Mark Wadsworth

Hesta La Vista, Bonus

2012-01-31T21:50:00.001Z

They own land! Give them money!

2012-01-31T13:18:00.002Z

From The Daily Telegraph:

The Department of Health is considering plans for a major drive to reduce the number of people going into care homes and reduce the cost of social care.

The centrepiece of the initiative would be Government-subsidised loans to the elderly to fund home improvements including downstairs bathrooms, stairlifts and other "property improvements" that would allow them to stay in their own houses longer.

Younger people will also be urged to volunteer to spend time with elderly neighbours, helping address the loneliness that helps push some into care homes.

As politicians struggle to overhaul the fragmented social care system, ministers are looking for new ways to reduce the flow of older people into residential care, which is much more expensive than remaining at home.

This is getting beyond satire.

"Teenagers more at risk online than at the 'bus stop, says Theresa May"

2012-01-31T11:47:00.006Z

From The Metro:

Teenagers are increasingly the victims of cyber crime, which causes more losses than being stabbed on a bus or at a bus stop, Theresa May said. A new National Crime Agency will help tackle this and make people feel safer, she said.

Mrs May said: "Increasingly, the biggest criminal losses do not come from gangs of feral youths of whatever skin colour who attack and stab members of rival gangs or people of a different race, but from the cyber criminals who say hurtful things online. A teenager can now be at greater risk sat [sic] in their bedroom [sic] on their computer [sic] than waiting for the 'bus.

"That’s why we need a new crime-fighting force that works across different police forces and agencies, defending our borders, coordinating action on economic crime, protecting children and vulnerable people, and active in cyber space."

In a speech on police reform in London, Mrs May outlined plans to offer more protection from antisocial behaviour to stop the ‘horror stories’ of victims being ignored despite making repeat complaints. HM Inspectorate of Constabulary said last week few crimes were recorded from anti-social behaviour cases and the identification of repeat and intimidated victims was ‘poor’.

A police spokesman said: "Look at it this way, if it's a choice between pounding the beat at night to make people feel safe and possibly having to chase after knife wielding maniacs; or simply sitting in the station mucking about on the internet, then it's pretty much a no-brainer. You wouldn't imagine how upset these kids get when even we ignore them, it's hilarious."

Stealth Tax Fun

2012-01-31T09:27:00.001Z

You can download the main rates of tax on earned income at the HMRC website. The official basic rate of income tax has come down from 35% to 20% since 1975, but this is completely misleading, as this was merely offset with corresponding increases in every politician's favourite stealth taxes: VAT (currently 20%), Employer's National Insurance (currently 13.8%) and Employee's National Insurance (currently 12%).

You can't just add the rates together, the overall rate is (thankfully) not 20% + 13.8% + 12% + 20% = 65.8%. The more scientific approach is to ask, if you as a consumer spend £1 on the output of a non-monopoly, non-special-interest business, how much does the government take before an average employee can be paid?*

As we see, the overall effective rate has stayed pretty constant at around 50% since shortly after VAT was first introduced, so the benefits of the basic rate income tax reduction are only felt by certain favoured groups or certain favoured sources of income: * For illustration, using this year's rates, for every £1 you spend...
- VAT is not 20% of that, it's one-sixth of that, i.e. 20/120 = 16.7p goes in VAT;
- This leaves 83.3p out of which wages are paid. Employer's NIC is 13.8%, so Employer's NIC is 13.8/113.8 of the 83.3p that's left after VAT = 10.1p goes in Employer's NIC;
- This leaves a maximum of 73.2p to be paid out as wages;
- Employee's NIC is 12% of 73.2p = 8.8p goes in Employee's NIC;
- Basic Rate Income Tax is 20% of 73.2p = 14.6p goes in Basic Rate Income Tax.

The Check Republic

2012-01-31T07:52:00.002Z

Fun Online Polls: Scottish independence & eliminating the deficit

2012-01-30T11:08:00.004Z

There was a late surge in last week's Fun Online Poll, and the final result in the second and final round is as follows:

Which is your preferred option?

Abolish the Scottish Parliament and scrap devolution - 53% (29%)
Full independence for Scotland outside the UK - 47% (41%)

The figures in brackets are the votes for those two options in the first round held the week before. So there was a slight change of heart in the final round, but that is the end of that, the people have spoken.
----------------------------------
The government is bleating on about maybe cutting taxes or reducing government debt but is not actually doing either. If we rule out tax increases to eliminate the annual deficit, then the only option is to reduce spending.

The Public Sector Finances Databank (available here, Excel), tells us total government spending and tax receipts back to the 1970s. Forecast total revenues (mainly taxation but also other bits and pieces) for 2012-13 ar £594 billion (Tab C2) and spending is pencilled in at £715 billion (Tab B1), giving us a deficit and increase in total debt of £121 billion, which strikes me as pretty horrific.

If we assume average price/wage inflation of 3% a year, it is easy to go back and identify the last year in which government spending was no more than £594 billion in real terms, which happens to be 2003-04. Spending in that year was £456 billion, using Excel, 456*(1.03^9)=594, so in real terms it was £594 billion.*

So that's this week's Fun Online Poll. Vote here or use the widget in the sidebar.

* If you are happy to return us to The Dark Ages of the 1997-2001 Labour government, then spending would be about £500 billion a year and there'd be scope for pretty hefty tax cuts as well, we'll deal with that possibility later on.

Why the Building Society funding model is the best kind of corporate structure.

2012-01-29T12:03:00.005Z

1. I have mused on this topic before, see e.g. Inefficient Markets Hypothesis, The multi-billion Chinese investment in Thames Water was no such thing and Beyond The Corporation, part 1, part 2.

2. Please note, I am not talking about the respective merits of banks or building societies, this is about having a system which has the benefits of public limited companies without the drawbacks and applies to all types of businesses (not just banks/building societies).

3. It is claimed that the big benefit of being able to switch your investments between different types of business, by selling shares in one and buying shares in another is that this leads to an efficient allocation of capital. If you do it properly and you are lucky, then yes, this leads to an efficient allocation of your own money, but there is a complete disconnect between what you are investing in (the shares) and the real underlying investment in productive capital (which is carried out by the companies whose shares are bought and sold). So whatever signals the secondary market in shares is sending, there is little or no link between that and what businesses are actually doing.

4. People are unfamiliar with Limited Liability Partnerships (which are a far better corporate structure than a limited company for small and medium sized businesses), so let's talk about how things would work on the scale of large plc's if their share capital/reserves side were structured in the same way as building societies. In other words, instead of a company having assets of (say) £1 million and share/capital reserves with a balance sheet value of £1 million, but whose shares might be worth a multiple of that, the company would just have 'members' deposits' with a balance sheet value of £1 million.

5. The gimmick being, that you cannot 'sell your shares' in a building society to a third party on the secondary market, if you want your money, you just withdraw it and somebody else invests in your place. Unlike with companies limited by shares, there is no distinction between the 'primary market', i.e. shares being issued (where an investor gives the company cash for shares) and the 'secondary market' where the first investor sells those shares to a third party, who can sell them on to a fourth etc.

6. If quoted plc's were like building societies, then at the end of every profit period (a year, a month, a quarter, it does not matter), the company would draw up a new balance sheet and allocate the increase in value (the profit) pro rata to all members' deposits, instead of paying out part of the profits as dividends on shares.

7. At any time, some members will want to withdraw some of their profits or their deposits and others will want to invest in that business, so the company will end up running simplified deposit accounts for all members (which is perfectly do-able - banks and building societies manage). The company might have to limit the amount which members can withdraw or limit the amount of new deposits which it can accept, so there might have to be some sort of waiting list approach or a cap on withdrawals/new investments. Withdrawals and new investments are to a large extent equal and opposite, so if a company accepts cash deposits it doesn't really need it will have spare cash to repay those who want to cash in immediately - which is how it works with banks and building societies.

8. So this would save investors the bother of doing two quite separate analyses: the first being an analysis of the health of the underlying business and the second being an analysis of how the share price is doing and what future dividend payouts are likely to be. Instead, you would just look at the list of public traded companies in the financial pages, and for each one it would say:
- what the profit share in the last profit period was as a percentage of deposits (the higher the better as far as investors are concerned;
- how long the waiting list is to invest in that company (if there is one), and
- whether there is a restriction on withdrawals, i.e. because the company is making losses, because it plans to expand in future and/or because not enough new investors want to put their money in.

9. To make a comparison between the two:

- Let's say that a quoted plc started the year with total assets £1 million, made profits of £200,000 (so now has £1.2 million total assets) and intends to pay out £120,000 as dividends (keeping £80,000 for future expansion). Dividend yields are currently 4%, so all things being equal, the shares in that company are worth £3 million. £1.2 million of that £3 million is real wealth (the real net assets of the business) and £1.8 million is pure speculative value; it's a nice capital gain for the original investors but a potential capital loss for future investors.

- Using the building society funding model, the total assets are also £1.2 million, and 20% is added to members deposits b/f of £1 million, and the directors announce that members may withdraw up to a tenth of the face value of their deposits (i.e. up to £120,000). If the directors know that there is a long waiting list of potential new investors, then the one-tenth figure will be increased of course, that's just details.

10. The two big advantages of the building society funding model are:

- There is no speculative capital gain to be made - either you are happy leaving your money with this business and earning 20% a year in profit share (or interest) or you want to withdraw your money, either to spend it or because you want to invest it in a different company which pays 25%, or which pays less than that but which has a safer business. Now, some people will bemoan this, but one man's capital gain is just another man's capital loss. If you are lucky to get into a successful company right from the word go, then you can sit back and be paid your 20% return each year, withdrawing or reinvesting it as you please, which is a better way of doing things that sitting there waiting for the right moment to sell your shares (i.e. just before the share price collapses).

- Instead of focusing on things not directly related to the actual business (like the share price or the dividend yield), investors will just look at how profitable businesses actually are, i.e. how much interest they pay on deposits. So profitable businesses will find it easy to attract new investment and the directors of not-so-profitable businesses will have to up their game to prevent members wanting to withdraw everything (like a 'bank run', only this would be a 'company run'). In extremis of course, the members would sack the management and either install a new one or just sell off all the assets, shut the company down and take their cash elsewhere. For the investors, this will be a lot less risky than with a plc, because they won't have paid £3 million for their shares, they will not have paid more than £1.2 million (using the same figures as above).

Detecting autism in six-month old babies

2012-01-28T18:03:00.007Z

As widely reported last week, for example in NHS News:

... a study... assessed the brain activity of 104 infants aged 6-10 months as they watched an image of an adult’s face whose eyes moved from looking away from them, to directly at the infant, then away again. Researchers called these eye movements ‘dynamic eye-gaze shifts’.

They then assessed whether differences in brain activity in response to the eye-gaze shifts were related to autism developing in the same children at three years. Children who did not develop autism showed large spikes in brain activity when they saw the ‘gaze shifts’. Much smaller spikes in brain activity were detected in the infants who went on to develop autism, raising the prospect that autism could be identified earlier than is currently clinically possible.

However, this test was not 100% accurate...

Well of course it's not 100% accurate, as autism is not a yes/no condition, there is an infinitum spectrum between 'completely shut off and irresponsive to other humans' and 'completely with it most of the time', but none of this surprises me.

As I have pointed out before*, for some reason intelligent creatures, most noticeably small babies, like staring you straight in the eyes and appreciate it when you reciprocate. Therefore, by reverse logic, there must be something a bit wrong with small babies who don't do this, or more to the point, who don't find it unusual if you don't look them straight in the eyes.

On a related topic, I'm sure that I read a science fiction book as a kid where the aliens/clones control people's minds by looking them in the eye, and the children make their alien/clone teacher's head explode by focussing on a spot six inches to the left of the teacher's face.** My fellow conspirators and I have tried this technique in Pointless Team Meetings and it does genuinely make the speaker very flustered. The technique is certainly up ~~their~~ there with Bullshit Bingo.***

* As it turns out, my observation that small children don't blink is an accepted fact, explanation here.

** Was that The Midwich Cuckoos? In which case swap round children/teacher.

*** If nobody wants to play, my other fall back is counting all the squares in the carpet, all the tiles in the ceiling or all the panes in the windows - not counting the rows and columns and multiplying, but counting them one by one and starting again if I lose count. When it's finally over, I am usually pleased to establish that I genuinely can't remember a word anybody said and don't have a clue what the meeting was about.

"Who really gets government subsidised housing?"

2012-01-28T15:59:00.007Z

A chap from the Chartered Institute of Housing has had a fine article published in The Guardian. Here's one of the key bits:

Those with no or only small mortgages also benefit from not being taxed on the value of their home (as used to happen through the old schedule A tax). This tax relief is now valued at over £11bn (1). Pooling these benefits and adding back in the stamp duty and inheritance tax of approximately £5bn that owners do pay, the net subsidy received is still a surprising £12bn per year.

Of course it's true that no government is likely to restore schedule A tax, but even disregarding it the outcome is that owners pay no net tax at all (council tax doesn't count as tenants pay it too). As Professor Steve Wilcox points out, the existence of these tax advantages means that house prices are far higher than they might otherwise be, benefitting existing owners at the expense of those struggling to enter the market.(2)

1) Wildly understated, it's more like £40 billion a year, assuming non-cash income from owner-occupation were taxed at the same rates as earned income. The biggest figure which the Home-Owner-Ists can pluck out of the air for the value of the subsidy to social housing is about £7 billion, being the difference between headline rents and 'below market rents', which may or may not be true, but that's the total value of rent savings accruing to four or five million households in social housing (a third of whom are pensioners, you can't possibly get more money out of them).

That £7 billion notional cost benefitting four or five million households pales into insignificance against the £7 billion actual cash cost of Housing Benefit paid to to a few hundred thousand private landlords who rent out (approx) one million dwellings to tenants on benefits. if we didn't pay this subsidy, then clearly rents in the private sector would fall accordingly and assuming social rents stayed the same, the £7 billion notional cost would also drop quite significantly.

Win-win!

2) This is what enables the Homeys to maintain the illusion that housing is not subsidised, it's because they/the government has organised things so that money automatically flows straight from private pockets into other private pockets, rather than the government openly taking that money in taxation and then paying it to the ultimate recipient.

Consider: if the government collects tax and gives it to owners of wind farms, that is clearly a subsidy. If the government tells the electricity companies that they have to pay money to owners of wind farms and the electricity companies add that cost to our electricity bills, I think we'd agree that is also a subsidy.

But what if the government just tells the electricity companies that they have to source at least ten per cent of their electricity from wind farms, no matter what they charge or what it costs? The extra income that the wind farm owners get by being able to charge pretty much what they like is a subsidy exactly like the first two cases; the fact that money goes from private pockets directly into other private pockets is irrelevant.

H/t Drewster at HPC.

Victimhood Poker

2012-01-28T11:43:00.003Z

This one from yesterday's Guardian is absolutely awesome. The writer (an African-American woman who doesn't appear to like men of any colour) is quite possibly the most prejudiced writer to grace those pages for simply yonks (for example, she seems to assume that people should marry others of the same race; she's clearly unhappy being single but looks down on married people) and lacks any sort of self-awareness. Everything is always somebody else's fault:

It's cast as a crisis for the African American community, but the subtext is that women should settle down – and settle for less... Over the last decade, America has been playing an increasingly aggressive game of "What's wrong with you, then?" with heterosexual single black women.

US marriage rates are dropping, according to a recent Pew Research Center study. But African Americans marry even less often than their white counterparts. According to the 2010 census, just over 26% of white Americans aged 15 and older have never married, compared to 47% of the black population.

We are told that the "black marriage crisis" (pdf) affects none so much as black women. Though black men are equally unmarried, news articles, panel discussions, special reports and books solely lament the fact that black women are half as likely to marry as white women.

There are, of course, many complicated reasons for this gap. Experts cite numbers: there are more American black women than men; higher rates of interracial partnering among black men; bias against black men in the criminal justice system and the legacy of slavery. There is also the achievement gap: black women outnumber black men in higher education more than two to one, and this often creates a wedge of opportunity and class between them.

But no reason seems more compelling than the idea that black women need to change who they are and what they want. In Is Marriage For White People?, Ralph Richard Banks tells black women to date more nonblack men. In an interview with gossip site NecoleBitchie.com that exploded around the web, actor and singer Tyrese cautioned black women against being "too independent".

And so on and so forth. If there's anybody she hasn't been rude about, I'd be pleased to hear who.

Man chased by cow - YouTube video

2012-01-27T16:53:00.002Z

~~Eighteen~~ Thirteen seconds of awesome!

Taxpayer's Alliance research shows that Local Government Pension Scheme is sensibly funded: shock.

2012-01-27T14:40:00.008Z

From The Taxpayer's Alliance:

The key findings of this research are:

• Total employer (taxpayer) contributions amounted to £5.063 billion (1) in 2010-11. That is equivalent to £1 in every £5 of Council Tax (2). In 2009-10 the figure was £5.079 billion.

• In 2010-11 4,548 councillors were enrolled on the LGPS, an increase of 252 from the previous year’s 4,296. This has increased significantly from 3,527 in 2007-08 (3)

Well, duh.

1) The LGPS website says that the scheme has 4.6 million members, so average contribution per member is only £1,090 per year, which seems startlingly low actually.

2) On a rough and ready actuarial basis, it's easiest to ignore indexation, inflation and investment returns as they net off to +/- not very much and assume that they live for twenty years after retiring. This means that if an employee is promised a pension equivalent to half his salary after forty years' continuous employment, the annual cash contribution (these schemes are funded, unlike civil service pensions) has to be around twenty-five per cent of his salary each year.

So any employer who offers a final salary pension scheme has to pay £1 pension contributions for every £4 salary, or £1 for every £5 of his total budget for wages/pension budget. Why is it a surprise that this applies to local councils as well?

So far so good... but the TPA are doing a meaningless diagonal comparison between two entirely unrelated figures: Council Tax only covers a small part of council expenditure, three-quarter is from central government out of Business Rates and general taxation. So if truth be told, councils are only spending one-twentieth of their budgets on pension contributions, another quarter (four-twentieths) on salaries and the rest on... what exactly?.

This is the worrying bit, the unknown unknowns! Local councils waste a far smaller percentage of their budget than national government, but I'm sure they make a lot of payments from which the general public derives no benefit. The TPA have come up with plenty of such examples in the past - in terms of identifying and pillorying waste and corruption, they are usually spot-on - but not this time. Some of the underlying salaries might be waste; but the pension contributions in themselves most certainly are not.

3) Agreed, that is a bloody outrage. Isn't being a local councillor supposed to be a voluntary, part-time thing?

Lib Dems talk sense (and nonsense) on tax

2012-01-27T12:18:00.011Z

From The Daily Mail:

Nick Clegg yesterday demanded a £9billion tax raid (1) on ‘serious unearned wealth’ (2) to pay for tax cuts for low and middle income earners. (3)

The Deputy Prime Minister pointed out that billionaire oligarchs with £20 million properties do not pay much more council tax than people in homes worth a fraction of that price. (4) He also pushed for new taxes on air travel and pollution. (5)

The Liberal Democrats are privately backing ‘super’ council tax bands above the current top band, I, which kicks in on homes which were worth more than £424,000 when the bands were created in 1991. (6) This is a variant of the party’s demand for a ‘mansion tax’ on properties worth more than £2 million, which has been rejected by the Tories.

Mr Clegg insisted that his planned reforms were aimed at the super-rich. He said: "I know the mansion tax is controversial, but who honestly believes it is right that an oligarch pays just double the council tax of an average homeowner, even if their house is worth 100 times as much? And who seriously thinks we would kill aspiration through a levy on the 0.1 per cent of the population who own £2million homes? (7) The mansion tax is right, it makes sense and the Liberal Democrats will continue to make the case for it. We’re going to stick to our guns."

However, local government secretary Eric Pickles is opposed to tinkering with council tax bands because he fears it will spark a nationwide revaluation process that the Tories have promised to avoid.(8)

1) Some people refer to all taxes as "a raid". Meaningless.

