Wednesday, 30 April 2008

Why politicians love Value Added Tax (VAT)

1) It's a tax on "consumption"; and consumption is A Bad Thing, as opposed to taxes on "production" which is A Good Thing. This completely ignores the fact that in a largely service based economy, one man's consumption is another man's production. Funnily enough, the right-wingers are more guilty of perpetrating this lie than the lefties. As it happens, VAT is mildly regressive - people on low incomes pay a higher fraction of their income on VAT than those on higher incomes.

2) It's an EU requirement, so we can't do anything about it. Apart from reducing our standard rate from 17.5% to 15%, the minimum standard rate required by the EU. Funny how nobody mentions that.

3) VAT receipts are relatively stable; in times of economic downturn, people spend more than their incomes - even if people's incomes and business profits are falling, the government can still rake in the tax. The flipside is, VAT sends more businesses to the wall during a recession than would otherwise be the case (they have to pay it, even if they are making losses). And VAT receipts are about three times as high as receipts from Council Tax, without the protests or the hassle.

4) Voters and businessmen don't understand it! People don't inspect their sales receipts closely and think 'Shit! I just paid £200 for a new hi-fi for £200 - £30 of that went straight to the taxman'. Similarly, VAT-registered businesses that make VAT-able supplies to the general public are conned into thinking 'We don't pay VAT - we just add it to our selling price and the customer pays it." These chaps need a lesson in the difference between the legal and economic incidence of a tax. See page 95 of this for explanation.

5) Of course, some businesses are zero-rated or exempt, so they don't care. Some VAT-registered businesses make supplies to other VAT-registered businesses and think that it doesn't affect them. Which mathematically it doesn't, but just you wait until your customer (who makes VAT-able supplies to the end consumer) goes bankrupt ... Or they're beneath the registration threshold and make damn' sure they stay there (see STB in the comments for details).

6) "VAT is a simple tax". Yeah, right.

7) VAT raises about twice as much as corporation tax, once you strip out the additional 20% corporation tax paid by North Sea oil & gas companies. The LibLabConsensus are happy to wrangle over whether the large companies corporation tax rate should be 28% (down from 30% last year) or 25% (proposal 18 on page 142, this whole report was far too radical for George 'Twat' Osborne, of course).

8) If the government f***s things up and we have inflation, or even if they just print money and we have inflation, then prices go up, so VAT receipts go up as well.

9) Banking is exempt from VAT; new housing is zero-rated and sales of second-hand homes are exempt from VAT, so if politicians fancy blowing a credit/asset price bubble, the tax system makes this all the easier.

10) If the government f***s up and our currency plummets, then great. Fewer people go abroad on holiday, but the UK is cheaper as a tourist destination, so overall VAT receipts (on hotels, restaurants, musicals etc) go up. This also feeds through into inflation, see point 8).

See also "Ten reasons why VAT is the worst tax".

BTW, this rant does not just apply to Value Added Tax, it applies to all Sales Taxes or Turnover Taxes, local, general or otherwise, unless the proceeds are clearly earmarked for and matched with spending on external costs, e.g. if petrol duty revenues are spent on roads and public transport, then fine. If tobacco duties are spent on cancer research, then great. And so on.

"Private schools net more pupils"

The number of kids at private schools has increased by 0.8% between 2007 and 2008, apparently, as against a fall in the number of children in England & Wales aged 5 to 18 of 0.4% (per the trusty population pyramind). So that makes a real rise of over 1%, which is quite significant*.

As ever, these buggers are obsessed with average fees at private schools, given as £11,253. Who gives a shit what the average is? The average is skewed by super-snob schools like Mill Hill and so on. Where my kids go is a damn' sight cheaper than the average (albeit they go to primary school) and that's what matters to me.

But the fact that so many more parents are prepared to fork out twice for education, once for the State system via taxes and once out of post-tax income, says a lot about the State system. Put briefly, it's shit, notwithstanding that are probably lots of good State schools - and those are the ones with the lowest funding**, natch.

* I suppose one counter-argument for statistics buffs is, if people are having fewer kids, their net income-per-child is slightly higher, so they are more likely to be able to afford private.

** Obviously, 'targetting' funds at 'deprived' schools means taking it away from decent schools in nicer areas. Nice stat further down the link, "overall average per pupil funding, including capital and ICT spending, will reach £6,600 – doubling in real terms since 1997". That £6,600 cheerfully ignores DfES and quango overheads and Teachers' Pensions, which add another 20% or so, so the real cost is nigh on £8,000. The DfES annual report shows that spending per pupil in primary schools is a lot lower than in secondaries, so it's maybe £6,000 per pupil*** at primaries and £10,000 at secondaries?

*** Which is roughly what we are spending per child.

Mmmm ... tasty vouchers!

"House prices may fall 30%"

Prof David Blanchflower of the Monetary Policy Committee has finally awoken to the realisation that the most reliable indicator of house price affordability is the ratio of house prices-to-incomes.

No doubt those that refuse to accept it is was a massive credit bubble/asset price bubble will blame any falls on this phenomenom.

"Advertiser WPP may join tax exodus"

Another one bites the dust.

This exodus could be stemmed easily and cheaply, see here for short answer or here for more detailed policies.

Tuesday, 29 April 2008

"Prodi declines Putin's offer of top post at South Stream"

Gerard Batten MEP (UKIP, London) is known to have called for an inquiry into Alexander Litvinenko's allegations that "Italian Prime Minister and former President of the European Commission, Romano Prodi, had been the KGB's man in Italy."

Hmm. I filed that factoid away under 'conspiracy theory' when I first read it.

But what do we read in today's FT?* Why on earth would a natural gas company want to employ a 68 year old failed life-long politician? Alan Duncan MP or Dr Vince Cable MP**, sure, they know about this stuff. But Romano Prodi? WTF does he know about oil or gas pipelines?

That Gerhard Schröder was Moscow's Man In Berlin*** is well known, also that he did not, repeat not, dye his hair black while Bundezkanzler (and he will sue your arse off if you suggest otherwise).

* The post title is taken from the print version.

** Is he a politician turned oil-man turned politician, or oil-man turned politician?

*** Obviously, he started life as Moscow's Man In Bonn, but that doesn't sound as menacing, somehow...

Mervyn King: CPI basket should include house prices

Complete and utter bastards.

They cheerfully excluded house prices from CPI when they were rising, which kept nominal inflation low, which allowed them to keep interest rates low, which fed through into higher prices etc. etc. all to create the 'feelgood factor'. Or total misery for first time buyers, depending on your point of view.

Now that house prices are on the way down, they want to include them again to repeat the trick on the way down.

For more vitriol along these lines, see HousePrice Crash.

"Publisher deserts UK tax regime"

"UK publishing and events firm United Business Media has proposed creating a new parent company based in Ireland, where taxes are lower than in Britain. The 90-year old firm, which owns trade titles Property Week and The Publican, said it reflects that 85% of its profits now come from abroad."

It's the "85% of its profits now come from abroad" that is the key to all this. Remember that it makes no difference to your overseas tax bill where the holding company is located. The relevant bit is how those profits are taxed when the overseas subsidiaries pay up a dividend to the holding company.

The UK and Ireland are the only major countries in Europe which tax overseas dividends in full*. The UK gives a credit for overseas corporation tax already paid, so extra tax is due if the holding company receives dividends from countries with an effective rate less than 28%. The same applies in Ireland, of course, but they only pay further corporation tax if the overseas subsidiary pays corporation tax of less than 12.5%, which is very few countries indeed.

Lord Forsyth's Tax Reform Commission reckoned that moving to the European system, whereby overseas dividends are either 100% exempt (or 95% exempt in some countries) would cost less than £1 billion**, i.e. chickenfeed in the grander scheme of things.

* See AGN European Parent Companies Survey.

** See Proposal 20, page 143. Also interesting is Figure 23 on page 75.

Monday, 28 April 2008

" 'Free Tibet' flags made in China"

Priceless.

"US to send out $100bn in rebates"

Just how stupid is George W Bush?

You only get positive dynamic or Laffer effects if you cut tax rates going forward, in particular sales taxes or payroll taxes. Merely sending people money just leads to inflation and/or if they are paid for by increasing government debt, this just increases the future tax burden in an equal and opposite manner to the original boost (Ricardian Equivalence*).

