as Left Foot Forward put it, "David Cameron will really risk siding with rip off energy firms this winter?"

Of course the public are right, or indeed left, on this one. The weakness in Labour's plans are that they still rely on the 'kid on' energy market. You simply can't create a real market in this type of utility. You either bring it into public ownership or strictly regulate prices. My energy chapter in the 'Red Paper on Scotland 2014' explains how and why in more detail.

Ed's plan has to be seen as part of a wider strategy to focus on living standards in the run up to the election. A freeze on energy prices is actually a fairly modest step. If the energy companies don't like it - they can step aside and we can have a planned energy policy at a sensible price.

Will care integration Bill make a difference?

I was giving evidence at the Scottish Parliament's Health Committee today on the Public Bodies (Joint Working) Bill that aims to improve health and care integration. I covered three broad areas of the Bill.

Firstly, the governance arrangements in the corporate body option are confused, particularly for staffing issues. As staff won't, in the main, be employed by the new organisations, it is unclear how major staffing decisions will be addressed. There are statutory and non-statutory procedures that need to be accommodated. This reminds me of the similar shambles in the recent Police Bill!

Ministers have many powers of direction in the Bill and there is a legitimate concern that these will be used to impose a top down model of care integration. All the international studies show that this won't work.

Secondly, the financial provisions are inadequate for the scale of the challenge ahead. The big goal of integration is to release cash from avoidable admissions to hospital, estimated at £1.5bn. I have always been sceptical about this figure, but now that health boards are demanding extra beds to cope with demand, supported by the Health Secretary, it is difficult to see where the extra funding is coming from.

The key issue is how we fund social care. It is a national disgrace at present with a race to the bottom in quality and quantity. The service is increasingly being delivered by staff, barely above the minimum wage, on zero or nominal hour contracts. As one care worker put it to me recently, the shocking 15 minute visit is becoming the best that elderly people can expect.

Thirdly, the Bill largely ignores staffing issues, a point I have covered in previous posts. Care is delivered by people not robots, but reading the Bill you wouldn't recognise that fact. There appears to be more concern about who sits on boards than the quality of care.

The Committee Convenor reasonably posed the question, will this Bill make any difference? Sadly, I remain sceptical that it will. The success of care integration requires local design and a number of people actions, none of which are addressed in the Bill so far.

Pensions in an independent Scotland

The Scottish Government has published a paper ‘Pensions in an Independent Scotland’. Its main aim is to reassure voters that their pensions will continue to be honoured in an independent Scotland with continuity of systems and regulation.

State Pension
The eye catching headline “Scottish independence: People in Scotland could get pensions earlier” is not quite what the paper says. The actual commitment is, “we would also reserve judgement on the increase to 67 between 2026 and 2028”. This means that the increase from 65 to 66 will be implemented and they will ‘reserve judgement’ on the next step.

They are also proposing, “An Independent Commission on the State Pension Age would be established and tasked with considering the appropriate rate of increase of the State Pension Age (SPA) for Scotland over the long term.”

The retirement age has come under attack variously as a ‘gimmick’ and ‘unaffordable’. It may well be a gimmick as the actual commitment is a pretty modest review, but it is not necessarily unaffordable. The main factor in costing any pension scheme is life expectancy and this is significantly shorter in Scotland. In the occupational schemes I have negotiated this typically delivers a significant saving. However, that is also balanced by the concomitant higher death in service and higher number of ill health retirements in Scotland. This doesn’t immediately impact on state pension payments in an independent Scotland, but it will impact on higher benefits and NHS spending and that is ignored in the paper.

We should also not forget that the real disgrace in Scotland is the huge disparities in life expectancy – nearly 30 years difference between the poorest and most affluent communities. Life expectancy is linked almost entirely to income and many men and women in our poorest communities will not live to collect a pension.

