Uncharted Territory

August 23, 2016

After the Brexit Referendum (2) – Free Movement vs Work Permit Schemes

Filed under: Brexit, Economics, Migration, Politics — Tim Joslin @ 3:22 pm

In my previous post, I argued that free movement is the best way to organise migration.  During the referendum campaign we heard Boris Johnson parrot the phrase “Australian-style points system” with nauseating regularity.  Putting to one side the inconvenient fact that even Australia doesn’t have an Australian-style points system, since a large majority of migrants to Australia are brought in through company sponsorship schemes, I nevertheless assumed that the UK would, after Brexit, attempt to implement some kind of points-based system.

I argued that a points-based system was misguided, in part because it’s bound to reduce social mobility within the UK.  Nevertheless, as the Guardian reports, a survey by ICM on behalf of a think-tank, albeit one I’d never previously heard of, called British Future, found that “[o]nly 12% [of the sample] want to cut the number of highly skilled workers migrating to Britain; nearly half (46%) would like to see an increase, with 42% saying that it should stay the same.”  Baffling.  Why exactly are we leaving the EU?

But, part way through my previous post, it became clear that a pure points-based system might not be what all the Brexiteers have in mind.  I quoted David Goodhart writing in Prospect magazine in favour of “guest citizenship”.  According to Goodhart, free movement has led to many EU citizens coming to the UK who “do not want or need to become British”, causing an “integration problem”.  He claims that “unnecessary resentment” has been created by “the lack of a distinction between full and guest citizenship”.  Utter poppycock.  The problem is the reverse.  Voters are afraid, so they tell us, of their communities being changed by immigration.  If they thought migrant workers were here only temporarily one might reasonably suppose they’d be less, not more, concerned.  In a Wonderland Alice-like leap of logic, Goodhart somehow argues that because many migrants don’t stay forever they should be prevented from doing so, ignoring the common-sense argument that people don’t usually make a decision to stay forever in advance.  Life is what happens when you’re busy making other plans.  Roots are put down over a long period of time.  Moss gathers only slowly on stones.  And so on.

To put my cards on the table, I find Goodhart’s views fairly, well, abhorrent is the word that comes to mind.  He notes in passing, for example, that “the right of people to bring in dependents should be reviewed.”  It seems to me that if you’re working somewhere, you should be able to make your life there.  Not every migrant worker will choose to do so, of course, and some jobs necessarily involve spending time away from one’s family, but settling where you work is the norm, and I don’t see what right the UK has to prevent it.  Doing so is exploitation, pure and simple, taking advantage of the weaker economic circumstances in some other parts of the world.

So I was a bit disappointed to read Alistair Campbell’s musings in The New European (“My memo to Mrs May…”, issue 2, July 15-21 2016) drifting towards Goodhart’s position:

“…in addition to discussing terms of exit, you would like [sic] to explore the possible terms on which we might stay, including another look at immigration… Might freedom of movement become freedom of labour, for example?”

No, Alistair, we should simply be asking for what the EU failed to accept first time round when Cameron asked, which is renewed transition controls with those countries from which there is a large net flow to the UK.  Clearly, 7 years has not proved to be anything like enough for the economies of Eastern Europe to converge with those in the West.  This would save the principle of free movement by amending the rules, rather than sacrificing the principle to rigid, ill-thought-out rules that were drafted on the basis of no experience whatsoever.

The bizarre situation we find ourselves in is that we’ve voted to leave the EU in part because of the number of migrants into rural areas – Boston, Lincolnshire, had the highest Brexit vote – but, judging by the frequent dire warnings from food producers, supposedly we are going to have to create (presumably time-limited) work-permit schemes to maintain the migrant work-force in those very same areas!  Yeap, we need temporary migrants to replace people who, according to David Goodhart, were treating “our national home… as a transit camp and a temporary inconvenience.”

We’ve got a big problem here.  On many levels, not just that of how society values different jobs, an aspect Peter Fleming emphasises.

According to the food producers, we have to produce as much food in the UK as possible.  Even though farming less intensively and leaving more land fallow would surely reduce soil depletion and enhance our ability to feed ourselves in the long-term.  Do we really think our national security is at risk if we have to buy cucumbers from Poland or Romania, rather than employ Poles and Romanians to pick cucumbers grown in East Anglia?  Of course it isn’t.

And apparently migrants on low wages are essential to our food production.  Yet those communities ultimately sustained by farming – Boston, Lincolnshire and its ilk – don’t want East European shops and voices on their high street. I guess Goodhart envisages migrant permits forcing workers to stay on the farm 24/7 – how else to prevent them shopping or speaking in Boston High Street? – and, I presume, traveling in blacked out vehicles to and from Stansted for their Wizzair flights.

But what bothers me most is the general attitude that it is acceptable for non-UK citizens to live in conditions that the locals aren’t expected to put up with.  The fact that only migrant workers will do certain jobs should not be a reason for ensuring a continual flow of migrant workers under schemes denying them rights to make a life in the UK.  Rather, it should be a warning that working conditions in those jobs are exploitative.  Pay – that is, the minimum wage – needs to be increased.  Only when British workers apply for such jobs should we employ migrant workers with a clear conscience.

And I seem to recollect that seasonal fruit-picking jobs were advertised in local newspapers back in the day (I’m talking ’70s and ’80s).  I read such ads as a kid and wondered if I could get some pocket-money that way.  Students, I recall, habitually supplemented their grants by helping bring in the harvest – grape-picking in France being the coolest gig.

The government should simply  face down the farming lobby.  Tell them they’ll simply have to pay more after Brexit.  Put the minimum wage up faster than currently planned to give them a clue as to what they should be paying.  Don’t give them an exploitative migrant-worker scheme.  And don’t give one either to any of the many other industries that are also no doubt lobbying ferociously behind the scenes.  If some jobs move overseas and we have to import cucumbers, so be it.  It makes no economic sense for the UK to do everything – the theory of comparative advantage and all that.

The tragic thing is that if we hadn’t accepted over the last decade that it was OK to employ migrants on lower pay than Brits would accept for the same work and conditions we might not be Brexiting in the first place.

 

August 9, 2016

After the Brexit Referendum (1) – Free Movement vs Immigration

Filed under: Brexit, Economics, Migration, Politics — Tim Joslin @ 5:34 pm

In the days before the Brexit referendum I found myself unable to focus on anything other than the last frantic round of debates, speeches and pleas.  It was clear to me even before the vote that there are several huge interconnected problems with our political culture which could lead to a major political accident.  So I began drafting a letter/paper to send, initially to my MP. Of course, the exercise grew like Topsy and, whilst I may still produce a single document, I’m breaking it up in the first instance and posting it on my rather appropriately named blog.

My original idea was to be clever and couch my thoughts as “regardless of the result of the referendum”, so please don’t think my views are just a snap reaction to the setback.

My overall view has consistently been that the referendum should never have been called and that, even if we Brexit, we must rebuild and strengthen our trading, political and cultural relationships with Europe.  Isolation is not the answer.  Instead we must address the causes of so much dissatisfaction and fix our democracy.

We mustn’t just roll over.  Rather, we need to be tough not only on Brexit, but also on the causes of Brexit!

The most significant issue for Remain was the utter, abject failure – not just during the referendum campaign, but over many years – to build a case for free movement within the EU, or, strictly speaking, the single market of the European Economic Area (EEA), which includes a few additional countries in addition to the EU.  The desirability or otherwise of free movement remains a live issue, since the UK may wish to stay in the single market, members of which are supposed to permit free movement.  Since UK membership of the single market would be highly desirable, it’s definitely worthwhile to start making a coherent argument in favour of free movement.  The horse may have bolted, but it’s still in sight.

First, let me define my terms.

“Immigrants” vs “EU migrant workers”

The core issue in the referendum campaign was “immigration”, though, whatever Teresa “Maggie” May, and many other politicians and commentators are now saying to justify their stance on immigration controls, the question on the ballot paper was Leave or Remain, so the vote gives no clear indication of the level of opposition to free movement.

Furthermore the scapegoats for all our problems are not actually “immigrants”.  Immigrants arrive on visas and are generally on a path to citizenship.  At some point, very soon in many cases, they get to vote.

The term “immigration” suggests an intention of permanency from the outset, whereas “migration” is less committal.  It may or may not lead to long-term residence.  It’s unlikely to involve an immediate change of citizenship.

I’ll therefore use the term “EU migrant workers” to refer to those who are in the UK under the free movement provisions of EU treaties.  I should say that, whatever the context, I don’t like the negative connotations of the word “immigrant” and I’d prefer a more distinct term with a different root rather than “EU migrant workers”.  But those are the words we have and it’s kind of important to actually be understood.

Of course, some EU citizens come to the UK for reasons other than to work or to seek work.  Such “EU migrants” may be economically self-sufficient – retired or the wealthy enjoying the London lifestyle, perhaps – and are unlikely to be able to claim benefits or subsidised housing.  The issues cited in the referendum campaign relate, though, mostly to “EU migrant workers”, not “EU migrants”.

The Rationale for Free Movement of Labour

Why does the EU insist on freedom of movement within the single market?  It seems not to have occurred to the leaders of the Remain campaign to try to answer this simple question.

When I started drafting this post I assumed that the argument for free movement would have been clearly stated by the founding fathers (sorry, they seem to have all been male) of the EU (or, strictly, of the organisation’s predecessor, the EEC).   If there is such a statement – and I may research further – it’s not likely to rank highly in any citation index.  We’re not talking about the Rights of Man, here.

No, all accounts I have seen suggest that the freedom of movement we see now evolved from an initial freedom of movement specifically to work, that is from the free movement of labour.

I’ll come onto why free movement purely to work is unworkable (intended, of course – I can’t resist a play on words) in a fair society, but, first, why is the free movement of labour so important?

