What does the "capital" mean in "capitalism"?

Just thinking out loud, at its core, doesn't "capital" really mean "man-made labour saving devices which are of overall benefit to humanity"?

That enables more people to produce more stuff and thus enjoy their lives more to the overall benefit of everybody.

The notion that capitalism means that each individual must build up "capital" and whoever ends up with the most is the winner is nonsense; capitalism would benefit everybody and should not necessarily lead to inequality - apart from the fact that people have different talents and some are luckier than others.

The concepts of saving up during the good times and drawing on the savings in the bad times pre-dates capitalism and is always a good idea on an individual level. As a society, there is no point trying to build up capital faster than new labour saving devices can be developed.

And similarly, anything that is not actually a man-made labour saving device owned by the person who made it, or paid fair value for it, is not capital. Land, patents, monopolies etc are not capital. They are either natural resources or government made; and if the landowner or monopoly holder does not pay the government fair value for the land or the monopoly, that makes them even less like capital as they are of overall detriment to society.
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As an illustration:

Consider a farming community who dig the earth with sticks. That's an agrarian society, but they will still save up grain after the harvest, store it and eke it out over the rest of the year.

Some enterprising people work out how to make iron digging implements. So now a couple of people in the village are blacksmiths and the rest are still farmers, but more productive farmers. Each farmer has his own spades and hoes (capital) and the blacksmith has a kiln and tools (capital) for making the spades and hoes.

So the blacksmith has more 'capital' but unless he keeps his technology secret or has his trade protected by guilds and government certification (rent seeking/monopoly behaviour), any excess income he makes would be competed away when his apprentices leave and set up their own business, so everybody in the village ends up with a similar but larger income than before.

If technology does not move on, there is no point everybody trying to build up capital. Why should the farmers buy more spades than they need or the blacksmith produce them? Pointless. There is only a point in building up more capital when somebody invents hose pipes or horse drawn ploughs or something.

If there is a self-appointed landowner who sees that output has increased and his villeins now are making a surplus, he can help himself to that surplus in higher rents. That's where it starts to go wrong, especially if you fall for the lie that land is capital (man made improvements to land, like walls, drainage, good composting etc clearly are "capital" for these purposes, that's quite distinct to what nature made).

In extremis, landowners drive people off the land and they have no choice but to work in factories. The factory as such is a vital part of capitalism, and with equal bargaining power, workers would get a decent wage and the factory owner would get a decent return on his capital. Hooray, everybody wins. But Victorian factory owners could pay ridiculously low wages and live in opulence because the landless peasants, faced with a choice of starving in the countryside or working for a pittance in the towns preferred to take the pittance.

And so on and so forth.

Fun with plain packaging.

I was a bit disappointed with the plain packaging, a misnomer if there ever was one. I was vaguely expecting something sleek and stylish, like Apple packaging but no, they have just made the warnings and pictures bigger and reduced the brand name to a single line of 6 point type.

I got two good ones this week (paraphrasing slightly).

1. Smokers' children are more likely to start smoking. (than what is not specified)


2. Smoking reduces your fertility.

So, assuming those even to be measurably true, doesn't the problem cancel out? Children of smokers have are more likely to smoke, but there are fewer of them etc.

In any event, reason 2 is nonsensical. Most people spend most of their lives trying not to get themselves or their partner pregnant. A couple of years 'trying for a baby' after you get married, have a couple of babies, job done, back on the tabs.

Anyway, free market capitalism being what it is, no doubt sooner or later somebody will start making natty pouches into which you can tuck your stupid packaging out of sight. The old tins were nice but too big, so your tobacco dried out unless you mucked about with slices of lemon etc.

A bench of Kents

From Kent Online:

A stunned van driver was slapped with a hefty £200 fine – for not displaying a No Smoking sticker in his vehicle.

Trevor Emery was fined four times more than if he had actually been caught puffing at the wheel when he was booked by a city council warden in Watling Street, Canterbury.

The washing machine repairer, who does not smoke, was left bewildered by the little known law, which makes it compulsory to display a No Smoking sticker in a work van...

Head of safer neighbourhoods Doug Rattray said:

"It is an offence to not display a No Smoking sign in a vehicle that is used for commercial purposes. This is the case regardless of whether someone is self-employed, the only person to use the vehicle or if nobody smokes in it. We enforce this but the level of fine is set nationally in law. Mr Emery received a fine, which he paid, for this offence. He was advised on the legislation and given the correct sign.”

Council spokesman Rob Davies confirmed that around 50 fines have been issued since the law came into force.

Does anybody know, does the 'work van' rule apply to salesmen's cars too? And if so, what about cars which people use for normal commuting?

Fun Online Polls: Picking winners & "You guys"

The results to last week's Fun Online Poll were as follows:

Picking winners: which of the following should taxpayers subsidise?

Robotics and AI - 0%
Industrial biotechnology - 0%
Medical technology - 3%
Satellites - 0%
Advanced materials manufacturing - 2%
Other areas where the UK has a proven scientific strength - 4%
None of the above. If there's money to spare, just cut taxes on all businesses - 91%

Good, I was with the (overwhelmingly large) majority on that one. And thank you to everybody who took part, a good turnout of 103.
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This week's Fun Online Poll should be fairly self-explanatory.

"When somebody addresses you/your group as "You guys", he/she is…"

Vote here or use the widget in the sidebar.

Mazda MX5 Mk2 footwell drainage holes

My driver's side carpet was awfully wet. After some prodding and poking I managed to find the emergency drainage hole.

They weren't mentioned in the Haynes manual and I found no reference to them online. So in case you are wondering, there is one on each side, you have to cut open the carpet to find them. It's just a round metal cover plate (about 2' in diameter) sitting on top of a hole straight through the floor panel (about 1 1/2" in diameter), about 9" in front of each seat and 3" in from the door.

The cover plate is the round blue thing:

The cover plate/plug is normally glued into place. I assume that if the interior fills with water and you want to empty it in a hurry, you just pop it out from underneath

My car must have hit something, because the rim of the hole was partly bent downwards (go figure) and the cover plate/plug was bent almost in two, thus leaving a nice big unsealed gap to really scoop up the puddles.

I hammered the cover plate flat again, used the car jack to press the rim of the hole back up flush with the rest of the floor panel and then gummed it all up with silicone sealant. I'll glue the carpet back down once the sealant has dried properly and pop the nice new mat back on top. Fingers crossed!

"This is like trying to predict earthquakes or hurricanes, they don't happen very often"

From the BBC:

… Neel Kashkari, president of the Federal Reserve Bank of Minneapolis is proposing an alternative that may be more in line with Donald Trump's way of thinking. He believes that banks should be forced to massively increase their capital reserves (1) - the amount of cash they are obliged to keep in hand for the day when everything goes wrong at once.

Currently, US banks need to keep 6% of what are known as their risk-weighted assets, a formula that values their their loan book, in cash. Under the so-called "Minneapolis Plan", Mr Kashkari wants banks to significantly increase this ratio to up to 38%.

