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Pensions, and the Eurozone crisis.
00:28:46
In the week of a nationwide strike over pension changes, Tim Harford explains how the...
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Thank you for downloading the More or Less podcast from the BBC. For more information about the program, go to the Radio 4 website, BBC.co.uk radio4. Hello, I'm back from Fighting the Good Fight against Zombie Statistics, the rogue numbers that never die from for a new series of More or less. This week, we'll hear about the bureaucrat facing a life sentence for his alleged statistical crimes. He describes statistics as a combat sport. Armed with my fighting slide rule, I can hardly disagree. And we'll discover a statistic so dubious we made this German man laugh. This story is so ridiculous. But first, This week's mass walker by public sector staff over changes to pensions has been described as the biggest strike since the winter of discontent in the 1970s. Union leaders said workers were sending a strong and united message to the government as thousands of nurses, teachers, council staff and others manned hundreds of picket lines. And yet, puzzlingly in Prime Minister's question that afternoon, David Cameron seemed to be announcing public sector pensions were rising.
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A nurse retiring on a salary of just over £34,000. Today, she would get £17,000 pension.
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In future, she'll get over £22,000 pensions.
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A teacher retiring on a salary of
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£37,000 would have got £19,000, will now get £25,000.
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Well, if that's the case, why were so many people persuaded to strike? Of course, the devil's in the detail. The detail that David Cameron didn't mention. Mr. Cameron's examples were based on a hypothetical teacher and nurse beginning work at the age of 25 and continuing full time until retirement age. But here's the catch. Under the current system, that means working for 35 years until the age of 60. Under the new pension deal the Government is proposing, it means working for 43 years and retiring at the age of 68. And for obvious reasons, expecting a shorter retirement too, which does save money. Nor did Mr. Cameron mention that public sector workers such as this nurse and teacher are expected to chip in an extra 3.2% of their annual salaries on average. The unions are chiefly upset over two Public sector workers will be expected to retire much later and to contribute more to the cost of their pensions. David Cameron rather elegantly demonstrated that if you gloss over both of those concerns, everything's nifty. While the Prime Minister was talking about how large public sector pensions are, the unions were focused on how small they are. Unison, for example, has been handing out leaflets this week saying the average pension for NHS workers is £7,000 a year. And for local government workers, it's around £4,000 a year. Now Unison are trying to pull a reverse. David Cameron here, making the pension look as stingy as possible. The key way to do this is to concentrate on the average pension. That figure will include the pensions of people in a wide range of jobs, both full time and part time, and people who've worked in their public sector job for just a short time in between private sector jobs, as well as people who've taken long career breaks. These people will of course, dramatically reduce the average. The Prime Minister's numbers do the opposite. They'll assume the teacher and the nurse has worked a full career in the public sector without a break. You're listening to More or Less with me, Tim Harford. Now, speaking of taking a break, shares in Thomas Cook plunged recently by 75% on the news that the package holiday company was in crisis talks with its bankers. Those talks successfully concluded. Shares in Thomas Cook then increased by about 200%. So here's a mathematical teaser for you. If a share priced at, say, pound 100 falls by 75% and then increases by 200%, what will the share price be at the end of its roller coaster ride? More of that later. First, a remarkable story in the Financial Times this week explained that Andreas Georgiou, the head of Greece's new independent statistics agency, is facing an official criminal investigation for his supposed statistical crimes. I asked the economist Professor Yanis Varoufakis of the University of Athens what Mr. Georgiou and had been accused of.
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He's been accused of inflating the 2009 Greek budget deficit number by something like 11 1/2 percentage point for the purposes of helping the government convince members of Parliament that further austerity, harsh austerity measures, should be passed through Parliament.
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It's a sort of statistical treason. If he's found guilty, what's the penalty?
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I must tell you, I have no idea. But I don't think there is any chance that he's to be found guilty. I don't even think there's going to be a trial. What happens is that the prosecuting service has a statutory obligation to investigate any such claim. And let us not forget that this is not just an idler making this allegation. These are members of the board of directors and they are actually academics who are independently minded and whose job is to be part of the Greek Statistics Office. I think that it will simply blow over once that investigation is completed.
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Now, he said in the Financial Times that he was being prosecuted for not cooking the books. I mean, Greek Statistics don't have a great reputation. Do you think he's actually improved matters?
