He needs it as down-payment on his yacht.

From The Independent:

In the latest setback to European Union efforts to tackle corporate tax avoidance, a court on Wednesday annulled a ruling by the European Commission that a tax deal between the Luxembourg government and Amazon amounted to illegal state support.

The European Commission ordered the U.S. online retailer in 2017 to pay around 250 million euros ($300 million) in back taxes to Luxembourg. But judges at the EU's General Court said the European Commission didn't prove “to the requisite legal standard that there was an undue reduction of the tax burden of a European subsidiary of the Amazon group."

If I understand correctly, Amazon will get a refund of the $300 million.

Also from The Independent:

Jeff Bezos, Amazon founder and the world’s richest man, will reportedly soon be the owner of a mega-yacht he bought for $500 million, almost double the price he paid to buy the Washington Post newspaper in 2013.

While the details of the vessel have largely been kept under wrap, the 417-foot superyacht is so massive that it has a yacht of its own, along with a helipad, reported Bloomberg.

"Hammond plans tax crackdown on synthetic self-employed"

From the BBC:

The Treasury is finalising plans to overhaul tax rules which allow self-employed people to avoid paying national insurance contributions. The move will be targeted at people who set themselves up as private companies to take on work.

The BBC understands it could be announced in this month's Budget. The Treasury believes a third of people claiming self-employed status as a "personal service company" are actually full employees and should pay more tax.

Quite simply, employment income is taxed at insanely high rates. Self employment income and income routed via a company are just taxed at high overall rates.

So this is bound to happen, and anybody who thinks they are on the right side of the line will do this. And plenty of people who clearly aren't. Presenting a regular daily or weekly TV or radio show is slap bang in the middle of any sane definition of 'employment' FFS.

The answer is simple. Merge VAT, National Insurance, income tax and corporation tax into a single rate of tax applied to all earned income at the same rate. You can make it less regressive with a personal allowance or a Citizen's Income credit.

Until and unless they do that, this sort of tomfoolery will continue and we go in ever decreasing circles.

It says without reform, high levels of non-compliance with tax rules could cost HM Revenue and Customs, which collects taxes, £1.2bn a year by 2023.

Sod off, it costs HMRC nothing. That's like me counting all the goals I never scored in a Cup Final. It costs 'everybody else' £1.2 bn, because they have to pay in more to make up the difference.

Amazon's tax bill (here we go again)

From The Independent:

Philip Hammond has said he will consider tax changes hitting online businesses to ensure there is a more level playing field for high street retailers.

The hint at a so-called Amazon tax for online companies that sell products over the internet comes as high street stores – under pressure from soaring costs like business rates – demand a fairer system.

The only logical way that a special 'Amazon tax' would help high street retailers is if the tax is so high as to discourage people from buying online; or so high as to push Amazon into a permanent loss-making situation.

Mr Hammond added: “The European Union has been talking about a tax on online platform businesses based on the value generated. “That’s certainly something we’d be prepared to consider.”

Amazon already pay two kinds of taxes on 'value generated', being normal VAT at 1/6 of their turnover and corporation tax on their residual profits. Do they play fast and loose and book profits sideways elsewhere? Quite possibly, says The Murphmeister, but that's a different topic. Try enforcing existing laws first before you start inventing new ones on an ad hoc basis.

The Guardian is of course going to town on this:

The company... revealed that pre-tax profits at its UK business tripled from £24m in 2016 to £72m last year. The figures were reported by Amazon UK Services, the company’s warehouse and logistics operation that employs more than two-thirds of its 27,000-plus UK workforce, in its annual financial filing to Companies House. The company almost halved its declared UK corporation tax bill from £7.4m in 2016 to £4.5m last year.

Amazon UK’s warehouse and logistics staff and management enjoyed a bumper $164m (£125m) payout from the company share scheme – a rise of almost a third on 2016’s £95m bonanza – thanks to the company’s surging share price... The payouts will have reduced Amazon’s tax bill because under UK tax law companies are required to deduct the vest value of the shares provided to employees.

Companies aren't *required* to claim this deduction, but they would be stupid not to (I've submitted such claims for my own clients, it's great fun). The value of those shares is liable to PAYE in full as if it were a cash payment.

PAYE rates are much higher than corporation tax rates, so these share-related gains don't *reduce* Amazon's tax bill, they significantly *increase* it, i.e. that £125 million was probably taxed at about 40%, meaning Amazon paid £50 million extra PAYE in addition to the £4.5 million corporation tax. Which is a pretty high overall tax rate when compared to £72 million profits.

For accounting purposes Amazon Services UK reports turnover as a charge to its parent company for the cost of delivering products, which hit £1.98 bn last year. Amazon will not reveal how much it paid in total to HMRC last year, beyond what it paid through Amazon Services UK.