Occupational Pensions
The paper also promises that, “Occupational and personal pension rights and accrued benefits would not be affected by Scotland becoming independent. An individual’s occupational or personal pension will already set out the retirement benefits which will be granted under the particular scheme and under which conditions.”

They will also continue with automatic enrolment and establish a Scottish equivalent of the National Employment Savings Trust (NEST) providing a workplace pension scheme focused on people with low to moderate earnings, which would accept any employer wishing to use it. Somewhat unimaginatively, there are no proposals to address the problems highlighted by the OFT last week, including huge management fees charged by funds. Other small countries, like Holland, do much better and this looks like a missed opportunity to offer a better pensions system in an independent Scotland.

I was making the point on the BBC this morning that the state pension does not provide an adequate income in retirement and we should put as big a focus on occupational pensions. People are working longer, largely because they have to, and this is impacting on the high levels of youth unemployment in Scotland.

Pensions protection will also remain unchanged with the commitment that, “The Scottish Government will ensure that arrangements for an effective compensation scheme are established, mirroring the level of protection provided in the UK Financial Services Compensation Scheme.”

A number of commentators have highlighted the problem with the EU IORP Directive that requires cross border pension schemes to be fully funded. The Scottish Government’s solution is to negotiate transitional arrangements for cross border schemes. Obviously this may just be wishful thinking, but in practice many schemes are large enough to split and that gets around the Directive as well. More disappointing, is that the paper gives no commitment to fully implementing the Directive in relation to local government funds. As we have highlighted, these funds should be separated from day to day council funds and could be better used to support the Scottish economy.

In 2016, the UK Government is planning to penalise employees who make sensible provision for their retirement in a contracted out pension scheme, by hitting them with a 1.4% increase in NI contributions. Employers will pay an additional 3.4%. The paper confirms that the UK Government estimates that the revenue raised through ending contracting-out for DB schemes will amount to around £6.1 billion in Great Britain in 2016. This is estimated to amount to around £520 million in Scotland in 2016. Of this around £320 million is estimated to be from public sector employers, £130 million from public sector employees and £80 million from private sector employees. Sadly, instead of returning this to workers and employers, the Scottish Government proposes pocketing this cash to their Treasury, in the same way as George Osborne plans.

The paper recognises the big changes in public service pension schemes that are currently being rolled out. The Scottish Government has meekly implemented the UK Government proposals and is not proposing to reverse any changes. The commitment is that, “In an independent Scotland, all public service pension rights and entitlements which have been accrued for fully or executively devolved schemes would continue to be fully protected and accessible. There would be no difference to individual contribution rates or benefit levels as a result of independence.”

The current level of spending is set out in the paper including this table.

However, this overstates costs as it does not include the impact of current changes. I would also have expected some actuarial calculations on projected costs and the paper is weak in this regard.

The paper does recognise that the, “average funding level of the LGPS scheme in Scotland (the biggest fund) has been significantly better than that of the scheme in England and Wales and is currently around 10% (or £2.5billion) better funded than the scheme overall in England and Wales. This would suggest that the LGPS in Scotland is significantly more sustainable than its counterpart scheme in England and Wales.”

Conclusion
Overall, this is a useful paper that describes pension arrangements in Scotland well. The headline on pension age is actually something of a distraction. It seeks to present a ‘steady as she goes’ picture of pensions in an independent Scotland in line with the general ‘Yes’ campaign strategy of reassurance. It therefore lacks imagination and doesn’t address many of the faults in the current system, some of which could be addressed using current or extended devolved powers as well as through independence.

Scottish budget and the economy

I was giving evidence to the Scottish Parliament's Economy Committee this morning on the draft budget.

When it comes to the economy we have to be realistic about what Scottish budget can achieve. Government can support and mitigate but there are limitations. However, we can take action in Scotland with existing powers, while arguing for more.

My key point was that our profoundly unequal society is at the root of Scotland's economic ills with the richest people 273 times wealthier than poorest. More than 40% of those below poverty are line in work and welfare cuts making matters worse. The big structural economic issue is the shift from wages to profits and income growth for the super rich.

