Redistribution, New Labour-style

From The FT:

From April, the richest 2 per cent of families will feel the impact of higher taxes when a 50p top rate of income tax is levied on earnings over £150,000 and their tax-free income tax allowances are abolished.

Compared with 1997, families with people earning more than £100,000 are losing another £1 of every £7 they take home, the IFS calculated. If the tax rates of 13 years ago were in place, these families would be 15 per cent better off than they will be under the new income tax rules.

The poorest tenth are, by contrast, the big beneficiaries since the last year of John Major's government. They are 12 per cent better off now.

Now, whether or not you agree with redistribution from higher earners to low- and non-earners*, the general idea is that £1 is worth more to a poor person that to a rich person; or that a transfer from a rich person to a poor person only reduces the income of the rich person by 1% but increases the income of the poor person by 20%.

But because New Labour were so busy redistributing to themselves, their friends and their families, they couldn't even manage that - as the article says, the top two or three per cent are fifteen per cent worse off but the bottom ten per cent are only twelve per cent better off, i.e. most of the extra tax has been siphoned off, i.e:

3 households earning £100,000 pay £15,000 extra tax = £45,000
10 households with income of about £5,000 get £600 extra income = £6,000
New Labour siphon off the balance = £39,000

* Ultimately, I don't either. I think there should be redistribution from people who occupy high value land to those who don't, and let's scrap taxes on incomes and production completely, separate topic.

You'll find that the bulk of people who say they're against redistribution are quite happy for wealth to be indirectly channelled from income earners to property owners by insisting that infrastructure, local services etc are paid out of income tax, but that property income and gains remain tax free. AFAIC, redistribution sideways and upwards is still redistribution. Under New Labour there was an enormous amount of this diagonal redistribution as well, of course.

Parody singularity (2)

From The Telegraph:

Baroness Scotland immigration row: Sexism at heart, says Jack Straw

Strange really - when contrasted with Chris Grayling, who described her exoneration as a whitewash (itself a loaded term), she really has a winning hand at Victimhood Poker - she's fat, ugly and non-white as well. So I suppose Jack Straw is saving a few cards for the next round.

1984(18): Chocolate rations

I'm often reminded of the following paragraphs when the government uses statistics to try and prove, well, anything at all, really:

"... The Times of the nineteenth of December had published the official forecasts of the output of various classes of consumption goods in the fourth quarter of 1983, which was also the sixth quarter of the Ninth Three-Year Plan. Today's issue contained a statement of the actual output, from which it appeared that the forecasts were in every instance grossly wrong. Winston's job was to rectify the original figures by making them agree with the later ones.

"As for the third message, it referred to a very simple error which could be set right in a couple of minutes. As short a time ago as February, the Ministry of Plenty had issued a promise (a 'categorical pledge' were the official words) that there would be no reduction of the chocolate ration during 1984. Actually, as Winston was aware, the chocolate ration was to be reduced from thirty grammes to twenty at the end of the present week. All that was needed was to substitute for the original promise a warning that it would probably be necessary to reduce the ration at some time in April...

"But actually, he thought as he re-adjusted the Ministry of Plenty's figures, it was not even forgery. It was merely the substitution of one piece of nonsense for another. Most of the material that you were dealing with had no connexion with anything in the real world, not even the kind of connexion that is contained in a direct lie. Statistics were just as much a fantasy in their original version as in their rectified version. A great deal of the time you were expected to make them up out of your head.

"For example, the Ministry of Plenty's forecast had estimated the output of boots for the quarter at one-hundred-and-forty-five million pairs. The actual output was given as sixty-two millions. Winston, however, in rewriting the forecast, marked the figure down to fifty-seven millions, so as to allow for the usual claim that the quota had been overfulfilled. In any case, sixty-two millions was no nearer the truth than fifty-seven millions, or than one-hundred-and-forty-five millions. Very likely no boots had been produced at all.

"Likelier still, nobody knew how many had been produced, much less cared. All one knew was that every quarter astronomical numbers of boots were produced on paper, while perhaps half the population of Oceania went barefoot. And so it was with every class of recorded fact, great or small. Everything faded away into a shadow-world in which, finally, even the date of the year had become uncertain."

