Fascinating facts: The Diesel engine was originally design to run on vegetable oil.

My learned colleague Rohen explained this to me yesterday, and I recounted the episode of Mythbusters where they filled the tank of an old Mercedes diesel-engined car with off-the-shelf cooking oil and drove it round an airport perimeter until the engine conked out.

Only the engine didn't conk out, it drove perfectly normally all day (until they abandoned the attempt), miles per gallon weren't as good as with mineral oil, but apart from that, nothing unusual to report.

So it turns out that all this research into using vegetable oil as bio-diesel is over a century behind the times, Rudolf Diesel designed his first engine to run on pea-nut oil, which it did without problems.

It is true that vegetable oil is even worse than diesel oil at low temperatures, but that is easily fixed by chucking in some acid or something. Whether it is 'better' to run cars on vegetable oil and leave the mineral oil in the ground is another question, because of e.g. the resulting higher food prices, and I don't know whether it's cheaper manufacturing vegetable oil or extracting mineral oil. But hey.

Regional house price changes from 2004 to 2012

According to the Nationwide, the nominal average/median price of a home in each region has increased/decreased since 2004 as follows:

London +28%
Scotland +26%
Outer Metropolitan +15%
South East +8%
South West +7%
East Anglia +5%
Yorks & Humberside +1%
N Ireland +/-0%
West Midlands -1%
East Midlands -1%
Wales -4%
North West -4%
North -5%

Scotland is a real outlier, not because houses are expensive there now (it's fourth from the bottom) but because their average price was lowest of all the regions in 2004.

Feel free to knock off RPI or CPI inflation from those figures, which would make them all negative except possibly London and Scotland.

Killer Arguments Against LVT, Not (235)

One of the supposed practical objections to replacing taxes on earned income with LVT is valuations, the army of surveyors, endless appeals etc.

There are at least three 'secret weapons' which will sort all most of this out without a shot ever being fired in anger:

1. Banding

Try looking up your car tax; it depends on when the car was first registered, engine size or CO2 emissions, whether it uses alternative fuel and various other bells and whistles. I do not agree that any of this is a suitable subject for taxation (as opposed to fuel duty or parking charges) but nonetheless, somehow we manage to arrange thirty million privately owned cars into one of dozens of bands and you pay your tax because it's the law (as stupid as it might be). You can't go and whine that the rental value of your brand new 4x4 is less than £1,050 a year because that £1,050 is just a number on a bit of paper.

It's not rocket science to do some computerised valuations based on millions of actual data points (selling prices minus approx. bricks and mortar cost and/or rents demanded) and slot twenty-seven million homes/residential plots into 26 bands (A to Z), each of which is about twenty per cent wide (i.e. the rental value at the top of each band is about twenty per cent higher than at the bottom of that band). Rather conveniently, this gives us a factor of one hundred between homes at the bottom of Band Z (the top 0.04% of homes) compared to those at the bottom of Band A (the bottom 0.07%), which is much the same relationship as there used to be for Domestic Rates.

2. The Citizen's Dividend/LVT credits

Let's also assume we replaced the entire welfare system and the basic state pension with a flat rate CD, of about £70/week for adults, half as much for each of the first three children and twice as much for pensioners.

This will be non-taxable and non-means tested etc, but not entirely unconditional (you'll have to tell them your main address, for example) and will be first offset against each household's LVT bill before any excess is paid out.

So each household receives one single form each year (or every time they move) stating what the LVT bill for that home is and asked to fill in details of how many people live there (easily cross referenced to the electoral roll, NI records, bank accounts for adults; and child benefit payments, GP registrations, school attended for children), which reduces their LVT bill accordingly (or leads to a net refund).

3. A subsequent purchaser is paying the correct amounts

I can see how current owners will cry foul, you're changing the rules halfway through the game etc, but this does not apply to people who buy a home once LVT is in place. The price they pay will be adjusted down (or up) to take into account the tax bill, and so the price will be 'correct' bearing in mind the net tax bill, and hence the net tax bill will be 'correct' bearing in mind the price paid for the house. This applies to down-sizers as well as first time buyers. That's free market economics for you!
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So let's imagine we are halfway there (monstrosities like VAT and National Insurance having been abolished, as well as Council Tax, SDLT, IHT and so on) and are collecting equal amounts in Domestic Rates and a flat income/corporation tax. This works out at about 4.2% of the current selling price of each home (minus a bricks and mortar allowance of £50,000) and 21% flat income/corporation tax.