That's turnover net of VAT, so Amazon will have paid about £400 million in VAT as well. Makes a total of £454.5 million tax paid. And we have no reason to assume that they don't pay full Business Rates on their offices and warehouses etc.

All the mugs who believe that 'the consumer bears the VAT' can go back to the remedial class. VAT is a tariff, just like the tariffs that Trump imposed on lots of stuff recently. Did all the businesses affected by them just shrug their shoulders and say 'Not to worry, consumers in the USA will pay the tax'? Of course not.

Joined up government

From the BBC:

Five offshore PFI companies paid little or no corporation tax during a five-year period despite making profits of nearly £2bn, the BBC has learned.

The five companies specialised in lending money through Private Finance Initiatives (PFI). They own hundreds of public assets including schools, hospitals and even police stations. The BBC has also learned that a small number of big offshore companies are currently on a buying spree.

I know that the whole PFI thing was a corrupt taxpayer funded giveaway and deliberately intended to make massive losses for the government/taxpayer in exchange for political party donations and cosy jobs post politics, but on a practical level, how can they get away with it?

Their 'tenant' is the government! Can't the government qua tenant just withhold 20% tax at source (like any other tenant of a non-UK registered landlord is supposed to do)? If the poor PFI companies think they've been overcharged, well it's up to them to submit proper accounts and tax returns.

Uber - employment lawyers don't understand maths or logic

From the BBC:

Uber drivers have won the right to be classed as workers rather than self-employed.

The ruling by a London employment tribunal means drivers for the ride-hailing app will be entitled to holiday pay, paid rest breaks and the national minimum wage. The GMB union described the decision as a "monumental victory" for some 40,000 drivers in England and Wales…

Fair enoughski, but this is just people fighting over the same source of income. Taxi drivers, collectively have a monopoly - each licence is a little monopoly. the tell tale sign is that an increase in demand for taxi rides does not increase the supply of taxi licences (which are at the whim of a local council or similar), it merely pushes up the value of the licences.

From the point of view of the consumer, Uber busted the taxi drivers' monopoly, bringing down prices and increasing supply, but from the point of view of drivers, it created a new one of its own. The trick with these platforms is to persuade passengers/buyers that they are the biggest and have most drivers on call, while simultaneously persuading drivers/suppliers that they are the biggest and have most potential customers.

Things being what they are, it is far easier and more efficient if everybody uses the same platform.*

Which brings me to this…

The ruling accused Uber of "resorting in its documentation to fictions, twisted language and even brand new terminology", adding: "The notion that Uber in London is a mosaic of 30,000 small businesses linked by a common 'platform' is to our mind faintly ridiculous."

No, that is exactly how it is. Presumably, if you register as a driver with Uber that does not stop you from registering as a driver with other platforms at the same time. Question is then - whose employee are they now? Do they have two employers? How is the holiday pay, rest pay and national minimum wage while on call but not driving supposed to be split between the two?

Here comes the maths fail:

Alex Bearman, partner at Russell-Cooke solicitors, said Uber could look to meet any additional costs by increasing the percentage of each fare that it kept as commission: "It seems likely that this decision will be appealed and we may not see a final determination for some time to come."

Again, no. It appears that Uber takes about 25% of the total fare paid by the customer. If Uber takes a higher percentage, then that leaves less for the driver, not more. So either:
- Uber takes a lower percentage (which won't kill it, their income is pure profit/rent once its minimal overheads are paid) or
- prices overall go up by a third to get driver's average hourly earnings up from £5.03 to the National Minimum Wage. And you can't just put prices up, the result will be less demand and fewer Uber drivers. So those at the margin will be unemployed again and those who keep their jobs will earn more for less work. Which is classic rent seeking, it is just when trade unions do it, they dress it up as A Good Thing.
-----------------------------------
Then there are taxes on output and employment to consider. Let's assume our driver is genuinely self-employed and is below VAT registration threshold. He makes £10/hour gross, Uber takes 25% leaving our driver £7.50/hour, on which he pays 29% income tax/NIC = £5.33 after tax. The self-employed will also get a full tax deduction for motor vehicle costs.

If the drivers are all now employees of Uber, the full fare will be liable to VAT, so out of £10, £1.67 goes in VAT. This leaves £8.33. Even if Uber generously slashes its fee to 5% (42p after VAT) to cover its minimal overheads, this leaves £7.91 to pay gross wages. 96p goes in Employer's NIC, leaving £6.95 employment income taxable at 32%, leaving our driver with £4.73 per hour. The tax deduction which employees can claim for business use of private car is also much more restrictive than for the self-employed and is more difficult to claim.

So an epic fail all round**!

