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Archive for July, 2011

I’m currently reading a book called “Confessions of a GP” by Dr Benjamin Daniels (pseudonym of course) which, amongst anecdotes about the people that he sees in his surgery, gives an interesting insight into the NHS, including the targets system (named the Quality and Outcomes Framework).

As economists we find incentives/disincentives very interesting, particularly how they can have ‘perverse’ (unintended negative) effects as well as their intended effects. I think Dr Daniels gives a very good overview of the way the NHS incentives have affected the individual behaviour of GPs and practices but also the NHS in general.

Daniels starts off a chapter (‘Targets’) with his practice manager suggesting, as Daniels pops out to see an elderly patient that has fallen over, that he diagnose her with a stroke, then goes on to explain how nobody in the surgery’s area has had a stroke in the last nine months. Absence of stroke is great for the health of the patients, but means less money for the surgery, as the surgery will not have hit its ‘stroke target’!

He then explains that these targets can be a good thing, pointing out the example that strokes have been poorly managed for years, but with the right treatment after a stroke or mini stroke, the chance of having another stroke can be significantly reduced. So the targets work by giving doctors the incentive to check a patient thoroughly for signs of a stroke and to send them to a specialist if they do find signs.

He does also point out the perverse incentive side – that these targets can tempt GPs to wrongly diagnose a stroke in order to achieve their targets and therefore earn more money – but he also says that in the ‘vast majority’ of practices that he has worked in the doctors have been incredibly honest in achieving their targets. This sounds reassuring at first glance but then makes me fear about the minority!

In a later chapter (‘Money’) Dr Daniels also talks about how the targets and incentives have affected the NHS overall – prior to the introduction of the targets the NHS was facing a huge loss of GPs to overseas jobs and early retirement, due in part to low pay. As it takes over ten years to train a GP, this meant that the NHS would have faced a severe shortage of GPs.  A pay rise and better working hours were introduced together with the targets/incentives, all of which Daniels attributes to saving the NHS from a large loss of GPs as well as increasing the efficiency of the NHS. Daniels points out that surgeries are privately run and motivated GPs will set up new services to reach new targets and therefore earn more money.  On the flip side of this, the way that people in different classes of society deal with their health and medical problems mean that surgeries in deprived areas have a lot of trouble hitting their targets as patients are less likely to take their medication or attend appointments. This in turn can lead to trouble attracting enthusiastic and dedicated doctors in these areas where often they are needed most.

In policy making in the environmental sector we rely very heavily on incentives and attempt to work out what the unintended consequences of these incentives can be and how to reduce them. This is why you’ll find endless discussions about environmental economics influenced policies such as cap and trade and fishing quotas!

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If you want to find out more about the Quality and Outcomes Framework and see what targets your surgery is hitting, click here.

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– experiences of fitting household solar energy – Getting FITS I is the first part of a series of blog posts by Limu on the attempt to install solar power at home with the help of the UK Feed in Tariff.

I’m sure all the possible puns about FITS (the Government’s Feed In Tariff Scheme, that pays homes over 25 years that install solar Photovoltaic (PV) panels) have been used up already. I have moved into a new home, and want to use solar energy, both for the long term financial gain and because it’s the right thing for the planet.

Everyone knows it’s a good deal. Apparently a 2.5kw system should actually generate 2kw, which will get me £900/yr is payments from government (which will go up with inflation over 25 years) and save me electricity costs of £100/yr or more – especially if we get clever to running appliances like washing machines during the day.  Whats more it seems to me like a one-way bet. Energy prices are only going to go up over the next few decades, and the more they go up, the more we’ll save.

But there are lots of energy efficiency measures that homeowners would do if they were the rational agents that economists hope they are. And these things don’t get done, for all sorts of reasons, not least the need for up-front spending for paybacks that are longer-term and poorly understood. We may need to borrow more on the mortgage to meet the cost, so I’ll have to calculate the profitability of the deal taking into account interest rate risks. Part II will think about what our new home is suitable for.

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Working with some Belgian colleagues on valuing the management of nature conservation areas at the moment. Their Government situation is an interesting one. There are strong governments in Belgium’s two regions (Wallonia and Flanders), but they have had no national Government (in the elected political sense) for over a year. The machinery of Government is still working, but the political energy of leadership seems absent.

The intriguing fact is that the Belgian economy is performing ok (growth for 2010 predicted at 2%). There doesn’t seem to be an obvious explanation for this (no big sectors that are driving GDP growth), but performance is just better than several neighbouring EU countries. So are there alternative explanations?