The argument is not often stated clearly, but there are several threads of thought:

First, the observation was made in the mid 20th century – predating the EEC, I understand (sorry, more research needed) – that one reason the US economy is more dynamic than Europe’s is because of the higher rates of migration between states in the US than between countries in Europe.  This allows new industries – Motown, Hollywood, Silicon Valley – to develop rapidly and regions to regenerate through “creative destruction” rather than stagnate when the local economy declines – Detroit, for example.

Second, it’s often said that free movement of labour is necessary for free movement of capital.  I take this to mean that if companies or an entire industry moves, or an industrial  cluster exhausts the local labour supply, trained workers can move too.  The alternative would be skilled workers in one country having to retrain or be unemployed, whereas workers in another country have to acquire the relevant skills.  Those with a vocation may be frustrated in their ambitions.  This aspect of European free movement is presumably most beneficial in very highly-skilled occupations, such as research and financial services.

Third, free movement benefits the European economy as a whole when one or more countries face an economic downturn.  As we’re seeing now, young people from some of the southern European countries which suffered most in the euro crisis, who would otherwise be unemployed, are able to find work in the UK and other economies where demand is presently creating more jobs.  Or, conversely, one economy may boom and draw in labour from its neighbours.  Germany’s post-WWII economic miracle led to “Gastarbeiter” (literally “guest-worker”) deals with its neighbours (and, famously, Turkey) which clearly foreshadowed more general free movement in Europe (and complemented free movement between the Treaty of Rome signatories).

Why Free Movement of Labour is Not Enough

Having established free movement of labour – relatively uncontroversial for some decades, certainly in the UK – the EU in 1992, through the Maastricht treaty, and by various directives and court rulings, granted additional rights to EU nationals resident in other member countries, in effect a form of EU citizenship.

There’s little disagreement about the basic narrative of how freedom of movement of labour became EU citizenship, though if you listen to Farage or Johnson you’d assume it was mission-creep, perhaps a plot by European superstate zealots.

But if you reflect for a moment on how people live their lives it’s obvious that freedom of movement purely to work is not enough.  People put down roots where they work.  They may want to retire there.  They start families, or have children already.  Crucially, because people don’t necessarily make a conscious decision that they’re going to remain forever in their adopted EU country, they don’t tend to apply for citizenship.  So the rights of EU nationals to benefits, pensions, housing, healthcare, education of their children and so on has to be protected and on the same basis as the locals.  This is simply a logical consequence, which should have been instituted from the outset.

There are, however, those who deny this logical consequence.  For example, David Goodhart argues in Prospect magazine (August 2016) that:

“A guest citizen is not a full member, does not have full access to social and political rights and leaves after a few years.  Formalising guest citizenship would mean that we could concentrate rights, benefits and integration efforts on those who are making a commitment to this country. … If we don’t want to continue with relatively high inflows we have to guard full citizenship more jealously.”

In other words, he wants us to become more like Qatar.

Why Free Movement is Preferable to Other Forms of Migration

During the entire Brexit referendum campaign I only heard one voice defending free movement.  Mine.  I piped up, somewhat uncharacteristically, in a meeting organised by UCL, where the aforementioned David Goodhart was one of the panelists, to point out that, from the point of view of the home country of migrant workers, free movement is preferable to a points-based system.  It’s less of a brain-drain.  So, I tried to explain, EU countries aren’t going to agree to anything less than free movement as part of any Brexit negotiations.

Goodhart seized on what I said to emphasise that migration in itself is a brain-drain, period, twisting the point I’d made.  So, having put my head over the parapet I had to reiterate my point that free movement is less problematic than a points-based system, since not only doctors are being tempted abroad; their patients are as well.  Wealth-creators may leave for sunnier climes; but so do the unemployed.

The problem with Goodhart’s suggestion that free movement has been bad for migrants’ home countries is that their governments – most vocally Poland in the UK context – simply don’t agree with it.  And he doesn’t repeat his claim in his Prospect article, acknowledging that migration to the UK has been an “unemployment safety valve for struggling southern or eastern European economies”.

But free movement is not only preferable to a points-based system from the point of view of the originating country.  It’s also better for the UK.

First, free movement is simple.  A points-based system not only requires a huge bureaucracy just to keep track of who should be working and who shouldn’t – a dead-weight cost on economic activity – it also implies some bod in Westminster making decisions on how many pheasant-pluckers and widget-testers the UK “needs”.  And all the lobbying that’s bound to accompany the process.  No wonder that in the example of the Australian system that is always cited, the vast majority of immigrants come in with company sponsorship – recruited abroad, something the Brexit brigade are always railing against.

Second, free movement is flexible.  Because it doesn’t involve granting citizenship, migrant workers remain mobile.  Should they fail to retain work in the UK they can return to their home country or go to any other EU country.  In particular, they lubricate the free movement safety-valve (if that’s not taking the metaphor too far) – in the event of a downturn in the UK (as we will no doubt see during the post-Brexit recession) those who have already migrated to the UK for work are no doubt better equipped than UK nationals to find work in their home country or elsewhere rather than swell the numbers of job-seekers in this country.  Perhaps flexibility is why David Goodhart champions a work permit scheme.  But such schemes are flexible only for the host country, not the migrant workers.  If the UK proposes to the EU a system of sector-specific time-limited work permits – as Goodhart seems to be advocating – in return for access to markets they’ll no doubt be told where to go.

Third, if we did institute a points-based scheme to address skills-shortages, won’t that reduce even further the incentive for UK employers to train British workers?  Or to promote them.  At present, migration from outside the EU is in part capped by salary requirements.  So your employer can recruit senior staff, but not junior ones.  Is that really what you want more of?

And, fourth, free movement also confers rights.  What is possibly achieved by restricting migration to and from countries from which the net population flow is low?  Restrictions on movement are almost bound to be reciprocated, so, if Brexit leads to the end of free movement, the opportunities for UK citizens will be reduced and British businesses hamstrung because of restrictions on the ability of their staff to work in France and Germany.  As ever, it’s easy to try to solve problems by taking away other peoples’ rights.

Finally, free movement is a mechanism for economies to converge.  Migrant workers relieve unemployment in their home countries and send money back home – the so-called remittances, helping those countries’ economies.  And economic convergence may take years, even a decade or two, but is a finite process.  Net bilateral migration flows are likely to reduce eventually to zero as the source country develops.  If we keep free movement, then eventually Poles, Bulgarians and Romanians will stop coming to the UK to work.

It seems to me that, if we abandon free movement after Brexit on the dubious assumption it was “the” rather than a reason for the vote – of course there’s no denying it was a factor – we’ll be making a huge mistake.  The current migration flows from Eastern European countries are a temporary phenomenon, and would reduce as their economies transition to be more like those in the West, and anyone who thinks the UK itself won’t someday need an “unemployment safety valve” is living in cloud cuckoo land.  Indeed, net flows of EU migrants may well reverse as the UK economy goes down the pan ahead of Brexit.

The tragedy is that arguments in support of free movement as opposed to other forms of migration were so rarely heard during the referendum campaign.

May 25, 2016

Marketing Live Chess Broadcast Rights

Background: Agog at Agon’s Candidates Broadcast Monopoly

The moves of chess games have always been in the public domain.  Anyone can quote them in any medium including whilst games are in progress.  Indeed, in recent years live internet broadcasts of commentary on games at chess tournaments and in matches have become very popular with the chess community.

It was in this context that several chess websites geared up to broadcast commentaries on the most significant chess tournament of 2016, the Candidates tournament in Moscow which opened on March 10th.  The winner of the Candidates gets to play the current World Champion in a match for the title of World Chess Champion, so we’re all looking forward to watching Sergey Karjakin challenge Magnus Carlsen in November. But two days before the Candidates started, the organisers, a company called Agon, working with the worldwide chess federation, FIDE, forbade anyone else from broadcasting the moves until 2 hours after each game.  They did this by requiring anyone accessing the official website to sign a “Clickwrap Agreement” agreeing not to retransmit the moves.  Presumably onsite spectators and journalists were subject to similar restrictions.

Malcolm Pein, the editor of Chess magazine, noted in the May 2016 issue (p.4-5) that Agon’s attempt “to impose a new order on the chess world” were “cack-handed” and it is indeed very unfortunate that FIDE has been involved in preventing a number of websites from supporting what I would have thought is its core objective, promoting the game.  The sites are likely to have incurred costs as a result, perhaps having committed to pay commentary teams.

Furthermore, as Pein notes in his Chess editorial, aspects of the Agon Candidates commentary left something to be desired.  He highlights an unfortunate incident when the moves were inadvertently shown swapped between games at the start of the last round.  I noticed that too, and was also confused for a moment by the disconnect between the commentary and what actually appeared to be happening, but much more serious was the quality of the commentary itself.  I felt it was interrupted much too often for breaks, usually to show the same couple of ads, plus what I’ll describe as “pen-portraits” of the players (cartoon-style drawing accompanied by commentary).  These were quite entertaining the first time you saw them.  Not quite so much the tenth time.  And, although the commentary team obviously worked hard to help the audience understand what was going on, I’ve enjoyed other commentators somewhat more.  The commentary is much more important in chess than say football, since (as non-players will appreciate!) there are periods of a game when there’s nothing much to see happening on the board.  I would have liked the choice to watch another broadcast.

Steve Giddings writes, also in the April edition of Chess (p.8-9), that preventing unauthorised broadcast of chess games is in “the commercial interests of the game”.  That may be so, but it seems to me that monopoly broadcasting is not the best way forward.

