Plunder: the scandal of private equity

A little over two years ago, I wrote a short piece on this blog about the dangerously precarious funding of residential care.  At the time, I didn’t realise how pervasive the financial model had become.  I’ve recently read an account from the USA by Brendan Ballou, called Plunder (PublicAffairs, New York, 2023), which discusses just these problems.  (Full disclosure – I was given a signed copy of the book, by way of the author’s sister. )  Private equity firms have developed a business model which battens on to, and ultimately destroys, profitable businesses – and, when they get the opportunity, privatised public services.  Examples in the UK include not just residential care, but the water companies, rail franchises, energy and health care.

The methods adopted by these companies include

  • Leveraged purchases: firms and assets are acquired by borrowed money, and it becomes the responsibility of the firm that has been taken over to repay the debt.
  • Further debt. Beyond the cost of purchase, firms are then put into further debt in order to increase the rate of return to the controlling financiers.
  • Leaseback.  The assets of firms are transferred to other companies and the firms are then required to pay rent in order to use the facilities they used to own.
  • Fee structures.  Firms are required to pay further liabilities for services provider by their purhaser, typically including fees for transactions, management, consultancy, ICT and payroll management
  • Tax avoidance.  The returns from this milking machine are diverted through tax havens. If they are submitted to taxation, it is done through the most advantageous tax regime, such as the limited taxes on capital gains rather than taxes on income.
  • Pension funds.  Some firms have raided their pension funds directly – it is a common element in bankruptcy proceedings – but it is also done by directing the  investments made by pension funds towards support for the firm.
  • Nested firms.  It has become common for firms to be owned by other firms.  These structures are opaque.  The effect of separating out each function within a business is to make it possible to cook the books, so that profits disappear through cross-charging.
  • Limited liability.  Many firms which have been drained through these procedures go bankrupt.  The construction of laws relating to bankruptcy and limited liability  mean that those responsible can avoid all liability to meet their debts or obligations.  make it legally possible for subordinate businesses to become bankrupt without leaving any liability to the parent firm.
  • Aggressive – and effective – lobbying.  Ballou makes the point that these firms have bought extensive influence without incurring the duties of transparency and reporting that public firms have to meet.

Most of the options that Ballou considers for reining this in are geared to the pecularities of the American legal system, such as anti-trust legislation; I think they have a very limited potential in the UK.   It seems to me that  we need to consider a number of changes in the law:

  • preventing beneficial owners from claiming limited liability for default.  If the subordinate firm goes bankrupt, the beneficial owner should either be fully liable or themselves go bankrupt.
  • taxing firms on turnover rather than profit.
  • equalising capital gains tax with the rates of income tax.
  • treating pension funds not as a liability, but as something in the unqualified ownership of the beneficiaries.  If you leave your shoes for repair and the repairer goes bankrupt, the repairer is a bailee, and you can get your shoes back. Beneficiaries have to be treated not as creditors but as owners, and the firm as a bailee of those beneficiaries.

I know this falls some way short of dealing with a major, endemic problem, one which has come to threaten not just the public services but, by Ballou’s account, the whole structure of the market economy.  I’d be grateful for further suggestions – I’d be happy to revise this blog, or to return to the subject with better ideas.

Universal Credit: the gift that keeps on taking away

I’ve been ploughing through a long, complex but very worthwhile report from CPAG, which examines the effect of the digital administration of Universal Credit  on the way that people experience the system.  It focuses on the scheme’s serious deficiencies in transparency, procedural fairness and lawfulness.

First, there are the problems relating to claims.  Thje system absolutely insists that people fill it in perfectly and in line with the expectations of administrators.  It can’t cope with incomplete information, such as people not having a bank account, and doesn’t have the options the process needs for people to get round the blocks.  Standard additions, exemptions and exceptions aren’t considered.  The system can’t manage backdating or claims made in advance (for example, for someone leaving care).

Second, there is the problem of decisions. The DWP has sailed ahead regardless of the notices it is supposed to give or the need to fix problems that come from clearly incorrect assessments.  The absurd pretensions of tracking income in ‘real time’ are still subject to wildly inconsistent arbitrary calculations based on calendar dates – the courts have repeatedly taken the DWP to task about this.  There are widespread problems  of claims being closed without due consideration, obstructing further action or the ability to revive and correct the details.