* The theory is disputed, but it makes sense to me.

"Clegg: I'm here for the long run"

The first rule of politics is: "It's not true until a politician denies it", so hopefully we'll be seeing the back of Nick Clegg in a few months.

"HBOS will attempt to raise £4bn"

As I calculated before, UK banks will have to have rights issues of about £1 for every £5 market capitalisation.

HBOS is now going for a £4 billion rights issue, against a current market capitalisation of £18 billion.

As a rough guide, you can assume that the next to do rights issue will be those with the lowest ratio of market cap-to-gross assets, i.e. Barclays, Alliance & Leicester and Bradford & Bingley.

HSBC and Standard Chartered look pretty 'safe' for now; Lloyds TSB is borderline.

Sunday, 27 April 2008

How far away is a rainbow?

I can see a rainbow from my kitchen door. The bottom ends of the rainbow are clearly in front of the hills on the other side of the valley, which are about four miles away, so it appears to be about two miles away.

But a rainbow is a virtual image and it's always the same distance from you (the same as the horizon at sea is always about twenty miles away) so how far away is the virtual image? Does anybody know?

PS - the red is on the outside/top of the rainbow - in one of the books that my kids brought home from school, they had put red at the bottom. Sheesh! When remembering the colours, I like the following mnemonic best 'Richard of York got captured by Martians' (red, orange, yellow, green, cyan, blue, magenta)

PPS - except in the rare case of a double-rainbow, when there's a faint upside down rainbow above the main one.

"Alan Johnson ordered to forfeit donation"

This is a good start, let's hope it doesn't all just fizzle out.

Let's not forget that Nulab were already insolvent to the tune of £25 million as at 31 December 2006 (see page 10 of their accounts) and I think their income has pretty much dried up since then, so when they have to forfeit David Abrahams' £650,000 it'll be curtains for them.

Saturday, 26 April 2008

Fun with numbers (3)

From The Times;

Last April there were 2,990 buy-to-let mortgage products available, with an average rate of 5.23 per cent. Today there are 597 products, with an average rate of 6.75 per cent. Some specialist lenders, including Mortgage Trust and Paragon, have stopped offering buy-to-let deals altogether.(1)

Last year lenders would loan up to 90 per cent of a buy-to-let property’s value (LTV), but most landlords now need to raise a deposit of 25 per cent to obtain a mortgage.(2)

Landlords have also been hit by lenders’ demands for increased rental cover — the amount of rent that covers the mortgage. Last autumn landlords only needed 100 per cent rental cover but lenders are now insisting on 120 or even 130 per cent.(3)


(1) An interest rate hike from 5.23% to 6.75% would depress property prices by around 22%, for example £100,000 x 5.23% = £5,230. £77,500 x 6.75% = £5,231.

(2) Fundamentalists think that increasing the required deposit from 10% to 25% would reduce prices by 60%, i.e. if you have a £10,000 deposit, that's a 10% deposit on a £100,000 property but a 25% deposit on a £40,000 property. This is almost certainly exaggerated, the question is, by how much?

(3) Increasing rental cover from 100% to 130% would depress prices by around 23% (i.e. 1 minus 100/130).

Or, if you want to really knock yourself out, we can combine (1), (2) and (3).

Assume that up to now, BTL-er has been receiving £4,707 rent p.a. (£90 per week), which is 100% rental cover on a mortgage of £90,000 x 5.23% on a property 'worth' £100,000 in which he has 10% equity. When he comes to remortgage, the bank will say "£4,707 divided by 130% = £3,621, £3,621 divided by 6.75% = £53,641. Therefore we can only give you a loan of £53,641 on that property".

So our BTL-er faces a stark choice: either
(a) stump up £36,359 to make up the shortfall (£90,000 minus £53,641), or
(b) sell the property to another BTL-er who happens to have a £17,880 deposit and is happy to pay £71,521, which is the highest price that will work under the stricter lending criteria. Of course, under option (b) the original BTL-er loses his original £10,000 deposit and still owes the bank £18,479. Ouch.

Friday, 25 April 2008

Friday night gear changes

I mainly listen to Ye Olde i-Pod on the daily commute and scribble down truck driver's gear changes on the back of an old ticket receipt as I go along. Here's this week's crop:

Dead Kennedys "Too drunk to fuck"
Bangles "In your room"
Shania Twain "Come on over"

Pushing a piece of string

Per today's FT, UK homebuilders have thrown in the trowel*...

Persimmon ... yesterday became the first to admit publicly that it was shelving plans to develop new sites, raising the prospect of sites lying undeveloped for years ... Persimmon said sales in the past three weeks were down more than a third compared with last year

Our noble govenment's response?

Caroline Flint, [the very tasty] housing minister, appealed to housebuilders not to be driven by short-term problems. "It is essential - and in their own interest - for housebuilders to base decisions on the economic fundamentals and longer-term trends."

Er ... since when it committing commercial hari kiri in homebuilders' own interest? I suspect that they know just a leedle bit more about these things than you do.

Oh, and by the same logic, Alastair Darling, you moron, just because you lend the banks cheap money doesn't mean that they'll lend it on cheaply against rapidly depreciating assets. Twat.

* (TM) Edwin Greenwood.

Fed's declare War On Puns!

This popped up in the Blogrush thingy, worth a read.

NHS Fuckwittery (8)

In brief ...In all, 127 [NHS] managers lost their jobs. The average pay-out each is to receive will be just under £120,000.

Look, if those jobs were superfluous, they should never have been 'created' in the first place? Is anybody going to take the rap for that? No? I thought not.

That this sort of practice is rife in Northern Ireland is hardly surprising.

Thursday, 24 April 2008

"System no longer works, confirms UN"

From The Daily Mash, h/t John East

"Meanwhile, the banks are borrowing money from taxpayers so that they can then lend the same money back to the taxpayers at a higher rate of interest than they borrowed it from them in the first place. Seriously, is it just me?"

I'm a taxpayer and a tenant. Does that mean I'm paying extra tax to subsidise my landlady's mortgage? Yes?

"Measures to target fuel poverty"

For a load of shit ideas dreamed up by a long list of quangos, see here.

Or, from the MW manifesto:

1. Scrap VAT on domestic fuel* (and possibly reduce other taxes thereon). That gets the cost down by 5% at a stroke.

2. Encourage/enable pensioners and welfare claimants to set up a low-cost, basic bank account (any bank that refuses to offer such accounts gets its banking licence withdrawn). Encourage them (i.e. tell them how much cheaper it is) to pay by DD rather than pre-payment meter. That gets the cost down by a further 16%. DD payments can be made weekly or monthly.

3. Replace Council Tax/SDLT etc. with a Property Bubble Tax, and replace means-tested old-age benefits with a Citizen's Pension, which would encourage** the one million pensioners below the poverty line who still live in a three-bedroom house to trade down into a smaller home.

* Actually, phase out VAT on everything, but this would go first.

** Or at least not discourage which is what means-tested benefits do - if you swap big house for small house-plus-pile of cash, you lose so much in Pensions Credit and Council Tax Benefit that it often isn't worth the hassle. And SDLT of course disourages mobility.

"UK butterflies need good summer"

Truly amazing.

The BBC have published an article, explaining that butterfly enthusiasts are hoping for a warmer, drier summer to help butterflies recover after last year's 'wash-out' .... I know what you're thinking ... how are they going to blame that on global warming? ... well they don't. (Well, not until that crack-whore Jo Abbess has had her way, of course).

They leave that up to 'Biodiversity Minister Joan Ruddock' who would appear to be superbly unqualified for the job, even by Nulabour standards:

"Butterflies are a vital element of the British summer (1). Their numbers indicate whether or not there are problems in the countryside (2). Butterfly populations also indicate the speed and extent of climate change (3). We will provide every encouragement for those working to conserve them (4)."

(1) Sorry, as pretty as they are, I didn't even notice that their numbers had fallen. They are thus not a vital element. Notice how she slips in the word 'British'?

(2) This is half-true, I am sure that there are some 'problems in the countryside' that would reduce butterfly numbers, such as massive chemical spills, but other problems, such as the housing shortage for agricultural workers, EU regulations and the fox-hunting ban would have little effect.

