Fixing the City pension fees problem

I read this Guardian article on City fees for pensions (an article which explains why I don't currently have a decent pensions), and a simple fix occurred to me: insist that the fees are charged only on growth, not on capital invested, and that fees are quoted as a %age of the expected growth as well as any absolute amounts.

After all, the reason you pay into one of these funds is that the City promises growth above and beyond keeping your money in the mattress. By restricting the fees to a proportion of the growth obtained over the time period the fees apply to, I would expect two beneficial side effects:

1. The management fees quoted become easier to understand in comparison to other financial options like savings accounts - if you are quoted as losing 50% of the growth or £50 (whichever is higher) to management fees, and the anticipated growth rate is 4%, it's easier to see that this is likely to be equivalent to 2% interest on a bank account, but has a worse downside in the event that the growth in value never materialises.
2. There's a built-in penalty for the City if it doesn't meet its promises; if the fees are 1% of capital managed, and you invest £5,000 in the expectation of 10% growth, they collect £55 if they achieve expectations (leaving you with £5,445); they also collect £40 if they lose £1,000 of your money (leaving you with just £3,960). If, on the other hand, fees are limited to the growth they achieve, then they get nothing if they don't achieve any growth (or make a loss with your money).

It's also my gut feeling that the City would have to try harder for its money if people understood just how high the fees they want are; 1% of capital managed doesn't sound like a huge amount. Taking my example earlier, they managed £500 of growth, so would need 11% fees to make the same money; if they average 5% growth, they'd need 22% fees to make the same income; at 1% growth, they'd need to charge fees of more than 100% of growth to make the same money they make from 1% of capital managed, making it obvious that their fees exceed the gain from investing with them.

You could go further - you could choose to insist that fees are capped to the growth obtained, but I suspect that would eliminate high-gain, high-risk investments. I would, however, choose to insist that any investment where fees can exceed the total gain in value from the investment is clearly labelled with an FSA "be aware that you can lose your entire investment to fees, even if the fund makes a profit" warning, explaining the risks clearly. With any luck, the requirement to label high-fee investments as high-risk would encourage the City to mostly offer investments where the fees are capped to growth, so that the City suffers when you make a loss.

Making car insurance affordable

Motor insurance prices have been in the news recently, as the cost of legally required third party insurance has been rising recently. The claim made by the industry is that injury claims are the biggest cause.

It seems to me that there's a pair of simple fixes, which could be funded by a further tax on motor insurance.

First, you cannot claim for injury after an accident unless the accident was reported to the police within 24 hours of the accident; if you are incapacitated by the accident, this time is extended until 24 hours after you become medically capable of reporting the accident. This ties into the requirement to report injury accidents to the police that already exists (Road Traffic Act section 170), and just has the injured party also required to report to the police if they might choose to claim later. In theory, therefore, this is no burden on the authorities, as they are dealing with these reports anyway.

Additionally, an injury claim is only valid if two things apply:

1. You make arrangements to see an NHS doctor within 14 days of the accident - being taken to hospital by emergency ambulance counts here, as does making an appointment to see your GP.
   
2. An NHS doctor, at risk of losing their licence to practice if found to be lying, agrees that your injury is such that compensation is appropriate.
   

In other words, make it cheap to dismiss injury claims that aren't backed by medical evidence. Put the onus on claimants to seek medical advice - if you really think you're injured, you should be seeing a GP anyway, and we should have mechanisms in place to deal with you if you're abusing NHS services (a topic for another rant).

On funding the BBC

It looks like we're going to see another debate on the future of the BBC in the not too distant future. I happen to believe that the BBC plays two important roles in UK television, so I'm not in favour of anything that guts it; I do, however believe that those two roles could be improved by a change to the BBC's funding.

So, firstly, what do I think the BBC does that's important?

1. It takes risks. The BBC can do a programme like Sherlock, which could easily have been a complete disaster, because it doesn't have to worry about making a profit on every slot.
2. It produces programming for minority interests. The BBC can broadcast the Paralympic Games knowing that the majority of people would prefer to watch football or mainstream athletics, because its funding method means that it can do the right thing anyway.

