Last year when I attended Innocent's first AGM, there was a lot of heated discussion about their test-marketing smoothies within McDonald's outlets. This was an act that certain evangelistic customers seemed to feel was a betrayal of their ethical principles.
Thus, at Innocent's second AGM this weekend, there was an expectation of a lot of dissent regarding the recent sale of a slice of the business to Coca Cola. That it didn't really materialise was a reminder that noise does not equate to strength of feeling. Later, in discussion with one of the founders, it emerged that they had received 260 complaints. For a compamy with sales of 100 million smoothies a year, that's a very small number.
I've always said that to create a great product/service, it's imperative to focus on eliminating annoyances for your customers, but you also have to keep the numbers in perspective. It's what lies behind them that counts - as evidenced by another number that I discovered. Specifically that, on their ninth birthday, 38 customers chose of their own volition to send birthday cakes to the company.
260 complaints versus 38 birthday cakes. I know which number I find more compelling.
According to Gordo, The System governing MPs' pay and rations is a failed system. It is A System that has failed to prevent MPs systematically fleecing us for their own personal profit.
So his solution is - yes - A New System.
And the key element of his new system is that MPs' pay and rations will henceforth be determined and policed by An Independent Statutory Body.
An Independent Statutory Body? But who will be on it? And to whom will it report? Even Systems have to report to somebody.
It clearly can't report to Parliament, because we all agree they can't be trusted.
It can't report to the government either, because otherwise it wouldn't be independent.
So who?
The Queen?
But we discovered monarchs couldn't be trusted with our dosh, way back in the Seventeenth Century.
Ah! Of course! Taxpayers! Why not have us taxpayers vote on it? We could vote for its membership once every, say, five years. So if the Board screwed up, they could be replaced with new members. And while we're at it, maybe we could get them to take on one or two other duties as well.
Job done.
Well, job done except if we had this new elected board, we could wind up that useless out-dated pig trough on the North side of Westminster Bridge.
****
However Gordo's new "independent" board is structured, we have to keep firmly focused on two things.
First, we must insist on total transparency. All the money and perks dished out to our MPs must be fully documented and available to us online. It really is the best disinfectant.
Second, MPs are not underpaid and should not cop some fancy quid pro quo pay rise. As we blogged here, MPs are in the top few percent of the income distribution, and there is absolutely no shortage of applicants. And as the latest report from the Senior Salaries Review Body said, they should be compared to other public sector workers (not highly paid lawyers or bankers), against whom they stack up pretty well.
We might also note, once again, the ludicrous mismatch between the sleazy shambolic performance of our MPs as witnessed over the last couple of weeks, and their claims to be fit rulers over vast tracts of our lives.
Especially when even they now admit they cannot be trusted to run themselves properly.
The latest CPI release shows inflation is still alive and well: deflation is nowhere in sight (ignore the interest rate distorted RPI).
True, the 12 month inflation rate has fallen from 2.9% to 2.3%, but in the midst of the deepest recession since 1427, that's still over the government's 2% inflation target.
And when you look at the detail beneath the headline, you find food inflation still bounding along at 8.6%, housing and household services (mainly utility bills) running at 6.1%, and every single area except clothing and transport comfortably in positive territory.
And actually, the picture is even worse than that.
Remember the small matter of that temporary VAT reduction? That's had the effect of artificially depressing the headline inflation rate. When you look at CPI inflation excluding VAT and other indirect taxes, you find it's running at 3.8% pa - a full 1.5% pa above the official headline number.
That VAT reduction will be reversing next year. At which point, what was a 1.5% cut in headline inflation will become a 1.5% increase.
It could well be even worse - if the rumours of a new 20% VAT rate are true, we will get a whopping 3 percentage point jump in CPI inflation.
Like we've said many many times, deflation is not the problem.
As we'll all discover post the 2010 election.
PS A couple of weeks ago I heartily recommended lefty Brad DeLong's podcast lecture course on American economic history - for those whose knowledge of the pre-WW2 US economy is sketchy (like me) it seemed ideal. I was immediately contacted by BOM reader Philip W who warned that DeLong gives a highly partisan and distorted view of the Great Depression and the New Deal. And he suggested the following antidote:
Thank you Philip - a very good corrective.
As for Brad's podcasts, once I got onto the post-WW2 period, with which I am fully familiar, I soon discovered I couldn't bear more than about 20 minutes. I'm sorry, Brad mate, but I don't believe all Republican Presidents have been evil idiots, and I don't believe all Democrat Presidents have simply been unlucky. And I certainly don't believe we can afford to be relaxed about high inflation because net-net it's costless and it's just a redistributional thing robbing from the rich to give to the poor. I'm now worried for the Berkeley students taking Economics 113.
In case you missed it, a tax-funded quango has just succeeded in further undermining the fighting capacity of our armed forces.
