In which Labour becomes the NHS Action Party

In the run up to last year's general election a bunch of self-important left-wing doctors set up a thing called the National Health Action Party:

We believe a political party is needed to defend the NHS and its values. The NHS is more than just a structure for the delivery of healthcare. It is also a social institution that reflects national solidarity, expresses the values of equity and universalism, and institutionalises the duty of government to care for all in society. The NHS marks out a space in society where the dictates of commerce and the market should be held in check. We are fighting now to ensure that it is patients not profits that are the driving force behind our NHS. We hope you will join us.

In truth, this party was simply a vehicle for activists within the NHS to defend the interests of people who work - and profit from - the NHS. They targeted a few high profile politicians (the prime minister, the health secretary and so forth) and garnered the grand total of 20,000 votes with over 7,000 of those going to the former MP for Wyre Forest (in that constituency). The party's top cheerleader, Clive Peedell got 600 or so votes in Witney.

The National Health Action Party is still out there banging the rocks together but its relevence - in so far as it ever had any - had paled. Indeed it seems at times that with Labour now only having a poll lead on the NHS, that party has shoved aside the 'NHS Producer Interest Party' as I prefer to call it. Others have noticed too:

To put it brutally, we often give the impression that we'd prefer it if everyone could just work in the public sector, and ideally for the NHS. When we talk about self-employed people it's often as if we believe they must have been forced into it. We pay scant attention to arguments around competitiveness, especially global competition, and even where the evidence of competition working well is all around us (have you seen how cheap broadband is these days?) we are reluctant to acknowledge it. For some “competition' itself is a dirty word.

This is where Labour has got to and it has everything to do with who owns and runs the Labour Party. We look at Jeremy Corbyn, laugh at his political antics, and assume that a different, moderate leader would make all the difference. We point at a bunch of impressive younger MPs saying that they might be leader - Jess Phillips, Stella Creasy, Michael Dugher, Mary Creagh - but fail to ask where the policy platform will come from, whether those putative leaders will recognise that basing your politics on producer interests, albeit public sector producer interests, repeats the mistakes that led to 1979 and the destruction of 1983?

Labour's problem isn't a lack of intelligent, capable centre-left MPs but rather that the Party's policy platform is controlled by public sector producer interests. Opposition to more open international trade in services, for example, derives not from any valid economic argument but from the fear that the public sector managers who control the Labour Party will have to justify their effectiveness in a competitive environment. At the same time Labour has no idea - not the slightest inkling - how the private sector operates, what it's actually like to work in this sector and why most workers reject the stifling dullness of public sector work in favour of riskier but, in the end, better rewarded private sector work.

Until the advent of Tony Blair's New Labour, Britain's mainstream left-wing party had always been the vehicle for producer interests primarily through the trade union movement (which, of course, founded the Labour Party). Hence state monopoly, protectionism, price intervention and a host of anti-competition regulations badged as "workers rights". Today, with the trade unions all but extinct in the private sector, the Party's battle is wholly about defending the interests of public sector workers. The idea that, through new technology, innovation and efficiency, we can deliver the same public service outcomes is as much anathema to today's Labour as they were to the old Luddite union-led party - the one that crippled our manufacturing base and destroyed those communities they now mythologise.

What New Labour did - and what the Party has now rejected - was to recognise that the British public are, first and foremost, consumers in a consumer society and that their preference is for access to those consumer goodies the hair-shirted hard left sees as the baubles of late capitalist decadence. By rejecting this commitment to making the consumer society fairer, Labour has turned its backs on the idea that economic growth can - and usually does - mean a better world for everyone. Especially where there is a party not tied to crony capitalists and rent-seekers able to ensure the milk and honey of that richer land flows to all who live there.