Given the goals of promoting chess by maximising the number of viewers of chess matches and tournaments and maximising revenue from the broadcast of elite events, simply in order to pay for them, a better option would be to license multiple broadcasters, if they’ll pay collectively more than would a single exclusive media outlet.  I outline in this article how the revenue-maximising number of broadcasters could be established by a simple process of bidding for a share of the rights.

First, though, let’s consider how other sports rights are sold and then whether times have changed – perhaps other sports might want to reconsider granting exclusivity – and how chess is different. I focus particularly on the case of domestic rights to broadcast the English Premier League.

The Football Precedent: English Premier League Live Broadcast Rights

When I was a kid, the FA Cup Final was always shown live simultaneously on both BBC1 and ITV.  So much for consumer choice – at the time there were only 3 channels (the other one being BBC2).  Nevertheless, there was competition, of a sort.  Sometimes we’d switch over to see what they were saying on the other side, though when the ads came on we’d switch back.

One might wonder why ITV would bother broadcasting the Cup Final when it was also on BBC (without ad breaks) and, indeed, why the FA would sell it to two broadcasters rather than just one.  I can think of two considerations:

  1. There was some product differentiation between the broadcasts on BBC1 and ITV.  The channels employed different commentators and pundits.  This produces what I would argue is healthy competition for viewers between broadcasters.
  2. Strange though it may seem to many younger readers, back in the day many – perhaps most – households watched either ITV or BBC almost exclusively, even though they both were (and still are) free-to-air.  It could be argued that the choice between watching BBC and ITV used to be very much driven by social class or at least the social class households identified themselves as belonging to, but that is actually irrelevant to the argument.  The point is that broadcasting the FA Cup Final on both ITV and BBC ensured that the product reached more people – ITV viewers and BBC viewers – than it would have done had it gone out only on BBC or ITV.

Presumably ITV could attract enough viewers and sell enough advertising to make it worthwhile to broadcast the FA Cup Final even though BBC1 was showing it too.

Sports Broadcast Monopolies

Why, then, you might ask, is almost all football shown in the UK now, in 2016, indeed, almost all sport (and much other content besides), broadcast on just one channel?  That is:

  • why have sports broadcast monopolies developed?;
  • why do sports administrators tolerate and even encourage broadcast monopolies?;
  • and whose interests do sports broadcast monopolies actually serve?

Some years ago I had the dubious pleasure of a job interview with BT; actually they wasted an entire day of my time at their recruitment centre (and even more with some further interviews later on).  The question arose in discussion – I guess after we’d noted the ongoing convergence of internet and broadcast media – as to how BT could best grow their broadband market.  I suggested offering some exclusive movies.  Perhaps my interlocutor was playing Devil’s advocate, but I don’t think so; regardless, he seemed to be arguing that they should market on the basis of their whizzy new network.  No, no, no!  The vast majority of consumers care only about what appears on their TV; they don’t care at all about the underlying technology.  And if there is some exclusive content – I mentioned movies at my BT interview because Sky had already “done” sport – that is likely to be decisive in winning customers.

It seems clear from their enthusiasm to enter into them that exclusive deals for live sport transmission rights are in the interests of subscription broadcasters, particularly when  trying to build a customer base.  We have the example of the English Premier League (EPL) and much other sport (as well as films and other content) on Sky, now being contested by BT.  Netflix and Amazon are exclusively hosting supposedly must-see drama series.

As a consumer, I’m always wary when I’m told something is “exclusive”.  The very word suggests to me that someone is being ripped off.  Probably muggins.

But let’s not jump to conclusions.  Besides, what we’re really interested in is the health of the sport – that is, chess, when I get to the end of this preamble.

So, could exclusive sports rights sales be in the interests of the sports themselves?

Well, when broadcasters are trying to grow their business – think of Sky and the EPL – they may be prepared to pay what appears to be a substantial premium for a monopoly.  I say “appears to be a substantial premium” because at some point the broadcaster has to demonstrate income (advertising and/or subscriptions) commensurate with the expense.  Otherwise they go bust.

It’s not immediately apparent, and, indeed, somewhat counter-intuitive, that a single broadcaster of live events or TV series can unlock more advertising and/or subscription income than can multiple broadcasters of the same material.  Nevertheless, many sports administrators appear to believe monopoly broadcast deals are in the interest of their sport.   At least in the short term.

An example of what can happen in the longer term is provided by EPL broadcast rights in the UK.  Sky held the exclusive rights from the start of the Premier League in 1992 until 2007.  After the European Commission ruled that Sky should not have exclusive rights to all matches, they had competition, first from Setanta, who ran into financial difficulties, then ESPN, who took over Setanta’s rights and most recently BT who came into the market in 2012 prepared to bid aggressively against Sky for a whole range of football and other sports rights and apparently with equally deep pockets.  Guess what happened once there was competition?  The total paid for EPL live transmission rights went up.  Considerably.

Note, though, that what Sky and BT bid for is how much of the monopoly each enjoys.  They are not in direct competition, in the sense of broadcasting the same matches, as BBC1 and ITV used to be in the case of the FA Cup Final.

The only logical conclusion is that – given that live broadcast rights to the EPL have a definite value represented by the income they can generate – they were previously being sold too cheaply!  Who’d have thunk it?

Players on £50K a week 5 years ago should be a bit miffed.  They could have been on £60K!

Why are BT and Sky paying more than Sky alone did?

Is it a conspiracy against the consumer, as I once read a commentator claiming?  Apparently, he wrote (I think it was a “he”) EPL fans would now have to buy two subscriptions.  As someone who only buys one, it might be worth pointing out that, unless it’s your team playing, or a key fixture (in which case there’s always the option of going to the pub – a form of pay-per-view) it doesn’t make that much difference which match you watch.  You don’t know in advance whether a particular match is going to be exciting.  In other words, if you’re only going to watch 20 matches a season, there’s not much point paying for 200.

Are BT and Sky trying to buy or defend market share and therefore overpaying?  Well, there may be an element of this, but, first, from the point of view of the sport this is a good thing.  Second, companies can’t do this for ever.  BT is now established in the market.  I doubt they’d be paying so much for 3 years of broadcast rights if they didn’t think they’d make money on the deal.

Has BT unlocked market segments Sky wasn’t reaching?  Yes, I believe so.  I pay a small add-on to my broadband internet deal to receive BT’s sports channels, which I watch online, on a PC.  For the number of matches I actually manage to watch I can justify this cost, but not a Sky subscription (plus charges for set-top boxes and so on).

But it may also have been that Sky was paying less than the EPL transmission rights were worth and making excess profits as a result.  These have not necessarily all appeared as profits in its accounts, but may have also been reinvested, for example, in establishing a dominant position in the UK in the broadcast markets for other sports, such as cricket.

A market needs to be competitive to establish the real value of a product.  It’s in the long-term interests of sports themselves, I suggest, to maintain a competitive market for broadcast rights and not allow monopolies to develop.  Such monopolies might end up underpaying until a competitor eventually challenges them, as, I argue, appears to have happened for EPL live broadcast rights in the UK.

In addition,  it’s in the long-term interests of sports for as many people as possible to be able to watch them.  This is best achieved by a number of broadcasters with different business models reaching different segments of the market.  It’s worth pointing out that sports administrators sometimes ensure that at least some events are “free-to-air” in order to show-case their product, for example the World Cup and, this summer, the UEFA Euro 2016 tournament (at least in most European countries).  This month’s FA Cup Final was broadcast on the BBC as well as BT Sport.

Differences Between Chess and Football

After that somewhat longer discussion of football than I had intended, let’s get back to chess.  As I’ve argued, even football could consider selling live transmission rights to multiple broadcasters, but are there differences between chess and football) that make monopoly broadcasting a less attractive option in the case of chess?

I believe there are several relevant (though interrelated) differences:

First, live chess is typically broadcast globally, over the internet.  This means that the peculiarities of local markets are much less relevant.  For example, in the UK the playing field for broadcasting football was uneven when Sky entered the market.  Sky had to have content that was not available to the free-to-air channels ITV and the BBC or no-one would have subscribed; and it needed subscriptions to fund the cost of its satellites.  OK, there is at least one place where chess appears live on TV: Norway, home of the World Champion, Magnus Carlsen.  But given the general reliance on the internet for broadcasting chess, it makes sense to simply leave distribution to the broadcaster and not sell rights separately for different platforms (TV, internet, mobile devices etc).

Second, and related to the first point, the world has moved on in the quarter-century since the EPL broadcast model was established.  To some extent sports channel subscription revenues funded a dramatic increase in the number of channels available by enabling satellite and cable TV.  But with the growth of TV over the internet, the potential number of channels is vast, and the entry-cost considerably lower than in the past.  Broadcasters don’t need huge guaranteed revenues to justify their business models.  Furthermore, given the flexibility of advertising charging that is possible on the internet – essentially payment depends on the actual number of viewers – advertisers do not need historic broadcast data.  They’ll just pay for what they actually get.

Third, the commentary and presentation is a more significant part of the overall package in the case of chess than it is for football.  Personally, for normal tournament commentaries I’m as much interested in who’s commentating than who’s playing.  I’d be much more likely to tune in if Maurice Ashley, Danny King or Peter Svidler are explaining a game.

Fourth, chess is still at the experimental stage, still trying to explore what works best in live transmission.  It doesn’t make a lot of sense to stifle this process by restricting the number of broadcasters to one.

Fifth, interest in chess is global.  Viewers might appreciate broadcasts in their own language as well as English.

Sixth, there are a limited number of marketable chess events.  To promote the game, as well as maximise revenues, it makes sense for these to be available to as many viewers as possible.