(3) Woah! We daren't say 'global warming' any more, seeing as how the butterfly conservationists are hoping for a warmer, drier summer. And butterflies are a lousy indicator. The article explains that some of these butterfly populations might be snuffed out for good. So even if weather returned to normal, the butterfly population wouldn't. I think all in all, stuff like thermometers and barometers are better for measuring the weather.

(4) Well, of course you would. Set up a quango, buy some votes. And if by some miracle they manage to reverse the decline (despite adverse weather) this would make butterfly numbers an even worse indicator.

Wednesday, 23 April 2008

Fun with numbers (2)

Richard North has revisited the topic of the drive towards bio-fuels and the effect on grain prices. He links back to an earlier post that in turn links back to his original calculations.

The numbers are staggering. For the UK to achieve the EU's target of 5% bio-fuel, it would require 70% of our domestic wheat crop. Little surprise that it's had an effect on grain prices, then ...

"Under fire councillor faces sack"

I made clear to anyone who read the paper during my election that I would work to ensure smaller government. To achieve smaller government, government itself must stop doing things. In my literature I said I believed in low taxes - to achieve that, government must stop doing things for people. I was asked several times throughout the campaign the usual question: "What will you do for me!" ... to which I replied, "I will work to ensure that you can do as much for yourself as possible ...*"

Gavin Webb, Lib Dem though you might be**, you rock!

* From the comments below the article.

** Isn't he in the wrong party?

H/t Harry Hutton

"England's most patriotic town?"

I just liked the picture, really.

I wonder whether they 'kept it real' and got an Anatolian guy to ride the horse?

"Low-level party funding a myth"

Michael Pinto-Duschinsky has ground the figures for The Policy Exchange and reckons that the political parties get about £1.75 billion of taxpayers' money for every Parliament, i.e. about £70,000 per MP per year.

Tuesday, 22 April 2008

"Why Gordon axed the 10p tax rate"

Read this and link to it (if you haven't already done so).

H/t Great Simpleton

"UKIP welcomes its first MP"

Top stuff!

I don't know whether Dr Bob Spink MP (Castle Point, Essex) belongs to the small-government free-market liberal wing or the ex-Tory authoritarian wing, but right now, who cares?

Twat of the day (5)

Some quango has decided that a tree in Mayfair, London has a value of £750,000, and that such values should be taken into account when deciding whether to chop them down to prevent e.g. subsidence.

So far so good. Trees are in themselves A Good Thing and make an area more attractive, enhancing property values, but conversely, they can reduce property values because of the risk of subsidence etc. Ultimately, property owners will make this trade-off when deciding whether to keep or fell a marginal tree.

However, according to today's prize buffoon, Andy Tipping, "People are still not understanding that subsidence is a problem with buildings, not trees [er..?]. In many cases it's other reasons such as drains [very true], poorly installed double-glazing [wot?] or climate change [dude, wtf?]."

Monday, 21 April 2008

What a difference a week makes ...

FT 14 April: "Russian oil production has peaked and may never return to current levels, one of the country’s top energy executives has warned, fuelling concerns that the world’s biggest oil producers cannot keep up with rampant Asian demand."

FT 21 April: " ...from 2004 the Moscow government changed its tax regime and began to take over privately held assets ...As a result of these and other policies, average production growth in Russia has slowed to 2.5 per cent from a high point of 12 per cent in 2003. The problem has become so severe that Russian politicians and energy executives fear that this year the world's second biggest exporter may see its first decline in 10 years ...Another problem is access to new fields, which is limited by a new law to companies with more than 51 per cent Russian participation. The process of handing out licences for these fields has been delayed for years while the state determines how many of them are to be considered "strategic"."

"Global warming? Scotland sees its best snow in a decade"

The headline says it all, really.

Blame the estate agents (4)

Juicy quote in today's Guardian:

If house prices are falling, surely now is the time to snap up a bargain? "Heavens no," says one north London estate agent. "House prices will continue to fall, so you should wait."

Whether this is apocryphal or not is neither here nor there; it either reflects or it influences sentiment, and that is what matters.

H/t 'Who stole my pension?' at HPC.

Sunday, 20 April 2008

Land values (1)

AnEnglishmansCastle has alerted me to an article in The Scotsman: "Size will matter as Greens plant the seeds of garden tax".

The headline does complete disservice to the article itself. As with many things, the clue is in the name: Land Value Tax is a tax on land values, not on land itself.

So let's go back to basics and look at actual land values:

Prime central London - £1 billion for 12.8 acres = £16,000 per sq yd.
Outer London - if I deduct rebuild costs per ABI Calculator from what we sold our house for recently and divide it by the plot size = £1,000 per sq yd.
Typical residential land in England & Wales (excl. London) -£2.91 million per hectare = £240 per sq yd.
Agricultural land - £4,316 per acre = 89 pence per sq yd.

So the type of land you own is far more relevant than the size of your garden. One sq yd of prime central London = 16 sq yds of outer London = 67 sq yds of typical England & Wales = 18,000 sq yds of farmland.

I invite visitors to find out the market value of their home, deduct rebuild costs and divide it by the plot size. It would be interesting to build up a contour map for different parts of the country.

Land values (2)

In the long run, of course, house prices and hence land values increase roughly in line with average wages, booms and busts notwithstanding. As we see from actual residential land values mentioned in the previous post (the same extreme variations apply to commercial land values, of course), land values are driven by (planning permission) x (local amenities).

1. Without planning permission, land is worth pennies per square yard. With it, it is worth hundred or thousands of pounds per square yard. For a given location value, the more generous the planning permission, the more valuable the land. I remember helping a client negotiate the sale of some land in North London. The purchaser (a builder) let slip that he worked on the basis of £50,000 for each flat that he could build. Halfway through, Red Ken changed his "London Plan" and increased the upper limit on densities. We went back the next day and pointed out that the builder could now build 100 flats on the site, rather than only 80 (as we had previously assumed), hence the land was worth £5 million rather than only £4 million, and the builder was quite happy to pay this (God, that was fun!).

2. Clearly, people are prepared to pay far more for a house that is near the train station with a good service to where the jobs are; within the catchment area of good schools; close to shops/businesses/parks; in low-crime areas; with an undisturbed view over surrounding hills or beaches etc etc. To a large extent, these factors are dictated by 'society' (i.e. NIMBYs who want nothing to be built versus farmers and builders who are fighting to get planning permission; whether the local council spends money on bobbies on the beat or on climate-change-advisors; whether the county council allows grammar schools or wishes to scrap them). And there are natural constraints on this - if more houses are built near a train station, commuters are less likely to get a seat in the morning - the newcomer's gain is the incumbent's loss.

Land values (3)

To sum up; land values vary enormously across the country, depending on what type of land it is, and in the long run are a function of local amenities and planning permission.

There is a third element, the speculative element. As we are now finding out at great cost, booms and busts in the property market are actually poison for the economy*. Since the early/mid 1990s, residential land values (i.e. land with suitable planning permission or land with a house already on it) have increased between four- and tenfold.

This is a pure speculative bubble - you can blame greed; mass-immigration; buy-to-let; estate agents; reckless lending by banks; very restrictive planning laws; land-hoarding by builders; the complicity of existing home-owners in thrall to the 'feelgood factor' or anything else you like. These bubbles occur every 18 years or so, and the fall-out is always the same (only this was the biggest bubble ever, so the fall-out will be far worse...).

So to my mind, the main argument for a tax on 'land values' is that it is really a tax on the speculative element of property values, which I tried (and probably failed) to explain over at ConHome last month.

* Notwithstanding that sell-to-renters, property developers, estate agents, down-sizers, presenters of TV property porn, derivatives traders at banks etc have all benefitted enormously over the last ten years. See also disclaimer 10 in the ConHome article. I am looking at the overall impact.

10p or not 10p? That is the question!

Dr Ian Gibson MP* (Lab, Norwich North) refers to the abolition of the 10p tax rate as a 'sledgehammer' in today's Mail on Sunday

"When I look into the eyes of my constituents and try to tell them that life is improving, they don't believe me ..."

There is an easier way, chaps; vote UKIP - who'd increase the personal allowance to £10,000 (bullet point 6)! Or, if you are a Tory loyalist, press George Osborne to listen to Lord Forsyth, who "proposed abolishing the 10p rate and raising the personal allowance to £7,185."

* Who is of course, only one of many Labour MPs and PPCs who doubt the wisdom of this.

