Thursday, 29 September 2016

Daily Mail on Top Form

Stressed-out Barclays banker 'murdered his wife in their £2million Surrey mansion with an avalanche of 120 axe and knife blows after she said she wanted a divorce'

Scroll down for a second article about what a lovely area it is and all the famous people who have lived there. Which might illustrate the point which Steven_L made in the comments yesterday.

Fun Online Polls: Politicians, sugar & "hard" brexit.

The results to last week-and-a-half's Fun Online Poll were as follows:

Which of these politicians avoids sugar?

Jeremy Corbyn - 54%
Nigel Farage - 6%
Both - 16%
Neither - 24%

A bit of an anorak question, but 16% of participants got the right answer. Well done!

Top (and only) comment:

View From The Solent: Who cares?

Answer = not many. Only 50 people took part and only 16% of those chose the right answer (and one of them was me). It was multiple choice, so if people had chosen an answer at random, 25% would have chosen the correct one :-)
The gamble which some Brexiteers made appears to have paid off in some quarters, pint-sized former French president M. Sarkozy has said that if re-elected he would offer the UK a new treaty for a new Europe.

Clearly he could't care less about British votes, so presumably what he means is a new deal which will  favour France generally, the UK tangentially and placate some potential Le Pen voters. Former Tory leader 'Lord' Howard stretched his head out of his earth-filled coffin and "described the terms “hard” and “soft” Brexit as unnecessary and unhelpful."

In which he would be correct. So that's this week's Fun Online Poll.

"Which kind of Brexit would you like?"

Vote here or use the widget in the sidebar.

Wednesday, 28 September 2016

David Triggs' Law of Rent

He summed up the recent IU conference with one final thought, he said there are so many theories and explanations regarding land rent (von Thünen, Ricardo etc), but it's actually very simple:

"Rent arises where more than one person wants to occupy any particular plot of land. It arises quite independently of any actions or inactions of the 'land owner'."

Which pretty much covers it. Quite why the rent for one site is higher or lower than for other sites depends on a million and one factors, none of which have anything to do with the 'owner' of any particular site. There are plenty of examples where there is no 'owner', such as the middle of the ocean. If there is oil to be drilled or fish to be caught, that site will have value. And there is plenty of privately owned land in the UK with a rental value of effectively zero.

It also covers all sorts of KLNs, for example "It's about supply and demand. If we built more houses/restricted immigration, there would be more housing to go round and hence lower rents and prices"

Even if that were true, so what? The newly developed land has a much higher rental value than it did as farmland and the rental value of previously developed land falls a bit; the total rental value stays much the same, there will still be high and low value areas etc. The law still holds.

Or this KLN: "How can you say that land is a monopoly? I only own a small number of homes out of 27 million in the UK. I am competing with millions of other landowners."

There are 27-million households in the bidding for those 27 million homes; there is nowhere else for them to go. That is a monopoly which generates higher rents in the more desirable areas, tapering away to negligible rents in the marginal areas (there are plenty of homes in low wage, undesirable areas of the UK where the rent is effectively zero).

You can sub-divide this monopoly as much as you like, once all the other homes in non-zero value areas are taken, for the last remaining available home in a non-profit value area, there will be dozens or hundreds of potential bidders.

All those other occupied homes are off the market and have no influence on the price of the last available one. Even if there are only two bidders, the price that the winning bidder has to pay is rent and is dictated by how much the other person bids; which largely depends on how much he or she earns/can afford to pay, which has absolutely naff all to do with the current 'land owner's' actions or inactions regarding the site.

And so on.

Tuesday, 27 September 2016

Maths joke.

Spotted on the wall at my son's school:

Fibonacci numbers - as easy as 1,1,2,3..."

There's a fatal flaw in there, but maths jokes are few and far between.

Monday, 26 September 2016

Stupid advertising slogan

The one for Quorn, where Mo Farah is running a burger van has annoyed me for ages. The slogan is:

"When healthy food tastes great, you forget it's healthy"

This slogan makes more sense if you invert it completely:

"When unhealthy food tastes great, you forget it's unhealthy"

"When booze tastes great, you forget it will give you a hangover"

"When you're high on opioids, you forget that an overdose can kill you"

Etc etc etc.

Yes, yes, but what about behind bike sheds?

From The Guardian:

Smoking should be banned in all parks and playgrounds to reduce the chances of children growing up thinking that using cigarettes is normal, environmental health officers have told ministers.

