Re:assure from Redrow (2)

The original Redrow Reassure deal included the following:

"If a customer comes to sell their Redrow Property [within three years] and gets less than they paid, we will refund the difference up to 10% of the purchase price paid..."

The current Reassure package has been modified - instead of the 10% refund, they are offering to "Pay up to £500 per month towards your mortgage for two years".

Hmm...

Assuming a typical new price of £200,000 what would a purchaser rather have - £12,000 cash towards your mortgage, or a worst-case refund of £20,000?

Have Redrow lost faith in their own product?

By-the-by, isn't this tantamount to mortgage fraud - if you add together £2,000 Stamp Duty + £12,000 towards mortgage + £10,000 for the 5% deposit + £750 towards legal fees, aren't they really selling you a £175,000 home dressed up as a £200,000 home?

Why politicians love Value Added Tax (2)

The British Chambers of Commerce have calculated the gummint has raked in an extra £505 million in VAT and North Sea Oil tax* in the last six weeks as a result of oil price rises.

Annualised, that's £4.4 billlion - or enough the increase the tax-free personal allowance by a further £1,000.

This is a very good illustration of "Why politicians love VAT" items 8 & 10.

David Frost's analogy is rather unfortunate though “Seeing the fuel gauge barely move when you put in £20 is frustrating and only going to get worse." Er, David, you don't actually put a £20 note in the tank, you give that to the attendant when you've finished putting petrol in.

* This is in fact a 20% surcharge on the standard rate of corporation tax that North Sea oil companies pay, making their effective rate 48%. Altho' I have said previously that flat-rate corporation- or income-tax is the second least bad tax, firstly, 48% is hardly 'flat' and in situations like this, it acts pretty much like a turnover tax, the worst tax of all.

Measuring social value

Here's my letter to the FT, sadly not printed.

"Sir,

Your article "New philosophy blurs party lines" (13 May) states "The Tory leader said ministers in his government would take account of 'measures of social value' - the added benefit of having a local GP, library or post office - to promote 'not just economic efficiency but also social efficiency'. But how would this championing of social values be squared with the harsh realities of needing to close thousands of post offices to stem losses of £3.5m a week?"

The answer is simple.

The 'social value', in other words the value to society, of subsidised or taxpayer funded services that benefit any particular locality, can be measured by looking at location values - the additional price that people are prepared to pay for properties in that locality as opposed to one that lacks these services - and hence on local land values. The revenues from a tax on local land values, however measured, could in turn be compared with the cost of funding that "local GP, library or post office".

As long as the proceeds from the tax at least covered the cost of the subsidies, then we would have not just economic but also social efficiency.

In the specific case of post offices, for example, annual losses of £182 million could - should property owners so wish - be funded by an annual land value tax of one per cent of one per cent on UK site-only land/location values (which currently stand at approximately £2,000 billion).

Yours sincerely"

Note: the blanket tax to subsidise all post offices was just to illustrate the sums involved - I explained how this would work in practice here.

"Housing crisis: Mortgage rates at 8-year high"

It's not a housing crisis, though, is it? It's the same number of homes and the same number of people living in them. So I'd call it 'an interest rate shock'.

Are we supposed to feel sorry for people who took out a vast mortgage without asking themselves whether they'd still be able to afford repayments if interest rates were to rise by 2% or 3%? Or show any mercy to the banks who didn't advise their borrowers to do so?

Anyway, this is all good stuff. If typical monthly repayments go up by a quarter (from £800-odd to £1,000-odd) then typical house prices will have to come down by a fifth to maintain any semblance of affordability.

Further, if banks now require at least a ten per cent deposit, that is doing first time buyers a huge favour. You have to look at these insanely 'generous' mortgages as weapons with which FTB's kill each other. Take away the weapons, and FTB's, collectively, will benefit.

Ah well. Nulab will keep chanting the mantra about interest rates hitting 15% under the Tories. It puzzles me what relevance that can possibly have to somebody whose monthly mortgage repayments have just shot up by £200, but hey.

"Man jailed over 36 children claim"

This is a fine example of how pathetic and useless HM Revenue & Customs are administering Tax Credits.

Remember that HM Revenue & Customs are also responsible* for dishing out Child Benefit. I'm no expert, but why don't they ... er ... ask people for the Child Benefit reference number on a Tax Credit claim form?

