Friday, 19 October 2018

.. when an insurance company puff piece makes more sense than an ivory tower economics professor.

From Moneywise (emailed in by Mike W):

The actual cost of rebuilding a house only accounts for three-fifths (59%) of its market value, with the remainder based on factors such as its location, according to Direct Line.

While the cost of rebuilding the average property in the UK stands at around £114,000, according to data from the Royal Institution of Chartered Surveyors, this only accounts for 59% of its value, with the remaining 41% derived from factors such as good local amenities, transport links and schools.

(Caveat: Insurance companies overstate rebuild costs (to justify higher premiums) and the cost of rebuilding one individual house (effectively an infill site, with all the complications and restrictions) is far higher than the actual cost of that a house when it was built as part of a larger development. And Direct Line's table at the end showing wildly different rebuild costs in different parts of the country is clearly wrong.)

But their overall point stands, a large chunk of the value of a home is "location, location, location" (median one-half, overall average two-thirds)

Enter Josh-Ryan Collins of the UCL, with a fine article in City AM from a couple of days ago:

For those on the left, there is a lack of public housing due to decades of underinvestment by the state. For the right, the problem is excessively restrictive planning preventing the market from doing its job...

... since the turn of the century, [interest] rates have been falling. More and more loose credit has flowed in to an inherently finite supply of desirable locations, pumping up house prices at a much faster rate than incomes. As prices are driven up, so more financing is required for home purchase, creating a feedback cycle that eventually leads to a bust, as in the crisis of 2007-2008.

Rather than pushing against this feedback cycle, successive British governments have supported it by repeatedly reducing taxes on property, enabling windfall capital gains for those lucky enough to have bought at the right time, as well as fuelling demand with subsidies on mortgage debt and for first-time buyers...

Policymakers and financial regulators must recognise that banks will always be able to create credit at a faster rate than new homes can be built if they are allowed to. In the lead-up to the financial crisis, there were huge construction booms in Spain and Ireland, but prices kept going up as banks poured more credit in to the system. When it finally came, the bust was actually worse than in the UK.

To break the housing-finance cycle, demand as well as supply side policies need a rethink. Fiscal and financial policy needs to do the heavy lifting here. First, regressive council tax should be abolished and replaced with a tax on the annual increase in the value of the land underneath a property.

Second, banks need to be gradually weaned off domestic property and return to their traditional model of business lending.

All good stuff (except for his odd suggestion for taxing land value increases
rather than annual rental values).

Finally, here is the ivory tower nonsense (emailed in by Lola). Let's look at the headline and his three bullet points:

Strangely, building more homes does reduce a housing shortage

Clearly it does. But the UK does not have a housing shortage, it has a crass misallocation of the housing that is available. I have put this to him and his ilk many a time: "There are more buildings inside the M25 than in the whole of Scotland. So why are prices so much higher inside the M25?". They never answer that.

The idea the UK has a shortage of land to build on is completely bogus

Clearly, the UK has no shortage of actual undeveloped land. But, as JRC points out, it has a limited supply of "desirable locations".

Some of the prettiest places in Britain also have some of the densest housing

This is a nod to agglomeration benefits. It is a self-reinforcing cycle, more buildings -> more people and businesses -> higher wages and amenity value -> more buildings etc. But like most Faux Lib/YIMBYs, he is actually in denial about this. He can't bring himself to admit that denser areas tend to be more expensive, so he uses the bizarre euphemism "pretty".

Tax reform will not end the shortage of housing, any more than taxing water in a drought

Price rationing is the best form of rationing, whether that's "desirable locations" or water -> Land Value Tax.
The rest of his article is feeble and failed takedowns of JRC's much better explanation of real life. He sticks in a KLN for good measure:

Good luck imposing swingeing taxes not matched to cash flows on a homeowner majority.

The majority of owner-occupiers, i.e. those in work, would be paying a lot less tax if they paid tax on the value of public services at their location instead of paying taxes on earnings and output/consumption. I fail to see how a tax cut is "swingeing". So it's clear - if it wasn't already - that maths and statistics aren't his strong points.

Even if you did, most people would still have less housing than they would like.

Quite possibly so. But every household having 'a bit less' than it would like instead of some having twice the space they need and others having only half; or pensioners in high wages areas swapping places with workers currently forced to commute long distances;has got to be an improvement.

He rounds off with this evidence-free platitude:

There are easy ways to improve the planning system that would lead to vastly better places and more homes over time.