Austerity economics has resulted in longest and deepest recession for several generations. The recovery is taking too long and even IMF have said recently that the, "case for rapid deficit reduction in the wake of a crisis is increasingly difficult to support". The nascent economic recovery is still stuck at pre-recession levels and will stay there unless there is an increase in real wages rather than relying on private borrowing and a cut in personal savings. Employment is also stuck at pre-recession levels. The public sector in Scotland is down 52,000 jobs or 8.6% since its peak, while the private sector is down 5,000 or 0.3%. Self evidently the private sector has not plugged the gap.

The Scottish Government can support job creation through public spending and boost the spending power of the lowest paid through the Scottish Living Wage. This has a direct impact on the local economy. This is the time to borrow for investment while money is cheap, but we also need action on taxation and tax dodging. We are also not doing enough to rebalance the economy from financing to productive industries. This requires greater investment in workforce skills. A topical issue today in the oil industry, but it has a wider impact.

Some members of the committee were particularly exercised about the shift in funding from revenue to capital. No one disputes that capital investment is important, but there are risks if it is at the expense of revenue. There are significant leakages from capital spending, even allowing for the economic multiplier. You only have to see the disgraceful race to the bottom in the care sector, to understanding the damage revenue cuts can do. This week's IFS report also highlighted that Scotland's capital spending is 48% higher than the rest of the UK, while revenue is only 12.5% higher.

Scotland Performs also needs a much wider range of indicators and it would help if it was kept up to date. Oxfam and the Carnegie Trust have shown how this could be done better. GDP is not the only measure.

Any discussion about the budget inevitably gets us into robbing Peter to pay Paul. There are areas of spending including the regressive Council Tax freeze and ineffective small business bonus scheme that could be redirected. Public sector pay cuts, college regionalisation, local govt funding cuts and the dead end of regulatory reform are other areas of the budget that are doing little for the economy. Government MSPs are always keen to highlight wasteful PPP spending and there is even a separate annex to the budget that notably covers the last government's PPP schemes, but ignores the SNP PPP schemes!

There was an understandable focus on fuel poverty and I explained the key elements, most of which are outside the control of the Scottish budget. But we could do more on energy efficiency with great economic spin offs. On broader energy policy the recent Audit Scotland report is a frank appraisal of progress towards the challenging targets. Spending is not at anticipated levels largely due to uncertainty over the UK energy market reforms.

Finally, we need to take a different approach to the budget, breaking away from the silo culture. The debate about ring fencing the health budget would be very different if the focus was on tackling health inequalities. You could say the same about climate change, food strategy and others. Most of the big challenges require cross cutting solutions, so why not think about the budget in the same way.

Let's not join Osborne's dash for fracking

Scotland should be wary of joining the Chancellor’s new ‘dash for gas’ through fracking. It is unlikely to lower energy prices, has environmental risks and diverts attention from the medium term need to develop renewable energy.

UK Energy Secretary, Ed Davey, has opened a new defence of fracking for shale gas by arguing that it could be ‘environmentally friendly’ if done properly. While “no silver bullet”, exploiting the UK’s reserves would be a good way of ‘weaning’ the nation off coal. He said:

“UK shale gas can be developed sensibly and safely, protecting the local environment, with the right regulation. And we can meet our wider climate change targets at the same time, with the right policies in place. Gas, as the cleanest fossil fuel, is part of the answer to climate change, as a bridge in our transition to a green future, especially in our move away from coal.”

However, his Lib Dem colleagues gathering in Glasgow, appear at odds with that line in a policy paper. This says they take a "very different approach to that advocated by the chancellor, which would increase the UK's reliance on gas, and particularly on unconventional sources, ie shale gas". They add: “There is no realistic prospect of a 'shale gas revolution in the UK."

