"Danny Alexander to call for fuel price cut"

From the BBC:

Major petrol and diesel distributors are to be called on by Chief Secretary to the Treasury Danny Alexander to drop their prices further in light of recent declines in the cost of oil…

"The public have a suspicion that when the price of oil rises, pump prices go up like a rocket. But when the price of oil falls, pump prices drift down like a feather."

While no research supports this, the thought of this effect creates ill feeling, he will say.

To their credit, the BBC give comparative figures for then and now, as follows:

Oil/barrel (159 litres) - $115, $84
$ per £ - 1.72, 1.60
Pump price/litre - £1.36, £1.24

So in GBP terms, one litre of crude oil cost 42p in June 2014 and 33p now, a drop of 9p. Pump prices should fall by 20% more than that = 10.8p. Prices have actually fallen by 12p.

But the Ginger Rodent is addressing the "Highlands & Islands Branch of The Energy Institute". From personal observation, pump prices appear to be inversely proportional to population density*, so quite possibly people in the Highland and Islands are seeing smaller price falls**?

* Because of (in no particular order) higher transport costs; smaller rural garages having to spread the same fixed costs over smaller sales volume; there being fewer competitors. It's quite bizarre. We drove along a five mile stretch of road out of London last Saturday, petrol is £1.20 a litre at one end and £1.26 at the other.

** Richard T in the comments confirms: "If you travel north on the A9 beyond Inverness, you will notice that by some magic of the fuel market, petrol and diesel suddenly become up to 10p a litre dearer once the Dornoch Firth is crossed."

"Clegg and Alexander reject Cable's warning over Help to Buy"

From The Guardian:

Nick Clegg and Danny Alexander have dismissed a call by their Liberal Democrat colleague Vince Cable to restrict the second phase of the government's Help to Buy mortgage scheme to areas of the country with depressed property prices.

In a sign of tensions over the economic policy at senior levels of the party, Clegg and his close ally Alexander rejected Cable's warnings that Britain was facing a dangerous housing bubble.

Does not compute.

The justification for Help To Buy was that houses are too expensive and so first time buyers have to be "helped". The very existence of the scheme is the government's tacit admission that house prices are in a bubble.

If prices were "affordable" by whatever measure, then there'd be no need for such schemes. So Cable's idea about restricting it to "areas of the country with depressed property prices" is even more stupid than Clegg and Alexander's state of denial - because people don't need help to buy a cheap house.

The only way that any of this makes sense is if "Help To Buy" is in fact "Help To Sell", then it makes perfect sense from the point of view of a Home-Owner-Ist government trying to win a general election from a majority Home-Owner-Ist electorate.

H/t Alan at HPC.

Nice little house price bubble you've got going there, shame if anything were to happen to it...

Danny Alexander came up with a splendid Home-Owner-Ist argument against Scottish independence as reported in The Daily Express:

SCOTTISH homeowners (1) could face a £1billion increase in their mortgage bills if the country becomes independent, it was claimed yesterday. Danny Alexander, the Chief Secretary to the Treasury, predicted that Scotland may not inherit the UK's coveted AAA credit rating (2), which determines the cost of borrowing on the international money markets.(3) That could force up interest rates for Scottish banks, (4) leading to bigger repayments for hundreds of thousands of mortgage-holders and small businesses.(5)

Where do you start?

1) It's not "homeowners" who'll pay more in interest, it's "mortgage borrowers".

2) Scotland might well not be rated AAA. But the UK might lose its AAA rating anyway. So that's a highly speculative claim. And it all depends on how much of the UK's national debt Scotland is prepared to take on.

3) "However, Finance Secretary John Swinney described the claims as "economic illiteracy" and said it was "deeply worrying" that a senior Coalition minister did not know the difference between the interest rates paid on government bonds and private bank lending."

That has the makings of a fair point. The credit rating of banks depends largely on the credit rating of the government which is propping them up, which is still likely to be the UK post-independence (see 4), so the government's credit rating has some influence on the interest rate which banks have to pay, but it probably has f- all influence on the interest rate which mortgage borrowers pay to the banks.

