Fungiblity

Stephanie Flanders nails why I found it impossible to build the requisite outrage at the expenses scandal:

    The idea is this: money is fungible. Put simply, that means one £50 note is the same as any other. They all have the same value and they will all buy the same amount of stuff.

    Put it even more simply, if you give someone £100 to buy a chair, you can’t say for sure that he bought a chair with your money – even if he shows you the chair, and a receipt. All you can say for sure is that you made him £100 better off, and he has bought a new chair.

She continues:

    But the focus, at least until recently, has mainly been on who claimed for what, and whether it was an “appropriate use of taxpayers’ money” – the moats, the dog food, the fancy furniture.

    If, like so many MPs, your MP has claimed the full amount – around £24,000 in the most recent year, then the point to note is that he or she has had £24,000 a year more to spend. Full stop.

    For example, some have said it was unfair that MPs such as David Cameron have escaped criticism for claiming the maximum allowance each year, because their claims were almost entirely made up of mortgage interest and utility bills. Whereas other MPs, possibly with similar necessary expenses, have made much smaller claims, yet faced criticism for the details.

If you set up a system of expenses like this, the most rational will simply hand their receipts to their accountant and ask them to sort out what they can claim for. It is entirely the rational thing to do; there is no suggestion of illegality. I am certain that many of those currently exploding with rage would have done precisely the same thing, and I equally doubt that many businesses would want their expense records probed in embarrassing detail. And in the end, as Stephanie points out, it doesn’t even make sense. Money saved on sensible claims can be spent frivolously elsewhere.

The practice of “flipping” seems to me qualitatively different, however. It goes beyond simply claiming an allowance to actively looking for ways to beat the system and to avoid paying taxes owed. In the worst cases it is simply outright fraud. On this point heads should definitely roll.

But more generally, when things calm the debate needs to about how much we pay our politicians, and how much we need to pay them. Like it or not, lobbies often have head amounts of turning money to throw at people – all above board, of course – to try and influence the result they want and many people going into politics could earn much larger sums in other places and we need to attract and retain talent in government. I personally favour scrapping all allowances in favour of a single salary, and supplying a unified budget for constituency work. This reduces the debate to its basic and essential form; perhaps we are paying politicians too much already but we need to remove which car they drive or what their taste in furniture is as irrelevant to the debate.

  • Big Maggie

    Kensei,

    Fungible! I love it when a blogger enhances my vocabulary.

    fungible
    adjective Law
    (of goods contracted for without an individual specimen being specified) able to replace or be replaced by another identical item; mutually interchangeable : money is fungible—money that is raised for one purpose can easily be used for another.

    Thanks for that.

  • OC

    “All you can say for sure is that you made him £100 better off, and he has bought a new chair.”

    Actually, he as [i]acquired[/i] a new chair. Without seeing a receipt, he could have found it the night before out on the street.

  • Dave

    It just shows why Keynesians shouldn’t be allowed anywhere near other peoples’ budgets.

  • chip&pin;

    But the point is that you don’t have £24,000 “to spend” just because you have a £24,000(max) expense allowance. It is not a blank check, carte blanche, ‘wheee, here’s an extra £24,000 because you are so fabulous, have fun, bank it, flip it, rip it off, clean you moat, who cares!’ allowance.

    An expense allowance is meant to cover genuine expenses incurred because of the process of doing one’s job. I.e., money that you would not be spending if but for the work you are doing because of your job. The limit is to help curb abuse and stop people ripping the back out of it – to remind them to manage their expenses, as there is a limit to how much they can claim. It is not a finish line that says you can freely spend an extra £24,000.

    Perhaps I am reading you wrong, Kensei, but your morals seems to be rather loose with regards to this issue, looking at it as an extra hand-out, a bonus if you will, and what’s the fuss, which of course makes sense if you are looking at the abuse of expenses in this light, as a bonus to be spent to the limit however and if you have to fiddle books to justify it, sure everyone’s doing it and anyway it’s an entitlement – the job comes with the expense allowance. So in that manner I suppose the details don’t matter, as you are taking the money as a given.

    But the problem is that is not how it is meant to work. It is NOT a bonus, it is not a carte blanche extra dollop on top of already generous remunerations, it is not meant to be spent to the limit just because it is there, and it most certainly isn’t nor should be looked at as an entitlement.

