Fun Online Polls: The North-South divide; Fixed Odds Terminals

The results to last week's Fun Online Poll were as follows:

The UK's North-South divide runs from...

Chester to London - 8%
Bristol to Norwich - 76%
Other, please specify - 16%

A low turnout of 50,even though I was away last week so this Poll ran for a fortnight.

Thanks to everybody who took part or left a comment, but I'm with the majority on this. If you've spent half your life in Oop North and half Darn Sarf, you know the difference.
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And lo, The Righteous are out in force again:

Gambling addict warns against fixed-odds betting terminals

A recovering gambling addict has warned others about the dangers of using fixed-odds betting terminals in bookmakers. The man, who asked to remain anonymous, said he had lost as much as £15,000 in a day at betting shops in Reading town centre.

The government is conducting a review into the machines, which account for more than 50% of bookmakers' profits. The Association of British Bookmakers said a report suggesting the maximum bet should be reduced from £100 to £2 was "flawed".

You can't even begin to pick holes in these claims and counter-claims, they are one giant hole. I'm not going to waste your time or mine by trying to guess what the actual substance is before picking holes in it anyway. The only fun bit is waiting for Philip Davies to spring to the defence of the betting industry for the eight zillionth time.

So that's this week's Fun Online Poll.

What 'should' be the maximum bet on fixed-odd betting terminals?

Vote here or use the widget in the sidebar.

Economic Myths: The European Investment Bank

Former UKIP leader Diane James, in City AM:

... at the same time as demanding that Britain must settle its divorce bill before trade can even be discussed, the EU has decided that the UK must wait decades to have what rightfully belongs to us.

Werner Hoyer, president of the European Investment Bank (EIB), has declared that the UK won’t get back its 16 per cent stake in the bank – worth several billions euros – until 2054.

She then treads the fine line between perpetuating myths and debunking them for a few paragraphs.

Point is, the UK government has lent/invested a large sum of money to/in the EIC; and various UK quasi-governmental bodies have received large loans from the EIB. Two large numbers in equal and opposite directions. Minus one from t'other and you end up with a much smaller number.

The loans which the EIB has made presumably have fairly long-term repayment schedules, so it's not unreasonable for the EIB (going with the fiction that it truly is an independent 'bank') only has to repay the UK's original investment/loan/accumulated profits at a similar speed. The UK government bodies only have to repay their loans to the EIB over decades. Again, in the normal course of events, minus one from t'other and the net annual payment is a much smaller number.

So it would be cleaner and simpler to cut out the middleman and to transfer the UK govenrment's investment in and loans from the EIBs (assets and liabilities) back to the UK government, at which stage the whole lot can be netted off and disappears in a puff of smoke. The UK government can't owe itself money.

There will probably still be a net small balance owed by the EIB to the UK government, which we can just chuck into the mix with all the other amounts which the UK owes the EU (membership fees for the next two years) and which the EU owes the UK (UK's pro rata share of value of EU assets, like all the land and buildings in Brussels and Luxembourg).

If you keep doing this long enough, the balance owed in either direction will be chump change and nobody will care.

Two and a half cheers for the Adam Smith Institute

I'm surprised that Ben Southwood's article made it unredacted into today's City AM:

Some taxes distort the economy far more than others for every pound they raise for the Treasury. By this measure, stamp duty land tax is the country’s worst – and the chancellor should skip reform and go straight to abolition in this year’s Budget.

Not true, VAT is the worst, NIC is the second worst, but hey...

Stamp duty [sic] now funds three times as big a proportion of the state’s budget than it did during the 1980s and early 90s. It is technically voluntary, but if you don’t pay it when you buy a house, the transfer of property deeds won’t be valid.

That is not actually true; SDLT is triggered when there is 'substantial performance' of the contract, actual legal completion is irrelevant.

In 1993, 42 per cent of properties were liable for it. Today, 73 per cent are, and rates have skyrocketed to 12 per cent at the top. We have a housing shortage in the UK. There isn’t enough floor space to go around in the places people most want to live.