Today's Labour Party - underneath the shouty rhetoric about 'austerity', 'equality' and 'fairness' - is a party that rejects competition, choice, innovation and efficiency. A Party that places the interests of those who work in the public sector - not just the low paid cleaners, road sweepers and caterers but well-paid administrative staff, 'fat cat' NHS bosses and, of course, the miners of the modern Labour Party, doctors. The Party - just like Clive Peedell's National Health Action Party - isn't interested in challenging the way the NHS works but rather in coating the whole thing in the aspic of changelessness, in the deranged assumption that Bevan's back-of-an-envelope fix can't be improved upon. The Labour Party has become the NHS Action Party.

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About that stagnant education performance again...

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A quotation, unashamedly snaffled from here, from Algernon Wells' 1848 essay "On the Education of the Working Classes."

How to teach, how to improve children, are questions admitting of new and advanced solutions, no less than inquiries how best to cultivate the soil, or to perfect manufactures.  And these improvements cannot fail to proceed indefinitely, so long as education is kept wide open, and free to competition, and to all those impulses which liberty constantly supplies.  But once close up this great science and movement of mind from these invigorating breezes, whether by monopoly or bounty, whether by coercion or patronage, and the sure result will be torpor and stagnancy.

We've done the latter and achieved stagnation. Maybe Bradford should try the former now?

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"We find that the effect of competition is to save lives without raising costs."

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But the NHS! Competition is evil, etc. etc. ad nauseum. Mostly from those whose comfortable positions might be affected by a bit of honest. Or maybe these are the sort of academics who - because their conclusions challenge the current anti-competition orthodoxy - are not to be believed:

The effect of competition on the quality of health care remains a contested issue. Most empirical estimates rely on inference from nonexperimental data. In contrast, this paper exploits a procompetitive policy reform to provide estimates of the impact of competition on hospital outcomes. The English government introduced a policy in 2006 to promote competition between hospitals. Using this policy to implement a difference-in-differences research design, we estimate the impact of the introduction of competition on not only clinical outcomes but also productivity and expenditure. We find that the effect of competition is to save lives without raising costs.

And it's worth noting that this isn't the first such finding about competition and public service delivery.

So people will shut up now and support more competition in UK healthcare provision?

(h/t ASI where there's comment here)
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We are reminded that "competition" between places is a dangerous myth

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They all do it. Governments, politicians - even supposed economists - proclaim stuff about the "competitiveness" of a nation or a region. We hearken to terms like "the global race" (copyright David Cameron) or to stuff like this from U.S. Under Secretary of Commerce for International Trade Francisco Sánchez:

As the Obama administration has said before, we have the best workers and the best businesses in the world, and if the playing field is level, America always wins.

All good and patriotic but the point of trade isn't to win some sort of race. It is - or should be - that genuine "prizes for all" situation. The whole point of international trade is that everyone benefits. We should not concern ourselves with such nonsense as "level playing fields" since they are of no value to us. Even if the other side has tariffs and trade restrictions, we still benefit from opening up our borders.

We benefit because the whole point of trade is buying stuff not selling stuff. If some foreign country is foolish enough to dump goods on our consumers at below their cost, that is brilliant for it means we get lower prices - more value from the stuff we sell at above cost price!

And since Paul Krugman is the best economist on trade around right now let's finish with a quote from him:

My objective in this essay is to try to explain why intellectuals who are interested in economic issues so consistently balk at the concept of comparative advantage. Why do journalists who have a reputation as deep thinkers about world affairs begin squirming in their seats if you try to explain how trade can lead to mutually beneficial specialization? Why is it virtually impossible to get a discussion of comparative advantage, not only onto newspaper op-ed pages, but even into magazines that cheerfully publish long discussions of the work of Jacques Derrida? Why do policy wonks who will happily watch hundreds of hours of talking heads droning on about the global economy refuse to sit still for the ten minutes or so it takes to explain Ricardo? 

Since trade is the thing that both makes us human and also makes us rich, go and read the rest of Krugman's essay. And stop with this "global race" rubbish and this Porterian mumbo-jumbo of national or regional competitiveness.

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Competition in banking? Now that's a radical idea...

