The World Staring Skipping Championship

The more you watch this, the funnier it gets. When the joke starts to wear thin, try and focus on the team in the background as well…

Social housing tenants in the UK and Hong Kong

Parker Tron linked to this article in The Guardian, none of this is news but worth repeating:

Almost half of social homes are occupied by only one person, and only a quarter have two residents:
43% are one-person households
32% have more than two residents.
This is partly down to the high number of retired people living in social housing, especially in supported accommodation.

... in terms of economic activity, the difference in employment status between owner-occupiers with mortgages and social renters is stark.
92% of owner-occupiers with mortgages are in employment
41% of social renters are employed

But the reasons for the disparity aren’t immediately obvious:
Half of economically inactive social renters are retired
The remaining renters are full-time carers, or long-term sick or disabled

How old are they?
People in social housing are considerably older than the people in the private rented sector:
28% of social tenants are over 65, compared with 8% of private renters
Only 25% of social renters are under 45, in contrast to 70% of private tenants
Five times as many people over the age of 75 rent in the social, rather than private, sector

This is partly down to the high number of retired people living in social housing, especially in supported accommodation.

So to generalise, social tenants are disproportionately pensioners and one-parent families.

Coincidentally, Kj emailed me a link to an article about public housing in Hong Kong (link extremely dodgy, open at your peril):

Impoverished inhabitants have reappeared in the city. The public renter-housing sector today is a concentration of poor elderly retired households and low-income single parent households.

Between 1976 and 2011, the proportion of public housing renter households from the lowest income quartile increased from an estimated 24.5% in 1976 to 48.4% in 2011, and the proportion below the median household income rose from 53.3% to 80.0% (see Figure 1).

At the same time, among households with heads aged 20-65 the percentage living in public renter housing declined from 36.3% in 1976 to 27.4% in 2011, while among heads aged above 65 the percentage rose from 30.6% in 1976 to 48.6% in 2011.

Same old, same old.

The article was written by somebody working on behalf of banks, insurance companies and possibly the old-age care sector, who are salivating at the proposal of selling off public housing.

How about this for a Home-Owner-Ist tour de force, all done presumably without any intention at irony:

Given that demographic, it seems obvious that old age support should focus on selling our public housing estates to sitting tenants at an affordable price. In particular, this would allow the elderly to immediately and cheaply acquire an asset to provide old age support. It would go a long way to addressing the problems of elderly poverty in Hong Kong.

At present, elderly homeowners can mortgage their homes in exchange for an annuity to provide a constant stream of monthly income support for the rest of their lives. Upon passing away the property is inherited by their designated heirs, who can either take ownership and assume repayments on the outstanding mortgage loan, or receive the net value of the property after the loan is repaid in full.

Using land to finance old age retirement and to benefit the next generation has been a tradition in many civilizations long before the modern world made governments the preferred provider of those in need.

Privatizing the public renter housing estates would create a very large client pool of elderly homeowners willing to take advantage of mortgage backed annuity schemes. This would create better opportunities for diversifying risks associated with the uncertainty of life expectancy. A bigger market could also lead to better terms for all participants.

Daily Mail on top form

They don't even make you skim read the article to find out what the flat was worth:

Wealthy British expat arrested after his 'secret' 15-year-old daughter plunged to her death from £7.5m Hong Kong flat

Free trade

James Higham wrote about this at Orphans, there's no point me summarising you might as well pop over and read the whole thing but here's the flavour:

And therein lies the dilemma of free trade. As a staunch advocate of small and medium business ‘free’ enterprise, at what point does this become advocate of south-east Asian sweatshops?

Within our own country, we rail against – and quite rightly too – government interference designed to skim off any profit before the business can even get on it s feet, so that’s the opposite extreme.

I commented:

Most people assume that "free trade" means international and cross-border, but internal free trade rules are just as important.

So if the USA enters into a so-called "free trade" agreement by which US companies are granted monopoly rights and protections in the other country, that is simply not "free trade". Had the other country granted those rights to its domestic producers that would not be free trade, why is it any different if it grants those rights to foreigners?