Third, there are the issues of communication: incomprehensible calculations, failure to inform people of their entitlements, and frequent failure to give the information required by law.

Fourth, there is the management of disputes.  The process for “mandatory reconsideration”, itself a deliberate obstacle to access to justice, is protected by stonewalling, where DWP officials refuse to register requests or let claimants ask for redress.

It seems all too clear that, nearly thirteen years after the scheme was adopted, the many deficiencies of the computer programme have still not been sorted, and the benefit continues to fail in many major respects.

 

 

This is not the way to develop social care

I was listening this morning to a thoroughly depressing discussion on social care.  A major part of the way the issue has been framed is, apparently, to encourage migration so that migrants can fill the roles that need to be provided.  The other was to point to the supposedly five and a half million people receiving ‘out of work’ benefits, a figure that includes, as far as I can tell, four million people who are either too sick to work, in work on low pay or who already have caring responsibilities, and demand that they provide social care on a minimum wage.  The underlying message seems to be that care is unskilled, and anyone can do it.

If we look at the way that social care is being provided, the picture is very mixed.  The delivery of services has been shaped to match the criteria of commercial markets: individuated services, priced distinctly by activity.  So we get tick-box lists of what needs to be done, masquerading as an assessment: dressing people, cutting their fingernails, brushing their teeth and so on.  Some of the activities are paid for, and counted as nursing care; others are based on reported needs  that, in their nature, are typically out of date.  I’ve argued, in How to Fix the Welfare State, for a different (and admittedly rather more expensive) approach: providing teams of professionals who are paid for blocks of time, rather than specifically costed activities, who within that time can identify and negotiate services with the people who receive them.  To do that, social care needs a professional structure – including training and qualification – and a pay structure that is commensurate with the skills that are required.  We have a long way to go before we get there.

In praise of the triple lock

The ‘triple lock’ is the name given to a commitment to maintain and improve the value of state pensions.  The table comes from a recent report by the Institute for Fiscal Studies.

Table 1. Triple lock indexation since its introduction

In the course of the last twelve years, this has meant that pensions have increased by a nominal 60%, while if they had only increased by inflation, they would be up 42%. Putting that  another way, pensions have risen by 12.7% over inflation (that is, 160/142), which in real terms is 1% a year.

One might suppose that ratcheting pensions up, however slowly, was a praiseworthy thing to do, but the principle has come under fire from those who claim that it represents an unsustainable commitment. The criticism has been fed by the IFS report, which argues that it creates ‘uncertainty’ about the future value of state pensions, and that if it is left in place till 2050, it will increase the value of the state Pension from about 25% of median earnings to something between 26% and 32%.

The first of these arguments is, frankly, codswallop.  The benefits  system is in a parlous state: the main ‘uncertainty’ it is creating is whether or not people will be able to eat.  Improving the value of the pension does not increase uncertainty; it reduces it.   If we are genuinely concerned about the narrower problem of how people plan their pensions for the future, the main ‘uncertainties’ come from the govenment’s eccentric reliance on means-testing and the desperate problem of paying for social care.

The second argument invites the obvious retort – so what?  A modest increase in the value of pensions, relative to the median wage, is surely a good thing.  The UK’s treatment of pensioners is, by international statndards, parsimonious.  Consider this graph from the OECD.  It puts the percentage of GDP spent on pensions in the UK at 5.1%.  The Office for Budget Responsibility, which works on a slightly different set of definitions and takes into account a few extra benefits,  estimates that this year, the percentage will be – try not to be too shocked – 5.3%.

https://data.oecd.org/socialexp/pension-spending.htm

The  State Pension provides, at best, a modest basic income.  The (somewhat limited) success of the triple lock is something to applaud, not to denigrate.  One might wish that the the same approach could be taken for the painfully inadequate benefits offered to people of working age.

A Human Rights Bill for Scotland: submission to a consultation

The Scottish government is consulting about the introduction of a Scottish bill to incorporate human rights law into Scottish legislation.  The exercise is somewhat limited by the terms of the devolution settlement, which largely reserves ‘equal opportunities’ to Westminster – it’s in schedule 5 of the Scotland Act 1998 , but there are other things that the Scottish Parliament could do.