"John Prescott : My secret battle with bulimia"

I had already factored in the former Deputy PM's voracious appetite when reconciling the ratio of takeaways-to-schools recently. Under Method One, we would expect this ratio to rise in areas of greater population density, but Kingston-upon-Hull was far above the trend line.

Whether this confession amounts to part of a "great legacy" is open to debate, of course.

Perhaps Cleanthes could re-run that regression analysis?

Kirsty Allsop versus HousePrice Crash

Kirsty was on the front page of yesterday's Telegraph trying to talk up house prices*, the possibly dumbest bit was this:

The people she finds most irresponsible are those who are trying to whip up fear. "There is a website called Housepricecrash.com** and I am their deadliest enemy ... There has been overpricing in some areas but this is not America. We are not going into freefall unless we panic ourselves into it."

Davros (comment 49) got in one of the best retorts:

Hang on, on the one hand lack of supply will support the market, there aren't enough houses etc. etc. Then the next minute we can talk ourselves into a housing crash!? Which is it? Either economics dictates that the crash is impossible or that's made up in order to keep the party going for those who've a vested interest in that happening.

C'mon, what's the answer to that, fatso!?

* The headline is "Locating the cause of the property crisis with Kirstie Allsopp". I do like the alliteration here, the way that 'crunch' is gradually being replaced by 'crisis' which will no doubt soon be replaced with 'crash'.

** As any fule kno, it's called "housepricecrash.co.uk", not ".com", sigh.

Saturday, 19 April 2008

Desktop meme

Via LadyThinker:
The eagled-eyed visitor will spot that I have the bog-standard Mac desktop.

I tag:
RemittanceMan
Vindico
Trixy
Henry North London

UK banking 'crisis' in perspective

Total UK personal debt (mortgages, credit cards etc) was £1,409 billion at the end of 2007. That's roughly the same as gross domestic product or nearly £60,000 per household. But there can't be a liability without an asset, rather unsurprisingly, total household bank deposits are around £1,000 billion.

The banks only have to worry about those people who can't afford to pay their mortgage and who are in negative equity. Let's assume that house prices fall by one-third to their long term average price/income ratio (reversing the last three or four years of price rises) and that a fairly catastrophic* five per cent of people lose their jobs. There are about eleven million people with outstanding mortgages so let's assume the banks repossess 550,000 homes** and suffer a loss of £50,000 on each one. That'd be a loss of £28 billion, which sounds like a heck of a lot, but it's only 2% of the total money that banks have lent out.

A brief summary of the main UK banks*** is as follows:


There seems to be a heck of a lot of double-counting (total assets over £5,000 billion!), but even assuming that banks have to write off as much as £50 billion and thus have to raise another £50 billion in cash from their own shareholders, via rights issues, like RBS, this is on average only asking shareholders for another £1 for every £5's worth of shares that they currently own.

In RBS's case, it's more like £1 cash for each £3's worth of shares****, but hey, so be it. And that £50 billion is only one-twentieth of all the money that households have on deposit with banks, so all the bank's shareholders are being asked to do is swap a cash deposit for more shares. Which they can then sell in the market and stick the money back in the bank if they want.

* i.e. one-and-a-half million workers. Unless it's those one-and-a-half million superfluous public sector workers, of course.

** There were 190,000 actual repossessions (not just 'repossession orders') in the years 1990 to 1992. This time is going to be a lot worse.

*** Excluding Nationwide (a building society), Abbey (owned by Johnny Foreigner, so who cares) and Northern Rock. Total assets as at 31 December 2007 per published accounts and market capitalisation is as at today's date from the rather excellent Yahoo finance section.

**** The rights issue is supposed to raise £12 billion, against a current market capitalisation (the total value of all shares in issue) of £38 billion.

The perils of tempting fate ...

The Goblin King has been known to repeat the old saw that there are two types of Chancellor "Those who fail and those who get out in time."

Or in his case, both and neither. He might have thought he got out in time last year, but his whole smoke'n'mirrors debt-fuelled economy is now collapsing most gloriously and everybody is firmly pinning the blame on him.

Friday, 18 April 2008

Gwyneth Dunwoody 1930 - 2008

A lot of tributes are being paid over at LabourHome. Apparently, "She was born into the Party as daughter of the longtime General Secretary, Morgan Phillips ..."

For a political party that is supposed to be in favour of meritocracy and against hereditary privilege and/or nepotism, it is quite amazing how many Labour politicians rest on their ancestors' laurels - Peter Mandelson (Herbert Morrison), Hilary Benn (Tony Benn), Emily Benn (Hilary Benn), the Miliband bros - or are indeed married to each other - Ed Balls & Yvette Cooper, Harriet Harman & Jack Dromey.

Those are the examples that immediately spring to mind, I am sure that there are others.

Credit Crunch

This is what happens when you set up a blog for a seven-year old.

It would appear that swear-blogging is in the genes.

"Even 40% tax relief looks a bad bargain"

Fine reader's letter in today's FT as follows:

"Sir,

Mary Francis (Letters, April 17) writes that pensions still have a lot to commend them, yet notes that a 60-year-old man with a 55-year-old wife will need a pot of £300,000 to have an index-linked annuity of £7,500 ... The only advantage pensions have over ordinary saving is tax relief. I would rather have £300,000 in the bank, an income of £15,000, and access to the capital and the opportunity for capital growth, thank you.

And if to get that income alone from an annuity I need a £600,000 pot, even 40 per cent tax relief begins to look like a bad bargain. Someone somewhere is making a lot of money from pensions, and it isn't the pensioner.

Simon Cockshutt"

"Let Britain’s housing bubble burst"

"... anybody who thinks it is a duty of the state to help keep housing expensive is crazy...".

Martin Wolf - you rock!

Thursday, 17 April 2008

Women in politics

Serious, non-schoolboy type debate over at LabourHome.

Stifle debate? The EU?

Never!

Thanks to Denis Cooper for unearthing this.

WHO calls for collective punishment!!

This is wrong on so many levels, I don't know where to start:

'Punish all drinkers for the crimes of drunks'

To kick things off, they reckon that as 40% of all domestic violence is alcohol-fuelled (probably true), that taxes on alcohol should go up. Hmm. I am sure a lot of domestic violence is Islam-fuelled, so why not punish all Muslims for the crimes of the small minority of wife-beaters? Hmm?

"Brazil president defends biofuels"

Seems perfectly fair, the president of Brazil, the world's largest exporter of bio-fuels, asking what the problem is, despite the growing realisation that bio-fuels are counter-productive.

What sticks in the craw is this sentence... "Environmental groups, government ministers and even world leaders like President Hugo Chavez of Venezuela have all voiced their concerns ..."

The Chav, a world leader? I think not! In turn, to be fair, he is president of an oil-exporting country, so of course he's going to be against bio-fuels. Good luck to him on that one, frankly.

Wednesday, 16 April 2008

Blame the estate agents (3)

Yup, they are definitely trying to talk the market down again.

Shire Pharmaceuticals relocates to Ireland

Here is a good summary. Before the right-wingers start yapping on about Ireland's 12.5% corporation rate, and before the Socialists start dreaming up ever more regulations, let me explain why the other changes in the MW manifesto are far more important:

The most recent figures available from Shire show it paid £8.8m in UK taxes in 2006, of which £4.2m was corporation tax.

1. The balance of tax it paid would be largely Employer's National Insurance, which will be scrapped, with a minimal overall cost to the Exchequer, but a huge boost to UK plc and employment figures.

2. Income from foreign subsidiaries will be exempt from tax, instead of being taxable in full with a corresponding credit for most of the corporation tax paid overseas. Loss to Exchequer after double-tax relief, maybe £1 bn or so, as Lord Forsyth's commission calculated back in 2006. As a quid pro quo, any spurious payments for interest payments, management charges or patent royalties to overseas subsidiaries will be disallowed for corporation tax.

3. Shire's UK source income would of course still be subject to UK corporation tax under either current rules or the MW manifesto. If it has a legitimate Irish business, then of course that will pay 12.5% over there, but a UK based holding company would pay no further UK corporation tax on dividends therefrom.

4. And VAT will be phased out anyway (once I've dragged us out of the EU), as it is the tax that distorts the economy most. This is far more important than reducing income/corporation tax rates.

