One-nil to my Welfare Reform Minister

A couple of weeks ago, Adam Collyer summarised thusly:

You will remember that George Osborne announced some time ago that child benefit would be scrapped for higher rate taxpayers. That was later clarified to mean that any family with at least one higher rate taxpayer would lose the benefit. And that means all of the benefit. If you go over the higher rate tax threshold by a single pound you lose all your child benefit – which for a family with three children is £2,500 per year. In other words, this would create a massive benefit trap with a huge spike in effective marginal tax rates to 2500%...

... my especial contempt on this is reserved for George Osborne. This is, as I said, a ridiculous proposal in the first place. But even if you accept what he wants to do, there is a much better way to do it. The tax credit system is an appalling mess. But it exists. So if Mr Osborne wants to means test child benefit, all he has to do is scrap it and add the same amount to the child tax credit.

Tax credits are already means tested, so no new bureaucracy to add. In fact, it would remove the small amount of bureaucracy that is currently needed to administer the child benefit system. Tax credits are already based on household income rather than individual income, so no anomalies about two-earner versus one-earner households. Tax credits are not cut off bang when you go above some arbitrary threshold. They are tapered, so as you earn more, the credits are gradually removed. So no benefit trap.

From the BBC today:

The IFS criticises the government's plans to withdraw child benefit from households with a higher-rate taxpayer from 2013, on the grounds that it would create a "cliff-edge" that would mean 170,000 families could increase their income by earning less. The think tank suggests that the government should instead gradually reduce child benefit as household income rises, using the existing means-testing system that is used to pay child tax credit.

Bloggers Cabinet reshuffle

In the context of nothing in particular:

Chancellor of Exchequer: Scott Wright (who comments regularly, and posts occasionally, on this very 'blog). The previous incumbent is absolutely sound, but he just doesn't blog much any more.

Education: Onus Probandy (previous incumbent is a decent bloke but is not so hot on 'logic' which seems to disqualify him).

PS: My current Welfare Reform Minister is on notice because he doesn't post about Citizen's Income/Pension very much. Oh... he just did. Reprieved.

[Rewriting history] If the first excuse isn't good enough...

Ha!

Three days ago, the Lib-Cons shelved their eminently sensible policy to replace Air Passenger Duty with a per-plane duty on the grounds that this contravened EU law, as confirmed by e.g. Channel 4's usually reliable fact check. EU rules are usually self-defeatingly stupid, so I was prepared to take this at face value.

However, the Trade Minister in my Bloggers Cabinet, John B, commented thusly:

Hmm. I think... the reason you haven't found an EU law against this is because *there isn't one*, like most of the things governments blame on the EU. Rather, because someone wants to backtrack on the pledge (at a guess, because it'd bust BA and Virgin whilst favouring Mr O'Leary), they're lying that it's an EU rule so that they can renege on the deal and have the blame go elsewhere.

This is primarily what the EU is for - so that governments can do whatever they like, and then pretend to the public that it's someone else's fault if said things are unpopular.
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The last paragraph of that is indisputably true, but it turns out he was spot on with the first part as well. From today's FT:

The Liberal Democrats and Conservatives have long advocated the policy of switching from a “per passenger” duty to a “per plane” levy as a green measure to end the current situation whereby empty flights are not taxed...

However, ministers have backed away from the plan after Whitehall officials and lawyers advised it would breach the 1944 Chicago Convention, which established the legal framework for international civil aviation and outlaws fuel taxes on international flights.

It was argued that if the levy was based on maximum take-off weight, it could have been a proxy for an aircraft’s fuel burn – and therefore open to legal challenge as a “fuel tax”.

No doubt others will have spotted this history re-write as well, so the next excuse will probably be that the Chicago Convention is enshrined in EU law or something.
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In any event, the relevant article in the Convention, Article 24 Customs Duty says:

(a) Aircraft on a flight to, from, or across the territory of another contracting State shall be admitted temporarily free of duty, subject to the customs regulations of the State.

Fuel, lubricating oils, spare parts, regular equipment and aircraft stores on board an aircraft of a contracting State, on arrival in the territory of another contracting State and retained on board on leaving the territory of that State shall be exempt from customs duty, inspection fees or similar national or local duties and charges.