I’ve responded to some of the questions, and I am duplicating my response in the passages that follow.

1 What are your views on our proposal to allow for dignity to be considered by courts in interpreting the rights in the Bill?

‘Dignity’ is subject to interpretation. Nordenfeldt, in an article on “The varieties of dignity” (Health Care Analysis, 12(2) 2004), identifies four different meanings: dignity as merit, as moral stature, as identity, and as human worth. Only the fourth of these is universal. The former Chief Rabbi, Jonathan Sachs, claimed a fifth: the ‘Dignity of Difference’, arguing for a view of dignity that was both collective and cultural.

The incorporation of the principle of ‘dignity’ is unlikely to have the legal effect that the Scottish Government desires. A recent judgment in the European Court of Human Rights upheld the right of a Roma woman to beg, on the basis that the right to beg was an expression of her dignity (ECHR 2021, Lacatas v Switzerland, 14065/15) – but the right to have enough resources not to beg was not protected.

3 What are your views on the types of international law, materials and mechanisms to be included within the proposed interpretative provision?

The Human Rights protected by international law are intended to establish a universal minimum. Equalities, social protection, economic rights, social rights, public sector duties and access to justice are not really part of that. They are, rather, rights of citizenship, going well beyond the limited aspirations of human rights.

Laws that focus specifically on Human Rights have had at most a limited effect on the operation of the law in the UK. According to solicitors Mishcon de Reya (Submission to IHRAR’s Call for Evidence, 2021), Human Rights were cited in 538 legal cases from 2000 to 2021: the courts made a Declaration of Incompatibility in only 39 of those cases, and 8 of those were overturned on appeal. (The main impacts in those very few cases have related to immigration and mental health issues.) The Scottish Government cannot rely on the incorporation of Human Rights law to address the broad range of problems identified in this consultation.

5 Are there any rights in the equality treaties which you think should be treated differently?

The Scottish Government is legally limited in what it can do for protected groups, because that would be liable to violate the reservations of the Scotland Act, but it can pursue equality more meaningfully by other routes. The Child Poverty Strategy is an example.

12 Given that the Human Rights Act 1998 is protected from modification under the Scotland Act 1998, how do you think we can best signal that the Human Rights Act (and civil and political rights) form a core pillar of human rights law in Scotland?

The Human Rights Act 1998 only committed governments and their successors to uphold the minimum standards established in international law. This is a floor, not a pillar.

15 How do you think we should define the groups to be protected by the equality provision?

The protected characteristics identified in the Equality Act 2010 leave gaps and ambiguities. The many gaps include, for example, national origin, locality, social class, accent, inequalities of birth, fortune and discrimination through favoritism. The Scottish Government may not have the competence to amend the Equality Act, but it can at least take action on these issues as they relate to the conduct of public policy in Scotland.

16 Do you agree or disagree that the use of ‘other status’ in the equality provision would sufficiently protect the rights of LGBTI and older people?

Disagree. Age, sexual orientation and gender reassignment are already protected in the Equality Act. It is difficult to see what difference further legal incorporation will make.

19 What is your view on who the duties in the Bill should apply to?

I support the principle that duties should apply to any body carrying out devolved public functions.

33 What are your views on our proposed approach to ‘standing’ under the Human Rights Bill?

The extension of ‘standing’ to permit persons with a ‘sufficient interest’ to initiate legal action is welcome. However, it still falls some way short of what is needed to protect economic, social and cultural rights.

In the USA, legal action takes two other forms not currently permissible in either England or Scotland:

● the use of class actions, extending beyond group litigation to people who are affected but not participants; and
● the presentation of a Brandeis brief, a rule of evidence which has been available in the USA for more than a century. The brief makes it possible for courts to consider non-legal submissions from social scientists, reviewing evidence of the overall economic or social impact of a case. Evidence in this form can be taken from amici curiae, persons or bodies not otherwise party to the action.

In so far as these are rules about due process in a court of law, introducing these measures would fall wholly within the competence of Scottish law-makers.

36. If you do not agree that existing judicial remedies are sufficient in delivering effective remedy for rightsholders, what additional remedies would help to do this?