* Which is why the answer is for the government to simply set up its own low-cost ride sharing app, it can provide it for free to all and sundry and will make its money back ten times over from all the extra income tax/NIC it can collect (even at self-employed 29% rate) now that it knows who is doing what. That still looks like a monopoly in the old-fashioned sense of there being a single provider, but in practice it isn't a monopoly at all.

** Unless you are totally cynical and think that the Employment Tribunal is an arm of government and decided the case this way because it vastly increases the tax take from Uber drivers...

Tax incidence - the 3% extra SDLT on purchases by landlords

As announced several months ago, there is now an extra 3% SDLT to pay if you buy a home which you want to rent out.

Landlords are buying for the rental income, which is a fixed figure, so the total they are prepared to pay is a fixed figure. The higher the tax, the lower the price the vendor receives and vice versa.

We would expect prices to rise following the announcement and then fall when the tax comes in. Landlords are buying up approx. half of homes, so the fall ought to be approx. half of 3%.

Which is exactly what happened. From Reuters:

On April 1, a three percentage point stamp duty hike was imposed on people buying buy-to-let properties. Estate agents have previously reported dealing with a bottleneck of investors rushing to push sales through before the tax increase on this date.

Rightmove said the average price of a typical buy-to-let property - that with one or two bedrooms - dipped in April by £2,686 month-on-month to reach £182,926, as investors' interest in the market became more subdued.

£2,686 divided by £182,926 = 1.5%.

So, for half of purchases, the landlord buyer is offering 3% less and for the other half the owner-occupier buyer is offering the same as before. Average drop predicted and observed = 1.5%.

Thus where landlords are buying, the extra SDLT is being paid/borne by vendors and not by landlords. This is in the nature of taxes on land values, even crude ones like SDLT. Absolutely none whatsoever is borne by tenants - if landlords could magically charge higher rents to cover the extra SDLT, then prices would not have fallen.

Simples.

Joined up government.

1. Although Stamp Duty Land Tax is a tax on land values, it is not Land Value Tax because it is only triggered when somebody does something positive and is not an annual tax. It is therefore a bad tax.

2. The government's subsidy for land values, Help to Buy, is a very bad subsidy, firstly because it is a subsidy, and secondly because it is a subsidy to the main thing the government should be taxing i.e. land values.

So we have two bad things, which actually cancel out. We could get rid of both.

Let's look at one individual purchaser:

a) Buys a new build for £400,000 (approximately double the UK average excl. London).

b) Gets a Help To Buy loan of 20% of the price = £80,000

c) Pays SDLT of £10,000 up front.

d) That loan is interest free for five years, so the notional interest saving @ 2.5% per year = £2,000 x 5 years = £10,000.

He wins £10,000 on the Help To Buy swing and loses £10,000 on the SDLT roundabout.

This works out slightly 'progressive' relative to house prices/land values (or sellers thereof), i.e. at prices below £400,000, the subsidy is worth more than the tax and vice versa.

The Tories don't like 'progressive', of course, so they introduced a special Help To Buy for London, where the interest free loan can be 40% of the price paid. Helicopter money for people selling land in London! The break even point for that works out at £500,000, which is approximately the average price paid for a home in London.

Life copies satire

From The Daily Mash, 20 March 2012:

TAXPAYERS are to receive a detailed breakdown of how their money was spent that is indvidually tailored to their cretinous world view...

Tax offices across the UK will issue bespoke statements that will fill individuals with both righteous anger and the realisation that they are the cleverest person in the world.

A Treasury spokesman said: “... people will see exactly how much of their money is being spent on ‘wacky-baccy-bongs, general poovery and that lazy Bulgarian scrounger who’s trying to fuck your wife’."

From the BBC, 3 November 2014:

The letters show that 24.5% of government spending goes on welfare payments.

"The chancellor is relying on the fact that many people think spending called welfare all goes to the unemployed," said the TUC's general secretary, Frances O'Grady.

From City AM, 4 November 2014:

Ben Gummer, Conservative MP for Ipswich, says...  Tax Statements will help taxpayers challenge their representatives, and candidates from rival parties, with real figures.

“Why am I spending £3,000 on welfare and only £352 on transport subsidies and infrastructure?” – the answer to which may change a vote, or influence an MP. That is good news for politics, and for voters.
--------------------------------------
A few facts:

1. The statements only refer to income tax and Employee's National Insurance. Seeing as these raise about £210 bn a year and the government spends about £710 billion, the totals are misleading. For an average household, you can probably double their income tax and Ee's NIC to arrive at the total amount of tax they pay/bear.

2. Government spending breaks down approx. as follows:
40% is subsidies to and 'procurement' from nominally private sector businesses,
30% is public sector salaries, and
30% is actual cash pensions and welfare.