Can we please stop blaming house builders for high house prices? They are ruthlessly exploiting high prices, not actually causing them. In their defence, they have consistently increased the supply of housing faster than population growth in any particular period (apart from 2009 to 2012).

Like any sane business, they just stick to the profit maximising level of output, which happens to be slightly faster than population growth (= approx. one new home for every one-and- a-half additional people). It is quite clear that if you give them more planning permission than this level, they will simply stockpile it. Which is why UK home builders have a decade's worth of plots with planning in reserve.

And I know that home builders do not have a formal or even informal cartel, it is just that they all do the same profit-maximisation calculations and have the same input costs, so they all make exactly the same decisions and move in tandem, as evidenced by Neal Hudson's fine chart showing that in the short term, they build one new home for each nine existing homes which are bought and sold in any year (scroll down to Fig 5 here).

Thursday, 18 October 2018

Nobody move or the French tourism industry gets hurt!

From the Daily Mail:

Britons could need visas to visit France if the UK does crash out of the EU without a deal.

As Theresa May arrived in Brussels for a crunch summit, the French government ramped up its preparations for a no-deal Brexit and said Britons would become ‘nationals of third parties’ and would probably need travel permits to visit.

That's their unilateral decision, isn't it? You can't blame that on Brexit.

Wednesday, 17 October 2018

The Disappearing Homes Conundrum

I commend a fine article, backed up with logic and hard numbers by Generation Rent.

What happens to rents if landlords exit the market? Nothing.

Unsurprisingly, their research shows that average rents paid fall slightly, because it is higher earning tenants who are most likely to become owner-occupiers, and they were the ones paying the higher rents.

Tuesday, 16 October 2018

Daily Mail on top form!

From The Daily Mail:

A retired company director who covertly filmed a young woman getting changed at his luxury home has been jailed for eight months.

Allan Austin, 66, installed a hidden spy camera at his home in Cheshire because he 'liked the figure' of the victim...

When officers searched Austin's £500,000 detached house in the village of High Legh, near Knutsford, Cheshire they found the hidden camera which was linked to his computer and iPad.

Monday, 15 October 2018

Help To Buy - the sequel

Having established that the previous iteration of Help To Buy was an unqualified success, enabling 'home builders' to bump up their selling prices by ten percent, the Homeys at the Centre for Policy Studies have suggested a new wheeze, namely giving sitting tenants a 6.66% deposit if they buy the home they are renting, pushing up prices by 6.66% compared to the baseline; and then reducing the ex-landlord's CGT bill by one-third as a bonus (emailed in by Lola).

The maths and logic in that paper are all over the place, but it boils down to that.

From page 18:

... this is a substantial reduction in their tax bill and could encourage them to sell up.

But if they did not want to sell up, then that is their business – no one should force them to dispose of their own property, or punish them for owning it.

This is dog-whistle for "no one should force them to pay a market rate for the value of all the public services which help maintain the value of their land and buildings", only tenants should pay for those, and pay twice over. They pay for the cost with PAYE and VAT and for the value through the rent they pay. To use their own terminology, tenants are being punished twice over.

Most lolzworthy of all is the sub-heading to the report:

How to restore home ownership by turning private tenants into owners

The easiest - and tried and tested - way of doing that is by imposing rent controls and/or making it nigh impossible to evict a tenant. Rent controls don't benefit tenants as such, the end result is more owner-occupiers, i.e. ex-tenants who can save more towards a deposit and pay lower prices. Yes, yes, I know this is very much a second best solution, but beggars can't be choosers.

Friday, 12 October 2018


I'm not particularly PC, but occasionally, the double standards really hit you.

You are allowed to call a fat bloke at work a "fat bastard" or make derisory comments about his weight, by and large, said fat bloke will either laugh it off or trade insults. No harm done.

I doubt that a fat woman would take this sort of thing with equanimity. She'd probably go crying to all and sundry, her mates would shun you and you'd probably be severely reprimanded (while trying to keep a straight face). Unlike defamation cases, truth is no defence.

Thursday, 11 October 2018

"Hammond plans tax crackdown on synthetic self-employed"

From the BBC:

The Treasury is finalising plans to overhaul tax rules which allow self-employed people to avoid paying national insurance contributions. The move will be targeted at people who set themselves up as private companies to take on work.

The BBC understands it could be announced in this month's Budget. The Treasury believes a third of people claiming self-employed status as a "personal service company" are actually full employees and should pay more tax.

