Return to profits – but only for a choice few

Veronika Thiel is a researcher and project manager on nef’s Access to Finance team.

A light at the end of a tunnel - or is it an oncoming train?

Barclays is said to be already recovering from the credit crunch whilst most of its clients, and the population at large, still are not even seeing a sliver of the light that could indicate the end of the tunnel is in sight. Small businesses still face cuts in their existing overdraft and credit facilities despite of the fact that their businesses are structurally sound. People with consumer debt still face increased interest rates. Personal insolvencies, as a result of redundancies, are at an all time high (link to insolvency services). Mortgage holders see their interest rates rising. Banks reposess houses more quickly than ever, and debt collectors are also becoming more aggressive.

So what does this increase in banking profits actually mean? Are we seeing a rehabilitation of our broken financial system? Or are we simply on the way to returning to business as usual, with the toxic loans written off?

The simple answer is – no-one knows for sure. There was certainly a gradual return of confidence, meaning that people will want to invest again. But there remains also a certain amount of question marks. As Robert Peston from the BBC argues, banks are reducing the amount of money they lend, so that they simply have more on their books.

In addition, however, the way that banks post their profits can change quickly as they can use different methods of valuing their assets. Asset valuation is not an exact science, and there are various ways of doing so.

Be that as it may, everyone is sighing a breath of relief that at least two banks don’t appear to go the way of Northern Rock (although there are interesting ideas around to breathe new life into it. That relief could be (and in certain quarters, is) giving way to complacency and a return to BAUBAB: Business As Usual and Bonuses Are Back. Despite Barclay’s assurances that bonus payments are reformed, an average of bonus £100,000 for staff at Barclay’s Capital still makes me think that this is more cosmetic.

We probably will have to repeat this until we’re blue in the face – but banking reform has not gone anywhere near enough to create a stable financial system in which systemic crises such as the current one are less likely to happen. And anyone who thinks that the crisis is over forgets that for the millions of unemployed, and those steeped into debt, it’s only the beginning.

How to save public services

Eilís Lawlor is the acting head of the Valuing What Matters team at nef.

Hardly a week passes without news of looming cuts and fresh evidence of the implications of the recession for public services.

In a recession the temptation to cut back is strong. We have already had some worrying signals from Treasury – the hole in the government’s budget is to be clawed back in part through another £5bn in ‘efficiency savings’. So far these have amounted to stealthy cuts in frontline services under the guise of a leaner state. There is no reason to believe future rounds will be any different.

Yet government’s thin interpretation of efficiency is a false economy. Failing to invest now, when unemployment, crime and poverty are set to rise and an impending environmental crisis requires urgent investment, will only lead to costs of greater magnitude later.

Now more than ever we need to think about public spending less as a ‘carve up’ between competing ends and more as an investment in a better future. This cannot be achieved by penny pinching in the short term but by using the State’s resources to maximise the creation of public value – long-term social, economic and environmental outcomes.

A new approach to investment is needed that puts measuring and valuing what matters most to individuals, communities and societies at the heart of public sector decision-making. Such an approach, targeting positive social, economic and environmental outcomes, will lead to more informed policymaking, help build effective public services and have significant positive implications for the public purse.

nef research across three very different policy areas – economic development, children in care and criminal justice – shows the benefits of this approach. Valuing the improved well-being of children in care – rather than focusing on the unit cost of delivering that care – could help ensure that more appropriate placement decisions are made, improving the life chances of those children and offering a long term social return of £6 for every £1 invested. Savings over 20 years could pay for the entire annual care bill each year.

Women offenders are likely to fare better in life if custodial sentences are eschewed in favour of community penalties that enable mothers to maintain contact with their children. In the short-term money is saved on services for these children. Longer-term there is reduced risk of children becoming offenders and a better chance of the kind of educational attainment and social adjustment that will translate into lower societal costs through the welfare and criminal justice systems. Using Social Return on Investment we found that for every £1 spent on alternatives to prison that reduce reoffending, an additional £14 worth of social value is generated.

Measurement matters because it both reflects and reproduces the priorities of government and institutionalises behaviours. We are about to publish a set of principles for policymakers, that are a distillation of our research findings and can guide policy-makers who want to create better services. The first of these is about measuring outcomes: the positive and negative change in people’s lives, communities or the environment as a result of policy.

Despite rhetoric emphasising the importance of outcomes government still does not adequately measure the effects of its policies on long-term social, economic and environment well-being. Focusing solely on what is timely, tangible and easily quantifiable has not served us well: investment in public services has increased since the foundation of the welfare state, yet the place and circumstances of our birth predict our future health, educational and economic prospects now more than they did then.

Public services face the twin challenge of rising needs and increasingly constrained resources. Experience suggests that direct financial considerations on their own are not very helpful to meeting these challenges. As we lurch from one weak economic indicator to the next, it is easy to miss the opportunities this presents the State. There is too much at stake to get this wrong, not just in terms of social outcomes but also in financial implications for the public purse: ineffective public services cost us all more in the long run. To paraphrase Alistair Darling on banks, the response to the question, can we afford to invest in public services must be can we afford not to?

A version of this article was published in Public Servant Magazine.

Green New Deal Round-Up

Andy Wimbush is nef‘s Communications Assistant and blogmaster.

There’s a lot of Green New Deal news this week, so I’ll take it in stages. Today, the fall-out from the confirmation that Heathrow Airport will get a third runway. Tomorrow, I’ll say something about this afternoon’s inauguration of President Barack Obama.