    I agree with your suggestion of scrapping the allowance scheme and adjusting salaries accordingly – though I would hope that would not be something simply done as rolling the maximum allowance into the base salary as that then justifies the past abuse of it and treats it as a ‘bonus’. If it is reasonable to expect average expenses of XX amount based upon GENUINE (not inflated) submissions then the salary should be large enough to cover it.

    I think though that expense allowances will stay, they will just have to be more thoroughly paid attention to and managed far better. Whoever has been okaying the cooked books and allowing the abuse to pervade as acceptable and expected behaviour needs to go, across the board.

  • Comrade Stalin

    I am certain that many of those currently exploding with rage would have done precisely the same thing,

    I’m not so sure. Wouldn’t any halfway sensible person, especially one who is supposed to represent people, ask “what will the public think about this if they find out ?”. Some MPs obviously worked this out since they chose not to claim many of the allowances they were permitted.

    The fact that they didn’t ask themselves this shows how out of touch they are. In the case of Sinn Fein, for example, I think the fact that they chose not to claim for many things in Westminster and were subsequently able to go to the media and show that their hands were clean (apartment rental aside, perhaps – we’ll see) shows that they thought about this.

    and I equally doubt that many businesses would want their expense records probed in embarrassing detail.

    On the contrary, the expenses system at my workplace is operated with the assumption that it will be audited by the Inland Revenue. There is a strict definition of what is claimable, and every single claim is checked in detail. And I know this is the same at other workplaces, and even at the civil service.

    Businesses are, of course, permitted to pay employees whatever “expenses” they want if they show them as income on the employee’s payslip, and not attempt to recover VAT. But this just complicates things (tax wise) compared with simply giving the employee a raise.

    I think they probably need to be paid a higher salary and a fixed expenses fund, but in addition they need to look at ways of solving these problems without putting cash in their hands. It’s clear that the government needs to buy accomodation/property around London, near to Westminster, and employ a maintenance office to keep it in good order. Nobody is saying it has to be done on the cheap, but by doing things in a big group it should be possible to make substantial savings.

  • kensei

    chip

    But the point is that you don’t have £24,000 “to spend” just because you have a £24,000(max) expense allowance.

    But you have, essentially. Give people money for mortgages that they can claim back and they will look at houses ordinarily outside their price range. Give them a furnitiure allowance and they’ll look at things they like but might not have been able to afford otherwise, or might not have purchased with their own money.

    From a purely economic standpoint, if you have a £24,000 (max) allowance, the rational thing to do is claim £24,000.00. The assumption of rationality in economics is imperfect, but a somewhat useful assumption.

    It is not a blank check, carte blanche, ‘wheee, here’s an extra £24,000 because you are so fabulous, have fun, bank it, flip it, rip it off clean you moat, who cares!’ allowance.

    As I said, I think flipping is qualitively different. But let’s be clear: the rules were okay with the money going on cleaning the moat. If you don’t want to allow moating cleaning, don’t set up a system that allows it. Relying on some abstract sense of integrity is a fool’s errand.

    An expense allowance is meant to cover genuine expenses incurred because of the process of doing one’s job. I.e., money that you would not be spending if but for the work you are doing because of your job. The limit is to help curb abuse and stop people ripping the back out of it – to remind them to manage their expenses, as there is a limit to how much they can claim. It is not a finish line that says you can freely spend an extra £24,000.

    The simple fact the “finish line” even has to be there undermines your entire argument.

    Perhaps I am reading you wrong, Kensei, but your morals seems to be rather loose with regards to this issue, looking at it as an extra hand-out, a bonus if you will, and what’s the fuss, which of course makes sense if you are looking at the abuse of expenses in this light, as a bonus to be spent to the limit however and if you have to fiddle books to justify it, sure everyone’s doing it and anyway it’s an entitlement – the job comes with the expense allowance. So in that manner I suppose the details don’t matter, as you are taking the money as a given.

    If you set up an expense system of any kind, you should take the budget as spent. You have created a strong incentive for people to spend it. If you set the rules down and say – buying furtinutre is okay, getting cleaning services okay, people will do it. I am not rendering any moral judgement. But the problem is the system. People can be assumed as imperfect.

    CS

    I’m not so sure. Wouldn’t any halfway sensible person, especially one who is supposed to represent people, ask “what will the public think about this if they find out ?”. Some MPs obviously worked this out since they chose not to claim many of the allowances they were permitted.