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In that irritating way of today’s politics, the newspapers are report on a speech that Ed Miliband will make tomorrow. And Ed nearly gets it right for once:

The Labour leader will call for the big five banks - Barclays, HBOS, HSBC, Lloyds TSB and RBS/NatWest - to become seven, with privately-run "challenger banks" to buy up to 1,000 existing branches. It is hoped that this will increase competition and choice for consumers as well as reduce bank charges.

I say ‘nearly’ because firstly banking isn’t driven by branches any more. For sure I have a ‘branch sort code’ but that’s pretty virtual these days and it’s a fair while since I actually visited that branch. And the future of banking lies in this virtual world not in grandly portico’ed high street branches.

Secondly, I should get to choose where I bank – if Ed’s banking reforms force me to change because they’ve forced my bank to sell its Bradford branch to a newly formed “challenger” bank, I shall be just a tad annoyed.

The problem with banking is that we have made it more and more difficult to operate as a retail bank let alone start up a new one. It didn’t use to be that way – governments passed laws that made it so:

As a result of these legislative changes, provincial limited-liability joint-stock companies started picking off private banks. After lengthy negotiations, three of the largest Quaker-run banking firms--Barclays (which had become Barclays, Tritton, Ransom, Bouverie & Company after a merger in 1888), Jonathan Backhouse & Company, and Gurneys, Birkbeck, Barclay & Buxton, along with 17 smaller Quaker-run banks, agreed to merge and form a bank large enough to resist takeover attempts. Barclays took its modern form in 1896 when the 20 private banks merged to form Barclay and Company, Ltd., a joint-stock association with deposits totalling an impressive £26 million. This marked the beginning of Barclays' tradition of service to farmers and fishermen.

And we have – for all sorts of reasons, good and bad – continued to pass laws regulating the activities of banks that acted to make it harder to start up a new bank. That made banks a special case in capitalism – because market entry was so hard, because banks could offer free banking to retail depositors, because banks had what we believed to be an essential partnership with government – for all these reasons banks had no good reason to focus on being the service businesses that they were once (and that their advertising still claims them to be).

While the big banks were careful cautious and focused on the day-to-day job of lending, holding deposits and such, this lack of competition didn’t really matter much. The public got truly awful service – banks elevated saying ‘no’ to a semi-religious status – but the banks weren’t threatening the foundation of the economy.

But then someone discovered the money tree and introduced bankers and governments to its wonders. By the wonders of this thing, banks and governments – in cahoots – could shower the economy with billions in “investment” while providing a bottomless purse of welfare, care and bacon paving. The essential partnership between banks and government was forged anew – in exchange for bankers making untold billions, politicians could bribe the voters with grand projects and freebies. The politicians would keep interest rates down (abetted as we now know by the bankers) allowing asset values to sour giving the illusion of great wealth and on the back of this higher taxes would allow for higher borrowing – more profit for the banks, more votes for the politicians.

We need more competition in the pretty straightforward job of taking my money, keeping it safe, paying it people I want it paying to and providing (at a charge) loans should I need them. It’s not a complicated business, there’s no reason why it can only be done by massive multi-national corporations. Yet that is the case.

If Ed Miliband had proposed such a real change – opening up banking licensing to the general market and allowing us to make choices about where we keep our money – that would have been interesting. Instead we get proposals to “break up” the banks and give us a choice of seven where there are now five. I guess that will suit the banks. And government still has that essential partnership with those banks. That hasn’t changed!

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GPs are acting in their business interest on this, not the interests of patients

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The GP bit of the British Medical Association - with the Law Society, Britain's most effective trade union - is in a froth about competition. The GPs don't like it. This is because it might mean the practice owners will have to work a little harder for all that cash or else someone else might come and steal away all those lucrative patients!

Speaking after July’s meeting of the BMA’s general practitioners committee, chairman Laurence Buckman said there was “discomfort” from GPs about the plan. He said it amounted to “enforced competition”.

He said: “The implication is ‘go and look to someone outside the NHS to provide services that are currently inside the NHS.’”