Neel Kashkari says [existing] measures to prevent another bank meltdown don't go far enough:

"My highest focus is making sure we don't have another financial crisis where the banks get into trouble and they have to turn to the taxpayers," he told BBC World Service. We've looked at the history of financial crises - this is like trying to predict earthquakes or hurricanes, they don't happen very often.(2)

"And if you look at financial crises all around the world, that's the level of capital that we need to reduce the chance of a future crisis to as low as 10% over the next century."

1) The word "reserves" is largely meaningless in this context as it can mean quite different things. "Cash" is as crystal clear as you can get.

2) He can't have been looking hard enough, there has a been a banking crisis in the USA every 18 years or so since the early 19th century, interrupted only by the second world war (and the mid-cycle dip in the 1973-1989 cycle). The cycles in most other countries in the world have now synchronised with the US cycle (i.e. the last full one was 1989-2007). And these cycles always go hand in hand with land price bubbles; you can't have a land price bubble without a credit bubble - a credit bubble will always go into higher land prices.

So as ever, the question is, is he deliberately lying or is he stupid?

"CCTV captures moment a cow creeps up and attacks a man in the street - for no apparent reason"

Tweeted in by James Higham and JuliaM, from The Daily Mail:

This moody cow decided to take some frustration out on an innocent bystander while it was having a stroll down an alleyway. The footage, shot in Pakistan, shows a man stood [sic] talking on his mobile phone next to a wall.

Wandering the streets of its own accord, the cow is seen heading down the same alleyway, seemingly minding its own business. However, it clearly takes a disliking to something the man is doing, and pauses behind him.

After a couple of seconds of consideration, the cow instigates its vicious attack by digging its horns into him and catching the man, who has his back turned, completely unawares.

The animal pins him up against the wall and then then sends him flying through the air with an almighty flip of its head. He does a complete somersault in the air before crashing down with a painful-looking landing on his side.

Ouch!

Black Friday Special on this 'blog!

All posts will 50% off and comments will be free. There will also be a bewildering array of vouchers for new readers and discounts for regular commenters.

Economic Myths: Cost-plus

The point of the post Economic Myths: Business Rates hike may force UK's shops to raise prices is that prices are set by where marginal revenue and marginal costs per unit happen to cross on the supply-demand chart.

Fixed costs quite simply have nothing to do with it. In the very long run, most fixed costs are actually variable costs. It is a question of fact and degree. But clearly rent and rates are a fixed cost for these purposes (from the point of view of the tenant).

The chart showed the supply-demand curves for monopolistic competition, but the same principles apply wherever a business is on a sliding scale between perfect competition and absolute monopoly. Most businesses are somewhere in the middle.

(Land ownership is a not a business for these purposes, that is a pure monopoly. By putting up and maintaining buildings, land owners act like businesses of course, they have a dual role and it helps if you don't confuse the two distinct functions.)

From the comments:

Dinero: However I don't see the relevance of the chart from Economics help.

Me: A change in variable costs per unit = changes the optimum price/output level. A change in fixed costs = has no effect. Business Rates and rent = fixed cost = have no effect. That is why the linked chart and article ONLY mention variable unit costs (or marginal costs or whatever you want to call them).

Dinero: The chart is a diagram of profit maximizing price setting for a monopolistic supplier (1). Retail is competitive market (2), where prices are a competitive level of profit plus variable costs (3) plus fixed costs.(4)

Wrong on so many levels.

1. Even with perfect competition, the market clearing price is where revenue and marginal costs per unit happen to cross on the supply-demand chart. Same for monopolistic competition, cartels and a pure monopoly. Fixed costs have no impact on prices; they affect profits.

2. Yes, bricks and mortar retail is competitive, but not that competitive. Most shops have their own niche, customer base or brands etc. And by occupying space (and crowding out competitors), most shops have some degree of local monopoly. Even if it were competitive, see 1.

3. That misses the whole point of the article and pretty much everything else you need to know about economics. With most industries without absolute barriers to entry and even with cartels, abnormal or super profits are competed away, so that prices end up at a level of what looks like cost-plus. This is not because each individual business decides to aim for cost-plus, it is because of the competition.

4. For 'fixed costs' read 'rent'. Rent is not a 'cost' in economic terms, it is an appropriation of the earned profits of the business. Profits (or the profits of potential other tenants) are what dictates rents, not the other way round!

I've done this one dozens of times.

Imagine a partnership running a business, the two partners share profits 50/50. One partner might secretly consider himself the senior partner and consider the other partner's profit share to be a 'cost'. It might be a cost to him personally, but it is not a cost to the business. Perhaps they change the profit share ratio to 60/40. Does that change what customers are prepared to pay or the optimum level of output of that business?

Does it heck.

In the same way, maybe this year, the landlord is taking half the profits in rent and next year ups the rent to 60% of the profits, makes bugger all difference to prices and output. That's a dispute between the business owner and the land owner.

In the same way, the local council takes a slice of the rent from the landlord (Business Rates). The business tenant, as 'customer' of landlord (who provides the building) and the local council (which provides pretty much everything else) couldn't care less how they split up the rent between them. Each tenant has his own pain threshold, if landlord and local council demand more than he is prepared to pay, that's it, he vacates the premises, end of.
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UPDATE: Dinero: And so the opportunity to set a price using a profit maximizing policy , marginal revenue vs marginal costs, is more or less removed by competition, and so the suppliers to the market are left with selling at the minimum acceptable profit plus the costs.

To reiterate: in a reasonably competitive market with sufficient reasonably well-informed consumers the market clearing price is still set by the basic rule tends to settle at, price = marginal revenue = marginal cost + 'minimum acceptable profit'. This happens to be the point at which - given the competition - an individual business (or indeed the whole industry) maximises its gross profit. Prices are NOT dictated by fixed costs. Gross profits dictate 'fixed costs' i.e. rent.

"Northern ports tempt shippers away from Dover after migrant crisis"

Emailed in by Physiocrat, from the FT:

Ports outside the south-east have benefited from disruption at Dover, helping them to win a greater share of Britain’s growing container and vehicle trade. Northern ports have been selling the benefits of avoiding the congested roads of the south-east and investing in infrastructure just as some hauliers sought alternatives to Dover, hit by the migrant crisis.

The cross-channel route has been declared secure a month after the demolition of the “Jungle” refugee camp and freight traffic is growing again. But government figures for the first half of the year show a drop at Dover as traffic was displaced. Harwich and Felixstowe, the big south-east container ports, also lost traffic to London Gateway, which is expanding fast...

That's only half the story of course. The problem with Dover is not with Dover, but the fact that the traffic there arrives from Calais/France. So this is a golden opportunity for Belgian and Dutch ports as well.

There's nowt like plain speaking Yorkshire folk...

From the BBC:

The supermarket chain Morrisons is to revive the Safeway name for some of the food it makes for independent retailers...

Announcing the new strategy, which it said would be "capital light", the company said: "The re-introduction of the Safeway brand will enable Morrisons to leverage its sourcing and unique food maker skills to give independent retailers' customers access to great quality products. The UK convenience market is very broad and diverse, with around three-quarters held by independents."

