Wednesday 30 June 2010

"Shares slump on European bank fears"

Wailed the BBC on Tuesday, as, to be fair, did most of the rest of the MSM. The nub of it appears to be this:

The European Central Bank (ECB) will offer funds on Wednesday to banks looking to repay 442bn euros worth of loans later this week. Last summer, the ECB was forced to offer European banks cheap 12-month loans to help them through the financial crisis. This was a longer repayment term than the usual three to six months.

But the ECB has said it will not offer 12-month loans this time around, raising fears that European banks may again face funding difficulties. "Markets are tense going into the end of the long-term refinancing programme, along with [Wednesday's] three-month auction," said John Hydeskov, senior currency analyst at Danske.


Ho hum. Two points to make, really.

1. Did nobody see this coming? None of the stockbrokers or analysts or experts? I accept that it's the banks' job to squeeze every last penny out the government (i.e. the taxpayer, i.e. the productive economy) as they possibly can, so if they'd started moaning three months ago the ECB would have had time to mount a propaganda counter-attack (and/or dust down the handbook on how debt-for-equity swaps work); if they'd started moaning a minute before the repayment deadline, the ECB wouldn't have had all the systems and paperwork in place for playing 'extend and pretend', so fair play to the banks for comedy timing, but there was no secret that the repayment/refinancing deadline is tomorrow.

2. The Euro-zone is pretty big, economically, maybe five times as big as the Sterling-zone. If the Euro-zone is all a-jitter over €442 billion of taxpayer-backed bank bail-outs, WTF would* happen if the UK government asked UK banks to repay the £185 billion loans it made under the Special Liquidity Scheme, and which is due for repayment between April 2011 and April 2012? Not to mention the £125 billion taxpayer-backed Credit Guarantee Scheme, also due to expire in April 2012?

Just askin', is all.

UPDATE: more facts and figures on item 2 on R Peston's blog.

* I use "would" rather than "will" as I consider it unlikely that the Blue-Yellow Wing of the Home-Owner-Ist Party will do anything that might deflate the house price bubble, but hey.

"Forecast suggests 600,000 public sector jobs to go"

Shrieks the BBC.

Yeah, yeah, sigh.

1. As at December 2008, there were 8,064,000 million people working in 'Education, health and public admin' ( from the ONS' Labour Market Statistics, Table 5(2) here).

2. As at March 1998 (the oldest version of these tables which I can track down), there were 6,365,000 million people working in 'Education, health and public admin' (from the ONS' Labour Market Statistics, Table 5 here).

3. So an alternative headline would be something along the lines of "Forecast suggests Lib-Con government to cut about one-third of the public sector jobs which Labour added in the last decade over the next five years. And it's not like we had a 'small state' a decade ago, is it?", although I admit it's not very punchy.

A Nation Of Bookkeepers

From High Fliers' graduate jobs survey, June 2010:

The sectors that are taking on most graduates in 2010 are accountancy (over 3,950 graduate jobs), investment banks (more than 2,200 positions); and the public sector (over 2,180 positions); the smallest graduate employers are those in chemicals & pharmaceuticals (0.4% of total) and the consumer goods manufacturers (1.1% of total).

Those 'offensive' Diesel adverts

I've finally stumbled across them in The Metro, in case anybody was still wondering what they looked like. I think the lion in the background is an excellent flourish.

"Actually, where do we end up with this?"

Our Heath Secretary gives us some examples of the Law of Unintended Consequences, as reported by the BBC:

"If we are constantly lecturing people and trying to tell them what to do, we will actually find that we undermine and are counterproductive in the results that we achieve," said the health secretary...

He said the TV chef's approach to school food had not had the desired effect - the number of children eating school meals had gone down instead of up. "Jamie Oliver, quite rightly, was talking about trying to improve the diet of children in schools and improving school meals, but the net effect was the number of children eating school meals in many of these places didn't go up, it went down. So then the schools said 'It's OK to bring packed lunches but we've got to determine what's in the packed lunches, we've got to decide what's in the packed lunches.'

"To which the parents' response was that they gave children money and children are actually spending more money outside school, buying snacks in local shops, instead of on school lunches." He said then people had said shops near schools must be banned, adding: "Actually, where do we end up with this?"

Excellent bit of selective reporting by the BBC

From the BBC's re-hash of a press release:

The report said the A537 through the Peak District, known as the Cat and Fiddle, had severe bends, steep falls from the carriageway and was edged by dry-stone walls or rock face for almost all its length.

Fatal and serious collisions on the route - popular with tourists, goods vehicles and motorcyclists - rose from 15 in the three years to 2005 to 34 between 2006 and 2008. Most crashes happened at weekends during the summer in dry, daylight conditions.


From the website of the people who compiled the report:

Top of this year's persistently higher risk roads is the A537 between Macclesfield and Buxton, known nationally as the Cat and Fiddle. A 50mph single carriageway, running through the Peak District National Park, the route has severe bends, steep falls from the carriageway and is edged by dry-stone walls or rock face for almost all of its length. It is popular with tourists, heavy goods vehicles and high-powered leisure motorcyclists.

Fatal and serious collisions on this section have risen by 127% in the last 3 years rising from 15 in 2003-2005 to 34 in 2006-2008, with most crashes at weekends during the summer in dry, daylight conditions. Police records show that the vast majority of casualties were motorcyclists, from outside the local area, male, and with an average age of 35.

Unbiased And Thorough Research Of The Week

From The Metro.

Sun tanning is as bad as..? Click and highlight to reveal.

Perma-tanned stars are setting just as bad an example as those who smoke, a new report claims. Celebrities like Cheryl Tweedy and Elle Macpherson are making the golden glow look glamorous just as Hollywood stars used to do with smoking, says high street chain Lloydspharmacy, which interviewed 2,000 adults.

So far, so bad. What other 'sources' did they use..? Click and highlight to reveal.

After analysing ten celebrity magazines, it found 70 per cent of TV presenters, pop singers and other stars pictured were clearly tanned.

And what vested interest might Lloydspharmacy have in all this..? Click and highlight to reveal.

One in three young adults questioned said that is the kind of suntan to which they aspire. And one in ten of this 18- to 34-year-old age group refuse to use any sunscreen products... Lloydspharmacy's suncare expert Louise Baglole said: 'Achieving a tan like their favourite celebrity has taken priority over their health and this is extremely dangerous. Millions of young people are deterred from buying sunscreen because they think it's too expensive. They know the risks but choose to ignore them.'

Jolly good. Let's file that under 'choose to ignore' shall we?

Word* Of The Week

 
To be fair, it appears to have other slightly different meanings as well, see here or here or even here.
 
The term could also be applied to the eternal "killer argument" against Land Value Tax, namely The Poor Widow Bogey (scroll down to near the end).
 
* OK, it's two words.

History not quite repeating itself

What happened in the last three months??

Until the second quarter of 2009 (Q10), the current house price crash had been tracking the previous one very closely, so this quarter I was expecting prices to fall slightly - but they went up. It appears that the Tories are determined to keep the bubble inflated, but surely they can't have had that much impact?The blue series shows quarter-on-quarter price changes from Q1 1989 onwards; the red series shows quarter-on-quarter price changes from Q1 2007 onwards. The post-1989 crash continued for another few years after the end of that chart, but rises and falls were no longer so spectacular.

Source: Nationwide's UK House prices adjusted for inflation (choose from the drop down box labelled 'UK series').

Tuesday 29 June 2010

The least-bad voting system

Having given this a bit more thought and batted it back and forth with my Electoral Reform Minister, here's my final thought on the matter:

1. Multi-member constituencies are the way to go. So (for example) five existing parliamentary constituencies are merged into a five-member constituency, but to retain the constituency link, each of the original smaller constituencies ends up with one MP each.

2. It would be a one-man-one-vote system (preferably no postal votes).

3. The ballot slip would list each party's individual candidates, for whom you can cast your vote, but in case people want to vote for a party rather than an individual candidate, each party is listed as an option as well. So you can choose whether to vote for a specific candidate or a party generally. Obviously, if a smaller party is only fielding one candidate, it makes no difference whether you vote for the individual candidate or the party (as we will see below).

4. In the first round of counting, the individual candidates are listed in order of how many personal votes they received; and it is also announced how many 'party' votes each party received.

