Sunday 31 January 2010

More one-sided economics

Tim W referred to this article recently, summarising thusly:

The whole paper is [interesting] actually as it’s an empirical study of who really does bear the burden [of corporation tax]... The (lefty) Nobel Laureate [Joe Stiglitz] says that it is at least possible that the corporate income tax diminishes the workers’ wages by more than the revenue raised. Something which, if true (and the references to that paper allow a lot more investigation), means that the corporate income tax is not progressive. It is actually regressive and thus we’d do well to abolish it really.

I left the following comment:

There’s an equal and opposite argument to say that as workers work for their net wages, that their entire income tax and National Insurance burden is borne by the employer.

So putting the two arguments (each of which only looks at half the equation) together, workers pay the shareholders’ corporation tax and VAT; and shareholders pay the workers’ income tax and National Insurance.

This is clearly nonsense.

As corporates are merely collections of indidivuals, and workers and customers are also all individuals, the commonsense and overriding rule must be that the entire tax burden (corporate or personal) is borne by individuals [whether as workers, shareholders or customers]; quite who suffers from the incidence of any particular specific tax is nigh impossible to say.

The only reasonable comparison you can make is by how much any particular tax reduces economic activity, or makes an activity (which would be viable in the absence of taxes) unviable.

There is a further theory, which looks at all sides of the equation, and concludes that in all probability, all taxes come out of rents (in the old-fashioned sense of the word, i.e. ground rent - I don't mean 'rents' as in quangos and bureaucrats siphoning off tax money for their own nefarious ends, these 'rents' clearly come out of taxes, natch).

According to the theory, while cutting taxes on income is in and of itself A Good Thing, if you do it, all that happens is that rents and property prices go up to soak up that extra income so our productive worker or entrepreneur doesn't actually end up much better off; he'd have made just as much profit by buying land and property before the tax cuts are anticipated at their old depressed prices and then cashing in on the higher future rents he can collect from workers and entrepreneurs who failed to 'get on the property ladder' in time. But that's a bit more advanced.

Saturday 30 January 2010

Looking at both sides of the equation. And still coming to the wrong conclusion.

The BNP have laid into UKIP's welfare policy.

On means testing, this:

Under the heading ‘Benefit Fraud, Error and Administration’, the UKIP paper states that it “proposes to replace a myriad of complicated means-tested benefits with straightforward universal benefits, the running cost of the entire welfare and pensions systems will be no more than £1.7bn, giving a saving to the taxpayer of £8bn.”

Mr Barnes pointed out that this was the “exact opposite of what is required. All universal benefits should be scrapped and all benefits means tested. Furthermore, these figures are nonsense. The billions paid out every year to those in jobs and earning high wages in universal benefits is a disgrace (1). Prince Charles was entitled to claim universal benefits for William and Harry, therefore such a system is farcical (2)”.

On the contributory principle, this:

The UKIP paper states that it would “only allow entitlement to welfare benefits after a minimum waiting period of ten years and on obtaining British citizenship for those who originally entered the country with a valid work permit or for reasons of marriage to a British citizen. Anyone who had entered the country under any other circumstances would not qualify.”

Mr Barnes dismissed this as typical fake Tory doublespeak. “Only those who were born here and have paid in all their lives should get paid out,” Mr Barnes said.

I understand the knee-jerk idea that benefits should be means-tested (to reduce the cost to the taxpayer) and the knee-jerk idea that if you've paid more in, you get more out (these prejudices are prevalent across the political spectrum), but actually, the two ideas cancel each other out:

Consider two workers who are made redundant, through no fault of their own. Mr A has worked in the factory for twenty years, moved up the career ladder a bit, was earning a decent wage and has all but paid off his mortgage and built up some modest savings in the bank. Mr B has only worked there for one year as his first ever job and was earning a very modest wage, barely enough to cover his living costs.

The means-testing principle says that as Mr A has some assets to fall back on, Mr A should get less than Mr B.

The contributory principle says that as Mr A has been paying tax for twenty years, Mr A should get more than Mr B.

So which one is it to be? As a simplification campaigner and libertarian, it seems to me to make most sense to pay them both the same amount of welfare, which leads me to the inescapable conclusion that the best way forward is flat-rate, non-contributory, non-means-tested and hence universal benefits.

(1) No it's not a disgrace. You have to remember that universal welfare payments = tax refunds. So a paying out a flat-rate child benefit to people on high incomes is similar to giving them an extra tax-free personal allowance for each child, only simpler - they will still be paying vastly more in tax than they receive in benefits. Similarly, if we went with the BNP's suggested personal allowance of £15,000 (not without its merits, but I'd like to see their costings) then that would save everybody earning more than that about £3,000 a year in tax, whether they are postmen or Premiership footballers.

(2) Why shouldn't people like Prince Charles be able to claim a couple of thousand a year in Child Benefit? It is far more important to remember that Prince Charles, as a large landowner, also receives about half a million quid a year in agricultural subsidies; those are the subsidies we ought to scrap first before we worry about a few thousand quid in Child Benefit.

Friday 29 January 2010

Friday night gear change

Suzi Quatro's "Can the can"*, during the token "quiet moody bit" in the middle. A semi-tone up at 2 mins 19 and another semi-tone up at 2 mins 31 seconds:

* OK, this one was written by Chinn-Chapman, who are also guilty of the gearchanges in "Coconuts" by The Sweet and "Some girls" by Racey, which I have featured earlier in the series.

Yeah, but what about the borrowers' obligations..?

Just to illustrate that Home-Owner-Ism* is rife across the political spectrum, The Daily Mirror plays the "greedy mortgage lenders" card...

Struggling homebuyers are to be given extra protection from greedy mortgage lenders. City watchdogs want to stop banks slapping unfair penalty fees on those who fall behind with repayments. The Financial Services Authority also aims to do more to remove rogue advisers from the industry. It says a clampdown will lessen the misery of repossessions and cut fraud.

There are nearly 400,000 buyers with mortgage arrears, according to the FSA. Its investigation found some lenders imposing penalty fees of up to £50 a month even when borrowers had struck a deal to repay what they owe.

The FSA wants to outlaw this and stop lenders imposing interest on penalty fees and early-repayment charges. Banks will also be obliged to check if customers could benefit from any Government schemes aimed at helping buyers...

Fsa mortgages director Lesley Titcomb said: "Lenders need to be in no doubt of their obligations to customers who fall behind with payments and must realise that such circumstances are not an opportunity to create further profits."

* Disclaimer - not all homeowners are Home-Owner-Ists. That particular term of abuse is reserved for the NIMBYs; the people who prefer taxing wealth creation than taxing property values; and in this instance, those who think that as soon as your name is down at HM Land Registry who achieve an exalted status and deserve special treatment. Would anybody in their right minds demand that banks subsidise tenants who get behind on their rent?

Being accused of having said things I never said

DBC Reed left a comment on Are central bankers really this stupid..?:

As I have said: your views that bankers are middlemen and are unjustly maligned is so unusual that you really need to adduce some evidence, quotations from other people, books and standard works of reference to back them. That is to satisfy the normal terms of written debate or academic discourse.

I never said they were unjustly maligned, they deserve all the kicking that they can get IHMO, but whichever way you look at it, they are middlemen between borrowers on one side; and depositors, bondholders and shareholders on the other (the precise distinction being a legal rather than an economic matter). The bank's net assets/shareholders' capital as a percentage of total assets/total liabilities is absolutely tiny - I believe that DBC himself mentioned the figure of three per cent, which sounds about right.

There is little point quoting people, banking is a very mechanical thing, let's understand the mechanics before we worry about polemics, or what the 'solution' might be, if any exists.

It is quite clear how everybody but you is using the term reserves as in the quote from The Times: they clearly mean bank money not loaned out or possibly on quick call (Libor money).

OK, we hereby agree to use common parlance - "reserves" now refers to liquid assets, that's fine.

"In the course of issuing money the commercial banks actually create it by expanding their deposits,but they are not not at liberty to create money all they may wish, whenever they wish, for the total is limited by the volume of bank reserves and by the prevailing ratio between these reserves and bank deposits - a ratio that is set by law, regulation or custom."