Quite simply, employment income is taxed at insanely high rates. Self employment income and income routed via a company are just taxed at high overall rates.

So this is bound to happen, and anybody who thinks they are on the right side of the line will do this. And plenty of people who clearly aren't. Presenting a regular daily or weekly TV or radio show is slap bang in the middle of any sane definition of 'employment' FFS.

The answer is simple. Merge VAT, National Insurance, income tax and corporation tax into a single rate of tax applied to all earned income at the same rate. You can make it less regressive with a personal allowance or a Citizen's Income credit.

Until and unless they do that, this sort of tomfoolery will continue and we go in ever decreasing circles.

It says without reform, high levels of non-compliance with tax rules could cost HM Revenue and Customs, which collects taxes, £1.2bn a year by 2023.

Sod off, it costs HMRC nothing. That's like me counting all the goals I never scored in a Cup Final. It costs 'everybody else' £1.2 bn, because they have to pay in more to make up the difference.

Saturday, 6 October 2018

A bad idea is still a bad idea, even if you change the justification.

I thought it was just Faux Libs like Allister Heath who advocated this sort of corporation tax reform.

He - encouragingly - starts off by making good arguments against turnover taxes (like VAT):

Corporate turnover taxes would hit struggling and young firms disproportionately. Loss-making firms would have to hand over money to HMRC, tipping them over the edge. A pro-cyclical turnover tax would trigger an epidemic of bankruptcies.

VAT raises four times as much as onshore corporation tax and is much more economically damaging (and regressive), so why aren't they talking about that first and foremost?

Then comes the inevitable shite:

There is a better [way of reforming corporation tax].

We should just tax cash distributions to investors and creditors when they leave the company – dividends, share buybacks and interest – as we tax distributions to employees. A similar system works in Estonia. True, some firms would be able to delay their taxes, and transfer pricing issues would remain. But it would be a huge improvement.

No it wouldn't. Massive loophole alert.

* A share buy-back is when a company redeems its own shares at a premium (i.e. its a return of capital and a dividend rolled into one), so they say they'd tax that. But a dividend can be dressed up as a return of capital (subtly different to a buy-back), which might or might not be caught by a tax on share buybacks. What happens if it is another company buying the shares? What if A plc buys B plc shares and B plc buys A plc shares? You'd need rules for that as well.

* What about dividends from a UK subsidiary to its overseas parent company or overseas shareholders? Under most double tax treaties these are exempt from withholding tax (or subject to reduced rates), so all those would have to be renegotiated, and we know how good the UK government is at that. What about a dividend paid to a UK parent company which under UK tax rules is and always has always been exempt on the recipient (in my working lifetime, at least)?

* What about all the dividends paid to tax-exempt recipients, pension funds, ISAs and so on? They're still moaning about Gordon Brown's mythical "pensions raid" so no Chancellor in their right mind would contemplate it.

* Some companies are in no hurry to pay dividends. Microsoft famously did not pay a dividend until 2003. Apple is so desperate to avoid corporation tax that it just piles up (untaxed) profits in subsidiaries in tax havens, which in turn invest in corporate and government bonds. So Apple is becoming like Siemens, a bank with its own eletronics division. This would just make such tax avoidance/deferral even easier and more respectable.

* Interest payments can be dressed up in the same way. Instead of paying £5 interest on a £100 bond, the company just repays £5 of the £100 principal, and so on.

Summary: receipts from the proposed tax on distributions would be a tiny fraction of current corporation tax receipts. Which is of course what the Faux Libs want.

The rationale for this is that corporation tax is a tax on capital, which is a lousy rationale as that is exactly what corporation tax isn't. I accept this would be more obvious if 100% first year capital allowances were extended to big companies, a good idea in itself, but hey.

Corporation tax is a tax on non-reinvested profits i.e. accumulated cash not used in the business. Whether the cash is sloshing around in a company's bank account or a shareholder's doesn't make any difference to the outside world, so it is cleaner and simpler to charge corporation tax at source and subject dividends to a lower rate of income tax than other income (to give credit for the corporation tax already paid).

We actually had this ideal compromise briefly in the last couple of years of the Labour government prior to 2010 (effective overall tax rates on dividend income were 20% for basic rate taxpayers and 40% for higher rate taxpayers, exactly the same rates as for earned income, if you ignore the NIC), but Osborne is now heading backwards in time to double-taxation of dividends.
For some reason, my internet friend Martin Farley recommends that the Green Party adopt this tomfoolery, with a couple of tweaks:

Corporation tax would be abolished and, instead, distributed profits from companies will be taxed at the point of distribution, including: dividends, share buybacks, additions to cash holdings, payments to parent or subsidiary companies (both onshore and offshore), and all other distributed income. This will be done at the basic rate (32%) for non-UK income tax payers and inter/intra-company distributions.