4) Which "Scottish banks"does he mean? Does he mean Lloyds-Halifax-Bank of Scotland or Royal Bank of Scotland-NatWest? Nobody has debated whether the UK government or the Scottish government will be responsible for propping them up post-independence. If the UK were to fob it off onto Scotland then all Hell would break loose, with "hard pressed hard working homeowners" (TM Gordon Brown) in England also facing higher interest charges, so that seems unlikely.

5) All this glosses over the fact that higher interest rates are bad for leveraged land price speculators but great for cash savers, and that small businesses barely borrow anything from banks in the first place.

Fun Online Polls: Xmas decorations & Philip Hammond

OK, I shall close the fill-in FOP on Xmas decorations. By now, half of us have seen some and half of us haven't (or have managed to ignore them to the point of not even noticing them) and return to more interesting matters.
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Defence Secretary is normally seen as a very senior job, certainly more senior than Transport Secretary, so on the face of it, Philip Hammond was promoted once the totally not-corrupt-at-all Liam Fox resigned in such an honourable and dignified fashion last week. Interestingly, the defence lobbyists seem to have got their knives out for Hammond already, but hey.

Now, as it happens, Philip Hammond was originally pencilled in by the Tories as Treasury Secretary (or 'Chief Secretary to the Treasury' or whatever the exact fancy title is) but was shuffled sideways because they had to give the job to a Lib Dem as part of the Coalition negotiations. The first incumbent David Laws was booted out because of some expense-claim shenanigans and was replaced by another Lib Dem, Danny Alexander.

Despite all this, and having been made Transport Secretary at short notice, Philip Hammond seemed to a) know what he was talking about and b) be enjoying the job. I just can't help liking him and his ve-e-ery dry sense of humour (despite him being an über-Home-Owner-Ist and all, at least he was prepared to go into battle over the HS2 route).

But is it really a promotion? Who really wants the job as Defence Secretary?

I'd far rather be Transport Secretary and really achieve something - raise the speed limit on motorways, turn off the traffic lights, build a few new railway lines, allow a new runway to be built at Gatwick or Luton, cut bus fares, whatever - than be blundering around in the MoD morass, there is no concept of 'value for money' in that department, it's all about massive vanity projects and nothing to do with what really benefits the UK. As Transport Secretary, you can quietly plan out the next few years and work towards a target; as Defence Secretary you are pushed and pulled every which way, and by and large, you usually end up resigning and being hated by all and sundry.

So that's this week's Fun Online Poll: "Which job would you prefer... Minister for Defence or Minister for Transport?"

Vote here or use the widget in the sidebar.

Killer Arguments Against LVT, Not (154)

From today's FT:

“If we do get rid of the 50p [income tax] rate we need to make sure there is something else levied on higher rate payers. Lib Dems think there should be a new way of taxing wealth,” one senior Lib Dem aide said. Talk of lowering the top rate of tax has triggered a dispute within the coalition, with Danny Alexander, the chief secretary to the Treasury, saying advocates of the move were “living in cloud cuckoo land”. (1)

But the Lib Dems expect it will happen, and are concentrating on coming up with replacement taxes that would raise extra revenue and win the support of voters, among whom the 50p rate is popular.(2) Mr Cable has long favoured the option of a “mansion tax”, levied on the sale of high-value homes, although others inside and outside the party have called it overly-complicated and unworkable...(3)

David Laws, the former chief secretary to the Treasury, and one of Mr Clegg’s closest political allies, is opposed to all these forms of wealth tax (4), saying they amount to double taxation after income tax has already been raised. (5)

1) Why? We managed perfectly well with a top income tax rate of 40p until a year ago, and according to HMRC estimates, it only raises about £1 billion. According to others, the top rate of 50p is past the top of the Laffer Curve and reduces overall revenues.

2) Have we really sunk this low? The 50p top tax rate on wealth creation is 'popular' but such is our reverence for 'people in big houses' that a tax on rent seeking and unearned wealth wouldn't be?

3) No it wouldn't be, not compared to the hyper-complexity of the current tax system, or the complexity of the 50p top tax rate alone (which requires a whole raft of anti-avoidance provisions to make it anywhere near enforceable), if anything it would be as simple as, or simpler than Business Rates in the UK or Domestic Rates in Northern Ireland. And given that any tax on residential land and buildings could and should replace other taxes, it would lead to a massive reduction in the overall complexity and unworkability of the tax system - the more taxes you replace, the easier it gets (including politically easier, as there'll be a minimum of people who'd lose out on Day One).

