Quangos/NDPBs

Spent the morning at a Regen SW workshop on the Heat and Energy Saving consultation. Before we got to the main course (a presentation by the DECC civil servant responsible for the consultation), we were treated to an hors d'oeuvre from another DECC civil servant on the Community Energy Saving Programme (CESP).

For those not familiar with CESP, it is the successor to CERT (the Carbon Emission Reduction Target), which itself was the successor to EEC (the Energy-Efficiency Commitment). All of these mechanisms place obligations on energy suppliers (and now, under CESP, on generators too, as though generators have any influence on the following) to improve the theoretical energy-efficiency of a (small) defined proportion of their customers' properties, with particular emphasis on social housing. The VILE companies' main response to this obligation under the current scheme (CERT) has been to give away 120 million low-energy lightbulbs to no one in particular. This is the effect of trying to encourage people to use less of something while keeping its cost low, through supply push (rather than demand pull) intermediated by companies who have vested interests in preserving the status quo.

But CERT, we learnt today, is not dumb enough. The government set themselves the difficult task, with CESP, of devising something even dumber. It seems that under CERT, people have ignorantly been choosing the cheapest options to meet their obligations. This does not suit the Government, for whom a job is never done until it has encouraged us to do it as expensively as possible. So, under CESP, the incentive will be weighted to encourage people to implement expensive and ineffective options, and to discourage people from implementing cheap, efficient options.

The example that was given was that loft insulation, which is a relatively cheap and effective way of making homes efficient, would be credited with only half the carbon that it is assumed to save (i.e. half the contribution towards the obligation). On the other hand, air-source heat pumps, which the Government's figures (correctly) suggest don't contribute much to carbon savings relative to their cost, will be attributed three times their potential savings for the purpose of calculating their contribution to meeting the obligation.The Government hopes in this way to encourage the VILE companies to put in as many air-source heat pumps and as little loft-insulation as possible, thereby ensuring that we save as little carbon for our money as possible.

But this is not complicated enough for them. The Government has decided that it makes most sense to install multiple technologies at once, regardless of whether the same teams would install (say) insulation, a new boiler and photovoltaic panels on the roof. They wouldn't, of course, but when has the Government ever let reality stand in the way of opportunities to complicate things to perverse effect and increased cost? They have therefore devised a mechanism whereby the contribution of a simultaneous installation of multiple technologies will be assumed to be worth more than the sum of its parts. A new boiler may contribute X (nominal carbon-savings according to the warped scale described above, and accordingly to the obligation) and cavity-wall insulation may contribute Y, but putting them both in at the same time will be deemed to contribute (say) 120% of X + Y.

These rules were introduced, the civil servant explained, because the previous versions of the obligation had failed to deliver what the (all-seeing, all-knowing) government had intended, and had produced unintended consequences (such as the stocking of many people's cupboards with free lightbulbs). With this new, more complex version, they believe it will be sufficiently well micro-managed that unintended consequences will be minimized. And what sort of cynic, indeed, would suggest that there is just a hint of a possibility of perverse outcomes in such a scheme?

At the end of the presentation, the Chief Executive of Regen SW (the "sustainability" arm of the Regional Development Agency) invited questions. Not any old questions, though, such as those areas that the audience might have decided for themselves were of concern. The audience clearly were not capable of identifying the key points. So he set out the two areas that he thought might be open to question (woolly issues regarding the relationship between the "community", i.e. local authorities and voluntary bodies, and the VILE companies in the implementation of this scheme), and invited questions on those topics. Only with a couple of minutes to go before the next session did he allow people to ask their own questions.

Despite this effort at control, one of the participants managed to question what value there was in encouraging improved insulation (which is covered by the mechanism) if doors and windows (which are not covered) were not also to be improved (analogous in its effectiveness to fixing one of three leaks in a boat). The civil servant explained patiently, to what he obviously regarded as a rather ignorant question, that doors and windows were covered by Building Regulations, and would therefore be improved anyway. The questioner raised the frivolous point that a homeowner could avoid the effect of Building Regs by the cunning expedient of not applying to modify his doors and windows, but the civil servant swatted this objection away. Clearly the questioner did not understand the system. Could he not see that black was white?