Economic Myths: Business rate hike may force UK's shops to raise prices

The Guardian repeats the usual bleating from the owners of retail premises:

An analysis by Paul Turner-Mitchell, a business rates expert, and the property agent CVS has found that the business rates for 485,435 retail premises in England, which account for more than a quarter of all properties liable for rates, will rise from £7.7bn a year to £8.2bn over the next five years.

Mark Rigby, the chief executive of CVS, said: “The retail sector is facing a significant shift in structural dynamics, with most reporting challenging conditions ahead.

“Add to the mix the already ‘lethal cocktail’ of increased operating costs from the national living wage and apprenticeship levy, and a near half a billion pounds increase in business rates per year for the next five years is simply unsustainable. Something will have to give – whether that’s store closures or even higher prices at the till.”

They fail to make a distinction between marginal costs (i.e. the cost of each extra unit) and fixed costs. The profit-maximising price/output level is dictated by marginal costs, not fixed costs. Here's the relevant article from Economics Help and here's the diagram:


The article does not mention fixed costs at all. Clearly, the National Living Wage and the apprenticeship levy increase unit costs, so these might result in lower output/higher prices. In economic terms, those things are very bad indeed (whatever their political/social appeal).

But changes in fixed costs like Business Rates won't make a difference to prices, unless they are so high as to wipe out profits altogether; in which case
a) shops will threaten to shut; either landlords concede on the rent to balance out the BR increase or they don't care and shops go out of business
b) in which case landlords are stuck paying the Business Rates themselves with no rental income to cover it
c) local average rents will fall, Business Rates will fall and the shop will become viable again.
d) owner-occupier businesses (our much loved 'small local shops') are usually much less profitable (before rent) than tenant businesses, who have to make the rent each month, and can't be insulated with rent reductions. Well so what? Get with it or get it rented out.

And anybody who has travelled outside his home town knows that freely transportable goods sell for the same price all across the UK - despite the huge disparity in Business Rates. Why would anybody think that this will suddenly change?

It is only goods and services consumed at point of purchase (restaurants, pubs, cinemas etc) whose price includes a location rent element where there is any noticeable different in price between expensive areas and cheap areas; assuming that those businesses are already charging the profit maximising price, why would anybody think this will suddenly change?

A comedian goes for a job-interview at the BBC...

... and is offered the job.

"But remember," says his boss, "At the BBC there are certain subjects that are taboo, please do not make jokes about religion, the Royal family, disability, race or sexual orientation. It's not just us being politically correct, we always get no end of grief when we broadcast that sort of thing."

"That's a long list," answers the comedian "How am I supposed to remember it?"

"Easy," says his boss "We've got a mnemonic: Oh my god! said the Queen, I do believe that one-armed nigger is a pouff!"

Somebody told me that joke decades ago and it's as true today as it was then.

Fun Online Polls: Speeding fines & picking winners

The responses to last week's Fun Online Poll were as follows:

In the last ten years, have you ever had a speeding ticket for exceeding the speed limit by… Choose the lowest which applies.

Up to 10 mph - 19%
10 to 20 mph - 7%
20 to 30 mph - 7%
I haven't had a speeding ticket for ten years - 67%

Hmm. Where I live (south east England) everybody seems to merrily exceed the speed limit by up to 10 mph as a matter of course. It strikes me that - ignoring legal speed limits on any particular stretch of road - the most sensible speed is "roughly the same speed as everybody else" so I have grown accustomed to it - unless it is a clearly marked residential area with a 20 mph limit, where you aren't just risking a ding or a scratch, you might actually injure a pedestrian or generally wind up people in their homes, so I stick to that religiously. I didn't realise that this many people got speeding tickets for doing a few miles over. Bugger.
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And lo, our PM has spoken!

From gov.uk:

The new Industrial Strategy Challenge Fund, overseen by UK Research and Innovation, will back projects covering a number of priority technologies and help Britain build on existing strengths in research and development. Despite its strengths in science, Britain has until now been relatively weak on commercialisation, meaning that all too often ideas developed in this country end up being commercialised elsewhere.

Government will consult on how the fund can best support emerging fields such as robotics and artificial intelligence, industrial biotechnology and medical technology, satellites, advanced materials manufacturing and other areas where the UK has a proven scientific strength and there is a significant economic opportunity for commercialisation.

So a nice list of buzzwords plucked out of the air then?

That's this week's Fun Online Poll, which of these do you think are worthy of subsidies?

Vote here or use the widget in the sidebar.

Cutting the legs off the housing ladder

"How to keep house prices low for generations to come" is the headline on the BBC website introducing an article about Community Land Trusts.

Imagine a world in which the price of housing stopped rising as predictably as a hydrogen-filled balloon. And imagine a country in which houses would be just as affordable in 10 years' time as they were 10 years ago.

There would be no race to buy a home, no fear that prices would accelerate faster than you can save up for the deposit. Houses would cease to be a means of profit, and instead become just a place to live.

Well, amen to that, but it appears that community land trusts are few and far between:

There are 175 CLTs in England and Wales, which so far have delivered 560 homes.

… despite having government support:

The government is expected to announce a programme of support for similar coastal and rural CLTs in the Autumn Statement. It will be funded out of the extra stamp duty chargeable on second homes.

Hang on, "funded"? What do they need funds for? All the CLT needs to be able to do is to get planning permission on land that otherwise wouldn't get permission, then sell the homes at undervalue with a legal restriction that they have to be sold on at undervalue. Perhaps the government is thinking that it wouldn't do to have landowners selling building land at anything other than full market value, even if it is to a CLT.

So it looks like there are a few people who don't care about "getting on the housing ladder" and just want somewhere of their own they can call home, but the cynic in me is wondering how long it will be before the first CLT is taken to court by an owner wanting to sell at full market value, or even the government introducing some sort of "Right to Sell" legislation to allow them to do so.

This week's award for mind numbing innumeracy goes to...

... The Taxpayers' Alliance:

Every year Her Majesty’s Revenue and Customs (HMRC) estimates how much tax revenue is lost to the black market. The annual report, Measuring Tax Gaps, is an annual report looking at a range of ways in which HMRC loses out on revenue from a range of direct and indirect taxes.

The tax gap is largest when it comes to duties on tobacco, alcohol and diesel – the most highly taxed products.

That was news to me, so I thought I'd better check HMRC's actual report first before I lay into them.

By absolute amount of tax 'lost', the rankings are:

Income Tax, National Insurance Contributions & CGT: £15.5 bn
Gross Profits Tax Value Added Tax: £12.7 bn
Corporation tax: £3.7 bn
Excise duties: £2.8 bn

By amount 'lost' relative to amount of tax collected, the ranking are

Gross Profits Tax Value Added Tax: 10.3%
Corporation tax: 8%
Excise duties: 5.3%
Income Tax, National Insurance Contributions & CGT: 5.2%

So the 'tax gap' for Excise Duties is smallest in absolute and relative terms. Duh.