5. Each party can then allocate its party votes to its candidates in such a manner as to maximise the number of seat it wins, but it can only allocate votes to its second (or third) highest polling candidates once its highest polling candidate has enough votes (either individual votes or allocated party votes) to be ensured of a seat*. So there is an element of 'open primary' involved - a central party cannot just parachute candidates into safe seats.

6. The single candidate with the most votes can then choose which of the five original constituencies he would like to represent; the chances are it will be the one in which he polled most votes or in which he lives, but not necessarily.

7. It is clear than in our country, a white middle aged British man is at a slight advantage to other people in electoral terms, as he is the 'lowest common denominator' and probably best able to understand the concerns of the widest number of electors (an equation with two unknowns, that I grant you).

As a white middle aged English man, I'm not too fussed about that, but other people are. Clearly, as long as parties can only field one candidate in each constituency under First Past The Post, there is a tendency for all parties - across the political spectrum - to field white middle aged British men; and a tendency for the white middle aged British candidate to win the seat as against other candidates**. But as the larger parties would be fielding two or three or even four candidates in each MMC, the chances are that they would field an older or younger; female or non-white or non-Christian people as well to mop up extra votes on the side.

* This is simpler than it seems. If your best candidate has more than one-sixth of the votes cast then he's in anyway; if not, you top him up to that number and then allocate your remaining party votes to your next best candidate, and so on.

** Which seems fair enough to me, as this is the group least likely to have a particular grudge against any other group or any sort of hidden agenda.

OMG is it that time of the year already?

29 June 2010:

Ryanair cuts flights in row over tourist tax. Budget airline Ryanair is to slash its flights by almost a fifth. It will carry two million fewer passengers this winter. The cutbacks include a 17 per cent reduction in services at Stansted airport, where the Irish no-frills carrier will be handling 1.5 million fewer passengers than last winter.

Ryanair will also cut winter flights at most of its other UK bases, except Edinburgh and Leeds Bradford. Ryanair chief executive Michael O'Leary cited the “damaging” Air Passenger Duty airport departure tax as a reason for the reduction...


21 July 2009:

Budget airline Ryanair has announced a reduction in its services at Stansted Airport, blaming higher charges. Ryanair will reduce the number of aircraft it runs at the airport by 40% in its winter schedule, and will cut the number of flights by 30%, it said...

The company said that Stansted was one of its most expensive bases, and added that an increase in air passenger duty tax was also a factor in its decision. The airline operated 40 aircraft from Stansted in the summer, but said this would fall to 24 this winter.


July 17 2008:

Ryanair, the cut-price Irish airline, today announced it will withdraw nearly a third of its aircraft from London's Stansted airport and suspend operations at seven other European airports because of higher fuel costs and airport fees. Michael O'Leary, chief executive at Ryanair, said his airline would operate 28 aircraft out of Stansted, down from 40.

It is the second straight year that Ryanair has reduced its activities at Stansted for its October to March winter period...

Yeah, but how will they persuade our 'security services' to confess?

From the BBC:

David Cameron has agreed the terms of a judge-led inquiry into claims British agents were complicit in the torture of terror suspects, the BBC understands. The PM is understood to have agreed it could offer compensation if it shows they were tortured and UK agents knew... British security services have always denied allegations they were complicit in torture.

Doctor knows best!

From The Metro:

As well as supporting a minimum price for a unit of alcohol, medics called for a complete ban on drink advertising as well as scrapping supermarket loyalty points for alcohol purchases. They also voted for a "properly enforced ban on drunkenness on public transport" at the British Medical Association (BMA) conference in Brighton.

But calls for a UK-wide ban on drinking on public transport failed. The BMA already has a strong stance on alcohol, and supports a complete ban on advertising as well as minimum pricing. Today's vote on loyalty points and cracking down on drunken behaviour on trains and buses adds another dimension to BMA policy.


Note to self: add the British Medical Association to this list.

Health Scare Story Du Jour

The BBC have pulled out a corker:

Women who drink during pregnancy may be damaging the future fertility of their sons, research suggests. In a study of almost 350 young men, sperm levels were a third lower in those whose mothers had drunk more than four drinks a week during pregnancy compared with teetotallers.

The Danish researchers told a fertility conference these men may have a harder time getting their partner pregnant. UK experts said alcohol may not be the issue, but a marker for other factors...

Outbreak Of Commonsense

From the BBC:

People will have to pay more towards flood defences in their area in future, the Environment Agency has warned. The government agency responsible for river and coastal flooding said flood management spending had hit a new high. But despite taxpayer funding of £629m this year, it said business, landowners and communities would have to pay more. It said they needed protection from the increased risk of flooding and coastal erosion in the future, brought on by climate change.

OK, that last bit about 'climate change' is doolally, of course, but doesn't commonsense dictate that it is entirely up to the people (or 'communities' in modern parlance) who are potentially affected by flooding to make the decision on whether to do something about it and if so what; and be the ones to pay for it if the expenditure seems worthwhile? Why on earth should 'the taxpayer' generally chip in for any of this?

If we take this to the obvious conclusion, then there's no need for an 'Environment Agency' at national level to tell people what to do, it should be up to local or county councils to put it to the voters, and, if they agree, to slap a precept on Council Tax and Business Rates and get the river dredged, a bridge reinforced or a sea wall built, job done.

Wealthy stockbroker's son on top form

From The Metro:

"I think too many people in this country are living under the delusion that a prosperous past guarantees a prosperous future.

"Unless your family was rich enough to send you to Eton and you're married to somebody who's in line to inherit vast estates in Oxfordshire, I'm afraid that's just not true."

He's practising for his Oscar acceptance speech

The head of the Confederation of British Industry has announced he's retiring next year:

"Now is the right time in the political and economic cycle for me to hand over to a new director general," he said, adding that new government policies would bring fresh challenges for the organisation, "The economy is moving into a new phase, in which business and trade will be the essential engines of recovery."

What a pretentious twat. But if you want really pretentious:

The CBI has yet to announce Mr Lambert's replacement, but the lobby group said it had appointed headhunters Saxton Bampfylde to begin the search.

Monday 28 June 2010

Fun Online Polls: Who should pay for 'the state'?

Clearly I'm not thinking straight. I would have thought if the government seriously intended to get the economy going and dampen the house price bubble, it would Increase Council Tax and cut VAT and National Insurance.

I'm happy to see that 45% of people who took part in last week's Fun Online Poll agreed with me, but 22% disagreed and the government decided to go with the minority on this one in last week's Budget - i.e. hike VAT, the Worst Tax Of All and 'freeze' (i.e. effectively cut) Council Tax.
-----------------------------
Anyways, inspired by something that Obnoxio posted: "I believe that if the false crutch of the state was removed, people would also benefit from a personal development of greater responsibility...", this week's Fun Online Poll is in two parts:

1. Who should pay for 'the state'? a) those who benefit most from its existence; or b) 'somebody else'?

2. Which groups benefit most from the existence of 'the state'? a) land owners, home owners and pensioners; or b) entrepreneurs, workers and investors? I deliberately didn't include 'welfare claimants' as an option because they simultaneously lose out and are benefitted by 'the state' as it currently operates, so it's difficult to say whether they'd be better or worse off if we did things properly.

Vote here and here or use the widgets in the sidebar.

Iain Duncan Smith on Land Value Tax

I was pleasantly surprised to read this in The Telegraph:

Mr Duncan Smith suggested that... single occupiers or couples without children could be [incentivised] to leave larger houses. "We have tons of elderly people living in houses which they cannot run and we've got queues of desperate people with families who are living in one and two-bedroom houses and flats," he said.

Drummin' up a bit of business

From the BBC:

Taking vulnerable children into care earlier could save on emotional and financial costs, a study suggests. Delays in removing such children from their families are linked with poor mental health and behaviour, say researchers from the Demos think tank.
The report, funded by Barnardo's, says the care system should be de-stigmatised and seen positively.


As I pointed out last time they tried this:

The P&L on page 12 of their 2008 accounts shows income of £119,247,000 for "fees and services" out of total income of £175,190,000. On page 3 they brazenly state that they "... aim to increase the amount of income generated from statutory sources by 4.5% in 2008/9, contributing to the 16% growth target for 2007-10 and increasing the proportion of expenditure funded from statutory sources. "

Sunday 27 June 2010

"Farmer dies three weeks after 'mad cow' attack"

From The Austrian Times:

Doctors at the provincial clinic of St. Pölten said today the 51-year-old from Mank suffered serious internal injuries when a cow rammed its skull into his chest as he tried to force it into a lorry in Grimmegg.

