"The SNP has already pledged to match the UK's growth rate by 2011 by cutting business rates and channelling investment in enterprise, transport and education more effectively", it says here.
Wrong on two counts.
If you cut business rates, landlords just put the rent up and/or your premises go up in value. Our governments have tried this several times, and that is exactly what happens.
As to 'channelling investment', that sounds like 'subsidising' to me. Which is always a bad idea.
Tuesday, 30 October 2007
SNP don't understand economics
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7 comments:
I think the govt could do with a few accountants to help collect/collate stats. They've been taken by surprise about how many foreigners are working in the UK!
If you cut business rates, landlords just put the rent up and/or your premises go up in value. Our governments have tried this several times, and that is exactly what happens.
I suspect the evidence for this is scanty at best. You're not seriously trying to contend that the level of business taxation has no impact on growth, are you?
As to 'channelling investment', that sounds like 'subsidising' to me. Which is always a bad idea.
That's a matter of opinion, rather than a right or wrong issue. What's wrong with trying to use existing public expenditure better, as 'channelling' would imply to me?
I suspect the evidence for this is scanty at best.
It is not scanty! The Tories exempted Docklands from Business Rates in the 1980s and it had bugger all impact - apart from landlords putting up the rent. Nulab tried exempting some properties from Stamp Duty Land Tax in the 1990s - all that happened was that selling prices in those areas went up. You have to think about it, observed behaviour exactly follows economic theory, you can go back to Adam Smith if you like.
... the level of business taxation has no impact on growth
Taxes like VAT and Employer's National Insurance are massive brakes on growth, together with the red tape and complexities in the system. The headline rate of corporation tax of 30% is not actually the real problem.
What's wrong with trying to use existing public expenditure better...?.
Because of the 'picking losers' problem. An all round tax cut is always better than increasing taxes on some people (with associated deadweight costs) and using the money to subsidise somebody else (with associated deadweight losses).
There's a world of difference between the types of enterprises in Docklands and the SME's that are the backbone of the Scottish economy; as well as between the respective commercial property markets in London and Scotland. The lessons of 1980's London may not be particularly apposite for today's Scotland.
As for channeling investment, who said anything about 'picking losers', as if it had anything to do with subsidising commercial enterprises? To me, it means no more and no less than making better use of existing spending. You know, like scrapping the £650m Edinburgh Airport Rail Link, which planned to dig under a live tunnel and run diesel trains in an underground station, and instead link up the airport to the rail network using the tram scheme which was also going ahead at the same time.
Result? Hugely risky £600m project is canned; better value is obtained from the £500m tram scheme, and the savings are invested in electrifying the Edinburgh-Glasgow main line, and in improving the rest of the rail network around Scotland. If that's not better channeled investment, then I don't know what is!
OK, if you don't want to admit that Adam Smit was right, think about it for yourself:
A tenant business can afford rent of £10,000 and rates of £4,000, but not a penny more. So the landlord charges him rent of £10,000. If business rates are scrapped, the landlord will increase the rent to £14,000, being the maximum that the tenant is prepared to pay to trade from that particular spot.
Yes, I admit, transport infrastructure is usually a good investment. Because it increases land and rental values, so, unless some idiot has gone along and scrapped business rates, the State claws back some of the cost in terms of higher business rates.
OK, if you don't want to admit that Adam Smit was right, think about it for yourself:
Well, doctrinaire adherence to the hallowed 'scripture' of others has never been my thing. Nevertheless:
A tenant business can afford rent of £10,000 and rates of £4,000, but not a penny more. So the landlord charges him rent of £10,000.
That's a dodgy assumption in itself. Fine for a textbook 101 in economics, but less applicable to real life. However...
If business rates are scrapped, the landlord will increase the rent to £14,000, being the maximum that the tenant is prepared to pay to trade from that particular spot.
In the real world, there's a lot of frictional reasons why that would likely not happen, at least in the short run. The fact that properties may be on long-term leases; competition amongst property owners for tenants; inertia; an increase in supply of commercial premises; suppliers bumping up their prices to take advantage of this notionally increased 'surplus'; the possibility exogenous downward pressures on product price from competitors etc ad nauseum.
Yes, I admit, transport infrastructure is usually a good investment. Because it increases land and rental values, so, unless some idiot has gone along and scrapped business rates, the State claws back some of the cost in terms of higher business rates.
It's not all about land values. Productivity comes into it as well. Cutting that 2hr Glasgow-Edinburgh-Glasgow journey in half will add an extra hour to the days of tens of thousands of Scottish commuters, bringing a whole range of economic, social and cultural benefits.
It is not a dodgy assumption or idle economic theory. Like most simple economic theories, it is borne out in practice, glossing over short run/long run adjustments. See also 'Ricardo's theory of rent'.
If the SNP really wanted to get the economy going, they'd cut the really bad taxes like VAT and Employers' NIC.
As to land values, that is the whole point. If you live or work near where there are good rail and transport links, your quality of life is better so your land values go up because more people want to live or work there. Land values are a measure of how wisely the State is spending your money (artificial scarcity issues aside).
Somebody actually worked it out in £-s-d recently. It was something like property prices fall by £10,000 for every five minutes' walk it is from the nearest Tube Station in London, having controlled for other factors. When people are advertising rooms to rent, they always say how many minutes it is from the Tube and what zone it's in.
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