2) It's a big mistake describing the rental value of land as 'wealth', that allows the Home-Owner-Ists and Faux Lib's to confuse the issue. While it is a good measure of the wealth of the whole economy, land rental values are themselves not net wealth at all, as one man's benefit is another man's burden. This does not apply to any other form of true wealth: does anybody get poorer if my neighbour gets a pay rise and buys himself a nice new car?

3) Hooray! That's a sensible adjunct to reducing people's benefits slightly.

4) At the very least, they could slap a Mansion Tax on all housing owned by non-UK resident persons (as somebody suggested to me yesterday), and in the interests of fairness and administrative simplicity, scrap the £30,000 levy on non-domiciled UK residents.

5) I don't agree. The best tax on air travel is on the value of the landing slots, this has little to do with the environment, as such.

6) I love this bit! Doing the revaluation/rebanding would, by The Morbidly Obese One's own admission only cost around £5 - £10 per home, HM Land Reg have got all the information they need on its databases. All that remains to be decided is

a) Whether homes will be banded by capital or rental values; and whether those should include the value of the bricks and mortar or just the land.

b) What the total receipts will be. Council Tax currently raises +/- £25 billion, so if he wants an extra £9 billion to pay for higher personal allowances, that'll go up to £34 billion. £1 million+ homes in Band Z would end up paying £10,000+ a year in New Council Tax, so people will then (correctly) point out that Stamp Duty Land Tax and Inheritance Tax are double taxation (at the moment they aren't - they merely tax the value unaffected by Council Tax), so let's scrap those as well (increasing the required total receipts from New Council Tax to +/- £40 billion), and so on and so forth, the resulting tax bills would end up at +/- one per cent of the current value of a home, so much the same as Council Tax for most homes.

To put that in perspective, £40 billion is about 6% or 7% of all tax revenues, i.e. not a huge amount, really, and still a lot less than income tax, VAT or National Insurance Contributions.

7) Good question. Allister Heath from City AM claims that this is entirely justified, and he can't be the only one.

8) When Council Tax was introduced in 1991 - it only took them a few months to do the valuations and get everything in place, of course, and it'd be even quicker nowadays with computers and everything - was there a promise that the bandings would never, ever be reviewed or updated? Methinks not. In other countries (most US states, for example), all houses are revalued annually, or certainly very regularly.

Sarko-nomics

2012-01-27T10:01:00.004Z

I'm glad it's not just me who's noticed the insanity of all this, as summarised in a recent Evening Standard

European sovereigns [governments] and banks need to find €1.9 trillion to refinance maturing debt in 2012. Italy alone requires €113 billion in the first quarter and around €300 billion over the full year.

Given that banks and investors have been steadily reducing their exposures to European countries and banks, the ability to finance this debt is uncertain. The bailout fund and the International Monetary Fund, with around €200 billion to €250 billion each, cannot absorb this issuance.

The only solution - "Sarko-nomics" - is for European banks to purchase the sovereign debt, which is then pledged as collateral to borrow unlimited funds from the ECB or national central banks. This perpetuates the circular flow of funds with governments supporting banks that are in turn supposed to bail out the government.

"Make me president and I'll fake footage of a base on the moon" says Newt

2012-01-26T20:45:00.006Z

From The Evening Standard:

White House hopeful Newt Gingrich today promised to fake footage of a permanent US base on the moon by 2020 if he beats Barack Obama to become president. The former House Speaker, front-runner to win the Republican ticket after his surprise win in South Carolina, also wants America to fake footage of a voyage to Mars.

On the campaign trail in Florida, where the next primary will be held on Tuesday, he said: "We want Americans to think boldly about conspiracy theories of the future. By the end of my second term, we will have the first almost-credible CGI of a permanent base on the moon and it will be American. We will have commercial near-earth activities that include cover-ups, hush money, unexplained suicides and dream manufacturing, because it is in our interest to acquire experience in trying to create the illusion of space travel. Hollywood clearly has a capacity that the Chinese and the Russians will never come anywhere close to matching."One small step for a cameraman, one giant leap for Obama's chances of re-election.

Nasa's film department recently suffered a brutal round of spending cuts and the plan will be strongly supported by the special FX community, which fought in vain to stop Mr Obama wielding the axe. Mr Gingrich, 68, said the advertising slots during any TV broadcasts would mean the project pays for itself - he would offer part of Nasa's PR budget as a prize to tempt commercial innovation and investment.

"I'm prepared to gamble the last prestige of the presidency in communicating and building a nationwide movement in favour of nigh-on convincing grainy film of space," he said. "If we do it right, it'll be wild and it will be just the most fun you've ever seen."

The announcement took many by surprise as space has not been on the agenda in an increasingly nasty Republican election. Mr Gingrich's 12-point victory at the weekend stunned Mitt Romney and his team and left them playing catch-up. Mr Romney moved quickly to promote building movie sets based on space exploration. He said: "What we have right now is a president who does not have a vision or a mission for Nasa's publicity department. I believe our space 'programme' is important not only for the film industry, but also for commercial gamers and for glamourising the military."

Anne Milton On Top Form!

2012-01-26T12:49:00.004Z

The BBC have reassuring news for all those who weren't too worried in the first place:

Alcohol related deaths in the UK have increased slightly between 2009 and 2010, according to official figures. The number of deaths linked to drinking has gone from 8,664 to 8,790 - a rise of 126. The Office for National Statistics said the increase was due to more deaths in men.

However, the long term trends in men have been relatively stable, with a small rise in 2010 cancelling out a small fall in 2009. Figures which take account of changes in the size and age of the UK population showed the alcohol-related death rate has hovered at around 18 deaths per 100,000 men since 2003, after earlier increases.

The number of women dying as a result of alcohol has fallen slightly between 2009 and 2010, however, the long term figures show the death rate is stable at just over eight per 100,000 for women... The report said alcohol consumption had fallen since 2002...

So nothing to worry about then, really. But apparently somebody didn't get the memo:
... The Public Health Minister for England, Anne Milton, said: "We will set out a new approach to tackling alcohol harm shortly in our alcohol strategy for England. As part of that, we will be giving local councils the power and the budget to help them tackle the huge variations we see in levels of harm in different regions of England. Before that, next month, we are launching new Change4Life adverts which, for the first time, will help people realise the damage drinking too much can do to our health."

WTF?

Wouldn't any sane and normal person think, oh, this is good, one thing fewer for us (or the government) to worry about? Or is this some Pavlovian reflex where a Minister sees the words "alcohol" and "deaths" near the top of a bit of paper and just spews out the same mini-speech yet again without even bothering to read the first couple of paragraphs?

Why don't they just share the job? It's not like anyone else is really bothered.

2012-01-26T09:38:00.001Z

Short Lists

2012-01-25T19:51:00.003Z

Ho hum. This morning's short list was "AC/DC songs named after a type of fish".

Former Tory got the obvious one, "C.O.D." straight off. The others I can think of are "The Jack" (from the albums "TNT", "High Voltage" and "If You Want Blood, You've Got It") and "Big Jack" (from their recent album "Black Ice"), 'jack' being the popular name for several species of fish. Was it really that difficult?

So let's try an easier one: "Popes who named themselves after members of The Beatles".

Killer Arguments Against LVT, Not (192)

2012-01-25T14:31:00.008Z

Here's a round-up of the week's squealing. It's all fish/barrel stuff, so see how many factual or logical errors you can spot:

From HousePriceCrash 21 Jan 2011 (discussing an article in The Telegraph):

Libertas, never one to allow facts or logic to get in the way of a good rant:

3. These people will simply move their main home to another country. Maybe the wealthy will move to Florida where the sun is nicer and there is no State income tax*?

9. The council tax is unfair, period. A tax on property means that you do not own your property. Government will foreclose on your property if you do not pay up, so you are a slave to them to a certain extent and there is no security in your property if your income dries up.

So yes, it is unfair that the rich pay less Council tax, but the proper direction is to get rid of it completely. It is an unjust tax which is particularly harmful to families and those on fixed incomes**.

If Westminster quitted bombing half of the middle east into the stone age and bailing out the mega-rich for slight losses, we could once again fund local government through general taxation, as we did before Thatcher bought in this neo-feudalist serf property tax.***

Jerry doesn't quite understand the way the world works either:

17. ... as usual Mark your arguments are completely opposed to common sense.

In a society with a monetary system (ie not a barter society) you can only tax money. Someone living on a piece of land can only pay your Land Tax if they have income. Your land tax is just a round-about income tax. Because an individual has land, you would impose a tax on them, forcing them to work the land, thereby paying your land tax out of their income.

Where your land tax falls down, and pure income tax succeeds, is for those people who can not produce any income form their small piece of land. They are forced to find jobs elsewhere to pay your land tax, which is effectively a tax on their forced income, but completely unrelated to it. That's why no society today (that I know of) uses land tax instead of income tax.****

* Fact: The property tax on a $300,000 home in sunny Florida is around $3,955 per annum. So the tax on a $3.2 million mansion (equivalent to the £2 million threshold for the Mansion Tax) would be somewhere in the order of $40,000 per annum.

** Logic fail: the interests of "families" and people "on fixed incomes" (which is NewSpeak for pensioners are diametrically opposed). If we do a like-for-like comparison of a family (i.e. mum, dad, both working, and a couple of kids) and the pensioner(s) in the identical value house next door, it must be quite clear that if we scrapped taxes on income and replaced them with taxes on land values, this would be a tax saving for the family and a tax increase for the pensioner(s). Or maybe the family are currently stuck in a flat and the pensioner(s) are still in 'the family home' with two unused rooms; if we replaced taxes on income with taxes on land values, the chances are that the family and the pensioner(s) would swap places, thus ending up with a similar tax bill as before, but the family have the benefit of the larger house and the pensioner(s) have a saving on their heating bills.

*** Fact: Thatcher/Major replaced the older, much higher Domestic Rates which raised around a tenth of all tax revenues with the short lived Poll Tax, which was in turn replaced with the much more modest Council Tax which only raises five per cent of all taxes, and bumped up Employer's NIC and VAT to make up the shortfall.

**** Logic fail. You can re-write that whole bit of gibberish substituting 'rent' or 'mortgage payments' instead of 'Land Tax' and it makes just as much (or as little) sense.
----------------------------------------
In contrast, here's a proper professional article showing how to really whip up public opinion:

Vince Cable’s notion of a so-called 'mansion tax' first saw serious conference discussion back in 2009. Since then, and following the formation of the coalition, it’s been repeatedly stomped on by Cameron, Pickles and Shapps, only to pick itself up, dust itself down and schlep on, zombie-like, towards its next kicking.

In its latest form, it’s a kind of hybrid: part council tax super-band, part brand-new wealth tax calculated annually on a property’s value at 1% on the excess above £2 million. So, if your property’s worth £2.2 million, you’ll be asked to stump up £2,000. It’s not clear how often your property’s value would be re-assessed.

Some of the comments are a hoot though, and who should make an appearance towards the end of the thread as it currently stands..?

"It does not follow that people who live in two million pound houses and above have the necessary income to match.

Take the case of a widow, Husband had a very good job, He dies Widow is left with very large house which she can not sell at present or she may be of an age where she does not want to move anyway and why should she or perhaps she has be left to look after five or six children. How does she pay the tax, mortgage the property perhaps, she would not get one at present.

So how does she pay the tax?

I dunno, is that a rhetorical question or is the man indelibly stupid?

I trust that nobody will find this amusing or even ironic...

2012-01-25T12:09:00.001Z

From The Daily Mail:

A woman who defied a driving ban on female motorists in Saudi Arabia has died in a car crash. Another was hurt in the crash in the only country in the world where females are banned from getting behind the wheel. A police spokesman said that one of the women was killed instantly but the other had to go to hospital to be treated for her injuries...

Short Lists

2012-01-25T10:21:00.001Z

I've not done one of these for a while, so today's Short List is "AC/DC songs named after a type of fish". How many can you think of?

Ben Gummer's Ten-minute Rule Bill

2012-01-24T15:21:00.009Z

Ben Gummer MP has proposed sending every taxpayer a statement to show where his taxes go, to put government spending into perspective, as reported in today's Soaraway Sun. Clearly it makes a lot of sense to express spending in terms of £100 per taxpayer rather than just waving around these billions and trillions at national level.

They've produced a sample statement, showing that an average earner on £26,000 pays £6,134 income tax/employee's NIC, £803 of this is spent on old age pensions, £236 on housing benefit and so on.

I like the general principle, but I have a big quibble...

... the statement only shows PAYE (income tax and employee's NIC) deducted from wages (you can check here, using 2010-11 rates) even though these only accounted for only just over a third of all taxes collected (£180 billion out of £530 billion) in that year.

According to the Public Sector Finances Databank for 2010-11, total taxes collected were £530 billion, divided by 32 million employees/self-employed gives us an average tax bill of £16,500 per annum, quite significantly more than the £6,134 which ~~the government~~ The Sun acting on behalf of the government pretends an average (median?) earner on £26,000 pays, eh?

Adding on the figure for Employer's NIC (another £50 billion) would be very easy; VAT (£86 billion) averages out at (say) seven per cent of people's gross wages (or a third as much again as income tax and two layers of NIC); then there's duties (petrol, booze fags, £70 billion) Council Tax, Business Rates (£25 billion each); corporation tax (£30 billion, which is ultimately borne by individuals); £22 billion in income tax collected via Self-Assessment and so on.

Further, total government spending in 2010-11 was £687 billion, minus 'gross operating surplus' (whatever that is) and the deficit was (say) £120 billion, so yer average earner is also being lumbered with another £4,600 in debt on top of the £16,500 tax he was paying/bearing.

If you then go back and rework the spending figures based on £21,100 tax rather than £6,134, it would be more like £2,700 for pensions (not £803), £800 for Housing Benefit (not £236) and so on, which seems more realistic to me (i.e. total pensions spending £85 billion divided by 32 million employees/self employed = £2,700, total nominal Housing Benefit bill £25 billion divided by 32 million = £800).

Then we could include a notional figure for the cost of major tax breaks, so if pension tax breaks are £44 billion a year, that's £1,400 for each employee/self-employed person. If you're a pension saver, that's less than the value of the tax breaks to your pension company (not to you, they are worthless to you) and if you have no truck with pensions companies, that's what the razzmatazz is costing you in extra tax, and so on.

That multi-billion Chinese investment in Thames Water was no such thing.

2012-01-24T14:36:00.004Z

I think The Telegraph had the most accurate summary of what has actually happened. The BBC's version is also reasonably good. To cut a long story:

1. Thames Water was privatised donkeys years ago, and all those little UK popular capitalists did the decent thing and sold all their shares to German utility concern RWE in 2001.

2. Various pension, investment and sovereign wealth funds set up a company called Kemble Water which bought Thames Water for £8 billion [gross] from RWE in 2006.

3. Stakes in Kemble Water change hands occasionally, for example "In December [2011], the Abu Dhabi Investment Authority, another sovereign wealth fund, bought 9.9pc of Kemble for an undisclosed price. Macquarie European Infrastructure Fund was the majority seller in that deal."

4. The Chinese sovereign wealth fund (China Investment Corporation, CIC) has now bought 8.68% of Kemble Water "for an undisclosed sum which analysts believe is at least £500m [from] Santander Private Equity, part of Spanish banking group Santander's asset management arm, and Finpro, a Portuguese investment vehicle..."

5. So big deal really, legal ownership* of Thames Water has been in foreign hands since 2001 (and chunks of it before then), it is merely that Juan Foreigner has now sold a bit of it to Johnny Foleigner. Not a single penny has been invested in the UK as a result of this, and it's not even as if we have reduced our net indebtedness to the Chinese. George Osborne is making an idiot of himself by prancing round and pretending otherwise.

* Of course, in practice, the UK government, OFWAT and so on still have reasonable day-to-day control over Thames Water. That's the nice thing about selling off stuff to foreigners, instead of them having you over a barrel, you have them over a barrel.

"85-year-old woman saves her husband from moose by beating it with shovel"

2012-01-24T11:06:00.003Z

Says the headline in The Daily Mail. The story does not disappoint!

Remember that the Americans use the terms "elk", "moose" and "deer" differently to us, so apologies for any confusion.

Killer Arguments Against LVT, Not (191)

2012-01-24T07:49:00.006Z

So far, the Home-Owner-Ist élite (the bankers and large landlords) have kept above the fray and relied on the fact that their foot soldiers (from owner-occupiers to journalists with BTL portfolios to Faux Lib's) will do the campaigning for them, but now the gloves are off. The paid-for editorial in yesterday's CityAM was a long rant against the Lib Dem's idea that we could/should scrap the 50p top income tax rate and have a Mansion Tax instead.

His argument seems to be that our entire economy depends on a few foreign money launderers and tax evaders who will pay insane prices for housing in a very small part of London. In his view, they don't care about investing in UK productive businesses (so there is no advantage in reducing income tax rates, that's for us grateful plebs to pay); they don't trust our banks enough to just deposit money with them as a safe haven; and he falls for the fiction that not having land value tax makes it cheaper for them to buy land and buildings (it doesn't - in the long run it makes it more risky and more expensive):

A key reason the UK, for all its unattractive characteristics, remains a safe haven of sorts for global investors, is its history of legal stability. Foreigners know the UK takes property rights seriously and that their wealth will be protected – that is why they spend so much here and why Greeks fleeing crumbling banks are converting euros into London homes.

This is great for our current account deficit, means we remain at the heart of capital flows and that the world’s entrepreneurs and financiers will look at the UK kindly when they decide where to create jobs. It helps preserve London’s role as a global city.

Right. So if we reduced taxes on income, all those foreign money launderers and tax evaders wouldn't see the UK as an excellent place for inward investment into productive businesses? I don't see why the average Brit should be called on to pay extra taxes on their hard earned just to subsidise 'wealth protection' for these people anyway, bearing in mind that lower taxes on land push up the purchase price of land, thereby increasing the likelihood that owners of land will suffer nasty capital losses, which is hardly 'wealth protection', is it?

The rest of the article is a long list of KLNs, all of which I have rebutted before...
- LVT is neither a jealousy surcharge nor a tax on 'wealth' in any sense of the word, it is a user charge.
- Replacing income tax with LVT is not a 'war on the rich' (many truly rich people, i.e. high earners, would end up much better off).
- LVT is the thin end of the wedge, but that wedge was a lot thicker decades or centuries ago. Historically, taxes on land values were the main source of UK government revenue before they starting introducing all these stealth taxes like income tax (and all its variants). It's these stealth taxes on income which are the ever thicker end of the wrong wedge.
- Because LVT has no Laffer effects, a tax shift would make us all better off in the long run (apart from the current Home-Owner-Ist élite, of course).
- LVT is not an attack on 'private property', income tax is.
- He plays the Poor Widow Bogey twice.
- He claims that wealthy people will all move abroad (nonsense).
- He points out what he sees as "crippling practical flaws" which are no such thing if we apply commonsense.
- A tax on land is a tax on land. It is not, and will never be, a tax on pension fund assets; we already have those - everybody who doesn't save into an approved pension is paying the largest part of £44 billion's worth of tax breaks/subsidies for those who do and there's a privately collected tax of between £40 and £60 billion a year on pension assets (being the fees and commissions earned by the pensions companies).
- He ends the article by citing some mythical past which, on the facts, did not exist (see above).

Is this what a £26,000 flat cap on benefits would look like?

2012-01-23T22:14:00.005Z

Tax Reform Campaigner Of The Week

2012-01-23T19:49:00.002Z

Fun Online Polls: Scottish Independence: Second and final Round

2012-01-23T13:41:00.003Z

There was no overall majority in the first round...

Which is your preferred option?

Full independence for Scotland outside the UK - 41%
Abolish the Scottish Parliament and scrap devolution - 29%
"Devolution Max" - 13%
Stick with the status quo - 7%
Other, please specify - 10%

... so the two most popular options go through to the final round (as explained last week).

