YPP manifesto - new draft

The old version is (or was) here, I think we ought to tie it all in better from the start, once you understand the basic principles all the detailed policies fall into place. As usual with me, it all seems so simple and obvious when I was drafting it in my head over the past few weeks but once I try and write it down, it gets really long-winded, so I need your help to whittle it down.
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Most political parties (and most voters) assume that in the natural order of things the world is divided into nation-states and that each nation-state has a 'government' and base their election campaigns/policies/voting decisions on what the government should be doing. So political parties have a rag-bag of inconsistent policies based on little more than buying enough votes to get into power and their snouts in the trough while keeping their real financial backers happy.

This is the wrong question: the proper question is, "Why do we have nation-states and governments in the first place?". Once you have thought this through, the question as to what governments should (or should not) be doing in any particular detailed policy area (from taxation to the NHS, Trident or  immigration) more or less answers itself.

Most people know why we have nation-states and governments if they think about it for a few minutes, it was a gradual progression from scattered hunter-gatherer families with every family fighting for itself via tribes and more settled farmers to full blown nation-states with governments. Sadly, some nation-states are dictatorships, theocracies or kleptocracies, but the Western/European style democratic, liberal, free-trade model works the best.

These are all merely ways in which society organises itself and the advantages of smaller groups merging to become larger groups are obvious. A nation-state is big and strong enough to defend its own borders and within its own borders, governments carry out the role of policeman in a literal sense, they are there to protect life and property (by punishing criminals), thus freeing everybody else to get on with their lives. In an ideal world, this increases everybody's personal liberty.

There is an upper limit to the size of a nation-state, which is all the people who identify as members of that nation, so multi-ethnic empires always collapse after a few centuries.

The reason for this is also obvious if you think about it.

A. Within the borders of one country, everybody speaks the same language, uses the same currency, has the same rules and customs, which makes socialising ad trading so much easier. People prefer dealing with people who follow the same rules as they do. As far as international trade is concerned, most civilised countries have a legal system which allows a wronged party to sue in the other country for non-delivery or non-payment which facilitates trade.

B. More subtly, each nation-state has to have rules on how you are allowed to behave. This is fine as long as these increase people's overall liberties, which is obviously the case with punishments for murderers and thieves. Once it gets more detailed, there is always a balance to be struck. So a 20 mph speed limit in residential areas enhances the safety of road users and keeps noise disturbance down but from the point of view of the motorist this is a burden and a reduction in personal freedom. Overall, this is a gain for society and so it's a good rule. Imposing a 20 mph speed limit on motorways would clearly a loss to society. Some detailed rules, like the ban on people smoking in their own vehicles, merely place a burden on a minority while benefitting nobody whatsoever.

Unfortunately, people tend to be most aware of those rules which restrict their personal freedoms (not those which benefit them). However, as long as they know that people who are benefitting from these restrictions are fellow nationals (or immigrants who will respect those standards of behaviour), most people will put up with it, however grudgingly. If individuals break these rules, then we expect them to be punished. This is called 'social cohesion'. Where it breaks down is when larger groups in a country have a different national identity and merrily flout the rules imposed on natives or try and impose their alien rules on the host society.

So there are clear benefits to having nation-states and 'governments'.

The next question is: "How do we measure the benefits in £ terms and who benefits most?", having answered that, how (and whether) 'governments' should raise money (taxation) and how they should spend it are obvious. Under the established political system it is all back-to-front. Politicians first decide how they would like to spend money (buying votes or subsidising their financial backers and businesses which will give them cozy consultancy jobs when the leave office) and then try and finance this by raising taxes, or to keep pensioners (who'll never have to repay it) happy, by running deficits.

That's easy. Superficially, almost everybody is safer and better off and can produce more/earn more in an industrialised/civilised society, that's the whole rationale.

But in £ terms, the biggest winners in civilised societies are those who can derive income from things which would have no value in a society of hunter-gatherer bands or small tribes of settled farmers. The former has no concept of land-ownership and the latter no concept of individual landownership (it belongs to the whole tribe) and neither system has patents/copyrights or other privileges which preventing 'outsiders' from carrying out certain activities/professions.