This exemption shall not apply to any quantities or articles unloaded, except in accordance with the customs regulations of the State, which may require that they shall be kept under customs supervision.

I've bolded the clue bat to save you a valuable few seconds. Seeing as the per-plane duty would apply whether or not the plane is refuelled on UK soil or merely lands and takes off again, how anybody in his right mind can construe that as preventing a per-plane duty while allowing a per-passenger duty is a mystery to me.

Conspiracy Theory That Turned Out To Be True Of The Year

Award goes to Planning Minister Neil Craig, the only person to have been wailing on for ages about NATO and the Kosovans colluding to kill people and then sell their organs.

I had assumed he was exaggerating wildly at best, it turns out he wasn't.

Bloggers Cabinet Reshuffle (5)

Prime Minister etc.

Prime Minister - Bayard (who comments in a lot of places and posts here occasionally)*
Foreign Secretary - Umbongo (who comments all over the place, see acceptance speech here)
Defence - Mark's Any*
Local Government - Woman On A Raft (e.g. in the comments here)
Electoral Reform (and Religious Affairs) - Neil Harding

* New appointments.

Bloggers Cabinet Reshuffle (4)

Public Services

Administering Health Vouchers & Denationalising the NHS - Dick Puddlecote
Pension Simplification - FormerTory (who comments all over and posts here occasionally. Well, once, actually)
Education Vouchers - The Fat Bigot*
Social Housing - Witterings From Witney*
Welfare Reform - Adam Collyer*

Tomorrow - Prime Minister etc.

* New appointments.

Bloggers Cabinet Reshuffle (3)

Treasury, finance, government spending

Chancellor of The Exchequer - PragueTory
Banking And Financial Services - Lola
Shutting down DCMS, DCLG, DBERR DBIS, quangos etc etc - Joseph Takagi
Reducing spending on procurement from 'private sector' - Anti-Citizen One*
Scrapping subsidies to exporters - John Band

The last three jobs overlap a lot, but this is half of government spending in £-s-d so it is hugely important. The other half will be covered tomorrow with 'Public Services'.

* New appointment.

Bloggers Cabinet Reshuffle (2)

Department Of The Evironment

Energy - Nick Drew
Planning And Infrastruture - Neil Craig
Science - Leg Iron*
Countryside And Fisheries - Gregg Beaman
Roads - Martin Cassini

Tomorrow - Treasury & Government Spending

* New appointment.

Bloggers Cabinet Reshuffle (1)

I originally nominated people for my Bloggers Cabinet nearly two years ago, since when some have stopped 'blogging and so on (and thus disqualified themselves), so I've done a bit of slimming down and reshuffling.

The Home Office

Home Secretary - Julia M*
Drugs (Legalisation, Regulation & Taxation Thereof) - Jock Coats
Data Security - Longrider
Deregulation - Steven_L**
I've got a spare place if anybody wants it.
Head of MI5 - James Higham**

Tomorrow - Environment

* Originally JuliaM was 'Justice Minister' and I had others for 'Immigration' and 'Police and prisons' but they've stopped 'blogging so we can merge all this back into just 'Home Secretary'.

** New appointments.

It's Nice When Someone Agrees with You...

In respect of my job as FS Minister in the Bloggers Government and my policy statement posted previously, it is nice to see that someone important agrees with me.

Lola

My email to the DWP

Dear Mr Spiers

I note from an article in the Daily Mail on the Universal Credit/Single Unified Taper that "A withdrawal rate of between 60 and 65 per cent is being debated, according to sources."

Obviously, you are not allowed to tell me whether or not this is correct etc, but allow to me to point out (as I possibly did not emphasise enough in my original submission of early August)...

1. Means testing of benefits is exactly like taxing income, so we have to think about the Laffer Curve.

2. I believe that the revenue maximising tax rate on lower/median earners is about 60%.

3. Therefore the cash-cost minimising benefit withdrawal rate must also be about 60% of income.

4. Unless people earn very little indeed, their employment income is liable to Employer's NIC at a marginal 12.8% (or 13.8% next year) which we can round to 10% for the sake of this discussion. This is of course legally borne by the employer but economically it is borne by the employee - a 1% increase in the rate leads to a 1% fall in headline wages (all things being equal).