Yes, I agree with that statement and have said so myself often enough*, although the more modern approach (which I loosely refer to as Basel capital ratios) is to look at the ratio between shareholders funds and total deposits.

Kitty Ussher then at the Treasury: "By far the largest role in creating money is played by the banking system itself... When banks make loans they at the same time create a new deposit.."

That is saying the same thing, and again, I agree. However, once the dust has settled, the bank ends up with an asset (the loan to the borrower) and a liability (the new deposit it has created), and henceforth, it is a middleman between the two parties.

Remember that pecunia non olet: once the loan and deposit have been created, what happens after that is exactly the same as what would happen were the system to work the other way round, i.e. the bank waits patiently until people make deposits and keeps putting the cash received into "reserves" (as defined above) until it has enough to make a new loan.

Of all the money I have in bank accounts, it is impossible to tell which of it is my hard-earned net salary, and which of it is the easy money I made from selling flats and houses or my capital gains. The bank simply does not care, and the person who ultimately borrows the money will never find out, it all gets mixed up.

Even in a non-technical way, bankers are primarily middlemen in creating credit and asset price bubbles - they prey on the gullible who think that house prices or share prices can only go up by lending them money; and the more cynical people exchange what they think are overvalued houses or shares into a deposit at the bank (but not that cynical that they don't even trust banks!). The fact that the new loans and new deposits are created more-or-less out of thin air is a separate topic - the bank (i.e. the shareholders as a body) still only own three percent of the whole shooting match.

You could also argue that politicians, Home-Owner-Ists, estate agents and property pornstars like Phil & Kirsty are only middlemen in creating bubbles - they do not in themselves buy and sell every single house, but they con people into thinking that house prices can only go up - this makes them just as deserving of a good kicking as the banks are.

* See for example here: "The point is that building bank reserves [i.e. giving them more capital, the accounting meaning of the word 'reserves'] will not increase the bank’s capacity to lend. Loans create deposits which generate reserves."

Thursday 28 January 2010

NOW That's what I call commitment!

Apparently the Algerian football team lost 0-4 to the Egyptian team this evening, yada yada, but what impresses me is that three of the Algerian players were sent off.

If you're going to go down, you might as well go down fighting!

Mum Of The Week

Elaine Carmody tells it like it is...
"I think it's stupid really not being allowed in the supermarket with pyjamas on. It's not as if they're going to fall down or anything like that."

As Churchill once said, it makes you proud to be British.

UKIP's Pension Reform Proposals

Trusty Statcounter tells me it's time to highlight a new policy in the sidebar, so this week, let's have a look at UKIP's pension proposals. The full pdf document is here (worth a read if you are interested); and the summary (lifted straight from the website) is as follows:

* To end discriminatory and over complex means testing on pensions, UKIP would roll all existing State pensions, Pensions Credit, the Winter Fuel Allowance into a flat-rate non-means tested, non-contributory and non-taxable “Citizen’s Pension” of £130 per week for all pensioners aged 65 and over.

* In order to better target the value of the tax reliefs for pension contributions on low and average earners, to reduce the annual limit for tax-relievable pension contributions to £10,000 gross from £235,000 now and reinstating the dividend tax credit at 20%.

* To allow more flexibility in the use of the final value of a pension fund.

* To scrap the statutory Pension Protection Fund and the National Pensions Savings Scheme as they are costly and counter-productive, and encourage industry wide funds to reduce administration costs.

* To bring the generosity of unfunded public sector final salary pensions back into line with typical pension provision in the private sector to avoid potential liabilities of £1,000 billion.

* To leave the EU to avoid massive liabilities in supporting unfunded EU pensions that would wreck the UK economy (UK has c.74% of GDP invested in pensions, Germany just 5.8%, France 5.6%, Italy 3%).

They've been doing overtime in The Department of Fakestatistics

From The Daily Mail (where the crowd is lapping it up of course):

Children as young as 11 are drinking the equivalent of 15 shots of vodka a week. An NHS survey of children between 11 and 15 last year found that one in six - an estimated 550,000 - said they had drunk alcohol in the previous week. Their average consumption was 14.6 units - equal to a pint of beer a day.

Had they done a survey on children between 7 and 15, then no doubt they would have found that only one-in-twelve had drunk alcohol, but the article would have started with "Children as young as 7..." Presumably they mean that the one-in-six who drink drink a pint a day; surely that's not the average for all 11-15 year olds?

...Almost as many girls as boys admitted drinking.

They could have said "Boys hardly drink more than girls", couldn't they?

The survey by the NHS Information Centre found that children are much more likely to drink if there is another drinker in their family. Only five per cent of youngsters in teetotal households ever touch alcohol, compared to 31 per cent in households where three or more people drink.

Well duh.

Around half of all pupils said their parents would not mind them drinking as long as they did not have too much.

That's the whole point, isn't it, the concept of "too much" which is by definition usually A Bad Thing.

The survey, which questioned pupils in 263 secondary schools across England, also found small falls in drug-taking and smoking. Eight per cent of pupils said they had taken drugs in the previous month while six per cent were smokers.

Junior spies.

Are central bankers really this stupid or was he just badly reported?

From The Times:

Everyone needs a guru, even the Governor of the Bank of England. When Mervyn King mentioned him by name three times during evidence on the future of Britain's banking sector, MPs were left scratching their heads over the identity of a little-known American economist who, it appears, has been bending the Governor's ear. The owlish Mr King, it emerges, has become a keen advocate of the radical ideas of Laurence Kotlikoff, an American professor of economics at Boston University...

The Harvard-educated economist wants to ban banks from lending money that is not matched in cash reserves (1). He also wants the banking regulator to approve every single mortgage sold (2) and to force banks to turn their vastly lucrative investment arms into separate consultancies.

Modern bankers keep only small amounts, relative to the loans they make, in reserve in case of crisis (3). Under Professor Kotlikoff's plans, which he calls Limited Purpose Banking, banks would be turned into mutual funds that would take no risk and lend out only what they had taken in deposits from savers (4).

1) Cretinous comment. Let's imagine that a new bank starts on Day One with £1 million in coins and notes in its safe - the minute you take some money out of the safe and lend it to a borrower then it can no longer be matched by cash reserves! Unless he means that a bank can only lend out half of its total cash, which would be hyper-cautious, to which see 3)a).

2) Yeah right. In the UK, but especially in the USA, politicians were putting pressure on banks to approve all sorts of sub-prime or self-certified mortgage loans - politicians like rising house prices to keep the Home-Owner-Ists* happy - so sticking in another layer of regulators, accountable to the self-same politicians, will either make no difference or just lead to the whole system grinding to a halt.

3) Anybody who uses the word "reserve" is usually waffling and probably a moron. There is a mismatch between common parlance and the technical accounting term - it can mean two entirely opposite things:

a) If you are referring to the "assets" side, it means stuff which highly liquid, nigh 100% safe and which can't fluctuate in sterling terms - in other words, coins and notes in a safe; balances with the Bank of England; and short term UK government bonds.

b) If you are referring to the "financed by" side, it means shareholders' funds generally, i.e. non-repayable liabilities. These are not assets.

To explain the misunderstanding, in terms of a typical household, your house is an asset and your mortgage is a liability (the words have the same meaning in common parlance and in accounting).

However, if the household also has a couple of thousand quid tucked away in a rainy day account, the common man sees these as "reserves" but in accounting terms the rainy day money is also included as "assets" (albeit current rather than fixed). Conversely, in common parlance, the value of your house minus the outstanding mortgage is called "equity" but in accounting terms, it is analogous to "reserves".

As it happens, a higher ratio of either type of "reserve" compared to the balance sheet total will lead to "safer" banking, but the question is "safe for whom?". More highly liquid safe assets makes the bank safer for depositors and shareholders; a higher amount of shareholders' funds means it's safer for depositors, but not safer for shareholders, as they have more of their own capital at risk).