Sadly, HMRC are not responsible for Business Rates (quasi-LVT) so do not publish the 'tax gap' for that which is - unsurprisingly - about 1% or 2%.

I prefer a "double decker bus hits bridge" story, but each to their own, I suppose...

From the BBC:

One woman was trapped and 13 other people were injured after a bus crashed into a wall in west London.

A witness said the woman was stuck beneath the double-decker when it left the road and hit a building in Ladbroke Grove, shortly before midday. The woman was freed and taken to hospital with minor injuries.

None of the other injured people, including the bus driver, suffered life-threatening injuries in the crash, police said.

A Dispatch from the Front Line

I have had a reasonable year and decided we should pay off the final balance of our flexible business loan early.  Not a problem you'd think?  Just transfer some funds between accounts.  BTW, this is HSBC.  Note also that HSBC have sacked all their local managers and we are 'looked after' by someone about 70 miles away.

 

Can we do this by on line banking?  Nope.  No facility.

 

OK.  Let's call telephone banking.  Nope.  Can't do that either as one of my access credentials has expired and it'll take 'a few days' (i.e. probably a couple of weeks) so sort that out.  The ooman bean who told me this said she'd email my 'issue' to our 'RM'.  A 'relationship manager' I suppose.

 

RM calls me back. Can I do this in the local branch?  Nope.  So I go off on one about their sacking of all their local RM's and then she make the big mistake of saying that HSBC are struggling with their profits!!!  Oops.  Bad move.  I issue a few choice words about ex nihilo money and QE and so on and it all goes a bit quiet.

 

'You'll have to write to me then and I'll get it done. You can do that by email'.

 

'Oh can I?  Really?  Is that wise as we have no secure email connection with you?'

 

Sigh.

 

Sinkhole and cow news

Sent in by Derek R from CTV News:

Two people fell into a hole that opened up in the sidewalk outside a Kitchener department store Monday. It’s not clear what caused the hole to form outside the Sears store in Fairview Park Mall around 2 p.m.

Deanna Haddad was near the front of the store when she saw a woman try to walk into the building: “As she stepped in closer, she fell into a hole,” she said, “I don’t know exactly how deep the hole was, but she was up all the way up to her neck.”

There's your clue, right there.

From The Guardian:

A section of road in the centre of the Japanese city of Fukuoka has reopened just days after a sinkhole opened up outside a busy railway station and threatened to topple nearby buildings.

In a typical demonstration of Japanese workmanship and efficiency, workers toiled around the clocks and had practically filled in the section of road in just two days, according to local media. The road reopened to traffic and pedestrians early on Tuesday after local officials declared the repaired stretch safe.

Meanwhile, Up North:

Emergency planners are discussing when residents can return 'ome after a large sinkhole opened in North Yorkshire.

Twelve homes were evacuated on Wednesday after t'ole opened in t'back gardens of Magdalen's Road in Ripon.

Ian Spiers, emergency planning manager for Harrogate Borough Council, said Yorkshire Water were deciding how to reopen t'sewers so t'residents could return 'ome.

The worst kind of subsidence is an earthquake of course, among all the human misery there's this from MSN.com emailed in by James Higham:

Three New Zealand cows looked like they could use a little help on Monday after an earthquake triggered landslides all around them and left them stranded on a small island of grass.

Video taken by Newshub news service from a helicopter near the small town of Kaikoura shows two adult cattle and a calf stuck on a chunk of land in a paddock that had been ripped apart in Monday’s magnitude-7.8 quake. The patch of grass was surrounded by deep ravines of collapsed earth, trapping the animals where they stood.

They own land! Give them money, however indirectly!

From The Evening Standard:

Reading FC plans 'world-class' conference centre to cash in on Crossrail

'Nuff said.

Also from The Evening Standard:

Pete Redfern, chief executive of housebuilder Taylor Wimpey who led the review, said its findings reveal the “challenges that young people face in buying their first home.”

The report urges Government to devise a long-term strategy for housing, and immediately create an independent Housing Commission, which could make recommendations on long-term solutions.

While the report welcomes the building of more homes and the Government’s Help to Buy and Starter Homes schemes, it concluded more needs to be done to challenge relative wage rates and mortgage lending. They also suggest providing specific subsidies for certain “qualifying” groups to help them get on the housing ladder.

It appears that the report steered clear of the old "it's about lack of supply" myth (seeing as Taylor Wimpey and their ilk are complicit in that). The report appears to just take higher house prices (and rents) as a given, one of those immutable facts of life. In a way it is of course, if taxes are collected from earnings instead of land values, there is a natural tendency for land ownership (inherently a government subsidy) to become ever more concentrated in ever fewer hands.

The report compares the Good Old Days with the current "crisis", I can't be bothered to read it but I bet it doesn't recommend re-implementing Georgism Lite, which kept a lid on rents, prices and mortgage lending for most of the last century and thus led to the huge increase in owner-occupation and corresponding decline in private renting (i.e. more equitable distribution of land ownership); with plenty of social housing as a safety net.

Redfern Review is available in full wide screen Technicolour here.

Best cow related headline of 2016

Cow 'rugby tackled by five men' after 24 hours on the run from a cattle ship - including a 5km swim and a 12km freedom dash on land

Also possibly the saddest.

That "high house prices are all down to lack of supply" myth (yet again)

The myth has reared its ugly head a few times recently, so let's have another go at busting it.

Thankfully, Economics Help has done a good article on this to save me the bother.

To cut a long story short, whether there is a housing "shortage" or not is not a serious question. Most people would prefer to live in a larger home than the one they do, so what? That goes for most things. But assuming that somehow there is an objectively assessed shortage, we would expect rents to have risen dramatically over the last ten to fifteen years and they have not.

They have gone up in line with wages, eating up approx. one third of monthly extra net incomes after tax (I'm surprised it's that low, but there you go). Although extra supply in the last ten to fifteen years was pitiful, it has been just about enough to cope with population increases (assuming two people per new dwelling).

What has risen is the multiple of rental value which people will pay, which by and large is the inverse of interest rates. Interest rates have fallen to more or less zero, adjusted for inflation, so the multiple has gone up from ten to thirty.

(I accept that London is an extreme case, but I've explained that one to death as well and it is not really relevant to the rest of the UK.)

End of discussion.

Is Home-Owner-Ism reaching the high tide mark?

Spotted by DBC Reed in The Sun, "which regrettably these days is more on the ball than this blog which is too often down with the Beleavers on the beach worshipping the Brexit Cargo Cult.":

Back in the early 1990s, low and middle-income workers needed to save five per cent of their wages for three years, on average, to build up a deposit for a first-time property. Today, they need 24 years of such ­savings. That’s why home ownership has dropped sharply, particularly among youngsters.

As house prices spiral way ahead of wages, driven not only by a growing supply- demand chasm but also ultra-loose monetary policy, more and more youngsters from relatively affluent families are being priced out. The emergence of “generation rent” means the political geometry is shifting.