Seventh, I don’t believe there is a pot of gold waiting for someone able to sell advertising round chess events.  Compared to football, it’s always going to be a niche market.  Indeed, for many of the chess sites – Chess.com. Chess24.com, the Internet Chess Club (ICC), Playchess.com and so on – that broadcast (or might broadcast) elite chess events, covering live events is, unlike in the case of football, only part of their offering to visitors to their site (who may pay a subscription).  These sites also allow you to play online, host articles and instructional videos and so on.  Unlike the sports channels of Sky or BT, losing live transmission rights is not an existential threat.  They are therefore unlikely to pay huge sums for monopoly rights.  Collectively, though, they may pay a decent amount for something that is “nice to have”.  The resulting choice for viewers would also be beneficial to the game and raise broadcast standards.

For all these reasons it seems to me that it makes sense for chess events to be hosted by multiple broadcasters.

Price Discovery for Chess Broadcast Rights

Before considering the mechanics of an auction for chess broadcast rights, let’s first establish a principle: all broadcasters will pay the same price.

Live sports transmission rights are generally sold territorially.  That’s messy already – people cheat by importing satellite dishes from neighbouring countries and so on- but in the age of internet broadcasting its unworkable.

One might also consider language restrictions.  Why should a broadcaster be able to reach the whole Chinese population or the English, Russian, French or Spanish-speaking world for the same price as an Estonian native-language broadcaster?  Well, don’t worry about it.  The market will take care of things.  Broadcast auctions will be a repeat exercise and, if the price is low compared to the size of the market in a specific language, that will simply encourage more broadcasters.

What if some broadcasters are mainstream TV channels, in Norway, for example?  Again, don’t worry about it.  Just leave distribution up to the broadcasters.  TV channels are competing with internet broadcasters.  The only restriction should be that a one licence – one broadcast rule.  If a broadcaster wants to transmit to multiple audiences, in different languages, say, or by producing different versions tailored to experts and the general public, then they have to buy two or more licences.

What would the broadcasters buy?  An automatic feed of the moves (top events nowadays use boards that automatically transmit the moves electronically) is obviously essential.  Since you don’t want numerous video cameras in the playing hall, the organisers (or a host broadcaster) would also provide video feeds of the players, often used as background to the commentary (generally in a separate window).  Post-game interviews or a press conference are also usual and these could be part of the package, as could clips from the recent innovation of a “confession-box”, where players can comment during their game.  Broadcasters would edit these video feeds together with their own commentary to produce their final product.

Let’s make one other thing clear about the objective of the auction process.  The goal is to maximise revenue.  This is not in conflict with the goal of maximising the online audience and thereby promoting the game.

So, how would the auction work?  How can we maximise revenue from an unknown number of broadcasters all paying the same price per transmission stream?

Here’s my suggestion.  The broadcasters would be required to submit a number of bids each dependent on the total number of broadcasters.   That is, they would bid a certain amount to be the monopoly broadcaster, another amount (lower, assuming they act rationally!) to be one of two broadcasters, another amount to be one of three, and so on, up to some arbitrary number, for example to be one of more than ten broadcasters.

The chess rights holder – FIDE, for example – would simply select the option that generates most revenue.  All bidders would of course pay what the lowest bidder offered to be one of the specific number of bidders chosen.  E.g., if 2 bidders are successful, one bidding $70,000 to be one of two broadcasters and the other $60,000, both would pay $60,000.  In this case, neither broadcaster, nor any other, would have bid more than $120,000 for exclusive rights and no 3 more than $40,000 to be one of 3 broadcasters, nor 4 more than $30,000 to be one of 4, and so on.

For example, it may be the case that one bidder bids more to be the sole broadcaster than any two bid to be dual broadcasters, any three to be the only three broadcasters and so on.  In that case, one broadcaster would secure a monopoly.  Or, at the other extreme, 12 broadcasters might, for example, bid more to be one of “more than ten” broadcasters than any sole broadcaster bid for a monopoly and so on, and more than 13/12 times what the unlucky 13th highest bidding broadcaster bid to be one of “more than ten” broadcasters, 14/12 times what the 14th highest bidder bid, 20/12 times what the 20th bid and so on up to the total number of bidders.

It’s my guess that revenue will be maximised for a World Championship match by a relatively large number of bidders.  And the crucial point is that the more broadcasters, the larger the audience and the greater the choice for viewers.

 

September 16, 2015

Will Osborne’s UK National Living Wage Really Cost 60,000 Jobs?

Filed under: Economics, Inequality, Minimum wage, Unemployment — Tim Joslin @ 7:25 pm

It’s pretty dismal if you’re left-leaning in the UK right now.  Not only did Labour lose the election catastrophically and – adding to the shock – much more badly than implied by the polls, they’ve now gone nuts and elected a leader who can’t win, and even if he did advocates policies that belong in the 1970s.  Meanwhile Osborne is implementing a policy Labour should have been pushing during the election campaign, namely what is in effect a higher minimum wage, his so-called National Living Wage (NLW) for over 25s.  Of course, Osborne’s overall package is disastrous for many of the poorest households who will be worse off even with the NLW because of simultaneous cuts to tax credits.

If you’re following the debate around the NLW – for example as expertly hosted by the Resolution Foundation – it’s clear that the Big Question is how much effect the NLW (and increased minimum wages in general) is likely to have on (un)employment.  Now, based on logical argument (that being my favoured modus operandi), and, of course, because my philosophy is to question everything, I am highly sceptical of the mainstream line of reasoning that labour behaves like paper-clips.  Put up the price of paper-clips and you’ll sell fewer; put up the price of labour and unemployment will rise is the gist of it.  But this ignores the fact that increasing wages itself creates demand.  More on this later.

Much as I believe in the power of reasoned argument, I nevertheless recognise that it’s a good idea to first look at the strengths and weaknesses of the opposing position.  In this post I therefore want to focus on the meme that Osborne’s NLW will cost 60,000 jobs.  How well-founded is this estimate?  You’ll see it quoted frequently, for example, by the Resolution Foundation and on the Institute for Fiscal Studies’ (IFS) website and no doubt in mainstream media reports.  The original source is the Office for Budget Responsibility.  As far as I can tell the 60,000 figure first appeared in a report, Summer budget 2015 policy measures (pdf) which was issued around the time of Osborne’s “emergency” budget in July (the “emergency” being that the Tories had won a majority), when he bombshelled the NLW announcement.

So, I asked myself, being keen to get right to the bottom of things, where did the OBR boffs get their 60,000 estimate from?  Well, what they did was make a couple of assumptions (Annex B, para 17 on p.204), the key one being:

“…an elasticity of demand for labour of -0.4… This means total hours worked fall by 0.4 per cent for every 1.0 per cent increase in wages;”

They stuck this into their computer, together with the assumption that “half the effect on total hours will come through employment and half through average hours” and out popped the 60,000 figure.

But where does this figure of -0.4 come from?  They explain in Annex B.20:

“The elasticity of demand we have assumed lies within a relatively wide spectrum of empirical estimates, including the low-to-high range of -0.15 to -0.75 in Hamermesh (1991). This is a key assumption, with the overall effects moving linearly with it.”

The Hamermesh reference is given in footnote 3 on p.205, together with another paper:

“Hamermesh (1991), “Labour demand: What do we know? What don’t we know?”. Loeffler, Peichl, Siegloch (2014), “The own-wage elasticity of labor demand: A meta-regression analysis””, present a median estimate of -0.39, within a range of -0.072 to -0.446.” (my emphasis)

Evidently Hamermesh is the go to guy for the elasticity of demand for “labor”.  So I thought I’d have a look at how Hamermesh’s figure was arrived at.

I hope you’ve read this far, because this is where matters start to become a little curious.

Both papers referred to in footnote 3 are available online.  Here’s what Hamermesh actually wrote (it’s a screen print since the document was evidently scanned in to produce the pdf Google found for me):

150916 National Living WageSo what our guru is actually saying is that although the demand elasticity figure is between -0.15 and -0.75, as assumed by the OBR, his best guess – underlined, when that was not a trivial matter, necessitating sophisticated typewriter operation – was actually -0.3.

So why didn’t the OBR use the figure of -0.3?

Perhaps the answer is to do with the -0.39 they quote from the Loeffler, Peichl and Siegloch paper (pdf).  But this is what those guys actually wrote:

“Overall, our results suggest that there is not one unique value for the own-wage elasticity of labor demand; rather, heterogeneity matters with respect to several dimensions. Our preferred estimate in terms of specification – the long-run, constant-output elasticity obtained from a structural-form model using administrative panel data at the firm level for the latest mean year of observation, with mean characteristics on all other variables and corrected for publication selection bias – is -0.246, bracketed by the interval [-0.072;-0.446]. Compared to this interval, we note that (i) many estimates of the own-wage elasticity of labor demand given in the literature are upwardly inflated (with a mean value larger than -0.5 in absolute terms) and (ii) our preferred estimate is close to the best guess provided by Hamermesh (1993), albeit with our confidence interval for values of the elasticity being smaller.” (my emphasis)

Yep, the Germanically named guys from Germany came up with a figure of -0.246, not the -0.39 in the OBR’s footnote 3.  The OBR’s -0.39 is a rogue figure.  It must be some kind of typographical error, since they correctly quote the possible range ( -0.072 to -0.446) for the demand elasticity.  Bizarre, frankly.

It’s even more mysterious when you consider that the OBR would surely have used the elasticity of demand for labour previously.

Based on the sources they refer to it seems the OBR should have plugged -0.3 at most into their model, not -0.4.  This would have given a significantly lower estimate of the increase in unemployment attributable to the introduction of the NLW, that is, roughly 45,000 rather than 60,000.