As luck would have it, to illustrate the point, there was an article in yesterday's FT:

You may think, like the Heritage Foundation, that Hong Kong is a free market. However, except for external trade, it is not.

Instead it is what one of the richest men in the city once described to me as “a nice bowl of fish soup”. That soup is fed to the few, making ordinary people poorer, stoking resentment, and indirectly contributing to acute pollution.

Apparently everything - from housing to public transport to supermarkets - is run by a few large cartels.
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Or, turning to the worst tax of all, VAT, that is not particularly a barrier to imports and exports - but it is a barrier to free trade within a country.

Imagine that Scotland had voted for independence and rUK imposed an import duty of 20% on everything we bought from Scotland and vice versa, would we view that as anti-free trade?

Yes of course, but that's no different to VAT, which has exactly the same effect on economic activity. It's like treating each business as a foreign country and imposing a 20% import duty when a UK based consumer spends his own money on goods and services from it.

2014 Index of Economic Freedom

From The Heritage Foundation:

Free (score 80/100 - 100/100)
1. Hong Kong
2. Singapore
3. Australia
4. Switzerland
5. New Zealand
6. Canada

What do the first two have in common, apart from being Chinese-populated city-states, harbours/trading posts and former British colonies..?

Well, in both, the government owns the freehold to all or nearly all land and merely grants long leases (usually 30 years in HK and up to 99 years in the case of Singapore). Both governments collect a significant chunk of land rents arising, either as true rent, leasehold sales, annual land value taxes/business rates, building licence fees, stamp duty, taxes on property developers etc.

As a result, income tax rates for everybody else are pretty low and sales tax more or less non-existent.

It is true that neither pays out much cash as welfare payments, but those are not really necessary. Apart from having more of a work/family ethic, the lower taxes on output and employment means that there is, er, more output and employment.

Just as importantly, there is a ready supply of low-cost social housing (to rent or buy) so there is an implied welfare system - instead of paying top whack unregulated rent/mortgage and getting cash welfare, you just pay a lower net rent/mortgage.

In principle, it comes to the same thing, only the Western system is visible transfers and the HK and S systems are invisible transfers, but they are very real transfers nonetheless*.

So for when these Faux Lib's say that HK and S are such success stories because they have low rates of income tax (hooray!) and no welfare system (ho-hum), you can politely tell them that they are fucking idiots who are missing about two-thirds of the true picture.

* It's a bit like the Homeys complaining about social tenants claiming Housing Benefit. That is visible, but not actually a net cost to the taxpayer. They could make this cost invisible by simply dropping social rents to a few quid a week, hey presto, that's £12 billion off the DWP welfare bill (and a reduction of £12 billion in rent receipts recorded by local authorities and Housing Assocations).

"If only they could join the dots…"

… says TBH, who emailed in an article from The Evening Standard:

There’s a 99.9% good service on the Hong Kong Metro so no wonder TfL’s bosses are looking to the East…

Hong Kong manages this partly through a ferocious culture of continuous improvement, such as that used to tackle delays. It also spends a lot — HK$5 billion (£400 million) a year — on maintenance and repairs alone*.

That it can afford to do so is thanks to another factor being studied enviously by TfL: a funding mechanism that leaves the Hong Kong system needing no operational subsidy (in fact, MTR generates a surplus of HK$5.1 billion a year for the Hong Kong government). This is despite low fares: most central journeys cost only around HK$10 — about 80p.

The key is MTR’s Rail + Property scheme. This exploits the fact that the freehold to much land in Hong Kong is government-owned: MTR has to buy leaseholds at market rates but is then gifted development rights. It thereby effectively captures the increase in the land’s value resulting from a new metro station via the deals it extracts from developers of new housing, offices and malls over and around the line.

* For comparison, London Transport/London Underground receives about £3.5 billion a year in 'subsidies' and fare income of about £3.5 billion (annual report 2013). It's not immediately clear how much they spend on repair, maintenance and improvement of existing Tube capacity.