“If prices keep rising, home ownership will fall further and for the Conservative Party, with its base in home ownership, that’s disastrous,” says Alex Morton, who was Cameron’s housing expert in the Downing Street policy unit, “Tories want a society where if you work hard and do the right thing you can own your own home and get on, and that’s becoming ­increasingly difficult.”

More than half of first-time buyers in 2015 had assistance from “the bank of Mum and Dad”, rising to two-thirds in London and the South East. Such realities lay bare an uncomfort- able truth — the growing gulf between “property haves” and “property have-nots”.

There then follows a load of gibberish saying that high prices are due to lack of supply, it can be explained far more simply than that. Moving on...

Sajid Javid, the Communities Secretary (who grew up above a shop in Rochdale in a two-bedroom flat with his four brothers), has come out fighting. Last month he used his speech at the Conservative conference to accuse the UK’s large house-builders of ­deliberately restricting supply to boost prices, and therefore profits.

The “big developers” have “a stranglehold on ­supply”, said Javid, and are “sitting on land banks”, while “delaying build-out”.

The idea of “land-banking” — with the biggest house-builders remaining on go-slow to up their profit on each unit — used to be dismissed as a conspiracy theory. In recent months, that has changed. A quarter of all new homes in the UK are built by the biggest three providers and more than half are ­provided by the top eight.

There’s increasing evidence, though, that while the ­planning system remains cumbersome, more and more permissions are being given. Yet the homes are not being made. Internal government figures show that in the past three years, while there was a 46,600 rise in building units granted permission, there was a 94,300 rise in such units remaining unbuilt — with the entire increase in planning permission being absorbed by increased “land-banking”...

Fired by such evidence, the Government is set to publish a white paper on housing next month, with fines on building delays being touted and developers possibly being charged council tax on unbuilt units after a certain period. “There will be carrots and sticks,” says Javid.

It's not exactly LVT, but it's a start.

Boom not bust

Dan Denning of Moneyweek,on the back of Fred Harrison's 18-year cycle is claiming that UK house prices will boom for the next ten years and now's the time to get into property etc etc.

However, whilst the 18-year cycle seems to be an established fact, it is also a fact that interest rates are at a multi-century low, so, without a corresponding boom in average earnings, where is the money going to come from to fund this ten-year bull market in land? At the start of the previous bull market in land in 1993, average household debt was only just above 100% of income and it increased in line with the land price boom. Now we are starting from 135%, so if the boom is to be financed by increased debt, we will end up with average debt at nearly twice income, just before a crash.

If Dan Denning's right, I think I'll leave the country before 2026.

Someones Getting Worried?

Here

Once someone says they are the victims of a  'massive blame-deflection exercise' they are generally starting to realise they've, well, fucked up and been found out.

Another member of the 'it's not my fault brigade' methinks.  Right on down with the zeitgeist.

And then there's this pearl of wisdom - ""House prices in the UK are high because of low supply, not because of monetary policy", Carney tells MPs."

Update

Clearly I'm not the only one who thinks carney has no clue.

They own land: give them money!

You may have been irritated recently by answering the telephone only to receive a pre-recorded message that starts, "This is an urgent message for people on benefits regarding your oil or LPG boiler...."

These people are cashing in on energy companies' Home Heating Cost Reduction Obligation (HHCRO), which is part of the governments' Energy Company Obligation (ECO)scheme.

Under HHCRO, obligated suppliers must promote measures which improve the ability of low income and vulnerable households (the ‘affordable warmth group’) to heat their homes. This includes actions that result in heating savings, such as the replacement or repair of a boiler.

So, if you are on benefits, you can get a new boiler in your home under this scheme, but your home does not have to belong to you, thus making the ultimate beneficiary of this government largesse not the poor person on benefits, but their much richer landlord, who gets a new boiler in his property free of charge.

Fun Online Polls: Brexit next steps & speeding tickets

The results to last week's Fun Online Poll were as follows:

That Article 50 decision. What do you think will happen next? No wishful thinking and multiple choices allowed.

The government will just trigger Article 50 anyway - 17 votes
The government will appeal the decision and win - 21 votes
The government will appeal the decision and lose - 36 votes
The government will call another general election - 12 votes
MPs will vote to trigger Article 50 - 42 votes
MPs will vote not to trigger Article 50 - 22 votes
Other, please specify - 4 votes

111 voters

On that basis, the most expected (or least unexpected) outcome appears to be that the government will appeal the decision, lose and MPs will vote to trigger Article 50 (even if only by a slim majority). Which happens to be what I think is least unlikely as well.

But we'll see…
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Next, a more general question, you read in the papers about people getting done for exceeding the speed limit by 30, 40, 50 mph, but what is the lower bound?

Has anybody had, in the last ten years say, a speeding ticket/fine/penalty for exceeding the speed limit by 1 mph, or 2 mph? I doubt it.

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

Share your experience here or use the widget in the sidebar.

Reducing condensation in a car using silica cat litter and nylon tights.

The windows, and especially the windscreens, in my S-reg MX5 and 51-reg MR2 started getting terrible condensation when the weather turned colder/wetter last month.

Having Googled around, I thought I'd give the cat litter/tights method a go.

You need a bag of Bob Martin's Felight and a pack of 5 nylon tights (they are official "denier" tights, I'm surprised the AGW people haven't shut them down yet). Total material cost about £9. You cut the legs off the tights and pull one inside the other to make double thickness stockings, tip 450g of the cat litter crystals into each double thickness-stocking, tie up the ends and put one on the rear shelf and one on the dashboard.

With the newer MR2 it has worked a treat, there was barely any condensation at all this morning, even though it was raining all day yesterday. The windscreen in the slightly older MX5 is still misted up, but nowhere near as badly as before. The downside is, some of the finer powder makes it way through the double-stocking and there's white powder sprinkled across the dashboard.

So now we know!

UPDATE: after a week or so I doubled up, so I have 1.8 kg of cat litter crystals split between four stocking leg/bags in each car.

I'll just have to find some use for the last pair of tights (wrong size for Mrs W)…

A new approach to diplomacy.

From the BBC:

Donald Trump's election risks upsetting EU ties with the US "fundamentally and structurally", EU Commission President Jean-Claude Juncker has warned.

"We will need to teach the president-elect what Europe is and how it works," Mr Juncker told students in Luxembourg. The Commission chief predicted that two years would be wasted while Mr Trump "tours a world he doesn't know"…

Speaking on Friday, he said: "In general the Americans take no interest in Europe… During the campaign, Mr Trump said Belgium was a village somewhere on our continent… "

Trump and Juncker are both insufferably rude and conceited, but I'll give Juncker the points in this round for elegant sarcasm.

Juncker gets no points for originality though. I distinctly remember a Dave Lee Roth interview in the early 1980s where he claimed Sammy Hagar was dumb (it was not clear why he had a grudge against Hagar). Roth said that he had performed all over the world and learned something about each country he visited; Hagar had also performed all over the world but had learned nothing because he never had a clue where he actually was, or words to that effect. Ironically, a couple of years later, Lee Roth got kicked out of/left Van Halen and was replaced by… Sammy Hagar.