4) Yup. The good old-fashioned building society model. Firstly, even a well-run and cautious building society can and does create matching loans and deposits out of thin air, as I explained for the umpteenth time yesterday**; and secondly, a building society can and does fail as well if it makes reckless loans on overvalued properties, see e.g. Dunfermline BS. The depositors in a building society bear exactly the same total risk as do shareholders and bondholders in a bank.

The main reason why building societies were seen as "safe" and why they have become riskier is because from the 1980s onwards, they were allowed to issue bonds, borrow on the money markets etc - so it's a purely behavioural thing: if you are funded by short term deposits you tend to be much more cautious with lending decisions, so I'll give him half a mark for that, I suppose.

* Disclaimer - not all homeowners are Home-Owner-Ists. Only the NIMBYs and people who prefer taxation of incomes to taxation of property are Home-Owner-Ists.

** This is only a bad thing if the loans are taken out to acquire overvalued assets, i.e. in practice most of the time.

The correlation between a man's age and the height of his waistband

This phenomenon was pointed out to me a decade ago, and it is certainly borne out by observation. My own explanation is that it has to do with where your beer-gut is: at age twenty, you don't have one; at age forty, your beer gut is still quite high up, so you push your waistband down beneath it for comfort; once the beer gut starts to sag it's actually more comfortable to have your waistband resting on top of it. Factor in this ludicrous fashion among young people to have their waistband roughly at knee level, and there you have it.

A good summary appeared in today's Metro:

New research shows that from the age of 39 men's trousers rise inexorably towards their armpits.

By the age of 45 their trousers are at least 5cm (2in) above their natural waist position and still on the rise. And by the time a man reaches 57 his waistband peaks as high as 12.5cm (5in) above its natural level. In contrast, boys wear their trousers around their natural waist (the thinnest part of the body between the rib cage and the hips) until the age of 12.

The waistband then falls below the top of the pants by the age of 16 as teenage rebellion creeps in but rises as they start work.The survey of 1,000 men and their trouser wearing habits was conducted by department store chain Debenhams. Its director of menswear buying, Paul Baldwin, said: "Men still prefer to assume that their trousers no longer fit because their legs have suddenly grown. A man's waistband can be a metaphor for his life."

Wednesday 27 January 2010

The difference between British and Sri Lankan ballot papers

Ours tend to be more in 'portrait' layout, whereas in Sri Lanka, they go for 'landscape', to wit:

More Statist Waffling

Need I say that this authoritarian hag and her intrusive, state loving plan are both the brainchild of the Scottish Labour Party?

"Catherine Stihler urged a powerful European Parliament committee to impose an all-out ban on alcoholic drinks which also include caffeine. The move follows growing concern over Buckfast tonic wine. The drink is 15 per cent alcohol and contains as much caffeine as eight cans of cola in a standard bottle."

HOLY CRAP!!! CAFFEINE?!! We better do something before it's too late!

I mean it's almost as if this hag thinks that people need caffeine to get through the day...

"Caffeine addiction can lead to a whole host of medical problems, not to mention its link with crime and violence on Scottish streets."

You're taking the fucking piss, right? According to MedicineNet, 80% of the world consumes caffeiene on a daily basis. Lest we forget the victims of these scum criminals who were fuelled by their addiction of such a deadly drug - the criminals who steal, lie, sell themselves and encourage a downfall in society when they can't get their £1.79 jar of Nescafe. Grow the hell up you cow.

"The fact is many consumers are unaware of the damage they are doing to their bodies and lack the essential information to make an informed decision about what they purchase."

Ah yes, I wondered where that argument was! We need the state to tell us what is and is not safe for us, because we junkies, when we buy our jasmine tea, are unaware just how much damage we are doing to our bodies with this deadly caffeine drug.

"Her campaign has already been backed by MEPs from Sweden, where concern is growing about young people mixing high caffeine energy drinks, such as Red Bull, with alcohol."


Now seriously, economically thinking, does this stupid bint realise what kind of knock on effect this will have? Scotland has neds, chavs, scum, whatever. They drink a HELL of a lot of Buckfast, the main target of this ban. Buckfast is rather highly priced in Scotland, and will be unaffected by the minimum price mandate being proposed by the Scottish Nazional Party. Considering how much of it is sold (not to mention caffeinated drinks like Red Bull that are bought just to add to alcohol) a ban will put the Buckfast producers out of business. And the neds? Well they'll just move on to something else. Then they'll ban that. Then the next thing. Then the next thing. And on, and on, and on, and on.

Catherine Stihler = stupid slag.

Britain's Most Smug & Self-Righteous Family

Over at the BBC.

More banking fun

Captain Ranty left this comment on Another crash course in banking:

You don't appear to understand fractional reserve lending practices.

My £100k is not shown as a liability on the banks' books. A liability indicates a risk, it indicates that the bank has offered something of equal value in the contract and they have not. They do not take an equal risk. Dig a little, my friend, a mortgage contract is easily defeatable in court. Actually, it is fraudulent, as full disclosure is never, ever given by the bank.

The simple indisputable facts of the matter are that the new loan which the bank "creates" is shown as an asset on the bank's balance sheet (because it is an asset, the precise valuation thereof is another matter); the borrower takes the money, buys a house, gives the money to the vendor; the vendor deposits the money back in the bank and the vendor's deposit is shown as a liability (from the bank's point of view).

So a split second after the transaction, the bank's net asset position is unchanged - it has additional assets and an equal and opposite additional liability. That is how FRB works. I am not saying it is a good thing or a bad thing, I am merely describing what happens.

If you do not believe me, I invite you to download the balance sheets of a bank or building society and look for yourself - customer deposits are shown as liabilities (because that is what they are).

Fun Online Poll: Tax simplification and financial innovation

I'm happy to report that eighty per cent of those who took part in last week's Fun Online Poll agreed that a flat 1% annual tax on property values was a less-bad way of collecting £40 billion a year in revenues than the existing mish-mash of Council Tax; Stamp Duty; Inheritance and capital gains tax; TV licence fee; VAT on domestic fuel; Insurance Premium Tax etc.

We could apply reverse logic to this. Imagine that we had a 1% property value tax, would anybody in their right mind suggest replacing it with Council Tax; Stamp Duty; Inheritance Tax and all the other taxes mentioned? I should like to think not.
This week's Fun Online Poll is inspired by something that Paul Volcker said last December:

As bankers demanded that new regulation should not stifle innovation, a clearly irritated Mr Volcker said that the biggest innovation in the industry over the past 20 years had been the cash machine. He went on to attack the rise of complex products such as credit default swaps (CDS).

Cast your vote here or use the widget in the sidebar.

Another crash course in banking

DBC Reed left this comment on my post And ... he's back in the room!:

Now you're back you'd better get in rebuttal mode because Ann Pettifor (in Guardian letters 27.i.10) is saying the kind of things about banks I've been saying for some time (that they just make up the money they dish out as loans,then have the brass neck charge interest on it).

Captain Ranty added:

This has been going on for a very, very long time. Our fiat currency is worthless. Even HM Treasury says so. Have a look at some interesting FOI's that were submitted to them. Pop over to Ranty Barracks. I have been screaming about this since last April.

Take it from me, while banks can cheerfully "create" as many new loans as they can find willing borrowers, those borrowers have to spend that money, and the recipient then puts the money straight back in the bank (taking all banks as a closed system)*.

So while the bank can charge and receive interest on the new loan, it also has to pay interest on the new deposit. The bank in just a middleman. A well-run bank will make a net profit (interest received minus interest paid minus administration costs) on the amounts, but it is not huge - somewhere in the region of half a per cent, which is easily wiped out of the borrower turns out to be less creditworthy than first hoped.

The recipient of the money is, by and large, home and dry and can continue to collect the interest on the full amount, of course.

* To give a simple practical example, I owned my last house outright. Some chap took out a £400,000 mortgage to buy it and gave me the money, which I put straight back in the bank. Hey presto, the banking system has increased its lending side (i.e. its assets) by £400,000 and increased its deposits side (i.e. its liabilities) by £400,000. That 'money' did not exist until the moment of the sale. The bank charges him 5% interest and pays me 3%, out of the £8,000 net profit it has to pay rents, salaries, taxes and some of the money goes to covering losses on the bad loans it makes.