Why does this matter?  It matters because the idea that a higher minimum wage will increase unemployment is one of the main arguments against it, frequently cited by those opposed to fair wages and giving pause to those in favour.  Here, for example, is what Allister Heath wrote recently in a piece entitled How the new national living wage will kill jobs in the Telegraph:

“…it is clear that George Osborne’s massive hike in the minimum wage will exclude a significant number of people from the world of work. There is a view that this might be a worthwhile trade-off: if millions are paid more, does it really matter if a few can’t find gainful employment any longer? Again, I disagree: there is nothing more cruel than freezing out the young, the unskilled, the inexperienced or the aspiring migrant from the chance of employment.

Being permanently jobless is a terrible, heart-wrenching state; the Government should never do anything that encourages such a catastrophe.”

Clearly, Heath’s argument (which I don’t in any case agree with) carries more weight the greater the effect of a higher minimum wage on unemployment.  But getting the numbers wrong isn’t the only problem with the OBR’s use of the demand elasticity of labour, as I’ll try to explain in my next post.

August 28, 2012

MonopolyWatch: Thames Water’s Counting Difficulties

Our vision: If customers had a choice, they would choose Thames Water.
– signoff on email from Do.Not.Reply@thameswater.co.uk.

I don’t know why that quote creases me up, since it expresses a very sensible aspiration. Maybe it’s because it could be so easily adapted: “Our vision: If voters had a choice, they would vote National Socialist/Communist/United Russia [delete as applicable]”. Or maybe it’s just my sense of humour.

I’ve recently had to move home, so am experiencing no end of hassle, in large part in dealing with various utilities and suppliers. This has led me to formulate a hypothesis: the level of incompetence of an organisation is directly correlated with the extent of its monopoly.

So, as an aside within this inaugural MonopolyWatch newsletter, perhaps US car rental customers should start to worry with Reuters reporting that:

“Hertz Global Holdings [has] agreed to buy rival Dollar Thrifty Automotive Group for about $2.3 billion in a deal that puts about 95 percent of the U.S. car rental market in the hands of three companies.”

Why do we allow takeovers, such as of Dollar Thrifty by Hertz? Do we really believe that 3 choices is enough to ensure healthy competition throughout the entire US? It seems to me that in most markets the presence of at least 10 suppliers is necessary to provide sufficient consumer choice and drive continual quality and feature improvements and cost reductions. Surely “consolidation” across industries such as car rental is driven almost entirely by large organisations seeking to achieve a greater degree of monopoly power? So why don’t we – or at least our elected representatives and public officials responsible for the health of the overall economy – resist this process more strongly?

Back to Thames Water. They’re not the worst, but not far from it. Ealing Council, for example, have no rule for deciding who pays the Council Tax on the day you move. Or perhaps they do have a rule, but don’t understand it! Let me explain: you don’t move in or out at midnight, but Council Tax applies – and there seems to be little disagreement on this point – per calendar day, i.e. from midnight to midnight. In fact, likely you formally move some time around midday, let’s say at 11am on 16th August, for the sake of argument. So who pays the Council Tax for 16th August, the person moving out or the person moving in? Simple enough, you’d have thought. (For the record, I’d expect the rule to be along the lines of hotel room bookings, i.e. the person moving in on 16th pays the Council Tax for 16th, just as if you booked a hotel room for “the night of 16th” that would be the night starting on 16th and ending on 17th!).

How could Thames Water match this? Well, they make a clear distinction on their website between customers moving within their catchment area and those moving outside it:

Clearly, if moving out of Thames’ catchment area means you “need to close your account”, the implication is that moving within the catchment area keeps it open. They even ask you for a moving-in date to the new property. This makes some sense, since there may, as in my case, be an overlap, i.e. the rental for the new place started before the one for the old place ended. I don’t think it’s just me being pedantic: asking for information about where you are moving implies Thames are going to carry the account over, as, for example, Virgin Media do (more about those scum another time).

But whoever is moving out from the new property will also have told Thames you are moving in. Does Thames’ website sort this out in some intelligent manner, e.g. by overriding or matching the names provided by the previous resident at the new property? Seemingly not.

And does Thames’ website ask if you want to carry over your Direct Debit when you move? Nope.

So, after telling Thames where I was moving, I then received a letter inviting me to pay by Direct Debit. Has this resulted from me telling them I’ve moved or from the the landlord telling them I’ve moved in? No idea.

Do Thames reassure customers in any way that they will not be billed twice for the property they are moving to. No.

Is it actually possible I could even end up paying twice? Who knows?

Since I now have a new account number and have had to set up a new payment arrangement, is there any sense in which the account at my previous address has not been closed as if I’d moved out of Thames’ catchment area? Seemingly not.

Nevertheless, I dutifully went on line and set up a Direct Debit to Thames. This is where the tale really takes off. What day of the month did I want to pay on? I selected 15th. But when I went to the next screen the form showed 14th. So I pressed “Back”. Big mistake.

This screen-grab shows what I saw next:

Yeap, no “14”. So “15” is interpreted as 14th in the list, I guess.

Thinking maybe I’d inadvertently selected 14 instead of 15 the first time and that Thames’ had implemented a new form of drop-down list omitting the current selection, I selected 15 again. No dice: the next page still showed 14.

I decided to settle for paying on 14th. And guess what? That wasn’t the only problem with this one simple web page. No sirree. Even though all the data I’d entered – name, address, bank account etc – was showing on the screen, the software didn’t think it was there. I had to enter it all again.

On one level it is a bit odd having alternative gas and electricity suppliers all selling an identical product, coming along the same pipes or wires. Given no differences in what is supplied, one should expect little difference in prices. But at least you can choose energy suppliers that are competent in handling the billing process. Why not allow the same for water?

July 19, 2012

We Need Rules, not Rulers: Culture, Bankers and the Mervyn King Question

Filed under: Barclays, Business practices, Concepts, Credit crisis, Economics, LIBOR, Politics, Regulation, UK — Tim Joslin @ 4:18 pm

The aim of any self-respecting blogger is to make original points. I’m no exception, so it is time to start to wind down this thread on the Libor “scandal” (previous instalments: Saint Mervyn: King by Name, King by Nature; Bashing Barclays Badly and Battling for Mount LIBOR, the Moral High Ground), for the world has in many respects come round to my way of thinking.

Yesterday’s City a.m. egged on the politicians with the momentarily confusing headline:

MPs CALL FOR CAP ON KING’S POWER

and opening salvo:

“REGULATORS grossly overreached themselves by forcing Bob Diamond out of the top job at Barclays, top backbench MP Andrew Tyrie declared yesterday…”

And the refrain “Who will guard the guards?” echoes through the land (and I noticed has even seeped, with the rapid mutation typical of memes, into the consciousness of the brigade of the commentariat more concerned with the easy target of the G4S Olympic security fiasco).

One of our heroes, already mentioned in despatches from the front-line, Hugo Dixon, has another piece on his Reuters blog, discussing how the Governor might be reined in:

“Holding the next governor accountable will be as important as choosing one. The Bank of England was rightly given considerable independence in 1997 to prevent politicians meddling in monetary policy in order to advance their electoral interests. But the institution and its leader have slipped up on enough occasions that leaving them entirely to their own devices isn’t a good option either.

For example, King didn’t sound the alarm loudly enough during the credit bubble and was slow to act when there was a run on Northern Rock, the mortgage bank, in 2007. He then long resisted any investigations into the Bank of England’s own failings in managing the crisis. Now its hands-off approach to the Libor scandal is being revealed.

Based purely on its record, the central bank wouldn’t be receiving extra powers. However, the Conservative-led government has tried to pin the blame for the credit crunch on the previous Labour government’s policies – in particular, its decision to take away the central bank’s responsibility for banking supervision. Hence, it has become politically convenient to reverse that move.

Given this, the priority should be to enhance the Bank of England’s accountability. Under the current system, the government sets inflation targets and picks the governor. It also chooses the deputy governors and members of two committees: the monetary policy committee which sets interest rates; and the financial policy committee which will soon be responsible for financial stability. Their independent members help prevent the governor becoming too dominant.

The Bank of England also has a board, called the Court. But this has been largely ineffective. Though it has recently stepped up its scrutiny of the central bank’s executives, it is hamstrung because it rightly has no say over policy or who is the governor.

Meanwhile, parliament can call the governor and other senior officials in to give evidence. Although this is a potentially important check to the central bank’s power, MPs haven’t yet used this tool effectively.

One way of improving democratic control would be to give MPs the right to hold nomination hearings and, in extremis, reject the government’s choice for governor and other top positions. Indeed, that’s what parliamentarians want. But the government is resisting. If MPs are to change its mind, they must first show they are up to the job.”

Let’s come back to this when we’ve diagnosed the problem.

Because I still feel I haven’t made my point fully.

What the Libor affair shows us is that regulation must be mechanical, not moral.

This is a lesson we failed to learn from King’s behaviour during the financial crisis, despite his starving the UK banks of liquidity in a misguided attempt at preventing “moral hazard”; his expressed desire to stitch up Lloyds shareholders with a backroom deal to take over Northern Rock; and the actual outrageous stitch-up of Lloyds shareholders with a backroom deal to take over HBoS without adequate due diligence, to which he must at least have given a nod.

My first post on the Libor-fiddling topic touched on the subject of culture:

“The excuse for laying into Diamond seems to be some problem with the ‘culture’ at Barclays. Is it any different to that at any other investment bank? Doesn’t the ‘culture’ in any occupation go with the turf? Presumably they don’t want traders to behave like, say, Premier League footballers, or Hollywood actors. Something less flash perhaps: doctors, say or IT guys. But would they still be able to do the job? These occupations surely require quite different qualities and aptitudes. Maybe something a little more sales oriented, perhaps, then: used car dealers or estate agents. Or politicians! But are these professions more or less honest than investment banking? I’m stuck. Perhaps our politicians could spell out exactly how they want investment bankers to behave.”

