Free music on Earth Day

As a 1% for the Planet member, I donate at least one percent of the annual revenue of my company to environmental causes. This Earth Day, I want to thank you for your support with the gift of free music. Download and enjoy 1% for the Planet: The Music, Vol. 1, a benefit compilation featuring 41 rare and exclusive tracks from artists like Jackson Browne, Josh Ritter, Grace Potter, and Jack Johnson—simply visit http://music.onepercentfortheplanet.org/redeem/ and enter code EARTHDAY11.

Once you’ve had a chance to enjoy the music, join me in giving back. Last year I contributed to Solar Aid, a charity that works in rural areas across east and southern Africa installing solar panels on schools, community centres and clinics—please consider supporting this cause or one of the hundreds of other environmental causes listed at the 1% for the Planet website.

Don't cut spending; invest.

As a non-economist I think this blog article by Richard Murphy aboout why the cuts won't work is written in an understandable way. I remember from my accounting training that the classic response to a recession is for the government to invest but I had long forgotten the interconnectedness of a government's deficit with private savings and investment. Given that a government can influence but not control the latter hings it makes sense to concentrate on what it can control: investment. There are plenty of examples of such public investments being made during difficult economic times. Here's a couple of examples from my own experience: for five years I worked in Barnsley Town Hall, which was built in the 1930s to alleviate unemployment (and for which the councillors were surcharged for incurring the extravagant cost of a clock tower); and more recently, on a holiday in the USA I visited the Hoover Dam, which was constructed in 1931–36.

But if the government does not want to make expensive investments itself will the private sector step in and make them? It seems that the answer to that is, ‘No’, even when interest rates are very low. Forcing a company to invest is not a credible approach unless the government underwrites the investment and if a government were going to do that it might as well do it by imposing a tax on the companies and then spending the receipts itself. I am, however, attracted by Richard Murphy's proposal that pension funds should be required to make such investments. There's something appealing about one's pension being based upon tangible investment in the economy one works in rather than from speculation in complicated financial instruments traded in cyberspace.

Choose your auditor wisely

About a week ago Eric Pickles announced his proposals for the audit regime for public bodies that would replace the current regime once the Audit Commission has been abolished. Public organizations with a turnover of at least £6.5million would be free to select their own external auditor in the same way that private companies do. As with all the local freedom announced by this government I don't doubt that there will be constraints but the proposals, so far, do not go into the details of the codes of practice or guidelines that would accompany this new freedom. Nevertheless, I have a couple of general observations to make.

Firstly, last week I read a newspaper snippet about a House of Lords report which claimed that the complacency of auditors contributed to the current financial crisis. The newspaper report mentioned that on average the FTSE100 companies change their auditors every 48 years. Given that some of the companies change of auditor would have been because Arthur Anderson collapsed after the Enron scandal one begins to wonder how often a large company changes its auditor when it does not have to. This kind of thing would be good news for the audit firms pitching for business from councils and hospitals because once they are appointed they might expect to receive fees for generations. I appreciate the government might include a requirement in the code of practice, or whatever, that means an audit firm has to be changed every 5 or 7 years but it seems to me unlikely since no such requirement is included in company legislation.

My second comment is to point out that the European Commission is heading in the opposite direction. Last year it published a consultation paper Audit Policy: Lessons from the Crisis where it said it was ‘considering the feasibility of a scenario where the audit role is one of statutory inspection wherein the appointment, remuneration and duration of the engagement would be the responsibility of a third party, perhaps a regulator, rather than the company itself.’

A loan or a grant?

Deborah Orr, in today's Guardian, has neatly summarised the financial aspects of the Government's proposals for student loans as part of an article on u-turns. Is it worse if these financial consequences were identified before the policy was announced but the government hoped for the best or if they were not considered at all? The full article is here.

Take the student loans fiasco. Massing in the streets, railing against Clegg and Cameron is all very well. But it would have been more effective to march under a banner saying: "Think! This will actually be much more expensive, especially in the short-term, regardless of ideology!" Most of the debate was about what sort of protest was legitimate and what sort of policing, and it was easy for the right to suggest people were marching in self-interest anyway. The fact that the scheme just didn't make any practical or logical sense got lost in the melee.

This major flaw in the coalition's tuition-fees plans has become glaringly obvious anyway, almost immediately. The block grant was slashed, so that the government didn't have to hand over a big lump sum to the universities. To make up the shortfall, universities could charge much larger fees, up to £9,000.

But students would not be expected personally to hand over fees of up to £9,000 to universities, despite all those tearful declamations about people's children and people's children's children not now being able to go to university. Instead, the government would lend larger fees to the students, who would then give them to the universities. How much of this money, at some point in the future, the government would then recoup, well, only a wise seer with a lot of time on her hands could run the numbers on that.

But this government didn't even get its short-term number predictions right. It presumed that the university market would immediately start operating like a low-end retail market, competing on price to attract custom. But the early signs are that the university market prefers to operate like a high-end retail market, with steep prices part of an elite image. Of the 16 universities that have set their fees so far, 13 have plumped for top whack. The government is likely to shell out more money in loans than it would have on the block grant that it just slashed, if the present trend continues. Another self-imposed obstacle crash-lands in the way of wiping out that deficit in a single government term.

via guardian.co.uk

Fair's fair

I have long been aware that there can be a bug difference between what one is paid and what one has earned so I found this article by Will Hutton very interesting. In particular, I was intrigued by his candour that the review he undertook was set up to look into the 20:1 ratio of pay as a "social norm". Clearly, Will Hutton concluded that the ratio was arbitrary and practically irrelevant since it would apply to only 70 out of 6,000,000 public sector posts and therefore very unlikely ever to be accepted as a norm. And I'm pleased that he has had the independence to set out such conclusions regardless of what the government had hoped the review might result in. It gives one a little bit of faith about the way the UK is governed.

March Madness

This is the time of year when (in countries where the public sector financial year ends on 31 March) public managers try to avoid underspending their budgets. Stationery cupboards are stocked, laptops replaced, small, low priority--but quick--projects are hastily completed. It might not be right; it might not be good value for money; but it happens.

This March madness has always been a feature of my working life. I'm sure it happens in private businesses, too, except there the drive might be to record sales before the year end rather than costs (depending whether the manager has made too little profit or too much).

The incentive to do this is a version of jam today rather than jam tomorrow. When I was a director of finance we introduced a system of carrying forward budget under-spends and over-spends as a way of encouraging managers to take a longer term view and spend money more wisely. I think it worked at the time but that was because managers and directors trusted me and the top politicians to honour the system. Given the pressure on public sector organisations if I were a budget manager I would be sceptical about whether my under-spending would be made available to me in the new financial year. I might take the view, better to spend the money now on something I'm certain about than hope I could spend the money on something better in a month or two.

It may not be the right thing to do, but who can blame them?