UPDATE: Captain Ranty repeats many common misconceptions in the comments, which I have dealt with there.

Bad Losers Of The Week

Those hedge fund boys don't like it up 'em:

Luxury car manufacturer Porsche is being sued for more than $1 billion by four hedge funds which claim company executives gave them advice about shares in Volkswagen (VW) without informing them that it was about to bid for the other motor firm... Their complaint said [Porsche] had intended to purchase more than 75 per cent of VW's shares, easing the path for a takeover bid...

Many hedge funds and investors bet on falling share prices in VW but lost money following Porsche's steady accumulation of the stock that drove prices higher. In October 2008, Porsche revealed the extent of its share ownership, sparking a market frenzy that saw the value of VW shares quadruple [and on which Porsche madea colossal profit at the hedge funds' expense]...

Y'see, trying to legislate against naked short-selling is an exercise in futility, and probably pointless, even if it were possible. It's lirttle examples like this that serve to remind the hedge funds that short-selling is not a one way bet, so allowing them now to cry foul and get their money back would be a lesson in moral hazard.

Tuesday 26 January 2010

And ... he's back in the room!

I have now returned from my two-day exile cementing my reputation as the world's second-best accountant.

Did I miss much?

Monday 25 January 2010

Hope not Haiti

I am on the road so blogging will be sparse today and tomorrow.

Sunday 24 January 2010

US Airports Reject Controversial RT Ads

A tad ironic that it comes from Russia, but hey.

The Rules Of Football

When I was a lad, the way it worked was some local businessman would make a lot of money and decide to invest in the local foot ball team, in my case it was Manny Cussins and Leeds United, but no doubt everybody has their own memories.

Why? A mixture of sentimentalism and ego, I guess, but make up your own mind on that.

You can skip a few years to Blackburn Rovers who enjoyed a brief period of success under "local steel baron Jack Walker", and in more recent times Abrahmovich at Chelsea, Malcolm Glazer at Manchester United, the Emirates at Arsenal (OK, that's a state-owned airline not an individual; and a sponsor rather than an owner) and so on, right up to the Abu Dhabi United Group and Manchester City in 2008.

As we know, owning a football club is a negative sum game, but the ego usually overrides the business nous that helped the owner make his fortune in the first place, and in the end all his money is gone again - for a current example see Malcolm Glazer's frantic efforts to refinance the debts he took out to acquire Manchester United. It used to be local furniture retailers or steel barons; now its Russian oligarchs and Middle Eastern petro-states, and the sums involved have got bigger and bigger over the decades, but the rules never change.

We could widen the debate by correlating 'businesses that have sponsored English Premier League Teams' and 'businesses that went out of business after the credit crunch', but that topic has been covered adequately elsewhere. Or by pointing out that Delia Smith has been bumbling along quite happily with second flight team Norwich for donkey's years, but then again she's a woman and so maybe her commonsense overrides her ego when it comes to throwing every last penny at staying in the top flight of English football, but that's details.

Just sayin', is all.

Saturday 23 January 2010

Vote Blue, Go Red

Killer arguments against LVT, not (29)

Land Value Taxers are often accused of being 'landlord bashers'*. Nope. Anybody daft enough to advance this as an argument overlooks that tenants have to pay rents out of post-tax-income, and then landlords have to pay income tax on the rents as well.

Let us imagine we slimmed down the state a bit and simplified the whole tax/welfare system down to:
a) a universal Basic Cash Benefit of £3,000 per adult per year (this is simpler than having a higher tax-free personal allowance);
b) a flat income tax of 30% on all income; and
c) a 1% property value tax (as a replacement for Council Tax, Inheritance Tax etc and an approximation for LVT).

Column A in the table below shows a couple earning £40,000 gross renting a house worth £200,000 (five times their gross income); they commit one-third of their post-tax-income to occupation costs, property tax is paid out of that etc, and the landlord ends up with £6,533 net income.

We know for a home-owner couple on the same income in a similar house, cutting income tax from 30% to 25% and doubling property tax would be fiscally neutral (they save £2,000 income tax and pay £2,000 more property tax), so that's them sorted.

Column B assumes that Ricardo's law applies and higher occupation costs soak up 75% of the increase in post-tax income (it probably soaks up more, but I'm building in a margin of error to protect the poor landlords), so they go up by £1,500 against an increase in property tax of £2,000, so the rent that the landlord collects after property tax goes down, but his income tax bill goes down as well. Once the dust has settled, in this example he actually ends up £92 better off, although you can tweak the assumptions to make him slightly worse or or even better off than that.

PS, I've also done the calculations assuming income tax is scrapped and replaced entirely by a 7% property tax. If you don't factor in the massive boost to the economy that this would entail (75% of which accrues to rents anyway), the landlord would still only be a meagre £200 worse off than our starting point.

* Of course, I actually know a lot of Land Value Taxers in person or indirectly. They represent a fair cross section of society, and a couple of them are in fact farmers, landowners, landlords or property developers - they've done the same calculations as I have and are still on-side.

Mrs Ricardo's Law of Rent

If you'd been wondering what Mrs R's actual surname is, she commented on this week's Fun Online Poll thusly:

In an expensive area it takes longer to save a deposit to start buying a house, and rents are higher. This means that rent and mortgage repayments are a greater part of take-home pay so living standards for ordinary folk [in areas where property is expensive] are lower than in areas where property is cheaper - because they have less money to spare.

Actually, the two effects - higher incomes but higher rents* in some areas; lower incomes but lower rents in others - usually cancel out, so net disposable incomes after housing costs are much flatter across the country than a mere comparison of gross incomes would suggest. They must be - if net disposable incomes were much higher in some areas, then everybody would move there, pushing up rents etc.

This is exactly what Ricardo's Law Of Rent explains/predicts. Funnily enough, Ricardo himself saw this as justification for taxing land values rather than incomes, whereas his namesake suggests the opposite, but hey.

* On a very obscure point, the prices of easily transportable goods, like clothes, consumer electronics etc. are also fairly flat across the country; but the price of a cup of coffee or a pint varies enormously - with a cup of coffee or a pint, you are not just paying for the liquid itself, but you are paying to drink it at a certain location, some of which are more desirable, convenient and hence more expensive than others. Lower wages in an area also correlate with lower prices for a cup of coffee or a pint, but do not lead to lower prices for clothing, consumer electronics etc.

Friday 22 January 2010

Photo' of cute little boy with unlit cigarette that was posted on Facebook

Part-time Landlord Of The Week

More Socialist fun

From The Evening Standard:

Young Venezuelans will be offered the chance to “earn” the right to a home by helping to renovate rundown empty properties owned by high ranking Party officials, which they can then move into on a subsidised rent for a short period ... giving people the opportunity to jump the queue for affordable housing if they agree to learn renovation skills, from plumbing to carpentry.

President Chavez will identify rundown properties owned by his family and friends which have been left unoccupied for months, blighting local neighbourhoods and being vulnerable to squatters. The scheme benefits President Chavez' family and friends - many of whom snapped up properties cheaply ten or twenty years before strict Stalinist limits were placed on new construction, driving prices beyond levels which young Venezuelans can afford - by renovating their property, as well as helping young people in need of housing.

If participants agree to work on houses unpaid they might, if they are very lucky, get the chance to move into them once they are finished. The President's spokesman said: “We are trying to help people to help us. About 11,000 are currently on our waiting list for housing. We are trying to solve two problems at once — to get our property renovated cheaply and an excess of people looking for affordable housing.”

The plan is expected to be rubber-stamped next week. The Parliament will team up with local colleges, which will offer young people an apprenticeship in a building trade. The project will be paid for by Venezuelan taxpayers and funding offered by the nationalised oil company aimed at getting empty homes back into use.

The spokesman said he also hoped to encourage President Chavez' family and friends to contribute, but then fell about in an inexplicable fit of giggles.

Friday night gear change

Duncan Stott of Split Horizons asked "Have you done the ridiculous gear change in Build Me Up Buttercup yet?" Well, no I hadn't, so here it is now - a full tone up 8 seconds before the end of the song:

Hmmm. What do you think?