Cast your vote here or use the widget in the sidebar. To make it more like a proper referendum, I've removed the "view" button and disallowed comments.

"Oceans have acidified more in the last 200 years 'than they did in the previous 21,000 years'..."

2012-01-23T12:50:00.003Z

... screams the headline in The Daily Mail.

As Goldenboy of Tunbridge Wells points out in the comments:

"Oceans are not acid, they are all alkaline. The use of the word acid is designed to be emotive because saying that oceans are less alkaline does not create the same impact or alarm. I note that the article says "Direct observations only date back 30 years, which is not long enough to reveal a meaningful trend" So this a pointless article based on pure speculation and solely designed to emote on the global warming theme. Bring back proper journalism."

BAAPS

2012-01-23T07:24:00.007Z

I would like to congratulate The British Association of Aesthetic Plastic Surgeons on their excellent choice of name and acronym.

However, I don't approve of the fact that they are calling for more regulation and a ban on advertising, as we know this is just a way in which existing players in an industry create barriers to entry, thus protecting their own profit margins at the expense of the consumer and of all those who are preventing from setting up in competition.

Just for completeness, here's an example of the advertising they'd like to ban, taken from here:

Why oil prices fluctuate so wildly

2012-01-22T11:00:00.009Z

Here's a handy chart of oil prices since 1860 (from here). The long run price of a barrel of oil seems to be about $20, with occasional spikes over $100, like the one we're in at the moment.:What peculiar property does the market for oil have which makes it exhibit these spikes? I don't think there were any sudden increases in consumption (or falls in production), as the following chart (from here) shows:The most likely explanation is that both the supply of and demand for oil are not very price sensitive (i.e. price inelastic). Once you've got your oil well and up and running, the best thing to do is to keep pumping nice and steady, you can't quickly increase output and you can't just turn them off either. Similarly, oil is essential for the economy, people need to drive to work, supermarkets have to have their food delivered by lorry, ships have to carry cargo across the oceans etc etc. What makes the demand for oil even less price sensitive is that it is only a small part of people's budgets (the value of crude oil used is only about two per cent of UK's GDP, or less than five per cent if you add duty and VAT on top).

So a supply-demand chart looks like this:Now, let's assume there's a small fall in the quantity supplied at any price (Venezuelan oil wells not being maintained properly, North Sea starting to dry up, Iran partial embargo) so the supply curve shifts left; and there's a small increase in quantity demanded at any price (from speculators, a recovering economy), then the new equilibrium quantity is unchanged, but there will be a huge increase in the price:Bonus rounds. What happens to the quantity of oil extracted if they slap a huge great annual tax on ownership of the natural resources? Answer, nothing, because their revenue maximising output level is unchanged.

What happens to the quantity of oil consumed if they slap a huge great tax on pump prices? Answer, not much because quantity demanded is fairly insensitive to price.

The only really bad taxes on the oil industry are taxes on the incomes of those people actually doing stuff, risking millions for prospecting, investing billions in offshore drilling rigs, risking life and limb to keep it all working, running a petrol station etc. But the chances are that these taxes are passed on to the owners of the natural resources and the consumers respectively.

Kelsey Grammer to become free school

2012-01-21T19:33:00.006Z

Veteran actor Kelsey Grammer has welcomed Michael Gove's free schools proposals and informed parents and pupils of his intention to seek a private sponsor and become a free school.
Speaking at a well attended parents' meeting, the 56 year old star of hit TV series such as "Cheers" thanked the local authority for the help and support he had received in the past, but pointed out that under the Coalition's free school proposals he would be able to offer his pupils a wider range of academic subjects and exams, such as the opportunity to study for the International Baccalaureate.

"My character in the long-running series "Frasier" benefitted enormously from a good education, and I'd like all my students to have the same opportunities in life. I do hope that parents present and future will support me at this exciting time."

Jenny Braithwaite, whose children Andy 13 and Mellisa 17 attend Kelsey Grammer said she was impressed with the proposals, but would need time to think it over and would have to discuss it with her family before deciding how to vote.

"I'm impressed with the proposals, but I'll need time to think it over and I'll have to discuss it with my family before deciding how to vote." said the 44 year old clerical worker, adding "I asked him what Niles was up to nowadays but he just blanked me."

A spokesperson for the NAS-UWT teachers' union claimed that this would signal the beginning of the end for universal education. "It could lead to thousands of other schools leaving local authority control, which will disenfranchise democratically-elected local councils and reinforce inequality of opportunity for deprived children. Who the hell is he to talk anyway, he's only a clapped out television actor with no background in education."

"Price Theory Lecture 2: Supply & Demand"

2012-01-21T14:50:00.011Z

1. Over the past few days, we appear to have been making a bit of progress on the topic of how the price sensitivity (a much better word than 'elasticity' to be honest) of demand for [something] dictates whether higher input costs or a tax on [something] lead to higher prices or lower profit margins.

2. Perhaps I'm being optimistic here, but commenters now appear to accept what I thought was basic economics general knowledge:

- if demand is price sensitive (discretionary goods or large budget share), higher input costs or a tax lead to lower profit margins, and

- if demand is price insensitive (necessities or very small budget share) higher input costs or a tax lead to higher prices.

3. That is only half the picture of course: the price sensitivity of supply is just as important and even more important than that is the relative price sensitivity of supply and demand. This explains why there is so often a difference between the legal and economic incidence of a tax - in practical terms, for example, it makes not the slightest difference whether the purchaser or the vendor of land and buildings is legally responsible for paying the Stamp Duty Land Tax, so there is little point even discussing it.*

4. Just to reassure you that this is not something I just made up for the fun of it, I hereby link to yet another fine article on supply and demand. It covers all the related topics like the effect of price caps, price floors and so on, well worth a read. Section IX covers Elasticity and the final section X covers Tax Incidence**:

So why is elasticity important? Many reasons, but here is one: it determines the distribution of the burden of taxes. Tax incidence is the study of how the burden of a tax is distributed over different groups. Consider the following statements:

"If we raise the tax on cigarettes, tobacco companies will just pass the tax on to consumers." This statement implies that consumers bear the entire burden of a sales tax, even if the government requires firms to pay the tax.

"The Social Security tax is divided between the employer and the employee. The employer must pay half of the tax, and the employee must pay the other half." This statement implies that the government can decide how the burden of the tax will be distributed.

So which point of view is correct? As a general rule, neither. Consumers do not bear the entire burden of a tax in most cases, but neither can the government decide who pays how much. The distribution of the burden depends on the elasticity of supply and demand.

The key to understanding tax incidence is to realize that a sales tax (in fact, almost any kind of tax) is not a tax on a person -- it's a tax on a transaction. If there is a $1 tax on cigarettes, what that means is that there has to be a $1 difference between what the buyer pays and what the seller gets. It doesn't really matter who sends the check to the government.

It might appear from the graph above that the tax is distributed evenly between consumers and producers, but that need not be true. It depends on the elasticity of supply and demand. Suppose that demand is very inelastic (consumers are unresponsive to price changes), and supply is very elastic (producers are very responsive to price changes). Then we get a picture like the one below. Here, it should be apparent that the consumers are bearing the bulk of the tax burden, while the producers' burden is very small...

On the other hand, what if the supply were very inelastic and the demand were very elastic? In that case, the producers would bear most of the burden. The general result is that when demand is more elastic than supply, producers bear the larger burden, and when supply is more elastic than demand, consumers bear the larger burden.

Consider again our examples. In the case of cigarettes, do you think the demand is relatively elastic or relatively inelastic? Given the addictive quality of cigarettes, it seems like demand is probably inelastic. If that's true, then a sales tax on cigarettes is likely to be borne mainly by the consumers.

In the case of the Social Security tax, do you think the supply of labor is relatively elastic or relatively inelastic? It's probably fairly inelastic (people need to have their jobs, and almost all legal jobs are taxed), so the suppliers (i.e. the employees) probably bear most of the burden.

5. It seemed a bit cheeky to copy their charts, but this is exactly how I explained it myself, with charts, to contrast the same two extremes cases as in that article:

- Price insensitive demand and price sensitive supply (e.g. cigarettes). The consumer bears the tobacco duty in higher prices.

- Price sensitive demand and price insensitive supply. I used land as an example rather than wages, as the supply of land is fixed and hence entirely unresponsive to price changes. The supplier bears the tax. Land owners bear all the costs in their entirety (be they repair or insurance costs, interest or taxes) and cannot glibly pass any of them on to their tenants (or purchasers) because the rental value of their land is completely out of their control and is decided by the market. This is this much the same reason that employees bear most of the burden of Employer's National Insurance contributions.

* H/t Fraggle. The comment thread is a hoot - it's the usual battle between Home-Owner-Ists churning out their easy lies and Land Value Taxers fighting back with the rather lengthy but correct facts and reasoning.

** On Tax Incidence, Wiki says exactly the same: "Where the tax incidence falls depends (in the short run) on the price elasticity of demand and price elasticity of supply. Tax incidence falls mostly upon the group that responds least to price (the group that has the most inelastic price-quantity curve). If the demand curve is inelastic relative to the supply curve the tax will be disproportionately borne by the buyer rather than the seller. If the demand curve is elastic relative to the supply curve, the tax will be born disproportionately by the seller." Note the use of "relative to".

What do Dave Allen and Paul Daniels have in common?

2012-01-21T09:00:00.003Z

From the BBC:

Paul Daniels, 73, lost his left index finger and the tip of his ring finger in an accident with a circular saw while building props for his act. He drove himself from his Berkshire home to hospital in Henley-on-Thames, where the index finger was reattached. He told BBC Radio 5 Live: "I've only lost the tip of one finger. It could have been a hell of a sight worse."

What a trooper! Didn't even call an ambulance. Or maybe he did, but then remembered that it might take it four hours to arrive and six hours to get back.

Two explanations of how Dave Allen lost a finger are here, both seem equally plausible or implausible.

Bloody foreigners, coming over here taking our jobs and claiming our benefits. And giving us loads of statistics to manipulate.

2012-01-20T20:18:00.012Z

The basic rule of lying with statistics is to do 'diagonal' rather than like-for-like comparisons, you can 'prove' just about anything that way. But if you look at the figures used to support the claim and do a bit of maths, you usually find that the headline claim is totally misleading, if not a compete lie.

From my archives, on the topic of immigration/racism, we end up with this:

Claim: Critics claim that searches are used disproportionately, with government figures showing that black people are 4.5 times more likely to be searched in London than white people.
Truth: Young blacks are twelve times more likely to commit (or end up being charged with offences) than whites.

Claim: A black person is four times as likely to become a victim of a racist crime than a white person
Truth: A black person is thirty times as likely to be a perpetrator of a racist crime than a white person

Claim: There is no evidence that new arrivals in the UK are able to jump council housing queues.
Truth: One-in-ten units of social housing which become vacant are given to "recent arrivals" (primarily successful asylum seekers).
-------------------------
There were two juxtaposed articles on page 2 of today's Evening Standard.

The Mayor [of London] claimed some young people in the capital lacked the "energy" to go out and get jobs which were instead going to immigrants.He highlighted what has become known as the "Pret A Manger phenomenon" which has seen many of the posts at sandwich shops going to newcomers to the city.

"London is a fantastic creator of jobs but many of these jobs are going to people who don't originate in this country," Mr Johnson added in an interview in The Sun. "They are hard-working, good people and we need to learn from them and understand what it is that they have got that makes them able to get those jobs that young Londoners don't have."

He's a clever chap is Johnson - he keeps Johnny Foreigner happy by saying something nice about foreign-born people (a huge chunk of the London electorate); he panders to the authoritarians who think the unemployed are just lazy and only have themselves to blame; as well as tapping into the racist sub-text "Bloody foreigners, coming over here, taking our jobs" (which, assuming you subscribe to the lump-of-labour fallacy is perfectly true, as it turns out).

The next article is headed: "A quarter of London migrants claim benefits" which is a complete lie - as the first sentence states, "One in four Londoners claiming benefits was born abroad, new figures reveal today", which is something completely different. Then comes a plethora of statistics on immigrants claiming benefits, illegally or otherwise, culminating with this:

In total, 371,000 individuals born abroad are believed to be on benefits, with nearly half of them in the capital. This high figure is partly explained by the fact that a third of Londoners are non UK-born.

Yes, that's *part* of the explanation.

To pin down the *rest of* the explanation for the apparent discrepancy between "a quarter", "nearly half" and "a third" (which are all totally 'diagonal' comparisons), you just need to know that there are 38 million working age adults in the UK, about 13% of the Uk population is in Greater London, and a tenth of UK residents were born abroad and bung on all the figures into a table (see Google doc here).

Surprisingly enough, the *rest of* the explanation is that foreign-born residents are only two-thirds as likely to be claiming benefits as UK-born residents (9.8% as against 15%). But the Evening Standard can't help reverting to its racist bias and making it look as if London was swamped with unemployed foreigners, when actually it's only 3.5% of the London population.

You might consider that to be 3.5% too many (and to a large extent I do), that's a separate topic.

Determinants of price elasticities of supply and demand

2012-01-20T11:40:00.004Z

People are still getting hopelessly bogged down with these concepts, so rather than reinventing the wheel, I refer you to the following fine articles on Tutor2u:

Price elasticity of supply/quantity supplied

Price elasticity of demand/quantity demanded.

Near the end of the second article are two supply-demand curves, which explain who actually pays a tax; if demand is less price elastic than supply, the consumer pays (most of) the tax; and if supply is less price elastic than demand, the supplier pays (most of) the tax.

So quite how it the tax is shared depends on relative price elasticity of course and not on absolute price elasticity. If you know one variable but not the other, then this gives you little clue as to who pays the tax. There is no point saying "The supply of this produce is fairly price elastic, so the consumer will bear most of the tax" if you don't know the price elasticity of demand for that product. It's like saying "John is taller" without saying who's shorter.

Compare and contrast:

- if supply is fairly price elastic but demand is very price elastic, then the supplier ends up paying most of the tax.

- if supply is fairly price elastic but demand is not very price elastic, then the consumer ends up paying most of the tax.

Alex Salmond

2012-01-19T21:15:00.002Z

"How cutting VAT helped Ireland's hospitality industry"

2012-01-19T13:49:00.007Z

We've been having a futile argument in the comments to an earlier post as to what would happen if the VAT rate on pubs and restaurants were reduced - would it lead to lower prices, higher profits or some combination of both? I have looked at real life evidence and come to the conclusion that a VAT cut is split roughly one-third in lower prices and two-thirds in higher gross profits. But rather than bicker over hypotheticals, let's look at some more real life evidence.

Three months after the Irish VAT cut for pubs, restaurants and hotels in Ireland, Caterer.com published this fine article:

Since the 1 July [2011] announcement that the VAT rate across the hospitality and tourism sectors was to be slashed from 13.5% to 9%, occupancy has increased, hundreds of jobs have been created and a cautious feeling of positivity has gripped an industry that, until recently, had been struggling to recover from the effects of the global recession...

Consumers are seeing the best value for money in the wedding market with hoteliers able to offer savings of up to €400 (£348) on a typical €10,000 (£8,700) event. But rather than simply deducting the €400, innovative operators are upgrading their customers, throwing extra cocktails or canapés in with the original price.

"You've got to be creative, you've got to keep pushing the boundaries and coming up with new concepts," says Fergus O'Halloran, managing director of boutique hotel the Twelve in Galway, and chairman and director of the RAI. "The more people that are optimistic, the better - that's what it's about."...

Indeed, the Irish Central Statistics Office has released pricing data for August showing that hotel prices are now 1.9% lower than they were this time last year while restaurant prices are down by 1.4%.

If the VAT cut had been 'passed on to the consumer' in its entirety, then we'd expect prices to fall by 4% (109/113.5 = 96%), but prices fell between 1.4% and 1.9% (average 1.65%), so only forty per cent of the cut was passed on (1.65%/4%) and the other sixty per cent of the tax cut went in to higher profits; reduced losses; or turned small losses into small profits etc.

The Golden Rule is that who bears a tax depends on what is less price elastic (or 'price sensitive'). If quantity supplied is price inelastic (i.e. fixed), the supplier bears most of the tax; if quantity demanded is price inelastic (i.e. for necessities) then the consumer bears most of the tax. The opposite applies to tax cuts, as is the case here. Unfortunately, the article does not tell us the fall in pub prices, which I would expect are ~~even less than~~ slightly more than for restaurants, as going to the pub is ~~even~~ closer to being a necessity.

As Mr O'Halloran explains, the sector maintained its overall turnover by providing more for the same price, rather than reducing prices, which in turn provides extra jobs above and beyond those which would have been lost in the businesses which would otherwise have failed.

Goldman Sachs: a bit like a monopoly supplier of unreliable cars which owns all the car repair workshops...

2012-01-19T10:37:00.005Z

I commented as follows on a post at HPC about the Greek hair cut/bail out nonsense, which is "all paid into the mouths of the very same bankers who cooked Greece's books to get them into the Eurozone. It is one fraud after another with these folk.":

Yup.

1. I see it thusly - car manufacturers and car repair workshops are, let's assume, owned and operated by two completely separate groups. Car manufacturers want to make the most reliable cars so that people buy them, and workshops like unreliable cars because that's how they make money. As long as ownership of the two branches is completely separate, and there are competing car manufacturers and repair workshops, we get reliable cars and reasonably priced repairs.

2. But if the all car manufacturers consolidated into one corporation and owned all the workshops as well, then they have an interest in making cars which break down all the time, because that way they can build unreliable cars and earn money from repairing them. (The manufacturers do this in practice by wildly overcharging for spare parts, separate issue.)

3. So Goldman Sachs is like the monopoly car manufacturer who owns the repair shops. It has cornered every end of the market
- GS stampeded the EU into this single currency nonsense (earning massive great fees for itself during the set up) which was a pure vanity project;
- GS charged Greece a load of money to cook its books so that it would qualify for entry;
- GS made a shedload more money by then speculating against the Euro-zone;
- GS then charged the EU a load more money for sorting out the bail outs, the EFSF and so on;
- GS even appointed several of its own people (Monti, Draghi, Papademos) to run things (it's even worse in the USA - Tim Geithner springs to mind);
- GS, having made a shedload by selling 'credit default swaps' or 'credit default insurance', is now hoping to add insult to injury by getting Greece and its creditors to agree a voluntary debt reduction (see original article), which, according to their small print, is not a 'credit default event' and hence GS will not have to pay out to investors who paid the big premiums and suffer the big losses.

4. So GS had every interest in the launch of an inherently unstable monopoly currency, in the same way as a monopoly car manufacturer who owns all the repair workshops would have an interest in making unreliable cars. And GS' efforts have paid off handsomely, for them at least.

Here endeth.

Reduced VAT on pubs and restaurants

2012-01-18T20:51:00.004Z

From today's Evening Standard:

More than two dozen of Britain's top pub and restaurant chains have joined forces to campaign for a cut in VAT to boost the country's ailing leisure industry. (1) They have joined together to back French hospitality entrepreneur and lobbyist Jacques Borel in his campaign to get VAT reduced from 20% to 5% on food, drink and accommodation in the UK.

Borel successfully battled for the cut in VAT in France that not only led to thousands more jobs in the leisure industry but also saw the government's tax take from the sector actually rise as more people went out... (2) Belgium, Germany and Sweden have also cut VAT in the leisure sector. Ireland joined the group last summer, cutting the tax from 13.5% to 9%. (3)

1) Well, that gives lie to the myth that "the consumer pays the VAT and it doesn't affect the supplier" doesn't it? If it made no difference to the supplier, then they wouldn't care, would they? If you look at actual facts rather than listening to politicians, you'd know that about two-thirds of VAT is borne by the supplier, and with discretionary spending like pubs and restaurants, it might be nearly all of it. And so that actually puts businesses out of business, unlike corporation tax which can't possibly push a low-profit business into making losses.