Zoos, theme parks and anywhere else children play should also become no-smoking zones, in a significant proposed expansion of the outdoor areas in which smokers cannot light up.

Smoking has been illegal in enclosed public places such as bars, nightclubs and restaurants, as well as public transport and work vehicles, across the UK since 2007...

Ignoring the fact that children aren't supposed to be in bars, nightclubs or work vehicles in the first place, what about smoking behind the bike sheds, a noble British tradition? Will there be an exception for that?

Saturday, 24 September 2016

My talk on how the Council Tax system can easily be tweaked to be much like Land Value Tax

Here's my summary of a fifteen-minute talk I did last weekend, I think that some people understood it, or at least understood that I understood it.

What annoys me is that the the Homeys have a favourite KLN that it would require an army of expensive and intrusive surveyors but that the LVTers don't have a proper plan on how it could work on a tedious administrative level to shut them up.

All of these steps are quite simple in themselves, but you have to grasp them all to see how they fit together.

1. There is a fairly fixed relationship between selling prices, gross rental values and site premiums

The three concepts are quite different, but we all know what selling prices and gross rental values are, and selling prices are actually just a multiple of rents. On the whole the multiple is about twenty, which means that gross rental yields are about 5%. This multiple is lower in low rent areas and higher in high rent areas, which exaggerates the differences in selling prices, but hey.

However you calculate the site premium, it is a certain fraction of gross rental values, lower in low rent areas (maybe one-quarter or less) and higher in high rent areas (maybe three-quarters or more). The median is about half and the average for total UK site premium divided by total UK gross rental values (skewed by the top end) is about three-fifths.

Clearly, site premiums at the very lowest end are zero, if you do the numbers, the differences in selling price multiple of gross rents and the site premium as fraction of gross rents largely cancel out and you end with with site premium = +/- 3% of current selling prices. This percentage tapers away to 0% at the very lowest end, of course, where site premium is £nil.

Suffice to say, there are different ways of calculating the Site Premium, this is the least of our worries. Selling prices would be flattened by higher LVT, so can only be used as an indirect check on whether assessed values are about right in future.

2. In any smaller area, there is a fairly fixed relationship between the values of different sized homes

It does not matter whether you are looking at cheap or expensive areas; in most areas, the selling price of gross rental value of a one-bed flat is around 60% of the basic unit of housing, which is a 3-bed semi in the same area; a terraced house is 85% as much and a detached house is 154% as much. The ratio between gross rents is much the same. Therefore we can safely assume that the ratio between site premiums is much the same.

3. How Council Tax works

See Wiki.

To give an example and cut a long story short, a small local council has a spending budget of £100 million and receives grants from central government (out of income tax, NIC, VAT etc) of £76 million. So it needs to raise £24 million in Council Tax.

Homes were originally banded by selling prices in 1991, at the time prices were fairly flat across most of the country, so most one-bed flats ended up in Band A, most 3-bed semi detached homes in Band C or Band D, all the way up to the biggest and most expensive detached houses in Band H.

Council Tax in Band A is 6/9 of whatever it is in Band D and so on, up to the largest homes in Band H where the Council Tax is 18/9 as much.

The council adds up the total number of Band D equivalent homes, so a Band A home counts as 6/9 of a Band D home, a home in Band H is 2 etc.etc,

The council then simply divides required revenues of £24 million by the number of Band D Equivalent homes. If there are 20,000 Band D equivalent homes in that council area, the Council Tax for a Band D home is £1,200.

Having calculated that, the tax in the other Bands follows automatically, Band A is 6/9 x £1,200 = £800 and so on up to Band H where it is £2,400.

Note - Council Tax is thus a highly arbitrary amount, it is a balancing figure between two arbitrarily decided numbers divided by an arbitrary number, LVT can't possibly be worse than this.

4. Put the first three together, and hey presto, Council Tax is in fact a low level LVT

Let's take the same local council, and assume the annual site premium on a 3-bed semi in Band D is £5,000.
3-bed semi's are in Band D, costing £1,200 = 24% of their site premium.
One-bed flats are in Band A, costing £800 on a site premium of about £3,000 = 27% of their site premium.
Terraced houses are in Band C, costing £1,066 on a site premium of about £4,250 = 25% of their site premium.
The largest detached houses in Band H cost £2,400 on a site premium of maybe £10,000 = 24% of the site premium.