Further, having broadcast risky or minority programmes, the BBC sometimes ends up demonstrating to commercial broadcasters that their intuitions on what's potentially profitable are wrong; thus, it also stops the commercial channels descending into wall-to-wall dross, because they know that their viewers can always switch to the BBC.

Given these priorities, the BBC's funding mechanism needs to give them incentives to take risks rather than play it safe, and to worry about providing something for everyone rather than something for the few. As always when I present a problem, I have an idea to solve it.

To understand my suggestion, you first need to understand the audience measurement concepts of reach and audience size.

Audience size is really simple - just count everyone who watches a programme, or a channel, or a group of channels. There are some slight complexities here, such as deciding when someone counts as having watched a programme, but it's otherwise not hard.

Reach is a much more complex measurement; you have to count the number of unique viewers. The important thing about reach is that you can't just appeal to the same viewers again and again to increase your reach - you have to bring in new people each time.

A very simple example; imagine two TV stations, 1 and 2, and 6 people, A to F, and the following audience figures:

Time of day	Station 1 viewers	Station 2 viewers
6pm to 7pm	A, B, C	D
7pm to 8pm	B, C, D	E, F
8pm to 9pm	C, D	A, B
9pm to 10pm	A, B, D	C, F

By audience size (the most commonly quoted rating), station 1 consistently equals or beats station 2; with the exception of the 8pm to 9pm timeslot, it has more viewers in every timeslot. However, on a reach rating, station 2 beats station 1 - it reaches 100% of the audience over that evening, whereas station 1 keeps attracting the same viewers again and again to get a 67% reach.

With my terms explained (albeit badly), I can explain my proposal. I intend to reuse the BARB reach measurement for TV, and the RAJAR reach measurement for radio, as they're already taken anyway for the benefit of commercial broadcasters. I'm ignoring the BBC's online services completely, for these purposes; I believe that there's enough competition online, and it's easy enough to find, that the BBC is not needed as an aid to competition.

The BBC would have to face two measurements in my world. First, it would be measured on the reach of its television services alone; it must reach 99% of households with a TV licence. This allows for a small number of law-abiding households that don't watch the BBC on philosophical grounds, but still forces the BBC to provide something for everyone. If the BBC fails to achieve this, it has to "buy" ratings from the commercial and state broadcasters until it has the 99% figure; note that because it's buying historic ratings, it has to buy programming that helps it achieve its reach goal, thus giving commercial broadcasters an incentive to find a minority interest that the BBC does not service.

The second measurement includes both TV and radio services, and controls the BBC's future funding. For each of the two figures, you end up with three outcomes:

1. Reach increased compared to last year.
2. Reach the same as last year (within error bounds).
3. Reach decreased compared to last year.

If either reach figure decreases, the BBC is limited to an inflation-only rise in income; if both decrease, the BBC's revenue is not increased at all. This gives the BBC a strong incentive to avoid losing reach - lose reach in one medium, and you're limited to an inflation-only rise in income. Lose reach in both media, and you're making cuts.

If one figure rises, and the other stays the same, the BBC is permitted a small increase over and above inflation - say the lower of 5% or the inflation rate. If the BBC can make both reach figures rise, it's permitted a larger increase - say the lower of 10% or four times the inflation rate. In both cases, the tie to inflation ensures that the BBC never grows rapidly; but by tying increases to reach, the BBC is prevented from growing at all unless it can appeal to more of the population than before.

Obviously, this is just an outline, and thus rather incomplete - but hopefully my thinking is clear.

On freeloaders in the benefits system, and reducing the offence they cause

One complaint that appears in the popular press from time to time is that the welfare state is too generous to undeserving people, while not being generous enough to hard-working citizens.

It's an unfortunate reality that no matter how careful you are in designing your welfare state, you're guaranteed one of three outcomes:

1. Some people freeload and get away with it, because there's nothing in the system to stop them.
2. Some deserving people don't get the help they need, because the system says no.
3. The system costs a huge amount to administer, and is much more expensive overall than a system that permits freeloading - you can easily end up spending hundreds of pounds on administration for each pound of freeloading prevented.

I hope that people would agree with me that the third option is absolutely insane - there comes a point where pragmatism says that you shouldn't spend hundreds of pounds just to guarantee that a few pennies don't get given to people who don't need them. This leaves us with just two choices; I would personally prefer that deserving people don't miss out, which means that I have to tolerate freeloaders.