The aim of yesterday’s post was to develop the idea that the “scandal” is being treated as a moral issue. There’s something “bad” about Barclays, we’re told, and the Bank of England Governor, with ex officio moral authority, judges it comes from the top and fires the Chief Executive.

But what is “culture”?

This is what an editorial, “Culture shock”, in yesterday’s FT (I’m getting my full £2.50 worth!) suggested:

“Culture is not a fluffy chimera of business how-to books or self-congratulatory corporate reports. Culture, real and unnoticed as the air we breathe, is the web of unspoken mutual understandings that frame what people expect from others and think is expected of them. This web shapes the fortunes of any organisation or social group. Bob Diamond, Barclays’ disgraced ex-chief executive, knew this; he once declared ‘the evidence of culture is how people behave when no one is watching’. He was right…

… [non sequiturs omitted]

A culture cannot be heavy-handedly ‘managed’ by legislation or compliance rules alone. It must be more subtly cultivated and tended.”

OK, we can all agree that behaviour within an organisation is determined by executive example and communications; organisational stories; dress code; building architecture, location and decoration; the presence or absence of game rooms; and so on and so forth – as well as the nature and demands of the work, as I previously stressed. But within all that complexity, all we’re really concerned about here is that rules are followed. There may be indirect ways of achieving this goal by means of some kind of arcane cultural alchemy – would Fairtrade coffee, beanbags and dress-down days work? who knows? – but most people would consider it sensible to simply focus on the outcome.

Obviously the “rules alone” are not enough. There also needs to be an expectation of enforcement. A rooting out of dishonesty. And maybe by spending £100m on investigating Libor-fixing rather than, say, carrying out some “routine email housekeeping” (didn’t something like that come up with News International?), Barclays have shown a willingness to steer their internal culture in the direction of obeying the rules.

With this unsatisfactory view of “culture” in mind, let’s consider the crucial question for the future, the “Mervyn King Question”: Is it possible for the Governor to both exercise moral authority AND for there to be effective oversight of the role?

No, of course not. The Governor can’t both exercise his judgement AND explain the detailed reasons for a decision. If he can explain the precise reasons to whoever he, the Governor is accountable, for example those for firing Bob Diamond (“he broke rule 44b clause 3, which is a sacking offence”), then by definition he isn’t exercising judgement.

The Mervyn King Question suggests then that we have to decide which way we jump. Do we want, in the modern world, to trust the personal judgement of an unelected official, or do we want a team expert in banking regulation to ensure that the rules and sanctions for breaking them are clear to banks and that bank behaviour is monitored and the rules enforced?

Do we want a ruler or do we want rules?

The traditional role of the Governor of the Bank of England was one of arbitrary power. This is where Mervyn King believes we should return. No wonder the job of Governor is so coveted.

But there’s a different path. Surely we’d be better off rejecting the moral approach and focusing on the technical aspects of the role of Governor of the Bank of England?

Let’s take as an example the critical case, where it all started to go wrong, when I first became concerned about the outlook of Mervyn King. Instead of arbitrarily allowing banks (such as Northern Rock) to fail to try to prevent “moral hazard” shouldn’t the Bank have made the rules absolutely clear in advance? NR would not, I’m sure, have relied on interbank funding had it’s executives known that funding may be allowed to dry up and they would have to retire in disgrace.

I would suggest that the Bank start by announcing that it will not allow any Bank to fail due to systemic problems (as opposed to Baring-style sudden catastrophic losses), but will provide liquidity as lender of last resort. What constitutes “systemic” would need clear definition, as would the cost of such support which would include a requirement for banks to raise capital. We have to recognise that we can never allow banks to fail under stress – such failures simply cascade through the economy – and dismiss the nonsense that such a backstop is some kind of subsidy for institutions that are “too big to fail”. This is like saying that Tesco is subsidised because the State provides resources for the prosecution and punishment of shop-lifters.

The Libor-fiddling that mattered – that before the financial crisis – was arguably criminality, pure and simple. It was orchestrated by a small group of traders who knew they were breaking the rules, as their emails make clear: “I would prefer this not be in any book!”, “if you breathe a word of this I’m not telling you anything else” and so on. It became a “scandal” because politicians – principally Ed Miliband – immediately made hay. But business isn’t politics. It’s not primarily about character (neither should politics be, of course, but the UK political process is becoming ever more Presidential and less policy-driven). The danger of allowing the political process to drive banking or other business regulation is that there is no satisfactory answer to the Mervyn King question. Even were we to confer moral authority on the Governor as we do the Prime Minister (who is not only elected, but easier to get rid of than the Governor – men in grey suits and all that), business is not hierarchical like government. It is fundamentally about choice and competition. Differences in outlook are necessary.

Dismissing company bosses in an attempt to change the corporate “culture” would seem to necessarily worsen group-think. If all our banks had been the same perhaps they’d all be part owned by the State now. Perhaps they’d all been like HBoS. As it is, Barclays managed to recapitalise without calling on government funds, Santander expanded and the “elephant” HSBC simply marched on barely affected. Diversity matters.

At worst, of course, there is no difference between condemning a bank’s culture and firing the boss simply because you don’t like the cut of his jib.

I promised I’d return to the points Hugo Dixon made. We may well need some or all of the means Dixon suggests for holding the Governor to account. But before we can do that, Parliament needs to step back and look at how the Governor’s role is defined. They need to review his Terms of Reference. Make sure he’s clear what the rules are.

July 18, 2012

Battling for Mount LIBOR, the Moral High Ground

Filed under: Barclays, Business practices, Credit crisis, Economics, FT, LIBOR, Media, Politics, Regulation, UK — Tim Joslin @ 4:17 pm

If you’re going to watch one film about the Vietnam War then I recommend Hamburger Hill. The point of the film for me at least (other discussions of the movie fail to stress this point) was that the battle was not about the strategic value of the eponymous high ground. Rather, both sides were trying to demonstrate their determination.

Catching up with an episode of Mock the Week last evening, I chanced on a rant by the one I would refer to as the tall, skinny panelist with dark curly hair, had the internet not been invented purely to allow me to remind myself that his name is, in fact, Chris Addison. The comic – who I always feel differs from his generally less hirsute colleagues in looking less like a funny-man, and more like a particularly tedious sociology lecturer – observed at some length that everyone is furious about the Libor “scandal”, even though most of them they don’t have a clue what it’s about. Well observed, in my opinion.

My first post on the Libor topic attempted to convey this moral dimension – and the battle for authority – with its title, Saint Mervyn: King by Name, King by Nature, but perhaps I wandered slightly off the theme, in favour of providing a narrative.

It seems clear after Mervyn King’s appearance before the Treasury Select Committee yesterday, though, that the Governor chose the Libor issue as the ground on which to continue a war with the City, and in particular with Bob Diamond. We’re told that Diamond’s sacking was not just about the Libor issue, but about Barclays’ “culture”, and a “pattern of behaviour”, as discussed in correspondence between Lord Turner, head of the FSA and Marcus Agius, Barclays’ Chairman. It seems clear that nothing new had emerged to implicate Bob Diamond personally and that King therefore simply seized the opportunity to get rid of him. Here’s how the Guardian puts it in an editorial:

“And why exactly was Mr Diamond pushed out? Not for any direct involvement in the Libor scandal but, in the words of Mr King yesterday: ‘They [the bank] have been sailing too close to the wind across a wide number of areas.’ No actual infraction; just a general sense of having gone too far for too long. … The impression left is of rather rough justice.”

Indeed, I’m reminded, the Libor scandal itself is nothing new. Although I now seem to have run out of free views of FT.com pages (so pushed the boat out and bought a copy this morning – £2.50, they’re having a laugh!), I did manage to access an old story that I’d bookmarked:

Banks served subpoenas in Libor case

By Brooke Masters and Patrick Jenkins in London and Justin Baer in New York

Regulators probing alleged manipulation of a key interbank lending rate have focused their demands for information and interviews on five global banks, according to people familiar with the investigation.

UBS, Bank of America, Citigroup and Barclays have received subpoenas from US regulators probing the setting of the London interbank offered rate, or Libor, for US dollars between 2006 and 2008. …”

Who says bookmarking thousands of interesting news stories is a waste of time, eh?

And this one FT story contained links to pieces in the FT’s Lex and Lombard columns, as well as another story the previous day:

“Big banks investigated over Libor

By Brooke Masters and Patrick Jenkins in London and Justin Baer in New York

Regulators in the US, Japan and UK are investigating whether some of the biggest banks conspired to ‘manipulate’ the benchmark interest rate used to calculate the cost of billions of dollars of debt.

The investigation centres on the panel of 16 banks that help the British Bankers’ Association set the London interbank offered rate, or Libor – the estimated cost of borrowing for banks between each other.

In particular, the investigation was looking at how Libor was set for US dollars during 2006 to 2008, immediately before and during the financial crisis, people familiar with the probes said.

The probe came to light on Tuesday when the Swiss bank UBS disclosed in its annual report that it had received subpoenas from three US agencies and an information demand from the Japanese Financial Supervisory Agency. …”

When were these stories published? 15th and 16th March, 2011.

Now, I may not be willing to fork out for an FT subscription, but I’m sure Bob Diamond and Mervyn King are. In fact, they probably receive the “Pink’un” as a perk of their jobs.

Regular readers will know that I’m very guarded in anything resembling an accusation that I may occasionally make on here, but it does indeed beggar belief that everyone involved is claiming to have been unaware of the brewing Libor scandal – a matter relevant to banks’ annual company reports – until the last few weeks, since even I knew about it, and the Libor-setting process was, until this month, of course, of somewhat peripheral interest to me, and even that overstates my curiosity. My £2.50 copy of the FT quotes Mervyn King on the front page as saying:

“The first I knew of any alleged wrongdoing was when the reports came out two weeks ago.”