That is a fairly flat tax (always something to be welcomed) - but only if you compare the tax bills within a small area. Across the country, the tax rate is hugely regressive, with an effective rate of 30% or 40% in the cheapest areas and 3% or 4% in the most expensive.

So people at the top end are paying nowhere near enough in annual Council Tax (quasi-LVT) but are paying far too much in the 'progressive', transaction and one-off taxes on housing (and private wealth), i.e. Stamp Duty Land Tax, Inheritance Tax, the ATED charge and other assorted nasties.

These all raise surprisingly little money (half as much again as humble old Council Tax) while causing huge amounts of grief to the few paying it and generating loads of work for the pinstriped professionals who leech off the already wealthy at no overall benefit to the economy.

In the spirit of fairness and neutrality, let's assume that our LVT replaces regressive Council Tax and progressive SDLT, IHT, ATED etc. That gives us target revenues of £36 bn a year.

5. Sorting homes/plots by size instead of value

It would be easy to sort homes/plots into bands by absolute size rather than 1991 values. So one-bed flats go into Band A, two-beds into Band B, terraced houses into Band C etc. all the way up to the largest detached homes into Band H. That can be done quickly and cheaply by looking at OS maps, walking up and down the streets and looking at them, seeing what kind of homes they were originally (ignoring extensions etc), how wide the frontage is (far more important that how long the back garden is). Each council can develop its own guidelines and rules of thumb, it's doesn't really matter as long as they are consistently applied.

This will be a lot easier and less contentious than the original Council Tax valuations, which were relatively uncontentious themselves. If we just did this and left Council Tax as is, most bills would not change. That is the beauty of maths, maybe in some areas everybody would go up a band; this increases the number of Band D equivalent homes, so the Band D tax falls accordingly.

This is a one-off exercise and does not need to be repeated for the system to work.

6. Dividing each council up into smaller valuation areas

In most councils, there is quite a discrepancy in values between the cheapest and the most expensive areas, so they would have to be divided up into smaller areas where values are similar. My preferred option is postcode sectors, with about 3,000 homes in each, this size is small enough for there to be little variation but large enough for decent sample sizes on selling prices and market rents.

With a bit of interpolation and sampling, it is a doddle to find out what the site premium of a 3-bed semi, i.e. a Band D home in each valuation area is.

The find the total tax base, we multiply up the site premium of a Band D home by the number of Band D equivalent homes in each smaller valuation area - exactly the same as under the current system - add 'em up to local council level, and then add those up to national level.

We end up with a total site premium for the whole of the UK of anywhere up to £200 bn, but let's call is £150 bn for tactical reasons.

This tells us that the tax rate would have to be 24% of site premiums, 24% x £150 bn = £36 bn, required revenues from 4. above.

The Band D site premium in an area x 24% is then the Band D tax in that area, and the tax bills in all other bands in that area follow automatically - exactly as happens now, see 2. above. Using my worked example in 4. above, tax bills in that council would barely change.

I see no reason why there has to be any great justification of why Band D tax is what is under this system any more than there is under the current system. There is no logic to SDLT or IHT rates and exemptions either.  It is just a tax you have to pay for choosing to own a home with at least some economic justification rather than being completely arbitrary bundle of different overlapping taxes as at present.

7. But Council Tax is a local tax to pay for local services!

… or so people believe, let them believe it if they want to, it is all smoke and mirrors anyway.

In the examples so far, central government will lose £12 bn in revenues from IHT, SDLT etc, so it can simply reduce total grants to those councils where people are now no longer paying so much SDLT, IHT etc. Central government breaks even.

So if our example local council above has lots of high value areas and a total tax base of £125 million, it will be expected to collect £125 million x 24% = £30 million in revised Council Tax, its budgeted spending is still £100 million so its grant from central government is reduced from £76 million to £70 million, Band D tax on average across the council will be £1,500* instead of £1,200 and so on and so forth.

* Clearly, in the cheapest areas within that larger local council area, the Band D tax will be about £1,000 and in the most expensive it will be about £2,000. So the tax on a one-bed flat in a cheap area will be £666 and on the largest detached homes in the most expensive areas it will be £4,000. Which puts paid to the nonsense that some people will be uprooted from their friends and family and forced into ghettoes, you will only have to move a couple of miles to cut your tax bill by 80%, so your previous friends and family will still be in easy reach - perhaps they will even move with you.