Given this state of affairs, what can be done to ensure that freeloaders don't upset people? First, we need an understanding of why freeloaders upset people; I believe that, in large part, people get upset because they work hard "for what they have", while freeloaders appear to get more by not working at all. We therefore need to ensure that freeloading isn't going to leave you better off than working.

Of course, I have an idea to solve this; simply put, we have plenty of benefits that could easily be paid to everyone, regardless of need, with those who don't need them paying them back in taxes. For example, the highest rate of Jobseeker's Allowance is £65.45 per week per person (around £3,500 per year). The basic rate of income tax is currently 20%, but by removing the personal allowance completely (replacing it with what used to be JSA), you claim back £1,500 from basic rate tax payers; you could then increase the basic rate to claim back the remaining £2,000, or accept that by pushing more people into the higher rate tax band, you're getting more income tax. Further, because people continue to get the same rate of benefits whether they work or not, you encourage people who don't work because they're scared of losing their benefits, or who can't stick out a job for more than a few months at a time to work, and thus pay taxes.

As a second upside, you reduce the amount of administration needed; if you look at all means-tested benefits, and remove those that can fairly be paid to everyone and reclaimed via tax, you reduce the number of people you need to administer the benefits system. There will still be exceptional cases (disability benefits for one), but they're fewer and further between.

There are, of course, downsides. For one, you need to be good at catching out tax dodgers; if people hide from the tax system in the black market, the maths stops working out. You still have a social problem; while you're now always better off working for a living, people will still resent carrying people who don't work, even though they should. I do, however, believe that this system will lead to less resentment, and even, possibly, more employment overall (it becomes possible to work for a couple of hours a week, without losing out on your "bennies").

A proposal for Parliamentary reform in the UK

Anyone in the UK will be aware that we've got a general election coming up, and thus that our parliament is suspended until after the election; one of the many things we were promised that hasn't materialised is full reform of the upper chamber (the House of Lords). This, then, is my modest proposal for reforming Parliament to better reflect the modern UK.

First, a brief look at what we have now. Parliament is split into two houses; Commons, the elected MPs, and Lords, who are appointed for life (in theory by the monarch, in practice by the Commons). New legislation can be proposed in either house; it's debated and amended by the house in which it was proposed. Once it's approved, it's sent to the other house, where the process is repeated by a different group of people; eventually, both houses approve the legislation without amendment, and it becomes law.

There is a tie-break process in place (the Parliament Act) to ensure that the Lords cannot completely block legislation. If the Commons can agree to a proposed bill three times without amending it themselves or accepting amendments from the Lords, the Lords are not given the chance to reject or amend the legislation again.

By and large, this setup works. The Lords act to balance the Commons' short-term thinking, but cannot hold back a Commons that is determined to pass a particular piece of legislation. The back and forth process between the two houses ensures that most legislation gets discussed properly, and that it's possible for Commons MPs (who are under pressure from voters) to say "we tried to get your knee-jerk legislation in place, but it got watered down by the Lords".

There are, however, two issues that I see with it:

1. The Lords is often reactionary and disconnected from the populace; this leads to media discontent with the Lords. I'm not entirely sure that this is an issue worth solving, as it's more about perception than reality.
2. By and large, the flow of legislation is entirely one way; the statute book grows, but does not normally shrink. Ignorance of the law is no defence in English law, so as time goes on, it becomes harder to remain a law-abiding citizen.

Naturally, I have proposals for fixing both of these; I will start with the second, as I see this as a bigger issue.

Firstly, we need to think about why the statute book keeps growing; there are many causes for this:

• Statute starts to cover more and more things that were previously not a problem. For example, there are no 17th century laws regulating driving on the motorway, or mobile telephony.
• Statutes get introduced to cover things that are a concern at the time, but which are no longer relevant; for example, we still have statute covering the militias, which have long been replaced by the modern Army.
• Statutes are introduced to cover a very specific problem; after a while, we work out that the specific problem is just one example of a more general problem, we legislate to cover the more general problem, but the specific legislation remains.
• Statute covers something that, at the time of introduction, is believed to be a problem. As time goes by, and society adjusts, we stop enforcing statute, as we discover that there is no problem; however, the statute remains, and can be suddenly enforced at any time. Enforcement of the statute will surprise people.