We believe that this will raise a further £12bn in revenues due to the more effective taxation of income from corporate profits and at a rate higher than current Corporation Tax. ( We believe this is a very conservative estimate, but will accept a challenge if anyone can produce a more reliable figure).

OK, he's addressed the overseas and inter-company issues, not knowing how difficult these will be to enforce. In which case, a subsidiary will just 'lend' its profits to its parent company. He says the tax will apply to "additions to cash holdings", which is going full circle and is exactly what corporation tax already is (assuming 100% capital allowances and debtors/creditors being paid on time).

Neither side has addressed the issue of 'transfer pricing', which is the biggie here, the UK government could, if it were so minded, shut this down under existing legislation, but for policy reasons does not do so (unclear to me why).

The rationale, interestingly enough is exactly the opposite of the Faux Lib rationale:

This is not designed as a tax increase, but rather a tax simplification that will equalise its burden and significantly reduce avoidance (and thus increase revenues).

In time, this will be the sole tax levied on income, thus reducing the administration of tax by all concerned and ending the perception of unfairness by those who experience double or triple taxation on income, while others avoid it altogether.

Summary: the Faux Libs are pushing for this to make tax avoidance/deferral much easier and reduce revenues (even though they don't say that); Martin Farley is encouraging the Greens to adopt this as policy because it will reduce avoidance/deferral and increase revenues.

All very Alice in Wonderland.

Friday, 5 October 2018

Got to keep the party going...


Now that the PPI scam (as in the bureaucratic scam) is coming to an end I was wondering what those bureaucrats would next invent to keep the 'mis-selling / concentrate benefits-distribute costs' ball rolling, and now we know.

Whatever happened to 'personal responsibility'?

Killer Arguments Against Citizen's Income. Not (19)

From an idiot on the left (emailed in by BenJamin):

The original philosophy behind basic income... came from neo-liberal economists who where absolutely fine with people getting unearned income. Their entire system of economics was a justification for unearned interest, profit and rent.

They were also dead against people getting needs based benefits. The basic income proposal was a wedge to be used to destroy the existing welfare state, and the moral principles on which it stood. Once it was in place, they would go ahead with charging for all sorts of things which were now distributed according to need, and cancel existing needs based benefits.

Give people enough cash to barely survive, and then leave the rest to the magic of the market. Minimum wage legislation would go, as would unemployment benefits. Since people would not loose [sic] any benefits by going to work, and since their survival was already largely subsidized [sic] by the state they would be willing to take on work for lower wages. It would be the ideal support for the gig economy of micro-jobs.

This first bit is all bollocks. Simplifying the welfare system and National Minimum Wage legislation are two completely separate topics, but I reproduce here to set the scene and make fun of his crap spelling...

There would be a downward pressure on the lower end of the labour market. The net effect on the class distribution of income would be that those on slightly above average wages subsidize [sic] low wages, whilst low wage employers reap the benefit, something which already happened with Gordon Brown’s tax credit scheme.

Working Tax Credits are only paid to people in low paid jobs. So they might - indeed - have depressed wages at the lower end. A basic income paid to all would by definition have a much, much smaller downward impact on wages at the lower end (if any).

From idiots on the right:

A CONTROVERSIAL Labour Party plan to give everybody in the UK taxpayers money, regardless of whether they are in work, would encourage unemployment and make the poor even worse off according to a stunning new report.

The new study, from the Centre for Social Justice, concludes the proposed policy would create a “massive disincentive for people to find work”.

Yes, to some extent, there will be some people who would have otherwise taken a really low paid job for a few hours who no longer do so. Which means that employers will have to offer slightly higher wages.
I wish these I could put these fucknuts in a room together, with one side explaining why it will push wages down and the other side counter-arguing that it will discourage people from taking low paid jobs until they realise the two arguments are a) very weak and b) cancel each other out anyway.

Funnily enough, both sides go with the complete lies that welfare simplification is
a) unaffordable, and
b) would leave the poorest even worse off (as if The Daily Mailexpressgraph gives a shit about them anyway, at least the Guardianstas do in a back-handed sort of way).