There is no overall housing shortage; by definition there will always be a shortage of homes in places people most want to live.

If housing is freely available then making sure each house goes to who values it most is less important, but when you have a scarce supply, allocating homes effectively is vital. But it is in precisely this market that we have repeatedly hiked a tax specifically on transferring homes. 

The real world effect is fewer people moving, meaning more of us living in areas far from our jobs, crammed into tiny boxes, or with spare rooms we don’t need. This causes more stress, more pollution, and lower economic activity overall. It also results in less of the complementary consumption you get when people move house – removal vans, extensions, decoration, and furniture.

Agreed, although the 'complementary consumption' is not really adding to the economy (broken window fallacy).

Stamp duty isn’t the main cause of the housing crisis, nor is scrapping it the main answer. Building more houses in the places that people most want them is obviously the biggest solution.

Not true; demand for homes in the most desirable areas is more of less infinite; build them and they will come; more people = agglomeration benefits = higher prices etc. Areas with the highest densities/largest number of people have the highest rents/prices, just look at a bloody map.

But this tax is making it worse by stopping houses from getting to those who value them most.

Agreed.

This damage totals around 75p for every £1 raised, according to a recent Australian government review, the findings of which echo what I have found across my research. That’s £10bn worth of wider damage to the UK economy on top of the cost to those actually paying the tax.

Not sure how they work that out; £10 bn is less then 1% of GDP, so you wouldn't be able to reliably measure it anyway. But let's accept it as perfectly plausible.

In contrast, income taxes and VAT do only around 20p of damage for every pound they raise...

Looks about right; if you assume an overall average 45% tax rate. So apply his 20p deadweight costs to total revenues from income tax, VAT, NIC and corporation tax of about £450 bn; the losses from those is easily £90 billion; nine times as much as his estimated deadweight costs of SDLT.

... and recurrent property taxes like council tax do almost no damage at all. In my Adam Smith Institute paper out today, I offer Philip Hammond a solution: scrap stamp duty land tax and fix council tax to replace the revenues. This is a tweak that would not cost the Treasury anything at all, but would replace a hugely damaging levy with a much milder one. 

Council tax as it currently stands is regressive and based on outdated values, hitting deprived parts of the country disproportionately by taking no account of the rapid and unbalanced house price changes since 1993. It would be easy to make it more progressive by linking it more coherently to property rental values.

Woah! How did that get past the Homey censors at City AM!?! It's clear that they'd lap up the bit about scrapping SDLT, they must have overlooked the sting in the tail.

That would take from those who have gained the most from the booming housing market, but these owners would be the ones to directly benefit from lower stamp duty when they sold. Essentially, it would lower the cost of moving home, without significantly disadvantaging either homeowners or the Treasury. When surveyed, people typically rank stamp duty as one of their most hated taxes, right up there by inheritance tax.

I'm not sure people hate SDLT that much; it's a one-off hit every couple of decades and you move on with your life. But Inheritance tax is the next most obvious tax to toll into a reformed Council Tax (by which he actually means Land Value Tax, although he daren't say it) or else it is a double charge on valuable homes/land.

The people are not always right, but on this one the chancellor can get a win, win, win: make the electorate happy, rebalance the country, and boost productivity by addressing the housing crisis – all without creating any hole in the Budget.

Except that people appear to hate Council tax most out of all taxes, duly whipped up by the whole Home-Owner-Ist lobby.

The bit he misses is that, yes, removing SDLT would increase the number of housing transactions; with the desired effect that older people/low earners would be more likely to move out of more productive areas allowing younger/more productive people to move there, that's where the estimated £10 billion boost comes in. Making up the revenue shortfall with a reformed Council Tax would easily double the effect, so it is not that it does "almost no damage at all", but actually boosts the economy; it has negative deadweight costs.

How to make attractive cities.

Very good YouTube video that asks the question, what does it take to build a beautiful city? The short answer is balance. The right balance between development and planning regulations that preserve and enhance our shared environment.