I’ve often thought that UK politicians change things for changes sake – to be seen to be doing something. The NHS is maybe the best example. There seems to be a major overhaul every other year. Are any of these systems ever allowed to develop and achieve their aims? Maybe like me you’ve wondered if the NHS wouldn’t be better off if the Government didn’t interfere so much: set the objectives, and the budget (including the need for savings) and let the professionals get on with it…

Maybe that’s what is happening in Belgium? Politicians aren’t interfering. The socio-economic system is the same as last year. Everybody does roughly the same thing, only slightly better. Maybe 2% better?

So should we reduce how often Government implements change – they should only reform the NHS once every decade, they should only make new policies every other year, and in between leave us to get on with it?

Or should we limit the extent to which Government intervenes – set a system and let us get on with it?

The latter question is one that we will be asking more often in the UK in near future especially in the context of how to marry the localism and big society agendas and environmental protection that requires some national systems to be in place….

Where is the balance? Brussels?!

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Before the recent EU budget announcement there were fears that the CAP (Common Agricultural Policy) budget would see a cut in Pillar 2 funding. To the uninitiated, Pillar 1 of the CAP is the more traditional farm production support whilst Pillar 2 (known as the green pillar) is where the environmental payments come from. This would pose a serious threat to European biodiversity conservation efforts. Firstly because most of the EU land-cover is agricultural making it the most important competitor for wild habitat and secondly because it makes up the majority of EU biodiversity conservation funding.

Farmers are experiencing rising food prices and so have an incentive to intensify farming and cultivate more marginal land. Biodiversity must directly compete with agricultural output and Pillar 2 is the fund through which it currently competes. A combined drop in funding for pillar 2 and rising food prices would at best make it difficult to prevent further biodiversity losses and more likely exacerbate current rates of loss.

Perhaps fortunately then the cut predicted did not materialise. CAP funding will remain at €371.7bn and the split between Pillars 1 and 2 will stay the same. Of course in real terms this does represent a cut in funding and given a proposed 5% increase in the overall EU budget this is a cut in proportional spending. So it is hard to know if our glass is half full in the face of difficult economic times or half empty as public support for protection drops in real terms against increased incentives to intensify agricultural production.

What on the face of it looks like more certain good news is that 30% of direct farm payments will now be linked to “environmental benefits”. Nursie is uncertain what this will mean in reality though. In order to get the single farm payment farmers already have to perform “cross compliance” which is a set of basic environmental and animal welfare standards. Now as I understand it these standards were poorly defined and would vary from country to country. A 2008 audit of cross-compliance indicated that it was little more than a box ticking exercise that delivered few if any benefits. How will this 30% environmental “linkage” differ? Or will it just be more of the same?

Realistically the EU is committed to a number of obligations for biodiversity conservation so they could hardly cut the legs from under the main funding for those obligations. As such a more cynical observer would have to start to wonder if perhaps notions that the green pillar might be cut weren’t put about to help sugar the pill of what are instead only real terms cuts.

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Back in June, Defra published the first Natural Environment White Paper in 20 years. You can download it if you click here. White Papers are important. They set the strategy for public policy for a long time. They declare the objectives of policy and are followed by action plans outlining how the objectives will be met – who will do what when and how money and other resources will be expended for the purpose.

I tried to find the 1991 version as it was out just before I started to chew the cud in this pasture and I am sure we had bought it. I couldn’t find it unfortunately – it must have been sent to recycling in one of the many spring cleans we’ve had over the years. But looking through our library I realised one clear change in environmental policy over the years – we (at least our pasture) have achieved the target of using less paper. Most of the documents (including this last White Paper) are now electronic – we of course use energy to access them but I am assuming that is less than having paper copies of everything.

Anyway, I digress…in any case there is far more in the White Paper than I can cover in a blog post and it’s already been over a month since the paper was published (apologies for late posting!). But there are some principles that need to be covered here and given that the paper is setting the scene for long time to come, it’s not that late:

  • There is a lot of mention of the Value of Nature – including in the title of the paper
  • There is a lot of emphasis on local environment – Local Nature Partnerships and  Nature Improvement Areas that will increase individuals’ involvement (especially voluntarily) in the enjoyment and protection of nature, and increasing the importance of nature in the planning system
  • There is a lot of emphasis in voluntary action by businesses by allowing voluntary biodiversity offsets in pilot areas – whereby businesses create new habitats or enhance existing ones to compensate for the damage their activities (new development or operation) cause.
  • The way the national accounts are estimated will be improved by including the value of natural capital and cost of its degradation due to pollution and exploitation.
  • There are also many commitments to UK’s international role within the EU and the rest of the world.

Underlying all these commitments which will hopefully find agreement amongst most stakeholders is the idea of the economic and social value of the environment – discussion that moved on over the last 20 years and includes the National Ecosystems  Assessment which we covered in our previous post in response to George Monbiot.

As with all these things, the proof of the pudding is in the doing! We are looking forward to Defra’s Action Plan which is due to be published by the end of this year.

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