There need to be routes permitting rapid, authoritative, low-cost access to legal redress. As things stand currently, judicial review of administrative action can only be granted when other measures have been explored and failed. This creates barriers to justice, and the process is simply too slow to protect people with limited resources. There have been rapid, urgent actions taken on behalf of some people, such as migrants facing illegal deportation, but there is no obvious equivalent route for people who have been left without money for food this week. For most, there is no effective way of  getting legal redress before the penalty, and the problems, have been suffered.

40 What are your views on our proposals for a Human Rights Scheme?

Impact assessments can act as a useful guide to administrative action, but in practice (for example, in relation to gender or the environment) there has been a tendency for some bodies to claim that there is nothing to consider when they have simply failed to see the implications. Assessments need to be reported, collated and subject to scrutiny in order to be effective in guiding practice.

 

For those who want to add their views, the full consultation, which closes on the 5th October, is available here.

 

 

 

 

Coping with inequalities in wealth

There has been some interest recently in wealth inequalities, for example in work by the Fairness Foundation.  Much of this focuses on the wealth of the very rich.  In recent correspondence, I’ve been struck by the extent to which others considering the issue have focused, not so much on the implications of inequalities in wealth, but on fair taxation and inequalities of income – problems relating to benefits and low wages.  I’m sceptical that either focus can address wealth inequalities in a meaningful way.

Any conceivable redistribution of income will not (by definition) touch the established holdings of people who hold assets as wealth – typically in the form of real property or financial products.  There may have been an argument in the 1950s and 60s for heavy taxation of income (the flow) to prevent the accumulation of wealth (the stock), but the genie is out of the bottle; the wealth has been already been accumulated. Income taxation now can slow further accumulation, but that does not begin to address the issue.

That may seem to some to constitute an argument for wealth taxes, such as property taxes, inheritance tax or taxes on capital transfer.  That makes sense in terms of fairness – subjecting wealthy to the same criteria as others – but it can only ever have a limited effect on the distribution of assets, because they are based on a proportion of wealth at best.

What we need to do, instead, is to reconsider how the problems created by unequal wealth might be addressed.  Wealth inequalities may have seemed harmless to Tony Blair, who said he was “intensely relaxed about people getting filthy rich”, but they have implications for people who don’t share in that wealth.  In particular, they create obstacles to access to land, housing and, to the extent that people have become rich by using their assets to extract money from people who aren’t rich, they make for problems relating to rent, poverty and debt.

I think there are two main directions to go in.  The first is to consider the problems, not of the rich few, but of the many poor – in these terms, those who do not have assets. More income will help deal with issues of poverty, debt and manutrition; and regulations to cover those circumstances, such as protection related to financial services or limiting the interest that any  creditor can receive,  would have direct benefits.  However, in important fields of life – especially rent and residential care  – the main beneficiaries of greater income support will be those who hold the assets on which those services are based.  Supporting income is not enough.

The second direction is to establish a base of assets that will be available to people regardless of their financial circumstances.When the National Health Service was introduced, it had a major effect on the resources available to the poor – an effect that is largely concealed by the way we choose to keep public accounts.  Part of this can be seen as an implicit income: everyone in Britain has, whether they use the service or not, a financial gain equivalent to the value of health insurance. Part, however, is the equivalent of a savings fund: the protection of assets that in other circumstances would be exhausted.  When people have access to social housing, libraries, museums and parks they have gained command over resources – if not quite as good as ownership, something pretty close.   And when those resources are withdrawn from people, they feel the loss.

A wide range of basic services could be treated in this way.  They include, for example, funeral plots, free transport, legal aid, university education, wi-fi, child care, basic banking services and mailboxes.  Provided publicly, these things allow people to act as if they had the assets themselves.  That would have a much great effect than any focus on the assets of billionaires.

Citizenship in an independent Scotland

The Scottish Government is keen to represent Scotland as an open, inclusive society.  It says so twelve times in a position paper, published as part of a series on Building a New Scotland.  It could be questioned whether this document has any status at all, because constitutional matters fall wholly outside the legal powers of the Scottish Government, but it’s nevertheless interesting to see what the SG makes of a basic question: in an independent Scotland, who would be its citizens?  On one hand, we have a document that is intended to be accessible and welcoming to people from a wide range of nationalities.  On the other, there are clearly defined rules which would exclude those people from citizenship.