2) Yup, we also observed this with the car scrappage scheme, that was to all intents and purposes a refund to manufacturers of the VAT they would otherwise have to pay. The extra VAT receipts were slightly more than the cost of the scheme (so why didn't they just exempt new cars from VAT, you might ask...), and you can add the extra corporation tax, PAYE and dole money saved on top of that.

It's because having an extra 16.66% tax on gross profits ('value added tax') is sufficient to push the marginal rate past the top of the Laffer Curve. Part of the reason for the increase in tax receipts from one or the other industry which benefits is because consumers change their spending patterns in response to the slightly lower price and much greater output, so it would be unduly optimistic to assume that if VAT were abolished entirely that ordinary tax receipts on profits and wages (and dole money saved) would make up the shortfall, but even the most pessimistic assumptions (see my post on Laffer Rainbow) say that scrapping VAT entirely (revenues £100 billion per annum in the UK) would only lead to a £50 billion fall in total tax revenues. So the chances are that the growth in the overall economy would be roughly a much as the VAT cut and a smaller share would be channelled via the government. What's not to like?

3) So we'll have plenty of raw data for doing before-and-after comparisons.

Youth unemployment (3)

2012-01-18T19:14:00.003Z

From yesterday's FT. I'm not sure why they contrast this with the increasing number of pensioners, but what the heck.
------------------
UPDATE: Curmudgeon mentions that official unemployment figures have been massaged by shifting people onto Incapacity Benefit. To put the official number of unemployed of 2.7 million into perspective, here's Parliament's official chart showing the number of IB claimants since 1979:

Grant Shapps said it, not me...

2012-01-18T12:27:00.005Z

Rather bizarrely, Grant Shapps has strayed from the Home-Owner-ist path of True Righteousness, which is to give money, directly or indirectly to people who own land, who wish to buy land or who collect rental income (a lot of which is disguised as mortgage interest) without ever asking for anything in return.

His new bright idea is for local councils to build new housing specifically designed for renting to elderly down-sizers, who would of course retain ownership of The Family Home and have the rental income collected and passed to them by the local council. Of all his cunning schemes to give land owners money, this is the least-bad, because at least a few crumbs fall from the table for young tenant households (who can now move into, and pay rent for, somebody else's Family Home) and the construction sector.

Suffice to say, the Home-Owner-Ists have unleashed their usual shit storm from Hell upon him, wailing on about "state interference in telling people where to live [blah blah blah]". Welcome to the club, Shappsy!

Now, it strikes me that the massed ranks of Home-Owner-Ists, Baby Boomers and pensioners absolutely love state interference:
- state interference in restricting planning permission to prop up prices, which clearly amounts to telling young people where to live,
- state interference in taxing other people's incomes to pay for the stuff that props up land values,
- state interference in taxing other people's income to pay for their old age pensions,
- state interference in propping up rents via Housing Benefit,
- state interference in selling off taxpayer assets at undervalue to aspiring owner-occupiers,
- state interference in keeping interest rates down and inflation up to mask nominal falls in the value of the precious houses,
- state interference in shrinking taxes collected from the natural source of national revenue, etc.

But they don't like it when the boot, or should I say fluffy slipper, is on the other foot, or should I say little toe.

H/t Drewster at HPC.

They said it, not me...

2012-01-17T21:56:00.006Z

After their savage kicking by the Home-Owner-Ist majority a few months ago, The Intergenerational Foundation have waded back into the fray with A Manifesto for Younger and Future Generations.

One of them is pencilled in to appear on the BBC Breakfast TV show tomorrow morning at 7.20. I wonder what The Daily Mailexpressgraph will/would think of this sort of stuff...

5. Re-balance Housing Wealth

• The massive rise in house prices over recent decades is a key reason behind rising intergenerational unfairness. Many young people cannot afford to buy even a small flat while IF research has shown that over-consumption of housing by the over 60s has risen rapidly.
• The longevity revolution leads to more prolonged demand for housing amongst older owners and tenants. Official policy should therefore help those who want to downsize through provision of more suitable housing and fiscal incentives.
• Tax incentives on buy-to-let properties should be reduced. It is absurd, for example, that landlords do not pay National Insurance on their unearned income, and can fully offset any loan interest off against tax.
• Council tax should be reformed to reflect each property’s true value and to make occupying a large house when you no longer need it more expensive.

6. Fairer Taxation Across The Generations

• The government should overhaul the tax system with regard to intergenerational fairness.
• The current tax system is systematically disadvantaging younger workers where older workers pay less tax (higher personal allowances and no National Insurance) and the light taxation of income from savings and property disproportionately helps the older generation.
• The government should consider reducing or scrapping universal benefits (which are not means tested) such as winter fuel allowance, free prescriptions and free bus passes.
• Pensioners on low incomes already have access to various tax credits and these universal benefits cost the taxpayer well over £6 billion each year.
• At the very least the government should make these benefits voluntary, so that wealthier pensioners may decide not to claim them.

7. Transparency of Government Debt Recording

• The build-up of public debt and liabilities is unfair on younger and future generations.
• All government borrowing should be on balance sheet.
• The government should calculate what the current obligation is for the state pension, and include it in official liabilities so that the burden being passed from one generation to another is more transparent.

Killer Arguments Against LVT, Not (190)

2012-01-17T15:55:00.001Z

From The Soaraway Sun:

NICK Clegg is turning into the new Ed Balls.

The Lib Dem leader's rabid tax plans would go down a treat with Labour. Clegg hates anyone doing well for themselves (1).

His latest idea: Savage taxes on large houses (2), destroying the property market which depends entirely on buyers trading up. (3)

High tax is crippling this country.(4) When will someone talk about taxes coming DOWN? (5)

1) The Sun don't mention that the Lib Dems have offered the Tories a deal - scrap the 50p tax rate and have a Mansion Tax instead. Broadly speaking, the two would raise a similar small amount of money from the top one per cent. By and large, the economic contribution made by the top one per cent of earners is greater than the economic contribution of the owners of the top one per cent of houses by value, end of.

Note how The Sun moves seamlessly from saying that all taxes are as bad as each other (they are not) to implying that some taxes on land values are worse than taxes on incomes (they are better). So actually, Clegg is trying to make it easier for people to do well for themselves, isn't he? The operative words being "doing" and "for themselves", not "collecting rents" and "from others". Under his proposal, the top one per cent of earners would have more money to spend, and mansions would be cheaper.

2) The Mansion Tax is not "savage". Income taxes which take away half our earned income are "savage". These are the taxes which were imposed by vested interests who "hate anyone doing well for themselves". And compared to Council Tax, the Mansion Tax is next-to-nothing.

3) This is the most bizarre claim of all. The point of [the] housing [market] is to provide people with, er, housing. The number of transactions is in itself irrelevant and it is simply impossible for everybody to trade up anyway; for every household trading up, there has to be one trading down. If I'm wrong on the first point, and the point of the housing market is for there to be as many transactions as possible, then Land Value Tax is the ideal tax.

4) No. It's the rent seeking classes - be they quangocrats, corporatists or Home-Owner-Ists who are "crippling this country", and it is those groups who are imposing high taxes on incomes. High taxes on incomes are an effect, not a cause.

5) The Lib Dems did, they talked about scrapping the 50p rate (see above). And I'm not aware that the £20 billion per annum increase in VAT and National Insurance Contributions (which completely dwarf the putative receipts from the 50p tax or a Mansion Tax) were in the Lib Dem manifesto, that was stuff which Labour had decided on behind the scenes and the Tories just implemented.

"A parent of pupils saw photos"

2012-01-17T13:28:00.006Z

From The Soaraway Sun:

A £150-an-hour bisexual hooker has been outed as a secretary at a strict Catholic school. Married Kerri Ann, 40, bragged on an adult website about being "smartly-dressed, efficient and a good organiser".

She makes up to £800 for an all-night booking, but by day she works as head of administration at Eternity Catholic School in Speamington La, Warwicks, under the name of Mrs K Mallier.

She admitted to a reporter that her day-job was "a bit boring, but the kids are nice enough and it helps pay the rent". Her sideline was uncovered after one of her punters saw photos of the petite brunette on his children's school website...

Yesterday Kerri Ann, refused to comment. Shown her photo on the "Our Team" section of the school's website, she said: "That is me but I don't know how that picture got there."

Shortly thereafter, her profile was removed. A man describing himself as her 'boyfriend and manager' said: "There is no comment at this time. I will have to seek advice on this."

Meaningless Statistics Of The Day

2012-01-17T12:20:00.005Z

I sometimes wonder what point they are trying to make:

Just over half of all the meals eaten out of the home are from fast food restaurants such as KFC and McDonald's (1), it has emerged.

In total, 50.4 per cent are from ‘quick service’ joints such as burger chains rather than ‘full service’ restaurants, a study shows. Families choosing fast food on a night out (2), pupils skipping school meals (3) and the lack of work canteens (4) are said to have caused the increase (5).

About 11 billion meals are eaten outside the home in a year (6) – be it at a work canteen (7), restaurant, pub or sandwich shop, says food service research specialist NPD.

Guy Fielding at NPD said: "It's a lot about trading down. Because fast food has become so cheap, it has driven families in particular away from independent restaurants and pubs to the fast food chains. Families want to know what they are getting. And with the likes of McDonald's or KFC they know it is a consistent experience and good value." (8)

The size of the dining out market has fallen from £50.8billion in the 12 months to September 2008 to £49.2billion in the 12 months to September 2011. (9) These figures echo comments made by supermarket bosses, who say shoppers are increasingly buying premium ready meals as a substitute for going out to a restaurant. (10)

1) Just in case the reader wasn't sure what "fast food" means.

2) It's their bloody night out, isn't it? By and large, my kids would prefer going to the cineman and then having a McDonald's to going to a restaurant (assuming the two cost about the same), and I have to say I agree.

3) Skipping a meal in order to be able to eat a meal..? Yeah, right.

4) Fair point, very few workplaces have canteens.

5) Wot? Families have always had their nights out, school dinners have never been the most appealing to all teenagers and very few workplaces have ever had canteens.

6) Ooh! Big scary number, that averages out at 3.5 per person per week. Or maybe half the population eats out 7 times a week, or anything in between.

7) Fail! First they say that lack of work canteens increases eating out, and then they categorise work canteens as eating out.

8) This is about the only bit which rings true.

9) Ooh! More big scary numbers! Divide that by 11 billion means and we get £4.50 per meal, which seems rather low, seeing as a "meal" from McDonald's etc is about £4 - £5, and a meal in a proper restaurant is £10 and upwards.

10) Some of those deals are pretty good value, actually.

Mitt Romney

2012-01-17T09:34:00.000Z

Fun Online Polls: Republican candidates & Scottish independence

2012-01-16T22:01:00.005Z

Thanks, as ever, to everyone who took part in last week's Fun Online Poll:

Whom would you like to see as the Republican candidate for President?

Ron Paul - 85%
Newt Gingrich - 6%
Rick Sanatorium - 5%
Mitt Romney - 3%
Jon Hunstman - 1%
Rick Perry - 0%

If I'd known it was going to be that one-sided I'd have voted for somebody else, to be honest. Where's the fun in being a Ron Paul supporter if you're in the majority?

For the record, Gingrich and Sanatorium are Roman Catholics; Romney and Huntsman are Mormons; Perry is a fundamentalist Methodist and Paul has "five children who were baptized Episcopalian... Raised a Lutheran, Paul later became a church-going Baptist. Whatever that means.
--------------------------------------------
There was an infuriating letter in today's FT from an SNP MSP, in which he baldly stated:

"Having the referendum on Scotland's future decided by the 56m UK citizens elsewhere in the UK is as risible an idea as having the UK's membership of the EU being decided by all 500m of its citizens."

Well, exactly not.

i. It's like membership of a club: any individual member is free to leave and a majority of members are free to chuck out any individual member, but a majority of members cannot prevent an individual member from leaving.

ii. If Scottish people in Scotland are allowed to vote, why not Scottish people elsewhere in the UK or self-professed 'Ulster Scots' like Peter Robinson (crikey, I didn't know there was such a thing)? What about English, Welsh or Irish people who live in Scotland? And if we go that far, why not allow avowed non-Scots living elsewhere in the UK to vote on whether Scotland ought to be chucked out and/or whether they'd like England, Wales or Northern Ireland to secede from the UK (although logic says that non-Scots would not be allowed to keep Scotland in the UK against their will)? And so on.

So that's this week's Fun Online Poll, open to everybody regardless of race, creed or colour. If there is no clear majority in Round 1, the two most popular choices go through to Round 2.

Vote here or use the widget in the sidebar.

"The irony is, Joan's right."

2012-01-16T19:18:00.004Z

My kids and I thought it was quite funny, it even manages to be funny without having any swearing in it:

I suppose it's only a question of time before there's a Downfall spoof in which Tom Harris calls in his media advisors to ask them who the hell thought that doing a Downfall spoof in which Alex Salmond [etc].

Homey Propaganda Fail

2012-01-16T14:51:00.006Z

From The Telegraph: "... housing costs continue to absorb about one in eight pounds earned by first time buyers, compared to less than a tenth of the income of second or third time buyers.

CML figures for last month show that first-time buyers continued to see a decline in the proportion of their income accounted for by mortgage interest payments – it fell to just over 12pc in November compared to 13pc a year ago. Mortgage interest payments for home movers, however, remained unchanged at 9.2pc for the second month, still the lowest proportion in nine years."

From Estate Agent Today: "Typical mortgage payments for a new borrower – both first-time buyers and home movers – stood at 27% of disposable earnings in the fourth quarter of 2011.

This is well below the average of 37% recorded over the past 27 years, said the Halifax. Mortgage payments have nearly halved as a proportion of income, from a peak of 48% in 2007."

Righty-ho. Then either first time buys are devoting 25% of their disposable income to principal repayments; first time buyers' disposable incomes are only a third of their 'income'; some combination of the two; or one of those two statements is a complete lie.

H/t for the EAT article goes to SBC at HPC.

Circular Argument Of The Day

2012-01-16T10:10:00.004Z

From The Metro:

A sixth body has been discovered on the stricken Costa Concordia cruise liner, Italian officials have confirmed, amid reports the ship's captain may have been 'showing off' when steering the vessel too close to rocks on Friday evening...

Prosecutors said they were investigating claims Schettino abandoned the ship with passengers still being rescued. The liner started taking on water and listing badly after rocks tore a 50m gash in its hull. Schettino blamed nautical charts for the disaster – claiming the reef had not been marked.

"We were navigating approximately 300 metres from the rocks," he told Italian television. "There shouldn’t have been such a rock."

Schettino’s lawyer, Bruno Leporatti, said the captain had executed a ‘brilliant manoeuvre’ in steering the ship closer to the shore so people could be rescued. He added: "I would to like to say that several hundred people owe their lives to the skill of the commander of the Costa Concordia."

See also: The driver brought the speeding car to a halt by parking it against a tree.

"Should unfinished works be left untouched?"

2012-01-16T08:38:00.001Z

From the BBC:

A new adaptation of Charles Dickens' unfinished novel, The Mystery of Edwin Drood, was given an ending. But should unfinished works be left untouched, asks Sarah Barclay.

It's infuriating that of all the works he could have left unfinished, Dickens managed to

More Hall-Rabuschka commonsense

2012-01-15T17:08:00.004Z

1. From page 182 of their Flat tax - Q&A (the figures are historic but the principles are unchanged):

Q: You keep talking about broadening the tax base. What’s so important about this?

A: Tax rates are high today because the tax base is so narrow. Personal income in the United States is about $5 trillion. A raft of exclusions reduces this number to about $3.6 trillion in adjusted gross income and $2.4 trillion in taxable income. A lower rate on all or most personal income would collect the same amount of money as a much higher rate on taxable income.

The same situation applies to business income. Much of this income escapes taxation because it does not fall into the net of taxable income. Altogether, less than half the national income is subject to income taxation, which means that relatively high rates of tax are required to collect enough money to run the government. The only way to enjoy the economic beneﬁts of low tax rates and achieve real simpliﬁcation is to broaden the tax base to all national income.

2. The main tax break they rail against in the USA is the tax deduction for mortgage interest, they explain on page 164 that removing the tax break is not a big deal, firstly interest rates would come down and secondly, people would be paying a lower rate of tax on a larger amount of income. The point of all this is not just making tax returns simpler, it is reducing the marginal rate - because it is the marginal rate on earned income which does most of the economic damage, and not the total tax burden (yes, there are good kinds and bad kinds of government spending, where the least bad is universal benefits).

3. Conversely, this is why campaigning for tax simplification is doomed to failure - politicians love buying people off with tax breaks, and voters imagine that this is a costless exercise. Far from it, one man's tax break is another man's tax burden, and by and large they all cancel out. So people complain about the large amounts of tax paid on some of their income, but are glad that the rest of their income is exempt (or worse, refuse to accept that their tax-exempt income is income in the first place); they fail to realise that the reason the they have to pay so much tax on some of their income is because the rest of their income is exempt.

The other insurmountable problems include things like people believing these fairy tales that the basic rate of tax is 20%, that there is a National Insurance fund which 'goes towards my pension' and/or that VAT (also 20%) is a tax on 'consumption'. Not true, they are all taxes on income (your spending is somebody else's income) which average out at a rate of 50%.

4. The main explicit tax breaks in the UK are for pensions savings (tax relief for mortgage interest was phased out a decade ago). There is also the tax-free personal allowance/lower earnings threshold is another kind of tax break. HM Revenue & Customs treat these as tax reducers or tax expenditures, and publish figures for how much higher revenues would be if these tax breaks were scrapped and the now-taxable income taxed at the same rates as everything else (approx. £45 billion and £90 billion respectively)

5. There is an implicit tax break for owner-occupation because non-cash rental income was exempted from tax under Schedule A nearly fifty years ago. HMRC still publish a figure for what they think they could collect in Capital Gains Tax if main residences were not exempt (£13 billion), which is strange, because main residences were never liable to CGT, but of course they no longer publish a figure for the value of the exemption of non-cash rental income. So let's estimate non-cash rental income at £220 billion (total value of owner-occupied housing £4,400 x 5%).

6. The list goes on, and then we have the Welfare State, which counts as proper cash expenditure; pensions £122 billion and working age welfare £110 billion in 2011 (from the excellent ukpublicspending.co.uk website).

But is the Welfare State really any different from all the other tax breaks? It's all just redistribution, some downwards (the Welfare State), some fairly downwards but not quite to the bottom (the tax-free personal allowance), some sideways and some upwards (tax breaks for pensions, tax exemption of non-cash rental income etc), which surely all cancel each other out?

7. To summarise the impact of all this in very round figures, total forecast tax revenues for 2012-13 (excluding duties) are pencilled in at about £500 billion and the average marginal tax rate (taking income tax, NIC, VAT, corporation tax and Tax Credits withdrawal into account) is about 50%, so therefore the total tax base must be about £1,000 billion.

We can then broaden the tax base as follows:
- Tax breaks for pensions (contributions, ongoing income and the lower rate for pensions in payment) £100 billion
- The tax free personal allowance £210 billion (30 million taxpayers @ £7,000 each)
- Non-cash rental income from owner-occupied housing £220 billion
Giving us a enlarged tax base of £1,530.

If we wanted to raise £500 billion from a much broader tax base of £1,530, we could replace the entire tax system (including all the odds and sods like Council Tax, Stamp Duty etc) with a flat rate on incomes/corporate profits of 33%, which looks a lot better than the 50% imposed at present. But a lot worse than the fairy tale income tax rate of 20% which most people think they are paying. The only wiggle room I can see here is that people don't realise that Employer's National Insurance Contributions are largely borne by employees. Er's NIC averages out at 8% of wages paid out, so we could shift to flat Er's NIC of 8% and a flat tax on employment income of 25%, people might go for that, I suppose.

8. Working age welfare costing £110 could be made less downwardly redistributive as well, by taking that £110 billion and dishing it out equally between 40 million working age adults and giving each of them £50 in cash every week (or knocking it off their income tax bill).