5. Therefore, the cash-cost minimising withdrawal rate after deducting the 10% Employer's NIC must be about 50%.

6. 50% is a very convenient figure, as the PAYE system is already geared up to deducting tax/Employee's NIC at a flat rate of 50% of cash salary (ignoring bands, personal allowances) under the K-code system.

7. So we could achieve a cash-cost minimising withdrawal rate of 60% overall AND obviate the need to have a separate system of means testing by paying people their Universal Credit and giving all adults in the claimant household a K-code for PAYE purposes - the benefit withdrawal would be dealt with via the PAYE system, more or less for free as far as the taxpayer is concerned and at minimal extra hassle for the payroll department.

I look forward to your response and remain


Mark Wadsworth
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UPDATE: from today's Evening Standard:

However, according to the Times, Mr Duncan Smith has now persuaded the Treasury to let him claim up front “a large chunk” of some £9 billion of potential savings (1). His new system would carry a guarantee that anyone taking a job would be better off than if they were on the dole, through being allowed to keep more of their benefits.

But over the summer it emerged that the senior Treasury official responsible for checking his calculations, Claire Lombardelli, did not believe his sums were credible. (2) The Chancellor has made clear the cost of benefits must fall, even if it means putting off major reforms on the grounds that they would be expensive to introduce (3). Cutting welfare is vital to his plan to cushion other departments from cuts. (4)

The Department for Work and Pensions said: “We are working closely with the Treasury... We are all agreed on the urgent need to reform the welfare system and help more people into work and off benefits.”(5)

1) Correct. The DWP have running costs, i.e. civil servants' salaries of £9 billion. That's our next port of call.

2) Well she would say that, wouldn't she? See (1).

3) That's a pretty twattish thing for a Chancellor to say: "I'm sorry darling, let's put off that roof repair that will cost a few hundred quid, even if it means that we'll get a bill of thousands of pounds later on, once all the woodwork is nice and rotten."

4) An inevitable knock on effect of reducing the marginal withdrawal rate is that more people will be working, so they'll be claiming less and/or paying more tax, so the overall cash cost goes down. At the same time, the incomes of low earners will go up. Win win. What's not to like? As to "cushioning other departments from cuts", I'm not sure that there'll be any departments left once my Bloggers Cabinet is finished.

5) Well they would say that, wouldn't they? See (1) and (2). Let's see how good they are at helping themselves into work once the whole welfare system runs itself.

Blogger Government

MW recently asked me if I had sorted out my financial services policy as Financial Services Minister in his Government. Here is my first draft for comment. Lola.

The Bloggers Government: Financial Services Policy

1. Basic Principles.

The State has no business in business and money. It has a small responsibility conferred on it by the electorate to carry out some work as insurer of last resort and lender of last resort.

All EU directives will be ignored and the rest repealed.

The central principles behind these proposals is responsibility. Caveat Emptor and Professional Responsibility will be guiding principles.

2. Central Banking

The role of the Bank of England as central bank is abolished. It will set rates of interest with reference to its own demands for the Official Currency.

3. Interest rates

Will be set by the money markets, not the central bank.

4. Money

The legal tender laws are abolished.

The Pound Sterling will continue to exist and be offered by the Bank of England as the Official Currency. It will be the official currency of government. Its rate of exchange will float. It will be backed by adequate bullion reserves. It will be kept honest by competing domestic money and the absence of an official exchange rate.

5. Financial Regulation

a) All the existing regulatory regimes are abolished.

b) All deposit protection schemes are abolished

(All statutory deposit protection schemes will be abolished, but in the event of insolvency or breach of capital ratios by any licensed deposit taker, depositors (as defined) will be given priority of repayment, and any agreements as to security between bondholders and the deposit taker will be subjected to claims of depositors. Debt for equity swaps will be the preferred method of recapitalising banks.)

c) All compensation schemes are abolished.

6. Banking

Deposits into banks will be the property of the depositor.

The freedom to issue money will be returned to the people and by association, banks, to use if they wish.

It is expected that 100% secure bank deposits will be backed by 100% reserves of bullion. It is also expected that Banks will offer accounts with higher rates of interest that are not 100% reserved. Customers will be made aware of this and will be able to choose the level of risk and reward with which they are comfortable.

Banks will be encouraged to seek commercial insurance for depositor protection. We anticipate that market forces will compel banks to do this.

Limited liability will not be available to the owners or senior managers of any bank that seeks to do business in the UK.