3. The money paid to private business is a mix of a) legit and b) pure theft/waste.

a) It would be stupid for the police to manufacture their own cars or for schools to own their own forests and have their own paper mill, for example. The NHS sets a good example by haggling low prices for the medicines it buys (NHS prices are treated as reference prices by many bodies overseas), so that's fine. Conversely, government departments do not haggle for a bulk discount for generic software, not so fine.

b) It also includes straight theft and waste, like subsidies to banks, paying advertising agencies to churn out health propaganda, endless failed government IT projects, Housing Benefit payments to 'private' sector landlords… the list is endless.

4. Out of approx. 6 million public sector workers (the official total excludes things like BBC, universities, many quangoes and agencies, nationalised banks etc), one million work in education and another million in the NHS, hooray for them.

Fewer than a million others also do vital stuff (police, armed forces, prison officers, social workers, immigration control, dustbin men, firemen, a bare minimum in tax and benefits offices etc). Heck knows that the other three million do.

5. Out of the 30% spent on pensions and welfare, two-thirds is state pensions, public sector pensions, other pensioner benefits (Pensions Credit, Council Tax Benefit) and one-third is paid to working age people.

6. Of cash 'welfare' paid to working age people, about half is Child Benefit or Child Tax Credits and half goes to the disabled and unemployed.

So for every £352 spent on 'transport subsidies' (whatever that includes), about £597 goes as cash payments to the unemployed and the disabled (the categories overlap), and the headline figure of £3,000 for 'Welfare' is a complete and utter lie.

Actual 'theft and waste' appears to be about one-third of government spending, let's say half of the 40% paid to 'private sector' businesses and half the 30% paid in public sector salaries. Even if every penny paid to the unemployed and disabled (5% of the total) were also categorised as 'waste', it's still only one-eighth of the total 'waste'.

Clowns to the Left, Jokers to the Right

From the Guardian

Last week, as the Tory faithful cheered on George Osborne’s new cuts in benefits for the working-age poor, a little story appeared that blew a big hole in the welfare debate. Tucked away in the Guardian last Wednesday, an article revealed that the British government had since 2007 handed Disney almost £170m to make films here. Last year alone the Californian giant took £50m in tax credits. By way of comparison, in April the government will scrap a £347m crisis fund that provides emergency cash for families on the verge of homelessness or starvation.

If you follow that article, you find the following:-

The first analysis of accounts for the Disney movies made in the UK reveals that since the scheme was introduced in 2007 the company has benefited from HMRC to the tune of £167.6m. Last year the tax credits reached a high of £50.1m, believed to be the largest ever payment to a studio. A third of that was awarded to the blockbuster Thor: The Dark World, which was filmed at Pinewood Studios in Buckinghamshire.

To qualify for the tax relief, 70% of a film’s labour costs must be paid to European workers and at least 25% of the production costs spent in the UK.

So, Thor: The Dark World received £16m of tax credits. According to Box Office Mojo, that film cost $170m to make (or around £105m). Most of that cost goes on staff - the writers, actors, crew and CG artists. So, around £73.5m gets spent in Europe for £16m of tax credits (and in reality, if you're in Pinewood, most of that will be going to the UK). If you work out the taxes spent on that £73.5m, it's probably about break even, or even a money earner.

Jonathan Isaby, chief executive of the Taxpayers’ Alliance, said: “Fiddly little favours for special interests are why we have such a terribly complicated tax system and it’s why ordinary taxpayers no longer trust that everyone is paying their fair share. Exemptions and reliefs like this should be scrapped altogether, and we should then cut the rates for everyone to attract investment and boost growth. It’s not up to politicians to pick winners through the tax system, so radical reform is a must for the next government.”

This isn't "picking winners". The government knows what the budgets of these films are, what the subsidy costs and what extra taxes and jobs you'll bring here. That's pretty much known. And these exemptions and reliefs exist not because we have a complicated tax system, but because we have the wrong tax system, based on incomes rather than land (and the TPA are against council tax, so I think we can assume all land taxes).

Income tax takes no account of the flexibility of labour demands in a globalised world. It's a rather unbusinesslike and anti-free market way of taxing people. Any normal business understands that you have market segments.

Take moviegoing. People have different reasons for going. Some people go to have a pleasant evening with a date. Some people just go to see a movie. The first group aren't just going to see a movie in a better format. It's about an evening out. They can't really replace it with watching on Blu-Ray. The second group can. Plus, lots of people want the Saturday night tickets. Cinemas therefore price differently. They can charge up to the rate that fills an auditorium on Saturday, but on Tuesday, they don't fill auditoria, so charge people a bit more than a HD rental, the alternative they're competing with, and get some people in. Not a huge amount of people, but it's still money and better than empty seats.