The Equality and Human Rights Commission has spent an undisclosed, but doubtless considerable, sum of our money pursuing the sad case of Pte Jason Smith, who died of heatstroke while serving with the Territorial Army in Iraq in 2003. Largely as a result of the Commission's efforts, the Court of Appeal has ruled that the Human Rights Act, and in particular, the "right to life", applies to British soldiers on active service.
So how's that going to work exactly? How are our army commanders going to dischargethat obligation while still beating our enemies?
As we've blogged many times, it is absolutely right that our frontline troops should have the very best kit and support we can buy for them. And it is disgraceful that they are still forced to cope with death-trap kit like the so-called snatch Land Rovers* and those decrepit Nimrods.
But that is a political issue - we should make our politicos do much better than they have over the last decade.
It is not a matter for the crackpot Human Rights Law: the very last thing we want is to place yet another burden on our frontline commanders.
*Footnote - Tyler recently dined with another patriotic Major of his acquaintance. This one is very familiar with Land Rovers, having used them both on operations (if I told you I'd have to kill you), and to scout his considerable acreage in East Anglia. But he recently drove a Toyota Land Cruiser, and was absolutely amazed at how much better it is. Now he's switched, and even though he knows his military-family-back-to-Waterloo father will be spinning in his grave, he will never go back. Another fine old British tradition bites the dust... until, that is, you remember that the original Land Rover was actually no more than a Jeep rip-off.
Throughout the ages, highly indebted governments have turned to the inflation tax to bail themselves out. By ramping up inflation, they impose an effective tax on all who hold any form of government debt fixed in money terms.
So if you hold £1,000 in I Promise to Pay the Bearer on Demand tenners stuffed under the mattress, 2% pa inflation means that by the end of the year it's only worth £980. You have lost £20 to that year's inflation tax.
If inflation ramps up to 5%, your inflation tax becomes £50. And if it's 10%, the tax is £100 (actually it's "only" £91, equals £1000 minus £1000 times 1/1.1, but let's not split hairs). Etc etc.
The inflation tax in Britain was at its height back in the 70s. In 1975-76, inflation was 25%, and with Public Sector Net Debt standing at £52bn (start of year), the inflation tax amounted to £11bn, a staggering 10% of GDP.
Where do we stand now?
As you know, we believe inflation is set to take off again - driven largely by the government's desperate need for increased "revenues" from this inflation tax. And with public sector debt ballooning, the tax-take will soon ramp up.
Based on the latest HMT budget projections, and using a range of very modest inflation assumptions, here's how it looks:
So after two decades when it has bobbled along at less than 1% of GDP, the tax is now set to soar. Which is pretty scary.
And it's especially scary when you realise that the HMT debt projections take virtually no account of the vast banking debts the government has taken on, and there is little reason to think inflation will stop at 5%. A £60 bn pa tax could easily turn out to be much higher.
So who are the poor schmuks who will pay this tax?
And more importantly, how can you make sure you're not one of them?
Well, like we said, anyone who holds government debt fixed in money terms will pay.
What's fixed in money terms?
Money is fixed in money terms, for a start. So you want to make sure you don't hold too much of that. Or rather, make sure that any cash you do stuff under the mattress looks like this:
Tomorrow's hardest currency
But most of HMG's debts are not money per se: notes and coin only account for around £50bn of the trillions they are busy running up.
No, the main chunk of debt comprises gilts and similar "interest bearing instruments".
As we can see, one-third of them are held overseas, so you may say fine: we don't care if they pay the inflation tax. Except we will care if scammed foreigners get so angry they stop buying any more.
The biggest chunk - 40% - is held by insurance companies and pension funds, and again, you may say fine. That's their problem not mine.
But of course, it is your problem if you're anywhere close to drawing a private sector pension. Because your pension will come from an insurance company or a pension fund, and will almost certainly be pretty well fixed in money terms, backed by gilts or similar bonds. And once inflation moves above 2-3%, you will be on your own, paying the full inflation tax on your gilts-backed pension.
So private sector pensioners are stuffed.
For most other people, the good news is that the inflation tax is largely voluntary. You simply have to get shot of your HMG fixed debt (including cash, but possibly excluding index-linked gilts), switch your High Street bank and building society accounts into a handy Renminbi Savings Account, buy gold, buy silver, plant carrots, and pray.
Of course, widows, orphans, and ordinary savers of modest means will never move quickly enough. And they will pay this tax with the money they would otherwise have had to heat their homes and eat.
Last week brought updates on two of BOM's longest running sores: the interminable scandal of defence procurement, and the moneypit that is the 2012 Olympics.