7. Insurers

All the current reporting requirements will be abolished. It is anticipated that accounting standards will rise since auditing accountants will have 100% responsibility for their work and will not be able to escape professional responsibility. The State will require professional institutions to undertake that auditors have sufficient resources to underwrite this responsibility.

Auditors will be personally liable for any losses suffered by third-party investors up to a maximum of the amount by which the company's net assets were overstated." (e.g. as should have been the case with E&Y/Equitable Life). This same discipline applies to all auditors of all financial businesses, for example banks, intermediaries, fund managers etc etc.

8. Specialist and International Institutions engaged in financial engineering.

All regulation is abolished, but the shield of limited liability will unavailable to such institutions.

9. Retail Intermediaries

Intermediaries will have two categories, independent and other. Independent intermediaries will be the clients agent, other will not. It is anticipated that market forces and competition and self interest will drive the establishment of representative institutions to promote and regulate these categories.

10. Disclosure

The single regulation that will remain is that of full disclosure of costs and charges, rates of interest – both APR and flat rates and any other factors that deduct money from client money or are taken.

It is anticipated that the various industry grouping will set up their own bodies to regulate this as it will be in their self interest to do so.

11. Pensions

All final Salary pensions will be phased out. The sole means of pension saving will be in money purchase schemes. This will ensure that members are not ripped off by arbitrary actuarial calculations when moving jobs (a big friction in the labour market) and that real savings are made to fund pensions, which will provide more proper capital for investment. At the same time the tax relief on schemes will reinstated recognising that pensions are deferred pay, meaning that benefits when taken will be taxed as earned income. Contribution levels will be set at a maximum annual of 25% of NAE (or 100% of Citizen's Pension - see MW on LVT). There will be no minimum retirement age.

12. Collective Investment Schemes (unit trusts, OEICs, Investment Trusts, ETF's etc)

Rules and Regulations will remain roughly as they are but repsonsibility will be transferred from the State to self regulation. All compulsory compensation schemes will be abolished (moral hazard) but it is expected that good companies will combine together to provide some mutually protective accreditation which will include investor protection - commercially funded. ISA's and PEPs and EIS's and all that stuff will all be scrapped. But since the dividend tax credit will be reinstated (and CGT has been replaced by LVT) this will not matter. Investor decisions will not be distorted by tax considerations.

Siting power stations

Energy Minister Nick Drew*, in the comments to his own post on Kingsnorth, Coal and a New Dash For Gas:

... delaying the decommissioning might be a low-cost option in some instances ... but it's not necessarily so, beyond a couple of years extra lifespan:

- the plants-to-be-decommissioned were nominated (by their owners) quite a few years ago, on the grounds that there was no economic way to clean them up. As such they really are probably rubbish, and will mostly have had only basic safety-type maintenance done on them since that decision. But capital plant needs constant upgrading-type maintenance to give it a decent lifespan, so their demise is now almost inevitable

- the owners generally see more value in these plants as brown-field sites for new plants in due course. This is because (a) permitting for new large power-plants on greenfield sites is really, really difficult across all of Europe and (b) choice sites (with good access to cooling water, transport links etc) are at a premium even without permitting problem.

It's the last paragraph that chimes with me. One fairly ridiculous way of dismissing Georgists' economic analysis is to accuse them of being obsessed with land, and to say that land is not important to a modern economy ("I'm typing this from my lap-top. I don't need land for that!"). OK, but lap-tops need electricity, which comes from power stations.

Superficially, how much land does a power station need? A few hundred acres perhaps, it doesn't need to be particularly fertile or anything, it's not like agriculture... but it needs all the things that ND mentions, and it burns coal, oil or gas that are derived from land; and it can't be too far from major cities/factories because for every pilon and substation between it and the customer it has to battle for planning permission and make 'wayleave' payments.

The cost/value of the land is not in the inherent value of the land (you can snap up a few hundred acres of farmland for a few million quid, peanuts to a power company) but in all the planning permission and hassle. There are trade-offs - near a town means more customers, shorter power cables, easier to get employees to maintain the thing; but near a town also means more objections from residents (we all want electricity but nobody wants to live near a power station. Funny, that). Similarly, land prices near a town are higher; but land prices further out into the countryside are much lower (but then you get the Greenie lobby crying doubly foul, etc).