Or, bearing in mind that the level of fraud with Child Benefit is minuscule**, why don't they get rid of the child-element of Tax Credits and just increase Child Benefit? About £30 per child per week is roughly fiscally neutral.

And to prevent 'baby farming', perhaps restrict Child Benefit to the first three children per family? Remembering always that the largest part of the cost of having children is the loss/reduction in the mother's wages. That loss is the same whether the mother is at home with one child or with ten.

* They took over from the Benefits Agency about five years ago.

** Per the ONS, "For England and Wales as a whole, the Census figure [for the number of children] is 0.9% higher than the number of children claiming child benefit."

"Hints of methane's renewed rise"

Again, whoopee-do!

Average methane concentration in the atmosphere has increased over the last ten years by ... 30 parts per billion.

A billion is one thousand million! Thirty as a fraction of that is 0.000003% (five zeroes after the decimal point). Methane is, allegedly, 25 times more powerful as a greenhouse gas than CO₂. So that's equivalent to a rise in CO₂ of 0.75 ppm (parts per million), and as CO₂ has risen by about 100 ppm over the last three centuries, with no apparent ill effects (apart from The Thames not freezing over any more) what is there to be worried about?

Have I missed something?

Big numbers! Big numbers!

Whoopee-do!

The Goblin King pledges to spend "£200m to buy unsold new homes and rent them to social tenants [and] £100m for shared equity schemes to help first-time buyers purchase new-build homes".

£300 million divided by current average house price of £189,000 is, er, 1,587 homes. That's less than one day's turnover, even in today's depressed market.

Oh, and don't forget the gummint's generous contribution of £30 towards your legal costs if you are threatened with repossession.

At least Norman Lamont had the guts to spend £2 billion on trying to prop up sterling on White Wednesday before admitting failure. Throwing away £300 million to try and reflate a £1,500 billion house price bubble* is beyond futility.

* If house prices were still in line with the long-run average, they'd be worth about one-third less. Total value of all housing is approximately £4,000 billion.

"No rate cuts before 2010"

Screams the FT's headline ... in other words, they'll have a couple of rate cuts just before the next General election.

Swervin' Mervyn has also been hinting for some time that house prices should be included in CPI, in other words, (falling) house prices will depress the headline inflation figure, making their lives so much easier.

Is there anybody who still thinks that the Bank of England is independent?

A case for legalising cannabis

ConHome have kindly published my article.

Unfunded public sector pensions

While tracking down the source of a quote for my previous post, I stumbled across this in Hansard (Column 20/21) from back in 1993:

Mr. David Shaw (Dover) : ... I asked a specific question about the cost over the next 20 years of the commitment to public sector pensions for civil servants and others. I have been told that the unfunded liability, which does not appear anywhere in Government accounts, is £170 billion...

And they thought they had it bad! Meanwhile the liability is six times that and rising.

Imperfect markets

I toddled along to the IEA this evening for the launch of Eamonn Butler's "The Best Book on The Market"*. As usual, if you turn up on the day, you get a couple of glasses of wine and you get to chat to some nice people and eat some very delicious nibbles and a couple of quid off the cover price and the author will sign it for you, the eager purchaser.

Problem is, what dedication would I like ..? I asked him to go for the default option "To ...., don't let the bastards grind you down, signed ...."** and he fluffed it! He wrote "Don't the bastards wear you down" instead.

Imperfect markets indeed!

* Which is a jolly good book, having read the first half or so on the train home.

** Scroll down to Column 21. I've got a copy of James Delingpole's "How to be right" with exactly that dedication stashed away somewhere or other.

Ron Paul on the housing bubble

As ever, Ron talks a lot of sense:

"The solution is for government to stop micromanaging the economy and let the market adjust, as painful as that will be for some. We should not force taxpayers, including renters and more frugal homeowners, to switch places with the speculators and take on those same risks that bankrupted them. It is a terrible idea to spread the financial crisis any wider or deeper than it already is, and to prolong the agony years into the future.

Socializing the losses now will only create more unintended consequences that will give new excuses for further government interventions in the future. This is how government grows - by claiming to correct the mistakes it earlier created, all the while constantly shaking down the taxpayer. The market needs a chance to correct itself, and Congress needs to avoid making the situation worse by pretending to ride to the rescue."

H/t Sold 2 Rent 1 at HPC.