i. Each household is paying a slightly arbitrary figure in LVT and receiving a slightly arbitrary amount in CD. Of course this is all slightly arbitrary, we're talking about a tax/welfare system which has to accommodate 62 million people in 26 million different households.

ii. The fact is, even at this level of LVT (and assuming no down-sizing etc), fewer than 6 million UK households out of 26 million will be net LVT payers, and the total net LVT collected from them (i.e. LVT minus LVT credits) will be about £73 billion.

iii. Now, some people will not be happy with the banding system and will descend on the Town Hall bearing armfuls of comparatives to support their contention that the rental value of the plot (i.e. the rental value of the house minus maintenance and running costs) is lower than the slightly arbitrary figure stated.

ix. For sure there will be such houses, in which case we abandon the arbitrary netting off of two slightly arbitrary figures and agree a more specific and precise figure, but by the same token, such refuseniks can whistle for their equally arbitrary LVT credits ("Don't pay, don't get" is my motto).

x. So let's take a single working age adult rattling around in a band K home, just about into the top ten per cent of homes with a gross LVT bill of £11,000*, he gets his LVT credit of £3,500 deducted and his net bill is £7,500. It's up to him to show that the net rental value of his plot (after deducting costs, maintenance, depreciation, letting agents fees etc - bank interest is not a cost, it is a profit-share between the BTL landlord and the bank) is less than £7,500 a year, which will be just about nigh impossible (the current gross rental value of such homes is more like £12,000 to £15,000 a year).

xi. Maybe the bloke at the town hall is in a good mood and he cheerfully agrees a rental value of £6,500 a year, so what? That's then binding on both parties (but not on future purchasers) and goes on the public record, I am quite sure that somebody somewhere will be able to check whether a brown paper envelope full of cash might have changed hands. Potential tenants will also use this as evidence to support lower rents so local letting agents and landlords (who know best about this sort of thing) will be more than keen to argue rental values up again.

xi. Unlike most people, I used to be a BTL landlord and I am now a tenant and I know for a fact that the actual running costs are bugger all, probably about a fifth of the gross rent collected over the longer term, the rest is pure profit i.e. land rent.

* Bayard challenged this figure in the comments. I replied that an easy way to work this out is to compare the annual rent for a bog-standard 3-bed semi-detached or terraced house in the area under consideration with the annual rent for a similar bog-standard 3-bed semi-detached or terraced house in a marginal location, i.e. pretty near the bottom.

I checked on Zoopla, and the rent for such a house in the postcode district at the top of the lowest decile is about £500 a month (of which only a small part is land rent) and the rent for such a house at the bottom of the top decile is about £1,300 a month, so that means that the land rent element of his house, under current rules, is at least £9,600 a year. Once VAT, NIC and higher rate tax are phased out, not to mention Council Tax or CGT, this differential will easily widen to £11,000.

Why stopping smoking probably won't make you better off.

From the BBC:

Maureen Talbot, senior cardiac nurse at the British Heart Foundation, said: "Stopping smoking is the single best thing you can do for your own health as well as those you love and live with. Quitting also makes you look better by improving your skin and teeth and, of course, it helps your finances too."

No it doesn't, by and large, not stopping smoking helps our finances...

1. Cigarettes and tobacco are in fact quite cheap, maybe 50p for a packet of twenty, the rest of the price is tobacco duty, VAT and other taxes. So if we all stopped smoking, the government deficit would increase by £20 billion, or they would put up taxes by £20 billion.

2. I smoke, and it annoys me how expensive tobacco is, but with my economist's hat on, I think that tobacco duty is quite a good tax, for why see here.

3. In the long term, everybody quitting smoking would be twice as expensive as that because ex-smokers would be claiming an extra ten years' worth of old age pension and healthcare (the amount of money the NHS spends on an average pensioner is approx. as much again as the basic state pension), but let's put that to one side.

4. When the the government puts up other taxes by £20 billion to make up the shortfall, it will put up the worst kind of taxes (VAT or NIC - because they're not really tax, are they?) and because of Laffer effects and so on, the losses would be considerable.

5. Tobacco duty is a straight transfer from smokers to non-smokers. I smoke, but my wife and children don't, so while I'm overpaying tax, they are underpaying, so asa household, we break even. This calculation is not so favourable for a household where everybody smokes, of course.