The rampaging 600-kilo beast dashed off into the neighbouring town of Ritzengrub. Dozens of residents fled in terror before the animal was eventually shot by a hunter after several attempts to catch it failed.


Plus our favourite German cow attackees report that they'll go somewhere else on holiday next year.

Saturday 26 June 2010

Monopoly

From Wikipedia:

In economics, a monopoly exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it.

Monopolies are thus characterised by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods. The verb "monopolise" refers to the process by which a firm gains persistently greater market share than what is expected under perfect competition.

Monopolies, monopsonies and oligopolies are all situations where one or a few entities have market power and therefore must interact with their customers (monopoly), suppliers (monopsony) and the other firms (oligopoly) in a game theoretic manner - meaning that expectations about their behavior affects other players' choice of strategy and vice versa. This is to be contrasted with the model of perfect competition where firms are price takers and do not have market power.

Monopolists typically produce fewer goods and sell them at a higher price than under perfect competition, resulting in abnormal and sustained profit.


Assuming the above to be a reasonable summary of monopolies, can anybody seriously claim that land-ownership is not a monopoly?

And however much it is chopped up, it is still a monopoly. Even if somebody only owns a fairly standard house similar to hundreds of others in their area, that does not make it anywhere near 'perfect competition' that just means that people only have very small shares in a larger, overall monopoly.

By analogy, if a company has a monopoly (and there are very few real life examples), then the fact that is happens to be quoted on the Stock Exchange and so people can buy and sell small shares in it, does not stop the company itself having a monopoly. There may well be a free market in the company's shares, and the individual shareholders are in perfect competition with each other when it comes to buying and selling; but what they are buying and selling is a share in the underlying monopoly profits, without which the shares would be worth a lot less.

Friday 25 June 2010

Friday night gear change

Now this truck driver's gear change by Sammy Hagar is cunning (which is my typically immodest way of admitting that I've had this single for thirty years and I've only just noticed). The first two verse/chorus cycles are in D and A, and the first proper middle eight, at 1 min 37 sec starts in the chord of E, but resolves itself nicely back into another chorus in D and A. So far so good.

But then they start the next chorus at 2 min 11 seconds in E and B (instead of D and A), which tricks you into thinking that it's another middle eight (a contradiction in terms, but some people do it) and finish off the whole song in that new, higher key. Bastards!

Another day, another reckless throw of the dice (35)

We haven't had one of these since late March, then there was a bit of a hiccup (something to do with a change of government) but the new lot now appear to have found their feet* and are going full steam ahead in the same direction:

Home owners given new protection by FSA

New rules to protect struggling mortgage holders have been outlined by the Financial Services Authority (FSA). The rules seek to help people who have fallen behind on their mortgage payments, with the FSA saying they must be treated fairly by lenders. The FSA also wants to ensure all mortgage advisers have been approved as "fit and proper" persons...

Under the new rules for treatment of borrowers in arrears, the FSA is insisting that:
- firms must not apply a monthly charge where a repayment agreement for arrears is already in place
- any payments made by customers must be first allocated to clearing the missed monthly payments, rather than to arrears charges which can be repaid later
- repossessions should always be the last resort.

In addition, firms will be obliged to record all telephone calls with customers in arrears and keep them for three years...


The headline is particularly sickening. The people they want to 'protect' are not really home owners in any real economic sense, they are renting money from the bank. And what's good for the 'struggling mortgage holder' is bad for the bank, and what's bad for the bank is bad for the taxpayer (seeing as the self-same banks owe the taxpayer around £300 billion, or a quarter of outstanding UK mortgages). But "it will be good for house prices", and that's the only thing that matters nowadays.

* We can't really count the Council Tax reductions as they promised they would do that in their election manifesto.

6-4, 3-6, 6-7, 7-6, 70-68

It looks weird written down, but it appears to be true.

Thursday 24 June 2010

Lola's Tesco problem

My final suggestion re this discussion is even simpler than my original answer (i.e. reforming Business Rates into Land Value Tax , and scrapping as many other taxes on business as possible, starting with VAT and then Employer's NI) as outlined here.

As we know, Tesco is two quite distinct divisions - a hyper-efficient and good value retailer/decent employer; and a ruthless and cynical property owning/developing side which games the planning system for all it is worth and f***s over lots of other businesses in the process.

It's a question of getting the good bit (the retail) without the bad bit. So, if a Tesco were to approach a local council and ask whether they can open a new store, the council should just say:

'Yes of course! We've identified and acquired an ideal site, give us the specification of the kind of building and car park you'd like, and we'll build it for you allow you to build it for us for a fixed price and we will rent it back to you under a normal commercial tenancy agreement - inclusive of Business Rates. By the way, so that there is no funny business, we'll build the building in such a way that we could convert it into smaller industrial, commercial or retail units.

And as you usually prefer a large store on a single storey, you won't mind if we maximise our return and build a block of flats above it - like above the Pavilions Shopping Centre in Uxbridge? Obviously, unlike there, we wouldn't have the entrances to the flats in the middle of the store!"


With Tesco's property division shunted out of the picture, no doubt the retail division will be able to come to some sort of mutually satisfactory rental agreement, and instead of having to argue over the Business Rates, the council can just collect the full rent and/or give them notice to quit. There is usually local opposition to Tesco (heck know why) so at least the council can point out how much rent is going into the municipal coffers to pay for 'stuff'.

Of course, there will be back-handers and bribes at every turn, but it's got to be better than what we've got now.


Here endeth.

"Cap on housing benefit will export poverty to outer London"

I was busy seething with rage over the VAT hike in the Budget, so I haven't got round to looking at the welfare bits in detail* yet.

Capping Housing Benefit seems like A Good Thing to me, as it is merely a subsidy to private landlords (many of whom 'own' ex-council houses that the self-same Conservative Party started flogging off cheap when they were last in power) etc. As I've said before, it's far cheaper building more council houses than doing it their way (something else that is unlikely to happen). So for them to now start whining about the cost of Housing Benefit is a bit rich.

The £400 per week cap seemed a bit 'plucked out of the air'**, but a few minutes ago it struck me that my wife and I 'only' pay £390 a week for a slightly dilapidated four-bed house with a large (but idiosyncratic) garden on a nice street in a nice part of Outer London, so if you ask me, £400 is way too high, and £300 ought to cover it. Maybe £200 or even £100 in some parts of the country.

What's nice is that the main groups of rent-seekers i.e. the claimants themselves, the private landlords milking the system (and presumably, indirectly the banks who lend the money to said private landlords) and the bleeding heart liberals have come together to oppose the cap, which makes me think that it is A Very Good Thing Indeed. There's an undertone in that article that the NIMBYs in Outer London don't want a load of Housing Benefit claimants dumped on their doorstep, so that's another group of rent-seekers whose noses will be put out of joint***. Most excellent!

* It strikes me that freezing Child Benefit while hiking the savagely means test Child Tax Credits to 'protect the most vulnerable' is a huge step in the wrong direction; and if they are going to means-test CTC down to £nil at much lower income levels, that means-testing will be even more savage.

This makes a mockery of George Osborne's claim elsewhere in the Budget speech that they were going to try and reduce marginal withdrawal rates. The correct course of action would be to increase the flat-rate and universal Child Benefit and reduce Child Tax Credits accordingly (or scrap CTC entirely, AFAIAC. In fact, they might as well scrap Working Tax Credits as well and use the 'saving' to increase the personal allowance by a couple of thousand pounds).

** Maybe, seeing as MPs live in a rarified world where you can quite legitimately claim over £20,000 for your second home, let alone the main one where you family lives, maybe they think this is normal? Maybe they just knocked off Council Tax and divided by 52 weeks?

*** I suppose somewhere there must exist a Guardian journalist who lives in a leafy suburb in Outer London, is a NIMBY (obviously), and who owns a load of ex-council flats in central London for which some council or other is paying him or her a shedload in rent. He or she must be pretty miffed :-)

It's simpler than that

Lola left a comment on Vince Cable flushes reputation down toilet:

I long ago sussed Cable as a plonker - as I now think have the Libdems.

Question. Local market town... has thriving high street with plenty of good quality good value competing shops, plus moderate sized Co-op supermarket. Tesco want to build a superstore off the high street. This is blatant category killing, but that's OK as it's competition.