PS, I know that Tube drivers are well paid (base salary nearly £50,000 a year), but the table on pages 124-125 of those accounts shows that 8,000 lucky people get a salary of more than £50,000 from London Transport, and 327 really lucky people get a salary of more than £100,000.

"Edward Snowden banned from flying to insignificant little country on other side of world"

From the BBC:

An insignificant little country thousands of miles from Hong Kong, where NSA whistleblower is currently in exile, which he has never expressed any intention of visiting, fearing a fate similar to that of Wikileaks founder Julian Assange, has warned airlines not to allow an ex-CIA employee who leaked secret US surveillance details to fly there, according to reports.

The Associated Press news agency reported seeing a document from the insignificant little country - whose foreign policy seems to consist of doing absolutely everything which it thinks the USA or the EU want it to do - at a Thai airport telling carriers to stop Edward Snowden, 29, boarding any flights.

The travel alert - reported to feature the overly grand emblem of its Home Office - said Mr Snowden "is highly likely to be refused entry to our pathetic little island..."

Bangkok Airways, Singapore Airlines and Malaysia Airlines confirmed they had received the notice, which was not supposed to be seen by the public, AP reported, although they confirmed that they had no scheduled flights to the country in question anyway as "nobody in his right mind wants to go there".

"Goblin notions of ownership, payment and repayment are not the same as human ones."

From pages 417-418 of the paperback edition of Harry Potter and the Deathly Hallows:

"Then I have to say this," Bill went on. "If you have struck any kind of bargain with Griphook, and most particularly if that bargain involves treasure, you must be exceptionally careful. Goblins notions of ownership, payment and repayment are not the same as human ones."

Harry felt a slight squirm of discomfort, as though a small snake had stirred inside him. [Harry has just promised to give Griphook the Sword of Gryffindor, but deliberately didn't tell him when. Griphook settles the matter later on by simply taking the sword and disapparating with it].

"What do you mean?" he asked.

"We are talking about a different of being," said Bill. "Dealings between wizards and goblins have been fraught for centuries - but you'll know all that from History of Magic. There has been fault on both sides, I would never claim that wizards have been innocent. However, there is a belief among some goblins, and those at Gringotts [Bank] are perhaps the most prone to it, that wizards cannot be trusted in matters of gold and treasure, that they have no respect for goblin ownership."

"I respect -" Harry began, but Bill shook his head.

"You don't understand, Harry, nobody could understand unless they have lived with goblins. To a goblin, the rightful and true master of any object is the maker, not the purchaser. All goblin-made objects are, in goblin eyes, rightfully theirs."

"But if it was bought- '"

"- then they would consider it rented by the one who had paid the money. They have, however, great difficulty with the idea of goblin-made objects passing from wizard to wizard. you saw Griphook's face when the tiara passed before his eyes. He disapproves. I believe he thinks, as do the fiercest of his kind, that it ought to have been returned to the goblins once the original purchaser died. They consider our habit of keeping goblin-made objects, passing them from wizard to wizard without further payment, little more than theft."

Reader's Letter Of The Day

The FT have published a fine riposte to the bizarre article about the Hong Kong tax system which I covered last week:

Sir, David Pilling is critical of Hong Kong’s land leasing system (“Hong Kong’s land system that time forgot”, Comment, March 10). While there may be room for greater transparency and other improvement, I submit that the fundamental idea is sound. Government should be financed from land rents.

Mr Pilling writes, for example: “By this means, Hong Kong has conjured a cheap and gleaming transport system seemingly out of nothing.” Precisely. A transport system makes land more valuable so, if it is worth building, it can and should be paid for out of the increased land rents it creates.

If “Hemlock” compares Hong Kong’s property tycoons to “feudal lords granted the right to gather tax from the peasants”, their equivalents in New York and London can be called feudal lords collecting tax from the peasants without even having to forward much of their revenue to the sovereign, who must therefore levy other taxes on the peasants.