Killer Arguments Against LVT, Not (Guest edition)

James Overseas, over at The Guardian gives short shrift to ten fairly bog-standard KLNs as submitted by some numpty or other:

OK Mark, I'll bite:

1. Poor Widows In Mansions will be forced onto the streets

Probably not onto the street, but in principle, yes they would need to sell and move to property that attracts a lower tax - either out of prime areas or just smaller - 1 person living in an 8 bed house is highly inefficient and means that young families have to bring up children in cramped conditions. If it was ever implemented though, I'd expect there to be exceptions / rebates for the very old.

2. Farmers will go bankrupt and we'll starve

No, the land value of farmland is very low and wouldn't attract much tax.

3. Developers will snap up farmland and concrete over the countryside

No. LVT is not incompatible with having zoning laws - you can still have greenbelt restrictions. The difference is though, that when land is rezoned the value goes to the State rather than the owner - something that will reduce corruption.

4. It would push down house prices and destroy all this country's wealth and capital

Yes it will push down house prices, but that's a good thing. House prices are making the UK globally uncompetitive - you can't pay your workers less than they need to feed and house themselves.

5. The army of a million surveyors and snoopers and faceless bureaucrats doing the valuations

Yes, it will require valuations, but since it is the land being valued, rather than the property, less than for the current system of council tax. A bad tax that taxes residency - something that can be fiddled.

6. Wot? Yet more taxes on top of our existing tax burden?

No, instead of your current tax burden. Income Tax, Other Capital Gains Tax and Corporate Tax could all be reduced.

7. Value is highly subjective and impossible to establish outside the mind of the individual (no, seriously, I have seen that advanced as an argument)

Value is easy to measure. It's the market price minus the cost of construction - that's the value of the land.

8. Land owners are not taking anything away from anybody, they just want a little patch and to be left in peace. Why should they pay for that?

The State requires funding. The question is why do we take the funding from those who work, and those who risk, but we don't take any of the money your house is "earning" you.

9. I've paid for my land! Why should I pay rent on my own land?

As 8. Though it's worth noting that you've paid for the Freehold, it's the Crown that owns the land.

10. You Commies want to nationalise everything, if you take away our land then you take away everything from us.

I'm not a Commie, I'm a Liberal - which means economically (American readers please note), I tend towards the free market.

Today we have a terrible situation that is killing society. If you don't inherit a house, you can be in the top 10% of earners in the country, yet because the tax burden falls on income, you will have so much money taken off you that you will never be in a position to own your own home. You will pay for everything society needs, but you will never benefit from it.

Killer Arguments Against LVT, Not (234)

Jim (who I believe also calls himself 'Sobers') trotted out one of his favourite KLN's at the IEA blog: "So unless you free planning up to such an extent that you can build pretty much whatever you like where you like, then LVT will always predominantly be a tax on planning permission, not the locational value" which Traktion picked up on at the HPC Forum, comment #15:

I have other criticisms of a LVT, but this is an angle which I'd not thought of: The land value will totally depend on whether there is planning permission on it. It would also depend on what type of planning permission has been given (1 floor bungalow, 100 floor block, factory space etc).

Therefore, it isn't only a tax on location (which is in itself flawed*), but also a tax on usage. As said usage is defined by the council/state, they will inevitably have a big impact on the market value of the location...

I'd be interested in hearing some discussion about the above, as I've never previously read/heard this (very good) point raised here.

* If your actions improve the value of the land, you will be lining yourself up for paying more tax. If you build a big office that attracts people to live near it, the LVT will increase for the [office block], as the surrounding land gains a premium (by virtue of being close to the office). It isn't true that only public services increase the LVT potential at all (as was suggested in the linked article).

I'm bloody sure I've explained this before, but anyway: LVT is a tax on the net rental value of land assuming optimum permitted use, i.e. a tax on the best kind of building you can build on that site (within legal and practical constraints) minus the actual cost of providing and maintaining the building (or whatever structure is best).

So if planning laws are restrictive, LVT works just fine, because the lucky ones who get planning pay the tax and those who are prevented from putting their land to its optimum use pay little or nothing.

Towns and cities only expand so far, even in the complete absence of planning laws. So whether that outer limit is set by the markets, by natural features (such as a cliff, a marsh etc) or by the stroke of a bureacrat's pen (i.e. lobbying by insiders) across a map makes no difference. If you own land on the right side of the line, you are quids in and pay LVT accordingly, if you own it on the wrong side of the line, you get nothing and pay nothing.