Are the two British men more likely to be BNP members or Islamists?

Edward Leigh. Who rocks!

Thursday 21 January 2010

Planning regulations vs land values

As a general musing, there is a school of (libertarian) thought that says that planning restrictions push up land values, because they restrict the supply of land.

This is clearly true at the very edge of a town - the NIMBYs vehemently oppose anything that might encroach upon The Hallowed Greenbelt, because they will lose the view, so farm land on one side of the invisible line is worth £5,000 - £10,000 an acre, but residential land on the other is worth £1,000,000 per acre*, but in the grander scheme of things, it is not true.

Imagine, if you will, two railway stations on a railway line, or different junctions on a motorway, which goes from the centre of town (where everybody wants to work, shop, relax etc) into the distant countryside, a few miles apart (but only a few minutes apart in rail or car terms, and hence equidistant from the town centre for these purposes).

The local council at Station or Junction A caves in to the NIMBYs, who happen to own a cluster of houses near the station or junction, and all new construction, property extensions, alterations to fabric of anything is banned.

However, the local council round Station or Junction B goes on the other tack (maybe all the councillors are in the construction industry, but don't yet own any of the land, let's say) and scraps all planning regulations, apart from zoning the areas on the map crudely into the town centre, where you can do what you want within reason; a residential area on one side of the town centre (extending outwards as far as people want to build) and a commercial/industrial bit between the town centre and the station or junction (but otherwise extending outwards as far as people want to build).

We then sit back and wait for a couple of decades to see how things develop.

Now answer me this: in which area will land values (i.e. total property values minus construction costs) be higher? In Hamlet A or in thriving commuter-belt town B?**

* This sounds like a lot, but imagine ten houses worth £200,000 each on one acre. The houses each cost £100,000 to build (including builder's profit margin, connection to utilities etc), so that tenth of an acre must be worth £100,000; £100,000 x 10 = £1,000,000.

** Yes of course the land values at the very outer edge of Town B will never be much more than their value as farmland, because if the value of houses or commercial premises on the very edge ever exceeds their construction costs by any significant margin, the farmer or landowner will simply build some more and the town will expand a bit; there will be a natural outer limit to how far Town B can expand set by 'the markets'. I mean the overall total land values in the whole conurbation.

"UKIP launches Welfare Policy"



The deadweight cost of tax and subsidies

The Public Accounts Committee lays into Train To Gain:

The report acknowledged that the programme had helped 1.4 million learners - about 5% of the workforce - by the summer of last year summer...

Success rates for too many providers had been lower than expected, the MPs' report said. It also said £112m spent on skills advisers was not good value for money. Half of the employers whose staff received training under the scheme said they would have arranged similar training without the public subsidy, the report said.

So there we have it. Half the money was wasted (employers would have paid for it anyway) and the other half was probably wasted as well (if it's not worthwhile training somebody without a tax-break, then it's probably not worth training them, full stop), and then they wasted another dollop in administration costs. And of course, the costs of this are paid by taxes, thus taking money away from consumers and businesses, who thus have less money to spend on things like ... er ... training.

If somebody could be bothered to do the maths, we'd probably find that programmes like this reduce the amount of economically useful training that takes place. OK, it might not be formalised with a pretty certificate at the end of the course, but it would be training nonetheless.

Mr Edward Leigh, I hereby award you a 'rock' for all your invaluable work on the PAC.

"Jobs Of The Future"

I have to return to the vertical gardener nonsense (number 8 on the list), because I spotted it again in a Saturday Times magazine that I was chucking out yesterday. The one I liked best was this:

13. Avatar manager/devotees/virtual teachers

Intelligent avatars or computer characters could be used to support or even replace teachers in the classroom. The devotee is the human that makes sure the avatar and the student are properly matched.

So an "avatar" is a bit like "a blackboard" or "textbooks" and a "devotee" is a bit like "a teacher"? Or have I missed something?

Wednesday 20 January 2010

My God*, you are gullible

And just for old times' sake:

* OK, he's an atheist, details, details.

Tory attack dog lands killer blows* in married-couple-allowance debate

From The Evening Standard:

David Cameron today put marriage at the heart of his election battle — but failed to say who would benefit from his flagship policy... But Labour claimed the policy would mainly benefit rich married couples where one of the partners stayed at home... Mr Balls claimed the transferable income tax allowance for married couples would cost £4.9 billion and penalise some couples. “You say to the widow, to the single parent You are going to get less, your child is less worthy of support,” he added.

The Tories' spokesman hit straight back:

"Don't be such twats! Do you not realise that although the UK does not have a transferable personal allowance, wealthier couples with a lot of investment income can simply transfer it into the name of the non-working spouse and use up his or her personal allowance and basic rate band that way?

So most rich married couples wouldn't benefit at all! It'll be yer average dad-at-work, mum-at-home-with-kids (I can't be arsed saying 'non-working spouse' all the time, who invents this shit?) family who benefits! And yes, we accept that the wife of a head teacher will benefit just as much as the wife of a postman, but so what? An extra £1,200 a year is worth a damn' sight more to the postman's wife than to the head teacher's. That's the whole rationale for redistribution and welfare - the simple fact that £1 is worth far more to a poor person that to a rich one. You knobs.

Oh, and by the way, don't spout this crap about 'social engineering' and 'all families being worthy of support'. Under
your welfare system, the tax and welfare system rewards couples who split up by giving them an extra £10,000 a year. And it's Labour who's telling the widow and the single parent that they'd better bloody well not get married again or they'll take away that £10,000 again.

And on a final note, how the f*** can you cost our policy when we haven't said what it is yet? What we were considering is financing the transferable allowance by reducing the personal allowance slightly for all, so that would be fiscally neutral. That ain't going to affect your council house mum who doesn't go out to work and in fact (if you think about the maths), it would make most rich couples slightly worse off.

See you in Opposition, you suckers!"

Of course no Tory spokesman said any such thing, I just made that all up. Which leads me to believe that the Tories are, yet again, going to throw the election for fear of being in power when it all goes tits up.

* I'm not sure if an attack dog can actually land a blow, but you know what I mean.

Fun Online Poll: Burkhas & tax simplification

The people have spoken. The response to this week's Fun Online Poll "Do you agree with UKIP's proposal to 'ban the burkha'?" on a high turn-out, was as follows:

I oppose it on libertarian or religious principle 49%
No, as I'm not sure how it would be enforced 5%
I'm not bothered either way 7%
Yes, but I'm not sure how it would be enforced 8%
Yes 32%

That's that settled then, for this corner of the blogosphere at least.
Next up, tax simplification.

Vote here or use the widget in the sidebar.

"Britain's nasty planning laws"

Adam Collyer has posted an excellent rant, well worth a read. I left the following comment:

I completely agree.

As an aside, this post reminds me of when I was helping a client negotiating the sale of a more-or- less-derelict site a few years ago. The developer let slip that he calculated the price he’d pay on the basis of permitted number of flats x £50,000 per flat.

This gave us a starting figure of £4 million (eighty flats). A month or two later, the council increased the permitted density to a hundred flats, so we went back to the builder and asked for £5 million (which he duly paid).

Now, tell me, who created that additional £1 million land value or the total £5 million value?

Not the factory owner (he had probably depressed local land values by having a derelict site); not the builder (the £50,000 per flat comes out of his profit); so was it perhaps the local community – the shops, the bus station, the train station, the cinema etc?

And given that this was in a suburb, the trains and buses were only important because you could use them to get in to "town" where most of the workplaces are, so in a sense the whole town collectively created it.

And seeing as that "town" is London, which makes money from being the capital city of the UK (in a political and financial sense), wasn’t it perhaps the whole of the UK who helped create and pay for that value?

Scottish Tories: The value-for-money party

From Public Finance

Scottish Tories have condemned plans by the Holyrood government to end the right of all new tenants to buy their council or housing association homes. Chief whip David McLetchie described the decision, the first major change to the policy introduced by the Conservatives 25 years ago, as an 'act of naked political vandalism'.

