Sunday, 8 December 2013

Handing taxpayers' finest to the financial services sector, just for the heck of it.

Exhibit One:

£482 million a year, almost a fifth of the £2.6 billion NHS budget for maternity services and an estimated £700 for every birth, is being spent on medical negligence cover. The most common reasons for compensation claims are management mistakes, problems after a caesarean section and errors resulting in cerebral palsy.

There is no point in the NHS paying medical insurance premiums to anybody, as they can self-insure. There's is some marginal point in paying for insurance against unusual but catastrophic losses, but there is no point insuring against frequent, small-scale losses.

The NHS knows that out of 700,000 births a year, they are going to mess up a few hundred and will have to pay out few hundred thousand each time, but the total amount is probably fairly stable and only a tiny percentage of the NHS' overall budget, so they might as well just pay the compensation directly. The premiums the NHS pays to the insurance companies will of necessity include the insurance companies' guaranteed profit element, and that is money which could easily be saved.

Exhibit Two:

The government will further support Right to Buy by introducing Right to Buy Agents to help buyers complete their home purchase, and provide £100 million to establish a fund to increase Right to Buy sales, by improving applicants’ access to mortgage finance.

There is absolutely no need for "access to mortgage finance" when somebody does Right To Buy.

Let us assume that at present, Council Tenant A is paying £5,000 a year rent.

The council now decides that he can buy his house at a massive discount for (say) £60,000. If that proud new Homey took out a mortgage for £100,000, the repayments would cost him (say) £3,000 (at current interest rates).

The council can act as the bank and "lend" him the £100,000 out of thin air. They just have to right it down at the top of a sheet of paper, then every year they add on the interest charge and deduct the amount he has paid until he has paid off the loan.

Bonus points to the first idiot who says: "The local council needs to get that money in so that it can build another council house." Firstly that is not true, the amount of council housing to be built (or indeed sold off) is purely a political decision, there are no financial constraints on the amount that can be built and it needs very little in the way of finance.

And even if they did need the cash up-front, the council can easily sell its loan book.

(Why it is considered better for the local council to have fixed income of £3,000 for a limited period rather than £5,000 a year, rising with inflation, in perpetuity is a mystery to me, bearing in mind it is the taxpayer generally who will have to make up the shortfall, but that's a separate topic.)

22 comments:

Kj said...

Maybe the NHS practice is to make malpractice claims extra expensive as to deter them from happening... err... Even small businesses do this at the same scale, with accounting for warranties etc.. Once again, the loving relationship between government and financing is on parade.

Kj said...

between government and Finance

Bayard said...

"The government will further support Right to Buy by introducing Right to Buy Agents to help buyers complete their home purchase,"

What that says to me is "the gov't is desperate for some of the electoral magic that RTB has provided in the past, but the richer council tenants have all bought their houses years ago, so they are employing a team of dodgy salesmen fresh from selling payment protection insurance to sell the remaining tenants something they can't afford."

Lola said...

My first reaction to all this is 'Oh no, not again'.

I was going to make a longer comment, but do you know what? I can no longer be arsed. The perenniel stupidity of these people just wears you down - and it's nearly Christmas, and really, we don't need this do we?

DBC Reed said...

@MW Margaret Thatcher in her evil way made sure the takings from sold council houses could not be used to construct new houses.

Votefor said...

For Gawds sake man , you don't expect us to pay for them votes , do you?

Dinero said...

And if for budget reasons there was a problem with self insuring they could probably borrow the money after the event, as they are the NHS.

Exibit 2

and it would not even be a novelty, as rent to buy schemes allready exist.
On the on the other hand if they sold it in instalments what would be the status of the ownership be during the transaction period.

Dinero said...

maybe the NHS does that to make department accounts predictable

Bayard said...

Lola, stupidity? Cupidity!

Mark Wadsworth said...

Kj, how we encourage NHS staff to improve standards and minimise afoul ups is a separate topic.

B, yes, they've sold the nicer stuff to the wealthier tenants, now they are selling the crappier stuff to poorer tenants.

L, I know how you feel.

DBC, yes of course, and funding was never a constraint on the amount of social housing being built - it is not a cost, it is a source of income.

Din, they can still make the accounts predictable by putting £500 million to one side for "contingencies", in good years it runs a "surplus" and they use that up in bad years. Yer basic teeming and lading.