5. The rule for short-term residents will be as in other European countries, for example, for the first five years, seconded employees will be taxed on UK salary only.

6. Stamp Duty on share transactions will be scrapped (as in most other European countries), static cost £4 bn, dynamic cost much less than that - we'd stop losing business to e.g. Dublin.

7. Capital Gains Tax on share sales will be scrapped (revenues £2 bn or so), as would, to be fair, R&D tax credits (cost £2 bn or so), but the cut in Employer's National Insurance on scientists' salaries will compensate for that*. Net overall cost to the Exchequer - minimal.

That's that fixed. Next problem.

* Scientist's salary £100,000. Employer's NIC around £12,000. R&D tax credit for large company is worth 25% x 30% x £112,000 = £8,400. Net cost of that scientist £103,600. Under MW manifesto, net cost £100,000.

Tuesday, 15 April 2008

ONS Pension Trends Survey

According to the Pension Trends Survey published by the Office for National Statistics;

• Mean annual state benefit income (comprising state pensions and related benefits) for pensioner couples was £7,296, compared with £5,259 for single men and £5,496 for single women.
• Mean annual private pension income of pensioner couples was £2,115, while for single men it was £1,533 and for single
women £1,238.


UPDATE 23/5/08 - they have now admitted that the private pensions figures were out by a factor of 4, which dilutes the logic of what follows, but hey ...

Hmm. A bit strange that the mean state pension for men is lower than for women, given that men have more years' contributions and earn more, so ought to have more SERPS/S2P. Indeed, men get on average 90% of the BSP but women only get 75%. Hold that thought for now...

The 'mean' private pension is the mathematical average of all pensions paid out. Per the FT, the median figures were £1,350 (couples), £836 (single men) and £700 (single women).

Let's take a single man then, with the median private pension of £836 (£16 a week), 90% of the Basic State Pension (£81) and an average SERPS/S2P of £20. That adds up to £117 per week ... so he's also entitled to £7 Pensions Credit to bring him up to £124.

In other words, for over half of pensioners, saving into an employer or private pension scheme was a complete waste of money, because all it does it reduce the Pensions Credit (which is reduced by £1 for each £1 of other income!) that they would have got anyway!

This also explains why women get more state pensions than men, the total pension income that either ends up with is pretty much the same - £5,259 plus £1,533 = £6,832 (single men) and £5,496 plus £1,238 = £6,734 (single women).

Fun with numbers

Remittance Man has produced a statistical tour de force, concluding that if every woman in the UK stopped drinking it would postpone 1,000 deaths a year.

Monday, 14 April 2008

All services are local services

Warming to my theme, it is incredible how the government tells big fat massive lies and even its opponents swallow them hook, line and sinker. As far as I can see, 99% of what the State does to benefit the individual citizen* is provided locally.

Sure, we might derive some indirect benefit from international treaties, the reputation of the British Army, all our consulates and embassies abroad, but what I really care about is what I get (or don't get) locally - policing, NHS treatment, education, refuse collection, public transport, street lighting, public libraries, repairing the roads etc.

These numb-nuts who whine about Council Tax having doubled, Jumping H F***, do they think they get that whole list for £1,200 Council Tax per household per year, total just over £20 billion? Where do they think that £530 billion other taxes - income tax, VAT, National Insurance, Corporation Tax and the rest - goes?

* The fact that the State provides awful value for money is a whole 'nother topic.

How can you have a debate if people won't listen?

Mike Schofield of Isitfair wrote an article on the iniquities of Council Tax over at ConHome last week.

Heartened by the blurb on the front page:

"Markets don’t do what politicians want them to. That’s because markets are human. They reflect the interactions between millions of human beings. Indeed, they are the interactions between human beings...",

I posted as follows...

"C[ouncil] T[ax] only pays towards a quarter or so of local government spending, and accounts for about 4% of total tax revenues. I get more upset by the tens of thousands that Mrs W & I have to pay in income tax/National Insurance and VAT than the £2,400 we pay in CT, which, as we are tenants, merely serves to depress the rent that we have to pay. In other words, if they scrapped CT and had local income tax instead ... then our landlady could hike the rent by £2,400 and we'd pay even more [than that in extra] income tax. So for tenants this would be a double whammy, and for landlords is would be a God-send ...

"I recently moved from a Labour controlled council to a Conservative council area in a similar sized house and the council tax bill is £2,400 as opposed to £1,400. Which is fine by me, actually, because the lower council tax boosted the value of the home I sold and depresses the amount of rent we have to pay."

To which Mike Schofield responded "Mark Wadsworth - You amaze me! You are happy to pay £2,400 a year - out of income that has already been taxed at least once!"

Which bit didn't he understand? Can somebody help me here?

Helen is shocked, she tells us, shocked.

EU Referendum have finally got their hands on proof of long-suspected EU skull-duggery, which the aptly named* 'Thierry Cretin' has now admitted.

* From the Kommissars' point of view, at least.

"First-time buyer house price to earnings ratio"

Here's a fine graph that I have pinched from The Economist h/t HPC.
Assuming that house prices overshoot on the way down, like in the 1990s, that suggests a real fall in prices of about 60%.

"Test flights for restored bomber"

I can just picture the headscratching at MoD "Hamburg or Dresden? Hamburg or Dresden?"

Sunday, 13 April 2008

Fractional reserve banking for beginners (2)

Maybe it's easier to explain this with balance sheets.

On Day 1, I set up Wadsworth Bank Limited with £50 of my own money, which I stick into the cash-box in coins and notes. On Day 2, WBL lends the money to Mr A who toddles off and buys a house worth rather more than £50 (that house being WBL's security).
By Day 3, I notice that other banks are taking deposits, which enables them to lend out far more than WBL can. I assume that a Tier One Capital Ratio of one-eighth is a sensible figure, and can thus lend Mr B £400 to buy Mr A's house. WBL's balance sheet duly records an asset of £400 (what Mr B has to pay back to WBL), and a liability of £350 (money that Mr A can withdraw at any time, being his sale proceeds of £400 less the £50 that he owed WBL from Day 2).
This is all rather splendid, as Mr B is paying WBL 7% interest (£28 per annum) and WBL is only paying Mr A 6% interest (£21 per annum) so WBL is making a handsome gross profit of £7, or 14% return on the £50 I originally invested.

On Day 4, I take most of the afternoon off to enjoy a splendid lunch at my Club. On my return I am horrified to see that my fresh-faced young mortgage salesman has been rather too enthusiastic in granting new loans. He has financed the sale of Mr D's house to Mr C for £400. WBL's balance sheet looks like this:
"But look, Sir" he enthuses "We can earn £56 a year interest on our loans to Messrs B and C, but we only have to pay £45 interest to Messrs A and D, so our gross profit will rocket to £11 a year, a 22% return on capital!".  I explain the Basel capital requirements to the young fellow and he is briefly crestfallen. "Ah, but Sir" he suggests after a few minutes head-scratching "We could lend the bank's good name to a completely independent company incorporated in the Channel Islands, transfer Mr C's loan to it and invite Mr D to withdraw his deposit and use it instead to finance that company. We could even offer him a slightly higher interest rate of 6.5% to compensate him for the higher risk".

After discussing the matter, Mr D agrees and by Day 5, WBL's balance sheet is again showing a healthy Tier One Capital ratio of one-eighth.
Wadsworth Bank (Jersey) Limited is not licensed as a deposit taker in the UK, and so has no need to comply with such petty requirements.
As WBJL is a totally independent company, WBL is not required to include its figures in its own balance sheet, and because Mr C is paying 7% interest and WBJL is only paying 6.5% interest to Mr D, WBJL is generating a further £2 gross profit each year out of thin air, which my mortgage salesman and I share as an annual bonus. Splendid!

Unfortunately, Mr D's solicitors insisted that under the terms of his loan to WBJL, WBL (as sponsor) have to guarantee any shortfall should Mr C be unable to meet his commitments, or should Mr C's house turn out to be worth less than the £400 purchase price ...

Fractional reserve banking for beginners

A lot of people accuse banks of creating money or printing money, and then a debate ensues about the wisdom of allowing fractional reserve banking, and some of the explanations are really long winded.