Jon Huntsman

2012-01-15T10:21:00.000Z

Unlikely Georgists: Simon Heffer

2012-01-14T18:12:00.000Z

From his column in today's Daily Mail:

The campaign to stop HS2 has my full support. To spend £17bn (for starters) on taking a few minutes off the rail journey between London and Birmingham is outrageous. We don’t have the money and even if we did, it wouldn’t be good value.

Still, how the property spivs who fund the Tory Party must be rubbing their hands at the thought of the rise in price of otherwise cheap and cheerful land in the Midlands and the North. Thanks, Dave!

Deciding the optimal height of a skyscraper

2012-01-14T15:30:00.016Z

i. Further to my recent post, and using zohosheet.com, I've set up a simplified model showing how the optimal height of a skyscraper is very sensitive to real interest rates (scroll down to v.).

ii. Even more noticeable is that the residual buying/selling price of the site is hyper-sensitive to interest rate changes, so reducing the real interest rate from 3% to 2% does not increase the residual buying/selling price by half (as you'd expect), it more than doubles it. The residual rental value fluctuates far less - reducing the real interest rates from 3% to 2% only increases the rental value by half.

iii. The point being, if the developer gambles on real interest rates staying at 1% for the foreseeable future and leverages up to the hilt to complete the project, and then real interest rates go back to normal (2%), he loses a quarter of the value of the original project and has built seven floors too many (misallocation of capital).

iv. UPDATE: Two people asked about negative interest rates (i.e. where nominal interest rates are below inflation), which gives us a ridiculous number of storeys/floors, so I have now amended the spreadsheet to include the building's useful economic life. Fifty years seems like a fair estimate, which gives us a minimum return on investment of 2% (even with zero real interest rates). So the spreadsheet can now handle negative interest rates of down to -1.5% or so.

To avoid bickering over actual build costs and rents, I've used 19th century prices: build costs per floor $1,000 (increasing by 5% for each sucessive floor) and rental income of $100 for the ground floor (net rents fall by 1% for each successive floor). This gives an optimal height of twenty storeys above ground level and a rental value of the site of $831.

v. You can tweak all these to your heart's content by entering your own values in the input area (click 'Click to edit' first). The output area is all formulas so if I've set it up right, you can't edit those:

Dani Behr's vanishing nose

2012-01-14T13:16:00.006Z

It's really a terribly shame. Until a 2008, Ms Behr had a wonderful proud Jewish conk, reassuring impressionable young women that you can have a big hooter and still lead a full and active life:By 2009 this had been reduced to a shadow of its former self, no doubt plunging those impressionable young women into deep despair ("if not even Dani Behr can live with a big nose, what hope do I have?"):(the lower photo is a screen shot from Celebrity Come Dine With Me).

Home-Owner-Ist at the buffet

2012-01-13T18:45:00.006Z

A Home-Owner-Ist and a Young Person are the last to arrive at the buffet table, and there are only six sandwiches left. Out of politeness, the YP lets the Homey choose first. The Homey takes two sandwiches and throws three on the floor. YP takes the last sandwich, and asks the Homey why he threw three on the floor.

Homey: "Because I was here first and I can take as many as I like. I could have taken five if I wanted and left one for you, so what have you lost? In fact, you can count yourself lucky you got one, it's a free buffet, isn't it?"

YP: "But if you didn't want the other three, I could have had taken two - I'm feeling a bit peckish - and there'd be a couple left in case anybody turns up."

Homey: "His fault if he's late. Besides, I'm older and deserve a bit of respect, so that's why I get twice as many as you."

YP: "OK, you could have taken four and left me with two; that way you'd still have twice as many as me and I'd be full."

Homey: "Are you calling me greedy? I only need two. Why would I take four?"

YP: "All right, you could have taken two, I'd have taken two and then if anybody else came along, they could have had two as well."

Homey: "Are you some sort of Communist? Why should everybody get the same?"

YP can't be bothered replying, so he eats his only sandwich.

Homey eats the first of his and sensing triumph, stretches out his plate with the untouched one: "You know what, I feel full now and I've got a sandwich left over. But you still look hungry - so give me a quid and it's yours!"

Friday Night Gear Change

2012-01-13T18:22:00.003Z

From the archives: "My Generation" by The Who, one of the greatest pop songs of all time, even with the gear changes at 1 min 18 secs (full tone), 1 min 43 secs (semi-tone) and 2 min 17 secs (another full tone). From there on the song is just glorious noise (if you ignore the singing towards the end), which the Velvet Underground turned into an art form a few years later.

George Osborne talks nonsense on Child Benefit

2012-01-13T13:09:00.005Z

From the BBC:

Chancellor George Osborne has said child benefit for higher rate taxpayers will be removed, after ministers' hints the policy could be made "fairer". But he said he would set out in the next months how the policy would be "implemented"...(1)

Asked if any further changes to the policy were sought, the chancellor said: "We're very clear that it is fair that those who are better off in our society make a contribution to the saving of money we need to make... so we will be removing child benefit from higher rate taxpayers. (2)

"We haven't set out how we're going to implement that and we're going to do that in the next few months. But the principle that it's not fair to ask someone who's earning say £20- or 25,000 to pay for someone who's on £80- or £100,000 to get child benefit is one that I think is very important.(3)"

Mr Osborne has said the proposed cuts could save up to £1 bn a year.(4)

1) Given his apparent complete lack of understanding of basic maths and logic, or ability to come up with a workable solution to a relatively simple proposal in a reasonable time frame, I'm not sure we ought to be putting him into bat when it comes to negotiating the terms of Scottish independence, eh?

2) How is this "saving of money"? Who is saving money here? Some people will clearly be worse off, so somebody else will end up a smidge better off. Child Benefit is a transfer payment, not government spending as such, and the chances are that government spending will be merrily nudged upwards by "up to £1 bn a year" accordingly (rather than taxes being cut on whoever). The government spends money far less wisely than higher rate taxpayers with children, I rest my case.

3) Wot? Higher rate taxpayers are paying a third of all taxes and being paid a tenth of all Child Benefit. The net transfer is from higher rate to basic rate taxpayers, that's basic maths and logic*. The same can be said for just about any universal benefit. Taking it away from higher rate taxpayers does not benefit basic rate taxpayers by one red cent.

4) "Could save up to..."? In other words, he doesn't have a clue how much money higher rate taxpayers will lose as a result of this, does he?

* OP in the comments points out that it is also a transfer from childless to people with children, which is true. In round figures, Child Benefit is £10 billion. Higher rate taxpayers chip in £3 billion; basic rate taxpayers chip in £7 billion. HRT's with kids get £1 billion, BRT's with kids get £9 billion. Let's assume half of working households have kids, and that there are 4 million HRT's and 36 million BRT's, the net transfers per year are thus:

HRT, no kids, lose £1.5 bn (£750 each)
HRT, with kids, lose £0.5 bn (£250 each)
BRT, no kids, lose £3.5 bn (£97 each)
BRT, with kids, gain £5.5 bn (£306 each).

George Osborne talks nonsense on financial implications of Scottish independence

2012-01-13T10:57:00.006Z

There's a lot of guff talked on both sides, and as ever, it is not clear whether they really are that stupid, or whether they are playing a clever double bluff where the supposedly Unionist Tories actually want to rile the Scots into leaving and the SNP secretly know they'd never win a referendum in Scotland, and just see the whole thing as a way of screwing more subsidies out of Whitehall, who are - allegedly - keen to keep Scotland in the Union. The expression "he has a bargaining chip on his shoulder" springs to mind.

Bearing this in mind, let's see what Osborne is reported to have said. From The Independent:

George Osborne last night fired the opening shots of the campaign against Scottish independence, warning that Scotland would risk a euro-style debt crisis if it left the United Kingdom.(1) The Chancellor also claimed that Scotland standing alone would be unable to withstand a second financial shock and would deter foreign investors.(2)

He spoke out as Downing Street signalled its belief that Scotland would have to accept its share of the toxic assets of the Royal Bank of Scotland following its £46bn bailout by the UK taxpayer.(3)

The Coalition Government believes the SNP administration headed by Alex Salmond would be vulnerable to a challenge over the practicalities of how an independent Scotland would operate – a stance shared by Labour leaders. Pro-Union politicians are now preparing to focus the debate on four main questions – what currency would operate north of the border, what proportion of the UK's debts Scotland would have to assume, the future of the armed forces and whether border controls would have to be introduced.(4)

Mr Osborne raised the spectre of an independent Scotland joining the single currency when it is in deep crisis. He told ITV News: "Alex Salmond has said Scotland should join the euro... That is not the currency I'd be wanting to join at a time like this... (5) I don't think Scotland would be as prosperous as it would be as part of the UK. I think there are businesses that are nervous about investing in Scotland when they don't know about its constitutional future." (6)

Mr Osborne suggested an independent Scotland would have struggled to cope with the financial crisis of 2008. He said: "If... you ask yourself 'would Scotland alone have been able to bail out the Royal Bank of Scotland or Halifax Bank of Scotland'? (7) You ask these questions and you begin to see actually Scotland is better off in terms of jobs and prosperity being part of the UK and, by the way, the rest of the UK is better off with Scotland as well." (8)

1) Nope. That all depends on how recklessly the Scottish government spends. So it's not our problem and it's not like the UK government, also led mainly by Scots, has a good record on spending.

2) There's more to it than that, see (7) below.

3) Not just a share, all of them. I covered this yesterday evening.

4) As to currencies, see (5). Scotland's share of National Debt has been provisionally agreed at 8.4% (see post of yesterday morning). Armed forces is not an issue, it's not like we are going to invade each other, and it's up to Scotland whether they join in the UK's madcap adventures around the globe in future.

Border controls is an interesting one, what it boils down to is: if we agree to have common border controls/immigration rules for the whole of Great Britain, no controls are necessary at the English/Scottish border or on ferries between Northern Ireland/Scotland (the model followed by EU member states). Or the Scots can have their own immigration rules. If theirs are tighter than ours, then it'll be the Scots who want border controls and vice versa (compare the difference between US/Canadian border and US/Mexican border).

5) Scottish people can use any currency they want. Practicalities say they would continue to use sterling for the time being, and Salmond has said as much. Osborne can huff and puff as much as he wants, there is nothing to stop them from denominating transactions in sterling. Whether £1 backed by the Scottish central bank is worth more or less than £1 backed by the Bank of England is another question; but those businesses who trade with England can sidestep this problem by having sterling accounts with English banks for making/accepting sterling payments to/from English suppliers/customers.

6) That's his opinion and he's entitled to it. I don't see the relevance though.

7) The answer is "No, they probably wouldn't. So they would have been forced to do an Iceland, which would have been a very good thing indeed for all of us. RBS and HBOS would have sorted themselves out with debt-for-equity swaps, at zero cost to either English or Scottish taxpayers. Or possibly they would have been stupid enough to do an Ireland, which would have been a fantastic result for the English - a foreign government bails out our depositors and bondholders."

8) Wholly unsubstantiated claims. There are economies and diseconomies of scale with increasing population size, but once you get past a population of five million, they are negligible either way. There are plenty of countries with populations of five million or less, and there is nothing to suggest that they are markedly worse off for it. And whether the UK has a population of 62 million or 57 million is completely irrelevant. Finally, if it all goes wrong, we can always merge our two countries again.

Rick Sanatorium: in some cultures, absence of a chin is taken as a sign of high social status.

2012-01-13T09:37:00.000Z

Scottish independence and RBS liabilities

2012-01-12T21:08:00.009Z

Today's FT picked up on a question which Jon Snow asked Alex Salmond on yesterday's Channel 4 News, i.e. whether an independent Scotland would pick up the tab for "the UK government's £187 bn exposure to RBS". To which Salmond replied 'no', obviously. The article is otherwise terribly light on detail and I suspect that Snow and Salmond also both completely missed the point:

If we decide that RBS is Scotland's problem, then the Scots really don't have much choice in the matter.

Having been right royally (or should that be democratically?) stiffed by the Icelandic banks, we need some sort of plan in place to disentangle ourselves from RBS and to entangle Scotland instead.

1. The shares

The UK government originally invested £45.2 billion into RBS as shares (see UKFI annual report 2011), an average of 50p per share. Those shares are currently trading at 23p, so are currently standing at a loss of £24 billion. Who knows what the value of those shares will be when Scotland becomes independent? I don't, but I do know that RBS had £78.445 billion cash on deposit with central banks as at 30 September (Tab 1.2 from the Excel spreadsheet available here) .

I assume that the bulk of this is with the Bank of England, so all we have to do prevent RBS from drawing down its balance to below £45.2 billion. Then the day after Scottish independence, the Bank of England merely swipes this cash, i.e. deletes it from the record and we send the new Scottish government a share certificate showing them as the new owner of the 90 billion shares.

2. The loans

The UK government or HM Treasury also lent RBS money in one form or other i.e. under the Special Liquidity Scheme, Credit Guarantee Scheme and Asset-backed Securities Guarantee Scheme. As far as I am aware, these loans have already been largely repaid, and if not, we'll just have to make sure that these are repaid prior to independence, which is at least two or three years away.

If they aren't repaid by then, we'll simply have to find something in the small print which allows us to call in repayment the day after independence. RBS have plenty of assets in England, premises, mortgages secured on English land and so on to which we can help ourselves. We can't just shove the loss onto ordinary UK depositors with RBS, so we'll have to take enough to repay them as well. RBS balance sheet total was £1,607 billion as at 30 September 2011. It only had £433 billion in customer deposits, so there's plenty enough to cover outstanding loans from the UK government and deposits from ordinary English, Welsh and Northern Irish people.

Much the same thing happened when the Icelandic banks went pop, the UK government helped itself to all the assets which those banks had bought in the UK with money they had originally borrowed from greedy mugs in the UK. Primarily UK local councils.

3. The guarantees/contingent liabilities

The dividing line between a secured loan and a guarantee is clear enough if you have a choice between lending money to somebody yourself or guaranteeing a third party lender that you will repay the loan if that somebody defaults, but with state guarantees to banks, secured on other financial things it is not so clear at all.

So I'm not sure whether the Asset-backed Securities Guarantee Scheme etc was the government lending the money to banks and taking other stuff as security, or whether the government made a guarantee to people who'd invested in banks that they would be repaid. Either way, I strongly suspect however that the £187 billion figure mentioned is more in the way of guarantee than actual loan.

So all we have to do here is simply renege on them, and tell RBS or RBS' investors that they are on their own and we will not honour the guarantees. If the Scottish government, as the new owners of RBS wants to step in as guarantor, then that's their decision, and if not, they can do like Iceland and just let it go pop.

UPDATE 13/1/12. Today's FT says "129 billion exposure to RBS toxic assets: By taking a big stake in RBS [presumably the £45.2 bn referred to in (1)], the UK accepted contingent liabilities valued by the Treasury at £129 bn." So this is a historic figure anyway, and these are only 'contingent' and we can simply walk away if it suits us.

4. Summary

From that day and henceforth, RBS will be Scotland's problem and Scotland's alone. If they are happy for RBS to be split up and the losses fobbed off onto somebody else, then so be it, that's their decision. This won't go down too well North Of The Border, but hey.

Conversely, I think it's only fair that we take all the HBOS losses on the chin just to even things up, seeing as that was merged into Lloyds at our then Prime Minister's command. It may well be that Scotland retaliates by nicking stuff from HBOS - that will get very interesting indeed...

As you see, all of these supposed massive financial problems which the zealots say independence would cause all just melt away if you look at them sensibly.

Mises Institute Wisdom

2012-01-12T13:32:00.006Z

Gary North in a Mises Daily email...

The heart of the disagreement between Keynesians and Austrians is easy to state. Each group has a unique selling proposition (USP). I have boiled them down into four words each.

Keynesians: Federal deficits overcome recessions.

Austrians: Tax cuts increase liberty.

From a fiscal point of view, Scottish independence would be a non-event.

2012-01-12T13:20:00.006Z

This topic seems to generate a lot of passion on both sides, the Daily Mail article has so far attracted over 1,700 comments, which is unusually high even by the Mail's standards.

As to the finances, it boils down to three main items which more or less net off to nothing:

1. The Scots would draw a new boundary for the Continental shelf, basically a straight line heading due East from the English/Scottish border, see map here and collect North Sea oil revenues from their patch. According to that same link, Scotland's ninety per cent share of North Sea oil revenues would be about £10 billion a year. On the BBC yesterday, they quoted a lower figure of £6.5 billion.

2. UK government spending is skewed towards the three non-English nations and poorer areas in England. According to Wiki's write up of the Barnett Formula (as poor old Lord Joel Barnett has been saying for decades, it's not a bloody formula!), average spending per capita per year in Scotland is about £1,200 higher than the average for the rest of the UK. So the UK as a whole subsidises Scotland to the tune of £6.2 billion.

3. Alex Salmond conceded yesterday that Scotland would assume a share of existing UK government debt, proportional to population or GDP. GDP per capita is about the same so we can split it proportional to population and Scotland's share would be 5.2 million/62 million = 8.4% and if UK government debt in 2015 is £1,400 billion or thereabouts, then Scotlan's share would be £118 billion. Let's guess the average interest rate on UK government debt at 3%. As a small/new country, Scotland would end up paying a bit more than that, say 3.2% and the interest rate on the residual UK's debt would fall ever so slightly.

The net position is thus as follows:

1. Scotland gains £10 billion a year;
2. Scotland loses £6.2 billion a year;
3. Scotland loses £3.8 billion a year interest (assuming debt is rolled over in perpetuity).

Scotland's gains = rest of UK's losses and vice versa.

To my untrained eye, that looks like a nil overall position. Of course, oil revenues can go up or down quite markedly; there are different ways of calculating per-capita overspend in Scotland; and interest rates can go up or down (and we don't know what the Scottish premium would be). So each team of negotiators has to do its own forecasts and then bring them into balance by increasing or reducing Scotland's share of UK national debt accordingly. Provided that each party expects to at least break even on the final agreed deal, then the deal is worth doing, end of.

There are of course lots of other bits and pieces that have to be looked at; whether UK nuclear submarines will stay in Faslane and whether the UK Navy will still pay for ships to built in Scotland; who is responsible for paying the old age and public sector pensions for people who have worked and lived both in Scotland and elsewhere in the UK, but we can apply the same principles. It is not an intractable problem.

Work for dole: Theory and Practice

2012-01-12T10:24:00.004Z

James Higham gives us a good overview of the topic at Orphans:

This is where the gung-ho view "get the buggers off the public purse", a commendable view in terms of those scamming the system, is anything but commendable...*

Another one is the trend with the work programme firms of breaching their brief, which was to put people into sustained employment but instead forcing them, on pain of DWP sanctions, into non-jobs which last a few weeks or a month or two, causing two things to happen.

Firstly, the non-job means that, even with WTCs and other discounts, the person is bringing in about half of what he was before – he loses his rental accommodation and it puts him on the council’s doorstep, where the new trend is “shared accommodation”, as the council has sold off half its properties to pay for the Iceland debacle or whatever. Then he ends up on the DWP’s doorstep again, signing back on.

And this morning's Metro gives us a real life example:

Cait Reilly, who has been looking for work since leaving Birmingham University, was volunteering at a museum until she was ordered to take a work placement at a Poundland store in the city.

The geology graduate spent two weeks stacking shelves and sweeping floors after being told she could lose her benefits if she did not accept the ‘mandatory’ post. She is now asking the High Court to quash regulations that her lawyers claim were created by the government ‘without parliamentary authority’ and ‘forces people into futile, unpaid labour for weeks or months at a time’.

The 22-year-old, who was not offered an interview following her placement, told her Jobcentre Plus adviser of her previous retail experience and that she did not want to give up volunteering at the Birmingham Museum and Art Gallery.