As we all know, where there is an optimal balance, there is a laffer curve to measure it. In the case of development, that's best measured as aggregate land rents. see here

So, in order to align the incentives of the state to make sure they produce a framework of laws, rules and regulations that maximises those rents, they should be collected as public revenue to be spent on services or redistributed as a Cititzen's Income.

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.

Tesco accounting fun: A new broom sweeps clean? We've seen it all before.

I've seen this pattern a hundred times before. The recent Tesco saga is a good illustration of the overall pattern:

1. Somebody (Terry Leahy in this example) is in charge for years and years and the business appears to be doing very well.

Guardian, April 2011:

Tesco, Britain's biggest retailer, has reported record profits of £3.8bn – more than £10m a day – but admitted that it needs to do better in its core UK operations. Results for the year to end February, released on Tuesday, showed the bulk of Tesco's 12.3% profit increase came from its growing Asian operations.

Total group sales were £68bn and in Britain sales grew 5.5% to £45bn, with trading profits ahead by 3.8% to £2.5bn. But the performance was not good enough, Tesco's new boss Philip Clarke admitted…

As a matter of fact, Tesco had been resting on the laurels of its super-cheap land acquisitions in the 1990s and early 2000s for far too long. To cut a long story, Tesco makes a lot of money by simply renting out shelf space. The rapid expansion dried up in the late 2000s when land became very expensive again, but of course there was still plenty of existing shelf space to rent out.

2. As we found out later, Tesco had been flattering their profit figures by treating advance payments of rent for shelf space as earned in the year it is received/agreed instead of "spreading" it out over the term of the agreement. This is just a timing thing, if the supplier pays £100 for a five year deal, you can book £100 profit in Year One or you can book £20 a year profit in each of Years One to Five. Given a large number of such transactions, it doesn't really matter which approach you take as long as you are consistent. By Year Five, you would still be booking £100 a year profit, it's neither here nor there whether that represents Year Five receipts of £100 or time apportioned £20 from Year One, £20 from Year Two etc.

The interim new boss didn't have the nerve do the obvious thing and was soon booted out again.

3. The next new boss (Dave Lewis) and his team did have the nerve to do the obvious thing and blew the whistle on their own business, which led to the so called accounting scandal. From the BBC October 2014:

At its simplest it appears that profits were "booked" early - ie moved into the first half of the year. At the same time, expenditure on costs associated with the deals was delayed. Now, this can be done in any number of ways, some of which may have been used by Tesco.

Suppliers pay retailers for promotions that could mean more of their product being sold. Payments can be made for better positions on shelves, for visibility on "plinths" at the end of aisles where customers are more likely to see products, or for two-for-one offers.

One senior figure in the grocery industry said there was evidence across the sector that payments are sometimes taken unilaterally from suppliers. The payments may be disputed later, and a refund or new agreement made later in the second half of the year. By then, the original payment has been taken as revenue...

The clever bit is that past profits were revised downwards with the inevitable result that future profits would be flattered. If you revise earlier accounts using the "spreading method" then reported past profits fall and it is inevitable that the income will simply be recognised in future years instead.

4. Dave Lewis then went for broke and wrote down the value of all the land Tesco had overpaid for in the late 2000s. From The Guardian April 2015:

Tesco has crashed to the biggest loss ever recorded on the UK high street, slumping £6.4bn into the red as a result of huge writedowns on the value of its property portfolio and stock.

Dave Lewis, the chief executive parachuted in to mastermind a turnaround last year, described the loss as a “big significant number”. But the former Unilever executive insisted the supermarket was on the road to recovery after a tough 2014 in which it suffered a £263m accounting scandal and the exit of the former chief executive, Philip Clarke, following slumping sales and profits.

“This patient is okay … Our job is to allow it to be healthier. There is nothing critical about its finances,” he said.

The point being that if you are going to report a large loss, you might as well report a loss of staggering proportions and get it over with. The numbers are so huge that people just remember "big loss" and not quite how big it was.

