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.

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.

 

 

 

 

Low-tax investment zones: three things to watch out for

It’s been suggested that the government is on the point of announcing 12 ‘low tax investment zones’, where businesses and perhaps employees will benefit from deregulation and reduced taxes.  Much of the response to this, predictably enough, will be about fairness, and the suspicion that the government is offering special favours to its mates.

Let me offer a different perspective.  I’m going to assume, although there are grounds for scepticism, that the government’s basic claim is justifiable: that these programmes will have an effect in stimulating economic growth.  The question is: what sort of effect?

There are three things that governments should always be aware of in judging value for money in special programmes and initiatives. They are deadweight, spillovers and externalities. Deadweight happens when those who are benefitting do not actually change their behaviour.  If a firm that is already trading successfully moves from one area into another, simply to get the benefit of the programme, it’s a dead loss.

Spillovers occur when people do benefit  and change their behaviour, but carry on reaping the benefits of the programme after the case for stimulation has ceased to apply.

The term ‘spillovers’ is now increasingly being used in development economics to refer to externalities, but externalities are something different.  Externalities, or external effects, can be positive or negative.  The stimulation of the economy would be a positive externality.  An increase in crime, for example, is a negative externality, and crime in freeports, such as smuggling, drug dealing and money laundering, has been a major concern.

There is no certainty that the deregulation and low tax will have any benefit to the economy.  They may be detrimental.  Let’s have fewer assumptions, please, and more evidence.

The one-number census is not a good way to chart what is happening

It’s census time again.  I’ve made several criticisms of the process in the past, at first in an e-mail list and subsequently in two of my books, and I hate repeating myself.  Checking my previous posts, however, I find that I haven’t made any of those comments on the blog, so it makes sense to cycle through them now.

The first thing is to acknowledge that something like a census is essential.  The census gives us the denominators – the numbers that go below the dividing line.  Without those numbers, we can’t tell how big a problem is, or how evenly it’s distributed.

‘Something like’ a census, however, doesn’t mean it has to be this  census.  There are major problems with the UK census, and most of them are avoidable. I’ve heard Ian Diamond, who’s now the head of the Office for National Statistics, lecturing on this, and he emphasises the importance of  arriving at ‘one number’.  The  preservation of the census in this form is its greatest weakness.

If we look around the world, we’ll find that Britain’s reliance on a one-number census is increasingly unusual.    They’re used in southern Europe, but in other countries they use different techniques.  The USA has the American Community Survey, a large geographic sample of about 3% of the population, to get the fine detail.  Germany has a 1% micro-census and a range of information from administrative sources.  The Nordic countries are using registers of information.  France has a rolling census, allowing for regular updates.

The British census is too long, too complex, too unwieldy, and too slow.  If we go back to the historic archives, we can see what the census used to be: a literal count of the persons in each household, comprising names, ages and addresses.  That, frankly, is all we need from a single census – and as much as we can handle.  The English census has 51 questions. Every added question is another hole in the ship.

The first problem is time.  It generally takes two years to get the first results from the census, and, because it’s such a massive exercise, it has to last us for 10 years after that.  (We last had a mid-term census in 1976.)   That means, simply enough, that the census is always out of date – by at least two, and up to twelve, years.  If we want, for practical purposes, to do something useful, like setting up a primary school, the census is at best a rough, rusty guide.  Rolling data would be much better for the purpose.

The second problem is accuracy.  Statisticians have probably learned that as the numbers get bigger, they become more reliable – that we can be ‘more ‘confident’ about the findings.  This is just not true, at least not in the real world.   What happens with big numbers is that mistakes and biases are amplified, and we are liable to invest the numbers with meaning when they may have none.  I think people will remember, for example, the large number of write-ins claiming to be members of the Jedi religion; at least we can tell that’s bogus.  It’s more difficult to pick holes in other responses, but we should be able to acknowledge at least that we couldn’t rely on previous censuses to get the numbers of young men right.  If this census gives us an accurate, reliable count of people who are disabled or those whose gender is non-binary, I for one will be astonished.

If we really want to know about these topics, the census won’t give us the information.  That is going to rely on much more detailed work, probably with a qualitative  component to clarify what the answers actually mean.  That leads me on to social science, and finding better ways to do things.  Numbers about society are indicators – that is, signposts or pointers. We do not need accurate counts of everything; we need to have enough to prepare samples, which we can look at in more depth.  The census provides us with the sort of information we need to work out how to make a sample.  The great mistake is to suppose it can do more than that.