Anyway, suppose we had LVT. As Tesco's killed off the smaller businesses the shop values would plummet and LVT would reduce markedly as would the rents chargeable. At the same time the LVT on Tescos site would rocket. The effect of this would be to put up Tescos costs by a significant amount so that they'd have to increase their prices. At the same time the other effect would be to wildly reduce the major costs (rent and LVT) of the small shops enabling them to cut their prices.

LVT therefore levels the playing field between Tescos financial muscle and the local small businesses and benefits free markets and competition. Or have I missed something?


WFW added: "MW, Lola makes a good point, or have we both missed something?"

It's even simpler than that.

If, subject to local democratic control (ha!) Tesco are allowed to open a supermarket, that might or might not make life more difficult for other shops in the area. I have observed that what happens in real life is that greengrocers, butchers etc tend to close but then other businesses which don't compete with Tesco, but complement it (like cafés, dry cleaners, beauty salons, estate agents etc etc) open up, but let's go with L's scenario. Remember that commercial premises are already subject to something quite similar to Land Value Tax, namely Business Rates.

If (big IF) the other shops in the area become less desirable as business premises, then in a rational world local landlords would drop their rents to reflect the lower profits that shops can now make, and there would still be no vacant premises; Business Rates would fall as well, of course. This doesn't work as well as it should for various reasons:

1. Business Rates include the rental value of the building as well as the location (so Business Rates will never be £nil), unlike Land Value Tax, which would (ideally) be close to one hundred per cent of the location value and ignore the buildings value (so in some areas it might well be £nil). So under LVT, the owner of the building would be compensated in full if the location becomes less desirable through no fault of his own (the location rental value and his LVT bill go down £1 for £1).

2. Business Rates have all sorts of fiddly exemptions and discounts for vacant and derelict premises and undeveloped sites, so landlords are encouraged to leave premises vacant (or sites undeveloped) rather than to drop the rents and get the premises occupied. Under LVT there'd be no such exemptions, so landlords would be much more keen to get new tenants in. Don't forget that shops that stand vacant for long are a drag on the whole High Street, and once more than a certain number are vacant the whole High Street goes into a death spiral.

3. A cut in Business Rates is not much consolation to a shop-owner who is locked into high rents that cannot be negotiated downwards; or who bought the shop with a big mortgage before Tesco moved in. With LVT, there would be full relief is an area became less desirable, and it would depress property prices to their bricks and mortar rebuild costs, so the mortgage would be much smaller to start off with.

4. If LVT were levied on a per-square-yard basis, Tesco would be paying the same LVT on ten car parking spaces as a traditional Victorian single-fronted three storey shop building round the corner (quite different to Business Rates, of course), which would level up the playing field no end. It's up to the council to agree with Tesco whether people visiting other shops are allowed to use Tesco's car park.

As a footnote, we do not need to distinguish between "location rent" and "LVT", they are the same thing and cannot be added to each other or 'passed on' as higher prices to charged to customers. Rather the reverse is true - the location value depends on how suitable it is for running a business from, but prices for groceries are fairly fixed (they are pretty much the same across the UK, from the poorest to the poshest areas).

Similarly, the prices that Primark charges for an item of clothing is the same on Oxford Street, London as on High Street, Anytown (but as it can sell ten times as many items per square yard on Oxford Street, it pays ten times as much rent per square yard there as in Anytown).

So in fact, part of the prices that Tesco charge is being 'passed on' in the other direction to the landlord (which may well be Tesco itself, of course). It is this part of the cash-flow that LVT would capture. So the common notion that 'businesses struggle to pay the rent' is not actually true - what they are struggling to do is to generate as much profit as another business could by trading from that location - the landlord just plays them off one against the other (and he'd be stupid not to).

Vince Cable flushes reputation down toilet

From his post on Liberal Democrat Voice:

VAT is far less damaging for growth than most other taxes, like those on income or employment (1)... There are other far more regressive taxes, and our raising VAT has enabled us to do something about them. For example, under Labour, the poorest decile suffered a 90% rise in council tax, compared to 75% for the richest, which is why we have sought to freeze council tax in England for next year...

(1) VAT is a tax on income and employment - or does he think that the "value added" by entrepreneurs, investors and workers somehow appears out of thin air?

I commented thusly:

The debate over whether VAT is regressive or not completely misses the point, as this presumes that "the consumer bears the tax".

As a bit of basic maths and logic, backed up by looking at the accounts of businesses before and after the cut from 17.5% to 15% and back to 17.5% will show, VAT is in fact a tax on gross profits (i.e. underlying profits plus wages, out of which interest and dividends are paid) and by and large, a reduction benefits the producer and is not "passed on" (and vice versa). Because of various quirks, VAT is a far, far more economically damaging tax than corporation tax or income tax (National Insurance is not quite as bad as VAT but worse than income tax or corporation tax). Let's also not forget that VAT raises nearly three times as much as corporation tax.

Further, VAT is a tax on productive activity, and if you tax something where supply is price elastic, you reduce the amount of it. Taxes on land and building values are not economically damaging of course, because supply is price inelastic (or completely fixed, in the case of land). Therefore the least-bad tax is a tax on land values (or on land and buildings as in the case of Business Rates or Domestic Rates in Northern Ireland).

Council Tax is indeed regressive, but it is regressive to property values rather than to incomes, so what is sorely needed is to replace it with a flat tax on values (like in Northern Ireland), or at the very least have Bands A all the way to Z, where homes in Band A pay £100 a year and homes in Band Z pay £10,000 per year.

Irrational Hatred Of The Week

Picking up the meme (from who probably nicked it off), what riles me is people who get on the train in the morning with a ribbon round their necks with one of those electronic swipe-card thingies that you need to get into modern office blocks. You can just tell that they are all 'public sector workers'. Or possibly just complete twats.

FFS, I have a front door key in case nobody is in when I get home of an evening - as do most of us, I guess - does anybody carry their front door key on a ribbon round their necks?

Cracking bit of bansturbation/fakestatistics

From The Metro:

Watching the World Cup on television could increase the risk of dying from heart disease, scientists have warned.

Every hour a day spent sitting in front of a television increases the risk of death from heart disease by a further 7% of an individual's normal risk level, a study of 13,197 healthy middle aged men and women in Norfolk has shown. The Medical Research Council (MRC) research published in the International Journal of Epidemiology found 373 of the group - one in 35 - died from heart disease over a 10-year period...


Even if the results are correctly recorded and analysed, what they tout as a 7% increase (in relative terms) is of course an 0.2% increase (in absolute terms).

Our new Hate Figure on top form

I nominated 'Professor' Mike Kelly (of NICE) as the new 'Sir' Liam Donaldson/Deborah Arnott* a couple of days ago, so I now follow his activities with a keen professional interest (lest I have misjudged him).

It would appear not:

"During pregnancy, smoking puts the health of the women and her unborn baby at great risk both in the short and long-term, and small children who are exposed to second-hand smoke are more likely to suffer from respiratory problems," Professor Mike Kelly, Nice director of the centre of public health excellence, said.

"One of our recommendations is for midwives to encourage all pregnant women to have their carbon monoxide levels tested and discuss the results with them. This isn't to penalise them if they have been smoking, but instead will be a useful way to show women that both smoking and passive smoking can lead to having high levels of carbon monoxide in their systems."


* Who must be seething with rage and envy. Until a couple of months ago, nearly every BBC article on the dangers of smoking included a rent-a-quote from her or her husband but this part of the BBC's style guide appears to have been amended.

Wednesday 23 June 2010

"Housing Benefit requires further pruning"

The Golden Rule of Subsidies: "Subsidies do not make things cheaper; they make them more expensive."

Rantin' Rab looks at The Golden Rule in action.

I don't normally do interviews...

... but as the transcript over at Totalpolitics would suggest, I do normal interviews.

Hopes raised, hopes dashed (Missing words round)

From the BBC:

The eight regional development agencies (RDAs) across England, are to be scrapped, budget documents show. The projects, set up by the Labour government, were established to work with local businesses to help development, employment, business efficiency and skills. They are to be replaced by Local Enterprise Partnerships in a process that will begin with a white paper, to be published later in the summer.

Click and highlight to reveal.

Statistics Fail Of The Day

From the BBC:

A raft of benefits have been cut or curbed as part of a radical shake up of the welfare system. These changes are designed to save £11bn per year by the end of the parliamentary term... A big saving comes from linking benefits, except the state pension, to the lower consumer prices measure of inflation. Although they both measure changes in living costs, the latest Consumer Prices Index (CPI) is at 3.4% while the Retail Prices Index (RPI), which is currently used to set benefits, is at 5.1%.