At the very bottom, there might be a few local councils where Council Tax will go down and their grants will increase and at the very top, there might be a few councils who are expected to collect more in Council Tax than their actual spending budget, this can all be sorted out and will all net off, let's not get bogged down in the bookkeeping between government departments.

8. Having got the ball rolling, we just keep going

Each year…
a) National taxes (income tax, NIC, VAT etc) are reduced a bit (or a lot),
b) This gives us higher targeted Council Tax/LVT receipts and lower central government grants to higher value areas,
c) Site premium valuations in each area are re-assessed, indexed up, recalculated, whatever,
d) These are totted up to give us the total tax base for the whole country
e) Divide b) by d) to get your new tax rate in %, that sets Band D tax in each area, the council enters that into its master list and everything else falls into place.

Friday, 23 September 2016

Friday Night Gear Change

I haven't heard a decent* new gear change in ages, but my brother in law stepped into the breach.

* All gear changes are inherently awful of course, they are the musical lowest-of-the-low, that's why I sometimes like them.

MJ Hibbett and the Validators, "(You make me feel) Soft Rock", well signalled gear change at 2 min 28 sec:

"The Gravito-Thermal Greenhouse Effect"

It appears that I have wasted all week trying to explain this effect, which seems blindingly obvious to me as it fits in with everything else we know about anything and I'm pretty sure that our physics teacher mentioned it once in passing:

Earth surface temperature (as well as the surface temperatures of 5 other rocky planets in our solar system) can be very accurately determined solely on the basis of two variables:
1. atmospheric pressure at the surface, and
2. solar irradiance at the top of the atmosphere.

For sure, it is only a starting point and you will probably have to make lots of other little up and- downward adjustments, but having Googled around, as per usual anything which offers an alternative/complementary/non-GHG induced explanation for why surface temperatures are what they are gets mired in purely political controversy and nit picking.

As PaulC points out, the paper linked to was withdrawn (yes I knew that), but an idea is not responsible for the people who hold it (pace Bayard). It is even hotly debated whether luminaries such as Maxwell and Feynman supported or rejected the idea, that's how mad it is.

I don't see how hard it can be to do all the measurements of a few different planets with differing atmospheres (I'm not sure why we should restrict it to rocky planets) and settle the matter one way or another to everybody's satisfaction, but hey...

Thursday, 22 September 2016

Politics of a Citizen's Income paid from a Land Value Tax

The following assumes no other changes to our tax and benefits system whatsoever.

According to Savills residential property values in the UK are £6,165bn. There are 28.2 million dwellings in the UK.

Let us assume that LVT is the equivalent to 3% tax on the current selling price of each home.

Total potential LVT revenues are £185bn.

UK population is 64.6 million.

A Citizen's Income from which we all get an equal share of LVT = £2,864 per person (including children).

Property value London/SE = £2,772 bn, LVT = £83 bn pa
Property value other regions = £3,393 bn, LVT = £102 bn pa

Population London/SE = 17.4m, Citizens Income = £50 bn pa
Population other regions = 47.2m, Citizens Income = £135 bn pa

Net flow of income to regions outside London/SE = £33 bn pa

Break even point for owner occupiers = £95,500 property value per person

So a household consisting of a couple with two children would be no better or worse off if they lived in a home worth £382,000.

Average UK house price £218,474.


Almost all constituencies outside London/SE would be better off under a LVT + CI.

Couples with two children living in a house worth £382,000 or less (176% of current average house prices) would be better off.

Over half of Londoners who now live in rented accommodation would be better off.

In short, only a small minority of UK constituencies, mainly in the SE of England would be worse off and vote against such a proposal.

As well as reducing both regional and individual inequality, LVT + CI would allow the market to allocate property at optimal efficiency, reducing vacancies and under-occupation.

It would also reduce the selling price of property to its capital only value. Saving future title holders £36bn per year in mortgage interest repayments. (assuming current outstanding mortgages total £971bn would be reduced to £324bn)

A win-win-win.

For the purposes of a clear illustration of distributional effects, no changes to our tax and benefits system take place. However, it would be better if as many bad taxes were replaced with an LVT as possible, and our benefits system largely replaced with a Citizen's Income. Reducing the deadweight losses associated with each.

A win-win-win-win.

All we need is some politicians who can make a good pitch...