 

 

If not now, when?: a report on social renewal

The title of the new report from Scotland’s Social Renewal Advisory Board is, ‘If not now, when?’  It’s a great title, but not a great report.  There are some areas about which I’d have minor reservations, and others where I’d have major ones.  The minor reservations are, for example, the recommendations that:

      • “It is time to trust (third sector and community) organisations to do good work without onerous requirements.”  Have we forgotten the abuse of charitable status that led to the reform of charity regulation?  Look up ‘Moonbeams‘ on Wikipedia.
      • “There are several themes that run throughout the report, again with links to Christie.  We need to make sure we embed the best partnership and practice.”  Partnership is already embedded.  On the positive side, it can focus attention on issues that get overlooked, such as poverty or learning disability, and it puts agencies into contact (such as the NHS and the police) where there didn’t used to be much.  On the negative side, it eats time and resources, and it can be as much an obstacle to delivery as a help.  The Christie Commission took the misconceived  position that every organisation should have a ‘common set of duties and powers’, including  a general power to ‘advance well-being’ (pp 46-7).  That would make every agency responsible for the work of every other agency.   Do we really want the health service to share the responsibility for developing railways?  If we want agencies to work together, we need an appropriate functional division of responsibilities, effective liaison at the sharp end, and budgeting practices that don’t set up walls between agencies.
      • “Hate crime must be addressed for all affected groups. We want to see significant investment in preventative approaches to hate crime, based on evidence of what works. … we want to see a significant improvement in the accessibility of reporting a hate crime or hate incident over the next five years so that hate crime reporting is more closely aligning with actual incidents. We also want to see an increase in people reporting street harassment to Police Scotland whenever they experience it.” This is saying nothing that isn’t already happening.  Yes, as someone who’s been responsible for maintaining a synagogue, I’ve been on the receiving end of hate crime; no, sharpening the criminal law is not going to stop it.

All right, these points are not really that ‘minor’.  But the ones that got my goat are in a different class.  On universal basic services, the Board has this to say:

“calls on the next Scottish Government to adopt the principles of ‘Universal Basic Services’  … In particular, the Scottish Government should undertake pilots into specific actions that could deliver reductions in energy, travel, housing, childcare and digital costs … These could include: … Social tariffs for broadband and other essential digital services – providing free and discounted digital access to low-income families across Scotland. …”

This misses the point of universal basic services completely.  They’re not meant to be targeted on people on low incomes; they’re supposed to be there for everyone.  I carried on to specific example of broadband, because it shows the point clearly – they’re talking about means-tested or passported services, not universal ones.   We should be looking at open-access, community-based broadband.

And then there is anti-poverty policy, where they recommend that the Scottish Government should “develop an approach to anti-poverty work,
including personal debt, that is designed around the needs of the individual”.  Of course I want to see well-funded advice and support for individuals, but it’s not an anti-poverty strategy.  It’s not even an anti-debt strategy.  People are in debt because (a) their incomes are inadequate and (b) the legal terms on which debt is enforced are pernicious.  The Scottish Parliament has the power to do something about both of those.

Funeral support payments: how much information is too much?

When I’ve written about social security payments before, I’ve at times referred to  Funeral Payments as a example of where the system goes wrong – as in my blog, here.  It has too many moving parts to be workable.  I was interested, then, and pleasantly surprised, to see that applicants have few complaints about the application process. You can see what’s asked here,  because the Scottish Government has understood that people need alternatives to on-line processes.  It’s still a convoluted process: applicants are asked about themselves, whether they get benefits,  their relationship to the deceased person, the estate’s resources and the funeral arrangements.

Most complaints in the  claimant feedback, however, are about something else entirely: the details on equalities, which account for the last five pages of the form.  People resent those questions, it seems, because they’re not really about the process at all – and the questions are consequently seen as intrusive, in a way that the earlier questions are not.  People should be able to bury their mother without having to tell a government agency that they’re gay.

Thinking collectively

Policy Press have contacted me to say that three of my books are now available on their online service, Policy Press Scholarship online.  This is subscribed to by many institutions – I have access by way of the National Library of Scotland.  The books are, in order of publication, Reclaiming Individualism (2013), Thinking Collectively (2019) and The Poverty of Nations (2020).

If the books were being written now, I’d need of course to take account of the current pandemic; but oddly, there’s little in the intellectual content that would need to be changed.  In Thinking collectively, I review a range of moral arguments for collective action, and competing conceptions of the ‘common good’.  The common good might be understood as the sum of particular interests, such as economic development; on interests which are shared with other people, like the arguments for clean water; on interests which we share as members of a collectivity, such as defence or foreign policy; and, beyond that, the process of collective action, such as democratic participation.  The response to Covid-19 is – or should be – an example of aiming for the common good in every sense.

Mandatory Reconsideration is “a disproportionate interference with the right of access to court”.

Eighteen months ago, I made a case on this blog that the process of Mandatory Reconsideration demanded by the DWP was unlawful, that it was designed to prevent claimants from access to justice,  and that it stood clearly in breach of the principles enunciated by the Supreme Court in the Unison case.  Now the  High Court has heard a case about MR as it affects Employment and Support Allowance.  Justice Swift demurred from the case I argued for in one important respect:  that even if MR was an “impediment or hindrance” to access to justice, it did not actually deny people the right of access altogether.  Nevertheless, the judge decided that the process was “a disproportionate interference with the right of access to court”, and found in favour of the claimant.

Decisions of the High Court are not necessarily decisive, and it is likely that this judgment will be assumed to apply only to ESA claims.  But the grounds for the judgment are matters of general principle, and they apply  across all benefits to which the process has been applied.   That prompts some questions.   First, what does it take to get rid of regulations that are transparently  unlawful?   Second, why did the process of independent scrutiny, undertaken by the experts of the Social Security Advisory Committee, not raise concerns when these regulations were being introduced?  And third, what on earth was the Scottish government thinking of when it decided to mirror “a disproportionate interference with the right of access to court” in the design of the Scottish social security system?