First, the rules. The document explains on page 1:

Under the Scottish Government’s plans, you would automatically be entitled to Scottish citizenship on the day Scotland becomes independent if you are already a British citizen and you:
• live in Scotland (described in law as ‘habitually resident’)
• were born in Scotland
• have a parent who was a British citizen born in Scotland, or
• previously lived in Scotland for at least ten years, or five years as a child, with a pro rata calculation for young adults.

Note the critical point: this only applies if you are already a British citizen.  The point is expanded on page 24:

The interim constitution would establish that the following groups would be entitled to Scottish citizenship at the point of independence:
• British citizens habitually resident in Scotland
• British citizens born in Scotland but living elsewhere
• British citizens living elsewhere but with a parent who was a British citizen born in Scotland
• British citizens living elsewhere who previously lived in Scotland for at least ten years, or five years as a child, with a pro rata calculation for young adults.
This is an open and inclusive offer of citizenship to all people who live in, were born in or have a close and enduring connection to Scotland and are British citizens at the point of independence.

I think we have different ideas of what an open and inclusive policy looks like. This directly excludes a large number of lawful, long-term residents.

Perhaps, you might think, they don’t really mean that only British citizens can expect to be Scottish as of right.  The document makes great play of Scotland’s present willingness to extend rights to outsiders:

Scotland already has an inclusive approach to civic participation and social protection. …  Most rights, entitlements and obligations in Scotland are based on residence rather than citizenship. For example … In Scotland, any lawful resident with leave to remain under the current UK immigration system may vote, 30 and any lawful resident settled in Scotland (e.g. with indefinite leave to remain, EU settled status or pre-settled status) may stand for office in the Scottish Parliament or in local government.

The document explains that people who are resident, but not citizens, will be welcome, and they will have a shedload of rights, so it hardly matters if they’re not full citizens (page 10). But the same text goes on, on the same page,  to list those rights which will be exclusive to Scottish citizens.  Those rights include “the right  to live and work without restriction in Scotland and enter and leave the country at will.” Surely they don’t mean to deny such rights to lawful residents?  If they don’t, why write this?

There are two apparent contradictions in this policy.  One lies in how the document is presented.  If we take this rules as they stand, they exclude long term residents of Scotland with a right to reside. If you’re French, or Bulgarian, or Chinese, or Ukrainian, they don’t mean you.  Which makes it somewhat puzzling that the Scottish Government has neverthless translated the document summary into those four languages, along with several others.

The other contradiction occurs in a short comment on page 24.  After explaining that only British citizens are included, the text continues:

Some people may not wish to become Scottish citizens in this way. This could be because some countries place limits on their citizens holding additional nationalities.

“Some countries” object – but Britain is not one of them.  Anyone who is both a UK citizen and the citizen of another country (as I am)  will not be affected this way. So why is this sentence here?  It seems likely, as so often happens, that this text is the work of more than one hand, and some body in this process has insisted that the text had to be revised so that it only applied to British citizens, and it’s been done clumsily.

 

‘Low value’ degrees

The government (and, apparently, Rishi Sunak in particular) thinks it can distinguish ‘low value’ degrees from others by what happens to students shortly afterwards.  The test of a higher value degree, it seems, is whether students obtain a professional job, go into postgraduate study or start a business.

Very few undergraduate degrees lead directly to a professional qualification; students will commonly have to go through an intermediate, professional stage in order to qualify for jobs.  What, then, are universities teaching when they offer courses in various sorts of ‘studies’ ? The answer is much the same as it would be for traditional degrees in English Literature, History or Philosophy.  Universities aren’t, for the most part, in the business of training; they’re engaged in higher education.   Students are being guided how to absorb information, select it, order it, evaluate it, and communicate it, and (increasingly) they are learning how to do that independently, without much further guidance.  Their future employers  are interested in the skills that graduates have, not in the specific knowledge they have gained during their studies.

If we ask why some courses have worse ‘outcomes’, the answer is unlikely to be found lurking in the specific knowledge area that the course has covered.  It’s much more likely to be a question of respect for the institution, status, and the background of the students.

My own first degree, for what it’s worth, was in Politics, Philosophy and Economics – the same low-value, airy-fairy course done by the likes of Rishi Sunak.  My parents disapproved.