From 1984 by George Orwell, available online here. I wish I'd known about that site earlier, I've typed in all the previous excerpts straight from the paperback.

Maybe I'd look that bad-tempered if I still lived with my parents at the age of fifty-one

More Indian bicycle marketing...

I explained this strategy at length here; in short, the three main UK parties have policies that are more or less identical. They differentiate themselves by either A) claiming that the underlying philosophy is somehow different or B) in a negative way, i.e. they accuse each other of wanting to do things which would appeal to the other parties voters and don't defend themselves against such accusations by the other parties (thus giving their own potential voters the hope that they would do it, even though clearly they wouldn't).

As to A), a wealthy client asked me about Labour's threatened five per cent income tax surcharge on higher earners a week or two ago, and whether this would be introduced if the Tories won the next election. I explained that they almost certainly would. I can now award myself a brownie point for this blinding insight...

Dave The Chameleon has now admitted that he would introduce the surcharge, but wait - instead of it being a Nulab 'bash the rich' exercise, he'd do it in order to "rescue the economy" and/or because "priority must go to debt reduction".

As it happens, it is highly questionable whether the measure would actually increase tax revenues, once you factor in how few high earners would have to move abroad to wipe out the gains. And I'm not a fan of tax breaks for pension contributions (either on an individual level or for society as a whole), but even I would be tempted if I were getting over fifty per cent effective tax relief (once you include income tax and both layers of National Insurance).

As to B), the BBC gives Nulab ample scope to indulge in this tactic here. Dave has a good crack at all the vastly overpaid and superfluous quangocrats (yeah, the Tories invented the quangocracy, pots, kettles), and ...

Chief Secretary to the Treasury Yvette Cooper said: "How can David Cameron talk about fairness when he is still committed to a tax cut for millionaires' estates, won't back our £1.2bn help for the unemployed to get back into work, and wants to cut Sure Start? David Cameron's plans for cuts in apprenticeships, housing and transport in the middle of a recession are economic madness that would cost us all more in the long run."

NB, "help" = money = subsidies = a higher tax bill on somebody else. I've no idea whether the Tories want to "cut apprenticeships" for example, but this gives potential Nulab voters the illusion that under a Nulab government there'd be more apprenticeships that under a Tory one (for which there is no evidence whatsoever), and as to the other "cuts" she accuses the Tories of wanting to make (there's no evidence that they would do this either), all this does is give potential Tory voters the forlorn hope that the Tories would in fact cut taxes - they quite clearly wouldn't, but doesn't the accusation at least give the gullible voter at least the overall impression that they would?

I hope none of you invested in Real Estate Investment Trusts!!

One of Nulabour first reckless throws of the dice to try and prop up property prices was to invent "Real Estate Investment Trusts" by which small savers would be conned into putting their hard-earned into commercial property.

They went live in early 2007, and were quite highly geared - so every 10% fall in commercial property means a 25% fall in the value of your REITS shares. The insiders bailed out at the top of the market, leaving Nulabour & Tory core voters, the small savers, nursing huge losses. Not that I'm a conspiracy theorist or anything, but remind me, who votes for these people? Here's the chart for the FTSE Real Estate Sector Index for the last two years:


There's an old saying, "Don't invest in a railroad company until it's gone bankrupt three times", which applies to all companies based on speculative land values. True to form, these companies (REITS and other UK property companies) are now on the edge (i.e. are breaching their lending covenants) and have asked their shareholders for another £3 billion in the next four weeks.

Land Securities "added that its combined investment property portfolio had been valued at £9.97bn as at January 31, down from £12.5bn in September [2008]. After adjustments, the valuation deficit over the four-month period was £2.45bn, representing a decline of 20.1 per cent. Land Secs added that it was cutting its dividend payment pool from £307m in to £221m."

To put this in perspective:

a) Land Securities currently has a market capitalisation of £2.5 billion, so shareholders have already lost £7.5 billion in value and are now being asked for another £755 million to keep the wolf from the door.

b) It admits that its properties lost a fifth of their value in just four months.

c) It doesn't appear to grasp that cancelling dividends is a much cheaper way of preserving capital than paying a dividend of £221 million and then promptly asking shareholders to pay back £755 million.

d) The more prices fall, the higher the gearing. If and when commercial property prices bottom out, a REITS share will more or less equate to a call option on property prices, i.e. pretty much risk free with unlimited upside. But let's wait for another couple of waves of rights issues, debt-for-equity swaps and the like before we start buying.

