Wednesday 29 February 2012

Design your own LVT system

You can change the figures in the boxes and enter your own by clicking "Click to edit". The grey cells are results/output cells.

Barclays Bank's £100 million tax bill: Rules is rules

The Righteous are now a-wailin' and a-moanin' that this is retrospective legislation, ooh, how horrible, end of the world etc, but it is nothing of the sort, and what puzzles me is that Barclays Bank ever thought they would get away with it.

The basic rule, subject to lots of exceptions, was always that if Company A owes Company B money and does not/cannot pay up, Company B claims a deduction (bad debt relief) and Company A is taxed on the saving. So if BB owes people £2.5 billion in bonds and buys back those bonds for a lot less than £2.5 billion (and this was all public knowledge at the time) then the discount/underpayment counts as a profit for BB, shows up in BB's accounts as a profit and BB has to pay tax on that profit.

HMRC's explanatory note explains the background in more detail. It appears, that BB were trying to play clever buggers, and instead of buying back their own bonds (which would trigger a tax charge), they arranged for a friendly entity to buy it back instead. Then, under the cover of darkness and while HMRC weren't looking (they hoped) BB would obtain control of that entity and quietly cancel the bonds (you can't owe yourself money).

I would have assumed that s362 CTA 2009 would have caught that anyway; HMRC seem to have admitted that on a narrow reading it didn't, but all HMRC have done is to make it clear that if it is pre-planned that the borrower is going to obtain control of the other entity, then this is sufficient to trigger a charge.

All seems fair enough to me, to the extent that you think incomes and profits should be taxed in the first place. What is spiteful is that in many cases, the creditor gets no tax relief for his loss, even though the debtor is taxed on his gain, separate topic.

Newsflash: the personal allowance IS £10,000

The coalition is making a big song and dance about the plans to increase the income tax free personal allowance to £10,000 (all figues per annum). The official income-tax free personal allowance was only £6,475 in 2009-10 and it's £7,475 in the current tax year 2011-12, which looks like slow progress.

The truth of the matter is, the effective tax-free personal allowance is already £10,000 and has only increased by £493 in the two years since the coalition took over; the benefit of the higher personal allowance has been more or less wiped out by the total 4% increase in National Insurance and Working Tax Credits withdrawal.

Assuming that you consider National Insurance to be income tax (which I do)* and assuming that you consider Working Tax Credits to be negative income tax (for statisical purposes, they are), then if a single low earner had a gross pay of £9,507 in 2009-10, the total income tax/Employee's NIC/Employer's NIC payable was £1,506; and his Working Tax Credits were also £1,506, net nothing (apart from lots of jobs for bureacrats).

The same calculation using 2011-12 rates show that at gross pay of exactly £10,000, the total tax/NIC payable is £1,242, and the total Working Tax Credits are £1,242.

Given that price inflation was about 9% over the past two years, a 4% increase in the effective tax-free personal allowance means that the real tax-free personal allowance has fallen.

You can look up the rates here and check PAYE calculations here.

Just sayin', is all.

* If you assume that Employer's bear the Employer's NIC, the increase is even less spectacular, and has only gone up from £10,200 to £10,5555 over the two years.

Tuesday 28 February 2012

Has 'peak oil' just been deferred by three days?

I don't understand the numbers being bandied about in this press release from Reuters:

Spain's Repsol and China's Sinopec have made an oil discovery offshore Brazil that could be one of the biggest so far in the area and that boosted confidence that Angola's deepwater reserves may be abundant too... Repsol did not provide an estimate for the size of the find, but one of its partners, Norway's Statoil, said it was a "high-impact" one: it could hold more than 250 million barrels of oil equivalent (boe) or provide 100 million boe net to Statoil.

That sounds like a lot, but global oil demand is currently eighty million barrels per day.

For comparison, Wiki's article on North Sea oil says this:

The British and Norwegian sections hold most of the remainder of the large oil reserves. It is estimated that the Norwegian section alone contains 54% of the sea's oil reserves and 45% of its gas reserves. More than half of the North Sea oil reserves have been extracted, according to official sources in both Norway and the UK. For Norway, the Norwegian Petroleum Directorate gives a figure of 4,601 million cubic metres of oil (corresponding to 29 billion barrels) for the Norwegian North Sea alone (excluding smaller reserves in Norwegian Sea and Barents Sea) ultimate of which 2,778 million cubic metres (60%) has already been produced prior to January 2007...

Yes, if they've found oil at one spot, the chances are that there is plenty more nearby, so yippee, but unless I've made a fundamental mistake, those 250 million barrels are approx. equal to one year's extraction in the North Sea. Or do they mean that they'll be able to extract 250 million barrels per year for the foreseeable, which would be about one per cent of global production/demand?

Killer Arguments Against LVT, Not (198)

We're coming up to the 200th commemorative edition, so keep 'em coming, all you Homeys and Faux Lib's.

The New Statesman has rehashed last week's FT article by Samuel Brittan. Let's pick over the rubble in the comments and see what we find...