A classic statement of the case for land value taxation is – instead of paying rent to a landlord and tax to the state, why not pay rent to the state, and no taxes?* Hong Kong comes closer to this ideal than most places.

Nicholas D Rosen, Arlington, VA, US.

Spotter's badge: Derek

* The Faux Libertarians will retort that it is possible to have a system whereby you pay next-to-nothing in publicly collected taxes on income or ground rents to the government (in the narrower sense**), which is quite true of course, but what they overlook is that there is an irreducible minimum of [taxes + ground rents] which will always be collected, so all that happens is that privately collected taxes (ground rents) would go up accordingly, so that would just result in even bigger transfers from the productive economy to land owners; from young people to older people etc.

The irony, as ever, is that about half the population (home owners with jobs in the productive economy) are simultaneously being robbed (via income tax, VAT etc) and being bribed with the Fool's Gold of ever rising house prices, to their overall disbenefit (their kids are priced out of home ownership, if nothing else).

** Quite how they are going to make this popular with pensioners is a mystery to me, as is why people insist that old age pensions can only be paid out of taxes on income and output. There is no earthly reason why they couldn't be funded out of taxes on land values and other government-protected monopolies. And please save yourselves the bother of playing the Poor Widow Bogey for the zillionth time.

Killer Arguments Against LVT, Not (99)

There was an informative but otherwise bizarre article about Hong Kong in the FT* explaining that Georgism doesn't work because it, er, works far too well...

"The government’s habit of racking up annual surpluses means it has accrued fiscal reserves of HK$592bn, equivalent to 23 months’ expenditure or 34 per cent of gross domestic product. Why, asks Ms Loh, is it so allergic to increasing recurring expenditure? Could it not spend even a fraction of the money on cleaning up the city’s pollution by introducing greener buses, or improving the wholly inadequate care provided to elderly and disabled people? (1)

There are reasons why the government is reluctant to lift recurring expenditure. The Basic Law, Hong Kong’s mini-constitution, mandates a balanced budget. The government has also stuck to a “golden rule” of keeping expenditure below 20 per cent of GDP,(2) a level this year’s budget is in danger of breaching narrowly.

But the debate is clouded. The culprit is the policy on land, the allocation and commercialisation of which makes Hong Kong’s economy go round. It also creates huge distortions and opacities, making it hard to talk sensibly about levels of tax and expenditure. (3)

The land system is a legacy of British colonialism. London wanted Hong Kong to be self-financing. So the colonial authorities raised money by leasing land, an apparently free source of revenue (4) that persists to this day. The state hives off chunks of land in plots so large that only the biggest developers can bid for it (5). Developers also pay the government an upfront premium in return for permission to convert its use, say from agriculture to commercial, a hey-presto transformation that releases more value.

Civic Exchange estimates no less than 45 per cent of government revenue comes from land, including land premiums, property rates and taxes on property developers’ handsome profits. Hemlock, the nom de plume of a business writer with close connections to Hong Kong’s tycoons, compares the property cartel that benefits from this arrangement to “feudal lords granted the right to gather tax from the peasants”. The tax in question is rent. (6) Hong Kong’s is the highest in the world. According to DTZ, the property consultancy, the cost of office space in central Hong Kong pips that of even central London, Tokyo and Zurich.

Spiriting cash from land creates distortions. The top rate of income tax, at just 17 per cent, is legendarily low. (7) But it turns out to be precisely that: a legend. Taxes are extracted, invisibly, via rent. (8) There are also disguised expenditures. Take the MTR Corporation, which runs Hong Kong’s underground train system and airport express line. Such is the extent of the land holdings granted to it that some call MTR a property company with a train running through it. (9) Land allocations require no legislative oversight. Nor are they accounted for as expenditure. By this means, Hong Kong has conjured a cheap and gleaming transport system seemingly out of nothing. (10)

There are physical distortions, too. One is that half of Hong Kong’s citizens are herded into cramped government flats. Paying commercial rent or buying an apartment is quite beyond the reach of poor or even middle-class families, leaving them dependent on subsidised housing.