UPDATE Per The FT (thanks to Umbongo & Lola for the steer):

The government is to consider whether to allow the payment of stock dividends by real estate investment trusts, a measure that would help alleviate the strain on balance sheets in the struggling listed property sector...

Whether stock dividends are allowed by existing rules is uncertain. Some accountants and analysts warn such a move would be a minor breach of the Reit legislation, which stipulates that Reits need to distribute 90 per cent of rental income to shareholders.

"David Mills sentenced to four years in Italy for corruption"

This cheered me up no end, I hope brightens up one or two other people's evenings as well.

That's strange - the BBC appear to have 'overlooked' this one ...

The BBC doesn't show up on a Google search for "jack straw" saudi donation BBC, but The Telegraph does:

Jack Straw, the Justice Secretary, is facing an inquiry over an allegedly illegal donation to his campaign fund from a company backed by Saudi property developers.

The Electoral Commission has received a complaint over the £2,000 gift from Westminster International Consultants (WIC), a shell company which has never traded in the UK. Electoral law states that MPs must not accept donations from non-trading companies. The money from WIC was paid to the constituency Labour party in Mr Straw's Blackburn seat on the same day it received a £3,000 donation from Lord Taylor, the peer at the centre of the "cash for amendments" row.

Mr Straw could now be forced to pay back the money and apologise to parliament if the Electoral Commission decides he was guilty of breaking the rules. The only donors to the Cabinet minister's 2005 election campaign were Lord Taylor, WIC and a third man, Arif Patel, who runs a clothing firm in Preston. Mr Patel, who donated £2,000, is currently the subject of an ongoing police and customs investigation into an alleged multi-million pound VAT and counterfeit goods fraud...

No doubt the BBC will pick up the story soon ..?

UPDATE My bad, the BBC explained that this was all just an innocent mix-up with cheque books yesterday.

Nulab appointee jumps on bandwagon

The hypocrisy of these actor luvvies complaining about the Heathrow expansion was covered admirably yesterday by the Institute of Economic Affairs and rather more robustly by The Daily Mash.

From today's Evening Standard:

CELEBRITY critics of the third runway at Heathrow were accused of "hypocritical behaviour" by a government minister today. Transport minister Lord Adonis suggested that vocal opponents such as Oscar-winning actress Emma Thompson should explain why they regularly flew all over the world themselves. In an interview with the Evening Standard, he said: "People who are frequent flyers have to square that with wanting to deny others the opportunity to fly by constraining airport expansion... therefore rationing flights and making them more expensive."

I hate this government so much that it causes me great pain to admit that they've done something right for once. 

Why the government loan guarantee scheme won't work

As I posted before Xmas "each party promises something more generous than whatever it was that the other party just promised, at the moment, government guarantees for such lending [to small businesses] are top of the agenda.". We appear to be 'going live' with this now, Labour has promised to underwrite £20bn of loans to small business.

Righty-ho, here's a quick list:

1. Let's rule out the Tories' proposals first. The "Conservatives are calling for a similar plan offering a £50 billion commitment". According to the FT "Defaults on loans covered by similar schemes since 1981 have run at 28 per cent...", so 28% of the extra £30 billion = £9 billion of taxpayers' finest lost, which makes a mockery of the Tories' promise to increase government spending by £5 billion less than Labour. That puts the Tories £4 billion in the red.

2. Market interest rates are incredibly difficult to pin down, being a mix of inflation expectations + risk free rate of return + risk premium. What is the risk premium that the Blandford Forum branch of the NatWest should charge Aunt Betty's Teashop for a £10,000 overdraft that she dipped into and out of for decades? How does that compare with the risk premium that the Laisterdyke branch of the Yorkshire Bank should be charging young Arthur Simmonds who has recently taken over his retired father's car-repair workshop and wants to invest in a new spray booth?