Defence procurementscandal
The Public Accounts Committee published its annual update on the MOD's 20 largest procurement projects. And the story is all too familiar (see previous posts gathered here). Despite the introduction of a deckchair rearrangement known as Smart Procurement (don't ask), the projects have fallen even further behind schedule and gone even further over budget:
"In the last year, the 20 biggest projects suffered a further £205 million of cost increases, and 96 months additional slippage. This is the worst in-year slippage since 2003. The total forecast costs for these projects have now risen to nearly £28 billion, some 12% over budget. Total slippage stands at over 40 years, a 36% increase on approved timescales. The number of Key User Requirements reported as being “at risk” of not being met has also increased from 12 to 16 in the last year."
A very serious implication of this incompetence is that British servicemen are being forced to fight with equipment that is obsolete and/or past its planned scrappage date. I know we've said it before, but if the Spitfire had been built to this timetable, the RAF would have had to fight the Battle of Britain with Sopwith Camels. Either that, or ask the Luftwaffe to postpone until 1980.
We should note too that the additional cost overrun has only been kept to £205m because the MOD has slashed the number of orders:
"For example, it has trimmed the number of Future Lynx helicopters being bought from 70 to 62, and delayed a number of projects, such as Future Aircraft Carrier, Future Rapid Effect System and elements of the Military Afloat Reach and Sustainability fleet auxiliary programme. We remain deeply concerned that further cost overruns in projects will result in additional reductions in current defence capability and added delays to projects..."
Of course, the scandal of defence procurement isn't just a question of delay and cost overrun: it's much worse than that. There's the whole question of fighting the last war.
As General Sir Richard Dannatt*, the head of the Army, said just last week, the government is "squandering our increasingly scarce resources on those things that are not relevant for today's requirements... At present I can only conclude that much of our planned investment in defence is at the very least of questionable relevance to the challenges we face now and will in the future."
As we've blogged many times, the £20bn we're blowing on the Cold War Eurofighter Typhoon is money that would be much better spent on kit for our boys on the North West Frontier. Along with the £1bn apiece we're spending on the new Type 45 destroyers (which according to ex-Navy man Lewis Page, will simply spend the next 20 years cruising the world hosting cocktail parties - and see BOM vid here).
2012 Olympics moneypit
The government has finally admitted that the £1bn cost of the Olympic Village will all have to come from public sources. Since we never believed their pie-in-the-sky claims that it could be privately funded, this is hardly surprising.
But what it does mean is that the "cast iron" £9.3bn budget has now been breached. Not only has the budgeted contingency fund been raided, but £268m of extra cash is being smuggled in under the guise of social housing support.
Despite this fiddle, and with 3 years still to go, the unused contingency fund is down to a mere £585m. There isn't a prayer it will be enough.
Still, there is now an obvious use for this village post-2012. A few hundred of the 2,900 apartments should be used as London accommodation for our spendthrift MPs. Stratford and Westminster are directly connected by the Jubilee Line, the village will come with built-in security, there'll be an onsite canteen, and the members could keep fit in the abandoned white elephant swimming pool. David Sparkes, British Swimming's chief executive, describes the idea as "excellent".
Could have been built for the job
PS Talking of MPs, would you stand for election as one? "Honest John clean hands" Tyler has been approached by "dissident elements" from a local Tory constituency party, suggesting he seek selection in place of the current member "who will not be standing again". But, protested an immensely flattered Tyler, surely a humble citizen such as his good self could not possibly hope to be selected - he's not even on the Z List, let alone the A List... besides, he's male, heterosexual, white, middleclass, and nearly 60. That doesn't matter at all, said the dissidents. In fact, in the current circs, not being on the Central Office list would be a positive advantage. Trust us, we could get you selected. Yeah, right. But just suppose they were right. Could Tyler possibly contemplate running as an MP? Why would he do it? Why would anyone volunteer for all the brickbats and social work entailed? Because it's a chance to do something about the terrible mess we're in, he was told. But isn't that how they all start?
*Footnote - General Sir Richard Dannatt GCB CBE MC was educated at St Lawrence College, a public school in Ramsgate. And do you know how many of the Army's top 10 officers were privately educated? Hmm? According to the PAC, it's 9. Like we blogged here, looks like the Army will always comprise Ruperts and orphans... or at least, Joannas and orphans. Thank God for the public schools, eh? Otherwise it might be all orphans.
Two alternative approaches to dealing with the persistant complaining customer (i.e. me as detailed here.
One company accepted that I was right and they were wrong (or more specifically "somebody at the service centre doesn't understand how to do percentages") and a refund is coming my way. I conceivably may buy from them again.
The other accepted that I was right, tells me that I should have been kept better informed and then offers me a 10% discount on future purchases within the next six months. I have no incentive to buy from them again.
Right the wrong quickly and you may still have a customer. Act as if you expect repeat business from a dissatisfied customer and you won't.