    Aside from the worst cases, I’m not sure a single case would be career ending. Partly when no rules have actually been broken. The fact that it is widespread has magnified the issue many times.

    Besides, people look to their peers. I’m new. What can I claim for? Well, this seems to be the standard. It must be okay.

  • chip&pin;

    Kensei, basically your argument can be summed thusly: It is there, so spend it, everyone else is doing it, therefore, it is acceptable.

    This may seem perfectly rational to you (but that is not a given it is rational) and yes, people are not perfect. This does not mean however that it is acceptable or not an abuse of the system nor morally wrong.

    Because people are imperfect, the system has been abused. Because people are imperfect, no system will not be abused. That does not excuse the abuse nor absolve the abuser.

    In many cases what has been claimed as expenses, and the fiddling of books to cover such dodgy claims, are wrong. Full stop. No excuse of imperfect beings or rationality wash. Justifications of some sort of entitlement are bogus and frankly insulting. It was wrong and it is right that it is being exposed and that remedies will be sought.

  • kensei

    chip

    Kensei, basically your argument can be summed thusly: It is there, so spend it, everyone else is doing it, therefore, it is acceptable.

    Nope. My argument is: it is there, everyone will spend it and you should expect it. I am nto giving instructions to anyone.

    This may seem perfectly rational to you (but that is not a given it is rational) and yes, people are not perfect. This does not mean however that it is acceptable or not an abuse of the system nor morally wrong.

    I am talking about rationality in a strict economic sense and on this basis, it is rational. But on a strict moral basis you not on 100% firm ground here. Take claiming for food. People need to eat. If the expense budget says they can eat in or out, and perhaops they are too busy to shop or too tired after tavelling to cook. Then I am not sure it is immoral to eat out rather than buy Tesco value and make it themselves.

    They need ot eat at home, of course too, and we’re back at how money is fungible.

    Because people are imperfect, the system has been abused. Because people are imperfect, no system will not be abused. That does not excuse the abuse nor absolve the abuser.

    Don’t set up a system where the incentives are too abuse. If by abuse you mean “make full and legal use of expenses budget”.

    In many cases what has been claimed as expenses, and the fiddling of books to cover such dodgy claims, are wrong. Full stop. No excuse of imperfect beings or rationality wash. Justifications of some sort of entitlement are bogus and frankly insulting. It was wrong and it is right that it is being exposed and that remedies will be sought.

    In some case, yes, it is graft. Flipping and claimg for non existent properties, or partially paid properties is fraud and should betreated as such. In others we have just decided we don’t like how people have spent the money that they were cleared to spend and entitled to claim back. That one si simply populist rage.

  • Suilven

    Surely, given the vast majority of these ‘expense’ claims are so frivolous and unconnected to the day-to-day business of MPs, combined with the apparent ‘nod-and-a-wink’ mode of checking by the Speaker’s Office, essentially turns these expenses allowances into benefits-in-kind, and the MPs should be income taxed accordingly at the marginal rate? If so, the swines have been evading income tax as well as capital gains tax…

  • Rory Carr

    …many people going into politics could earn much larger sums in other places….

    and it is also true that many people going into politics would be likely to earn much smaller sums in other places (I am sure we each can think of some fine examples in that regard). Indeed much, if not all, of the earning capacity of politicians outside of their parliamentary salaries (and expenses)is as a direct consequence of the access they have to government and their willingness to profit from that access which would have been unavailable to them had they not been elected. Furthermore the juicy sinecures of directorships and consultancies which former government ministers and front bench opposition MP’s are able to attract after leaving office are not only a direct perque of their political career they are indeed dubious in the extreme and have a high reek of corruption attaching to them.

    Better I think to follow the example of Sinn Féin and pay politicians (including government ministers) a salary equivalent to the average wage. In that way we could almost (but not quite) ensure that those putting themselves forward for public service do so from the highest motives.

    I say “not quite” because the possibility of bribery and corruption will yet remain but to imagine that by paying them an enhanced salary we would somehow reduce that possibility would be naive in the extreme. The incorruptible will not become more susceptible to blandishment by reason of a small but adequate recompense, for the corruptible however, as for the very rich, it would simply be a case of “the more they have, the more they want”.