Just about plausible. Total non-pension welfare payments are about £80 billion, if we index at CPI and CPI is 2% lower than RPI, then in the fifth year, welfare payments will be about £11 billion less than they otherwise would have been.

The 'fail' bit is in the table half-way down, which suggests that indexing Jobseeker's Allowance ('JSA') in line with CPI not RPI would save £46.5 billion. Not only does that completely contradict the figure mentioned above, the total value of JSA and Employment Support Allowance (the new name for JSA) paid out according to DWP's Table 1 (available from here) will be £8.7 billion in the current year. Even I would struggle to get a £46.5 billion saving out of that, and even over five years the cumulative saving will be less than £3 billion.

The impact of VAT changes: more evidence

1. You may remember the UK car scrappage scheme, which ran from mid-May 2009 to the end of March 2010.

2. If you traded in your old banger (as defined), the government chipped in £1,000 (whence that came is irrelevant for the purposes of this discussion) and the manufacturer was supposed to offer you a further discount of £1,000 (which simply meant that most of them put up their list prices accordingly).

3. The maths of this is that the real rebate was slightly less than the VAT included in the price of a new car, i.e. it was tantamount to reducing the rate of VAT on new cars to (say) 5%. My theory is that increasing the rate of VAT (while leaving other elements of the tax system in place) raises far less revenue than you'd expect (while wreaking huge damage on the economy) (see here); and further that as VAT is a tax on gross profits (the clue is in the name: 'value added') it merely eats into business profits and wages.

4. The converse is also true. When the main rate of VAT was reduced from 17.5% to 15% for the period 1 December 2008 to 31 January 2009, the profits of supermarkets increased by the amount of the cut - very little was passed on to consumers (why would it be? Would businesses pass on a corporation tax cut to consumers?). See my analysis of figures for Sainsbury's and Wm Morrison's.

5. So, if my theories stack up, when the effective rate of VAT on new cars was reduced to (say) 5%, we'd expect the overall impact on tax revenues (minus welfare payments) to be quite minimal, and the motor industry to do far better than it otherwise would have done.

Is there any evidence for this, i.e. that VAT at current rates pushes us over the top of The Laffer Curve, and that a reduction in rates is broadly revenue neutral, or even revenue positive (especially if you take other taxes and welfare payments into account, which I refer to as Laffer Rainbow effects)?

Of course there is! You just have to know what to look for. I refer you to an article in The Times:

"There is speculation in the industry that the average selling price [of a new car purchased under the scheme was] between £7,500 and £8,000," said Paul Williams, chairman of the Retail Motor Industry Federation, who 18 months ago led the lobbying of Lord Mandelson to consider the introduction of a scrappage scheme.

"That would mean the Government has made more money than they thought they would. Scrappage was never meant to be a panacea for the motor industry but without the scheme, well, one has to remember that the industry was heading for a black hole.

"Consumers, manufacturers and retailers have all benefited and if the Government has made more money than they thought they would, then you have to balance that against the unemployment benefits they would have had to pay out to the tens of thousands who could have lost their jobs without scrappage."

Industry figures show that from May to the end of December, 290,000 cars were sold through the scrappage scheme. If the average selling price in those months was £8,000, then the Treasury would have reaped £348 million in VAT receipts against the £290 million paid out.

Lord Mandelson's decision to extend the scheme by a month ensured even greater profits for the Treasury. In the past three months, another 110,000 cars have been sold. If they, too, were sold at an average of £8,000, the sales at the restored rate of 17.5 per cent VAT would have reaped a further £153 million in the tax. That would make total VAT proceeds of £501 million against incentive payments of £400 million, and a Treasury windfall profit of £101 million.

Just sayin', is all.

Tuesday 22 June 2010

More VAT Fun

Overheard on the BBC news just now, some smart arse saying (I paraphrase) that a hike in VAT is better than an increase in income tax, because spending on VAT-able items is voluntary, but income tax is compulsory; VAT is a tax on spending but income tax is a tax on incomes.

Complete and utter f***ing tosh.

Let's put VAT-exempt and VAT-zero rated things to one side for the time being (mainly things provided mainly by the state - health and education; land based and Home-Owner-Ist sources of income - food, housing and banking; and a few Righteous exemptions - newspapers and books) most productive, wealth creating activities, those things that are based on human invention, enterprise, skills and hard work; those things which made it worthwhile rising above the level of subsistence farming, are VAT-able.

Now, it is broadly agreed that we'd like to see the economy grow, and by implication that we'd like to see a relatively larger share of national output being in the VAT-able sector, whether that's having your car repaired, having your hair cut, having a meal out and visiting the cinema, having your will drafted by a solicitor, having a new kitchen built etc.

And because we are a very advanced economy, a lot of us work as car mechanics, hairdressers, chefs and waiters, in cinemas, as solicitors or kitchen fitters etc. The people who work in those sectors (or run those businesses) derive income from it - your 'spending' is their 'income'. £100 you spend on a car repair is £100 income for a mechanic. Spending £10 on a hair cut is £10 income for the barber. £20 you spend in a restaurant represents £20 income for the restaurateur, his waters, chefs etc.

So if we took these twats at their word - and went with the myth that 'the consumer pays the tax - so it's a voluntary tax' - we'd spend less on car repairs, hair cuts etc; and the incomes of car mechanics, hairdressers etc would fall. So their income falls as a direct result of the VAT increase. Is that reduction in their incomes in any way voluntary from their point of view?

To argue that the reduction in their income is in any way voluntary is about as cretinous as the argument that while the smoking ban may have harmed the pub trade, there is nothing stopping people who used to work in pubs from getting a job somewhere else. Or that the fox hunting ban didn't hurt people who used to look after the horses and hounds and all that stuff.

Hey George! Buy yourself a calculator!

According to George's Budget Speech, hiking VAT from 17.5% to 20% will raise £13 billion a year.

1. Presumably he looked at current VAT receipts of (about) £80 billion, divided it by 17.5 and multiplied it by 20 to get £91.4 billion, which looks like an increase of £11.4 billion to me, but let's not quibble over that, he is wrong in principle and does not understand the Laffer Rainbow.

2. In order to generate VAT of £80 billion, total gross VAT-able sales inclusive of VAT must be £537 billion (check: divide that by 1.175 and mutliply by 0.175 = £80 billion; double check £537 billion minus £80 billion = net sales of £457 billion x 17.5% = £80 billion).

3. Consumers only have as much money to spend as they have to spend; let's be charitable and assume the extra VAT he collects is redistributed to people and spent in the UK, so our total budget for VAT-able items stays at £537 billion. If you do the same exercise and divide £537 billion by 1.2 and multiply by 0.2, you'll find total VAT revenues will in fact be £89.5 billion, which is an increase of only £9.5 billion.

4. Because VAT is borne by the VAT-able sector (consumers have a limited total budget), gross income of businesses is now £9.5 billion lower. Let's assume that VAT-able businesses reduce their gross wages by £9.5 billion to stay in business. The effective marginal tax rate of basic rate taxpayers (once you take Employer's NI into account) is 39%*, so PAYE receipts will be down by £3.7 billion (£9.5 billion x 39%).

5. Further, it was estimated a couple of weeks ago that increasing VAT by 2.5% would mean that over 200,000 workers would lose their jobs (which is less than one per cent of private sector workers, and a corresponding number of marginal businesses would go under). Let's assume each of those workers is currently generating £10,000 a year in total taxes**, and once unemployed will be claiming £10,000 a year in various welfare payments***; that's a cash cost to the Exchequer of £4 billion.

Righty-ho.

6. Let's take our extra VAT of £9.5 billion from 3., deduct the PAYE shortfall of £3.7 billion from 4. and the deadweight costs of £4 billion from 5., and maybe knock off another £1 billion for extra fraud and evasion (the higher the tax rate, the more the fraud and evasion, let's assume that two per cent of VAT-able turnover goes missing) and we arrive at the princely sum of £0.8 billion (to within a very large margin of error). Not really worth the grief is it? That's about one-tenth of the budget for the Department For International Development, which has been 'ring fenced' and Will Not Be Cut.

* If the employer pays out £100 in total wages, the employee's headline salary is 100/112.8 of that, because the employer has to pay 12.8% Employer's NI = £89, and the employees income tax and NI is 31% of that = £28, so add the £11 and the £28 together to get a total tax rate of about 39%.