Whatever the environmental concerns a key issue is the impact on energy prices. The chair of the UK Fuel Poverty Advisory Group, Derek Lickorish argues, “Ministers have a duty to promote the extraction of shale gas because it has the potential to drive down the cost of energy”.

However, the TUC’s Philip Pearson has highlighted the Deutsche Bank special report that says: “we do not expect the impact of shale-gas production on EU gas prices to be anywhere near as great as has been the case with US shale-gas production.”

Lets also not forget the politics. Osborne undoubtedly sees shale gas as his equivalent to Thatcher’s squandering of North Sea oil and gas. The huge failings of his economic policies can be massaged with this new resource. However, he has a couple of problems. As Rafael Behr points out in the New Statesman, shale gas in the Home Counties is not popular with the aging, nimby Tory party membership. Such grubby industries are usually reserved for the 'desolate' North, as a Tory minister said in an unguarded moment. In addition, Britain will miss even its current modest climate change targets. Our children are to be sacrificed for his re-election.

So what about Scotland? Earlier this year PricewaterhouseCoopers forecast that Scotland was in prime position to exploit up to £5 billion of natural gas reserves using fracking. The Tories in Scotland have argued that with our advanced oil and gas industry, “The prospect of expanding that industry into other parts of Scotland should be seen as the opportunity of a lifetime.”

In response, FoE Director Dr Richard Dixon said: “Scotland is so well placed with renewables it would be a terrible mistake to put political will and investment into shale gas when we should be concentrating on renewables. These claims that it will be clean, cheap and plentiful are all wrong.”

An added complication is that Dart Energy, whose plans to extract methane gas in Scotland have been brought to a standstill amid public opposition, has temporarily ceased trading on the stock exchange as it seeks more money from investors. Production at its core project at Airth, near Falkirk looks like being pushed back by around a year.

On balance, my own view is that Scotland should not join the Chancellor’s headlong rush into developing unconventional gas resources, including the use of fracking, because:

• there are still many uncertainties over the scale of viable reserves in Scotland and the UK as a whole;
• it seems unlikely that unconventional gas resources will have a significant impact on energy prices. UK costs are almost double those in the USA;
• the environmental consequences remain uncertain and a strict regulatory framework needs to be developed;
• further fossil fuel developments will do little to help Scotland meet our challenging emission targets;
• it could divert investment and research from renewable generation that is Scotland’s best long term prospect for sustainable energy; and
• public opinion is understandably hostile and local opinion should be respected at potential sites.

At best it might provide a partial alternative to insecure overseas supplies, but it isn’t a panacea and more work needs to be undertaken before such reserves are developed in Scotland.

Cross posted at Utilities Scotland

Councils lose out again in draft budget

The Scottish Government’s recently published draft budget states “Local government is a critical partner in leading the transformation of public services and enabling the innovation, co-production and partnership-working that is needed to radically improve wellbeing and outcomes for people and communities across Scotland.”

Fine words, but is the Scottish Government putting its money where its mouth is?

Tucked away in an annex to the budget document is a comparison of budget allocations by portfolio since the SNP’s first full budget in 2008-9. I have extracted the main portfolios and displayed them below as a chart and a table.

What they show is that local government is the only major portfolio to show an overall reduction in spending. The cynic might say, in difficult times push the difficult decisions as far away from ministers as possible – the ‘not me guv’ school of spin.

Even these tables mask real cuts in funding. The apparent increase in funding over the next two years comes largely from increased revenue from Non-Domestic Rates. The General Resource Grant to councils is being cut from £7.189m this year to £6.971m next year and £6.809m the year after. In real terms the cut is even larger - £6.841m and £6.564m.

In addition, a significant amount of spending is either ring fenced or has to be bid for like the Council Tax freeze, small business bonus, teacher numbers, police numbers (until totally centralised), change funds etc. Ministers get to make the ‘good news’ announcements, while councils announce the pain.

No one disputes that the Scottish Government has to manage a difficult budget imposed by Westminster. But within that budget there are choices to be made and councils are clearly the losers.