In short competition is good news for patients and bad news for doctors, NHS managers and other vested interests currently cashing in royally from our system of healthcare.

That is why the GPs oppose competition.

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So what's the problem?

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Allyson Pollock on the evidence for (or not for) introducing competition:

Several decades of research show that the impact of choice and competition on quality, efficiency and outcomes in healthcare is unproven.

So why all the fuss? Decades of research shows that competition won't make things worse - or rather that we don't know for sure whether it will or not which amounts to the same thing really. I'm willing to take a punt - after all competition works pretty well in other complex service market places!

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Er...no. Competitive markets do not come from government managing those markets.

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History tells us that in this country we tend to opt for a form of ‘pro-competitive disengagement’, removing those barriers and letting ‘market forces’ dictate. Instead, we should introduce a set of policy instruments that can both facilitate the provision of the services our communities really need, and contribute to the health of our local economies.

Apparently.

The author also believes that:

...we see policy initiatives that will disincentivise these types of organisations from entering the market. Payment by results and outcome based commissioning are examples.

Clearly this bloke has little substantive grasp of how business works - you do something for me and I pay you.  In the private sector it's all payment by results you know! But no, our friend believes that markets must be managed:

If public sector reform is to produce stable and genuinely competitive markets for local public services, such that result in quality public services, the government must create and implement an industrial policy for the sector. Such a policy would enable central and local government to make strategic interventions to manage markets, the demand and supply side, rather than simply removing barriers to entry.

So "genuinely competitive markets" come about because of government intervention? What nonsense!

And these people are not only given space at CLES but are paid to advise local councils - save us!

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Tenders, framework agreements and suicide-bidding - how public procurement isn't working

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We can expect that – for many reasons not least the need to drive out costs in public administration – there will be renewed attention given to the processes of public procurement. After all if more provision is to be outsourced we need to know that the process by which suppliers are selected is fair, transparent and delivering value. I’m not sure we’re in such a position for three reasons – the tender process is over-complex, public agencies are relying on framework agreements rather than open market procurement and these problems are encouraging market distorting practices such as suicide-bidding.

Anyone involved with seeking business from public bodies will be familiar with the complexities of tendering – here’s just one cry of pain at the onerous requirements in the process:

Reading through the documents today was a jaw-dropping insight into the dream world of public sector morons.

Method statements, framework agreements, key performance indicators, robust performance management systems, equality and diversity policies, performance evaluations, environmental advancement, partnership milestones, sustainable procurement narratives, race and gender statements, service quality monitoring, volume forecasting, operational delivery reviews, governance structure audits, outcomes recording methods, business continuity plans, and contingency planning systems.

All of the above must be installed before we are even allowed to see the work we may be able to bid for, if approved. And, of course, there is no guarantee - by their own admission - that it will be of any quality.

Here we have a classic example of procurement processes seeking to capture every regulatory nuance – to the point where most suppliers and especially smaller suppliers simply give up and go away. And this process is intended simply to create the “framework” from which the public body can procure the services it requires. It is a process intended to limit the competitive environment by excluding those who fail to ‘tick the boxes’.

However, framework agreements are becoming a bigger problem than this – we are seeing them used as market control mechanisms. Rather than allowing any business that qualifies to bid, these agreements are setting limits on the number of qualifying firms. In one recent example, Leeds City Council (on behalf of a consortium of Yorkshire authorities) sought to procure a framework of businesses to provide outsourcing and redundancy support – the framework limited the number of suppliers to just five from the hundreds of possible providers of these services. There is no doubt in my mind that this process is anti-competitive and should be stopped. We should either have a tender process or a prequalification process, combining the two through a framework system compromises the market and acts only to provide procurement convenience rather than public benefit.

Given the nature of this complexities and the creation of a deliberately limited pool of competitors (protected for the duration of the framework agreement from new market entrants and, in effect, behaving as an oligopoly) the market response throws up some problems – not least what has been dubbed ‘suicide-bidding’:

Although EU law allows businesses to reject abnormally low bids, it does not define ‘abnormally low’, which has lead to disputes with bidders.