Land/location is the easiest to understand and measure in £ terms. Land-ownership and nation-states are synonymous, you cannot have one without the other. And as the estate agents say, land value is all about "Location, location, location". Quite simply, the more 'civilised society' you have in an area (more people, hence better opportunities to socialise and trade, more job opportunities, more leisure and spending opportunities and more potential customers, which then means more transport infrastructure, water, gas and electricity on tap, better broadband and mobile phone reception etc), the higher the rental value of land.

So there is a vast difference between the rental value of farmland and land in the middle of nowhere and in town and city centres and there is a vast difference between rents in high wages areas and in high unemployment areas. The rental value of a shop in Bond Street in London is hundreds of thousands times as much as  the rental value of a Scottish grouse moor or a sheep farm on a hillside in Wales, simply because the benefits of the UK (as a nation-state) are very focussed in certain relatively small areas.

While people's innate skills are pretty much the same wherever they are from, they can increase their productivity/earnings (and quality of life) by moving to an area with lots of 'civilised society' i.e. towns an cities and especially London. Most of the extra they get by doing so goes into higher rents, leaving them little better off in £ terms. All tenants and newcomers are paying extra simply to be near other tenants and people who are paying (or have paid) extra to live there and the landowners are cashing in. Who or what causes or creates that extra value as measured by rents? The answer is, "Everybody in the UK (or in any neighbouring country) who abides by the common rules".

So to whom does this extra value/rent belong? Either everybody or nobody and certainly not a privileged few who have a government-guaranteed title to that land. But because in most countries - and certainly in the UK - certain militarily powerful leaders/invaders declared themselves simultaneously to be 'the govenment' and owners of the land, they rigged the system to make themselves sole collectors of rent and taxes and it has stayed that way for centuries.

There are plenty of other sources of naturally arising 'rent'. Radio spectrum is just there as a free gift of nature, but any frequency only has value to a business if the government is there to prevent anybody else from using it. Rain falls from the sky and is stored by rocks and soil, it costs a few pence per cubic metre to purify it, the government (or recently privatised water companies using stet-granted access rights) builds vast pipe and sewerage systems. The value of mains water and a sewerage system (without which towns and cities could not exist) vastly exceeds that cost (if water and sewerage charges doubled, you'd pay it).

And there are plenty of other examples of rents arising by the actions of the government. This is in the public sector itself, like all the council oficials, quangocrats and senior civil servants on six figure salaries with gold-plated pensions, or pretty much anywhere where public and private sector overlap. A patent is ultimately just the government protecting a business from new competition; the statutory requirement for companies to have their accounts audited is a free lunch for 'auditors'; Legal Aid might be a good thing in and of itself but it is a free lunch for barristers; restricting the number of taxi permits, while giving them extra rights (using bus lanes, parking outside stations and preventing other drivers from picking up fares on the street) is a free lunch for taxi licence holders, and so on.

A free lunch for one group of insiders (from land-owners to taxi licence holders) is not just a transfer of wealth (legalised theft) or a zero-sum game (redistribution upwards), it is a huge drag on the economy.

So how should a government deal with 'rents'?

Simple - depending on circumstances, some combination of measures which get rid of rules which protect certain groups of insiders; dismantling barriers to entry; shutting the revolving door between politicans/civil servants and private sector businesses they have favoured while in government; price caps on sources of rental income; providing a low-cost alternative and taxing the rents themselves instead of taxing productive economic activity (and using the proceeds to spend on things which increase rental values, which is what most government spending does).

Simple examples are radio spectrum, most governments auction off the licences periodically which is a like a voluntary tax; and most governments either run the water and sewerage themselves or impose price caps on privatised water/sewage companies.

Land rents (and mortgages) are the largest chunk of rents and the largest state-sponsored transfer of wealth from younger generations to older generations, landowners and banks. They are, in £ terms, about one-third of people's after-tax disposable incomes or businesses' after-tax profits (and by implication, about one-third of the whole economy), so let's focus on those.