It's clear that some of this can't be avoided - we need new legislation to handle problem that never existed before, and it's not surprising that general legislation overtakes specific legislation as the true scope of a problem becomes clear. However, some of it is simple waste; once we have the general legislation, we don't need the specific legislation. We don't need legislation that refers to a time gone by, and that's now irrelevant. We should lose legislation that's no longer enforced.

So, on to my modest proposal to fix this: all legislation should have a built-in expiry date. If it's not renewed by the expiry date, it comes off the statute books, and, if it's still needed, it must be reintroduced. In order to stop important legislation falling off the books, I would put a duty on the Lords to review all legislation that's approaching expiry.

Obviously, there are details to work out; what expiry date should be put on legislation? If it's too short, the Lords wastes time renewing legislation again and again; if it's too long, it doesn't keep the statute book clear. I would suggest that the ideal unit of time is the lifetime of a parliament (typically 5 years, although it can be shorter). By making the expiry the end of a parliament, we give the Lords time to renew legislation before it expires. In order to keep statute changes flowing through, I would suggest setting the expiry based on the vote that passed the legislation, according to the table below:

Size of majority in Commons	Size of majority in Lords	Expiry of legislation
50% or more of the MPs who voted	50% or more of the MPs who voted	End of the next parliament (circa 5 years)
75% or more of the MPs who voted, and at least 50% of all MPs voting	50% or more of the MPs who voted	End of the parliament after next (circa 10 years)
50% or more of the MPs who voted	75% or more of the MPs who voted, and at least 50% of all MPs voting	End of the parliament after next (circa 10 years)
75% or more of the MPs who voted, and at least 50% of all MPs voting	75% or more of the MPs who voted, and at least 50% of all MPs voting	End of the 4th parliament after this one (circa 20 years)

This ensures that legislation which MPs can be persuaded to care about lasts longer than legislation that doesn't particularly appeal to their sense of duty; for example, murder laws would almost certainly get renewed for close to 20 years at a time, as would a new bill protecting people from unlawful killing, while "special interest" legislation is unlikely to last much more than 5 years at a time.

The renewal process would work much like the process for introducing new legislation; someone brings the bill for renewal before the house, it's debated, voted on, and eventually, passes; the size of majority affects when it next comes up for renewal, just like new legislation.

I would expect this to gradually reduce the size of the statute book; because many laws are non-controversial (and thus will get renewed without question), it reduces the time available to produce new laws. Laws that should be repealed will face fresh scrutiny on a regular basis, and, with any luck, the resulting reduction in rate of change of legislation will enable any citizen of the UK to memorise all the statutes that affect them.

So, onto the less important reform; making the Lords democratically accountable. There are 646 seats in the House of Commons. I would make the Lords the same size as the Commons, but, instead of electing each seat using first past the post, I would group Commons seats into 38 groups, each of which returns 16 members to the Lords. These members would be elected by the constituents of the 17 seats they represent using single transferable vote; a system in which electors mark their preferences in order, and which aims to elect the least objectionable of the candidates. Elected members survive 4 parliaments, and each constituency would be expected to elect in groups of 4 at a time at the same time as they elect their Commons MP.

This results in members of the Lords being able to take a much more long-term view than Commons MPs; they can expect to be in office for 20 years at a time, to the 5 years of a Commons MP. It also reduces the turnover, resulting in a lot of continuity in the Lords. STV also tends to prevent tactical voting - you can afford to put the virtually unelectable candidate you agree with before the very electable candidate you just about could live with, knowing that if you're right, and they don't get elected, your vote still helps prevent the candidate you couldn't live with from winning.

This leaves 38 seats empty, as against the Commons. I would increase this by 2, to get 2 more Lords than Commons. Again, these 40 would survive 4 parliaments at a time, and again, I would replace in groups of 5, so that there's a slow turnover. However, these 40 would be appointed by the incoming Commons administration; their role is to ensure that there are people in the Lords who can act as a link between the administration, including past administrations whose laws are up for renewal, and the Lords, to explain the rationale behind Government bills in Lords debate.

As you may have gathered from this ramble, I do have an interest in politics. I would be interested to hear other people's views on reforming UK politics - including explanations of why it's not needed.