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Archive for January, 2011

NHS Reform: Privatisation?

January 31, 2011 1 comment

The Health and Social Care Bill is being discussed on Monday (today). It has been criticised for being ‘privatisation through the back door’. Is it? In a haphazard way, yes.

But why should the sacred cow of the NHS be kept safe from the modern world? It should not. There is a misguided concept in this country that a National Health Service should be State funding of healthcare as well as State facilities (hospitals etc) of healthcare. However, to be a National Health Service, all that needs to provided by the State is the funding.

When the previous Labour government introduced the Primary Care Trusts and the Foundation Hospitals this was a step in the direction of privatising the facility of healthcare whilst retaining the funding.  The Coalition government, on the other hand, is partly privatising the funding by handing over 80% of the Health Budget to GPs, who are private individuals, running private practices.

What’s the problem?

The problem is that the NHS already has problems of outrageous charging for, sometimes unnecessary, treatments and overtime payments to consultants who already receive more than ample pay. These problems will become more pronounced as GPs are unaccountable to the public. They will have the power to send patients to the hospitals of their choice and prescribe treatments that are not ideal for the patient but are ideal for the GP and the drug company that sponsors them. It will increase costs and be detrimental to patient care.

What’s the solution?

Tough one, as it is becoming obvious that maintaining the post-war structure of the NHS is not conducive for the best quality of care. What could be done is to put in place a utilisation management mechanism – a tool that insurance companies use to inhibit excessive spending, so if there is excessively high spending on a patient, usually for unnecessary treatment, a red flag is raised in the system and it is investigated. This will ensure a targeted treatment plan for patients, so that they get the treatment they need whilst also bringing down costs. The drive to privatise hospitals and the facilities of healthcare can be brought forward, creating competition and normalising wages and prices. However, when dealing with National Healthcare, one can never get it perfect. The closest model to perfect is the mixed system in France.

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What do the GDP figures mean

January 27, 2011 Leave a comment

On Tuesday the GDP figures for Q4 of 2010 were released and they indicated that the economy had contracted 0.5%. This was a downgrading of the modest prediction of a 0.5% expansion. What does this mean? Well, for starters, the snow accounted for half of that contraction or all of it. Discounting snow, economic growth was somewhere between 0% and -0.25%. Either isn’t very good.

Why was there a contraction instead of growth?

The snow has already been accounted for, the rest can be ascribed to Peak Debt. Peak Debt is a theory, in the process of being proved, whereby consumers (businesses, individuals etc) can only take on board so much debt before it becomes unmanageable and consumption is cut in order to service the debt.

Despite my awful abilities on paint, I hope you can see the bell shape of the diagram. As a country and economy, we have crossed the peak about a year ago. It starts large and trickles down to the individual consumer. Once the individual is affected the shockwaves across the economy are felt. As consumer spending is sharply cut in order to service the debt, the strata above the individual consumer cut spending to service their debt due to the shortfall in revenue and demand. That is an explanation for the contraction.

Q1 of 2011 will contract even further as the shift along the bell curve takes hold. VAT will effect profit margins of businesses, especially those in retail, as they either absorb the increase or increase prices (increasing inflation as well). One could reasonably expect a contraction of 1% in Q1.

Is there anything that can be done?

Yes, quite a lot.  Due to the coalition’s austerity measures Britain can take advantage of one of the lowest interest rates on bonds. This is because there is trust in the economy, how long that will last with negative growth is anyone’s guess. But there is the opportunity, especially at a local level, to increase demand and improve the infrastructure. This will increase growth due to the extra demand in the economy.

Letting inflation run and keeping interest rates low will wipe of debt for the majority. It will, however, eat into the savings of the minority. Inflation will devalue the pound making it cheaper and easier to export but more expensive to import. Inflation isn’t always a bad thing.

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How Can Banks be ‘Fairer’ and Increase Revenue at the Same Time?

January 7, 2011 1 comment

It is possible for a bank to be ‘fair’ as one only has to look at the Co-operative Bank to discover this. However many banks would also lose revenue in the structural reform and it would cost a lot of money to instigate the reform. The costs invariably will put the banks of from reform that would make them ‘fair’.

So, how does one make the banks ‘fairer’ whilst also increasing revenue? This topic has bugged me for some time, after watching ‘Yes Man’ it has highlighted a possibility to achieve the aim. This possibility is small loans between £200 and £1000. People will be more inclined, and able, to pay back small loans at reasonable rates of interest ie no more than 25% p.a.

This function can be used as a normal loan facility, especially used by those with low credit ratings – undercutting legal loan sharks etc – and those that don’t need large loans, or it can be used in place of an overdraft charge zone.

The vast majority of people that exceed their overdraft limits are not ‘bad’ ‘irresponsible’ people, but those that have had a change of circumstances, unexpected expense or another reason. To use the small loan facility in place of a £30 charge will boost revenue for the bank over a longer-period of time and will stop the demonisation of the user. However, in order to be fair, there would have to be a fair usage policy so as to discourage prolific use of the facility. For consumers, this facility would enable them the little boost to manage their debt – by punishing people with charges, all a bank does is reduce the users ability to manage their debt and narrow the range of potential borrowers.

So, a small loan to those that exceed their overdraft facility will be fairer to the consumer, enabling them to manage their debt, and, in the long-run, yield more for the bank than an immediate £30 punishment. The small loan, in a traditional loan facility, will also boost revenue for banks as the range of customers is extended and the rate of default and risk will be limited due to the small amount of the loan.

How do you make banks ‘fairer’ whilst increasing revenue? Small loans

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