3. A proper bank has to make an estimate in each individual case - if they ask too much, Aunt Betty or Arthur Simmonds will either take their business elsewhere; not make a profitable investment or go out of business. If the bank charges too little, then the defaults will outweigh the average risk and the bank managers concerned will be in trouble. It is only if the bank gets this right that the economy can blossom.

4. It is said that the government will charge for the guarantee. Yeah right. Unless they intend to duplicate all the paperwork, due diligence and local knowledge that the banks have already carried out, I guess they will charge a flat rate, maybe 1%. In the case of Aunt Betty's Tea Shop, the bank concerned won't bother (or will charge her the correct risk premium of 0.5% anyway), but with young Arthur Simmonds the bank might say, go for it, what can we lose? Does this sound like a recipe for yet more 'reckless lending'?

5. Once The Quangocracy and The Righteous realise all this, they will ask "Why should the banks lend money to young Arthur Simmonds with his climate-change-causing-car repair workshop? We think that the banks should lend to The Malcolm and Cressida Ethical Living Awareness Project." That way lies chaos.

6. The government assumes that banks want to lend in the first place. Why should they? This is a recession, a time for deleveraging, safety first and all that. UK banks have a cushy risk-free (or at least, they incur no extra risks) cash income of £136 billion per annum from routine residential mortgage repayments and redemptions, which has to cover £40 billion-odd in mortgage write-offs. Further, banks have their own creditors snapping at their heels - bond holders and the original government bail out of £37 billion (on which they are paying much higher interest rates than the 1% they are paying to normal account holders), so they'd rather hoard cash to be able to keep these wolves from their door than do any new lending.

7. Because of the way the UK economy works, banks prefer secured lending against property values - whether the property is owned by the company or the directors. With property prices sliding, that's a bit of a no-no. New mortgage lending has slumped by over 90 per cent, and seeing as property values underpin business lending, who's to say that the same doesn't apply to business lending?

8. As ever, there is the problem with definitions. On Planet Wadsworth, we accept that there are economies and diseconomies of scale, some types of businesses are small, some are big. That does not make small businesses more worthy; neither does it imply that the bigger the better. But in terms of vote-buying, small businesses are more important. So they've decided that the cut off point for the scheme is 50 employees. Is that 50 employees, or 50 full time equivalents? What if the business is doing well, and had 40 last year and has now reached 53? Does that rule them out? Should that business sack three workers, or more likely, have them leave and re-appear as 'consultants' or self-employed. And why 50? Why not 10, or 100 or 273.9? What if a business with 50 employees takes out the government backed loan and opens a new branch and now has 57 employees? Does it then have to repay or re-negotiate the loan?

Answers on a postcard, as ever.

Another two hundred and sixty Labour voters

Having nationalised half the UK's banking sector and established a shiny new quango to "protect and create value for the taxpayer as shareholder, with due regard to financial stability and acting in a way that promotes competition.", Nulab are now going on the safe side and hiring yet another two hundred and sixty taxpayer-funded penpushers to oversee the bits that are left.

Ironically, the bits that are left are mainly HSBC and The Nationwide Building Society, which appear to have been soundly managed and in no particular need of closer supervision.

Hmmm. I wonder what the real reason might have been ..?

Via Lola.

Fun Online Poll Results: Everyone's a winner!

Fifty people* responded to this week's brain teaser:

Here's a follow-up question from a GCSE maths paper:

Write five thousand four hundred and twenty four in figures (34%)
Write 41,980 to the nearest thousand (34%)
Write down the value of the 7 in the number 25,750 (24%)
Write the number 7,180 in words (8%)

In true Nulabour fashion, everybody gets an A-star grade for their Maths GSCE!

All the options given were taken from a recent GSCE paper, according to James Barlow** in the comments to the previous GCSE question, so whatever you clicked, you get a prize.

* Thanks to Obo for linking.

** If you don't believe me (yes, I mean you, Prodicus), take it up with him personally.

Another day, another desperate throw of the dice (7)

Continuing my occasional series, The Badger has noticed that trying to force commercial banks to increase mortgage lending to their crazy 2007 levels in the face of plummeting house prices is trickier than he expected.

Not a problem! The gummint is now going to completely reverse its eminently sensible policy of running down Northern Rock's mortgage book as fast as possible (by simply making sure that NR's mortgage deals were the least attractive on the market). The new plan is to give NR long term taxpayer funded loans and guarantees in order to try and reflate the housing bubble.