Hong Kong has become a construction state. Money raised from property premiums is allocated to a special account that can only be spent on infrastructure, guaranteeing a building frenzy in perpetuity. (11) So the government, perversely, has an incentive to reclaim land on which to build. That is why so much of Victoria Harbour, once one of the world’s most beautiful waterways, has disappeared under concrete. If similar policies were pursued in New York and London, the Hudson and Thames rivers would be long gone. (12)

The system is in need of overhaul. (13) But there is little chance of that. The property tycoons who benefit are deeply entrenched in Hong Kong’s undemocratic political system. (14)

1) Agreed. Government surpluses are almost as bad as government deficits, get the money spent on things which benefit people generally, income tax cuts, Citizen's Income or Pension etc; whereby for some reason income tax cuts count as a reduction in revenue but a Citizen's Income counts as an increase in expenditure. They are of course very similar in practice, i.e. the income tax cuts could take the form of doubling the personal allowance. Bearing in mind that a higher personal allowance is similar to a Citizen's Income, is that a tax cut or increased spending?

2) Who dreamed that up? If the aim is to have a balanced budget and to spend no more than 20% of GDP, then surely the aim must be to raise 20% of GDP in tax?

3) And the land market in the UK is not massively distorted? Productive activity is taxed to death and land or home ownership is simultaneously rationed, indirectly subsidised and lightly taxed, has he not heard of our house price/credit bubble and ensuing recession? It's ironic that the author himself singularly fails to "talk sensibly about levels of tax and expenditure".

4) It's not 'apparently free', it is free, despite having huge value. The only question is, who should benefit from that value uplift - the people who get the land/planning permission off the government (as in the UK) or should it be split between those people and citizens generally (as in HK) or should it mainly go back to the citizens (as in full-on Georgism)?

5) So what? The UK government grants planning permission to larger landowners like Barratts, who then build lots of little houses and sell them to individual families; it could just as well sell smaller plots to local builders or single plots to self-builders. Remember that HK is approx. the size, population and income level of Greater London, so the idea of selling off quarter acre plots to self-builders who want to grow their own vegetables is a non-starter.

6) Correct. Land rents are exactly like tax except they are collected by landlords, mortgage lenders or vendors; but without the government to run things, these people would collect nothing. So if we add rents to taxes in HK to counter the claim that it is a low tax economy, then we can add on rents to taxes in the UK to illustrate that two-thirds of GDP go in taxes (if you include annual public sector deficit as a future tax).

7) Ah... low income tax is a 'distortion'? Is income tax itself not a 'distortion'?

8) See (6), in HK, about 12% of GDP is collected in quasi-Land Value Tax and about 12% in income tax; the total value of rent is (wild guess) thirty per cent of GDP, leaving the landowners/developers with 18% of GDP. In the UK the figures are 4%; 34% and twenty per cent, leaving landowners with 16%. So what's the big difference?

9) See also Metroland. Railway companies never make much money, it's the owners of land round the stations who make money. In HK, the railway company owns the land round the stations, and in the UK it's, er, somebody else, who didn't even pay for the railway to be built.

10) See 4). It's not 'seemingly out of nothing', somebody went out and paid for the holes to be dug, the tracks to be laid etc. The fact that it wasn't the government paying for it doesn't mean it was 'out of nothing'.

11) Here he complains about a building boom, but in the previous paragraph he complains that housing etc is too expensive, i.e. by implication that there's not enough of it. Can he make up his mind, plz?

12) As luck would have it, less than ten per cent of the UK by surface area is developed so we don't have that problem. In any event, we have planning laws to prevent people from building where wholly inappropriate.

13) Phasing out income tax and doubling taxes on land might be a good place to start, seeing as he complains that the landowners are still making too much money (they probably are, to be honest). And if this works and there are still surpluses, then start paying out a Citizen's Income: you can simply account for this as negative tax or tax rebates (rather than expenditure) if you want to appear to be a low tax/low spending economy (see example in 1) above).