Those who watched that excruciating TV series "Fairy Jobmother" will be familiar with this. All the people for whom the government-funded but privately owned welfare-to-work agency Action4Employment found these unpaid work placements were - unsurprisingly - given their cards again after two or three weeks, i.e. as soon as the period was up for which A4E can collect the back-to-work success fee, giving them a total income of £234.3 million last year. Or possibly there is some employment law that would have given these placees employment rights after two or three weeks, such as the right, er, to be paid?

* As to the "scammers", this is yet another advantage of having a flat rate, weekly Citizen's Income for all, whether working, caring, studying, volunteering, actively looking for work or simply unemployed: there will be no need to take the moral high ground and distinguish between "the scammers who are claiming and working on the side" and the honest majority who are working and who are paid the Citizen's Income as well. Or to reduce churn, the honest majority could choose to have the Citizen's Income offset against their PAYE liabilties, like the Tax Credit in Ireland, only not quite so stingy.

Psst! Two 149-acre farms with planning for sale, going cheap!

2012-01-12T09:10:00.000Z

From yesterday's FT, more HS2 tomfoolery:

The Department for Transport estimates 338 homes will have to be demolished to create the line, about two-thirds of which are in Euston...

Right, so they are going to have to displace 225 households in north/central London, pay up, move on.

Meanwhile, Knight Frank, the property services group, estimates that more than 800 houses – 250 of which are in the top bracket for council tax – along the 140-mile stretch of railway will suffer some kind of adverse impact. James Del Mar, head of Knight Frank’s HS2 team, says it is impossible to quantify the impact the project will have on property values along the route, as compensation for land affected will not be granted until 2015...

Somebody somewhere is missing a right old trick here.

Ninety-five per cent of the route is through open countryside, which is why there are only 113 houses which will have to be demolished and 800 which will "suffer an adverse impact". Let's say the houses were worth £600,000 and halve in value to £300,000. The government could bung them all £600,000 compo, total cost £548 million, about two per cent of the total cost of HS2 (before inevitable cost over-runs) and tell them to lump it.

Or The Man From The Ministry could wise up and realise that what's being affected here is purely the location value of those houses, and, seeing as those houses are in The Hallowed Green Belt, the scarcity value - it is nigh impossible to get planning for a new house in the affected areas. So the £600,000 value consisted of £150,000 rebuild cost/value of the building and £450,000 location/scarcity value of the planning permission (which has now fallen by two-thirds).

Therefore, the correct strategy from the point of view of the government (on behalf of the taxpayer as well as on behalf of those affected) would be to grant each and every single affected owner the personal right to build a carbon copy of their house anywhere they wish within a 2-mile radius of their old home. Once they have tracked down farmers who'll sell them the required bits of agricultural land for a few thousand quid (land without planning permission is dirt cheap), the government can then build a carbon copy of their old house for £150,000 and do a straight swap, old-for-new. They can even chuck in a free removal service and get the local Lord Mayor to bring them some champagne and flowers.

The total cost of this exercise is thus £137 million (913 x £150,000). The income from this exercise is the value of the 800 houses which the government gets in exchange and which are "affected" but don't have to be demolished. At depressed price of £300,000 each, that's still £240 million, which is more than enough to cover the cost of building the carbon copies, with £103 million left over as net profit!

Now, see if you can apply the same logic to sorting out Farmer John:

But at the far end of the line from Euston, in the rolling open countryside around Lichfield, John Barnes is preparing for his family’s 300-acre arable and sheep farm to be sliced in two.

“The railway will literally [sic] cut us in half. We’ll end up with the farm shop on one side of the track and a grain store on the other. Everything in the middle, including our home, will be wiped out,” he says. Mr Barnes, who also puts on weddings and runs a farm shop, says he fears for his children. “Whatever happens, it is blighted now and is unsaleable. But it is the next generation I am worried about; this place has been in my family for 100 years and it is their future that will be affected.”

Additional information: the average English farm is surprisingly small, somewhere in the region of 100 - 150 acres.

"Premier League footballers to hold enquiry into corruption in politics"

2012-01-11T16:56:00.004Z

From the BBC:

Leading footballers are to hold an inquiry into corruption in politics, following a number of allegations involving top parliamentarians.

The Football Association Ethics Committee will decide its terms of reference next week and will hear evidence on 6 March. The move follows incidents involving MPs and Peers from all major parties. England captain John Terry said recent events had "reignited football fans' concerns about sleaze in politics"...

Mr Terry said: "I think the events of the last two years have reignited concerns about MPs on the take. Although this session will not necessarily be restricted to Members of Parliament, it will be the principle [sic] area of inquiry following the MPs expenses scandal and the concerns that have arisen from that."

Fellow committee member and Liverpool striker Luis Suárez said he was a supporter of the Show Brown Envelopes The Red Card campaign and believed that, given recent events, it was right for footballers with and without party allegiances to investigate.

"Our government should be rightly proud that in many ways it has led the field in tackling social issues such as racism, homophobia and sectarianism and it will be interesting to see what conclusions the Ethics Committee draw from the evidence session," he said. "It's a game of two halves and I'm sure the lads will give it 110 per cent. But they won't want to go a goal down at this stage."

"Apart from that, Mrs Przybyl, how was the press conference?"

2012-01-11T11:27:00.003Z

"I think he shot himself in the foot. And missed badly."

Rick Perry

2012-01-11T09:34:00.003Z

Killer Arguments Against LVT, Not (189)

2012-01-11T09:30:00.001Z

The counter-arguments which the Home-Owner-Ists and Faux Libertarians bring to bear are usually completely without foundation. If not, they focus on such a tiny part of the whole picture as to be meaningless and thus contradict all their other counter-arguments which focus on another tiny part, and so on. So actually it's easier to deal with their nonsense in batches.

So here's today's batch:

1. You Georgists just hate landlords, you are closet Communists who hate those who have achieved something. If you impose LVT, there'll be fewer landlords.

2. You Georgists just hate owner-occupiers because [insert spurious motive, often same as for landlords]. If you impose LVT, there'll be fewer owner-occupiers.

3. LVT is pointless as landlords would just add it to the rent, so tenants would end up worse off. So there'd be fewer tenants.

4. LVT would "force" all owner-occupiers out of their homes, they'd have to sell them for a pittance. If pushed as to where all the former owner-occupiers would live, the Homeys and Faux Lib's claim that they would be "forced" to rent.

5. If tenants don't have to pay LVT, there'll be a massive underclass not paying LVT who will always clamour for tax increases at everybody else's expense.
---------------------------------------
They all cancel each other out, don't they?

IF 1 is true, then 2 is not (there's a fixed amount of housing, which has to belong either to landlords or owner-occupiers, if we get fewer landlords we'd get more owner-occupiers and vice versa). If 1 is true then 3 can't be true (either the landlord or the tenant has to bear the tax but not both). If 1 is true, then 4 is not true (why would we propose a system that forces owner-occupiers into landlord's arms?). If 1 is true, then 5 is not (where will this underclass live if there are no landlords any more?)

IF 2 is true, then 1 is not (all housing has to belong to either landlords or owner-occupiers). If 2 is true, then 3 is not (if tenants don't want to rent they'd buy instead, so there'd be more owner-occupiers). If 2 is true, then 4 might be, but if 2 and 4 are true, then 5 can't be (if we want to make owner-occupiers worse off, why give them a get-out-of-jail-free card?)

IF 3 is true, then 1 is not (either the landlord or the tenant has to bear the tax, but not both). If 3 is true then 2 is not (tenants would stop renting and buy instead as that would be cheaper). If 3 is true then 4 is not (LVT can't simultaneously force tenants to become owner-occupiers and force owner-occupiers to become tenants). If 3 is true, then 5 is not (why would tenants clamour for tax increases they have to bear themselves?).

IF 4 is true, then 1 is not (if LVT forces people to rent from landlords who have just snapped up their homes for a pittance, it is pro-landlord, not anti). If 4 is true, then only if 2 is. If 4 is true, then 3 is not (why would owner-occupiers sell up for a pittance just end up paying even more to a landlord?). If 4 is true, then 5 is not (if we hate owner-occupiers, why give them a get-out-of-jail-free card?)

If 5 is true, then 1 or 2 might be (but 1 and 2 rule out 5, as I explained above). If 5 is true, then 3 is not (either the landlord or the tenant has to bear the tax, but not both and certainly not neither). If 5 is true, then 4 is just not a problem (owner-occupiers can shed themselves of the LVT payments by becoming tenants).
-----------------------------------------
So not only do these Killer Arguments cancel themselves out using pure logic, taken individually, they were all nonsense to start with:

Re 1: Under current rules, the overall tax rate on gross rental income is about forty per cent (council tax and business rates come out of gross rents, the balance is liable to income or corporation tax and repairs are liable to VAT and so on). Under a full-on LVT/CI system, people's disposable incomes before rents would double, so gross rents would double as well and the average tax rate on gross rents would be seventy per cent (zero per cent on the bricks and mortar, hundred per cent on the site rental value). The landlord's net income would be much the same, do the math.

Re 2: If you impose LVT, there would be far more owner-occupiers, because derelict and vacant homes would come back on the market; as would second homes and holiday homes, under-occupied homes etc. It's got to do with marginal utility of consumption. If something is provided free to some people and others have to pay through the nose, the former group will grab as much as they can and the latter will do without - if everybody has to pay the same, then people will just use what they need.

Re 3: Complete hokum. People go along with the delusion that "VAT is added to selling prices" when in fact, based on proper evidence, two-thirds of VAT is swallowed by the producer/supplier in lower margins, because supply is less price-elastic than demand. Seeing as the supply of land is far less price-elastic than VAT-able supplies, the chances are that nearly all the tax would be borne by the landlord.

Re 4: No it wouldn't, because LVT would replace taxes on incomes, profits, output, wages etc. At the margin, those with a high house price-to-income ratio might trade down, but this would enable others with a low house price-to-income ratio to trade up (the exercise being a slightly positive sum game as it will lead to a more efficient allocation of housing). The total number of owner-occupiers would not change. And trading down can be in absolute terms or in relative terms - if the NIMBYs allow more housing to be built where it's needed, their LVT bills will go down, because the owner-occupiers of the new housing will have traded up and will thus be paying a larger share of the total LVT bill.

Re 5: Not true either. By and large, around a tenth of households are private tenants, so there's no question of there being a 'massive' underclass. The LVT bill would be the same whether a home is owner-occupied or tenanted. So either the owner-occupier pays it in full (he cannot pass it on) or the landlord and tenant share it between them somehow. Landlords are free to express rents as a lower net rent + LVT if they so wish. And nobody is forcing the landlord to be a landlord, he can always sell out to the tenant and then the LVT is the new owner's problem.

"Skyscrapers linked with impending financial crashes"

2012-01-11T07:52:00.006Z

From the BBC:

There is an "unhealthy correlation" between the building of skyscrapers and subsequent financial crashes, according to Barclays Capital. Examples include the Empire State building, built as the Great Depression was underway, and the current world's tallest, the Burj Khalifa, built just before Dubai almost went bust.

China is currently the biggest builder of skyscrapers, the bank said. India also has 14 skyscrapers under construction.

"Often the world's tallest buildings are simply the edifice of a broader skyscraper building boom, reflecting a widespread misallocation of capital and an impending economic correction," Barclays Capital analysts said. The bank noted that the world's first skyscraper, the Equitable Life building in New York, was completed in 1873 and coincided with a five-year recession. It was demolished in 1912...

That all seems perfectly plausible to me.

By and large, the height and density of buildings are primarily an indicator of relative land values in towns and cities. So you get the highest and densest buildings in the town centre* and then it gets lower and sparser as you move out into the suburbs.

The other thing which sky scrapers indicate is over-inflated egos, and credit bubbles inflate people's egos in the same way as they inflate the selling price of land.

So it's clear why credit bubbles mean more skyscrapers being built; credit bubbles always burst; hey presto, there's your correlation between skyscrapers and recessions.

Or the theory might be complete bunk, who knows?
--------------------------------
* UPDATE, prompted by JT's comment, I refer you to Jason Barr's empirical research looking at the economics of skyscrapers in Manhattan:

One also notices that within the skyline there are distinct “waves” of building heights, with height rising toward the "center". These waves reflect the endogenous relationship between strategic height, land values and agglomeration economies. Corporations need to be near each other to lower their business costs and increase demand, yet they also desire to stand out in the skyline.

Being close is valuable, which is reflected in property values in the center; large land costs, in turn, drives developers to build even higher if they are to get a return on their investment, as well as have their buildings stand out.

He explains that on the one hand, builders want to build as high as possible, to maximise rental income, fair enough. By and large, rental values decline slightly with height (longer lift journeys etc) and construction costs rise disproportionately with height. So there is a cut-off height above which it makes no sense building, but hubris (esp. during a credit boom) makes people want to add a dozen floors too many, and credit booms also lead builders to underestimate the cost of capital tied up in those extra floors.

He can thus identify the "too tall" buildings, and lists the top fifteen "too tall" buildings on page 27. As you'd expect, their construction dates match peaks of the eighteen-year credit cycles, two in 1908-13; seven in 1926 - 1933; then a bit of a gap for WW2 which threw the cycles out of kilter (or dampened the one which would have happened in the late 1940s); two in 1960 - 61; three in 1972 - 77; and an odd one out in 1987.

HS2 illustrates the point nicely

2012-01-10T16:51:00.006Z

From the BBC:

Mr Levett had hoped to downsize but said he held out no hope for selling his house because of the HS2 plans. Despite being vehemently against it he said: "In a way I hope that it does go through my garden because if it goes through part of your property you can get the government to buy the whole plot. That's probably the only way we are going to be able to move now."

Some estate agents believe the development could help home owners in the neighbouring village.

Anita McKeogh, director of Connells Estate Agents in nearby Balsall Common, said: "For those who live too close to the line it will have a negative impact on their ability to sell, but for other people in Balsall Common I think it could help house prices. Homes have been selling well here and we had a good year last year. People want to buy here because of the good schools, it's close to the motorway and close to the train stations too. You can get to Birmingham from Berkswell train station in 15 minutes and then pick up the high speed rail, so yes, it could make it more desirable to have better rail connections."

The point being of course that rental values are determined by the surplus which society generates as a whole, and total rental values are thus more or less constant. It is quite true that rental values are not permanently attached to exactly the same physical bit of land in eternity, but this is no more than the shifting of the tides; when we have a high tide, somebody else has a low tide and vice versa - the total amount of water in the ocean does not change. Except that rental values move around over a period of years or decades rather than every 6.25 hours, obviously.

Whether or not the whole HS2 thing is a waste of money, it is not being paid for by people who 'own' the land affected (whether adversely or favourably) and in terms of total rental values, or from the point of view of land 'owners' as a whole, HS2 is at worst a zero-sum game. So Mr Levett might lose out but somebody else in Balsall Common wins; and ultimately that rental value (as capitalised into the selling price of their houses) which has passed from one to the other didn't belong to either of them in the first place.

Nicotine Patch Fun

2012-01-10T14:57:00.004Z

Worried medical sales rep: "Sir! Sir! I think our number might be up, some b-stard university has done some proper research and all the newspapers are reporting that nicotine patches are totally ineffective. That was one of our best-selling lines and we've got factories full of the damn' things!"

Sales Director: "Don't worry about it, you'll still hit your targets. We funded a bit of research of our own, and - hey presto - it turns out that nicotine patches help stave off dementia. That's one Hell of a potential market, isn't it?"

WMSR: "Are you sure they'll fall for it? According to those articles, those stinkers at Harvard monitored 787 for five years and our lot only monitored 67 people for six months. And our lot have got us by the short and curlies, haven't they? Just read what the guy said: 'This study provides strong justification for further research into the use of nicotine for people with early signs of memory loss. We do not know whether benefits persist over long periods of time and provide meaningful improvement', so we'll have to keep funding their research for ever and a day, won't we?"

SD: "Ah, don't worry about it. It's not your money is it? Anyways, I'm taking the stooge from the Department of Health to lunch today, I'm sure we'll be able to sort something out. Now keep this under your hat, but he let slip that they'd be interested in doing their own research into all the other stuff that nicotine patches might be good for, they might be able to help us out with the funding. He's pretty clued up, you know, we're even thinking of offering him a job as an R&D consultant in a couple of years' time."

Totally Mismanaged Expenditure

2012-01-10T13:25:00.008Z

Just to put this all into perspective, according to the Public Sector Finances Databank (Excel, available here), total UK government revenues in 2012-13 are expected to be £594.4 billion (Tab C4), and total managed expenditure ('TME', which includes depreciation) for the year is pencilled in at £714.5 billion (Tab B1), a deficit of [£very large number].

Question: How far would we have to turn back the spending clock to reduce spending to the same level as current tax receipts, i.e. to put an end to deficit spending/bring the budget back into balance?

Click and highlight to reveal answer: Five years. In 2007-08, TME was £582.9 billion (Tab B1), not adjusted for inflation. Adjusted for average wage/price inflation of about 3% a year, we'd have to go back nine years to 2003-04, when TME was £455.5 billion nominal.

Debt For Equity Swap Of The Week: Santander

2012-01-10T10:34:00.001Z

From FT Alphaville:

Since Unicredit is doing this rights issue to meet the European Banking Authority’s target for banks to meet a nine per cent core capital ratio by June – it’s also worth mentioning in passing Santander’s announcement on Monday that it’s met the EBA goal. Modestly hooting that it’s "one of the world’s most solid and well-capitalised banks", Santander says it’s found €15bn of additional capital via the following:

- EUR 6,829 million through Valores Santander.

- EUR 1,943 million through the exchange of preferred shares for ordinary new shares.

- EUR 1,660 million through the application of the Santander Dividendo Elección program (scrip dividend) at the time of the final dividend corresponding to fiscal year 2011.

- EUR 4,890 million through organic capital generation and the transfer of certain stakes, mainly in Chile and Brazil.

Interesting to note that the "Valores Santander" portion is made up of converting retail bonds that were originally issued in 2007 into shares during October 2012. As the WSJ has reported, it’s been anything but “valores” for Santander retail investors who bought these securities.

Yes, it's tough, but better them than the taxpayer, eh?

We own land! Give us money!

2012-01-10T09:15:00.002Z

From yesterday's FT:

William Dudley, president of the Federal Reserve Bank of New York, said on Friday that taxpayers and mortgage bond investors (1) should shoulder the cost of reducing borrowers’ loan principal. Sarah Bloom Raskin, a member of the Fed’s board of governors, added on Saturday that forcing leading banks to cut mortgage principal (2) as a penalty for poor practices was an option “that should stay on the table”...

“Housing markets have shown little sign of improvement so far in this recovery,” Elizabeth Duke, one of the Fed’s five sitting governors, said last week. “This stands in sharp contrast to the important role that the housing sector has typically played in propelling economic recoveries.” (3)

Mr Dudley detailed about half-a-dozen proposals to revive the US property market in a recent speech, including principal reduction for borrowers, eased refinancing terms for homeowners who owe more on their housing debt than their homes are worth, and a US taxpayer-funded programme to extend financing to unemployed borrowers. (4)

The New York Fed chief, who acts as the Fed’s liaison with Wall Street, added that US-controlled mortgage giants Fannie Mae and Freddie Mac, which own or guarantee nearly half of all US single-family mortgage debt, should reduce borrowers’ loan balances to help stem the rising tide of property repossessions. (5)

1) Mortgage bond investors I understand, but "taxpayers"?

2) Ooh! Making the banks take their own medicine? Sounds radical!

3) Nope. Growing economies inevitably cause house prices to rise; and rising house prices create bubbles which create the illusion of growth while stifling real growth, only nobody notices until the bubbles burst, when the real economy gets burdened even more to bail out the illusory economy.

4) Do they have to be wearing string vests?

5) Aha! They aren't going to take the radical step of making commercial banks suck up the losses, it'll be the taxpayer-backed banks doing that. So point (2) goes out the window and (1) really means that the losses/subsidies will be shared between taxpayers and, er, taxpayers.