Just before the announcement on Heathrow, the newspaper comment pages were overflowing with the pros and cons of expansion. The prospect of  new jobs at the airport was enough for TUC leader Brendan Barber to support the new runway. Simon Jenkins was less convinced, pointing out that there are plenty of ways to create jobs – such as by improving healthcare infrastructure – which don’t involve flattening villages. Indeed, as Greenpeace’s Joss Garman points out, we need to get our jobs from a Green New Deal, not from more airports. He asks:

Should Britain be building a sustainable economy with a green fiscal package centred on creating millions of green-collar jobs? Or do we plough on with the industries of the past irrespective of their impact on disadvantaged people all around the world?

GND author and Green Party leader Caroline Lucas had a letter in the Times on the day after the decision came, arguing that, despite the double-talk of Brown and Hoon, there is simply ‘no such thing as a “green” airport‘. Like Garman, she attacked those who used economic arguments to justify the expansion:

It’s simply laughable to say that “the jobs outweigh the climate danger”. First, climate change will wreak havoc on the world’s economy. Second, the greening of our economy will require us to create huge numbers of jobs across many sectors, not least transport. Hence the need for a Green New Deal. It really is time to ditch the false ideology of environment versus economics.

The trouble is that what passes for ‘economics’ under this government is a mixture of vain hope and voodoo. As nef‘s Policy Director Andrew Simms explained to the Guardian,

You are talking about a highly carbon-intensive piece of infrastructure that might be finished at exactly the moment when global oil production is collapsing and its price is rocketing. The government’s case is based on fantasy economics.

We need to wake up to the fact that the expansion isn’t about jobs for ordinary people. It’s about big business getting it’s way, regardless of how the rest of us are affected. And, yes, I realise that any argument about corporate influence over politicians sounds trite to the point of being a cliché, but the reason it’s repeated so often is because it’s largely true. The news that there is a ‘revolving door’ between Downing Street, Whitehall and airport operator BAA, is shocking, infuriating, but hardly surprising.

What is surprising is the silver lining to this sordid collusion between BAA and New Labour: the Conservatives are green again! With impeccable timing, the Tories announced their plans for a green revolution just as our Heathrow rage had reached its zenith. Their plans? A £1 billion “super-grid” of high voltage direct current power cables, which will save enormous amounts of energy compared with today’s alternating current cables. They’re also promising grants of £6,500 per household to help people invest in insulation and energy efficiency measures.  Good old George Monbiot, who first suggested many of these ideas in his book Heat: How to Stop the Planet Burning, can hardly believe that they are finally being taken seriously, let alone by the Conservatives. And as Brown and Darling continue to mess around with more taxpayer-funded bank bail-outs, it is Cameron who seems more clued up about how a Green New Deal might actually work:

The stuff in [our proposal paper] will help employ people and bring jobs. We have got to do things that are both good for us now and good for the future.

If Cameron can convince us that he will make good on these promises, then he might catch a rising wave of enthusiasm for green economic recovery. Witness the following articles, all of which mention nef or the Green New Deal:

• Please, No 10, can we have a green policy? –  Lord Chris Smith of the Environment Agency pleads Downing Street for a Green New Deal in the Sunday Times.
• Overnight, the US is going green – but we’re stuck in a different age – Geoffrey Lean wonders where our Green New Deal is in the Independent on Sunday.
• How can Labour still fear to act for a fairer, greener land? – Jenni Russell laments New Labour’s failure on economic policy in yesterday’s Guardian.
• Green light for a boom in jobs – a nice piece in the Sunday Times, featuring nef‘s Policy Director, Andrew Simms.

More carrot, less stick: considering the cost of returning to work

Veronika Thiel is a researcher and project manager on nef’s Access to Finance team.

The government announced today that single parents on benefits with children over one year are expected to find work or else face sanctions.

This is a move that beggars belief, for several reasons.

Firstly, couples on benefits with children are not expected to find work until their children are seven. This smacks of discrimination against lone parents – are we still making a moral judgment based on the marital status of a parent?

Secondly, this move makes rather blatant assumptions about the availability of good-quality childcare in every part of the UK, something that is clearly not the case. Where are parents supposed to leave their children?

Thirdly, starting to work costs money upfront. Not only for childcare when the parent is working, but also for childcare when going to interviews. For suitable clothing. For transport to and from work. For lunches that need to be bought when at work. Who covers the cost for that?

Fourthly – and most importantly – the minimum wage does not provide a living wage, especially not when seeking good childcare. Already, millions of people on low incomes or benefits take out revolving loans with doorstep lenders at interest rates of up to 186% to cover basic costs of living. Forcing lone parents into work without ensuring that their wages can cover increased costs of good quality child care will only add to their debt load.

We finally need to start a discussion on living wages and living benefits, and of stable jobs worth doing for a living. Furthermore, it needs to be acknowledged that many low-skill jobs are very unstable, and many companies operate a hire- and fire policy. In a current recession, this will only become more common place. Full employment is now more unattainable than ever. Building skills and confidence as the Government proposes to do is a good thing, but it is not the only prerequisite of securing a stable job – the availability of jobs is a rather more important factor.

The Government needs to provide far more carrots than a vague promise that only those who will not take steps to return to work will be sanctioned. I can’t imagine that the level of trust in the Government is very high among benefit recipients, and applying the stick is certainly not going to change this.