And if planning laws are very liberal to non-existent, LVT works just fine (neither Jim/Sobers nor Traktion disputed that). And if planning laws are somewhere-in-between the two extremes (i.e. zoning type laws, which is what any sensible person would favour), LVT works fine.

* His footnote betrays a grave misunderstanding. The idea is that the benefit of land value uplifts will be shared around, as equally as possible instead of being creamed off by a random group of insiders. Furthermore, people will keep all the reward from their own productive work or activity (no taxes on that any more). It must be pretty obvious that on the whole, most people and businesses will be better off; what we have now is like being forced to play the Lottery and allowing Camelot to decide the winning numbers ("Oh look! My lucky numbers have come up again!")

Remember: an owner-occupier business plays two quite separate rôles - they are a landowner and they run a business - and it's easiest if we just divorce these two rôles completely.

Let's take an example to illustrate this: some reasonably benevolent multi-national manufacturer is looking for somewhere in Europe or the UK to site his super new factory, which will bring with it 1,000s of jobs. He might say to a local council in a high-unemployment area, "I like your location, and I like the fact you have no VAT, corporation tax or income tax and everything, but I don't want to go to all the trouble of building a factory if you are just going to f- me over in future by bumping up my LVT."

To which the council replies, "Not a problem. Give us your specifications and we'll find the land and build the factory for you, those big metal sheds only cost a couple of million quid, you can just rent it from us (for an LVT-inclusive price) with no risk to you that we tax away your investment."

Lo and behold, the manufacturer signs a long-term tenancy agreement. The factory is a success, more jobs means more schools, more housing, more local night-life, shops, other businesses open up providing yet more jobs and everything until local land values, including the rental value of the factory site itself, increase.

When the tenancy is up for renewal, the corporation and the council have each other over a barrel: the manufacturer has sunk a lot of money into installing all his equipment and training up a good local workforce; but he still has a reasonably credible threat that he will shut everything down and up sticks to somewhere else offering him a juicy relocation grant. The council can, in the short term, demand whatever higher rent it likes; but would be fearful of the manufacturer then shutting down this cornerstone of local employment and wealth.

So by and large, the new rent they agree will be 'about right', it really doesn't matter too much. The manufacturer can get on with manufacturing stuff and all the workers and local businesses will be paying their normal LVT. The multi-national gets to keep every penny of the value he added and gains (or loses) nothing from any changes in the rental value. For sure, he will probably negotiate a below-market rent as long as he is the biggest employer in the area, but he cannot speculate on or sell this privilege. It is conditional on him continuing to provide employment opportunities, he can't cash in by sub-letting or anything etc.

They own land! Give them money!

From page 4 of today's City AM:

Under existing rules builders are required to designate a set percentage of every development either for housing associations or available at a reduced price. The coalition says this requirement can be too onerous and will allow developers an opt-out if they can prove that it economically unviable to develop a site.

It is nearly always 'economically viable' to build a house. The developer buys £30,000's worth of concrete, timber and bricks etc and sells the finished house for £80,000-plus. That £50,000 is the normal earned income of the develoepr, architect, bricklayer, carpenter etc. Anything above that is pure, unearned profit, i.e. land value.

Rather bizarrely, on page 24 of the same edition, they explain all this (without suggesting the obvious solution):

Firstly, house prices are nothing to do with [construction] costs. They’re actually about land values. Rising house prices are not bricks and mortar turning to gold, but represent the rising value of land with residential planning permission. In Oxford, a hectare of land for agricultural purposes costs £20,000 compared to £4m for residential use...

As the planning system won’t release enough land over the long term, developers feel protected from land prices falling. This is why the £10bn in loan guarantees for developers building new homes, announced by the government yesterday, showed a disastrous misunderstanding of the system. They mean that, if land prices rise, the developer wins anyway. But, if prices fall, the taxpayer is liable. Not sensible.

Developers complain that there isn’t enough mortgage finance. But what they really mean is that there isn’t enough mortgage finance available to prop up existing land prices.

"Minimum alcohol price could prolong 5,000 lonely, miserable lives a year"

From The Guardian:

The figure 1.4 million has been plucked out of the air as a wild over-estimate of the number of people over 65 are 'believed' to be tip-toeing slightly faster towards the grave by drinking ever so slightly more than the professional meddlers' completely made-up daily limits.