UPDATE: Mike W informs us in the comments that Dave Lee Roth was merely paraphrasing Frederick the Great:

"Thought, or, better to explain myself, the faculty of combining ideas, is what distinguishes man from beasts of burden. A mule, though he should have made ten campaigns under prince Eugene, would not have improved in his tactics.

And to the shame of humanity it must be confessed that, with respect to this kind of indolent stupidity, many old officers are not superior to such a mule."

"That carpet is gold dust!"

From The Daily Mail:

A worn-out carpet in a jewellery shop workshop is worth thousands of pounds - because it is covered in specks of gold dust and platinum cuttings. The family-run shop is replacing the 15-year-old carpet, which was fitted near seven workstations where craftsmen make jewellery using the precious metals.

Now Richard Blampied, who runs Aurum Jewellers in St Helier, Jersey, with his daughter Julie, is sending the carpet to a bullion merchants where it will be burned. The leftover gold, platinum and silver will then be weighed and its monetary value returned to the business.

Reminds me of when I was a lad at printing college, we did some gold blocking, which involved putting some 'gold' backed foil on the book and printing through it.

The teacher told us that where he had started as an apprentice, they sometimes printed with 'gold' ink that actually contained a fair amount of real gold. Some clumsy clogs had knock the tin of ink onto the floor, and the stuff was so expensive, it made sense to tear up all the floorboards and sent them to the bullion merchants to recover the gold.

I could never decide whether the story was true or not, or whether it was just an apocryphal tale invented by the teacher (or by people at the place he was an apprentice) to serve as a warning, but in the light of this, I'm shifting that one into the "probably true" category.

Reader's Letter Of The Day

From The Evening Standard:

I wish that David Reed [Letters, November 8] and others would stop peddling the myth that the EU referendum was advisory.

I doubt he would say the same if the vote had gone the other way. Prime Minister David Cameron gave a clear commitment to put into effect the result of the referendum and, while the terms of Brexit remain open for discussion, the initial part of the process is not, and must be put into effect.

Jeremy Rayner.

Exactly. I was pleasantly surprised that Leave just edged it, but had it been 52/48 in favour of staying in, I doubt whether the UK government would have said, ah fuck it, let's leave anyway.

I would have been mildly disappointed if the vote had been to remain (as widely expected), but that would have been the end of that AFAIC, shrug it off, move on, the same as with the AV referendum, where the government got the result it wanted by subjecting us to a torrent of lies and propaganda.

Fun With Numbers

US election, share of popular vote:

Hillary Clinton, Democratic Party, 48%, 59,814,018 votes

Donald Trump, Republican Party, 47%, 59,611,678 votes

Gary Johnson, Libertarian Party, 3%, 4,058,500 votes

Jill Stein, Green Party, 1%, 1,213,103 votes

This is how George W Bush was elected in 2000, as it happens.

And well done, Gary Johnson, I would have voted for you*, and failing that I'd have voted Jill Stein just for the heck of it.

* Obvs, he's a Faux Libertarian not a proper libertarian, as the American Libertarian Party thinks that VAT is better than income tax and income tax is better than LVT i.e. they have it completely arse-backwards, but hey.

Aptly named Japanese cities: Fukuoka

The man on the right of the sinkhole was overheard shouting down to his trapped companion: "Fuck!! You OK?"

From Inhabitat.com:

Bremoaners on top form

From Sky News:

A complaint Leave campaigners misled voters with claims made during the EU referendum is being considered by the Crown Prosecution Service.

AFAICS the Remain campaign (which includes the then UK government) pumped out far more actual deliberate lies than the Leave campaign did, most of Leave's stuff was quite emotive and neither true nor false in an objective sense. Luckily, most people have some sort of instinctive grasp of when they are being lied to, which is why a slim majority voted Leave, out of pig-headedness as much as anything.

Director of Public Prosecutions Alison Saunders is investigating whether the assertions made by Vote Leave and Leave.EU amount to "undue influence" with a view to bringing a prosecution.

Woah! That is not what undue influence is. The people behind this claim to be legal experts and really ought to know better.

The complaint centres on "instances where the leave campaigns continued to make assertions of fact that were knowingly misleading". This includes the claim that the EU was costing £350m a week, a figure Michael Gove was robustly challenged on by Sky News Political Editor Faisal Islam, during a televised debate.

Shall we just remind ourselves what the slogan actually said..?



Ah, good. It didn't say "cost", did it? How much the EU "costs" means including all sorts of other things, the cash contributions minus cash rebates; the benefits of intra-EU free trade vs the cost of barriers to trade with the rest of the world; the benefit of harmonised regulations across a continent vs the deadweight costs of those regulations in the first place, etc etc. Nobody really knows what all the pluses and minuses are, and that wasn't really the point.

What it actually says is that we "send" approx. £350 million per week to the EU, which is quite true. For sure, that's the gross payments and the EU pays half of it back in various subsidies (half of which to landowners). So what? Everybody knows this, don't they?

Funnily enough, the Remain campaign never tired of reminding us of the amounts that the EU pays to various organisations in this country. So Leave emphasised the £17 bn that goes out each year and glossed over the £8 bn coming back; Remain emphasised the £8 bn that comes back and glossed over the £17 bn that goes out. So Leave's claim was closer to the truth than Remain's.

To give a non-numbers example: a divorce judge asks who did the most housework, the wife says "I did it all. I did all the shopping and cooking and cleaning" and the husband says "I did it all. I had to make my own cup of tea in the morning and I took the bins out once a week". Neither claim is 100%true, but the wife's claim is closer to the truth than the husband's.

And the infamous bus slogan didn't actually say that NHS funding would be increased by £350 m a week either, did it? Quite clever wording really.

The two other key claims being challenged in the complaint are that Turkey was joining the EU and that the UK has no border controls while in the EU.

It is quite true that the EU loves to expand and that Turkey has been on the waiting list for years. It's not going to happen this year or next, but it is a long term aim.

As to border controls, as against citizens of other EU Member States, in practice, we don't really have border controls. I've been to plenty of other EU Member States and have never endured more than a cursory glance at my passport, which is exactly what they do when I come back to the UK. I personally think this is A Good Thing, but it is still true FFS. What is the much vaunted "free movement" if it is not absence of border controls?

The complaint has been submitted by an independent group led by Professor Bob Watt, an expert in electoral law from the University of Buckingham.

"Our primary aim in seeking prosecution is to try to restore some integrity to our democratic processes," he told The Guardian. "None of us is willing to allow the UK to be dragged down to some kind of populist 'who can lie and deceive the most?' race to the bottom, such as we witnessed earlier this year."

Jolly good. So will they be putting in a complaint against Remain as well?

Transatlantic LOLZ

From today's Evening Standard:

Americans who fear a Trump victory were today urged to follow the example of singer Will.i.am and plan an escape route to “cheaper” London to take advantage of the plummeting pound.

Also from today's Evening Standard, but I can't find the article online:

The country faces an "exodus" in the wake of the Brexit vote, according to novelist Zadie Smith. The writer, who found fame with her debut novel White Teeth, grew up in London but lives and works in New York...