5. Hey presto, David Lewis can blame everything on their predecessors, portray themselves as honest and contrite businessmen and sit back will all those write downs are quietly written back up again and the "spread" income from earlier years boosts future profits.

From City AM, October 2015:

Tesco has resumed its dividend for the first time in three years, after reporting a 667 per cent increase in pre-tax profit in the first half of the year.

Profit before tax rose to £562m from £71m this time last year. Operating profit was up 67.4 per cent, from £515m to £885m.

6. I don't wish to discredit Dave Lewis who might well be a retail genius, but the only way to find out whether this turnaround is real, is to wait until he retires in a few years' time and see whether his successor does the same thing - revise the last few years' profits downwards, play the honest and contrite businessman etc.

Strange words to use in the context

Via @MisanthropeGirl, from North West Georgia News:

A Floyd County farmer was killed Wednesday morning when a cow he was trying to move knocked him up against a fence, resulting in massive chest trauma. Floyd County Coroner Gene Proctor said Nathan William Parris, 72, of 2056 Cunningham Road was pronounced dead at 11:04 a.m. after reaching the Redmond Regional Medical Center emergency room.

Doesn't "knocked him up" suggest "got him "pregnant"?

"Fifty of 'em"

Says James Higham who spotted this in The Telegraph:

A herd of 50 cows ran riot through suburban streets after escaping from a nearby farm.

The animals stampeded down roads in Trafford, Greater Manchester, to the astonishment of residents...

With great embedded video.

Cognitive dissonance in action

If you want to see cognitive dissonance in action, watch the Conservative party try to develop popular housing policies without contravening its loyalty to developers, landlords or free market fundamentalism. says Matt Wilde in the Guardian.

However, he goes on, in true Guardian fashion, to produce an example of a housing benefit claimant paying an exorbitant rent for a grotty flat as evidence that the rental market has failed and that rent controls are the only answer before trotting out the following (unsupported) untruth.

But (the smallness of the pre-Thatcher rental market) was largely because most people could either afford to buy or had access to council housing, so there simply wasn’t a great demand for private rented properties. That demand had to be artificially created – largely to the benefit of wealthy investors, certainly not in favour of the state or the tenants.

If you want to see cognitive dissonance in action, read The Guardian on anything to do with housing. They are quite capable, as above, of completely ignoring how the housing market actually works, while producing their pet theories as to how it can be made to work better. They completely ignore that the bottom end of the rental market, which is dominated by social housing and housing benefit, works differently to the rest of the market. At the bottom end, as Mr Wilde points out, social housing rents kept private rents low: why pay a lot for a privately rented flat if you can get a council flat for less, but also, as he fails to mention, the positive feedback of housing benefit inflates rents in the private sector ( 1. the level of HB is set by the the average rent demanded -> 2. the average rent demanded is set by what the tenants can afford to pay -> 3. what tenants can afford to pay is set by the level of housing benefit they receive -> back to 1.) If HB was capped at the sort of rents that Generation Rent are suggesting,

The campaign group Generation Rent argues that a living rent should be no higher than 30% of the average income, and propose that controls could be set according to council tax bands. By capping rents at 50% per month of the home’s annual band, they would be brought more in line with people’s earnings.


then landlords would be forced to lower their rents to that level or have empty properties.

That, and more social housing, would sort out the bottom end of the market. As to the rest of it, why should the government intervene to help out relatively wealthy middle class tenants?

Welease Bwian!

From The Daily Mail:

Steel barricades are being erected on the coast today ahead of Storm Brian sweeping into Britain tonight, bringing 70mph winds and more than two inches of rain as the half-term holidays begin.

The wild conditions, caused by a 'weather bomb' over the Atlantic Ocean, are expected to cause widespread travel chaos with the worst weather forecast across southern and western England and West Wales tomorrow.

Defensive barriers have been put up in the Cornish town of Fowey - where Dawn French owns a £5million clifftop mansion - by the Environment Agency on roads most likely to be swamped as Storm Brian arrives.