Time to police this hopeonomics

Uncategorized Jun 13, 2012 Add a comment

The makey-upy statistics on how much a single police force will ‘save’ Scotland offers just one more example of ‘hopeonomics’ – accountants balance sheets comprising of ideology rather than numbers.

Some numbers today – this won’t take long. The single Scotland-wide police force is about saving money (and some stuff about better coordination). Nearly two months ago the Bill to merge the existing forces was introduced and at the time we were told it would save “£1.7 billion” over 15 years. However, today we discover that the Treasury will not bend its rules on ‘joint service vehicle VAT liability’ and that will cost £25 million a year in additional VAT (I’ll explain all this stuff in a second for anyone not familiar). But it’s OK because the joint force will still save £1.7 billion over 15 years.

But it can’t. This is utter gibberish. Even at the most basic of levels £25 million a year over 15 years is £375 million. That’s nearly a quarter of the savings over that period. Nothing else changed yesterday. It just can’t still be £1.7 billion of savings. Now I haven’t gone through the calculations that ‘prove’ there will be £1.7 billion of savings, so there is a small chance that the VAT element was already discounted, but I doubt it. And in any case, I doubt I would be able to make much sense of those calculations anyway. I know this because I used to prepare them. And it’s mainly a con.

Some quick explanations. If a charity or public sector body does certain things it is exempt from VAT. If it creates a ‘joint service vehicle’ (an organisation created with the purpose of merging services to save money) then that vehicle is a financial wheeze and not a charitable or public sector entity. So as a financial wheeze it is not VAT exempt. So if two local authorities (for example) set up a company to do certain things they are doing anyway then the company pays VAT where they individually don’t. This might not make sense (in some cases it doesn’t) but it is certainly consistent and vigilance is unnecessary when financial wheezes are around.

But everyone knew this from the outset – the Treasury almost never gives exemptions. If the VAT amount was not deducted then we can assume the savings were being inflated. But we can assume that anyway. Anyone ever who tells you ‘we’ll save £X over 15 years’ is at it. As one senior public sector manager put it to me ’15 years doesn’t mean anything because in that time so much changes that numbers don’t count’. Fifteen years takes you from no-Euro to Euro-crisis like nothing happened. So anyone that talks in 15 year time horizons when they are talking about accounting is at it.

In fact, I broadly consider that anything other than annualised figures for cash savings are a con. What does it mean to say ‘over the next two decades I will earn £Y’? My bills come in every week and are summarised on an annual basis. No-one gets a 15-year electricity bill. So any savings measured in 15-year terms is to be mistrusted. But then again, my advice would be to mistrust any ‘evidence’ proving ‘efficiency gains’ because I’ve been around these for more than a decade and in every single example I can think of the ‘saving’ was agreed and then it was proved, not the other way round.

Let me give you my favourite example. I was involved in writing a report on savings achieved through the Efficient Government Programme a couple of years ago. We sent out a request that made clear we had to come up with about £20million of ‘business process improvement savings’ in one year. So we asked people to come up with the savings. We got the numbers, wrote it up and sent it in. We got a pat on the back and everyone was happy. I then bumped into one of the people who did numbers for us and I asked for an example of business improvement included (in case I had to justify the numbers to anyone). He told me they’d moved the photocopier. I scratched my head. He replied ‘well, on paper it means we’ve saved about ten miles of walking from the admin pool to the photocopier in a year which we’ve priced at £x thousands of savings’. I asked ‘will it really’ and he said ‘don’t be daft’. I’m not even sure they moved the photocopier.

And then you fiddle inflation in whichever direction you want (include it and compound it if you want it big, take it out if you want it small). Pick some false comparators to give you a suitable baseline against which to demonstrate the savings. (I was involved in another business case that estimated savings on the basis of the price paid if goods weren’t bought through a consortium, even though no-one bought their goods without going through a consortium.) It is common to present savings as ‘we saved £Xm compared to if we had done Z’ even though they had never and would never do Z. Also, include things in baseline that aren’t in the comparative projection. For example, take a static workforce number to project payroll but assume an increase in volume of activity (requiring more staff) to estimate income. Include liabilities on one side you don’t include on the other. Hive off problematic bits of the operation into some other accounting unit to make them ‘disappear’ (“oh, that’s counted under the overseas subsidiary budget”).

Oh, and then just make stuff up. I am neither an accountant not an economist and yet I have put into major governmental financial numbers that became the accepted measure but which I just made up. The process is as simple as can be – ask the question ‘what is the biggest number I can find a way to make sound plausible?’. My favourites were ‘take average rise over last ten years and just assume we will do the same again over next ten years despite none of the causes of the growth being present any more’, ‘look at what someone else vaguely like us did in a given timescale and indicate that we see this as a reasonable aspiration’ and ‘we talked to ten experts and they think that a reasonable target is…’.

What is this all about? It’s about neoliberal capitalism in its purest sense infiltrating government policy. It is about faith-based economics and the idea of ‘deregulation of markets’. In this case ‘deregulate’ means ‘allow people to tell lies without being checked’. The real freedom these markets want is to be able to cheat in any way they can find to cheat without anyone getting in the way. This is Enron freedom, RBS freedom, Ministry of Defence freedom. We decide what is going to be true and then we make it true. And we know that far from moderating this tendency, modern accounting firms see themselves as the facilitators of this process. That’s what happened to Greece – accountants helped the government to cheat and paid no price. It’s how the credit ratings agencies (on whose every word of wisdom we hang) managed to give Leahman Brothers the best possible credit rating within days of it going under.

This is ideology-driven maths. It works because those who make it up believe in the ideology they’re trying to push and those who receive it believe exactly the same thing. They know a lot of it is based on faith but they avoid asking difficult questions just by accepting that it all falls under ‘accepted practice’. Oh, and no-one ever looks back afterwards to see if it turned out to be true. Or if they do they do it in a meaningless timescale (who is going to come back in 2027 and point out that the maths on the merged police force turn out to be rubbish?).

There is a belief among senior public sector managers and their handlers (those being accountancy firms, legal firms, ‘corporate partners’, ‘service companies’ and various market-orientated think tanks and academics) that mergers save money. I haven’t met many people actually in these merged organisations that think this is true. In fact, I know many more people who believe it to be a dishonesty than who think it might even possibly work. This is neoliberal dogma, not accountancy science.

We should train policy-makers to dismantle these crap arguments. They are building a public realm designed for corporations and not for public service. And all the real-world reasons given for doing this turn out to be untrue. The only real benefit in many of these cases comes by way of corporate profit.

And so, between the ages of 14 and 18 I grew about 50cms. Allowing for altered growth rates and taking into account unmeasurables such as improved healthcare and diet I project confidently that by 2036 I will be a mile high. So give me your money.

Robin McAlpine

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