The fixes governments do of handing out tax breaks are simply a crude attempt to deal with that flaw in income tax. It doesn't discriminate between a film company making films about jousting that can do it in a huge number of places, and therefore can pick the one that has the cheapest costs (and tax is a factor in costs), and a cafe owner outside Windsor Castle that can't.

But LVT deals with the problem without any further tweaks for particular industries. The sort of businesses that can put themselves in any country are also generally businesses that can put themselves anywhere within that country (e.g. Pinewood have opened a new facility in South Wales). By introducing it, you don't need exceptions for certain industries. Flexible industries will come here, use cheaper areas of the country and create jobs. OK, they won't pay as much tax as the Windsor Castle cafe owner per head, but it's better to get a job with someone paying some tax than a business going to China and having lots of people on the dole.

And if you want a moral perspective, who has got more from the state? If the state had left Windsor Castle as a wreck after it caught fire rather than spending £37m repairing it, how much money would a cafe outside of it earn? So, why shouldn't that cafe owner, who gets a large amount of the benefit from that huge amount of money pay a larger share of paying for it?

Most fun with plastic bags

As long as he's not talking about land, Allister Heath digs up some good stuff:

Taxing plastic bags isn’t as significant, of course, and some large chains already charge. But the tax will impose costs on some people and therefore further bolster the cost of living crisis.

There is also worrying evidence from the US that suggests that bans on plastic bags can have devastating side-effects that environmental campaigners have never even considered.

The problem is that reusable bags can be very unhygienic, especially when used to carry meat but also in other cases; they are frequently not washed or disinfected enough, which can cause terrible problems.

The research might or might not be flawed but you have to think about stuff like this.

He loses marks for this bit though:

... the ban increased some deaths from food poisoning and bacterial infections by 25 per cent

That's a typical bansturbator-scary-headline. If the number of such deaths went up from 4 to 5 out of a population of millions, it is meaningless.

Missing the Bigger Picture

From the Daily Mail

Now Swedish supergroup Abba have revealed they had good reason to wear such garish stage costumes – because it saved a little money, money, money on their tax bill.
The band, whose spangly flares, catsuits and platform heels were considered naff even in the 1970s, exploited a Swedish law which meant clothes were tax deductible if their owners could prove they were not used for daily wear.

Two odd things about this story

1) I'm pretty sure that a performer wearing a lounge suit could claim it as a business expense anywhere, as long as they only used it as stage wear.

2) At the time, Abba chose to stay in Sweden paying 70-85% tax on their very high earnings rather than clearing off to live in Las Vegas or Monaco to save lots of Money, Money, Money.

The 'shadow tax' on housing: drawing the incorrect conclusion from a small sub-set of correct facts.

Something which has been bugging us is the Neo-Classical concept of the 'regulatory tax' or 'shadow tax' on housing, which seems to say that the main, if not only, reason for high house prices is restrictive planning laws, see for example this from the LSE:

In the US and elsewhere, zoning policies and other land use regulations are now widespread. Christian Hilber and Frédéric Robert-Nicoud look at the reasons behind these policies, finding that, driven by lobbying from developers and property owners, places that are more developed tend to adopt tighter land use regulations.

With land regulations operating as a form of ‘shadow tax’, of over 50 per cent of housing value in some cities, land regulations may now have become too much of a barrier to development in urban areas.

Correct facts

They then list lots of interesting statistics showing the correlation between build/population density, location values, and how restrictive planning laws are. To their credit, they explain that more restrictive planning regulations seem to be caused by higher build densities.

Which is of course blindingly obvious.

Imagine a little commuter or farming village/hamlet out in the countryside. If somebody wants to build one additional home, he can plonk it anywhere he likes and there is no need for any restrictions (local NIMBYs will oppose it anyway, separate story). The additional one or two cars make no difference to how crowded roads are, he can built his own sceptic tank, compost his own kitchen waste in his garden, maybe obtain fresh water from a well etc.

But in a large conurbation, people have to look at the bigger picture - they have to decide which areas to retain as parks, where the roads and parking spaces will be, where to route the utilities and drainage, how to get rid of the resulting household waste and so on. And once some maximum density has been achieved, it requires a colossal step-change before the next level can be reached. In London, for example, this means Cross Rail or the new Thames super-sewer, which are multi-billion pound investments which are of course vehemently opposed by existing NIMBYs (who are actually collectively cutting off their noses to spite their faces, as we will see).

Incorrect conclusion

While they correctly identify location values as a 'shadow tax' (or privately collected tax*) Their incorrect conclusion is that in the absence of planning regulations, location values and the price of a single unit of housing in those areas would fall.

