Trading Funds and money-go-rounds


Charles Arthur of the Guardian and the Free Our Data Campaign and I have been exchanging views about funding models for OS and the impact on users. Somehow this dialogue got tacked onto an old post in this blog so I have copied it here for anyone who wants to join the current discussion or even GIScussion, alternatively you can comment on FOD linked above.
Charles said…

… we have made our case, as far as we can given the Treasury’s reluctance to perform the study it said in 2000 should be carried out: find out how much private-sector business would follow from making public data free.

Plus the OFT has now reported and reckons that public sector charges drag the economy down by at least £1 bn. That’s a lot of missed tax revenues, eh? Particularly since the OS only brings in £50m from the private sector: that’s £250m of extra private sector business needed to generate the tax revenues that would cover the cost.

2/01/2007 10:28 PM

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Steven said…

Charles

….
The OFT has estimated that £1bn of GDP could be released across the whole PSI sector – OS has operating costs of ca.£110m, if those costs were to be covered by the additional tax revenues they would represent nearer to £500m of GDP (half of the estimated gain!) unless you are proposing a part funded model where the government pays half of OS operating costs in return for free access to the data and commercial users get it for free. Of course when private sector companies then try to sell the data to the public sector we could end up paying twice!

As I see it Charles there are two alternatives to the current trading fund model:
1. The treasury commits to fully funding OS from taxation and the data is available to everyone for free with full exploitation rights
2. The treasury gets hacked off with all of this argument and decides to privatise OS in which case they get a one off lump sum into their coffers and everyone would then have to pay for the data which probably doesn’t achieve your aims of stimulating lots of new economic activity and will certainly increase the costs of the public sector users of the data.

2/05/2007 2:58 PM

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Charles said…

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Secondly, the OS’s operating costs might be £110m, but more than half of its revenues, which more than cover that (see this week’s Guardian FOD story) come from local government. So in terms of taxpayer-funded income, the OS requires £50m-odd: ending the licensing from local government would free £50m of cash from local authorities.

So now we need to find an aggregate of £50m of taxes from newly-generated in general private-sector activity to make up for not letting the OS charge.

That equates, at the 20% corporation tax, to £250m of extra activity – more than covered by the OFT’s estimate. And the OS is by far the largest trading fund.

Yes, I agree that there are two possible outcomes – we like (1) but equally can see that (2) is possible, because some governments are incorrigibly stupid, not to mention unable to see a good thing when it’s facing them. But there’s a strong national interest argument for keeping OS out of private hands (though one might have thought that too about Qinetiq..)

Yes, the private sector might – almost certainly would – begin selling back public data to LAs. But there would be competition. Isn’t that meant to drive prices down when there’s equal access to content?

2/05/2007 4:06 PM

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Steven said…

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I lost you on the LG payments to OS? I don’t think the LG payment to OS is half of their revenue, that is the total payment from public sector. Even so if LG and other PS don’t pay the money to OS who will? The treasury? Do you think that the treasury is going to say to LG “we will pay your contributions directly to OS and we will leave your grants unaltered”? Not going to happen – so no cash freed up in LG.

I doubt you will get the treasury to go for option 1 and if they did funding would decrease at the first budget crisis. We both have reservations about option 2. I remain of the opinion that improving the working of the Trading Fund model represents the most pragmatic option.

2/05/2007 5:02 PM

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Charles said…

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OK, it’s public sector that makes up more that half of the OS receipts, not just local government.

OK, Treasury won’t pay grants directly to OS. But PS isn’t paying £50m now so it’s available for them to spend on other stuff. Do you really think that Treasury will be able to chase down that £50m? It’s not going to make a big difference to council tax bills downwards.. but what difference would being able to do *anything* *for free* with map data, postcode data and so on do to websites and general services?

Yes, I recognise the dangers of a Treasury that will think that you can just dump OS (and other agencies’) funding. It needs an OS (and other agencies’) charter that amounts to a contract for them to deliver mapping, and government to fund it.

Pete said…

“It needs an OS (and other agencies’) charter that amounts to a contract for them to deliver mapping, and government to fund it.”

That looks to me to be a very close description of NIMSA and look how secure that turned out to be as a revenue stream.

Lots of organisations in the commercial sector use internal transfer pricing mechanisms between divisions. Sometimes this is to allocate revenue between tax jurisdictions (can be tax avoidance but can be legitimate and reasonable) and in other circumstances transfer pricing ensures sensible investment and commercial strategies, good rates of return and avoids waste and inefficiency. OS charging public sector clients for the use of its data is just a form of transfer pricing within the public sector, there are loads of other examples. Describing it as a money-go-round is overly simplifying the topic.

In theory (and I stress the word theory) the endeavour to establish a market price for the supply and maintenance of the national map will help to ensure that the public sector achieves best value from its expenditure. With the private sector snapping at OS heels there will be some limited pressure on pricing although I recognise that scale prevents any serious competition at the moment. Perhaps some company will decide to take OS on head to head, then we might see an interesting tussle – but no free data.

As Pete commented the concept of treasury funding to OS took a bit of a bashing with the withdrawal of the NIMSA. I cannot see how anyone who cares about the quality and currency of the national map could advocate placing the whole lot at the whim of a treasury mandarin in a budget crisis.

Are we talking our way into a sell off? Would that matter?