Paul Dooley, director of estate regeneration at Poplar Harca, said the association decided to act after receiving several low bids, including some of up to 20 per cent lower than the average. He said: ‘We feel that without a clause in the contract we could be subject to contractors making a challenge.’

The move follows concern in the sector about ‘suicide-bidding’, in which companies bid at amounts that do not cover the cost of their work. This can lead to poor quality service and to firms seeking contract loopholes to charge clients extra.

With complicated tendering processes, combined (and ever larger) contracts, longer contract periods, the temptation is to go for business at a low price and back your managers – and lawyers – to be better than public sector managers and lawyers. After all, it’s pretty difficult to get out from under a six volume contract on the basis of work being ‘not quite good enough’, a little slow or snag-ridden.

The process of public procurement is a minefield but one where Councillors tend to doze off – it’s not exactly sexy politics after all! We should be paying more attention to these processes. I started to complete a pre-qualification questionnaire for some work with Manchester City Council (or rather to get on a framework to be allowed to bid for some work) – the nature of the questionnaire was such that even the mid-sized organisation on whose behalf I was applying decided the requirements were too onerous.

Not only did Manchester require written policies on equalities, health & safety, environment, sustainability & climate change to be submitted (along with three years of accounts, bank references, nine public sector referees and insurance documents) but asked for detailed information about the implementation of these policies. Now Manchester may be the worst authority in this respect but sadly other large authorities – Leeds, Bradford, Liverpool – are little better.

Procurement departments are now pressured to deliver significant savings while maintaining standards of service delivery. And these departments will also be responding to new procurement environments resulting from the Localism Act. To deliver on price, quality and continuous improvement and to support new providers emerging in local communities, procurement systems need to be freed from these requirements linked to other policy requirements and to be encouraged to widen rather than narrow the market. We cannot continue with the too complex, anti-competitive, market distorting approaches that currently dominate public procurement.

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Dear Nick, competition doesn't mean "flogging off to the highest bidder"

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When some people speak of ‘privatisation’ they refer to the process of commissioning private businesses to deliver public services through some form of tendering process. And it leads to the Cardhousian contortions of Nick Clegg:

In a speech at a London hospital, the Lib Dem leader will say he supports the use of private providers in the health care service and that they have improved patient choice.

However, he will add: "It's not the same as turning this treasured public service into a competition-driven, dog-eat-dog market where the NHS is flogged off to the highest bidder."

So there you have it – after all the shouting about how the Liberal Democrats will be different, about how they will die in the ditch to protect the beloved NHS from evil Tories what do we get? Just what we have already – a system using private providers but where those providers are accountable only to NHS managers not to those using the service or to elected officials (and don’t give me all that nonsense about accountability to the Secretary of State for Health).

Now I’ve trawled through the collected comments (well perhaps not all of them) of health ministers, have looked at the proposed changes and nowhere in all this can I see any proposal – not even an inkling of a proposal – that the NHS will be “flogged off to the highest bidder”. There is a discussion as to how we improve health outcomes and a debate about the merits (or indeed demerits) of competition in helping deliver these improved health outcomes but that isn’t about selling chunks of the service off, it isn’t about ‘cherry-picking’ and it isn’t really much of a change from the programme of change instituted under the last Labour government.

The idea of ‘any willing provider’ is the central element of these pro-competition policies – this isn’t privatisation any more than using external suppliers is privatisation. What AWP is about is preventing NHS commissioners from closing off the market by saying they have to consider any organisation that is able to comply with the requirements. The result should be a more diverse supply to the system and end of the current situation of bureaucratic inertia.

As competition dawns there will no doubt be many providers, both larger and smaller, seeking to offer so-called integrated approaches in particular communities, which are, in fact, a byword for long-term monopoly. Once the commissioning bodies are dependent on the new arrangements the provider can turn the handle, raise prices and lower quality as much as it wants.