** That may be a tad on the high side.

*** Total non-pension age welfare bill excl. Child Benefit = approx. £70 billion, divided by 5 million adults on key benefits = £14,000 each, so this estimate is on the low side to even out.

May I nominate a new Hate Figure?

'Sir' Liam Donaldson appears to have buggered off and Deborah Arnott is still mucking about in the background somewhere but not as strident as she was. I therefore nominate 'Professor' Mike Kelly who was given ten minutes on BBC breakfast telly today to spout his vile gibberish. Even Sian Williams was squirming in her seat with embarrassment.

Particular galling was/is:

1. The way in which 'Professor' Mike Kelly saw himself as part of the proud tradition of 'public health' in this country - he mentioned the Victorians cleaning up the water supplies to prevent cholera etc and the clean air acts of the post-war period (all good stuff, that is truly public health - where there is nothing that any individual can do about it) before slipping in the smoking ban, which he claimed had reduced the number of heart attacks (whether to smoke or not is a personal decision, ergo is not a 'public health' issue, and even if heart attacks had gone down, they are not a 'public health' issue either), and the rounding off by saying that the crowning achievement of all this was inventing new rules on what ingredients food manufaturers are allowed to use (perhaps they are unhealthy, what do I know, but again, this is not a 'public health' issue and none of his f***ing business).

2. The way the BBC describe NICE as an "NHS watchdog". IIRC, they are there to decide which drugs or treatments are safe and/or good value for money, and not to tell people what to eat. Their core responsibility is of course a difficult and thankless task - namely rationing things that are 'free at point of use' - and I'm not qualified to say how often they get it right or wrong.

While I'm on the general topic, I must link to Snowdon's excellent fun with numbers.

Woman On A Raft...

... has finally set up her own 'blog.

I've added it to my top twelve 'blogs just to get the ball rolling.

My Budget Summary

Lots of minor tinkering, some good, some bad, but with 20% VAT we are f***ed.

What is the point in not increasing Employer's NIC and promising to reduce corporation tax, while at the same time increasing a tax on total 'value added' (i.e. total wages + rent + interest paid + net profits for shareholders) by 2.5p in the £1?

As the 2.5p in the £1 increase applies to the sum total of (wages + rent + interest paid + net profits for shareholders, with no reduction for losses) for most productive businesses (i.e. anything not land-based) the overall burden on business will be far higher, notwithstanding that the tax rate on that small slice of net profits for shareholders is set to go down by 1p in the £1 every year for four years?

In fact, I have some sympathy with the view that VAT is a regressive tax (notwithstanding that this is based on the erroneous assumption that the consumer bears the tax, which is only the case where demand is price inelastic but supply is price elastic, i.e. tobacco, alcohol and fuel duties).

Debt For Equity Swap Of The Week

From The Telegraph:

The owner of the 1,600-strong Coral betting shop chain and the Gala Bingo business said four of its mezzanine debt owners had taken control after converting their £558m holding into equity and injecting another £200m cash to pay down senior debt.

Candover, Cinven and Permira – the buyout houses which owned what was once Britain's biggest private company – have exited the group. Permira is thought to have lost most of the £500m-plus it invested... Apollo, the biggest mezzanine holder, will emerge as Gala's largest shareholder with a 25pc stake. Cerberus will own 18pc, with Park Square taking 8pc and York Capital, 4pc.

1. Just to strip away a bit of jargon, 'senior debt' means most likely to be repaid and 'junior debt' or 'mezzanine debt' means least likely to be repaid, i.e. just above share capital.

2. So we can imagine Candover et al to be like over enthusiastic buy-to-let landlords, who borrowed money from Apollo et al but couldn't repay it out of rental income (in this case, the profits generated by Gala Coral. Apollo et al repossess the rented properties (the underlying business), and because the rented properties have some value and generate income, they don't demolish the rented properties (liquidate the business) they just take it over and keep going. Candover et al appear to have been wiped out, because they were in 'negative equity'.

So far so good.

3. The gimmick is that banks are actually in the same position as Candover et al*. The banks they have assets of a certain positive value (mainly money they have lent to people and which is being repaid with interest) and a to a large extent they are financed by borrowing money from other people (call it 50/50 between ordinary depositors and bond holders).

4. In the absence of government bail outs and guarantees, the shareholders would have been wiped out long ago, bond holders would have waived the right to be repaid the full face value of their loans to the banks (i.e. 'bonds') and would have become shareholders instead. Ordinary depositors can be considered to be 'senior debt' in this example, and would not be converted to equity.

5. What's interesting in this case is that the negotiations had been dragging on for nearly a year.

* You sometimes find almost endless chains - perhaps Apollo are in hock to a bank, so that bank takes over part of Apollo (debt-for-equity swap); but then that bank finds the value of its Apollo stake is not enough to repay its own bond holders, so the bank does a debt-for-equity swap with its own bond holders (who are in many cases other banks) and so on and so forth until the whole credit bubble is collapsed back to the underlying assets on one side (houses or businesses) and people who own them on the other side, without dozens of middlemen in between.

Another four?

Chuckles has spotted this story:

Four friends from Lenasia were killed on Sunday evening while on their way home from a World Cup game in Nelspruit when a truck smashed into them.

I've made up a new rule, which is that deaths in a car accident count as 'violent deaths' for these purposes. They certainly meet the other two criteria, i.e. 'linked to the football World Cup' and 'in South Africa', so that brings the running total to seven so far (I think).

"Scrap 'breast is best' slogan, say campaigners"

From the BBC:

Campaigners are calling on the government to drop the "breast is best" slogan because it is not convincing new mums to breast feed, they say. The Breastfeeding Network wants breastfeeding to be seen as the norm - not something special - as the slogan suggests...

The campaigners appear to think that the time honoured 'breast is best' slogan is a bit outdated. Probably true, so how about we replace it with something a bit punchier? I dreamed up a few on the way in to work:

"Tits are it"

"Knockers - don't knock 'em!"

"Nippers love nipples"

"Your jugs - full of milk"

"Babies love boobies"

"Give your baby a bap!"

Monday 21 June 2010

Hmmm, what can George cut (2)...

In town halls up and down the nation, our bureaucrats, fakecharity staffers and local busybodies have been organising themselves into curious, little known forums called 'Sustainability Partnerships'. Let's have a look at what they get up to shall we?
-
Well Lambeth have "...established that a low carbon lifestyle was better for people both physically and mentally..." and came to the conclusion that "...there was a need to encourage a greater diversity of people to get involved [with growing food]" Que Guardian adverts for window box outreach coordinators etc.
-
Ever suspected some local authorities don't like cars, well Cambridgeshire resolved "Getting people out of their cars is synonymous with safer routes to school." I wonder how they'll go about doing that? They also wanted to know "Is the Climate Change Partnership preparing the public for the long term effects of climate change?" Delegates then sat through a presentation from Sheryl French of Cambridgeshire Horizons on 'Carbon Activity' and asked some searching questions about 'carbon offsets', is this what they want to spend your money on?
-
Bristol have produced a big glossy 'Peak Oil' plan where they imagine a future where we all wear clothes made of stinging nettles. "As part of this I got talking to my grandmother who was born in 1939. She told me about her mother who told her that in World War I they used to make soldiers’ uniforms out of nettles. I got very excited about this idea..." The traditional hair shirt not good enough for these people or something?
-
If you're wondering how much these things cost, well I have no idea, but Durham gives us a clue as to how big they have got: "From the very first meeting of the Local Agenda 21 Partnership in 1994 supported by just 60 people, it is now made up of more than 2,000 organisations and individuals".
-
If you want a proper figure, forget it. Because these 'partnerships' are made up of council officers, quangocrats and fake charity managers operating under all sorts of budgets, you can't find out. Check out the 2009/2010 local government budget document from CLG and see if you can find anything about 'sustainability partnerships'.

Spot the loophole

From the BBC:

Universities Minister David Willetts confirmed on the BBC's Politics Show there would be measures to boost firms outside the South East of England. This is expected to take the form of a three-year scheme to exempt start-up firms elsewhere in the UK from paying NI for the first 10 people employed.

Oh dear oh dear.

1. We're in a recession right now (or in the lull before the next one). As a matter of day-to-day practicality, it's easier and cheaper to ensure that as few people as possible lose their jobs than it is to dream up cunning plans whereby new jobs will be created. Any fule kno that not losing a customer is usually much cheaper than winning a new one, and the same sort of logic applies here.