For most of the twentieth century the UK (like most western and civilised countries) had a combination of measures which prevented too much land rent ending up in private hands, thus benefitting 'everybody else' (the people who created or caused the rents to arise in the first place). These measures were:
- price caps. These took two forms, a) rent controls and tenant protection and b) house prices were controlled indirectly because building societies would only lend a low multiple of buyers' incomes. If a couple can only borrow twice their annual income, then the average house price will not be much more than twice an average couple's annual income (about £80,000 - £100,000 in today's money);
- there was no implicit guarantee that the goverment would bail out building societies which lent recklessly, which is a kind of subsidy to higher house prices;
- higher recurring taxes on housing (Domestic Rates) and higher tax rates on rental income than on employment income;
- offering a low-cost alternative, i.e. council housing, which has always produced a modest profit (in cash terms) for local councils. The fact that councils were not charging the full location rent was an equal and opposite benefit to their tenants.
- reducing barriers to entry. Getting planning was much simpler, so smaller developments were more viable, so there were lots of small building companies and more new construction than today (although not that much more, most of the extra construction was council housing). Getting planning permission nowadays is so expensive and onerous that only large developers can ever get anything off the ground. This has led to consolidation, so half a dozen large companies own all the land banks (enough for about ten years' output) and they can drip feed new developments onto the market to maintain their profit margins. As we saw in 2008 or so, if demand drops slightly, they simply lay off all their sub-contractors and put all their developments on hold until prices recover.

The landowners' lobby constantly points out that rent controls have the effect of reducing the quality and quantity of accommodation available to rent. This is largely true, but so what? The wider benefits vastly outweighed this - a rapid increase in owner-occupation levels (and the nigh eradication of the landlord class); plenty of social housing for those who couldn't qualify for a mortgage; a small and stable financial sector hence no financial crises; and a much greater equality of disposable income (after housing costs) between younger and older generations.

These general principles apply to all forms of rent and rent seeking.

Having decided the best way for a 'government' to raise revenue is to from the value of (land) rents and other state-granted privileges (to the extent that those privileges can't simply be scrapped), the question on what the 'government' should do and how it should spend money is obvious.

On the one hand, a government acts as a (mutually owned) service provider, executive branch of society or glorified landlord, so will do things and spend money on things if those things enhance rental values by more than the cost, thus generating a 'profit'; on the other hand, the government is duty bound to return those 'profits' as equally as possible to each and every one of its 'owners', being every citizen/voter/resident in the country. Remember - one way of returning those 'profits' is to reduce taxes on employment and output; people and businesses who add the most real value should be paying less, not more, into the general pot.

YPP is actually broadly happy with a lot of the spending side, our welfare and pensions system is largely universal (although pensioners, a quarter of whom had a 'free' university education now benefit from the pensions Triple Lock; while millenials face high tuition fees and are persecuted when claiming unemployment benefit); and everybody has the right to use the NHS or send their children to a state school 'for free'.

YPP is not so happy with all the spending which benefits insider in the public and private sectors, and especially unhappy with collecting taxes from workers and non-protected businesses merely in order to prop up rents and house prices. The most extreme example of this is Help to Buy, of course.

In a way, most forms of spending fall into various categories, good and bad.

For example, spending on state education. On the good side:
- is a universal benefit/entitlement, which levels the playing field and increases equality of opportunity;
- helps the economy by providing a better educated future workforce;
- it caps private school fees by being a low-cost state-provided alternative;
- even if you opt out and pay to send children to a private school, they will be far better off than if all the other children had never been to school;
- it enhances social cohesion if children go to school with other children of both genders and from all walks of life, rich and poor, good and bad alike.

On the bad side:
- the state sector is prone to producer capture, teachers will teach what they want to teach and to enforce the establishment view on their pupils;
- the education sector will always hold out for more spending and protect their privileges. They can go on strike for more money but will fine parents who take their chidren on holiday during term-time;
- there is rent seeking by the upper echelons. New graduate teachers are paid quite badly, the trick it to scramble up the ladder, get out of the classroom and get a much better paid job in the bureacratic heirarchy;
- if state education achieves its main aim and produces a more productive work-force, a large part of the growth in the economy merely goes into higher rents;
- there are plenty of good state schools. But these simply push up rental values and selling prices in their catchment areas, so as usual, the landowners are the big winners and this dismantles the 'universal benefit' aspect; only higher earners can afford to move to those areas and hence get their children into the best state schools.

++ Four hours later, I have to stop to have a break and eat something, to be continued once I've had time to think this through, clarify etc ++