If this happens, it will be an expensive route back to what we have today in most public services: costly, unmoveable, low-quality, low-innovation services. The solution, of course, is for the principle of diversity of supply – allowing no one to become dominant – to be an absolute non-negotiable in local public service markets.

The comment above – from a Liberal Democrat with expertise in health care markets – signals the problem we face. The current situation isn’t good enough and the core solution of pumping ever larger amounts of cash into the service isn’t working well enough (which isn’t to say the cash isn’t welcome, merely to observe that health outcomes haven’t risen in line with that spending increase). However, within that diversity of supply we have to recognise that price must be a consideration in commissioning decisions – this isn’t about simply taking the cheapest but does recognise that price is a driver of efficiency and improved outcomes.

My big worry is that populist considerations fuelled by healthcare producer lobbies and trade unions (and sucked up by an increasingly clueless Labour party) will lead to a big climb down and we will lose the momentum towards using competition to provide accountability for NHS decision-makers and real advances in health outcomes. And it seems more of the evidence points to competition as the most important factor in driving improvement:

This is particularly ironic given the strong evidence now emerging that hospital competition not only works abroad, but also in the UK. Dr Zack Cooper of the London School of Economics and Professor Carol Propper of Imperial College have each produced studies showing that hospitals in more competitive areas performed better on quality and efficiency than those in less competitive ones. The LSE’s Centre for Economic Performance has shown that competition increases managerial quality in hospitals. Dr Nick Black and colleagues at the London School of Hygiene and Tropical Medicine have shown that the much-maligned independent sector treatment centres, introduced by the Blair government to shake up provision of simple elective procedures such as cataract removals and hernia operations, have produced work of equal or better quality than their NHS equivalents.

None of this is about changing the NHS model of free care at the point of need – instead it recognises that there is more than one way to deliver this promise. Breaking away from the hideous monopoly of the centralised NHS – a process begun haltingly under Blair – is essential if we’re to get the full benefit of that “investment” put in over recent years.

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Schools, choice and competition - why we have to change

While scrabbling around the – mostly unedifying – debate about education in England it came to me that the problem really comes down to a fundamental disagreement about the idea of choice. Indeed this relates to several debates – health, social care, local government, housing. Put simply (and, I admit, perhaps just a little unfairly) the left sees choice as a problem whereas the right see choice as a solution. And the more complicated the particular service the less value our left-wing friends see in providing choice. Here’s the doyenne of wealthy left-wing commenters on education:

The intention is clearly to reintroduce the hierarchies with a vengeance, setting school against school, parent against parent and child against child.

The curse of choice – give parents a real choice (including the chance to join with other parents and teachers to set up their own school) and, says Ms Millar, chaos will ensue.

Why can’t parents just send their children to the “local school” and be done with it, these people say (secure in the knowledge that their local school in whichever leafy suburb the reside is a top performing school – or they can afford the cash for top up lessons to make up for any shortcomings at the school).

That option simply isn’t there for poorer parents – their local school isn’t like that, it’s dreadful, filled with out-of-control children and with teachers who’ve become so brow-beaten that they see getting through the day without being assaulted as something of a victory. And any children who may just want to actually learn something – get on in life, give themselves a chance – struggle. And too often fail.

The problem is that the left think that choice is too tricky an idea – that poor people aren’t able to decide which school is the best for their children. Allocations should be just that – a process whereby the state tells parents where their children will go to school. All this is justified by saying that choice, competition and variety are ‘unfair’ and will “set parents against parent”. Funny how we don’t see that in parts of society where there is real choice!

For me, the saddest thing in all this is that choice really will better advantage poorer families. There will still be unfairness and inequality – but we’ve got that squared in our current system – but as Mark Lehain from Bedford Free School observed:

The team I'm heading consists of educationists from a variety of backgrounds, with a range of different philosophies and beliefs. What we have in common is a sense that the existing system is failing too many children, and that if it isn't working after 60 years, it is unlikely to start doing so now. A fresh approach really is needed.