Doesn’t the Governor read the FT? If not, why not?

To the extent I worried about it, I assumed the likelihood of fines over Libor-rigging was “in the price” of bank shares (we must be at the point where banks start assuming a few hundred mill in fines each year as part of their business plans, and therefore product-pricing). Active investors must have also thought bank share prices took account of the Libor investigation, as otherwise they would have sold the banks, short if necessary.

As I mentioned yesterday, Libor manipulation – much of which occurred during the financial crisis when the numbers were guesses anyway – would seem to be less serious than HSBC’s desultory attitude towards controls to prevent money-laundering. (Rather predictably, HSBC have seemingly gone overnight from one extreme to the other: I have recently had an HSBC account, to which I log in online 2 or 3 times a month, locked down – “suspended” so I can’t even pay into it – for no apparent reason).

No, Libor has been chosen as a battleground.

Sacking Bob Diamond makes no sense otherwise. Barclays report that they spent £100m “to ensure no stone has been left unturned” in their internal investigation and have settled early with the regulators. Since this has not been enough to keep the top guys in their jobs, perhaps their successors will adopt a different strategy next time!

And, like a misjudged military intervention, the battle threatens to turn into a war, consuming its instigators.

Mervyn King has clearly over-stepped his authority and threatened his legacy: “It is the BoE that finds itself most directly in the line of fire”, writes the FT’s Chris Giles. Not only are more and more awkward questions being asked in the UK, the regulators across the Pond are now playing holier than thou. That FT front-page lead (taking precedence over a report of the HSBC compliance chief quitting during a US Senate hearing!) is titled: “Bernanke calls Libor a ‘flawed’ benchmark”, and observes that “Mr Bernanke’s description of how the US reacted [earlier, in 2007] to claims that banks were understating the rates at which they could borrow contrasted with testimony yesterday from Sir Mervyn King.”

Mervyn King’s “pattern of behaviour” suggests to me that he may have been bullied at school. If not, I rather suspect he’s now going to find out what it’s like at his regular central-banker get-togethers.

July 17, 2012

Bashing Barclays Badly

Filed under: Barclays, BBC, Business practices, Credit crisis, Economics, LIBOR, Media, Politics, Regulation — Tim Joslin @ 6:10 pm

I noted yesterday that I’d set the recorder to catch Jerry del Messier’s appearance before the Treasury Select Committee. Sadly, when I got home I found I had filled my hard disc with several hours of BBC News 24, which contained no more than 7 minutes of coverage, including “analysis” of the session. Clearly the BBC is not so bothered to get to the heart of the matter.

Never mind, I watched a bit on Parliament TV this morning, after warming up with some live coverage (thanks BBC) of Mervyn King’s appearance, flanked by his deputies and Adair Turner, like a bunch of schoolboys caught reading top-shelf magazines behind the bike-sheds.

Unlike the BBC, the MPs are trying gamely, but you really have to wonder if the process works properly. Maybe just two or three of them should ask all the questions, to avoid lines of questioning being dropped just as it gets interesting, as keeps happening when it’s another Member’s turn for a few minutes in the limelight.

Still, I wasn’t disappointed by del Messier’s grilling (you missed broadcasting some great live TV, BBC), but a couple of points seemed to pass the MPs by.

First, it finally became clear that Bob Diamond’s infamous memo was sent the day after the phone call it records, as suggested by the timestamp. Here’s the full memo:

“From: Diamond, Bob: Barclays Capital

Sent: 10/30/2008 14:19:54

To: Varley, John: Barclays PLC

Cc: del Missier, Jerry: Barclays Capital (NYK)

Subject: File note: Bank of England call

Fyi

File Note: Call to RED [Diamond] from Paul Tucker, Bank of England

Date: 29th October 2008

Further to our last call, Mr Tucker reiterated that he had received calls from a number of senior figures within Whitehall to question why Barclays was always toward the top end of the Libor pricing. His response was ‘you have to pay what you have to pay’. I asked if he could relay the reality, that not all banks were providing quotes at the levels that represented real transactions, his response ‘oh, that would be worse’.

I explained again our market rate driven policy and that it had recently meant that we appeared in the top quartile and on occasion the top decile of the pricing. Equally I noted that we continued to see others in the market posting rates at levels that were not representative of where they would actually undertake business. This latter point has on occasion pushed us higher than would otherwise appear to be the case. In fact, we are not having to ‘pay up’ for money at all.

Mr Tucker stated the levels of calls he was receiving from Whitehall were ‘senior’ and that while he was certain we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.

RED [Diamond]”

I was surprised, to say the least, that none of the Select Committee noticed this delay the first time round when they might have asked Diamond what he did in the intervening time (he phoned del Messier, it turns out, though I recollect Diamond didn’t recollect this). Diamond, I remember, testified at some length that he was concerned that Barclays might appear weak whilst trying to finalise its life-saving Middle East share sale. Surely he would not have waited a day before relaying the message from Tucker.

Second, the MPs are completely failing to distinguish between different periods of Libor fiddling. From 2005-7 traders in Barclays and elsewhere were persuading the rate-setters to submit a Barclays Libor rate in order to try to make money. This is appalling – see the FSA’s report (pdf) for the salacious details. But after 2007 Libor wasn’t working. Interbank lending wasn’t happening. The FSA write:

“In the latter half of 2007 and throughout 2008, lending in London for maturities longer than overnight came to a virtual standstill and there was extreme dislocation in global money markets.”

So the banks were just making a judgement as to what they might be able to borrow at. Since it was just a guess, it stands to reason that if they were guessing higher than every other bank they may as well guess lower. “Low-balling” Libor was done for an entirely different reason from mid 2007 on – top-down from management, rather than bottom-up by traders – so as not to appear weak.

What strikes me is that by releasing Diamond’s file note, Barclays have successfully steered the MPs away from the criminality and into the increasingly murky area of Libor-setting during the financial crisis. Damage-limitation PR, basically, though that’s fairly moot from Diamond’s point of view right now, but the MPs really should have tried to distinguish between the two periods. The symptoms may be similar – dodgy Libor submissions – but the causes are different. Both hayfever and a cold might cause you to sneeze, but you’d treat the two conditions quite differently.

The Committee session with Mervyn King this morning was quite different. The Governor didn’t seem to realise he was in the dock. He was shirty with his inquisitors, and even tried to talk over one. And Andrew Tyrie seemed genuinely cross. He shared the concerns I expressed yesterday. Trouble is, dealing with King is like having a 6 foot shark on a line intended for mackerel. He seems to be pulling in several different directions at once. One minute he’s the regulator (on the grounds that the function is being handed back to the BoE), the next he’s not. One minute Diamond is being fired because of the outcry over Libor, the next it’s to do with a letter from the FSA (the Guardian has posted it here).

I hope and expect Tyrie’s report to be critical of the Governor, and the governance of the Bank of England.

Here are a couple of questions to think about:
– why doesn’t the Bank of England have separate Chairman (and Board) and Chief Executive roles? The Governor would then be – as the Chief Exec – at least accountable to someone.
– if this is what happens when they don’t like the “culture” (or just the CEO) at a bank/a few corners are cut on a poorly defined technical procedures during a once in a lifetime crisis (which all the other banks might have been doing as well)/a few traders find a new way to cheat a poorly-defined system (which might have been happening at all the banks) – delete as applicable, depending why you think Diamond was sacked – then what are they going to do when a bank does something really bad? Like, for example, allowing widespread money-laundering, as HSBC seems to have done.

July 16, 2012

Saint Mervyn: King by Name, King by Nature

I’ve been following the Libor scandal with considerable interest. The former Chief Operating Officer of Barclays Jerry del Messier should be settling into his chair before the UK House of Commons Treasury Select Committee as I write these words – don’t worry, I’ve set the recorder for the BBC News Channel.

Perhaps we’ll find out the answer to why Jerry del Messier was cleared of rigging Libor on the grounds that, according to Barclays’ briefing note (pdf) issued ahead of Bob Diamond’s appearance before the Select Committee he:

“…concluded that an instruction had been passed down from the Bank of England not to keep LIBORs so high. He passed down an instruction to that effect to the submitters.”

on the basis of Diamond’s infamous note to file which suggested that Paul Tucker, Deputy Governer of the Bank of England had advised that:

“…while he was certain we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.”

The mysteriousness of it all arises because Barclays was already lowering its Libor submissions. They admit that during the period Sept 2007 – April 2008:

“Less senior managers gave instructions to Barclays submitters to lower their LIBOR submissions. The origin of these instructions is not clear.”

You’d think that when Jerry del Messier told his rate-setters to “lowball”, someone might have mentioned that they were already doing it!

I really like the point in Barclays memo that:

“[del Messier’s] instruction became redundant after a few days as liquidity flowed back into the market.”

“Became” redundant? His instruction was already redundant!

It’s not del Messier’s behaviour that really bothers me about the whole affair. It seems all the banks were at it, and Barclays may not have been the worst culprit. Barclays is just the first to settle. And the only logical explanation I can think of for George Osborne’s strange claim that Libor lowballing was sanctioned by Balls, Brown and Vadera is that it was an open secret in the City.

After all, no-one would borrow at a rate inflated by concerns that the banks might fail, as opposed to one simply reflecting risk, the base rate and the balance between supply and demand for money. Libor simply doesn’t work in those circumstances. The authorities would be obliged to address the problem any way they could in order to save the economy.