He said: 'Nearly half a million homes have been bought thanks to a policy which has done more to make housing affordable for working people in Scotland than any other before or since (1). At the same time receipts from sales, now approaching £7bn (2), have enabled other rented homes to be modernised and new council houses to be built (3) for those who continued to rent in the past 25 years.'

1) Are houses in Scotland particularly cheap or affordable? Nope.

2) £7 billion sounds like a lot, but divide that by half a million and the average selling price was £14,000 each. If they'd retained those, they could have collected twice as much in rent in the interim and still own the housing!

NB, average net rents in social housing (after Housing & Council Tax Benefit) are about £30 a week x 52 weeks x 20 years x 500,000 homes = £16 billion, plus a tenth of those will now be let to Housing Benefit claimants, call that another £2 billion cost to the taxpayer, total cost to the taxpayer £18 billion, give or take a large margin of error.

3) How many homes can you build for £14,000? A third or a quarter of a home, maybe? If my estimate of £18 billion loss is correct, they could have afforded to build another 400,000 units of social housing in addition to the 500,000 they shouldn't have sold off in the first place.

From the point of view of the taxpayer, who committed the bigger "act of naked political vandalism"?

Yeah, but what did she actually do?

Empty a pot of custard over his head? Hit him with an extra-large cricket bat? The public has a right to know!

Tuesday 19 January 2010

“Are you mad? Are you f***ing mad?”

More bovine fun over at Pavlov's Cat.

Two can play at that game

Inspired by esteemed team member JP:

Election Campaign Has Started

Oh dear, here we go again ...

Adam Collyer left a comment on Killer arguments against LVT, not (28):

Your point a): wrong. The landowner created wealth, represented by money he earned. That was not created by "society in general".

I agree that this applies to today's First Time Buyer. He commits himself to creating wealth (i.e. going out to work and earning money) of £500,000 over his lifetime and to devote a third of that to buying a house. Assuming that house price inflation and interest cancel out, by the time he has paid off the mortgage, he has an asset worth approx. equal to the wealth he created by working and was prepared to commit to paying off the mortgage. No prob's.

But he is not only paying for the bricks and mortar, he is paying for the land/location value, which was created by "society in general". If he buys a car, he is paying for a car that was created by a car manufacturer. If he buys ice-cream he is paying for ice-cream that was created by an ice-cream manufacturer. And if he buys land he is paying for something that was created by "society in general".

Until this point is agreed there is little point pursuing the argument. I am not talking about how the wealth is generated by the purchaser, I am talking about the value of the land. Or does anybody in their right minds suggest that had they decided to rent and not buy, and stayed a tenant all their life, but otherwise lived in a similar house, done the same job etc, that they have never created anything of value?

"Two thirds of households already pay 1% or more of the value of their property in Council Tax (plus IPT, VAT on domestic fuel etc) each year." Maybe that's true over the country, I don't know. [It is true, or else I wouldn't say it] But if two thirds are going to pay less, the remaining third will be paying A LOT more. And they will be concentrated in certain areas of the country.

Half-true. Adam cheerfully misses out the bit where I said that I would roll all property and wealth related taxes, in other words Inheritance Tax, Stamp Duty Land Tax and Capital Gains Tax into the 1% property tax. So it is not true that people in larger houses would be worse off overall (some would, some wouldn't).

"If you went mad and started charging £60 per acre tax [for agricultural land]"; which you would be at your suggested 1%. So the farming would cease AND THIS IS A DEADWEIGHT COST.

Adam appears to overlook that farmland is subsidised by about £50 per acre (which sets a floor under the rents that the owner is prepared to let the land for - if the rental value is < £50/acre, he does better to leave it fallow and just collect the subsidies - the deadweight cost of a subsidy!) and appears to be worth, at current market values, (say) £7,500 per acre. If the subsidy were scrapped, the capital value would fall to maybe half that, ergo, the tax would be £37.50 per acre, rather less than the rental value that a tenant farmer is prepared to pay of (say) £50. It helps in these matters if you understand the whole tax/subsidy system and approximate capital market values and rental values and so on.

In any event, the clue was when I said "If you went mad...". Adam is arguing in favour of income tax (by definition). It would be pointless for me to say "Income tax is bad because if you went mad and charged it at 110%, the country would grind to a halt". This is neither an argument for or against LVT or income tax. This is an argument that tax rates should be set intelligently, in such a way as to minimise deadweight costs. It just so happens that the margin for error with LVT is much higher. We know that following the introduction of the 50% income tax rate, a lot of hedge fund guys buggered off to Switzerland, where income tax is about 40% (and where they also have a 1% property tax, natch). Now forgive me if I've missed something, but what would happen if we hiked income tax on rental income to 50%? How many landlords would take their properties abroad and thus deprive UK tenants of somewhere to live? I'd guess none?

"Most [Land Value Taxers] agree that radio spectrum, landing slots, cherished number plates, fossil fuels, offshore drilling rights etc are included"; it's not going to be a simple tax then, is it?

Adam appears to overlook that we already have taxes (or user charges or licence fees or whatever you call it, usually set by an auction process) on radio spectrum, cherished number plates, fossil fuels and offshore drilling rights, and in the grander scheme of things this is all fair enough. So what the Land Value Taxers are saying is "We might as well auction off the landing slots as well" (and maybe get rid of more stupid taxes like Air Passenger Duty).

"[If the government's only source of tax revenue were] LVT, which by definition reduces taxes as a % of GDP to 20% or 30%"; that's a controversial assertion and I don't believe it. You are making heroic assumptions about the deadweight costs and admin costs of raising current taxes.

It would be helpful if Adam could suggest his own estimate of how much of GDP would go in ground rents (actual or implied), in the absence of any other taxes. Would it be lower or higher than 20% or 30%? What the deadweight costs of other taxes are is pure guesstimation, but has little to do with the point I was making.

Killer arguments against LVT, not (28)

Adam Collyer trots out the usual tired old arguments.

1) "A switch in taxes from taxing wealth generation to taxing non-wasting assets, e.g. land, sounds seductive. It sounds as if it is taxing something unproductive (the land) instead of productive economic activity. But in reality, it simply represents a switch from taxing present wealth creation to taxing past wealth creation."

He is well ahead of the debate here. All I have ever proposed as a serious policy is to replace Council Tax & the TV licence fee (Poll Taxes); Insurance Premium Tax and VAT on Domestic Fuel (nuisance taxes); capital gains tax and Stamp Duty Land Tax (jealousy surcharges that inhibit efficient functioning of housing market) and Inheritance Tax (pure jealousy surcharge) which between them raise £40 billion-odd per annum (less than a tenth of government revenues) with a single flat Property Value Tax of 1% of capital value, like they have in Northern Ireland.

Where we take it from there is anybody's guess. But he misrepresents the switch (if we ever were to seriously shift from taxing personal incomes to taxing location/land values). It is not a switch from taxing "present wealth creation" to "past wealth creation":

a) That "past wealth" (i.e. land/location values) was created by efforts of society in general, and future land value increases (or decreases), i.e. "future wealth" will also be created by the efforts of society in general. Current land values anticipate future wealth creation.

b) You have to contrast this with taxation of personal incomes - it is quite clear that taxing the individual efforts of each individual discourages work, dampens economy, has deadweight costs etc. I fail to see how taxing land values discourages people from working, it's like rent - or does he seriously suggest that home-owners with a small mortgage work harder than people who have to stump up the rent or the mortgage payment on the first of each month, or face being evicted?

So to sum up, what he really should be saying is that "it represents a switch from taxing individual efforts to taxing windfall gains that arise because of the efforts of society in general"

2. "That brings me to the second objection. To introduce such a tax would be grossly unfair, however it were done. Those who already own assets would be hit. Those who have yet to buy would benefit at their expense. And that is why often the proponents of LVT turn out to be people who do not currently own land."

Wot? Two thirds of households already pay 1% or more of the value of their property in Council Tax (plus IPT, VAT on domestic fuel etc) each year. So they won't mind. And people at the upper end will benefit from losing SDLT and IHT, so they oughtn't mind too much either.