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Look, what I think he had an unenviable task. Greek statistics is now an internationally recognized term for underreporting deficits and debts. And his job was to be brought in and to revamp the whole operation and to regain or gain credibility on behalf of the Greek state regarding the state of its. Its national statistics. My personal view is that he did possibly err on the side of caution, and the number that he reported for 2009 was probably slightly inflamed. So effectively he was going the other way in order to reestablish the credentials of his office. If this is all he was doing, I think that the accusations are unfounded. There is a question, however, as to whether he was collaborating in this to some extent with policymakers whose purpose was at that point to sway the opinion of a number of marginal members of Parliament who were not convinced at that time that extra harsh austerity measures were necessary.
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Now, Mr. Georgiou described statistics in Greece as a combat sport. I mean, does that sound accurate to you?
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Absolutely. Whenever there are vested interests and the lives and fortunes of people are involved, statistics is always a battleground.
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Professor Yanis Varoufakis, incidentally, I checked and in theory at least, Mr. Georgiou could face life imprisonment, a strange prospect for a statistician in Greece. Now, we did ask Mr. Georgiou to appear on the program. I even offered him my fighting slide rule for his statistical combat, but unfortunately he wasn't available. Speaking of heads of statistical agencies, news reached us this week that Andrew Dillnott is the Government's preferred candidate to be head of the UK Statistics Authority, and is thus almost certain to take up the job as the successor to Sir Michael Scholar. Loyal listeners may recall that Andrew Dillnot was the founding presenter of More or Less, and of course, we applaud the precedent of eminent jobs for More or Less presenters. Now, all this talk of Greek statistics brings us very nicely onto the new section of our programme Eurostats. We'd like to pick apart those surprising statistics you hear about Europe and see which ones are true facts and which ones are slippery untruths. So let's kick things off by staying with those Greeks. Tax dodgers, apparently, and tax dodgers with a penchant for luxury cars. You may recognise this claim sent in by loyal listener Simon Ray. There are more Porsche Cayennes registered in Greece than taxpayers declaring an income of €50,000 or more. Outrageous, if true. And Simon wondered whether it was True. We thought it was worth checking, as the figures have been repeated in the Telegraph, on cnn, in the Wall Street Journal, in the English language, Athens News, and across the interwebs. You may have noticed that Wesley Stevenson didn't appear in the last series and we thought it was high time our own shirker was finally put back to work. Wes, welcome back.
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Thanks, Tim.
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Where did this figure come from?
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It came from a very eminent man, a man called Professor Heracles Polemarchus, who was, until recently an economic advisor to the Prime Minister of Greece. He wrote in a newsletter published by Warwick University that a couple of years ago there were more Cayennes circulating in Greece than individuals who declared and paid taxes on an annual income of more than €50,000, a figure which he points out is only slightly above the vehicle's list price.
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So this car costs about £40,000. It's not cheap. Is Professor Polymachakis correct?
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Well, I thought I'd ask him and I got a less than straight answer.
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My remark was casual, based on what had been circulating in policy circles in Greece a few years back. Someone who researched the matter recently and whom I trust, tells me that the per capita number of Porsche and Larissa, 1 per 2,627, is twice that of Porsche Cayenne in the OECD countries. 1 per 4,555. This is the only hard fact I am aware of. The article was published some time ago, and not in a scientific publication, rather in the newsletter of my department at Warwick. Well, I suppose we've all made casual remarks without checking the numbers, but this hardly fills me with confidence. So what have you found out?
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Well, I found out in 2010 there were 311,428 people with declared incomes of over €50,000 paying tax in Greece. And then I rang a nice man called Lucas Kunze at Porsche and told him what I'd found out.
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This story is so ridiculous.
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So I asked him exactly how many Porsche Cayennes had been sold in Greece
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since the start of the Cayenne in 2003. We sold around 1,500 over the last nine years.
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Right. That's not per year, that's in total.
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That's completely in total, which is not very much.
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Like 311,428.
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Not really.
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Not even 1%. So what did Professor Polymakakis have to say about that?
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Well, I did send him an email and he says our figures are probably more accurate.
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That's putting it mildly. But there's a bigger point here. I mean, are the Greeks trying to avoid tax? I mean this is actually what this statistic is all about, even though it's untrue.
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Yes, and we've had emails about this. Loyal listener Josephine Marlow wanted to know how the Greeks compared to other countries when it came to paying tax. Now the Greeks may not own a lot of Porsches, but they don't have a very good record at paying tax either. Income tax receipts as a percentage of GDP on are only 4.7% now. This is the lowest in the Eurozone and less than half the 10% in the UK. And it would be good to think that this is just because Greece has rock bottom tax rates, but it hasn't. This is because what people actually earn and what they put on their tax forms are often different figures. There's also another problem. Professor Frederick Schneider is a leading expert in shadow economies or black economies and he says that the shadow economy in Greece is equivalent in size to 25% of Greek GD.