Social Policy: a subject still in trouble

I’ve just read a review of the state of Social Policy teaching in UK universities.  Twenty years ago, I made the case that the subject was in ‘deep trouble’.  At the beginning, this report cites me saying that,  but the tone of the report is more positive, claiming that Social Policy is still threaded through a wide range of courses.  I’d hold to my initial position.  It isn’t just that ‘social sciences’ are ‘under attack’: Social Policy has fared particularly badly.  There are only 18 single honours courses in the UK, and 25 institutions offering joint honours.   A sizeable clutch of universities have closed their courses.

There are two points of particular concern.  The first is the hopelessly inadequate description of Social Policy, taken from the Higher Education Statistics Authority,  as “the study of the policies of institutions which are designed to modify the balance of sociological factors”.  There is a common confusion in the idea that Social Policy is about policy for society.  Some social policies are – Ferge called them ‘societal’ or ‘structural’ policies.  Many are not; they’re about economics, or politics, or service delivery.    If the description had only talked about ‘the balance of economic, social and political factors’, I probably wouldn’t have kicked about it, but it still doesn’t cover the ground. The assumption, that Social Policy is about issues in Sociology, is quite misleading.  Yes, Social Policy does draw on Sociology – but it draws on much, much more.  That ‘more’ includes Economics,  Law, History, Psychology, Management, Philosophy and Politics – and if it doesn’t, it’s not being taught very well.

The second big problem is the relegation of practical and professional issues to the sidelines.  Students of Social Policy need to know about policy analysis and social administration – issues such as planning, partnerships, voice, empowerment,  quasi-markets, incentives, targeting, access to services and so on.  And I was disturbed to see, in a long list of cognate subjects in Table 2.3, no reference to Housing Policy, Social Care or Social Work.

 

A comment from Stewart Lansley:

I really agree with this. I have two concerns about social science teaching and research today – one is the failure to incorporate an economic perspective in examining on social policy. The other, in part because of this, social scientists have effectively lost much of the influence they enjoyed in the post-war era ( all in the case of the Tories ).

There’s some discussion of this in Policy Press | The Richer, The Poorer – How Britain Enriched the Few and Failed the Poor. A 200-Year History, By Stewart Lansley (bristoluniversitypress.co.uk) which is in part an attempt to merge economic and social analysis.

75 years of the NHS

The NHS – and the British Welfare State -are 75 years old today.  I’m not going to try to cover all the issues here, but I did offer a potted summary in my book, How to Fix the Welfare State (Policy Press, 2022).  Here are two of the summaries from that book, for the chapters on the NHS and Social Care.

 

 

The NHS

Key points  

  • The NHS offers a form of insurance, providing medical care to anyone.
  • Despite the dominance of hospitals, general practice is at the heart of what the NHS does.
  • The need for public health has been highlighted by recent experience.
Positive developments  

  • The NHS has moved away from long-stay institutions and focused on medical care.
  • General practice has been greatly improved.
Where policy has gone wrong  

  • Private markets cannot fill the gaps. They depend on producers having choices, and that leads to exclusion.
  • Health is public as well as individual. Reducing everything to the personal level compromises the aims of health services.
What to do instead The health service has to provide different levels of service: decentralised general services, more specialised work for larger areas, and highly specialised centralised provision.

Social care

Key points  

  • The shift from health care has left services that are fragmentary, insecure and often expensive.
  • Residential care has grown because it is an effective way of providing intensive services, but not all residents need that.
  • Domiciliary care has been based in a flawed model of ‘personalisation’ – and a catastrophic assumption that it won’t be sustainable.
  • Care in any setting depends on continuing personal relationships.
Positive developments  

  • This service did not exist when the welfare state was founded.
  • It was created as part of the movement away from long-stay institutions. It has its failings, but at least it has made it possible for some people to continue to live in their own homes.
Where policy has gone wrong  

  • Personalisation has never lived up to its promise; it only works for some.
  • Creating something like a market in social care is no guarantee of choice.
  • Markets offer commodities; people who need care need something different.
What to do instead The clients of social care need people with time and skills, not a shopping list of the tasks that workers will fulfil. Both residential and domiciliary care will need teams of carers who can offer a personal service to clients.