We can tell straight away that this is nonsense. If you go back in time long enough (a century or three), places where the great cities like Los Angeles, San Fransisco, New York, London etc now stand were very sparsely populated and location values were negligible. There was no discernible difference between the value of these locations and anywhere else inhabitable on the US or European land masses at that time…

The full facts

… and where has most of the new construction taken place? In those great cities. Where are location values highest? In those great cities. It is a multi-factor feedback loop:

If an area is ever so slightly preferable to another (natural infrastructure such as a harbour, coastline, river, flat dry land for buildings and roads etc) then more people move there. It only requires one little spark to ignite things.

More people => more specialisation, more efficient usage of natural or man-made infrastructure
More specialisation etc => higher wages, profits, trade
Higher wages etc => More people want to live or set up their business in the area
More people wanting to live and work there => higher location values (the amount which people are prepared to pay to live there)
Higher location values => more investment in buildings, higher population densities
Higher population densities => more man-made infrastructure (container ports, wharfs, mains water and sewerage, railways, motorways etc)

And so on and so forth. We could summarise these in a sort of flow chart, but each element feeds into and is fed by every other element, and there are plenty of other self-reinforcing elements I have not yet mentioned, so it would get very confusing. And at the centre of this whirlpool is of course the Land Monopoly Black Hole, that is where all the extra value disappears.

Something else they wilfully ignore

Further, location values within an urban area follow the same general pattern, i.e. they are proportional to population density/total population. The average value of land per acre in a large city is ten times as much as in a small town etc.

And the gradient within a large city is much steeper than in a small town. While the value of land at the very edge of a small town might not be much different to the value at the outer edge of a large city, the value increases as you head towards the centre.

So in a large city the value/acre in the very centre are ten times as high as in inner urban areas, which in turn are ten times as high as in outer-urban areas at the outer edge = a ratio of one-hundred-to-one between centre and outer edge. But in a small town, the value in the very centre is only ten times as high as at the outer edge. And so on.

You can observe this very easily by remembering that location values, build density and population density are three different aspects of the same thing (see feedback loop above).

So the usual supply/demand rule does not really apply to land.

If all European motor manufacturers decided (or were somehow forced) to produce and sell twenty per cent more cars every year, you would expect the price of new and thus second hand cars to go down. But they would have to pay more for their inputs: steel, rubber, car workers' wages etc, and they would probably end up all going bankrupt (which is why they produce the number of cars they do - that is their profit maximising level of production). Further, the price of a new car is decided as between customers and manufacturers. There is no competition between customers.

Conversely, relaxing planning laws means that the value of the most important input i.e. land will always go up to soak up the difference between what the highest bidding customer is prepared to pay and the build costs. The price you pay for a finished house in that location is fixed and decided by whichever individual customer bids the most. The land value cannot be competed away (or else, show me evidence that it can) and land owners will never go bankrupt, even if you abandoned all planning laws.

Loosening planning restrictions only has a measurable downward impact on land values at the existing outer margin but an upward impact on the 'new' area

Residential land on one side of 'the fence' (which demarcates the Hallowed Green belt) is worth £500,000 per acre; farmland on the other side is only worth £5,000 per acre. But if you shift 'the fence' a hundred yards out, the value of the existing residential land might fall slightly to £450,000/acre (no longer has direct view over the HGB) and the value of the new residential land rockets from £5,000/acre to £400,000/acre. The total location value of land in that conurbation will always be slightly higher afterwards than beforehand.

(The only counter-force here is that most people actually like having a back garden to themselves and to be near fields and forests. So half of new graduates in the UK move to London but not all of them. The best of both worlds is having a big plot with a beautiful view over nature within a few minutes of the amenities of a town centre).

Loosening planning restrictions has a measurable upward impact on land values in the centre

So what happens to the average rather than marginal value of land in a conurbation if we move 'the fence' a few hundred yards further out? More houses get built and people fill them up, so the values in the centre and inner-urban areas go up even more, because there is now a larger pool of customers, workers, entrepreneurs, more specialisation etc.

And more subtly, the convenience value of being at the centre, rather than having to slog your way in from the outer edge depends on the distance from the outer edge to the centre (in the same way as the value of a place in a queue is dictated by how many people are behind you more than by how many people are in front of you) is now greater, pushing up location values in the centre even further.

And what happens if we allow people in the inner-urban areas to build more densely (smaller gardens or higher buildings)? The value of that land goes up even more, obviously. The developer knows that the basic rental value of a residential unit is £10,000 a year, and people are only prepared to pay a small premium to have their own back garden (a luxury rather than a necessity). So if he can build fifty flats instead of twenty terraced houses or ten semi-detached houses, he'll go for fifty flats and make three or four times as much money as if he built ten detached houses.