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The shadow economy as I measure it, is the production of legal goods and services of the books. That means I repair your car in the shadow, do not pay for these taxes and if necessary or if applicable, Social Security contribution. Every fifth creek is engaged in the shadow economy, in shadow economy activities and of course this income is not taxed. Then you have some proportion of the Greek population who evades also income from official sources in the classical way of tax evasion. This figure of course is much smaller and more difficult to evaluate because it doesn't only go to direct income taxation, but also to other forms of direct taxation of wealth and other things.
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As you can imagine, the shadow economy and tax evasion mean the Greek government is missing out on a lot of money. And the scale of this problem is probably best summed up by Horst Reichenbach, head of the European Union's task force that's offering technical help to the Greek government.
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We have estimates from the IMF of how much debt is outstanding that is in the order of 60 billion. But you should also keep in mind that this is highly disputed and the dispute in the courts sometimes take five to seven years to be resolved. So from these 60 billion it is only 8 billion, which are really collectible and on which there is no longer a dispute.
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Horst Reichenbach, a German who isn't laughing, and our very own Wesley Stevenson. You're listening to More or Less in association with the Open University. Our website is BBC.co.uk more or less and do please send us your own Eurostats or anything Else that catches your eye to more or less. @BBC.co.uk My attention was recently caught by an interview on the Today programme. It was between John Humphries and the Housing Minister, Grant Shapps. The subject was terribly important the number of affordable homes that had been built recently and the number of affordable homes that were going to be built on what really matters, how many homes are going to get built. Rather than being clever and playing with statistics, the truth is we're going to build a lot more homes than were built over the entire net increase over the entire previous administration. I don't think we're being clever and playing with statistics when we point out the extraordinarily small number of homes that
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were started in April and between.
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Yet at the end of 10 minutes, for all the arguments and all the back and forth, nobody had yet said what an affordable home actually was. Later that week, the now show took the subject on. Until now, 20% of any new housing scheme has to be affordable. But now they're going to subsidize the construction industry to build homes which are unaffordable. And then because they're unaffordable, they're going to subsidise the mortgages to afford them. And the reason they have to be unaffordable is that the only type of houses that people who can afford houses will allow to be built near the houses they could afford are unaffordable ones. People who can afford a house don't want affordable housing nearby since it might affect the value of their house, maybe to the point where it becomes affordable. Well, that was slightly more informative than the Today programme, but I'm still none the wiser. Well, here's more or less his very own Fiona Woods. Fiona, you've been searching for the Holy Grail. What is affordable housing?
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Ok, Tim, are you ready for it?
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I'm ready.
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The definition of affordable housing, housing provided to specified eligible households whose needs are not met by the market.
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That's it. That's a bit vague. I mean, surely to mean anything, it's got to be linked to, I don't know, income.
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Well, it depends what type of affordable housing you're talking about. There are several categories. The first is old fashioned social rents. That's what most people would call council housing. These are determined by a set formula that does take local incomes into account. But this type of housing has fallen out of favour. The main type of new housing supply is called affordable rent.
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That word again. Affordable. And what does affordable mean in this context?
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Well, it usually means that the rent does not exceed 80% of the market rate. However, the departments say that on rare occasions it could be more and sometimes it will be less.
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OK, so it might be more or less than 80%, but even if it is 80%, surely 80% of the market rate in a really expensive area would still be pretty expensive.
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Right. In fact, Hackney Council told us it's considering not introducing the system at all for exactly that reason. And I'm not finished yet. There's another category called intermediate housing.
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Okay. And intermediate housing is affordable because it's below market rates.
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This includes things like shared ownership, also known as part buy, part rent.
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Okay, so these houses are cheaper than if you're going to buy them on the open market.
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Well, the properties themselves aren't necessarily cheaper.
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I thought you said it was below market rates.
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Well, you might reasonably assume that cheaper than the market rate would mean a house that would, say, usually cost 220,000 would be 200,000.
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That seems like a reasonable assumption.
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Well, that's not the case. Shared ownership properties are valued at the going market rate. What makes them affordable is the way you pay for them. Rather than taking out a mortgage on the whole thing, you buy a bit at a time and pay rent on the remainder because the rent part is subsidised. The idea is that your monthly repayment will still be cheaper than if you take out a regular mortgage.