H/t Stillthinking at HPC, who adds "... this must count as an extension of government borrowing and so push the pound down further, and ... push up real long-term interest rates."

1984(16): Prostitution

From "Nineteen Eighty-Four" by George Orwell: 
Consorting with prostitutes was forbidden, of course...*

Harriet Harman, 2007:
Paying women for sex should be outlawed...

* I like the flourish "of course", old Eric saw that one coming a mile off.

Black 2008

Here's a chart showing GBP's progress against the same basket of other currencies. The blue series covers the two years 1 January 1992 to 31 December 1993; the red series covers 1 January 2007 up to today's date:
So, if the value of a nation's currency is a measure of its government, yet again, Nulabour have shown themselves to be worse than the Tories.

* Fans of technical analysis will no doubt spot the impressive Symmetric Triangle in the blue series. Rather surprisingly, there was no break out in either direction in 1994. GBP fell a further three or four per cent in 1995, but that was that, after that it started picking up again.

1984(14): Tobacco rationing

From "Nineteen Eighty-Four" by George Orwell:

He [Parsons] had lugged out a huge and filthy pipe which was already half full of charred tobacco. With the tobacco ration at a hundred grammes per week it was seldom possible to fill a pipe up to the top. Winston [Smith] was smoking a Victory Cigarette which he carefully held horizontally. The new ration did not start till tomorrow and he had only four cigarettes left.

One hundred grammes per week = half an ounce per day (what we smokers colloquially refer to as 'half an ounce' is in fact slightly less, or 12.5 grammes in NewSpeak), quite enough for thirty or so rollies, which is roughly what I get through. So if George Orwell saw this as a cruel restriction, it does beg the question as to how much he smoked. But never mind, George Orwell saw tobacco rationing as just one of a thousand ways in which an authoritarian State would infringe individual liberties.

So it's interesting to note that one of Paul Flynn MP's* most noteworthy comments on being sent a copy of 1984, just to remind him that it was a warning not an instruction manual, was "Previously, the anti-smoking ban people have traded on the concept of 'freedom' rather than the ban. Reading the document that came with the book I formed the impression from the final sentences that the smoking ban was the main complaint."

* Who can't spell Leg-Iron.

Alice Cook's Seven Point Plan to wreck the economy

In case you don't read Alice's 'blog, I commend her fine summary of Nulab's all round f***wittery.

Number crunching

Number of people who "think government ministers tell the truth": 22%

Number of people voting Nulabour in 2005: 20%*

Who on earth are the other two per cent?

* 32.3% of votes cast on a 61.3% turnout.

Another day, another desperate throw of the dice (6)

I'd better add the lunatic BoE base rate cut, and subsequent arm-twisting of the banks to the list of things that the government has done over the past two or three years to try and prop up property prices.

This might help the half of existing borrowers with a reasonable amount of equity, income and good repayment history who are on tracker rates or standard variable rate (but not those on a fixed rate, obviously), but not anybody else and certainly not first-time buyers. As Jack C explained over at HPC (comment 29) on Friday:

The lenders are starting to reduce the rates in response to Government demands however how much of this will filter through to customers is debatable because the lenders need to make as much margin as possible to help their re-capitalisation programme.

They will thus use a whole host of other tactics to avoid passing on the rate cut including the following: Lower loan to values (LTV's); Lower Salary multiples; Stricter valuation criteria ie if the valuer reports items that require remedial work the lender is now insisting it be remedied before they will advance any monies (retentions); Down valuations are much more likely; Income that was previously acceptable is now excluded eg Working/Child Tax credits, overtime/bonus.

I could produce a list which would ultimately run off the page. One of my close friends has 40 (Forty) re-mortgages (typically 2 year deal coming to an end) on his desk as I type and he can't place even one of the 40 because none of the fit the new lending criteria - so the drop in rates is IMO at this juncture irrelevant and backs other contributors suggestions that the tail wags the dog

(perhaps Lola can confirm or deny the accuracy of this as an overall picture?)

"Brown holds his breath as Scots vote in Glenrothes"

Here's hoping for death by asphyxiation!