"Other residents in the road were evacuated for their own safety to a nearby mosque"

One of the many things I have noticed from reading far too many newspaper and online articles every day, is that when people die in house fires, they are disproportionately likely to be Pakistanis/Bangladeshis. It appears to be acceptable behaviour in their community to get revenge by burning somebody's house down.

There's no clue as to the identities of the victims in this incident, but the fact that neighbours were evacuated to a nearby mosque is a bit of a clue.

Outbreak of commonsense in the tax world...

From City AM:

British businesses do not want further corporation tax cuts for fear of alienating the general public.

The consensus opinion across the UK's companies is that corporation tax is not a "defining feature of tax policy". This means that the benefits of a cut are outweighed by negative publicity attached to business’ role in the tax system, according to a study prepared by accountants PwC...

"There comes a point when rate cuts have diminishing impact and can send unhelpful messages about business' contribution, even though corporation tax is just one of the taxes business bears. Businesses think there should be more focus on the taxes that generate the most revenue such as national insurance and VAT," said Nicholson.

Fun Online Polls: Refuelling Russian warships & That Article 50 judgment.

The results to last week-and-a-half's Fun Online Poll were as follows:

Would it particularly bother you if Spain allowed a Russian warship to refuel in a Spanish-controlled port?

Yes - 7%
No - 89%
Other, please specify - 4%

Good, it appears that I'm with the majority on that one.

Top comment:

SlightlyChilly: War Back in the GODs there was a face off between two Superpowers. Nowadays, arguing about who should refuel a museum piece rustbucket from an economically irrelevant backwater is a transparent nonsense.
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And on to that Court decision on whether the govt can trigger Article 50 without a vote in the House of Commons or a new Act of Parliament, about which millions of words have been written, mainly by non-experts which includes me so I wont bother adding to it. I did one or two units of constitutional law on my law degree and AFAICS they just make it up as they go along.

What is interesting is that the decision itself appears to be unclear what the government is now supposed to do.

Let's see if we can guess what will happen next…

Vote here or use the widget in the sidebar.

Institute of Economic Affairs - gloriously wrong on corporation tax.

From page 204 of pdf here.

There's a lot of good stuff, but they relapse into Faux Libertarianism when it comes to the question of what's worse, VAT or corporation tax.

Corporate profits

The OECD found that corporate income taxes (such as the UK corporation tax) have the most negative impact on economic growth, among consumption taxes, property taxes and income taxes (Arnold 2008). Specifically, corporate income taxes have the following problems:

• They weaken the signal to reallocate resources from low-value activities to high-value activities between different companies and also within the same company by reducing after-tax profits.

No they don't "weaken signals" particularly. I know that the OECD said that but it's nonsense. A good pre-tax decision will nearly always be a good post-tax decision. When businesses are decided which projects to undertake, it is educated guesswork, for a given amount of £100,000 to be invested in a new project, if they expect an overall pre-tax profit of £50,000 from Project A and £30,000 from Project B, they will choose Project A. If the business compares post-tax profits, they will still choose Project A with a post-tax profit of £40,000 rather than Project B with a post-tax profit of £24,000.

That is quite different to VAT. Assuming we are looking at the same time frame/effort, compare:
- Project A involves producing/selling 100,000 small, high turnover items which can be made and sold within five weeks. They cost £1 each and can be sold for £1.05 gross = £50,000 profit over a year.
- Project B involves producing/selling 1 very large slow-moving item, which costs £100,000 and, takes a year to make/sell, and which can be sold for £130,000 gross = £30,000 profit.

If you knew nothing about VAT, you would say that Project A is better. But once you take VAT into account, Project A actually makes a loss of £160,000 and Project B makes a profit of £4,000. That strikes me as being hugely distortionary.

VAT similarly distorts activity in favour of VAT-exempt or zero-rated items and against fully VAT-able items. Corporation tax does no such thing.

• They bias ownership structures in favour of debt capital and against equity capital.

This is another of those myths that I have been railing against for decades to little avail. The UK tax system was heading towards a system (it is now heading away again thanks to George Osbrown's constant meddling) where the amount of tax (corporation tax plus income tax) would be exactly the same whether it is funded by share capital or loans. It would be quite easy to enforce the default rule that interest payments are liable to 20% withholding tax and get rid of Osbrown's stupid tweaks, so that by and large, it makes no difference.

• They distort spending patterns in favour of current expenditure, which is fully tax deductible, and against capital expenditure, which is not (capital allowances partially ameliorate this).

Not really. A good pre-tax decision is a good post-tax decision, see above. I've never heard a businessman yet decide to stop using 'capital' (i.e. labour saving devices) because they will not get 100% capital allowances in the first year. And if the IEA really thinks this is a problem, then they could suggest giving businesses 100% first year capital allowances on all the equipment they buy. Most small and medium sized businesses have been able to claim 100% first year capital allowances on all additions for the last few years anyway. I don't really see the harm in extending this to all businesses, it would result in a corporation tax shortfall in the first few years but slightly higher receipts once it has bedded in and an end to all this Faux Lib bickering.

• They discourage investment by reducing retained earnings, which would otherwise be spent on capital investment goods directly by the company or invested with financial intermediaries to the same effect by third parties.

Nope. By definition, corporation tax is not a tax on reinvested profits, which is what we care about, reinvested profits are paid out of earnings before corporation tax. 'Retained earnings' merely means all earnings not paid out as dividends. It's not even technically correct because corporation tax is paid on total earnings, including the part paid out as dividends, which are at directors' discretion. From the company's point of view, the government is just a quasi-shareholder with a right to a dividend of 20% of earnings. The directors can then decide how much pre-tax profit needs to be reinvested; and how much should be retained in cash and how much should be paid out as dividends. If they think the tax bill is too high, they reduce cash dividends accordingly.

Once a business has shown itself to be viable, it will grow organically. The first outlet/machine/project has to be funded by share capital (assuming banks won't lend to start-ups); if there is sufficient demand and it is profitable, it will grow. If the business decides to just roll up profits in cash instead of expanding, then yes it will pay full corporation tax on them.

I spend all day completing tax returns, and it is only tax return in twenty where the capital expenditure in a year is greater than the profits, so if the business can claim 100% capital allowances on all its expenditure, it has a loss for tax purposes. The other nineteen returns show that capital allowance expenditure was a lot less than the profits for the year, ergo full corporation tax relief and/or the expansion is funded out of pre-tax profits, whichever way you want to look at it.

Admittedly, there is a timing issue here but this can all be fed into IRR calculations, or the loss carry back period could be extended from one year to three years again, to give the one business in twenty a better chance of reclaiming all the corporation tax it paid on the earlier years' profits which it has now genuinely reinvested.

One of the few sensible measures in the UK corporation tax system is that there is no tax relief for buying land, and rightly so, as people selling land to each other does not increase our productive capacity one jot, land is not capital. Annoyingly, there is precious little tax relief for the cost of new buildings, even though buildings are capital in the true sense of the word. Again, that can easily be fixed by reintroducing Industrial Buildings Allowances and extending them to all new buildings.