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But in the end, once you've bought all of the house, you will have paid the market price for the house.
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Yes, and these properties aren't necessarily at the cheaper end of the market. In fact, we looked at one shared ownership scheme in Hackney in London, where one bed flats are valued at between 200 and £250,000. Now, when I asked a local estate agent what the average cost of a one bed in this particular part of the borough is, they put it at a lot less than that. More like 170 to 200,000 pounds.
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So what's the justification for the affordable housing going on the market at a higher price?
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Well, that particular housing association said it's a fair price for a house of that standard, that it was independently valued and is comparable with similar properties.
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Ok, so let me get this right. This affordable housing that we're talking about could be actually among the most expensive properties in the area.
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Yeah. And one more interesting fact we stumbled across has to do with how affordable housing units are counted.
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I'm all ears.
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If you dig down into the statistics, you find a bit of a quirk when an additional affordable home appears in the government statistics, it doesn't necessarily mean an additional house or living space has been provided. So, for example, an existing social tenant who buys their home through right to acquire is counted as an increase in affordable housing, despite no housing being created.
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So I'm confused. Now the Government is allowed to say that an extra unit of affordable housing has been created despite the fact that there aren't any more people having somewhere to live?
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Yep. The Government's justification for counting these purchases in the figures is that these tenants will be assisted by a grant from the government when they buy their home. Now, when that house is sold, that government grant will be spent on additional affordable housing.
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Now, that's interesting. Didn't George Osborne, the Chancellor, announced this week that the Government's going to make it much easier for social tenants to buy their homes?
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Yes, he did. It was in the Autumn Statement.
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And presumably when these purchases are made, they too will be counted as an increase in the stock of affordable housing?
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Yes. One thing that's interesting, though, is that the UK Statistics Authority has told us it's writing to Department of Community and Local Government ministers asking for their statistics to be fair, formally assessed against the code of practice, though they won't tell us on what basis.
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Ok, brilliant. So, affordable homes, they're rather mysteriously defined. They might actually not be new homes and they may very well not be affordable. Thank you, Fiona. You're listening to More or Less, and our email is more or lessbc.co.uk. now, more arithmetic for businessmen, inspired by the tale of Thomas Cook. Let's return to those hundred pound shares that fell 75% and then increased 200%. What was their final price? I'm sure that many of our most loyal listeners will know the answer. The 75% fall takes the shares from 100 pounds to 25 pounds. Then the 200% rise triples them from 25 pounds to 75 pounds. So, despite falling 75% and rising 200%, they're still well below the level at which they started. We felt this old puzzler was worth reviving because we so often hear people tying themselves in knots over this sort of sum, including our politicians and certain members of the More Or Less team. This autumn, the UN announced the global population had reached 7 billion people. There's a pretty big margin of error on that, as several loyal listeners tweeted to point out. But one way or another, it's a lot of people.
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Or maybe not.
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Oh, hello, Ruth.
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Hi. I've seen it claim that we could comfortably fit everybody into an area the size of Texas. At the population density of a city like London or New York, a lot
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of things get claimed. Could we?
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Well, I've been figuring. In London, There are roughly 5,000 people living per square kilometer, or 0.4 square miles, which means that only half the world could move to Texas. If we lived like that. About 3.4 billion people, that would be.
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How big is Texas, by the way?
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About the size of Germany and Italy put together.
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Okay, fair enough. So if we had a megacity of London, density the size of Germany and Italy or Texas, we could fit three and a half billion people into it.
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Yes. And if we were all prepared to live like they do in New York, which is twice as densely populated as London, everyone on the planet would fit into Texas or Germany and Italy, no problem.
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Of course, we'd still need to find space elsewhere for the fields, the landfill and so on, which might be easier said than done. Still interesting. And, you know, it reminds me of an old chestnut. You know, the idea that one day all the peoples of the world descend upon the Isle of Wight and stand shoulder to shoulder. Would we all fit?
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I've heard that one, too. This rumor first broke out, actually, ages ago in the 1920s. And I think it was true then. But, of course, the population on Earth is a lot bigger now than it was then.
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It is. And I suppose there's really only one way to find out whether it's still true. We're in a studio, as you see. I've been measuring the floor space, and the space that isn't taken up by the sound desk is about 4 square meters. So I want to see how many Radio 4 presenters and producers we can get in here. If we can manage 73. By my calculations, the whole world would be able to fit on the Isle of Wight, which is 381 million square meters. Ruth, would you mind opening the door? I'm expecting a few friends. Justin.