I sketched out a possible system for taxing residential land and buildings which ended up being published on Labour Left (of all places). If you want to get rid of the 50p top tax rate as well, or even the £30,000 non-dom levy, you just have to increase the target receipts from £42.5 billion per annum to £43.5 billion, hooray, yet more fiddly little taxes and jealousy surcharges out of the window.

4) A tax on the rental value of land is not a tax on wealth, it's a user charge. In the same way as a tax on petrol is not a tax on the wealth tied up in your car (VAT is), it's a tax on road use.

5) So if you pay 50% income tax, that's OK, but if you were to pay 40% income tax and approx. 5% of your income in LVT, that's double taxation, is it? Since when does "paying less tax" amount to double taxation?

UK government gets something right for once - shock.

From the BBC:

The government is to say for the first time that it plans to link the public sector retirement age to the state pension age, which is to rise to 66. Chief Secretary to the Treasury Danny Alexander is also due to confirm public sector pensions will be based on workers' average salaries...

He is expected to say most public sector workers - bar the army, police and fire service - will see their retirement age linked to the state pension age. But he will also say low paid public sector workers on less than £15,000 will not face any increase in pension contributions and those earning less than £18,000 will have their contributions capped at 1.5%...

And so on an so forth, nothing radical but the sort of thing which has long been blindingly obvious to everybody else.

Most of the time I'm pointing out what the UK government has got horribly wrong, so I suppose it's only fair to mention those rare occasions when it get something right. Normal service will be resumed in five minutes, no doubt.

Fair Fuel Duty Un-Stabiliser

Here we go again. From The Daily Mail:

... families were warned there was little prospect of a lifeline on fuel prices – despite repeated pledges from David Cameron. The Prime Minister has reiterated his desire to introduce a fuel stabiliser to help motorists but that brings him into a public conflict with the Treasury, which does not want to enact the pledge.

Before they invent something new which moderates the effect of fluctuating petrol prices, how about looking at what they're doing to exaggerate them? From that article, a litre of petrol (about one-fifth of a gallon) costs 48p, to which is added 59p fuel duty = £1.07, plus 20% VAT = £1.28 pump price. Let's assume the raw material price fell to 38p, the pump price would fall to £1.164, and if it rose to 58p, the pump price would rise to £1.404, and VAT per litre falls or increases by 2p.

Fuel Duty is in itself a stabiliser, as it does not (necessarily) respond to changes in the underlying price (48p). So if they scrapped VAT, The Worst Tax Of All and increased fuel duty to 80p, prices would remain the same on Day One. So if the raw material cost went down 10p, the pump price would fall to £1.18 and if it rose to 58p, the pump price would 'only' rise to £1.38.

So by a simple tweak to the tax system (which simplifies things enormously for the petrol industry) we can reduce the relative price fluctuations from (in this example) a range of 17.1% to 14.5% .
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There's more idiocy further down the article:

1. Mr Cameron said today: 'I do want to see some method of sharing the pain between the taxpayer and the motorist.'

By and large, the taxpayer is the motorist, so what's his point?

2. Treasury Chief Secretary Danny Alexander... did reveal, however, that the Treasury was pushing ahead with a pilot scheme to offer discounted fuel to rural communities in the Scottish Highlands, which could extend to his own constituency of Inverness.

Nice bit of pork-barrel there, Mr A!

3. Underlying the whole article is the assumption that Fuel Duty is a tax on petrol, which of course it is not! It's a rationing device for road usage - total Fuel Duty + VAT is about £40 billion a year and they only spend about £10 billion a year on building/maintaining roads. This is all the more reason to keep Fuel Duty as a flat (higher) figure and scrap VAT.

As to whether we'd be better off by reducing taxes on petrol (thus having more crowded roads, slower and more expensive journeys and higher taxes on everything else, so it might actually be a net cost to the economy) and/or building more roads, those are separate issues.

Ginger Rodent

Mr Blobby

Danny Alexander: Yours to cut out and colour in.

Damn! Nazi fighter pilot look-a-like replaced with Scottish blob.