2. What does 'start-up firm' mean? I'd advise any existing business employing ten or fewer people to shut up shop, start up a phoenix company the next day and take on the same people, hey presto, tax breaks!

3. Must it not be obvious to a blind man (no offence meant to any blind people reading this) that this is a barrier to job creation as much as an incentive? There may be 'start-up firms' employing ten or fewer people who were thinking about taking on another two or three, but for whom losing the tax break on the first ten wipes out the commercial benefit of taking them on.

4. Most small businesses employ family members to use up their tax-free personal allowances. So most small businesses can reduce their nominal headcount by two or three to suddenly slip below the magic figure of ten and hence qualify.

5. Does it make the slightest bit of difference to somebody looking for a job whether he or she gets taken on by somebody who already employees nine people, nineteen or nineteen thousand? A job's a job.

6. Isn't this a barrier to growth, however subtle? If your business employs fifteen or twenty people, you might have been worried about the 'start-up' competitor up the road who has rapidly grown to ten employees. At least now you know that your competitor will be encouraged to halt further expansion (see 3. above).

Continued page 94.

Yasmin Alibi-Brown on VAT

Oh, the sheer and unadulterated Righteouness of it all:

“Zero-rated items, such as food (1), books (2) and children's clothing (3), shouldn't have VAT applied to them as it would hit the most vulnerable members of society the hardest."

Wot? Of course, we 'shouldn't' have VAT on anything, but let's look at those three items in turn:

1) We would get an average household's food bill down by hundreds of pounds a year if we left the EU.

2) Books? What is she talking about? Has she never heard of public libraries or second hand book or charity shops? I'm not aware that that the ultimate - and as yet undefined - victim group, 'the most vulnerable' would be 'hardest hit' if the price of a new book went up by a quid.

3) Children's clothes are stupendously cheap, cheaper than they have ever been. In any event, has she never heard of hand-me-downs, charity shops etc? Or is she thinking more of Nike trainers? And don't we have Child Benefit (or, G-d forbid, Child Tax Credits) to part-pay the cost of children's clothes?

Problem is of course, it wasn't the Yazzmonster (TM JuliaM) who said that, it was Stephen Robertson, Director General of the British Retail Consortium.

The Vatcam cometh


Via UKIP TV.

New Quango Of Last Friday

From the BBC (with a bit of 'click and highlight to reveal' fun):

The New Schools Network, established to advise groups on how to set up schools, has now been given a grant of £500,000 by the government, it was announced on Friday. The group is led by Rachel Wolf, a former adviser to the Conservative party. The network also links groups to "education providers", including charities and private companies, which would set up trusts to organise the day-day running of the schools.

Fun Online Polls: Tomorrow's Budget & Market Forces

This week's Fun Online Poll relates to tomorrow's Budget. The Lib-Cons have trailed all sorts of ideas, which may or may not happen, but top of the 'likely' list are increasing the rate of VAT and only partially reversing Labour's planned increase in National Insurance contributions; but to soften the blow (for homeowners and landlords at least), they are going to use part of the proceeds to freeze Council Tax (i.e. cut it in real terms).

Of course, they peddle the myth that 'my Council Tax pays for local services': "The Conservative manifesto proposed a two-year council tax freeze paid for by reducing spending on government consultants and advertising" but then promptly admit that the "... plan involved providing extra funding to councils who proposed only small council tax increases, so they could then freeze them."

Or to put it another way, if there's money to be saved at local council level (and I am sure there are oodles of savings to be made), then Whitehall grants (out of general taxation) to local councils can be reduced accordingly, and those savings could be used to cut VAT and National Insurance instead.

So that's this week's Fun Online Poll:

How would you keep the economy going and deflate the house price bubble?
Increase VAT and National Insurance and cut Council Tax.
Increase Council Tax and cut VAT and National Insurance.
Other, please specify.


Vote here or use the widget in the sidebar.
---------------------------------------------
A big thanks to everybody who took part in last week's Fun Online Poll, results as follows:
Market forces are...
A Good Thing - 76%
A Bad Thing - 7%
A Good Thing, as long as they don't apply to land- and homeowners - 7%
Other. Please specify - 9%


I'm glad to see that only a small minority thought that land- and home-owners should be isolated against market forces - one of the 'killer arguments' against Land Value Tax is of course that it would be somehow wrong for land- and home-owners to be subjected to the same system of price rationing* as tenants and potential purchasers.

* As we know, price rationing is the best form of rationing; and in this country it is to a large extent the NIMBYs doing the rationing, which drives up rents and selling prices, but of course it is 'somebody else' who has to bear the extra cost.

Supply and demand

A handy summary from The Metro. The demand curve for university education can be plotted as follows:

Tuition fees £3,225 - 80% want to go to university.
£5,000 - 68%
£7,000 - 45%
£10,000 - 26%.

In a truly free market, tuition fees would be at least equal to the costs involved (plus a profit margin) but no more than the discounted present value of the additional lifetime earnings that potential students expect to receive as a result of having a degree (plus or minus the fun you have being a student). I sorely doubt that the full cost of a year's university education is as much as £10,000 per year for most subjects, so that's unlikely to happen (Oxford and Cambridge could probably get away with charging twice that, but that's a separate topic).

As we know, over the past few years, far too many young people have been going to university, i.e. taxpayers' money has been wasted; the premium for graduate jobs has been eroded; and so there are a lot of graduates (now saddled with student debts) who would have been better off starting work straight after school.

One argument against tuition fees is that graduates tend to pay more tax in future, which is a non-argument, as income tax and VAT also hit higher earners who didn't study. And subsidising higher education but not other forms of training (lorry drivers, plumbers, hairdressers, whatever) is clearly a distortion.

So how about we scrap the tuition fees cap, cut higher education funding, cut income tax and VAT a bit and let people make their own decisions? That can't possibly lead to a worse outcome than what we've got - and as we well know, universities are self-perpetuating, so they will all offfer bursaries or grants to bright-but-poor students who would otherwise be put off by the fees (that said, somebody who can't work out whether his or her extra future earnings will be big enough to justify the cost shouldn't really be going to university).

Transfer payments vs government spending

Adam Collyer explains the difference.

Or as I would put it: what's the point in taxing or means testing away Child Benefit in order to finance a modest tax cut for the people who now no longer receive it? That doesn't reduce the size of 'the state' one bit, and given all the extra admin and hassle involved, it probably increases the size of 'the state'.

"Well, yes I do actually, or I wouldn't have bothered doing the post."

Roger Thornhill left a comment on my post VAT: Barrier To Entry:

Mark, Do you honestly think this example builds a case against VAT? (1) I mean, it is so narrow, so skewed.(2) No exports.(3) No major costs liable for VAT (4) and a client base that cannot claim back VAT either (5). Talk about cherry picking (6).

1) Well, yes I do actually, or I wouldn't have bothered doing the post.

2) There is an infinite range of types of economic activity. I was using a fairly middle of the road example to illustrate a general point that VAT can, and does, act as a barrier to entry; more specifically that it is far more damaging than corporation tax.

3 a) I was using the example of free newspapers in London. While they do not export their physical product, it is quite likely that some of their advertising sales will be 'exports', i.e. where somebody from abroad pays for advertising (and which would be zero-rated for VAT purposes, in which case the rate would have to be hiked slightly from 15% to say 17.5%). In any event, I am railing against taxes on turnover or gross profits generally - there is no natural reason why exports are zero-rated - that is merely a feature that was bolted on to the EU version of turnover tax (aka VAT).

3 b) I accept that one of the reasons the EU (or whatever its predecessor was called at the time) decided to impose VAT was because German mercantilists liked it* - VAT acts as a subsidy for exporters and an import duty. I am a free trader and don't believe in subsidies and import duties. Countries don't trade with countries - people trade with people. Opinions may differ on this, but if you are determined to impose duties on imports and use them to subsidise exporters, then at least be open and honest about it and don't impose a tax that hobbles the domestic economy (which is around four-fifths of our economy).

4) Taking the economy as a whole, the largest single item of expenditure is wages, which are not liable to VAT. I could have made the example more complicated by assuming that some of the input costs would be liable to VAT in Country B, but what's the point? The newspapers in Country B are VAT-able businesses so for them it would be cash neutral and so the issue does not arise.