That Institute for Economic Affairs report seems to recommend a Citizen's Income

From page 172 of this

A flat rate tax plus a lump sum transfer could be optimal

The theoretical ideas behind this are complex. However, progressivity could be achieved by having a lump sum transfer to all people (which would be progressive because it would be a bigger proportion of income for the poor) and a flat tax rate (which would avoid the problem of rising marginal rates).

Correct, how come it's mainly right-wingers who get this?

From the point of view of low earners, it is the personal allowance/Citizen's Income which has the biggest impact on how much tax they pay in total; from the point of view of high earners it is the marginal/flat tax rate which has the biggest impact. For middle earners, it is a bit of both.

So you can keep everybody happy with a Citizen's Income/flat tax system. And the 'theoretical ideas' behind this are not 'complex', it is basic maths that a ten year old can understand.

Those Institute for Economic Affairs tax proposals.

Full report available here.

Most of the more detailed stuff slagging off existing taxes on pages 167 to 222 is actually quite good. They make the usual Faux Lib mistakes in thinking that VAT is a tax on 'consumption' and that corporation tax is a tax on 'capital', but hey.

Here's the fun part:

Location value tax

One exception [to their rule that 'wealth taxes' are bad], however, is tax that captures the location value of land. If properly constituted, a tax on location value may cause disproportionately little economic damage, because land cannot be hidden or taken overseas to avoid the tax and owners cannot respond to the tax by producing less value in its location – for the reason that they are not responsible for it in the first place.

A location value tax involves a tax on the value of land in a given location which is normally calculated on the assumption of the land being in its most valuable permitted use. However, it is a tax on the land value only and not on any associated buildings…

So far so excellent. Then come the KLNs...

A further objection arises from the fact that the burden of a location value tax falls on the owner of the land at the time when the tax is announced. The value of the land should fall immediately by the discounted present value of the expected future tax payments required under the tax. It is therefore a windfall tax on landowners and amounts to arbitrary and retrospective confiscation of the value of their assets.

That's not actually an argument against LVT, that is a huge advantage in favour. You can view it as a large one-off tax hit today, payable in instalments by whoever chooses to own/occupy the land in future; in exchange people will get a reduction in other taxes, leaving most people plenty of extra income to pay it. After the tax has been introduced, people will be largely unaffected; they are just paying in LVT what they otherwise would have paid in rent of mortgage payments (out of higher net incomes). So it's not retrospective at all, the tax (in cash terms) is due in future on the basis of where they decide to live in future.

And why does the word "confiscation" creep in? They don't describe income tax as "confiscation" of part of your income, even though that actually be true.

Over the next few pages there are the usual further KLNs, army of surveyors, poor widows etc, but still very favourable overall.

Being numpties, they estimate the site premium of all UK housing at £74 billion, which is only one-third of the true figure. But at least they propose a high tax rate of 75% (page 221), so their LVT (on housing, commercial and farmland!)would be enough to replace Council Tax, Business Rates and SDTL, so amen to that.

And even though they say that taxes should be simple, they also propose this:

To better adhere to the neutrality and transparency principles, almost all exemptions and all reduced rates for VAT should be abolished. But new dwelling construction, repairs and maintenance, and rents should not be subject to VAT. Instead, these items should be captured along with the consumption value of owner-occupied housing with a housing consumption tax which should be set at the same rate as the standard VAT rate and should aim to mimic VAT.

A system such as this this operated in the form of domestic rates until its abolition in 1990, when it was replaced by the community charge (‘poll tax’) and then council tax. The rates were intended to be reassessed frequently but, in practice, reviews were usually long delayed, which led to even stronger pressure to resist reviews as the changes in particular households’ tax rates that the review would lead to would be so great. This distorted spatial patterns of housing consumption and opened a gap in the level of taxation on housing versus other consumption.

To avoid repeating this problem, three design features should be implemented:
• Assessed rents should be automatically increased annually in line with a local rent index.
• Rent reassessments should be carried out at a fixed frequency, perhaps every four years...

In isolation that seems better than what we've got, but why bother with two taxes on essentially the same thing? Elsewhere they point out the stupidity and unfairness of levying two layers of income tax on employment income (income tax and national insurance), why have two similar, smallish taxes on housing instead of one bigger one? And why should the rate be the same as normal VAT? The normal VAT rate should be heading towards zero, for a start.

McDonald's taking the piss on corporation tax; HMRC falling for it.

From The Telegraph:

The British arm of McDonald’s paid £123m for “franchise rights” last year, as part of a controversial structure that is under investigation for enabling unfair tax avoidance.

The European Commission launched a probe last year into whether Luxembourg’s tax arrangements for McDonald’s amounted to illegal state aid, as part of a broad crackdown on companies that route money through subsidiaries to cut their global tax bills.

The point being that such royalty payments are an allowable deduction for UK corporation tax purposes and there is only 5% withholding tax on payments of 'royalties' to an entity in Luxembourg under Article XII of the UK-Luxembourg double tax treaty (I thought it was 0% but it says 5%). That money then gets shuffled out of Luxembourg tax-free to heck knows where.

Now, let's have a proper read of that Article:

(1) Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. However such royalties may also be taxed in the Contracting State in which they arise and according to the law of that State, but if the recipient is the beneficial owner of the royalties the tax so charged shall not exceed 5 per cent of the gross amount of the royalties.

(2) The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.

(3) The provisions of paragraph (1) shall not apply if the recipient of the royalties, being a resident of a Contracting State, has in the other Contracting State in which the royalties arise a permanent establishment with which the right or property giving rise to the royalties is effectively connected. In such a case, the provisions of Article VII shall apply.

How on earth does McDonald's get away with claiming that the royalties don't relate to 'permanent establishments' which they have in the UK? Some McDonald's restaurants are owned and operated by McDonald's corporation itself and some are franchises, but given the level of control which McDonald's has over its franchises, I'd still count them as permanent establishments.

Ergo, on a sane reading of the treaty, those royalty payments are liable to perfectly ordinary UK corporation tax.

(Clearly, McDonald's is paying vast amounts of VAT, so overall it might well be paying 'too much' tax in total, I'm just saying.)

"Wealthy southerners inconvenienced by wrong kind of cow "

Via Julia M, from The Telegraph:

A Highland cow by the name of Rica caused gridlock for commuters in Dorking on Monday morning when she went on the run around the Surrey town.

Drivers on the A24 slowed to a halt shortly before 9am after Rica, who is five feet tall and weighs half a tonne, escaped from the field where she lives and started making her way northbound up the busy main road.

She eventually turned off into a cul-de-sac and was tracked down by police officers, who found her casually grazing in a local resident’s front garden.

The whole tone of the article suggests that the genteel burghers of the stockbroker belt wouldn't have minded so much if it had been a classy southern cow like a Jersey cow, but a rogue cow from the Highlands? Really! What's the neighbourhood coming to?