Reader's Letter Of The Day

2012-01-09T19:33:00.001Z

From today's Evening Standard:

"Two free drinks a day needed, MPs' report says"

2012-01-09T15:45:00.007Z

From the BBC:

People should have at least two free alcoholic drinks a day, or two days a week completely clear of paying for alcohol, a group of MPs says.

It is one of the recommendations in a report by the Commons Social Affairs Committee, which is calling for a review of hospitality in the UK. It also says there are "sufficient concerns" about alcohol poverty, where a household's spending on drinks exceeds a tenth of tis disposable income.

The report has been welcomed by money-saving experts, particularly from Scotland and Yorkshire. Advice on the maximum units of alcohol that should be paid for was introduced in 1987 - 21 units in a week for men and 14 for women. In 1995, the advice was changed to recommend that men did not regularly pay for more than three to four drinks. The figures were two to three paid-for-drinks for women. It also says that after heavy drinking people should leave 48 hours for their bank balance to recover.

Health Minister Bill Quango MP added "I've been boozing at Big Pharma's expense since I was first appointed, and it does seem a bit churlish to deny the ordinary voter such simple pleasures. It's not like the buggers can't afford it, they'll make their money back by selling us aspirin in the morning. Or those fancy drugs they prescribe to people with a liver."

"LA Woman sues Honda over false 50 mpg claim"

2012-01-09T14:21:00.007Z

Mombers reminded me about this story (nice to see that the character from a Doors song is still alive and well!) with his comment to an earlier post:

It can be argued that global warming is a myth or won't be that bad but two things can't be argued:

1.Mercury, lead and other chemicals in the air are never a good thing

2.Mahmoud Ahmajinedad, Hugo Chavez et al are real and they're not our mates. Giving them billions of dollars a day is not in our best interests. I think improving efficiency is lower hanging fruit in terms of reducing pollution and petrodollars. Doesn't sell as well as fancy green energy projects though.

1. Agreed. Not so much lead any more though, I thought.

2. Broadly agreed, but...

a) We (the UK) do not give them "billions of dollars a day". We consume approx. 600 million barrels of oil a year, and each barrel earns the producer country about $113 = £73 (£1 = $1.55 as at today's date), so that's about £44 billion a year (3% of GDP).

Maths check: One barrel crude = $113 = £73 ÷ 159 litres/barrel = 46p per litre. Fuel duty 60p + VAT 22p/litre = 82p + plus 7p for refining, transport, retail margin etc = £1.35/litre pump price. Total VAT + fuel duty receipts are about £55 billion a year. Which would give us a figure of 46/82 x £55 billion for cost of crude oil = £31 billion, so let's round that £44 billion down to £40 billion for crude oil imports.

b) As far as cars are concerned, there is little or no low hanging fruit left. I think we have pretty much reached the upper limit in terms of fuel efficiency in miles per gallon, assuming you want to travel with any dignity. Honda can't even manage to make cars which achieve 50 mpg (or maybe they can and LA Woman drives like an idiot).

IIRC, when I was a lad, 30 mpg counted as good. My 1997 VW Golf Mk II achieves around 40 mpg overall. It has a 2 litre engine, which is not small relative to size of car or engine sizes in the 1970s or earlier, and I'm sure it's far less efficient than it was when it was new, or less efficient than a new car today.

So even if we could improve our overall average mpg from 40 mpg to 50 mpg*, this would only reduce the money we send abroad to people who are, frankly, "not our mates", by about £8 billion a year at current prices, which is £129 per capita. I mean, it's worth having, but nothing to lose sleep over; the cost of replacing all our cars would far outweigh this - The Golden Rule is to drive sparingly and to run your car until it falls to pieces.

* Derek in the comments points out that they mean smaller US gallons, and that 50 miles/US gallon = 60 miles/Imperial gallon.

"Carbon emissions will defer next Ice Age"

2012-01-09T12:07:00.002Z

From the BBC:

Human emissions of carbon dioxide will defer the next Ice Age, say scientists. The last Ice Age ended about 11,500 years ago, and when the next one should begin has not been entirely clear.

Researchers used data on the Earth's orbit and other things to find the historical warm interglacial period that looks most like the current one. In the journal Nature Geoscience, they write that the next Ice Age would begin within 1,500 years - but emissions have been so high that it will not.

"At current levels of CO2, even if emissions stopped now we'd probably have a long interglacial duration determined by whatever long-term processes could kick in and bring [atmospheric] CO2 down," said Luke Skinner from Cambridge University...

Excellent news!

The original Ice Age was quite good fun, but the follow-ons 'The Meltdown', 'Dawn Of The Dinosaurs' and 'Continental Drift' were increasingly unfunny, repetitive and full of anachronisms.

Selling...

2012-01-09T11:41:00.005Z

This fell out of a comment stream on another MW post, and it occured to me that it might make good copy and provoke discussion.

I had been working as a design engineer and I was getting very bored and luckily I was laid off. I had long thought of starting my own business, but I thought I couldn't sell. The redundancy money gave me three months cover on my expenses so I needed to do something fairly quickly. I was given two chief opportunities; one was in finacial services, the other in home improvements, with Everest. To cut a long story short I joined Everest as a self employed sales agent - a 'rep' to you and me.

At the time in the early 80's the companies sales 'system' was to make 200 cold call contacts per week, this would translate into about 20 or so 'appointments', of which you would actually present to 10 and close three. Everest had built itelf into the premier double glazing outfit using this system so who was I to argue? So I set to on their system.

In addition to the system, Everest ran local sales training meetings twice a week. Now, don't think that these were the archetypal hooray gee up sessions, they were not. They were much more sohisticated involving lots of role play, attitude training, work rate training; self discipline and so forth. My assessment at the time and looking back is that (at that time Everest) was one of the best organised most disciplined companies that I have ever worked for.

The competition both within the company and outside from other outfits was fierce. Very quickly I realised that many reps (again both inside and outside the company) were just lazy and liars. Being neither of those I worked on being hard working and truthful. Sure you lose the occasional deal to the bullshitters, but the deals you make tend to be bigger, and to generate more customer loyalty (lots of referrals and repeat business) and less cancellations.

Good selling - and we all do it - is founded on truth and hardwork. Good reps will never be the 'stars', they'll be the ones that do the numbers year in year out. And this brings me to the 'stars'.

If you have any experience you'll know that super-reps are a pain in the arse. They use their charisma to quickly close lots of deals, but generally have zero follow through and are adminstratively chaotic; except in their skill at claiming expenses. The business they generate is often 'bought' - that is it has been heavily discounted and may not even conform to the firms product standards. These super-reps are very clever at sticking around just long enough to get all their commissions before the cancellations or other problems surface. They then go to the next outfit they can charm into taking them on. Lastly, it is my experience that the truth is not in them.

One of the best of these I have seen in action was a certain T. Blair. My judgement of him was that he was simply a super-rep that got lucky.

Fun Online Polls: How much money is there & Republican candidates.

2012-01-09T11:00:00.002Z

Your answers to last week's Fun Online Poll were as follows:

Taking assets and liabilities into account, how much 'money' is there in the world?

None - 81%
Billions and trillions - 11%
Other, please specify - 8%

Thanks to everybody who took part, I'm delighted to see that the penny has dropped [sic] with 81% of you. While there are indeed billions and trillions in financial assets (be that notes and coins, bank deposits, corporate or government bonds) by definition, there is always an equal and opposite amount of financial liabilities (either the government, companies or the banks owe other people the same amount). Remember: if you have a stash of bank notes under the mattress, you are making an interest-free loan to the government!

Responding to ChefDave in the comments under the poll: Yes, in the very short term, there can be a mismatch between the amounts recorded as assets and as liabilities for book keeping purposes.

Let's say somebody takes out a mortgage of £100,000 to buy a house for £100,000. The house is a real asset and the mortgage is a financial liability of £100,000 to the borrower and is recorded as a financial asset in the bank's books, so on Day One, the net financial asset/liability is £nil. Now, maybe the borrower loses his job and the house falls in value to £80,000, but the bank still records the asset at £100,000. Oops, mismtach!

But that's only in the short term. Sooner or later the bank will repo' the house and sell it for £80,000 and will have to write off the rest (which is a release from a liability from the ex-borrower's point of view i.e. a windfall gain). The bank's owners (shareholders) then have to share that loss of £20,000 between themselves, so the value of their shares falls by £20,000 and the balance is reinstated.

And so on. Saying that "the economy is drowning in debt" betrays the same misunderstanding. All this really means is that some creditors will not be repaid in full; or that actually enforcing all the debts would cause more harm than writing off some of them.

Physical gold of course is not money, it is in itself a valuable asset which can be used as a medium of exchange or a way of measuring liabilities - i.e. if I borrow ten gold coins from you, then this a financial liability and your receivable is a financial asset. This still nets off to nil gold coins and does not change the number of gold coins in existence. And the fact that a country's currency is expressed in terms of gold ('Gold standard') does not stop it being a fiat currency. The government can change the exchange rate whenever it wants, this is just a question of making a foul compromise between political and economic forces.
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Ross has posted an Arbitrary list of the best to worst Republican candidates for President. Staying in the spirit of things, that's this weeks Fun Online Poll: "Whom would you like to see as the Republican candidate for President?"

Vote here or use the widget in the side bar.

Ron Paul: The other Republican hopeful who isn't completely insane

2012-01-08T15:22:00.006Z

Ingrates Of The Week

2012-01-08T12:39:00.005Z

From yesterday's Daily Mail

The U.S. Navy has rescued 13 Iranian seaman being held captive by pirates in the Gulf of Oman. In a move that should relieve tensions between the nations – temporarily at least – the Americans successfully responded to a distress call from a merchant ship.

A Navy helicopter from the aircraft carrier USS John C. Stennis tracked the Somalian pirates to an Iranian-flagged dhow that had earlier been hijacked. There, the team found 15 armed pirates who did not put up a fight holding the 13 Iranians hostage. Reports differ as to how long the crew had been held. The Somalians were taken into custody and the merchant seamen set free. The rescue occurred about 175 miles south-east of Muscat, Oman.

The news will have been well received in Tehran and the whole world will be hoping the rescue will enable the countries to step back from a march towards conflict that has recently appeared inevitable...

Ah bless, you might think, fellowship of the sea and all that. We wouldn't exactly expect that Iranian government to say thanks or anything, but this is sourpuss, even by their standards...

Iran accused the U.S. of a media stunt after the American Navy's rescue of 13 Iranian fishermen held by pirates, saying it was staged like a 'Hollywood drama'. American officials announced that the fishermen had been rescued by a Navy destroyer, more than 40 days after their boat was commandeered by suspected Somali pirates in the northern Arabian Sea. The rescue came just days after Tehran warned the U.S. to keep the same group of warships out of the Persian Gulf in a reflection of Iran's fear that America could try to enforce an embargo against Iranian oil exports.

Iran's hard-line Fars news agency called the rescue operation a Hollywood dramatisation of a routine event. The Fars report noted that attacks by Somali pirates in the region were common and Iran's navy has itself freed many mariners held by pirates in recent years without seeking to highly publicise it.

The Hall–Rabushka flat tax proposal

2012-01-07T14:53:00.012Z

1. This morning, Francis in the comments asked: "Mark, what do you think of the Hall–Rabushka flat tax proposal? Basically a flat-rate tax on income but not applying to savings/investments?" Having now read up on H-R's actual proposals and the handy Q&A, I can report that this is not what they said at all.

2. The gimmick is that interest would not count as taxable income in the recipient's hands for the simple reason that it will no longer be counted as an allowable expense to the payer. Clearly, there is no need for a tax on dividend income as such, as these are paid out of post-corporation tax profits, and the flat corporation tax rate would be the same as the flat income tax rate. So what they propose for interest is exactly the same - the interest is not an allowable deduction, so it is paid out of post-corporation tax profits and there is clearly no need to levy income tax on the recipient.

3. More importantly, under US tax rules as they stood (they might have changed since), homeowners could claim mortgage interest as a deduction from income (see page 163). Under H-R, there would be no such deduction - this is very sensible indeed, because having such a deduction merely pushes up house prices and hence land prices, and by disallowing the expense, they broaden the tax base and hence allow a lower overall flat income tax rate.

4. H-R also say that they would allow businesses to deduct the full cost of plant and machinery in the first year, instead of only allowing depreciation (or capital allowances, as in the UK). That also seems fair enough, because by and large the manufacturer of plant and machinery has to pay tax on the profits made from the sale in the year of sale, so this would be tax neutral. Actually this is not particularly radical, because once a business has got going, its cash outlay on new plant and machinery each year is +/- equal to its annual depreciation charge (or capital allowance entitlement), and they also suggest that businesses would no longer be allowed to claim depreciation for existing plant and machinery.

5. Skimming through, they also say there is no need for taxing fringe benefits (company car etc) because the expenses would be disallowed at employer level (page 179); there is no need for capital gains tax on shares, as these are claims on post-tax income (page 165); they would get rid of capital gains tax on owner-occupied housing as a quid pro quo for losing the mortgage interest deduction (page 165); get rid of the deduction for charitable donations (page 157) and get rid of inheritance tax (page 190) and so on and so forth.
------------------------------------------
6. All this seems very sensible, but then they misapply their own principles to come up with a truly insane proposal (page 179):

Q: How are individuals taxed on their rental activities? Is rental income part of wages or business income? Would individuals have to ﬁle both business and individual tax forms if they had both kinds of income?

A: Renting is deﬁnitely a business activity and would require a business tax form. Rental receipts are taxed as business income, but purchase of rental property qualiﬁes for a ﬁrst-year write-off.

7. Owner-occupiers would not be entitled to the first-year write-off of course (and no capital gains tax on a sale), so there is a complete mismatch which could be merrily abused as follows:

a) Instead of buying a house for $200,000 (with a rental value of say $10,000 a year), the cunning owner-occupier would invest $200,000 into an existing (profitable) company, buy the house and the company would claim a $38,000 tax rebate (sticking with their rate of 19%). If he already owns the house, then he can sell it to his own company for $200,000+ instead of paying himself a salary (thus banking the $200,000 tax free).

b) Sure, the future rental income would also be taxable at 19%, but who's to say what the rental value really is? If the owner-occupier pays rent of only $5,000, this is like an "interest free loan from the government" (to quote Tom Cruise's character in The Firm) of $38,000, which is repayable in instalments of $950 a year ($5,000 x 19%).

c) The value of the $38,000 up-front rebate is clearly $38,000 and the net present value of the annual tax payments of ¢950 is (say) $19,000 (discounted to infinity at 5%, with nothing payable at all if the house is left empty). The net balance of $19,000 would merely push up house prices i.e. land prices accordingly (thus undoing everything they just achieved by disallowing mortgage interest as a tax deduction).

d) If and when you came to sell the house, you would simply sell the whole company (so no capital gains tax) or the company would sell the house to a company owned by the next occupier who pulls the same scam (i.e. the interest-free loan gets rolled over).

8. H-R completely overlook the possibility or impact of such shenanigans with their own Q&A (page 166)

Q: Doesn’t the ﬂat tax encourage speculation in land by granting ﬁrst-year write-off for land purchases?

A: The sellers of land have to count their proceeds as taxable income; this offsets the deduction granted to the purchaser. Prices of undeveloped residential land may rise a little, but with a 19 percent tax rate, the effect should be small. Land transactions are included in the ﬂat tax because it is difﬁcult to separate the value of land from the value of the buildings on it.

Difficult to separate the value? Haven't we heard this somewhere before?

Firstly it isn't difficult, and secondly there is absolutely no need to extend the favourable tax treatment for purchases of plant and machinery (which depreciates fairly quickly and has to be replaced; and where the seller of the machinery is liable to tax on the amount received) to bricks and mortar (which depreciate so slowly as to be effectively permanent, and where the seller as like as not would be an owner-occupier and who sells his house tax free).

9. If the aim is to disallow private expenditure (in the same way as the employer can't claim the cost of fringe benefits) and to broaden the overall tax base (thus requiring a lower overall flat tax rate to raise the same amount of revenue), then surely the only sane solution is to treat landlords and owner-occupiers exactly the same and to go for symmetry:

- no tax deduction for the purchase price or amortisation, and no capital gains tax on a sale;

- no deduction for mortgage interest or repair costs;

- the rental value of the house to be included in taxable income of the owner, whether rent is received or not (any cash rent received up to the official rental value would be tax-free), so it makes no difference if you are an owner-occupier, a landlord or you own a vacant building (or else people would be able to get the $38,000 tax deduction by buying a vacant home through a company and then realising the gains tax free by selling the shares in the company).

- if your employer provides you with accommodation, then either he owns it and is taxed on the rental value (but no tax on employee - there would be no tax on fringe benefits, see 5. above); or your employer rents it on your behalf, then either we allow the rental income as an expense (which goes against the general rule) or he can avoid a double charge by adding a corresponding amount to your cash salary and then paying the rent out of your new higher net salary and netting off the two.

10. Even better of course would be to tax the rental value of land at higher rates and all other income (i.e. all earned income) at lower rates or not at all, but hey. To be entirely fair to H-R, they do mention the topic on page 165: "We believe that taxing housing is properly ceded to local governments under our federal system. Local property taxes capture part of the value of the services of a house.".

That looks like a severe case of "chickening out" to me. If they are going to draw up a blue print for radical tax reform, why not at least suggest that the only tax which local governments can levy is a tax on rental values (and abolish state or city income or sales taxes)? For example, they do go as far as to say (page 168):

Q: What about such other taxes as state, county, excise, and sales taxes? What would happen to them under the ﬂat tax?

A: Although we would prefer that other units of government besides the federal government switch to taxes based on the same principle as the ﬂat tax, we have limited our proposal to federal action. The only important implication of our proposal for other federal taxes is the elimination of the deduction for state and local income taxes and property taxes under the federal income tax (the deduction for state and local sales taxes was eliminated in 1987).

Newt Gingrich: one of the two Republican hopefuls who aren't completely insane.

2012-01-07T10:20:00.001Z

Friday Night Gear Change

2012-01-07T10:03:00.000Z

A bit late, because I've only just spotted it. This is a song from the winners of one of those awful talent shows on the television, the inevitable gear change is at 2 minutes 27 seconds in:

Another pharmacy in the village? That would be the Devil's work!

2012-01-06T15:37:00.000Z

From Rev. Ray Waterman's column in December 2011's Puckeridge & Stanton News:

More Inflation & VAT Fun

2012-01-06T12:47:00.008Z

My post of late yesterday, which was on the incidence of VAT rather than inflation, ended up far too lengthy, so to edit that down to the bare minimum...

1. The Consumer Price Index figures (Excel, Table 1) are given for separate classes of spending, some VAT-able (e.g. 'Alcoholic beverages and tobacco') and some not (e.g. 'Food and non-alcoholic beverages'). The main rate of VAT has changed quite significantly three times in the past four years, so if we compare the relative price changes of VAT-able and non-VAT-able items, this gives us a good indication of how much VAT is passed on to the consumer (in higher prices) and how much is borne by the producer (in lower margins).

2. Between November 2009 and November 2011, the average CPI for non-VAT-able supplies went up from 129.9 to 141.9, which means there was 9.3% 'monetary' inflation (as per Lola's definition below). That's our baseline.

3. In November 2009, the main VAT rate was 15% and by November 2010 it had been increased to 20%, so if it were true that producers can pass on all VAT to the consumer by increasing prices, then VAT-able supplies would be subject to additional 4.3% 'government-made' inflation (i.e. old price £1.15, new price £1.20, £1.20/£1.15 = 1.043) on top of 'monetary' price inflation of 9.3%.

4. So predicted CPI inflation for VAT-able supplies over the period would be 14% (1.093 * 1.20/1.15 = 1.14).

5. As it happens, the average CPI for VAT-able supplies went up from 103.1 to 113.2 over the same period, which is total inflation of 9.8%. So by subtracting our baseline 'monetary' inflation of 9.3%, we see that the consumer lost 0.5 (higher prices) and the producer lost 3.2 (old net selling price = 100.0/1.15 = 87.0, and the new net selling price = 100.5/1.20 = 83.8).