I hate to see public bullying. It seems our politicians – and many in the media and, notably, Mervyn King – just don’t like Bob Diamond. What will they do when they run out of obvious scapegoats? The excuse for laying into Diamond seems to be some problem with the “culture” at Barclays. Is it any different to that at any other investment bank? Doesn’t the “culture” in any occupation go with the turf? Presumably they don’t want traders to behave like, say, Premier League footballers, or Hollywood actors. Something less flash perhaps: doctors, say or IT guys. But would they still be able to do the job? These occupations surely require quite different qualities and aptitudes. Maybe something a little more sales oriented, perhaps, then: used car dealers or estate agents. Or politicians! But are these professions more or less honest than investment banking? I’m stuck. Perhaps our politicians could spell out exactly how they want investment bankers to behave.

Or perhaps Mervyn King could tell us. After all, he’s the one who fired Bob Diamond – never mind that the regulatory investigation is far from complete. Is he going to fire the heads of a dozen other banks?

Never mind that the real reason seems to be some problem with Barclays “culture”, it’s not actually Mervyn King’s job to sack the Chief Executives of banks. Or anyone else employed by a bank for that reason. And even if it was King’s job, he would be obliged to follow due process.

Diamond could be forced to step down if the Financial Services Authority found he was not a “fit and proper” person. Which didn’t happen.

Or if he lost the confidence of Barclays’ shareholders. He might have done, I suppose, but that’s not why he went.

No, Marcus Agius (Barclays Chairman and ex-Chairman) explained what happened:

“Agius told MPs that the chief executive had quit ‘because it became clear that he lost the support of his regulators’ just 48 hours before the American-born Diamond was scheduled to appear before the committee.

Agius described how he had been summoned, along with Sir Michael Rake, the most senior non-executive director on the Barclays board, to see King shortly after Agius’s resignation had been announced a week ago on Monday.

‘We had a conversation in which he said that Bob Diamond no longer enjoyed the support of his regulators,’ said Agius, who then had to hold an emergency board meeting by telephone of non-executive directors to decide how to proceed. He admitted to being shocked as concerns had not been raised when the £290m fine for attempting to manipulate Libor rigging emerged five days earlier.

Agius said he and Rake went to Diamond’s home on the Monday evening. Diamond – who had insisted to MPs last week that he did not know about any regulatory pressures – ‘was not in a good place’, said Agius. He said that the conversation was ‘not long’ and that Diamond had asked for time to talk to his family.

‘I left his [Diamond’s] house confident he would resign, if he hadn’t done so already,’ Agius said.”

Staggering.

I’m surprised there’s not been more outcry at such authoritarian behaviour by the Governor of the Bank of England, who is, after all, just a public official.

One exception is Philip Inman who provides some background in a Guardian piece titled “How Mervyn King Finally Got Bob Diamond.”

“…from the moment the credit crunch began to wreck Northern Rock’s finances in the summer of 2007, the grammar-school boy from Wolverhampton, whose father was a railway worker and then a geography teacher, was ready with his analysis. King said most of the huge debts accumulated by banks could be tied to the huge bonuses executives received as reward for their lending.

In meetings with regulators and then chancellor Alistair Darling, Diamond, then head of Barclays Capital, and his investment banking peers were seen as a bunch of amoral, greedy traders. Darling relates in his diaries how King would counsel against providing rescue funds that perpetuated a risk-taking culture.

But it was Diamond, one of nine children and also the son of a teacher, who made it public and personal. At a time when most bankers were busy trying to prevent their institutions going bust, he broke cover to give an interview in a Sunday newspaper. In an analysis of central banks’ actions in combating the credit squeeze, Diamond notably excluded the Bank of England from praise.

He said providing short-term cash was the job of a central bank. ‘For the recovery to continue we need to find more ways to get liquidity into the short end of the curve,’ he said. ‘That’s down to confidence, and that’s down to the central banks. We’ve seen thoughtful moves by the [US Federal Reserve] and the [European Central Bank].’

The Bank of England saw the interview as a direct attack on its handling of the crisis. King’s response was to embark on a series of speeches and interviews in which he openly decried the emergence of a ‘small elite’ that agreed to pay itself bonuses in good times and bad.”

So petty. Maybe Mervyn is touchy – I think Diamond was right. Perhaps, if King had behaved more like other central bankers, we’d have a healthier banking industry today, and Ed Miliband wouldn’t be threatening to break up the survivors to create more competition. Don’t forget that Alliance & Leicester, Bradford & Bingley and Northern Rock have all disappeared from our high streets.

What’s more, blaming the financial crisis on bank bonuses is simplistic to say the least.

And perhaps central bankers should have seen the housing bubble warning signs a bit earlier.

Another commentator who hasn’t let the matter pass is Hugo Dixon who suggests at Reuter’s that the “BoE governor’s arm-twisting raises tricky issues”:

“…on whose behalf exactly was King speaking? The BoE, after all, is not responsible for supervising banks – and won’t be until next year. That’s still the job of the Financial Services Authority. If King wasn’t speaking for the FSA too, he was arguably stepping beyond his authority.

On the other hand, if the BoE governor was speaking on the FSA’s behalf, why didn’t the regulator itself deliver the message that Diamond should go? And why too did the FSA apparently change its position? After all, the regulator had only just agreed a settlement with Barclays over the Libor rate-fixing scandal. If it had wanted Diamond to go, that would have been the moment to say so.

A further question is how exactly the regulators managed to twist Barclays’ arm. If the FSA doesn’t support a bank director in his role, the current mechanism for removing the executive is to deem him no longer ‘fit and proper’. But it seems hard to argue that Diamond didn’t meet that test. After all, the lengthy investigation into the Libor scandal did not criticise him personally.

Some people will no doubt say it is good that Diamond has gone and it doesn’t really matter how that was engineered. But methods used in difficult situations can easily become precedents.

The BoE is about to become even more powerful next year when it takes over banking supervision. It is important that it operates in a transparent and accountable fashion.”

Quite.

July 12, 2012

The Pensioners’ Crusade

Filed under: Complex decisions, Economics, Inequality, Politics, Public spending, Reflections, UK — Tim Joslin @ 12:06 pm

I noted on Tuesday Nick Boles’ suggestion in a keynote speech at the Resolution Foundation (pdf) to limit certain pensioner benefits to the less well-off:

“Spending on universal benefits for the elderly (the Winter Fuel Allowance, free prescriptions, free bus travel and free TV licenses for the over 75s) reached roughly £4 billion in 2010/11.

I know that this help is vitally important for many older people – and a step away from universal provision of these benefits after the next election would need to be handled very carefully as many members of this generation are admirably reluctant to make a fuss, even when they really need help.

But, does anyone here think it would be responsible for a country in our financial position to go on giving a free TV license to Michael Winner, free prescriptions to Lord Sugar and a winter fuel allowance to Sir Paul McCartney after 2015?”

A point well made.  But, I strongly suspect, to no avail.

I diligently provided links to reaction at the BBC, Guardian, Independent and Mail which all headlined Boles’ hardly original elderly means-testing proposal, even though it would only save £1.5bn of the £8.5bn he says we need to save:

“If we are to achieve stability in our public finances AND make crucial investments in improving productivity and competitiveness, we must find a way to save at least £8.5 billion from the £145 billion we currently spend on benefits other than pensions.”

Popping into Tesco yesterday, though, I noticed that I’d jumped the gun in my headline search.  The Express is going to war on the issue.  Holy war.  Here’s their front page:

I love that capital C in Crusade.  “Upper-case there”, the editor must have ordered.  “We’re not being figurative here.  This is official.  It’ll be there in the history books alongside Richard the Lionheart vs Saladin and, of course, the Children.”

The headline’s a classic as well.  Whereas the Mail and the Independent implicitly accepted the government’s right to cut benefits, but signalled with the A-word (“axe”) that targeting elderly benefits might be a cut too far, the Express went several steps further.  “Secret Plot to Rob Pensioners”.  Hmm.  Not really “secret” is it?  Which means it doesn’t really qualify as a “plot”.  And I think most would agree that discontinuing the provision of a benefit hardly counts as “robbery” (which, strictly speaking, involves violence or the threat of violence, as opposed to theft, which doesn’t).  One might even quibble that it is “pensioners” being “robbed”.  The word “pensioners” has connotations of those struggling to get by on a meagre stipend, and the qualification for the benefits in question is on the basis of age, not – as Boles’ examples of Winner, Sugar and McCartney might suggest – dependency on an annuity.

Boles’ whole point was that benefits would only be withheld from the wealthier elderly, a subtlety somewhat glossed over in the scene-setting opening sentences of the story on the front page of yesterday’s Express:

“A THREAT to strip Britain’s pensioners of benefits such as free bus passes and prescriptions triggered outrage last night.

A key ally of David Cameron yesterday called for strict means testing of claims that also include winter fuel payments and TV licences.

But the move was immediately condemned by charities and OAP groups – and today the Daily Express adds its voice by launching a Fair Deal For Our Pensioners Crusade.

This newspaper urges readers and campaigners alike to support its demand that the Government honours its pledges to pensioners in full, and does nothing to chip away at their universal welfare entitlements. Tory MP Nick Boles caused ­fury after saying the Government could save £4billion a year by stopping better-off pensioners from getting the benefits.”

£4bn/yr is in fact the total cost of the benefits.  Boles hopes to save £1.5bn/yr.

But Cameron’s calculation will be whether £1.5bn is worth the potential electoral damage in 2015 (if the Coalition lasts that long).  He’ll be looking for media outrage at “giving a free TV license to Michael Winner, free prescriptions to Lord Sugar and a winter fuel allowance to Sir Paul McCartney”.  And not finding it.

On one side is most favourable headline to the proposal at the BBC, which reports that the “Rich elderly should lose benefits, says David Cameron ally”.

And on the other is a lot of axeing and the Express’s army of pensioners ready to march against the heathens in Downing Street.

You have to admire the Express.  They understand their constituency.  As, I’m sure, does Cameron.  This kite’s not going to fly.

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