The Stigler said...

That's a very good point about insurance.

I don't know if it's still the case, but it used to be that schools (as in the buildings) weren't insured. Across an LEA, it was cheaper just to pay for any damage if you got a fire or struck by lightning.

SumoKing said...

For the NHS simple errors in child delivery are often catastrophic and extremely expensive.

Being deprived of oxygen, which is a common issue in this sort of accident, results in brain damage. However our standard of medicine is that despite that damage the child will likely survive, albeit disabled. The NHS is then obliged to pay for the care, adaptations to housing, loss of earnings etc etc for the child's life, so while he gets about £5000 for the actual injury he gets RPI adjusted damages of X million to cope with a life that has been wrecked before it started.

In comparison to these, lopping off the wrong leg or doing in pensioners that weren't going to live much longer are small change.

Mark Wadsworth said...

TS, thanks for back up.

TSK, you've missed the point. From the point of view of injured child/parent, it is a catastrophe (and if they want to insure privately, fair enough), I was talking about it from the NHS' point of view.

Derek said...

When I travel on business for the Very Large Corporation which employs me, I occasionally hire a car. I have been instructed not to take out any insurance when I do so because the VLC finds it cheaper to self-insure than to pay a third-party for insurance.

If the private sector is doing this, the public sector should be doing it too.

Mark Wadsworth said...

D, that's another good example. Thinking on, if it turns out that a single govt department pays a single penny in insurance premiums for anything at all then that would be highly depressing.

Derek said...

Oh, yes, depressing in the extreme. I can see why a particular government arm (with a miniscule budget) might want to pay for insurance in case it gets a claim against it which completely dwarfs its budget. But the whole of HMG and its pseudo-independent subsidiaries is far too big for it to make any sense to use third-party insurers.

So, in principle, the government could set up its own insurance corporation, perhaps as a subsection of the Treasury. Then all its components, large and small, that need insurance, could insure through that.

Derek said...

A quick google search on "uk government self insurance" suggests that certain parts of HMG already self-insure. Doesn't look like there is a comprehensive self-insurance policy in force though.

Mark Wadsworth said...

D, I am sure that lots of govt departments self-insure, see TS' example about education authorities, but if it's even a single one of them that doesn't, then that is one too many.

Bayard said...

"if it turns out that a single govt department pays a single penny in insurance premiums for anything at all then that would be highly depressing."

No stupidity that involves handing public money to private enterprise is beyond this government (whatever the colour of its rosettes). I would not be surprised if the NHS isn't the thin end of a very fat wedge.

DBC Reed said...

@MW
Rather a conservative view of the extent to which the banks are able and the State should be more able (or willing)to create money out of thin air.
I will take a leaf out of KJ's book and use some quotes from people who know a lot "just to annoy" him.Murray Rothbard doyen of tough nut Austrian School "Banks make money by literally creating money out of thin air" So why can't the State cut out the middleman and create its own money out of thin air instead of taxing or borrowing (absurdly from the banks). "The Fed writes out a check for $10million which it gives to Shearson Lehman in exchange for $10million in US securities .Where does the Fed get the $10million to pay Shearson Lehman. It creates the money out of thin air." Given the existing capacity of governments to create thin air money , there is not much need for the redistributive element of LVT. Just a "hereon" tax to stop future land price inflation will suffice diverting new money to consumption/production.

Kj said...


Din, they can still make the accounts predictable by putting £500 million to one side for "contingencies", in good years it runs a "surplus" and they use that up in bad years. Yer basic teeming and lading.


They could in theory, but I suspect there are organisational reasons why public departments don´t do this, which has been hinted on before. TS has mentioned LA schools that do it. They are organisations that are quite closely controlled by those who set the budgets. NHS are "arms length", and would have to appropriate these funds, and defend why, and insurance premiums are perhaps "easier" to defend as actual costs, rather than an accounting set-aside. These state orgs in practice work for their own benefit, and do not see it as "one big pot". In that environment I think that a separate insurance scheme within the government, as D says, is the practical way to work around this thing.

Kj said...

Searching for "government self-insurance", the first thing that popped up was this, seems Canada has a coherent policy about it:

The Government of Canada, for the most part, underwrites its own risks and does not purchase insurance in the commercial insurance market.