So as ND suggests, once you have 'banked' that planning permission, you can allow your old power station to disintegrate (gleefully encouraged to do so by the EU, of course, we're best off out sharpish, different topic) but the site retains an enormous amount of value as the potential site for a replacement power station. So the old power company is no longer a power company, it's a land speculator.

Putting the whole global-cooling-peak-oil debate to one side for now, is it better to tax a power station on the value of electricity it generates (which discourages electricity generation) or to reduce taxes on that and increase the tax on the site value (which for these purposes means Business Rates) thus discouraging, or at least reducing the rewards to property speculation and indirectly encouraging them to keep the plant in good working order?

Just sayin', is all.

* Well he is in my Bloggers Cabinet anyway.

Frank Field and The Art Of Missing The Obvious

My Welfare Reform Minister Mark's Any picked up on Frank's article in The Times, in which Frank correctly suggested 'tearing up' the New Deal. I picked on one of his superficially politically attractive ideas towards the end of the article and commented thusly:

He's a typical right winger (yes I know he's a Labour MP). He sees the symptoms, he understands the magnitude of the problem, he genuinely cares and is quite sincere. But all he can suggest is even more authoritarian nonsense. Workfare jobs, probably a good idea, as long as it's a top up to CBI or a replacement for Housing Benefit. But paying people more dole if they have paid more tax is nuts - why not just cut tax a bit and let people self-insure?

There are various hurdles to be overcome before my suggestion rather than Frank's would ever be adopted, of course:

1. It involves tax cuts and an emphasis on self-reliance, an anathema to Nulabour and Blulabour alike.

2. It involves a move to a flat-rate Citizen's Income-style welfare system, without any moral judgments as to who is 'deserving' and who gets how much (under CI, all legally resident working age adults with no or low incomes would get £60 a week, cash, no questions asked).

3. It involves simplification, and thus a massive loss of pseudo-jobs in the civil service.

4. It involves scrapping asset-based means testing. If we adopted Frank's suggestion while retaining means testing (you get no benefits if you have more than £8,000 or £16,000 in savings - excluding the value of your home or your pension fund, of course), those who actually have worked and saved wouldn't see a penny of that notional extra entitlement unless they were reckless enough never to put some away for a rainy day.

Just sayin', is all.

My 'Bloggers Cabinet 2; Tory wannabe 0

Energy Minister Nick Drew takes another look at those scare stories and comes to much the same conclusion.

My 'Bloggers Cabinet (6)

Prime Minister & Other Bits And Pieces

Prime Minister - Obnoxio The Clown
Public Sector (Halving The Size Thereof) - The Fat Bigot
Local Government - Woman On A Raft (e.g. in the comments here)
Electoral Reform (and Religious Affairs) - Neil Harding*
Family (Getting The State Out Thereof) - Harry Haddock**

That's it. Finished.

* Aw, c'mon, I've got to have a token leftie.

** I wasn't sure where to put this department, but it is important.

My 'Bloggers Cabinet (5)

Foreign Office & Defence

Foreign Secretary - Vindico
Defence - Remittance Man
Armed Forces - Richard North
International Trade - John Band
Aid - Umbongo (in the comments here)

Tomorrow - Prime Minister and other bits and pieces.

My 'Bloggers Cabinet (4)

Public Services

Administering Education Vouchers - Tim Worstall
Housing - Alice Cook
Administering Health Vouchers & Denationalising the NHS - Dick Puddlecote
Family Planning - Trixy
Postal Services (and Gun Control) - Simon Clark
DCMS, DCLG & DBERR (Shutting Down The) - Tim Almond

Tomorrow - Foreign Office & Defence.

My 'Bloggers Cabinet (3)

Department Of The Evironment

Energy - Nick Drew
Planning And Infrastruture - Neil Craig
Climate Change (Debunking Myths Thereabout) - Devil's Kitchen
Countryside And Fisheries - Gregg Beaman
Roads - Martin Cassini

Tomorrow - Public Services

My 'Bloggers Cabinet (2)

The Treasury

Chancellor of The Exchequer - PragueTory
Banking And Financial Services - Lola
Pension Simplification - FormerTory (in the comments here)
Welfare Reform - Mark's Any
Small Print - Mrs Smallprint

Tomorrow: The Environment