It's actually dead simple...
------------------------------------------------------
Mr A agrees to sell his house to Mr B. The bank lends Mr B the money (which it shows as an asset in its accounts) and Mr A of course deposits the proceeds with the bank (which it shows as a liability in its accounts)*. The bank of course is just a middleman, it charges Mr B sufficient interest to cover the interest it has to pay Mr A, plus its running costs and a retention to cover possible bad debts. If there's anything left over, the bank makes a profit.

As soon as the sale goes through, by magic, there's an additional £x00,000 of 'money' in the system. In reality, that money nets off to nothing, mathematically.
------------------------------------------------------
So provided the house is sold for a fair amount that Mr B can afford to repay, all is well with the world. Problems only arise when their is a spiral of easier lending, which leads to higher house prices, which leads to over-confidence and even easier lending and so on. This is how the house price bubble and the credit bubble are self-perpetuating. Until they go *pop* of course, as they do every 18 years or so.

In which case...
Mr B is in a mess, because his house is falling in value and he can't afford the mortgage any more;
Mr B's mortgage lender is in a mess because it has to write down the value of its assets (the irrecoverable part of Mr B's mortgage);
Mr A's bank is in a mess because it might not be able to recover all its money from Mr B's mortgage lender; and
Mr A has to worry about there being a bank run on the bank where he deposited his money.
Somehow or other, the loss will be shared out between the various parties who based their original transaction on an inflated house price/unrealistic expectation of Mr B's ability to service the mortgage.

That's all, really!

See also Banking supervision for beginners; the Bank of England predicted the Northern Rock failure ten years ago!

* You can invent infinite complications to add to this, such as, it might be Bank C that lends the money to Mr B, so Bank C has an asset, and Mr A deposits the money with Bank D, so Bank D has the liability. But Bank C in turn owes the money to Bank D, so it all evens out. The so-called Tier One Basel capital requirements just means that banks have to be able to finance about one-eighth of their total lending out of their own money, i.e. share capital and retained profits. They got round this eminently sensible rule by shifting assets and liabilities off-balance sheet, aka 'securitisation'.

Animal joke

Mole walks into the pool hall.
He blinks and sniffs and raises his little head and asks "Who's playing?"
"Tiger and Leopard" comes the reply.
Mole thinks a bit and then asks "Who's spots and who's stripes?"

Siân Berry's drugs policies

I have ridiculed some of Siân's policies here and here, but in all fairness, the Green Party's drugs policies are pretty sound:

* Regulation and control over the sale of cannabis for medical and recreational use.
* A local democratic tax on cannabis sale, where the purchaser chooses a local project to receive a percentage of the profits.
* Licensed cannabis supply based on the Dutch coffee shop model.
* Decriminalising recreational drugs such as ecstasy and psychotropic mushrooms.
* Providing heroin on prescription as a route into a range of other consensual treatments.
* Improving information and health education relating to all drugs.
* A ban on advertising and sponsorship of tobacco, cannabis or other currently illegal drugs.

However, she doesn't mention cocaine or crack-cocaine. It's all well and good pointing out in your manifesto that "57 per cent of all crime and 80 per cent of burglary in the UK is to feed a heroin or crack drug habit", but if she says (quite sensibly) that heroin should be available on prescription, what about cocaine or crack-cocaine? Would they be available on prescription as well?

What she also doesn't mention is that the London Assembly has absolutely no authority whatsoever to implement such policies.

Saturday, 12 April 2008

"UK commercial property values fall in March"

"British commercial property values fell 1.2 percent in March, taking the market's total loss since last summer's bull market peak to around 16 percent..."

Chuck in a bit of gearing, and share prices in UK property companies* are down by a third over the last year:
It's rather chortlesome, looking back at the crap they came out with when property companies were allowed to convert to REIT status**...

"Real estate investment trusts (REITs) which will enable small investors to put money in property without paying tax twice are on the way, Gordon Brown announced in his Budget speech. REITs will fill a big gap in the options open to small investors who do not want to risk their whole nest egg in one buy-to-let property, but for whom shares in property companies are highly taxed and subject to the often irrational booms and busts of the stock market".

Ah yes, better to lose a third of your money as a result of a perfectly rational collapse in commercial property prices, eh?

* The black line is Land Securities, the green line is FTSE Real Estate and Development.

** At the beginning of 2007.

Germans don't do irony

"Germany's ruling coalition has cleared the way for measures to block unwanted investments by foreign sovereign wealth funds"

"RWE, the German utility company, has made an indicative all-cash offer ... for British Energy"

Friday, 11 April 2008

Immigrants and social housing

Trevor Phillips* and his crew have come up with this meaningless statistic:

"...90 per cent of people living in social housing were born in the UK"

Er, yeah ... out of the UK population as a whole, how many % were born in the UK? As at 2001, it was about 91.7 per cent, so given the mass immigration in the last ten years, on the face of it, that looks 'fair'...

"The study found that more than 60 per cent of people who have come to the UK in the last five years live in private rented accommodation".

In plain English ... "... nearly 40 per cent of people who have come to the UK in the last five years are in social housing**"

* A totally devious, corrupt, two-faced, lying shit, as it happens.

** Minus those who are owner-occupiers, of course. Possibly more relevant is that a lot of the 60 per cent in private rented accommodation might be claiming Housing Benefit.

Update: Madasafish lays into sloppy use of statistics here.

Bright idea of the day

Colleague was popping to the shops, asked whether anybody wanted crisps. A lot of humming and hah'ing ensued "Wait a minute ... shall I have salt'n'vinegar or ready salted? Hmmm, let me think..."

Said colleague quips, "They ought to make packets of multi-flavour crisps with a few of each, for people who can never make up their minds!"

Am very busy, must get on.

Thursday, 10 April 2008

Stat porn (7)

According to Sitemeter, this 'blog has now passed 20,000 visits since 1 September 2007. As ever, thanks to all those who visit, leave comments or link to this site.

Fun on-line poll!

Over at LabourHome, "Have Labour put and end to boom and bust?"

Results so far: 'No' 118 votes; 'Yes' 2 votes.

Twats of the day (3)

Today's twats are whoever it was who came up with the headline "Oceans warming four times faster" and the people who compiled the figures.

"Hot pollution being dumped into seas by factories and power plants, plus waters not being protected from the Sun by trees due to deforestation, are mainly to blame."

Yup. And the areas where temperatures have risen most (up to 1.4oC over twenty-five years, yawn) are round the coastline of industrialised countries (North Sea, Baltic, East China, South Japan). Even assuming they went to the bother of measuring temperature changes out in the middle of the Atlantic or Pacific, they admit that the average increase in temperatures was only 0.3o over twenty-five years, er, that means an average increase of 0.012oC per year. I'm really scared now. Not*.

"Nick Nuttall, spokesman for the UN's environment programme, which wrote the report, said: 'A large number of people are dependent on these ecosystems for their livelihood.'

Sure thing. And a hundred times as many depend on factories, shipping, forestry and so on for their livelihood. Closer to home, the biggest threat to the 'livelihood'of our own fisheries industry is, er, the EU.

* At this rate, the oceans will boil dry in about 7,500 years' time.

Wednesday, 9 April 2008

The Property Ladder

Of course, ladders are for going down as well as up ...
Thanks to Little Professor at HousePrice Crash for the picture.

"HSBC's mortgage offer bucks trend"

What a brilliant publicity stunt ...

"HSBC, is offering mortgages to homeowners whose fixed rate deals with other lenders are coming to an end. HSBC says it will match existing deals for up to two years and for a fee ...Customers will need to have at least 20% of the equity in their home and the fee paid will depend on how much they want to borrow and over what period of time".

A fee, calculated as a % of how much you borrow and for how long, isn't that what some folks call 'interest'?* I bet the discrepancy between headline rate and AER will be ginormous.

Heck, if HSBC were really keen to do mortgage lending, they wouldn't have closed their subsidiary First Direct to new customers!

* Update, according to thisismoney, the maximum loan available under the scheme will be £250,000 and the maximum fee will be £5,000. Does that sound a bit like 'an-extra-1%-interest-per-annum-disguised-as-a-fee' to anybody else?

Tuesday, 8 April 2008

The cost of State education per pupil

If you've arrived via Tim W's post on the Spectator Business 'blog, the calculations to which he refers are here.

Blame the estate agents (2)

From an article in today's London Lite entitled "Asking prices slashed as home sales slump to lowest since 1995"

Miles Shipside of Rightmove said: " ... in the current market sellers should price below their competition to avoid a larger price drop later in the year."