Then he trots out a classic Home-Owner-Ism: "Those who have yet to buy would benefit at [existing homeowners'] expense." The Home-Owner-Ists' policies are based on steadily rising house prices (whether that is down to restricted supply, light taxation, depressed interest rates or taxpayer-funded subsidies) so they want to benefit at the expense of the priced-out generation; the construction industry; income taxpayers generally and people with cash savings). I don't see what gives Home-Owner-Ists the moral upper hand here. In any event, don't homeowners have children too? So they are cheerfully robbing their own children.

3) "The third objection to LVT is that, like other taxes, it does carry “deadweight costs”. Clearly, it is transferring resources away from land-owners (who pay the tax) and onto wealth-creators (who don’t). Perhaps this might be beneficial (and Mark has certainly argued in the past on his blog that it would be). However, the fact is that with LVT, people would act differently than they do without it.

For example, it would be very hard to leave land idle, because the tax would still be payable. Therefore landowners would be more likely to carry out economic activity with the land, even if this activity is, in the absence of the tax, unprofitable and therefore wealth-destroying. LVT would be creating economic distortions, and therefore deadweight costs."

Rubbish. Very little land is "idle" (the only example I can think of is vacant and derelict sites in urban areas). Farmland is zoned for and used for farming, the rental value of farmland is about £50. As long as the tax were < £50 per acre, there would be no change in what people do. If you went mad and started charging £60 per acre tax, then activity thereon would cease (the same effect as achieved by Single Farm Payments - we paid landowners good money not to do anything, although the system is being reformed).

Residential land is used for housing - that land is not "idle", it gives people enjoyment, and so on. Commercial land is used by businesses to create wealth, it is not "idle". We then turn to the derelict sites, and if they were brought into use that would be A Good Thing and also farmland on the edge of urban areas that is zoned for development, those are the only sites on which behaviour would change.

4) "The fourth objection to LVT is, why single out land? Mark admitted in his blog post that “for the purposes of this discussion, land values include broadcasting spectrum and landing slots at Heathrow” because, of course, those things too have natural scarcity. I do not believe that LVT proponents have suggested taxing broadcasting spectrum or Heathrow landing slots, or indeed any of the other naturally scarce things in this world."

That is another deliberate misrepresentation. I know a lot of Land Value Taxers, and most agree that radio spectrum, landing slots, cherished number plates, fossil fuels, offshore drilling rights etc are included.

5) "Of course, some ways of levying taxes are more damaging to the economy than others. There are many reasons why LVT might be rather less damaging than many taxes. However, there are also objections to it, the biggest being the difficulty of going from where we are now to an LVT-based tax system."

So he appears to concede that LVT is the least-bad tax. That's a start.

As to going from here to there, let's start with replacing existing property taxes (see list above) with a flat 1% property value tax and a flat income tax of 31%. We then phase out The Worst Taxes (VAT and Employer's NIC) and hike the rate slightly in order not to stoke another property price bubble. From there on in, it is the work of decades, by reducing the income tax rate by 1% or 2% each year and hiking the property tax so that property prices rise no faster than inflation, and at the same time phasing in an exemption for the bricks'n'mortar element.

6) "To my mind, there are more important debates to be having, debates that are likely to be more productive. The key debate is the basic one about how much tax the State should take from the people. At the moment, it takes too much. It should take less. [Agreed]

"A secondary, but still vital, debate centres around how to reduce the enormous inefficiencies that result when the State provides services using those taxes. [Agreed, universal benefits and health or education vouchers would cover that]

"Another question is how to make the tax system simpler and more fair overall, without introducing revolutionary changes that could destabilise the economy and our social fabric. [That's easy: start with one flat tax on incomes and one flat tax on property values - that's hardly revolutionary; and then shift from the former to the latter]

"I am sure that most proponents of LVT could find a great deal of common ground with others on all these issues [Yes, the hardcore Land Value Taxers are Single Taxers. They say the state's only source of revenue should be LVT, which by definition reduces taxes as a % of GDP to 20% or 30%, nobody really knows]."

"There are enough battles to fight to last all of our lifetimes, without chasing a will-o-the-wisp like the land value tax. [But until the LVT battle is one, our economy is permanently hampered - when is the right time not to have the argument?]

This story has got EVERYTHING

From yesterday's Evening Standard:

The employment tribunal of Cherie Blair's stepmother opens today — the outcome of which could determine her chances of becoming an MP. Stephenie Booth (1) - the fourth wife of Mrs Blair's TV actor father Tony Booth (2) - is fighting the marginal seat of Calder Valley, Yorkshire, for Labour. Her reputation and chances of success could rest on the outcome of the case, in which she claims she was sacked as a whistleblower from her job helping difficult teenagers... (3)

Mrs Booth, 55, worked for Cool UK, a private company which helps 14 to 16-year-olds, many of which have been excluded from school. (4) She started in April 2008 in a teaching role and was then asked to join the senior management team. But she was horrified by what she saw as scandalous conditions and attitudes - ranging from health and safety issues (5) to the alleged behaviour of staff...

Mrs Booth told the tribunal she had suffered “detriment and victimisation”. “As a whistleblower (6) I complained about a number of matters but I was effectively ignored,” she said. She was attacked by a female student which left her feeling “upset, frightened and intimidated” (7) but when she reported the assault to Mr Binding he told her not to go to the police (8), the tribunal heard. She went on (9): “A group of employees were buying porn on a regular basis each week from a man who would come to the unit. As far as I was aware this was adult pornography (10) and the transactions took place with students on the premises.” (11)

... Mrs Booth, who has been married four times and has four sons (12), was selected as Labour candidate in last April - despite allegations of voting irregularities (13) - and has paid tribute to Tony and Cherie Blair for supporting her political ambitions. (14)

1) Stupidly spelled name? Check.

2) There's a nice symmetry here - she is Mr Booth's fourth wife and he is her fourth husband.

3) "helping difficult teenagers..." FakePrivateCompany alert!

4) Yup. According to its website, its partners are ... er ... make that singular ... CSV: The UK's leading volunteering and training charity. Yawn. According to page 13 of CSV's accounts, CSV's income came from Learning and Skills Council £8,819,000; Cabinet Office and other Government departments £6,427,000; Fees, services and other income £5,881,000; Local and health authorities £4,663,000; Grants general £2,117,000; European funding £463,000 etc etc.

5) What Elfin Safety issues? It appears to be a school rather than, let's say, a building site or a farm or something dangerous.

6) Doesn't "whistleblower" imply that you report stuff internally first, and if nothing is done about it, you go to the press or something (and then promptly get the sack)? Nothing in the article suggests that she every went public on anything.

7) Diddums. That's what happens when you are "helping difficult teenagers", I guess. It goes with the job.

8) And how was Mr Binding going to stop her, exactly? But she didn't go to the police anyway, despite being told not to, which might just about have qualified her as a "whistleblower" (see 6).

9) And on and on and on.

10) Would she have preferred them to buy child pornography? What's her point?

11) You call 'em "students", I call 'em "difficult teenagers who'd think nothing of attacking their teacher". I don't think that a couple of porn mag's on the premises are going to corrupt them, not at this stage.

12) I'm sure there's a funny angle, but I can't quite pin it down.

13) "Voting irregularities". Nice.

14) She thought she'd just mention for the zillionth time that her step-daughter's husband used to be Prime Minister, you know, just in case the Tribunal judges, or indeed her local Labour Party were having second thoughts. Interestingly, Mrs Booth is 55 and Tony Blair is 56.

Monday 18 January 2010

Matthew D'Ancona

I normally don't have any time for the miserable Tory apologist, the bulk of his article on the married couple's allowance in today's Evening Standard is drivel, for example "...since the Married Couple's Allowance began to wither on the vine in the early Nineties, the process of social breakdown, particularly among the poorest in the inner cities, has gathered pace to a frightening extent..." but he nails the real problem with this:

"At present, the message [that people get from the interaction of tax and welfare system] is that the state is at best neutral and at worst actively hostile to marriage... And the perverse consequence of the [Tax Credit] structure has been the so-called “couple's penalty” — the price a couple pays for staying together. According to calculations based on figures published by the Department for Work and Pensions, for instance, a family earning about £35,000 a year would be better off by £186 a week if the parents split up."