5) Of course, a lot of the advertisers in Country B will themselves be VAT-able businesses; but sooner or later, that VAT has to be paid out of money received from end-users (private individuals or exempt businesses). So a VAT hike generally will hit the income of VAT-able advertisers and so they in turn will have less money to spend on advertising.

6) I invite people to do their own examples suggesting that corporation tax is worse for businesses than VAT. Please remember that businesses cannot merrily 'pass on' VAT because end-users only have a limited amount of money to spend. In practice, VAT is borne by the productive sector, in exactly the same way as corporation tax.

* Forming an Unholy Alliance with French farmers (food is usually VAT-zero rated, exempt or taxed at lower rates) and UK Home-Owner-Ists (new housing is VAT zero-rated; sales and rents are VAT exempt; banking is VAT-exempt). The fact that VAT is, in relative terms, good for those other friends of the EU (Corporatists and incumbents) is icing on the cake.

Sunday 20 June 2010

VAT: Barrier To Entry

For the sake of this comparison, we will imagine two very similar countries with different business tax systems. In Country A they have 43% Corporation tax (and no VAT or Sales Tax) and in Country B they have 15% Value Added Tax (or Sales Tax) but no corporation tax.

And we'll imagine that in their capital cities, London A and London B, advertisers (mainly private people and banks, who cannot reclaim VAT) are prepared to spend £1,150,000 per year (inclusive of VAT) on advertising in the newspapers that are distributed free at train stations (like City AM, Metro and Evening Standard). It costs £200,000 a year to run such a newspaper, being mainly staff costs, so any newspaper needs to have a net turnover of at least £200,000 a year to at least break even.

We also assume that the usual 80/20 rule applies and so the proprietor of the business expects to make at least £50,000 a year in net profits (after tax) on top of salary costs, so in the longer run, we'd expect any newspaper with turnover of less than £250,000 to go out of business or to be taken over by a competitor (who basically shuts it down).

In the long run, we would expect to see no more than four free newspapers in either London A or B, as follows:
You will note that in both countries, total taxes collected from those newspapers are £150,000.

We know that this equilibrium with four newspapers is unlikely to last for long and sooner or later one newspaper will go out of business; the market will henceforth be shared between the three survivors who are now coining it in:
We note that mathematically, the newspapers in London B have benefitted more from getting rid of a competitor, their profits leap from £50,000 a year to £133,000; while in London A they have 'only' doubled to £105,000. Let's assume that the market trundles along with just three newspapers for a while until a potential new entrant spots how much profit they are making, does his homework and decides to have a go at setting up. He estimates that
- it would take him two years to build up to a quarter of the advertising market, i.e. from Year 3 onwards his turnover would be a quarter of the total market,
- that his turnover in Year 1 would be a third of that and in Year 2 would be two-thirds of that,
- and that his costs would also be £200,000 per year.

Question: should our potential new entrant have a crack in London A (where they have corporation tax but no VAT) or in London B (where they have VAT but no corporation tax?)? He knows that if he succeeds in either town, that his long run profits will be about £50,000 a year, so their current levels of net profits are misleading.

Answer: London A is a much safer bet. His start up losses will be about £112,000 and after three years four months he will have positive cash flows. If he were to start in London B, his start up losses would be £150,000 and the business will not be cash positive for five years.

Why? Look at the cash flows:
Summary: large businesses and incumbents actually quite like VAT, and they certainly prefer it to corporation tax, as VAT acts as a barrier to entry. This is not so in industries where there are lots of competing businesses and/or lower barriers to entry. For the self-employed who only provide their own skills and labour, there is in practice no real difference between a tax on gross profits (VAT) or a tax on net profits (income tax or corporation tax). Every £1 they earn above and beyond their VAT-able input costs is subject to VAT and to income tax or corporation tax.

We see that it is far more likely that there will only be three newspapers sharing the market in London B, making profits of £133,000 each; and far more likely that a fourth competitor will attempt to break in to the market in London A.

Of course, in Country C where they have neither VAT nor corporation tax and all taxes are collected via higher Business Rates, things look even rosier, but that's another topic.

Also of course, you might argue that having four duplicated newspaper teams is a waste of money and resources, and maybe we'd be better off with a maximum of three. In which case, the correct tax raising strategy is to exempt newspapers from VAT and corporation tax and to simply auction off three licences. Using the same figures and assumptions as above, and assuming that proprietors are happy with long run average profits of £50,000 a year, the licences would be worth up to £83,000 a year each. it would be a very big barrier to entry (bad) but an excellent way of raising non-distortionary taxes (good), quite how you calculate the trade-off between the two, I don't know.

Saturday 19 June 2010

"Killers"

We went to see this film for my early Father's Day thingy. Superficially, it is a cross between 'Mr & Mrs Jones' and 'Meet the Fokkers', but actually it was one of the darkest and most sinister films I have seen for ages. The fact that the plot was nonsensical to the point of parody neither adds to nor detracts from that.

Highlights:

1) Katherine Heigl using the f-word a few minutes before the end. Apart from that there was plenty of violence but no swearing or nudity.

2) One NIMBY neighbour complaining about the hero's fence being a few inches too far over into their garden and another NIMBY neighbour complaining about the fact that the hero had wrecked his own garage.

3) The hero resigns his job as a hit man (quite for whom is not clear) when he meets his true love and sets up his own construction company. Business tails off a bit so he has to go back to his old job killing people.

4) The car chase scenes in which they tear through, and tear up, a newly built and still vacant housing estate. The hero finally kills the bad guy by shunting his car over a wall. In the background are some half built timber frame houses and a construction site. It struck me that this was not a carefully built set - it was in fact one of the many hundreds of ghost estates left over after the US house price bubble burst that the film people snapped up cheaper than they could have built it themselves. Very dark.

"Another"?

Friday's FT was full of articles looking at George Osborne's proposals for a 'radical shake-up' of regulation of the financial system, which to the untrained eye looks like splitting up the existing 'tripartite' system (Treasury, Bank of England, FSA) into yet more quangoes with all sorts of exciting sounding names, overlapping responsibilities, liaison committees and lacunas. This is all just rearranging deck chairs on The Titanic (or rearranging the stools between which responsibilities will fall), but most galling of all is a snippet from this article:

Under the plans unveiled this week, Mr King, as chair of the new Financial Policy Committee and new Prudential Regulatory Authority, is being handed explicit powers to intervene and force firms to act if he believes there is a looming economic problem, such as another housing bubble.

Wot? Unless I've missed something, we are still in the middle of the biggest house price bubble that the UK has ever seen (in terms of price-to-income ratios). There was a brief hiatus during 2008-09, but the previous government managed to reflate it (primarily with the taxpayer-backed £300 billion Special Liquidity Scheme, which is about a quarter of all UK residential mortgages) to somewhere close to its original size.

So before we worry about preventing the next house price bubble*, shouldn't we be working out how can deflate the current one with the least damage to the economy?

* You all know what the proper long term solution is - it's something similar to what we were doing until the mid-1960s.

We own land! Give us money!

At first blush, you might think that landowners, NIMBYs and the Home-Owner-Ist coalition generally are more 'right wing', while the Greenies are 'left wing'.

I'll cheerfully bash both sides, not in the interests of any particular political neutrality (I'm not political) but because what underpins both camps is that they wave The Righteous Flag ('Protecting The Hallowed Green Belt') in order to mask the fact that they are actually rent-seekers and authoritarians - that is what galls me as a small government, free market liberal.

Worst of both worlds is a Greenie landowner of course. Charles Bazlinton alerted me to this article in The Times (which will require you going through a laborious registration process) concerning the activities of one such individual:

Michael Eavis [an agriculural landowner], who will host the 40th [Glastonbury] festival at Worthy [ooh, the irony] Farm next week, will become the first person to take advantage of the Government’s new, heavily subsidised scheme to create a large array of solar panels... Mr Eavis will sell the electricity to the National Grid at a premium rate, guaranteed by the Government for 25 years. He expects to earn about £45,000 a year from the feed-in tariff as well as reducing his own energy bills, meaning that the system will pay for itself in six years.

Mr Eavis told The Times: “I’ve been planning this for a long time but the Gulf of Mexico oil spill has brought home just how urgent it is that we move to renewable electricity..."

The Department of Energy and Climate Change estimates that the scheme will cost more than £8 billion to subsidise over the next 20 years, or £8.50 a year on the average household electricity bill.


So who pays? Average households occupying a couple of hundred square yards. And who benefits..?