Only 70% of students who live in the area where we will set up – Kempston – attend the local upper school, and of those who do, this summer only 31% managed to get five good GCSEs including English and maths.

Other schools in our town are doing better – although in Bedford itself, only 42% of 16-year-olds this summer achieved the same measure.

Look at those numbers – that’s the story in a place that’s far from the most deprived in England – and say again that a few adjustments to our current system will serve children well? There has to be dramatic and substantial change - more of the same simply won't do.

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Why the top law schools can charge more despite greater competition

A chance encounter got me to thinking about the impact of competition on price - or more specifically at the conditions where increased competition might result in existing suppliers increasing rather than reducing price. The chance encounter was on twitter with legendary legal blogger, Charon QC and concerned the response of private law colleges to the arrival of other suppliers. The dear blawger argued – from knowledge and experience – that the response of said colleges would be to increase prices (of which more later). Hence the thinking since classical economic theory tells us that when supply increases, prices in the market fall.

Except that this appears not to be the case. These chaps (Chen & Riorden) suggest that specific conditions (duopoly and oligopoly) exist where the addition of new competition can result in prices increasing rather than reducing.

In a discrete choice model of product differentiation, the symmetric duopoly price may be lower than, equal to, or higher than the single-product monopoly price. Whereas the market share effect encourages a duopolist to charge less than the monopoly price because a duopolist serves fewer consumers, the price sensitivity effect motivates a higher price when more consumer choice steepens the firm's demand curve.

Got that?

If the addition of more law college places does not create an effective competitive market (i.e. the existing oligopoly is sustained albeit with more firms) then it is as likely that existing suppliers will increase their prices in response to new competitors. The question then becomes a matter of what it is that the consumer is buying.

For law schools, the answer has always been that the elite private schools offer a better chance of preferment post-qualification. In a more competitive market – one where more lawyers are trained but there are no more placements – then the premium for the elite schools is clear and justified. What students buy isn’t a better education but an increased chance of getting the placement that provides access to future success.

The problem here isn't the supply of legal training but the supply of places where that legal training is applicable. And the "who you know" principle gives an advantage to established, successful and elite institutions. And they will cash in on that advantage.

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Banks, interest rates and the misuse of APR

An almighty outcry (at least on the BBC who want to plug their Panorama programme and Vince Cable who’d like someone to notice him) about the terrible, evil way in which banks insist on charging people high rates of interest for unauthorised overdrafts. Now this is either the result of there not being enough competition in the banking sector or because cunning and crafty bankers have a special magic that makes it impossible for customers to understand the terms of their relationship.

Now on the competition point, I rather agree. But it isn’t addressed by getting a desperate sound bite or by shouting at the banks. If you want more competition, you have to allow people to start new banks without the huge financial and regulatory barriers to entry (that are keenly supported by the evil “Big Banks” in their eagerness to protect the consumer from rapacious fly-by-night outfits). So, Vince, either do this or else shut up.

On the matter of evil bankers confusing us poor folk and thereby charging very high rates of interest (I think the official term is obscene), I see either a finely crafted straw man or else a degree of informed ignorance that only innumerate BBC journalists can achieve. Put simply, Annual Percentage Rate (APR) is a pretty lousy way of assessing the price of short term credit. And that is what we are talking about here – banks generally don’t offer rates in excess of 1,000% for general loans but for small amounts borrowed without prior clearance the fixed costs are such that very high rates are inevitable (just consider, for example, a whole floor filled with people just processing the results of our financial incompetence – and that’s just the start of it).

The banks could simply bounce your payment and, as is their right, charge you a few quid for doing this (such costs will be in the terms and conditions of your account that the bank sends you every year). But in their blessed wisdom they don’t do this but allow your water bill or whatever to pass unheeded – and then charge you a few quid for that kindness in the form of interest. It all amounts to the same cost in the end – you’re either going to borrow without permission for a few days or else the bank isn’t going to let you borrow in that way. In both cases the cost to you is the same – which would you prefer?

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