I tell you, sooner or later, people will think that the estate agents are trying to talk prices down ...

"Brown seeks to calm housing fears"

"The sub-prime minister said a 2.5% fall in March, recorded by the Halifax, should be seen in the context of 10 years in which household debt had trebled from £500 billion to £1,421 billion"

"Bertie Ahern tipped for EU presidency"

Posted by Sold-2-Rent-1 over at HousePrice Crash

"... there might be an earlier deadline for "real fun" if that's how your mind works. How about the second week in June when the Irish EU treaty referendum is held. Did you know that they are the only country out of 27 to have a referedum on the EU treaty? It is no coincidence that Bertie Ahern resigned last week and is now front runner to be EU president. The Irish public will be conned into thinking that "their man" will have their interests at heart in the EU. Once voted in the EU will be a completely different beast to that of last 15 years."

Does the recent resignation-in-face-of-massive-corruption-investigation hurt his chances? Probably not...

First time buyer affordability ratios in the UK

Here's a chart based on Table ML2 from the Council of Mortgage Lenders statistics page, which shows the years 1974 to 2007. The red line is 'interest payments as a % of income' (left-hand axis) and the blue line is 'loan as multiple of income' (right-hand axis). The typical LTV was between 85% and 90% for most years, so that does not seem overly relevant.
So, all this chat about 'affordability' is a smokescreen - the loan-to-income ratio is at an all-time high of 3.36, so if average interest rates for FTB's have increased by 1.5% from a very low figure of 5.75% in late 2007 to about 7.25% as at April 2008, this will push the interest-to-income ratio from 19.4%* up to 24.4%, which is precisely the pain threshold at which the market turned in 1989.

Assuming average interest rates for first time buyers with a 10% deposit stay constant, prices would have to fall by about half (relative to wages) before they reached the lows of 1977 or the early 1990s, where a natural floor was reached, i.e. it is far cheaper buying than renting.

* Update, as Matthew points out, the spreadsheet has been updated and the figures for February 2008 are loan-to-income ratio 3.33 (i.e. down by 1%) and the interest-to-income ratio, which had risen to 20.7, is now at 20.1, so things are slightly worse than I thought.

Monday, 7 April 2008

"UKIP hopeful looks beyond Europe"

Gerard Batten gets a fair write up on the BBC website. That's always puzzled me about the BBC, of all the MSM, they're the ones who treat us most fairly.

He Kills Coppers (3rd and final)

The final episode was pretty gripping until the last twenty minutes, where the ambitious young journo turned into a miserable old psycho and the baddie was inexplicably shot down at close range by armed police.

Highlight: Billy Porter shouting "You can't even organise the washing up! What on earth makes you think that you can bring down the government?"

All-in-all, a bit of an anti-climax. The sixties are just so much more telegenic than the eighties.

"HSBC loses customers' data disc"

Oops! I have often pointed out that banks etc. seem to manage to avoid this sort of thing happening, so why can't the government? There goes that argument, I suppose.

Question - will HSBC's knee jerk response to its 370,000 customers be that this is a good reason to introduce ID cards? Methinks not.

Sunday, 6 April 2008

Charlton Heston

Would somebody please prise the gun from his cold, dead hand?

Global cooling!

It's snowing. In April.

The Artist Formerly Known As Prince warned us about this, y'know.

Saturday, 5 April 2008

"Doing nothing is better than doing something stupid"

... is the best line in a cracking article on 'MMGW' by Nigel Lawson*.

The only bit where he lets himself down is this ...
"... Europe ... has become the most secular society in the world, where the traditional religions have the weakest hold. Yet people still feel the need for the comfort and higher values that religion can provide; and it is the quasi-religion of green alarmism, of which the global warming issue is the most striking example, which has filled the vacuum, with reasoned questioning of its mantras regarded as little short of sacrilege".

Sure, his logic stacks up, but it's a tad unfair to distinguish between 'religion' and 'quasi-religion'. Either he is brave enough to deride Christianity, Islam etc as 'quasi-religions' or he is brave enough to call 'MMGW' a religion.

* No, I do not read The Daily Mail - Her Indoors picked up a free copy at the Ideal Homes Exhibition.

Price and quantity demanded

Many London commuters whine that the Tube is too crowded and too expensive and most of the candidates for London Mayor are trying to tap into this sentiment*;
Boris - "We pay the highest fares in Europe and we deserve value for money",
Sian - "The cost of travel is one of the main reasons London is such an expensive place to live ... I would focus on making day-to-day travel more affordable for ordinary Londoners",
Brian- "Tubes charge first class fares for third class travel. Despite record investment, they are still overcrowded, overheated and unreliable".
Ken, who is apparently only narrowly behind in the race, has been Mayor for eight years, and has had plenty of time to put his grand plans into effect. And to be fair, he did bitterly oppose the hugely expensive PFI nonsense.

So none of them have a clue about economics, do they?

1. The Tube is running at full capacity, so in the medium term you cannot increase quantity supplied.

2. Reduced prices would mean an increase in quantity demanded, i.e. even more people would want to use the Tube, so it'd become even more crowded at peak times (if that's physically possible).

3. Somebody has to pay for the cost of running it. None of them have said which taxes they'd increase to cover the shortfall. The least-worst way of funding public transport infrastructure is via Land Value Tax, but that's a bit beyond the Mayor's remit, methinks.

4. The 'high' cost of Tube travel (actually, season tickets are very cheap) does not increase the 'cost of living'. If the Tooth Fairy paid for the Tube to be totally free, then London would be a more attractive place to live and people would have more money to spend on ... rents and housing. So rents and house prices would go up (scroll down to The Error of Public Tollways), and the total cost of living would stay much the same.

* Even Gerard is not immune to this, although he's the only one who'd scrap the Congestion Charge - more people in cars = less people on the Tube - hooray!

Property taxation - poll results

A big thanks to everybody who voted! The final results are;

73% agreed that "Booms and busts in the property market are bad for the economy".

This is a question of personal opinion rather than absolute fact or logic. There are plenty of people who can benefit by buying low and selling high*; there is a vast majority who have neither bought, sold nor re-mortgaged over the last ten years who are not affected; but for every successful speculator with £1 million in the bank there must be ten people stuck in negative equity with an unaffordable mortgage of £100,000. I think that taking 'the economy' in totality (which is there to serve us, not vice versa), the losses outweigh the gains, so all-in-all, this must be the correct answer.

72% agreed that "If Council Tax, Stamp Duty and Inheritance Tax were replaced with a flat-rate tax on up-to-date property values, this would keep prices low and stable".

This is a question of fact and logic, actually, but of course depends on how the tax is designed. At its simplest, the tax would be (say) 10% of the difference between a) each property's market value at the end of each year and b) its value at the bottom of the next house price crash, so it would only be levied on the speculative/bubble element of property values. As to the 'asset-rich, income-poor' and how properties would be valued, see points 5 and 6.

68% agreed that "I would be happy for property taxes to be increased, provided income tax and VAT were reduced accordingly".

On a static basis, people with high incomes (relative to the value of property they own) and tenants would always benefit from such a shift; whereas landowners, landlords, speculators and the 'asset-rich, income-poor' would be against. For the bulk of people, on an average income in an average home, it wouldn't make much difference.

However on a long-term, dynamic basis, if we reduced income tax and VAT, the economy would be much healthier and grow faster; whereas higher taxes on the speculative/bubble element of property values have little effect or even a beneficial effect on the economy. So each person's opinion depends on their personal circumstances and whether they are thinking short- or long-term.

* And their vast trail of hangers-on; solicitors, banks, valuers, estate agents, and in the down-turn, insolvency practitioners, auctioneers etc.

Friday, 4 April 2008

Fiona Mackeown; Keith Richards

One of these people spent a year in jail for stabbing someone. The other one co-wrote 'It Must Be Hell" and "Sympathy For The Devil".


"Global warming dips this year"

It's not getting colder, oh no, global warming is just 'dipping'.

"This would mean global temperatures have not risen since 1998, prompting some to question climate change theory".

'Some'? 'Some'? 'Anybody who is not a complete numbnut', more like.

Update - As Ian points out, they have changed the headline and removed some of the more sceptic bits from the article.