6. Thus the consumer only suffered one-seventh (=0.5/0.5+3.2) of the extra 5% VAT in terms of higher prices, and the producer suffered six-sevenths of the VAT (=3.2/0.5+3.2).

7. So the next time people try to tell you that VAT is a 'good tax' because it is borne by the consumer not the producer, or that this year's CPI inflation figures will be lower because the last VAT increase drops out of the equation, feel free to laugh in their faces.
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As background, Lola tried to put John Redwood straight on the topic of inflation, this seems like a good way of looking at it, so I'll repost the whole comment here:

There is a big problem with Mr R’s analysis and that is a confusion between ‘inflation’ and the ‘rise in the cost of living’. The problem is that the Bank of England shares this confusion which is explains why their predictions (impossible anyway) have been/will continue to be, dire.

Firstly, inflation is a function of money. Money is a commodity with, for all intents and purposes, a zero cost of production. If too much is produced its price falls, and hence the goods and services priced in that commodity we exchange for it will rise.

Secondly, the cost of living can be affected by a range of factors that prevent the prices of the goods and services we buy achieving equilibrium, or trending lower, as capitalism does more for less every day. Mostly these are government inspired taxes, subsidies (the reverse of taxes), sclerotic regulation and similar interventions in the spontaneous order of the free market. These price rises are not inflation. They are simply price rises caused by government. This is what confused Brown (easily done with such a numpty). He thought that the lack of price rises meant that his loose money/high debt policies weren’t inflationary. What he failed to factor in were the price reductions coming on stream from the economic liberation of China and similar. His legacy is real inflation.

The situation now is that the government in trying to put right both Brown’s inflation – an unwarranted expansion in money and credit, and his price rises – excessive taxation/subsidies and regulation, by increasing prices by increasing taxes, rather than by properly cutting goverment spending. Which Mr R has already said many times that they are not doing at all.

What now has to happen and will happen, despite whatever the Coalition or the Bank of England do, is deflation and de-gearing. The deflation is already under way as the money supply (i.e. the [fraudulent?] creation of credit) contracts. At the same time assets purchased at inflated prices and bad investment made under the false price signals under Brown’s lunacy will have be liquidated, and they are being. In fact most of these were in real estate, and house prices will fall a lot more.

But because the Government and the Bank of England mis-define inflation, they will make this process unnecessarily painful, and so prevent us from benefiting from this process. Government-made price rises from taxes and the like will make us even poorer and worst of all utterly constrain real wealth creation and the maximising of production, which in its turn would create real jobs.

All pretty sensible, you might think. And John Redwood's reply?

Reply: The Bank’s task is to control measured inflation, which is measured by a basket of goods where relative prices may shift, and where there are arguments about how you adjust the index for changing quality and styles of product purchased. Measured inflation may be your monetary inflation or movements in prices caused by other factors.

"Mexico Baluarte Bridge is world's tallest"

2012-01-06T10:37:00.002Z

From the BBC:

Mexican President Felipe Calderon has inaugurated the world's tallest bridge.

The 403m (1,322ft) tall Baluarte bridge spans a deep ravine in the Sierra Madre Occidental mountains in northern Mexico. It is part of a new highway crossing some of Mexico's most rugged terrain, from the shanty towns Mazatlan on the Pacific Coast to the drugs dens of Durango in the interior. The cable-stayed bridge is so tall that the Eiffel Tower would easily fit under its central span*.

"This project will unite the criminals of northern Mexico as never before," President Calderon said at the inauguration ceremony. Officials from the Guinness World of Records were on hand to present him with an award recognising the engineering feat.

The opening of the 1,124m (3,687ft) long bridge is part of celebrations to mark 200 years of Mexico's independence from Spain. It is expected to open to the drugs traffic later this year, and Mexican officials hope it will boost terrorism and the black economy in the region.

The Mazatlan-Durango highway replaces a notoriously dangerous winding road known as the "Devil's backbone" that crosses the jagged peaks of the Sierra Madre Occidental. As well as Baluarte, there will be eight other bridges over 300m high, as well as more than 60 tunnels. Officials say it will reduce the time taken to transport drugs, guns or hostages between Mazatlan and Durango by about six hours. Eventually, it will form part of a modern highway linking smuggling routes on the Pacific and Atlantic coasts.

As the highest cable-stayed bridge in the world, it surpasses the famous Millau Viaduct in France*.

* The French must be really p-ed off about this.

VAT & Inflation Fun

2012-01-05T19:52:00.017Z

1. The traditional view is that "VAT is a good tax because - unlike corporation tax - VAT does not affect the heroic producer, who just adds it to the price and the greedy consumer who is trying to destroy all that lovely output either pays it or consumes less. If he consumes less, that is good, because that way there is more money for investment, despite the fact that once we have discovered the path of True Righteousness and foregone all consumption, there'd be no point investing, because the only point of investing is to be able to produce and sell even more in future. And of course, VAT appeals to our authoritarian and protectionist instincts because it acts a bit like import duties."*

2. The big fat lie (which I underlined to make it easy to spot) allows the Powers That Be to explain away why CPI inflation was so high this year, at about 5%. They say it is because we were comparing prices inclusive of 20% with prices inclusive of 17.5% VAT, so half of that nominal 5% is just the impact of the VAT increase. This allows The Powers That Be (e.g. The Bank of England) to make outrageous claims like this in their November 2011 Inflation Report:

Inflation is likely to fall back sharply through 2012 as the contributions of VAT, energy and import prices decline, and downward pressure from slack in the labour market persists. But how far and how fast inflation will fall are uncertain. Under the assumption that Bank Rate moves in line with market interest rates and the size of the asset purchase programme remains at £275 billion, inflation is judged more likely to be below than above the 2% target at the forecast horizon.

3. For a start, that can't possibly be true because only about half the items in the CPI shopping basket** are liable to VAT at the full rate, which means that at most a quarter of CPI inflation can be thus explained away. Further, and more interestingly, it seems highly unlikely that higher VAT can all be merrily passed on in higher prices. Luckily, we have had four successive years with different VAT rates to enable us to do comparisons.

2008 - 17.5% (OK, strictly speaking, the rate went down to 15% on 1 December 2008)
2009 - 15%
2010 - 17.5%
2011 - 20%

4. My previous workings, based on the gross profits of Tesco for the four years concerned suggested that the producer bears/benefits from 60% of any VAT increases/reductions. We'd expect to see this if supply is less price-elastic than demand, which makes sense. If you are set up with your supply chain, you cannot increase or reduce amount supplied very quickly, but a customer can change his buying patterns from one day to the next, easily decide to postpone a decision to buy something etc.

5. There's another way of trying to guesstimate how VAT is split between consumer and producer, and that is to look at changes in Consumer Price Index inflation. Half the items in the index are liable to VAT at the full rate and the other half aren't (i.e. exempt, zero-rated or reduced rate 5%), so if it were true that VAT is always passed on to the consumer in full, a 2.5% change in the main rate would lead to a 1.25% change in prices from one month to the next. Happily, the ONS publish CPI figures inclusive and exclusive of VAT.

In December 2008 the main rate of VAT went down from 17.5% to 15%. According to the ONS**, CPI inclusive of VAT went down from 109.9 to 109.5; and CPI excl. VAT went up from 110.3 to 111.3. So consumers gained 0.4% and producers gained 0.9% (total gain 1.3%) and the split was 29% for the consumer and 71% for the producer.

In January 2010 the main rate went back up to 17.5%. CPI inclusive of VAT actually went down from 112.6 to 112.4; and CPI exclusive of VAT went down from 114.4 to 112.5. So consumers gained 0.2% and producers lost 1.7% (total loss 1.5%) and the split was more than 100% for the producer.

In January 2011 the main rate went up to 20%. CPI inclusive of VAT went up from 116.8 to 116.9 and CPI exclusive of VAT went down from 116.7 to 115.2. So consumers lost 0.1% and producers lost 1.3% (total loss 1.4%) and the split was 7% for the consumer and 93% for the producer.

The fact that the total gain/losses were 1.3%, 1.5% and 1.4% each time the main rate changed by 2.5% is very reassuring of course, because this is in line with what we'd expect, being approx. half of 2.5% in each case.

6. The alternative approach would be to compare CPI inflation for VAT-able supplies with CPI inflation for non-VAT-able supplies over the two years from November 2009 to November 2011, a period in which the main rate of VAT went up from 15% to 20% (from Table 1, link as below).

CPI for VAT-able supplies went up from 103.1 to 113.2 = 9.8% inflation.
CPI for non-VAT-able supplies went up from 129.9 to 141.9 = 9.3% inflation.

If producers passed on VAT in full, then CPI inflation for VAT-able supplies would have been 4.3% higher (120/115 - 1) than for non-VAT-able. It was only 0.5% higher, which suggests that producers bear nearly nine-tenths of VAT increases.

7. Therefore on average the producer swallows at least two-thirds of a VAT increase. So in 2012, VAT-inclusive prices would have gone up by no more than 0.8%. VAT-inclusive prices only make up half the shopping basket anyway, so the element of recent CPI inflation which can be explained away by the VAT increase is actually no more than 0.4%.

8. So I'll bet you all a dollar to a dime that the annual CPI inflation figures for the first few months of 2012 are only about 0.4% lower than the CPI inflation figures for the last few months of 2011, i.e. 5.0% for October and 4.8% for November (the figure for December is not out yet AFAIAA). The Bank of England's "forecast horizon" of 2% CPI is a long, long way away.
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* This is all complete nonsense of course. If nothing else, by and large, the VAT is primarily suffered by the producer (see evidence above). This, and reduced quantity demanded, pushes some producers out of business, which restricts supply (and causes unemployment etc) and so the equilibrium price paid by the consumer goes up slightly.

i. The absolute best source of funding for investment is re-invested profits, because there is a direct correlation between businesses which do stuff which people want and businesses which have more spare money to invest. So there is no need for outside investors to try and guess what type of business to invest in (they are historically quite bad at this).

ii. . The clue is in the name: Value Added Tax is a tax on value added, i.e. it is a tax on gross profits, so it's like corporation tax but much worse, because at least with corporation tax, you can deduct wages from the tax base, and corporation tax does not push marginal businesses into a loss making position but VAT does.

iii. So VAT reduces gross profits and hence net profits and so there is less left over to re-invest. By and large, timing differences aside, corporation tax is not a tax on re-invested profits (the business gets a full deduction for re-invested profits), it is a tax on money left over which is not needed for re-investment and which can be paid out as dividends. So it's not the best tax in the world, but it is far from the worst.

iv. Corporation tax applies at the same rate to all businesses, whilst VAT only applies to wealth creating businesses and not to monopoly source income.

v. VAT is largely borne by the producer, even though nominally it is borne by the consumer. The reverse - that corporation tax is borne by the consumer - is probably also true, but to a lesser degree. It is also more difficult to measure, because corporation tax is a much smaller tax - it only raises a third as much as VAT - and rate changes are usually less dramatic.
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** Go to here and download "Data tables (Excel): Detailed CPI and RPI Briefing Tables". I've taken the figures from Table 2.

"Mortgage rationing improves, Bank of England warns"

2012-01-05T15:31:00.004Z

From the BBC:

Home buyers will find it easier to by a house in future, the Bank of England says. Its quarterly survey of lending activity shows that lenders are going to be more sensible about prospective customers.

"Lenders expected an improvement of credit scoring criteria for granting new secured loans to households," the Bank said.

It said prospective purchers were worried about the poor economy but optimistic about falling house prices.

"Factors such as the cost and availability of funds and the economic outlook were all expected to help deflate the credit-fuelled house price bubble," the Bank reported, in its survey of credit conditions, "Lenders expected the proportion of reckless and purely speculative loan applications being approved to fall significantly over the coming quarter with some lenders commenting that they no longer included future windfall capital gains as part of households' disposable incomes and hence the affordability of taking out new secured loans will improve," the Bank added.

Banks and building societies told the Bank that this outbreak of commonsense had put off many house price speculators from applying for mortgages. Any increase in lending in the next few months, the lenders said, was likely to be concentrated on those borrowers who could afford to cushion banks against losses by putting down a large deposit; with a corresponding fall in highly leveraged speculation.

The New Sarah Palin!!

2012-01-05T08:37:00.002Z

Spot the deliberate mistake

2012-01-04T19:28:00.003Z

This is the box from the long johns I got for Xmas:

An almost shocking ignorance of financial history geometry

2012-01-04T15:27:00.009Z

Surprisingly, nobody rose to the bait in my post of this morning and we ended up discussing spending on old age care rather than funding, so I'll try again. This evening's lesson is taken from today's FT:

High Frequency Trading] has made it harder for the traditional floor trader and affected the ability of the point-and-click crowd to make money.

I am one of its victims. When I began as a trader in the pork belly pit, I was as high a high frequency trader as possible. My computer was in my head and it responded as fast as it could. There were others in the pit who were slower. But there were also traders who were much faster. It never occurred to me to pass a law to cut them down to my speed... I readily understood a trader’s request to gain a trading booth closer to the pit.

James Angel, associate professor of finance at Georgetown University, recently said it made him shudder when he heard regulators asking: "Is it fair that people spend extra money to sit their computer right next to the stock exchange computer?" He said it showed an almost shocking ignorance of financial history.

It's the same old pattern; open outcry traders wanted to be nearest the pit; these HFT people will pay a lot extra to site their computers tens rather than hundreds of yards away from the exchange's central computer because the cabling costs money and in their line of work every millisecond they can be faster than the competition (signals do not travel instantaneously down computer cables!) means money.

It's the same as the hot dog vendor wanting the pitch nearest the tube station or people being prepared to pay more for a seat in the front rows of the theatre.

It's the same as every extra minute's walk from the tube station reducing house prices by £x,000 or every extra minute's commute time to/from central London reducing house prices by £y,000.

It's basic geometry.

Behind enemy lines

2012-01-04T13:10:00.004Z

From the BBC:

Families with children will be hardest hit by tax and benefit changes aimed at cutting the deficit, a charity (1) argues.

The Family and Parenting Institute (FPI) says the average income of households with children will drop by 4.2% between 2010-11 and 2015-16, the equivalent of £1,250 a year. Average household income however will fall 0.9%, or £215 a year, say the FPI... The figures, calculated for the FPI by the Institute for Fiscal Studies (IFS) (2), suggests much of the fall in income during these years will be due to tax and benefit changes, as well as other reasons such as falling incomes.

"This research confirms that families with children are shouldering a disproportionate burden," said Katherine Rake (3) of the FPI...

In reply the government pointed to policies that it says are already relieving the burden for families. "The prime minister acknowledged that families are facing difficult times so the government has taken practical steps to help them - cutting fuel duty, freezing council tax and cutting income tax for millions," said the government in a statement. (4)

1) Might that be a fakecharity? Why yes! I gave their accounts a closer look two years ago. But weren't Blulabour going to get rid of all the fakecharities which Nulabour set up? You might think so, as this lot appear to be a thorn in the government's side, but as I said two years ago:

We all knew that Labour would do a scorched earth policy before handing over the keys to the Tories, but they've pre-financed this particular bunch to continue the fight from behind enemy lines: of all that lovely taxpayers' money rolling in, they've tucked away £7,480,898 at the bank (balance sheet, page 15 of the accounts) to keep them going for a couple of years after Blulabour has taken over.

Their taxpayer-funded income in the years straddling the change of government, i.e. to 31 March 2010 and 31 March 2011 (see page 14 2011 accounts) was £8.5 million a year, half what it had been under Nulabour, but they still had £5.8 million cash as at 31 March 2011 to keep them going for a couple of years.

2) The IFS are pretty straight, I think we can take their figures at face value.

3) Who is "raking" it in, no doubt.

4) Totally irrelevant statement: those changes or freezes were incorporated in the figures anyway; and those changes or freezes apply to all households, not just 'families with children' (what the FPI actually mean is 'families with children on benefits').

Note also that the government is obsessed with freezing the least-bad taxes fuel duty and council tax, and claims to be reducing income tax while having massively increased stealth taxes on income such as VAT and National Insurance, which are far worse.

Reform of funding for old age care

2012-01-04T10:00:00.007Z

From today's CityAM Forum:

It is easy to see why politicians want to delay reform [of the funding of old age care]. Many people believe that the state will cover the cost of care as it does with the "free at point of use" NHS. Yet the reality is different and many people only discover they need to pay for care when they or a family member enter it. It is a rare politician who will acknowledge that families have to pay for care and, indeed, that for the future system of care to be affordable contributions will have to increase.

The obvious source for contributions is the equity in assets like housing. Yet too often discussions on elderly care reforms are concerned with protecting children’s inheritances. So England persists with a system that is patently unfair, where too many people only find out they are required to pay for care in a moment of crisis. The political consensus favours people being caught short rather than admitting to the reality of hard choices.

The largest chunk of that "equity in housing" is of course not the bricks and mortar, which at best hold their value: depreciation and maintenance net off with normal price inflation. So what is the largest chunk and why? For possible answers, let us refer to two earlier articles...

March 2011: The importance of urban centres to progress – economic, cultural, scientific, social and political – cannot be underestimated. Across all continents, 23 megacities—metropolitan areas with at least 10m inhabitants—generate 14 per cent of global GDP, according to McKinsey. The world’s top 100 cities generate $21 trillion of GDP, 38 per cent of the total.

The 600 largest urban centres generate $30 trillion, 60 per cent of the total, yet house just 22 per cent of the world’s population. But what is most impressive is that the London urban zone is the world’s third largest by GDP, beaten only by Tokyo and New York.*

November 2011: The US’s share of population in larger metropolitan areas rose from 30 per cent to 55 per cent from 1951-2009, focused in suburbs. Relentless long-term decline saw our metropolitan areas’ population share fall 22 per cent from 1951-2009.

In the first part of the 2000s, almost 1m people left our large cities [in the UK]. Only high immigration prevented serious declines in population. This matters, as larger cities improve worker productivity. A meta-analysis found a doubling of urban population raises productivity about 6 per cent. So someone going from a town of 50,000 to a city of 800,000 raises their productivity 25 per cent – and vice versa.

* Well duh, London pop. 7.8 million, Tokyo 12.8 million, New York 8+ million.

China takes one small step towards solving over-population crisis

2012-01-03T18:28:00.002Z

From The Telegraph:

China has declared its intent to send a man to the moon, aiming to become the first nation to reach the lunar surface since the last American mission in 1972...

Bob Crow does irony

2012-01-03T10:22:00.003Z

From today's CityAM:

COMMUTERS returning to work today have been hit by yet another hike in rail fares, after the average ticket price rose by 5.9 per cent with the new year, sending season tickets rocketing...

The fare increase on Transport for London services levels out at an average of 5.6 per cent, lower than was expected due to an extra £136m secured by mayor Boris Johnson from the government. The Tube, which carried a record 1.1bn passengers last year, will see its fares climb by an average of six per cent...

Transport trade union RMT’s general secretary Bob Crow called the price hikes "daylight robbery on the tracks" with "fat profits for the train companies while the public pay through the nose."

From The Guardian, three months ago:

Tube drivers in the capital will see their pay go over the £50,000-a-year mark under a four-year wage deal negotiated between London Underground and union leaders... Under the deal, staff will get a 5% pay increase this year followed by RPI inflation plus 0.5% in the subsequent three years.

Industry sources said that if RPI inflation stays reasonably high, some tube staff will receive a pay rise approaching 20% by the end of the settlement period... The RMT said the issue of a payment for working during next year's Olympic Games in London was separate to the four-year wage deal.

General secretary Bob Crow said: "We saw major movement from LU and we now take this improved offer back to our local reps. In these days of austerity we have shown … trade unionism is the best defence from attacks on jobs and living standards. I doubt you will find a better offer than this anywhere else in the public sector."