 

 

The UK’s response to coronavirus has been marked by incompetence.

It’s a difficult situation for any government to manage, but the problems  produced by coronavirus have been marked by muddle and incompetence in the response from the government.  I think we can exonerate them of three serious charges.  It was not inappropriate to delay the initial response: they judged, that people would not comply with instructions until they were convinced of the seriousness of the situation, and so it proved.  It was not obviously wrong, before the numbers became apparent, to ask whether the disease could be allowed to run its course with with only moderate social distancing.  (An illuminating set of simulations, published online by the Washington Post,  suggests that this strategy would still have been more effective than quarantines.)  And it is not wrong to impose restrictions that cannot be adequately enforced.  The nature of the disease’s spread is that every reduction in social activity limits the potential of the disease to spread.  It cannot be stopped, but it can be delayed, and delay makes it more possible for services to cope and ultimately to the availability of a vaccine.

Having said that, there have been several marked problems in the government’s response to the situation. The problems include:

    • Preparation
      • The lack of testing means that the government has not been able to keep track of what is happening, let alone manage public health issues such as contact tracing.
      • The failure to provide personal protective equipment for medical staff is utterly disgraceful.  Hospitals have become a danger zone.
    • Protection
      • The government’s first response was to protect business; its second response was to protect employees.  There are still major problems evident in the protection of people in precarious employment and those on benefits.  I have covered those issues separately.
    • Process
      • Contradictory and inconsistent advice.  There have been frequent, repeated, muddled statements from different government ministers and advisers about what is required, what the rules are, and who is affected.  Instructions are imprecise.  For example, there is still prevarication about what is essential work, such as whether or not construction can proceed.  And if the aim is self-contained households with minimal interaction, what is wrong with individuals working alone on an allotment?
      • Announcements have been sudden and immediate, making it difficult for people to close business or even to move physically to the right location for isolation.
      • Over-reaction.  The police have criticised the public for going to isolated places to walk and exercise.  I am in the middle of a house move – my furniture left on the van on Friday – but the registration of  property transactions has stopped,  and the Law Society has advised solicitors not to conclude business.  I don’t claim any medical expertise, but I think I can say with confidence that coronavirus cannot leap down the circuitry of internet communications to emerge at the other end and eat you.

Some thoughts on Citizens Assemblies

The Scottish Government has opted for using a Citizens Assembly as a means of addressing some of the complex issues around devolution and independence.  Citizens Assemblies have been proposed as a way of resolving lots of thorny issues, such as Brexit, social care and reviewing legislation.  I can see that some people are enthusiastic about the mechanism, but I’m agnostic.  There are lots of existing mechanisms by which complex issues can be discussed and reviewed in some depth: there are inquiries, commissions, Royal Commissions.  There are reservations to make about them all, but I’m not convinced that  a Citizens Assembly can resolve the issues in a way that they can’t.

The first problem is the issue of capacity.  Commissions are commonly limited by the terms of reference they are given, their membership and the resources they can command.  The process matters, too; I’ve been critical of inquiries led by lawyers, whose training is not necessarily appropriate to the exploration and synthesis of complex issues where a selection needs to be made.

The second concerns the validity of the positions that people come to.  Any worthwhile inquiry will draw on a range of evidence, including both primary evidence and information from experts, and Citizens Assemblies can do this, too. Some commissions are led by experts; some aren’t. The expertise of a commission is no guarantee that they will get the judgements right, and there are certainly plenty of commissions who might be said to have gone off-track.  (For example, there are still many people in Scotland who commend the Christie Commission on public services, which I think got things radically wrong.)   I’ve served as adviser to a couple of parliamentary committees, and found that they were able to address issues in remarkable depth simply because they were able to draw on submissions and testimony from a wide range of witnesses, often completing work that compares well with academic research in much less time.

There may be a specific problem with the decision-making process in Citizens Assemblies, reflecting the large number of people involved. Group thinking is vulnerable to a tendency to conformity, potentially reflecting the vocal representations of a minority.  There is also potentially the phenomenon which psychologists refer to as a ‘shift to risk’, where groups will take collectively decisions that are riskier than any of the individuals in that group would accept.

Third, there is the question of ownership.  Inquiries that take a short time are often treated as if they were doing the bidding of particular political masters; inquiries that take a longer time are then abandoned by their political successors. People who agree with the conclusions will support the recommendations; people who disagree will say that the process was not representative, or not authoritative, or that conditions have changed.The Northern Ireland Citizens Assembly has struggled to have an impact in the absence of active political representation in the province.  One has to ask about Citizen’s Assemblies whether they will have more authority, or carry more commitment, than any other mechanism, and it is not clear they will.

An apology: something strange happened when I posted this entry, and what was posted was not the entry I’d finished, but an early draft.  This full version had to be reconstructed, because there was no trace left of all of the work I’d done on it.