This is what you want, this is what you get. This is what you want, this is what you get.

This is what... hacks me off about right-wing think tanks like the Centre for Policy Studies. As far as facts and figures go, they are usually pretty reliable, but there is no intellectual coherence to the conclusions they draw; so in one context, a figure is seen as good news and in another it's seen as bad news:

• The quantity of UK sovereign bonds issued has increased by two and a half times in just five years, by £832 billion – the equivalent of £33,000 for every UK household.

• At the same time, monetary policy has been extremely loose: UK base rates at 0.5% are at their lowest in 300 years. QE has also been larger, relative to GDP, in the UK (at 22% of GDP) than in either the US (13%) or the Eurozone (4%).

• These policies, while extreme, have had unimpressive results. Since 2008, UK growth has been the weakest of any G20 nation (with the exception of Italy).

• The Bank of England and the Treasury promised that QE would be temporary, stimulatory, and non-inflationary. These promises have been broken.

• QE has punished the innocent parties of this recession to the benefit of the indebted*. QE has imposed a stealth tax on savers, who are losing an estimated £65 billion a year in interest foregone**. Pensioners and the young have also lost out.***

• The sovereign bond market is no longer a free market in the normal sense of the phrase. Low gilt yields should not be taken as a 'vote of confidence in the UK economy' (as the Chancellor has previously claimed).

• If public spending had grown in line with nominal GDP since 2001/02, it would have been £150bn lower than it was in 2011/12. There would be no deficit. Despite claims of austerity, total spending is rising, not falling.

All of which is factually correct and good stuff etc. You get the impression that they are in favour of small government and low taxes and against subsidies - most of the subsidies (i.e. deficit spending) they rail against here are subsidies to the land owners and bankers.

But the CPS are also at the forefront of Home-Owner-Ism, they are the ones crying out for these subsidies and for low interest rates! Any self-respecting free market liberal would like to see an end to artificially low interest rates and those who have thought about it would also like to see taxes on income and output replaced with a user charge for benefits received by land owners (i.e. Land Value Tax).

* They merrily gloss over the fact that about 90% of all indebtedness relates to mortgages secured on or taken out to buy vastly overpriced land. These people and the banks and the really big landowners are the main beneficiaries of the ultra-low interest rate policies.

** That £65 billion figure for "interest foregone" is most interesting. Assuming it is correct (it seems a bit on the high side to me), then there's your answer. If we introduced LVT (at about 3% of current house prices) and increased interest rates to where they "should" be, i.e. inflation plus two per cent (so three or four per cent higher than what they are now), then a genuine prudent home owner who holds the same amount in real cash savings as his house is worth would be able to pay the LVT out of his interest income. Sorted.

*** That's crocodile tear crap. Home-Owner-Ists couldn't give a stuff about "pensioners and the young", they are quite happy shafting the latter group via inflated house prices. If you only need to save up a small deposit to buy a sensibly priced house, then whether you earn any interest or not in the couple of years you are saving up makes precious little difference to anything whatsoever.

Well duh.

The CPS got a fair bit of coverage for their report yesterday, which reminded us that "39.6 per cent of [working age] households received more in benefits than they paid in taxes in 2010/11 compared to 31.7 per cent in 1979 and 29.0 per cent in 2000/01.".

In their 'Questions for policy makers', they ask "Is there too much “churn” – taxing people and then returning many of the same funds to them in benefits?" to which the answer is almost certainly yes, but apart from that, so what?

Here's their Table 4 on original and final incomes, which is original income minus tax plus cash benefits and benefits in kind such as 'free' state education and NHS:
If you put those figures in a chart with a line of best fit, it looks like this:

So once you've done the netting off, what it all boils down to is a flat tax on incomes of 41% and benefits worth £12,825 for each household.

Now, you would be correct to argue that even a flat tax of 41% has huge deadweight costs, and that it would be far better to reduce this to a flat 20% and collect the balance with a tax on the rental value of land (perfectly do-able, as I showed at the weekend). And while there is a lot of evidence to show that allowing the state to be the monopoly provider of education or healthcare does not lead to the best outcomes, that does not mean that these cannot be funded out of taxes (via a voucher system - see plenty of European countries, schools in Sweden or nursery vouchers in the UK).

But the bold statistic that "39.6% of working age households receive more in benefits than they paid in taxes" itself is fairly meaningless.

Killer Arguments Against LVT, Not (219)

From The Evening Standard:

Millions of Londoners in family homes would be unfairly penalised if George Osborne brings in a mansion tax in this month’s Budget, a report claimed.