The same goes for city centres, the most valuable bit is at pavement level, ideal for retail, pubs, restaurants etc, and above that is offices. While most people don't like living high-rise, people probably couldn't care less whether their office is in a five-storey or twenty-storey office block.

Here endeth

So while I have no sympathies with NIMBYs whatsoever, both they and the Neo-Classicals are completely missing the point. The point is that location values arise quite naturally from the way that people behave, and whatever you do with planning, location values are the naturally arising, minimum and irreducible level of "tax" in any organised society.

Your only decision is whether to allow this tax to be collected privately (for the benefit of a few individuals only) or to pool these values and spend it on stuff which benefits everybody (which of course includes cutting taxes on wages, output, profits etc).
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* A publicly collected tax is when private individuals are forced to pay money to the government, which the government then distributes to other private individuals (including their own friends and family). A privately collected tax is when private individuals are forced to pay money to other private individuals without the official government actually stepping in.

Squeal, piggies, squeal!

From The Telegraph:

George Osborne will this week announce plans to squeeze hundreds of millions of pounds of extra tax revenue to fund giveaways such as cuts in fuel prices, free school meals and married couple's tax breaks.

Much of the money will come from tighter rules applied to people the Chancellor described this week as "not your average taxpayer". But lawyers and accountants said the rules could affect many who could not be described as rich...

Experts last night warned that many British middle-class professionals will be caught up in a Treasury scheme to charge capital gains tax on UK property sold by overseas nationals and expats. The measures, to be announced in the Autumn Statement, are designed to hit wealthy foreigners buying and selling property in the UK.

However, the plan would also apply to British people living abroad and who are classed as non-resident here, but who still own property in the UK. Approximately five million Britons live abroad.

Jeremy Cape, tax partner at Denton, said: "It's impossible to tell how many British citizens abroad will be affected by this possible change. Potentially the largest class will be those who retired a decade or so ago to a warmer climate, but held on to their UK homes.

FFS, why do they assume that expat's are all "middle-class professionals"? In the very next sentence they say that the bulk of those potentially affected are retired, so not "professionals" any more. What do these people want? A tax only payable by working class people?

And if somebody has retired abroad and still owns a home here, then either it is standing vacant for occasional visits or it is rented out.

If it is vacant, then the vendor is not being "squeezed" if he sells it - he ends up with a big pile of cash with or without CGT on it. And if it is rented out, well it's a business asset and so there's no reason not to tax it.

NB, the UK is unusual in that it has hitherto exempted capital gains made on UK land and buildings owned by foreigners.

BDTP Reveals UK Fag and Booze Heroes

From The Telegraph

BDTP (Blokes Down The Pub) have decided to publish the role of honour to celebrate the men who save the public millions on booze and fags.
The names on the Honour Role are described as “Robin Hoods who have got us all cheap fags and booze,  instead of the money going to government to piss away on high-speed rail and sporting events that hardly anyone cares about”

The Honour Role includes
Hussain Asad Chohan, 44, believed to be in Dubai. He is celebrated for importing 2.25 tonnes of tobacco, saving hard-working smokers £750,000.
Leigang Liang, 38, believed to be in the UK, was honoured for illegally importing tobacco from China. The estimated saving to smokers was £2.6 million.
Wayne Joseph Hardy, 49, now believed to be in South Africa, was honoured for manufacturing tobacco products and not paying duty. The estimated saving to smokers was £1.9 million.
Gordon Arthur, 60, believed to be in the United States, honoured for illegally importing cigarettes and alcohol, saving smokers and drinkers around £15 million.
Emma Elizabeth Tazey, 38, also believed to be in the United States, is celebrated for the same savings.
Malcolm McGregor McGowan, 60, believed to be in Spain, is celebrated for illegally importing cigarettes saving around £16 million to smokers.
Dimitri Gaskov, 27, thought to be in Estonia, smuggled three million cigarettes into the UK using desktop computers.
Mohamed Sami Kaak, 45, thought to be in Tunisia, is celebrated for smuggling millions of cigarettes into the UK between March 2005 and September 2006 and saving taxpayers around £822,000 in duty.

"Slow and steady does it, but if I keep to one a day only four hundred and fifty one thousand, six hundred and twelve to go"

Said smiling upbeat HMRC roving Tax Inspector, Tom Logan, reporting back on a successful first day on his new "major tax avoiders - sport" beat adding "and by my calculations between me and my successors we'll have hit every one of those miscreant so called Village Cricket Teams that are really convoluted tax avoidance ruses for their £15K and have that £7 billion in the bag come late September 3249 AD".

Sources close to George Osborne suggested last night that given the success of the crackdown so far so called Tennis, Badminton and Squash Clubs could soon be on the HMRC radar.