Following the main presentation (also utterly irrational, but that should be taken as read by now), we went on to group discussion sessions. Employees of Regen SW kept notes of the points and presented conclusions at the end. By the time I had finished with them, I believe that my group was broadly persuaded that the British approach was back-to-front and irrational: that instead of micro-management and price-suppression, we should use rational price signals (i.e. a carbon tax) and leave the rest to the market. You wouldn't know it from the quangocrats' summaries, though. These listed dozens of abortive suggestions for how the complexity could be increased to little or negative effect.

It was a perfect snapshot of the roles and relationship of the Government's bloated bureaucracy and the supportive superstructure of the quangocracy. They exist to reinforce and protect each other's delusions.

There is clearly only one solution: sack them and scrap them.

Not for the first time, I have been scattering observations on an issue, in comments dotted around the place, rather than pulling the strands together for a piece on here. This time, the topic is the rising cost of the quangocracy. As a subject particularly close to my heart, I thought I'd pull the comments together before I forget where they are.

Dan Lewis, of the Economic Research Council (and some time of the Centre for Policy Studies), has produced an analysis of the increasing size and cost of our quangocracy. (It will be available on the ERC's site from Thursday 23rd August.) The Sunday Telegraph produced a piece on this analysis, in which the overall cost of the quangos ("nearly £170bn a year") was highlighted and compared with the budget of the Ministry of Defence (£32bn). Tim Worstall picked up on this article, and posted a brief comment arguing for the complete abolition of the quangos and the use of the savings to abolish income and corporation tax. Nothing wrong with the principle, but there is a bit of a problem with the calculations, as I commented on Tim's site (though rather too late to be helpful, as it turned out):

No one could be more opposed to quangos and determined to see most of them shut down than me. But a couple of things to bear in mind on the cost:

1. Around two-thirds of that total cost is attributable to quangos associated with one department of government - the Department of Health. Effectively, the NHS is a giant set of quangos, amongst which are the Primary Care Trusts and the NHS Trusts (which as a pair make up over £100bn of that sum).

2. Of the executive NDPBs (the busy-body, rather than funding quangos, which is what we usually have in mind when we rage against them), over half of the total cost of around £36.8bn lay within another department - the Department for Education and Skills. But the lion's share of this cost is also attributable to two quangos - The Learning and Skills Council (responsible for post-16 education and training) and the Higher Education Funding Council for England. It turns out, then, that although they calls these NDPBs "executive", most of their cost lies (like the NHS quangos) in the allocation of public funds.

This shouldn't diminish the attacks on the wastefulness of our quangocracy, but we should bear in mind that it is the sclerosis induced by bureaucracy that is their really harmful aspect. They cost and waste money, but only a fraction of that headline figure. We can probably save several billion pounds by scrapping most of them, and that's money worth saving, but we can't save anywhere near £167bn.

One of the things that America does better than us Europeans is its inclination to give (at least in business) another chance to those who at first don't succeed. Whilst bankruptcy is seen in Europe as evidence that someone is not to be trusted with money, in America it is far less of an obstacle to raising money for another venture.

But not all failures are noble. A good test of whether someone who has failed deserves another shot is their attitude to the failure. An acknowledgement of mistakes made, and an understanding of the lessons learned and how to avoid repeating them, should be viewed as a mark of strength. Conversely, blaming others for the previous failure should be viewed as a warning of intellectual and moral weakness and the likelihood of repeat offending.