How to avoid a financial crisis

The Institute of International Finance* have come up with a cracking suggestion; just allow banks to fudge their figures!

Of course, they don't put it quite so crudely, the relevant bit in the article says "... there was an 'urgent need' for policymakers to consider changes to mark-to-market accounting rules to avoid 'unintended procyclical consequences which could prolong credit market problems'."

Er ... wasn't it people lying about incomes and property values that got us into this mess? And the way out is to allow banks to lie in their accounts?

* The banks' lobbying association.

How to sell your home

Easy!

Just ask Four. Different. Estate. Agents to try and sell it for you.

May I ask a rhetorical question?

Question Time

Rod Liddle* wiped the floor with the rest of them, altho' rather bizarrely I found myself agreeing with Clare Short MP (Independent, Birmingham Ladywood) every now and then**.

Little Sarah Teather MP (Lib Dem, Brent) still has the cutest hamster-face planted on the smallest head/neck in the House of Commons, and as ever turned up with a smart jacket slung straight over her underwear.

* Her Indoors' comment "Is he right-wing? His hairstyle is just Boris Johnson's."

** Has she had her jaws wired together? And if so, why?

Thursday, 3 April 2008

Spot the difference

One of these two women accepted dodgy donations for her Deputy Leadership campaign*; the other had her £350,000 mortgage paid off by a mystery benefactor.

The husband of one them was Party Treasurer, who knew nothing about loans-for-peerages, who omitted £25 million in soft loans from his party's accounts, and f*** me, forgot all about a £40,000 mortgage he took out to fund said wife's Deputy Leadership campaign. The estranged husband of the other "has never been bribed by Mr Berlusconi or by anyone on his behalf".





Without following the links (or hovering over the pictures) can anybody remember which one is which?

Clue: apparently one of them shone at PMQs recently.

* The article says that she said she'd return it. Well, firstly, under PPERA, you can't return it, it has to be forfeited to El Comm. And as it happens I bet she did neither.

Ethnic origin; religion

I dropped off the kids at 'summer camp' this morning and had to fill out some forms with contact details, allergies etc (fair enough). There were also two boxes for 'Ethnic origin' and 'Religion'. As I was pressed for time, I couldn't be bothered to slavishly enter 'One-quarter white British, one-quarter white German, seven-sixteenths Malay/Malaysian and one-sixteenth Malay/Indonesian' and so I just scribbled 'None' and 'None' respectively.

It would be much easier if they just gave you a colour-chart and asked you to tick the box that's the closest match to your kid's skin colour.

Twats of the day (2)

Didn't have to hunt for long; they were all on page 2 of The Metro.

1. Hillary Benn MP has launched several new quangos to waste our money on combatting a non-existent threat. The accompanying picture in the paper was of said Benn standing next to a 'wormery'. As we well know from reading Tim W, wormeries emit considerably more greehouse gases than landfill. To the extent that you care about greenhouse gases in the first place, of course.

2. Under the headline 'Pig farmers face extiction' (not found online) some minister, (from a government who are doing their level best to kill off demand for their produce, for example by launching the rumour that pork sausages and bacon cause cancer), whines that supermarkets should pay a 'fairer share' of the price to the farmers - in this context, that means paying more.

The article goes on to say that "The Competition Commission is looking at claims that supermarkets are selling sausages for less than the costs of production."; so if pork is being sold at a loss overall, a 'fairer share' for farmers either means they accept even lower prices, or that the price to the customer is forcibly increased. Which is hardly likely to happen in the face of falling demand, is it? And so on.

3. And finally, The Higher Education Policy Institute* "... suggested that raising the £3,000 cap on fees could hit students from the poorest backgrounds." Looky-here. Students are supposed to be the brightest and best, yes? Is it not reasonable to expect them to be able to guesstimate the difference between their potential lifetime earnings with and without a degree and compare that with the cost of studying for three years?

* Yet another quango, obviously.

Wednesday, 2 April 2008

Banking supervision for beginners

As I have said time and again, you can't have an asset price bubble without a credit bubble; they are two sides of the same coin. When one goes pop then so does the other*.

I have enthused at length about the merits of a tax on the speculative element of property values to keep property prices low and stable - especially as this would enable us to get rid of existing UK property taxes, that are a repulsive mixture of Poll Taxes and jealousy surcharges. But for a change, let's have a quick look at the other side of the equation, the credit bubble. I do not believe in regulation; it is usually unenforceable, counter-productive and/or circumventable**. However a bit of sensible banking supervision won't do any harm.

I discovered this delightful document on UK Mortgage Margins, published by the Bank of England back in 1997. The authors, Niall Gallagher and Alistair Milne, conclude very sensibly that "...concern could still arise over individual institutions ... who pursue a strategy of aggressive wholesale funded expansion".

A bit like Northern Rock, then? Whose share of net mortgage lending of 8.4% and total assets of £57 bn in in mid-2004 had miraculously increased to 18.9% and £119 bn by mid-2007? I won't bore you with stat's on the extent to which it depended on wholesale funding.

* When history has been re-written, the Yanks will no doubt say that the slide in house prices, which had already fallen by 6% in the year to October 2007 led to the sub-prime crisis; the Brits will say that we were doing fine until the sub-prime crisis in mid/late 2007 triggered a house price crash in the UK. Such is life.

** If that's a word.

Grateful Dead joke

Did you hear about the Deadhead who bought two microwave ovens so that he could make copies?

"Buy-to-let properties to flood market as investors cash in"

The Goblin King & The Badger came up with this CGT wheeze last year to stave off the property price crash, but their Day Of Reckoning has now arrived. As widely predicted.

But who's going to lend people money to buy them? Not Northern Rock, First Direct, Lehman Brothers, London Scottish Bank or various other smaller building societies. And probably not Halifax/HBOS* either.

If anybody knows of any more lenders that have stopped lending, please leave a comment!

* Via Growler at HPC.

Living Well Is The Best Revenge

The reviews of the new REM album 'Accelerate'* are pretty accurate; it's short and noisy, and thankfully is largely free of drivel like 'Losing My Religion' or 'Everybody Hurts'**.

It is worth buying*** for the opening track alone, 'Living Well Is The Best Revenge' (aka 'Living Well Is The Best Defence'); the guitar intro is a lot like 'Heatseeker' by AC/DC and it just gets better from there. If the bass-line were the fire brigade, it would turn up the minute a fire started, put it out safely, rescue a cat from a nearby tree and have some tea and biscuits without breaking a sweat. And never go on strike. I have no idea what Michael Stipe is singing about, so I shall pencil it in as the libertarian national anthem.

* Rather bizarrely, this is the first album in the alphabet, according to my iTunes, I filed 'Abba Gold' under 'Gold' rather than 'Abba Gold'.

** Two of the worst songs ever inflicted on humanity.

*** Or save yourself a tenner and just download the first track for £1 or whatever it costs.

Tuesday, 1 April 2008

Total and utter f***ing shits of the day (2)

Every now and than, the Scottish Mafia running England give the game away*.

The Goblin King and some other taxpayer-funded total and utter f***ing shit called Stephen Carter, have devised a new ... strategy [which] follows warnings from Labour MPs that "Southern Discomfort" at the Government's performance could lose Labour the next election. Responding to the concerns, Mr Brown appealed to the self-interest of homeowners, small businesses and the aspirant working classes. He said: "I think the important thing is that over the last 10 years people in the South have seen their living standard rise substantially. They've seen their net wealth rise even faster than their incomes."

That's the key, isn't it? Generate an asset-price bubble (and corresponding credit-bubble; they are two sides of the same coin). Or how else does anybody explain a society who sees "their net wealth rise even faster than their incomes"? When that net wealth is just a number on a bit of paper? It's the net debts that aren't just numbers on bits of paper. That's real money that somebody wants paid back. Sure, many people have seen their living standards rise substantially. Only to see them fall again when the bailiffs come a-knockin'.

They have f***ed over the 'priced-out generation', lined their own nests by paying off the mortgages on their investment properties out of their Parliamentary allowances, brought the economy to the abyss, and they are now practically admitting it was all a three-card trick.

I mean, f*** it, I profited enormously from the house-price bubble, but I got out in time, so am largely protected from the ensuing crash. No doubt the Tories (who did the 'house price bubble" back in the late 1980s) won't be any better next time round, but at least that's what we expect from the Tories.

* See also here.