The number of over-65s admitted to hospital in England has risen by 62% in five years and more pensioners than 16- to 24-year-olds are kept in because of alcohol-related injuries and illnesses. That's probably because very few 16- to 24-year olds are admitted for treatment, which is why we aren't giving you the absolute numbers, but let's just stick to the shock-horror claim.

Statisticians from Sheffield University calculated that if ministers set the minimum unit price at 50p, there would be nearly 50,000 more lonely, miserable pensioners in England 10 years' time...

A spokesman for Alcohol Concern, the charity representing alcohol services, said life-changing events such as retirement or bereavement could prompt older people to finally cast of the strictures imposed by work or a nagging spouse. Although the media often focus on excessive drinking by young people, the problem affects all age groups, it said. While over-65s generally drink less overall than other groups, they are more likely to drink constantly.

"The trouble with problem drinking among older people is that it remains hidden," said Eric Appleby, the group's chief executive. "Most often, it's something that goes on quietly in the home without disturbing anyone. That's why it's so important that professionals who come into contact with older people are well-trained in recognising the signs of problem drinking.

"You could ask why we are sticking our noses in to something which quite clearly isn't a problem for anybody else. But that's just what we do."

Eight Ace has moved to Essex

From The Daily Mail:

And neighbours have now told how they were woken in the middle of the night by a loud commotion between the celebrity couple as the 37-year-old cage fighter attempted to force his way into the property.

One told the Daily Star: "I could hear a man shouting and when I looked out I saw Alex Reid. He was screaming, 'Let me in, f***ing let me in.’ Other people living in the street must have woken up because I saw a few lights go on."

Even funnier of course is the married man hammering on the door at one in the morning, screaming through the letter box "Let me in! My key won't work! Why have you changed the f***ing locks? And what's with the new carpets? How much of my money did you waste on those you f***ing bitch? When did you have the place redecorated... oh sorry, wrong house."

Rubbish Statistics

An infographic in an article in yesterday's Metro presents the following 'facts':

1. The average waste per person in England has fallen... to 263 kg per person per year in 2010/11.

2. During 2010, regulated waste facilities in England and Wales managed nearly 140m tonnes of waste

OK, glossing over the England-England & Wales-UK distinction:

From 1, 263 kg x 62 million people = 16 million tonnes of waste. So where do the other 124 million tonnes come from to get to the 140 million tonnes in 2?

As a reality check, we have our black dustbin emptied fortnightly with about 50 kg of rubbish in it each time, there are four of us, so that makes 312 kg each.

3. More than 40% of household waste was recycled in England in 2010/11. 50% of local authority collected waste was sent to landfill in 2010/11.

As well as the black bin, we generate probably about twice as much in recycling stuff (mainly newspapers, but also cans, bottles and plastic). So the 263 kg seems very much on the low side, and I'd guess we 'recycle' two-thirds of our waste by weight, considerably more than the 40% figure mentioned in 3. In reality, we do no such thing as recycling of course, we just separate it out nicely, which is futile as our local council does 'co-mingling', but hey, whether it really gets recycled later on, I do not know.

312 kg x 3 = 1 tonne each, times 62 million people gets us to 62 million tonnes a year, I suppose it's possible that there's as much again in industrial waste and from earthworks and construction, which might get us to the 140 million tonnes. But it's not like rocks, bricks, wood, sand and soil are in any way dangerous or harmful, you just chuck them back whence they came.

5. Every minute, 1m plastic bags are used

1 million x 60 x 24 x 365.25 = 526 billion, divide that by 62 million people means eight thousand plastic bags a year, two dozen a day, which is clearly nonsense. Maybe they mean for the entire world, which would be one-and-a-half each per week, which is perfectly plausible, probably on the low side though.

6. It takes 1,000 years for one plastic bad to completely degrade

That's quite simply not true, depending on how you define 'completely'. Or else, where are these umpteen quadzillions of plastic bags we've used over the past fifty years? Largely rotted away, that's where.

7. Each year, we generate 290m tonnes of waste

So is it 290 million or 140 million (from 2)?

8. About 2bn steel cans are recycled in Britain each year.

2,000 million cans ÷ 62 million people = 32 each per year, seems very much on the low side, but not completely unreasonable.

And so on - if the figures they quote completely contradict each other and you have to compare and contrast and do reality checks on each one, then this completely defeats the point of the exercise. I would assume that some of their figures are correct (a painted clock is right twice a day), but which ones?