The Laffer Curve

From today's City AM Forum (I can't find the article online yet, so I had to copy type. Please forgive any typos.)

By Harry Phibbs, a journalist at ConHome:

Hammond's virtue signalling on low wages is hypocritical

... There are alternatives the government could take that would help the low paid, and would also help reduce unemployment, rather than endangering jobs.

The first priority should be a sharp rise in the threshold for national insurance contributions.

Employees have to hand over 12 per cent of their earnings to the government on anything over £166 a week, so somebody on the national living wage working a 40 hour week has a significant tax bill [not to mention the 13.8% that the employer has to pay].

Raising the threshold would require the chancellor to find some savings in state spending. That's more challenging than just imposing a requirement on someone else and claiming the credit for it. But it would not be impossible to achieve.

Another priority to address is the Universal Credit earnings taper rate. Changing this would help make it more rewarding to be in work, rather than on welfare.

Before the Universal Credit reforms, people who accepted work really did end up with less money. This is no longer the case, but the taper rate means that for each £1 earned, 63p in benefits is [sic] lost. That is simply too steep a taper. After all, the Laffer Curve applies to the poor as well as the rich, so reducing the taper would reward work just as tax cuts do.

There is something awfully hypocritical about Philip Hammond and the government decrying "unacceptable" levels of low pay by employers, then grabbing a chunk of a salary so that it is even lower when it finally gets to the employee."

I've been saying all this for over a decade, but it's reassuring when others say it. The 67% overall marginal rate on wages over £100,000 a year* seems too high too me, but far less troubling than the 80% or 90% overall tax/taper/withdrawal rates faced by people on wages up to £20,000.

* Do the maths, this is mentioned even less often.

Fun Online Polls: Transport, Defence & EU referendum

Last week's Fun Online Poll ended up as a dead heat, with forty participants saying they'd rather be Transport Minister and forty saying they'd rather be Defence Minister.

Ho hum. I still think that Philip Hammond made a big mistake going from Transport to Defence, but time till tell.

Just to cheer us all up a bit after Monday, I'm going to run my own referendum as proposed in that back bench motion.

Vote here or use the widget in the sidebar.

FWIW, there's now another online petition asking for the matter to be debated again, just in case we get the right result this time (following time-honoured EU tradition), see widget in sidebar.

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.

Philip Hammond On Top Form

If he goes on like this (his slot starts 2 min 50 seconds into the clip), he'll end up turning off the traffic lights or something:

Philip Hammond

Philip Hammond on top form

Philip's getting increasingly exasperated with the NIMBYs:

Critics say the £33billion rail link proposal from London to Leeds/Manchester is not green enough and far too expensive. But, talking exclusively to Metro, Mr Hammond launched his most scathing attack to date.

Nimby is an acronym of Not In My Back Yard – a derogatory term for people who would be in favour of something were it not taking place near their home.

‘There is not much more to their argument than Nimbyism,’ he said, ‘I hear lots of arguments about whether the country can afford it, value for money and the business case. But 95 per cent of these arguments come from people who just happen to live in [affected towns] Wendover or Aylesbury or Amersham. I don’t blame them for fighting their corner but they should be honest that their objection to this project is that it comes through their backyard. It is not a principled objection.’

Mr Hammond said instead of putting up fares, many could drop dramatically as operating companies try to compete on price with the new 250mph trains.

Ralph Smyth, of the Campaign to Protect Rural England, said: ‘It is completely wrong that this is Nimbyism. If you are spending £33billion it shouldn’t just be carbon neutral, it should be positively green.’

Philip Hammond's dry sense of humour

I happened to catch a debate about the electrification of railways in Wales on BBC Parliament, the man actually seems to know what he is talking about and is genuinely enthusiatic about improving the rail network etc, but the highlight was this (Column 197, Hansard):

Mr Wayne David: In the spirit of St David's day, I respectfully remind the Secretary of State that St David probably lived in west Wales. Has he made any assessment of the extent to which west Wales and Swansea will lose out from his partial electrification of the south Wales line?

Mr Hammond: Many people coming from England will access west Wales through Cardiff, and journey times to Cardiff are being reduced. Everybody would like a high-speed railway running right to their front door, but as we - [ Interruption. ] Okay, to the next street...

The [interruption] was of course all the Tory-NIMBY MPs from the proposed HS2 route shouting "shame" and Philip Hammond was grinning broadly* when he conceded the point and said "Okay, to the next street..."

* By his standards, narrowly by anybody else's.

I'm starting to like Philip Hammond.

Two stories from The Daily Mail:

Exhibit One: Motorway speed limits could rise to 80 mph to shorten journey times and boost the economy under a radical review of road safety, Transport Secretary Philip Hammond signalled today.

He is concerned that anti-car campaigners have for too long used 'road safety' as a convenient excuse to both stymie raising speed the limit on motorways from the current 70mph, and to push for more 20mph zones* in urban areas - even when they are inappropriate.

Exhibit Two: Residents’ groups, some councils and several Tory MPs are firmly against the [high speed London-Birmingham rail link] and there are concerns that the planned 2015 start date for the scheme will be hard to meet. The 140-mile first phase could cost £17 billion and plans for extensions to northern England and Scotland will take until the 2030s.

Mr Hammond said: "Until now, the people who are opposed to it because it is in their back yard have made all the running. Now that we are getting to the real crunchy bit, the people who are going to benefit from it – which is everyone in the UK except those who have got it in their own back yard – are beginning to mobilise and articulate the significant benefits that will be delivered."

* I'd say that this is up to the people living on each individual street to decide.

Philip Hammond tries to explain Government to NIMBYs

From the BBC:

"Government is all about taking difficult decisions. It's about balancing the benefits to the nation as a whole, to the economy, with the burdens that individuals and communities will suffer. And the challenge is to get the route which causes the least possible damage for the maximum possible benefit.

Now that can never mean that nobody suffers. Our job is to make sure that we fairly compensate those who are disadvantaged by the decisions taken."

"Tories urge stamp duty decision"

As Tories go, I actually quite like Philip Hammond, who points out that floating a stamp duty suspension without confirming it one way or the other had "created a significant incentive for people to delay the purchase of a property in the hope of avoiding the payment of stamp duty on the transaction. The uncertainty can only undermine the market further, reducing the volume of transactions when they are already at historic lows."

Good logic. But read on ...
Mr Hammond said the government should adopt shadow chancellor George Osborne's "fully-funded" proposal, announced last October, to lift the stamp duty threshold for first-time buyers to £250,000. "This would lift nine out of ten first-time buyers out of stamp duty altogether and provide badly needed assistance to a group who are finding it increasingly difficult to enter the market."

Sorry, he's spoiled it all again now. The last thing that a first-time buyer should be doing is 'entering the market'. My advice to them, FWIW, is wait another couple of years and wait until prices have bottomed out.