That, my friends, is what we should be complaining about.

Personally I'm a great believer in the state being absolutely neutral as between two individuals and one couple (whether married or not), which is best achieved via universal benefits (although allowing a married couple to fill in one tax return and claim two personal allowances greatly simplifies matters, administratively), but before we waffle on about tax incentives for marriage, the most important thing is to take a very close look at that £186 (about which I have blogged many a time, see example showing that the penalty can be as much as £224 per week).

He's nearly got it ...

Adam Collyer left a comment on James Higham on "property rights"

Land Value Tax is basically a tax on assets rather than transactions, picking on a particular type of asset, namely land (1). Property rights are guaranteed by the State, not only in the case of land, but in the case of any other asset (2). Taking assets away from people is no more moral than taking the fruits of their labour (3).

What's more, I can't see any difference in principle between taxing land and say taxing the broadcasting spectrum, or landing slots at Heathrow, or any other asset whose supply is constrained naturally.(4)

1) Correct. And why is "land" different to other assets? It is because the location value of land has nothing to do with the efforts of any individual, and certainly not the individual who happens to own the land at any one point in time. The value of the location is the result of a nigh infinite number of other factors, positive and negative. What you own, or what you pay for when you buy or rent, is the enjoyment of, and the right to exclude others from the particular bundle of advantages, created by society in general. Pay unto Caesar, and all that.

You cannot put this on a par with any other asset, like a car or a television or a painting. In fact, there are hefty taxes on such 'assets', being things like VAT and the corporation tax/income tax paid by those who produced it, and which have to be paid all over again when they wear out and are replaced. Such taxes ought to be reduced or scrapped, of course.

2) Land-ownership rights are not just guaranteed by the State, they are created by the State. Without a State there can be no land ownership, it is every man for himself, and whoever has the biggest army, or is most determined to own it is, almost by definition, the State (e.g. when the colonialists claimed legal ownership of Northern America or Australia).

Although nominally, the State protects your other property (like a car or a fridge or a painting), if they are stolen, your chances of it being returned to you are minimal, which is why people insure these things. There is no need to insure the land itself (as opposed to the buildings), all you need is an entry at HM Land Registry and to pop round every now and then to check there are no squatters, in which case the police will chuck them out for you.

3) As to morals:
a) if the State has to collect money to pay for common expenditure, is it not moral to do so in a way that does not impose huge deadweight costs on economic activity, the free exchange of goods and services, and hence does not impoverish anybody? If taxation of incomes and production is reduced by £1 and taxation of land values increased by £1, then society becomes 50p or 80p richer (or however much the deadweight costs of such taxes are).
b) There's also the standpoint that land is not the "fruit of anybody's labour". It was just there and didn't belong to anybody until somebody with a big army came along and took it, so in owning (or occupying land) you are of necessity "taking assets away" from somebody else, the sum total of human wealth does not change. Conversely, if you go out to work, you are, in the main, adding to the sum total of human wealth.

4) Correct. For the purposes of this discussion, land values include broadcasting spectrum and landing slots at Heathrow.

Indian Bicycle Marketing

Whereby the two major parties announce very similar policies and then slag off the other party's policy.

In the Red Corner: "Labour is promising to help up to 130,000 of the "brightest" young people from poorer families with getting to college and university. Prime Minister Gordon Brown said they would get a "structured package of support" from 2012, to help break the "glass ceiling of social mobility".

The BBC allow the Tories the feeble rejoinder: "The Conservatives have questioned why Labour has not done more to improve social mobility after 12 years in power."

In the Blue Corner: "... Mr Cameron emphasised the importance of teaching to children's education and how to get more good teachers into the classroom. This would include raising the required standard of entry and setting up a scheme - called Teach Now - to encourage people who had succeeded in other professions to go into education. The student loan repayment scheme would apply only to graduates getting a first-class or upper second-class degree, Mr Cameron said. He told an audience at a school in south-east London he would make teaching "the new noble profession".

The ever impartial BBC places much more weight on Labour's counter-attack: "Mr Balls [speaking for the Labour government]: "The fact is that teaching has been transformed from a demoralised profession in 1997 to the number one choice for graduates today. To attract top professionals to make a career change into teaching we are already working with over 400 leading employers, focusing on key subjects like maths and science. And to put teaching on the same footing as high-status professions like doctors and lawyers we are introducing a new Licence to Practise with a right for all teachers to get ongoing training and career development. It's time the Tories backed these reforms."

Now, if forced to choose, I'd vaguely prefer the Tory idea, but don't policies have the same aim - to improve educational standards? The Tories would do it by improving the quality of teachers, whereas Labour's policies focus on "130,000 of the brightest young people". Wouldn't those young people benefit just as much from the Tories' plans?

Answers on a postcard.

James Higham on "property rights"

JH has done an excellent summary of the issues, and asks "What's the solution to all this?"

Replacing all taxes with Land Value Tax, maybe?

Health scare story du jour

From The Metro:

Shyam Kolvekar, of the University College London Hospital, is leading a campaign to reduce saturated fat in diets after treating patients as young as 33 for heart bypass operations. As the Food Standards Agency launches the second stage of a campaign to boost awareness of the dangers of saturated fat, Mr Kolvekar said reducing intake in line with Government recommendations could prevent at least 3,500 deaths per year.

He said: "By the time I see people it's usually too late, but the frustrating thing is that often the need for heart surgery could have been prevented by following a healthier, lower sat-fat diet. Simple food swaps can make a big difference. In reality people don't stick to complicated diets. By banning butter and replacing it with a healthy spread the average daily sat fat intake would be reduced. This would save thousands of lives each year and help to protect them from cardiovascular disease - the UK's biggest killer.

GP Sarah Jarvis supported his comments, adding: "My patients are often simply not aware of how much saturated fat they're eating and the damage this causes until it's too late. Simple food swaps every day can help dramatically. A great example is North Karelia in Finland, where there has been an 82% reduction in heart disease amongst men over the last 40 years. This has been directly linked to a decrease in butter consumption."

Non-means tested benefits

James Higham left a comment on this post The fun never stops ...:

Mark, not wishing to be stupid but is 6% a huge amount for administering something? On-means tested benefits - what would be the criterion for eligibility?

Yes, 6% is a colossal amount. The total administration costs, plus fraud and error, minus underclaims of flat-rate, non-means tested, universal benefits like Child Benefit is actually slightly negative. The same costs for the Basic State Pension are in the region of 1% of the amount paid out. And to that 6% we have to add another 5% for means-tested non-universal benefits overpaid due to fraud and error.

As to eligibility, there is a huge range of nigh universal non-means tested benefits, such as the right to NHS treatment or a state education place; the right to ring the fire brigade or the police; the right to vote elections; the right to drive a vehicle on a public highway etc etc. Why should modest weekly cash payments to legally resident British citizens be seen any differently?

So if you replaced the entire Welfare State with flat-rate universal benefits, you could cut the cost to the taxpayer by ten per cent; or you could increase the total amount paid out by ten per cent (according to taste), but either way you'd get rid of all the social engineering and distortions, while still alleviating poverty.

Fun Online Poll, The Science Is Settled & The Burkha Ban

Thanks to everybody who took part in last week's Fun Online Poll. Forty-two out of the four thousand people who visited this 'blog in the last week felt competent to answer the question "Do ionized particles encourage low-level cloud formation?" and 88% of those responding answered "Yes".

So to use the jargon, I think that "The Science Is Settled". If you're wondering what this is all about, you can read up here, only they are going to spend zillions of Euros either proving or disproving the theory - my way seems a lot cheaper and just as likely to be correct.
UKIP have managed to stir the hornet's nest a bit with their proposal that people should be banned from covering their faces in public, an idea which has been caricatured as Ban the burkha. In principle, I agree with Sue, although I would be worried about actual enforcement, would wearers be liable to a summary fine, like when you drink in the street, or would it be a proper criminal offence with arrests, formal charges, witness statements, jury trials and so on? Can't say I'm too fussed either way, so this is an ideal topic for this week's Fun Online Poll.

Vote here or use the widget in the sidebar.