In a hard-hitting report, the Centre for Policy Studies (CPS), Margaret Thatcher’s favourite think tank, said widows, savers and people with large families would be losers under the policy. It said some three in 10 family homes in London had been in the same hands for a decade or more*, opening up the owners to the threat of an annual "wealth tax" based more on rising property prices than how well off they are...

Warning that the very wealthy could leave the capital while breadwinners on relatively modest incomes have to pay**, he added: "A mansion tax based on property values is therefore a discouragement to aspiration. The probable result: brain drain and capital flight."

Let's focus on the "brain drain and capital flight", and for the benefit of the Home-Owner-Ists who refuse to apply logic, just look at a few real-life examples:

1. Hong Kong is the country which comes closest to having LVT, has a very low rate of income tax and no sales tax. Has this jurisdiction suffered "brain drain and capital flight" since Cowperthwaite took over? Methinks not.

2. Who is more likely to sell up and move from London? People who quite possibly can't afford to pay the tax [poor widows, people with large families, "breadwinners on relatively modest incomes"*] or [high earners, millionaires, oligarchs]? The former. So who will end up paying? The latter. And to whom will the former be selling their "mansions"? They'll be selling them to yet more of the latter (the price will adjust down to take account of the tax, to the extent that any income tax cuts don't wipe out the extra LVT), so in net terms, a Mansion Tax would attract brains and capital to the, er, capital.

3. WTF are "savers" bracketed in with Poor Widows and Large Families? Why are they affected particularly? They'd be entirely unaffected. And why does he bracket in Poor Widows with Large Families? The interests of these two groups are diametrically opposed when it comes to land use: the latter would love to live in larger houses; the former are, apparently, keen on hogging them for themselves. Shifting from income tax to LVT would be bloody great for Large Families and Breadwinners and a bit of a bummer for those hoping to inherit from a Poor Widow In A Mansion.

4. In the UK, the tax system is completely schizophrenic. There are three types of land uses:
a) Agricultural, which is heavily subsidised in cash (and farming income is relatively lightly taxed).
b) Residential, which receives huge non-cash subsidies and is very lightly taxed.
c) Commercial, which is quite heavily taxed via Business Rates (pretty close to LVT).

So we have plenty of real-life evidence for examining the impact of LVT.

Yes, there are frictions, and at the margins, there is a tendency for e.g. people to want commercial to be treated as or re-classified as residential; and maybe Business Rates ever so slightly discourages farmers from putting up giant cow sheds, and so on, but things still work: we have some sort of mix of agricultural, residential and commercial, which is probably not absoutely optimal but it's not that far off.

But by and large, we see no "brain drain and capital flight" into agriculture, do we? And we also observe that the very highest Business Rates bills (millions of pounds per acre of land) are in town centres and shopping districts, but these are still magnets for investment. Conversely, Business Rates are much, much lower on out-of-town industrial sites: have we seen "brain drain and capital flight" from banking, retail towards manufacturing? Nope. If the level of land tax were a deciding factor, then the UK's financial sector would have moved to Germany decades ago. But mysteriously, it hasn't - despite the EU's best efforts.

* So by their own admission, seven in ten are owned by recent purchasers, who can easily afford to pay.

** By the standard of people living in Westminster, I am indeed a "breadwinner on a modest income". I work there, but there is no earthly way I could afford to live in there, with or without Mansion Tax, so I work in Westminster and live a few miles out on the Tube where I can afford the rent. What's the impact on the economy of this arrangement? Precisely none.

"Thatcherite think-tank slams Housing Benefit cap plan"

From The Evening Standard:

Millions of Londoners in family homes would be unfairly penalised if George Osborne brings in a £400-a-week cap on Housing Benefit in this month’s Budget, a report claimed.

In a hard-hitting report, the Centre for Policy Studies (CPS), Margaret Thatcher’s favourite think tank, said widows, savers and people with large families would be losers under the policy. It said some three in ten households affected had been claiming Housing Benefit for family homes in London for a decade or more, opening up the claimants to the threat of deductions from their other benefit income based more on rising rental values than how well off they are.

“This strikes at the heart of the importance of aspiration and of property ownership,” said CPS director Tim Knox.

Warning that very wealthy landlords could sell their homes in the capital while breadwinners on relatively modest incomes would lose out, he added: “A Housing Benefit cap based on market rents is therefore a discouragement to aspiration. The probable result: brain drain and capital flight.”