"Under fire councillor faces sack"

I made clear to anyone who read the paper during my election that I would work to ensure smaller government. To achieve smaller government, government itself must stop doing things. In my literature I said I believed in low taxes - to achieve that, government must stop doing things for people. I was asked several times throughout the campaign the usual question: "What will you do for me!" ... to which I replied, "I will work to ensure that you can do as much for yourself as possible ...*"

Gavin Webb, Lib Dem though you might be**, you rock!

* From the comments below the article.

** Isn't he in the wrong party?

H/t Harry Hutton

"Even 40% tax relief looks a bad bargain"

Fine reader's letter in today's FT as follows:

"Sir,

Mary Francis (Letters, April 17) writes that pensions still have a lot to commend them, yet notes that a 60-year-old man with a 55-year-old wife will need a pot of £300,000 to have an index-linked annuity of £7,500 ... The only advantage pensions have over ordinary saving is tax relief. I would rather have £300,000 in the bank, an income of £15,000, and access to the capital and the opportunity for capital growth, thank you.

And if to get that income alone from an annuity I need a £600,000 pot, even 40 per cent tax relief begins to look like a bad bargain. Someone somewhere is making a lot of money from pensions, and it isn't the pensioner.

Simon Cockshutt"

Property taxation - poll results

A big thanks to everybody who voted! The final results are;

73% agreed that "Booms and busts in the property market are bad for the economy".

This is a question of personal opinion rather than absolute fact or logic. There are plenty of people who can benefit by buying low and selling high*; there is a vast majority who have neither bought, sold nor re-mortgaged over the last ten years who are not affected; but for every successful speculator with £1 million in the bank there must be ten people stuck in negative equity with an unaffordable mortgage of £100,000. I think that taking 'the economy' in totality (which is there to serve us, not vice versa), the losses outweigh the gains, so all-in-all, this must be the correct answer.

72% agreed that "If Council Tax, Stamp Duty and Inheritance Tax were replaced with a flat-rate tax on up-to-date property values, this would keep prices low and stable".

This is a question of fact and logic, actually, but of course depends on how the tax is designed. At its simplest, the tax would be (say) 10% of the difference between a) each property's market value at the end of each year and b) its value at the bottom of the next house price crash, so it would only be levied on the speculative/bubble element of property values. As to the 'asset-rich, income-poor' and how properties would be valued, see points 5 and 6.

68% agreed that "I would be happy for property taxes to be increased, provided income tax and VAT were reduced accordingly".

On a static basis, people with high incomes (relative to the value of property they own) and tenants would always benefit from such a shift; whereas landowners, landlords, speculators and the 'asset-rich, income-poor' would be against. For the bulk of people, on an average income in an average home, it wouldn't make much difference.

However on a long-term, dynamic basis, if we reduced income tax and VAT, the economy would be much healthier and grow faster; whereas higher taxes on the speculative/bubble element of property values have little effect or even a beneficial effect on the economy. So each person's opinion depends on their personal circumstances and whether they are thinking short- or long-term.

* And their vast trail of hangers-on; solicitors, banks, valuers, estate agents, and in the down-turn, insolvency practitioners, auctioneers etc.

"Buy-to-let properties to flood market as investors cash in"

The Goblin King & The Badger came up with this CGT wheeze last year to stave off the property price crash, but their Day Of Reckoning has now arrived. As widely predicted.

But who's going to lend people money to buy them? Not Northern Rock, First Direct, Lehman Brothers, London Scottish Bank or various other smaller building societies. And probably not Halifax/HBOS* either.

If anybody knows of any more lenders that have stopped lending, please leave a comment!

* Via Growler at HPC.

Consumption taxes

All politicians, i.e. people who don't understand economics but who are somehow in charge of meddling in the economy, love talking about "shifting taxation from production to consumption"*.

The argument is that taxation of production/income deters income/production (A Good Thing) and taxation of consumption deters consumption (A Bad Thing); hence the stated aim of those who favour consumption taxes must be to deter consumption.

Taking mortgage lenders as an example, there are two methods of deterring consumption (i.e. the taking out of mortgages):

Method 1 is to increase the interest rate on mortgages by half-a-percent (which is what would happen if we made mortgage interest subject to VAT, for example).

Method 2 is for each bank or building society to position a pair of ravenous Bengal tigers outside its branches.

Now, would any politician suggest chaining up ravenous tigers outside every bank, cinema and retail outlet to discourage consumption? How the f*** are the people who work in said banks, cinemas or retail outlets (and their suppliers) supposed to earn a living?

* They're all at it - from the Red Chinese, via the CDU-SDP coalition in Germany and the the Tories all the way to the right wing nutters in the USA.