14) Unlike in the UK where the Home-Owner-Ists are 'deeply embedded in the political system', eh?

* H/t Charles Bazlinton.

Channel 4: Britain's Trillion Pound Horror Story

Last night's TV programme was a very good introduction to how the whole system 'works' (or not, as the case may be), but it did gloss over certain issues and was in some cases deliberately misleading. Bellwether trotted out a few of the main claims made in the programme over at HPC, I responded as follows (BW's claims in italics):
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"There are, we were told 7.5 million public sector workers, of which the poster children for the state, eg nurses, police etc, the front line services, make up only 2 million."

Correct, I have been saying this for ages. They missed off 'social workers' (sort of middle ground between teachers, police, prison officers, probation officers and district nurses) which are about 300,000 but they admit they included teachers, nurses, doctors in the private sector, so that all evens out nicely.

"The public sector is bigger than the private sector."

Now that is simply not true, and an exaggeration at best. It is perfectly easy to imagine a teeny tiny state, with only 1 million coppers, prison officers, firemen etc, but which raises 50% of GDP in taxation (preferably LVT but flat rate 50% income tax will do) and which pays this out as a Citizen's Income of about £10,000 per person per year (or less for kids, more for pensioners) and everybody just pays for his own health care or his children's education out of that.

A far more relevant statistic is not just the 7 or 8 million directly taxpayer funded jobs, but the fact that the state spends nearly twice as much on 'procurement' from the private sector as it does on public sector wages and pensions. Yup, one fifth of GDP goes in juicy contracts to party donors, brothers in law of councillors etc.

"benefits last year were in excess of income tax."

Quite true, but misleading. Income tax in the narrow sense is only about ten per cent of GDP, "welfare" is about five per cent and old age pensions six per cent. The other taxes on income (national insurance, corporation tax, value added tax) add up to nearly twice as much again as income tax.
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I suppose the most outrageous claim was that the British taxpayer is on the hook for debts of £4.8 trillion. Official public sector accumulated debt is about £1 trillion and the net present value of accrued public sector pension rights is another £1 trillion, plus minus bits and pieces like PFI, but it is no more than that.

It is a wild exaggeration to include the net present value of e.g. future old age pensions, because we have a pay-as-you-go system. Each taxpayer has to stump up a share of current pensions, so you could say that each taxpayer is committed to paying liabilities with a negative net present value of £X0,000, but most taxpayers will live long enough to receive twenty years' worth of old age pensions themselves, which is a positive net present value of £Y0,000. The fact that for many people X > Y (it certainly is in my case) is a separate issue.

And further, Allister Heath trotted out the mantra that 'if you tax something you get less of it', which is quite true for the productive economy (if you have payroll taxes, you get lower employment), but completely not true for taxes on the rental value of land. However, the minute the subject turns to taxes on land and buildings, Mr Heath throws his economist's hat in the corner in a foot-stamping frenzy and he turns into a tired old politician:

... that didn’t stop Darling from launching yet another raid on the better-off, with his new 5 per cent stamp duty on homes worth £1m or above. There was time when aspiration was rewarded in Britain; this is no longer true... At least the stamp duty hike is not as damaging as Vince Cable’s mansion tax, a purer and more devastating form of wealth tax.

Pray tell, which 'wealth' would be 'devastated' if we had a Mansion Tax, as poorly thought through as it was? Would the rental value of the affected villas or penthouses fall by one penny? Nope. Would millionaires take their land and buildings abroad? Nope. At worst, it's a 20% tax on the actual or notional rental income, which would bring the average tax rate on such largely unearned income closer to the punitive rates on most of the productive economy. Either we're in favour of flat taxes or we're not, eh?

They also majored on how Hong Kong's economy had grown exponentially since it adopted a flat income tax of 15% back in the 1960s (hooray) but didn't mention that half of Hong Kong government revenues come from granting leases of land (which is a very crude form of Land Value Tax, of course).