This came to mind when reading an interview in the Financial Times with Professor Robert Merton, Nobel-prize-winning economist at Harvard University. Prof. Merton was a partner in the Long Term Capital Management (LTCM) hedge fund, which imploded in 1998. I am sure that Prof. Merton is a clever and honourable man, but his explanation for that failure, as reported in the FT, suggests that one should be very wary of utilising the services of the consultancies (IFL and Trinsum) in which he is now engaged (notice that he is no longer risking people's money directly, but charging to advise other people how to risk their money). Many see the collapse of LTCM as symbolising "the perils of excessive speculation", but:

"The causes of the hedge fund's collapse, though, are widely misunderstood, says Robert Merton. While some observers blamed events on the faith that the fund placed in financial models - founded on a belief in rational markets - Prof Merton says the real problem was the way that LTCM's counterparties behaved. When the fund started to suffer losses, the counterparties did not behave as proponents of finance science - or rational markets - predicted. Instead, they sold assets in a seemingly indiscriminate panic, triggering market swings more violent than anything Prof Merton expected."

This displays not only a staggering ignorance of economic history - has the bursting of a bubble ever been accompanied by anything other than "indiscriminate panic"? - but an equally staggering level of hubris. It is not the models that were at fault for failing to reflect actual behaviour, it was the people who were at fault for failing to behave as the models said they should have done. This is a man who sets altogether too much faith in models. That is a warning not to set too much faith in him.

As any psychologist can tell you, denial can manifest itself outwardly in destructive ways. I recently attended a workshop where a member of the British Government's Renewables Advisory Board (RAB) introduced himself as a serial founder of renewable-energy businesses. His explanation for why he had had to start again after his previous adventure in biomass-fired power-generation: the Government had failed to take account of the fact that his technology was more expensive than some, when it had created a competitive market in renewable electricity. Well, isn't that always the problem when businesses struggle - that the Government has failed to compensate for their lack of competitiveness?

This government really doesn't like rubbish, does it? It would rather we just didn't produce it or if we do to hang on to it. It's as though it has suddenly become a luxury, a privilege of the rich to be able to get rid of your rubbish. Well things are about to get worse. The Department for the Environment, Food and Rural Affairs (Defra), headed by David "will he won't he, probably not he hasn't got the guts" Milliband, are going to introduce laws that will mean we lose our say over when and how their rubbish is collected entirely. Presently we can at least complain directly to the council responsible if they are unhappy with the frequency or quality of collection.

Sharp as always, Wat Tyler at Burning Our Money has posted today about the Waste Resources Action Programme or WRAP (how clever - I wonder what came first, the name or the acronym... mmm, I wonder?). Now, as you will have probably guessed already WRAP is a Quango, but what makes them particularly special is they are challenging the British Potato Council for the most pointless use of public money. Indeed, the Quango that gave us National Chip Week is now being challenged by the Quango that gives us its research in to household food waste. Yes it does happen, folks - we throw away 6.7m tonnes of food every year. Incredible. What are we thinking throwing away all that perfectly good food? Well half of it is not perfectly good food, it's waste. Potato peelings, teabags, bones, that sort of thing. Why did they include old bones in this total, the overpaid bunch of clueless goons (see Wat's picture). That 6.7m tonnes statistic is probably the most pointless, meaningless stat of the year so far. And it costs us £80m a year to receive these nuggets of information. Great find Wat - if it wasn't true I'd probably be laughing even more.

Regional Agencies, aka Quangos, are costing the tax payer £360m a year to run, double the level of five years ago. The FT reports that the typical cost for each region is put at £23m for the regional development agency, £3m for the regional assembly and £14m for government offices, which act as Whitehall's representatives on issues such as education and transport. Adding in the regional cost of other state bodies, such as the Learning Skills Council and the Environment Agency, takes the annual administrative cost to £200m for each region or £1.8bn for England as a whole. £1.8bn for an extra tier of government.

Is there anything more insignificant than a local non government department? Of course - it's the nonsense these jobsworths come out with. And the Kent Highway Services are no exception! If you've ever wondered what those black and white stripes that are painted across the road that pedestrians keep walking all over, making cars stop in their tracks are*, just consult the leaflet by Kent Highway Services explaining how light traffic works. It gives the reader knowledge nuggets such as inside information on why the grass is cut by the side of the road. This has costs £15,600 to the taxpayer. Have the Department for Transport and the Highway's Agency really got so much money that it feels that it can waste it on this sort of distribution of pointless information?