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Jim.
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Come in. Oh, I can't get in there.
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Squeeze.
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Jim, you know you can breathe in. You know, Tim, we wouldn't be doing this for anyone else. It's only because it's your program. Is that Winifred Robinson behind you? And Jerry Northam. Come in, come in. Oh, it's getting tight in here. I think I'm gonna have to sit on your knee. Winifred.
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Hello, Tim.
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Can we hurry up, please? I've got a program to do. Eddie, glad you could make it. Look, it's not going to take long. Just all tuck yourselves in here beside Stephen Fry, Lord Reath and Queen Victoria.
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Tim, that's probably enough of your fantasies now. Shall we really get some people in here?
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You're right, Darwin. Look, here comes Paul Lewis. He's real. And he's brought the colossal production team of Moneybox. Let's count them in. Come on in, Paul. Keep your hands to yourself. So that's.
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Where are we going?
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So we've got two in there. Yeah, that's great to stand there.
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That's three.
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Come on in. Come on. Got 6, 7, 8, 9, 10. Put your elbows to yourself. 28, 29. Oh, no one's touching me. Squeeze in. Yes, thank you very much. Yeah, I did put deodorant on this morning. Rod, you come in. We got 30, 31, 32. We got 32. We over the threshold. Any more room? Oh, yeah, we're in for a couple more.
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Yeah, come on.
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33.
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We got one more in. Okay, 33 it is now at a density of 33, that is just over 3 billion people on the Isle of Wight. We're not even close to getting the world population of 7 billion on. Okay, thanks very much. Go on, shoo.
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Sh.
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My studio.
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Go on.
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Thank you. And you, Lewis, get out of here. You're welcome. So there you are. I think we could have got the world's population in 1960 onto the isle of Wight at the same density that we got them into this studio. If we had squeezed a tiny bit more, we could have got the world's population onto two Isle of Wight. But no, we can no longer fit the world's population on the Isle of Wight. Ruth, where to now?
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Well, we could get everyone on the Shetland Islands. Their total area is about 1500 square kilometres. We'd get a spacious five people on a square metre. If we all moved there, that would
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mean only 20 people in the studio. That's. That's not bad. Although still wouldn't leave much room for farming or industry. I expect humankind would probably soon die out if we all lived on the Shetland Islands. But before we leave these slightly dubious statistical diversions, I know loyal listeners will be keen to. When will the world's population have grown so large that we all have to move to that renowned unit of measurement, whales?
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F
Well, the world population would need to have reached a massive 125 billion people, and that won't happen for a long, long time. The UN has only made predictions to the end of this century, and they reckon that the global population then will have reached only about 10 billion people.
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A
10 billion doesn't seem like that many. I mean, the number of people on the planet doubled over the past 50 years, the population's only going to increase by another 3 billion, less than 50% over the next 90 years.
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F
Yes, the UN predicts that the global population growth will slow in the future.
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A
Well, probably just as well. Thank you, Ruth. I'm certainly glad that population growth in the studio has gone into sharp reverse. And that's all we have time for this week, I'm afraid. But do please keep your suggestions and your comments coming in to more or lessbc.co.uk and in particular, we're coming up to the end of the year and we are planning to do a special More or Less covering the numbers of the year. So please send in your numbers, either statistical fallacies that you've noticed or the numbers that affected your life this year. That email address more or lessbc.co.uk. our website is BBC.co.uk more or less, which of course is the place to go and download our podcast. And if you do that this week, a special bonus my recipe for Porcini Mushroom Risotto with Lemon. We'll be back next week. Until then, goodbye. More or Less was produced by Ruth Alexander and the editor was Richard Varden. And as promised, here's my recipe for Porcini Mushroom Risotto with lemon. Soak the dried porcini in boiling water, saving the liquid. Fry onions with garlic, lemon rind, thyme, fresh mushrooms and the porcini and fry them all in butter and olive oil. Get a pan of vegetable stock, simmering. When the onions looked cooked, add Arborio rice, stir for a couple of minutes and then add a large glug of white wine. Stir some more. Add the juice of a lemon. Throwing the lemon carcass into the stock pan can't do much harm. Stir. Add the mushroom liquid, stir. Add stock a couple of ladlefuls at a time and keep stirring until the rice is cooked. Turn off the heat, stir in lots and lots of grated Parmesan and leave it with the lid on for a few minutes. If you care to subject the numbers on the evening news to a reality check while you're doing this, it helps to pass the time.