Simon Tax the home everyone and piss it up the wall on more tax credits for the underclass! Get a grip for fucks sake. What is wrong with working bloody hard in your lifetime and aspiring to own property and land as something to pass down to your children?

He's clearly not read the article. The aim of the game is to reduce other taxes and to encourage a wider spread of home ownership. I trust that he is aware there are about 27 million homes and 27 million households in the UK, so the optimum position is that every household owns one home. That's basic maths and logic. And you can't pass something down to your children unless you've bought it first.

Despite his rantings, it's a basic mathematical fact that if we replaced the entire tax system with a fiscally neutral LCT/CI system, the sensible, 'hard working' couple who have scraped together a 25% deposit for an average semi-detached house and take out a three-times salary mortgage would be vastly better off. The all-encompassing spreadsheet in my quick links widget tell us that they would pay something like £20,000 a year less in tax and if/when wife is at home with two children, they'd still be paying £15,000 a year less in tax (and that's ignoring the privately collected tax element of the mortgage).

So if they can afford it, surely an older couple who can both work, whose children are grown up and who have a smaller or no mortgage can get by? Or have I missed something?

rob andersen we should tax fresh air and water as well, people love that stuff so it's money for old rope!

Like land, air is a free gift of nature, but luckily, nobody has worked out how to privatise is, so nobody has to pay for it, therefore its market value is £nil; there is no need to tax it and taxing it would be impossible. The reverse applies to land, another free gift of nature, which has been privatised, new entrants have to pay for it, the market value is easily measurable, there is a strong rationale for taxing land rents rather than incomes and taxing it would be easy. That's just a few key differences between 'land' and 'air'.

Let's imagine the worst: that they did privatise the air. Then of course people would be very grateful if they inherited the entitlement to a supply of air, but as things stand, the air is free. So if land were easily affordable for all, you wouldn't be too fussed how much you inherit, in fact, you'd prefer it if your ancestors chose to live in more modest housing to reduce their living costs and leave you with more of the folding stuff instead.

careful Have to be careful that land tax does not screw farmers who are, largely, not wealthy

A tax on the pure rental value of farm land would be rather less than the income tax minus agricultural subsidies they currently pay/receive. The amount raised would be peanuts anyway so it's not really central to the debate. And how do tenant farmers manage - they currently have to pay full rent and income tax and their landlord gets the subsidies?

Stu So we're going to tax all the farmers out of business, and then end up starving like Zimbabwe? Great idea.

No we're not, see previous comment. Idiot.

Why ask "if" if it clearly isn't?

From today's FT in response to a fine article by Samuel Brittan:

Sir, Why do enthusiasts for a land tax concentrate on one particular one particular type of property? If the aim is to tax wealth, why not levy an annual charge [on all assets], rendering both inheritance tax and capital gains tax superfluous.

Gareth Howlett, Investment Management Director, Brooks Macdonald Asset Management.

This is a typical example of Homey/Faux Lib propaganda. By pretending that the rental value of land is "wealth"*, they can paint LVT as a tax on "wealth", and thus draw the entirely incorrect conclusion that LVTers want to tax "wealth" generally, or even worse, that LVTers are "anti-wealth".

Far from it, the whole point of a full-on LVT system is to scrap all taxes on private wealth (such as income tax, VAT, NIC, corporation tax - inheritance tax goes straight out of the window and capital gains tax is only there to prevent people turning taxable income into tax-free capital gains anyway). So individuals get to keep all the wealth that they create themselves, and society in general gets to keep what society in general creates/generates.

* Simple logic tells us that land values are merely a multiple of land rental values; and that land rental values are merely a measure of the flow of individually created wealth from society in general/the productive economy to landowners/mortgage banks. For every landlord there is a tenant; one man's income is another man's expense; this is not net wealth.

Consider: ten families/tribes are happily sharing their little island, and each family/tribe has exactly enough land to feed itself; nobody can charge anybody rent and on the face of it, the land has no realisable market value.

But if there's an earthquake and one-fifth of the island snaps off and falls into the sea, the two families/tribes who have lost their physical land now have to rent patches from the other eight; the unlucky two have to farm it more intensively and hand over some of the value of their work to the lucky eight. So now the land owned by the other eight has a rental value and a realisable market value.

Can anybody honestly say that these ten tribes are collectively wealthier for having lost one-fifth of the surface area of their island?

Crossing the irony horizon to reach irony singularity

From yesterday's Evening Standard*:

City chiefs warned that the Square Mile's success as a financial centre is threatened by an explosion in the number of offices being converted into homes. They attacked government plans to scrap the need for planning consent to change commercial premises into residences as a "nuclear option" that risks huge harm...

The corporation warned [sic] that if it lost control over the number and location of residential developments, the commercial character of the City would come under threat from "short-term market forces"...

If more flats were interspersed among office blocks, just a few homeowners could stymy "large-scale and valuable" new schemes by objecting to them on issues such as the impact on light. The corporation is calling for either the City to be exempt from this change to planning consent or for a strong statement to encourage conversion of vacant offices into homes.

* See also Drewster's comments #2 and #6 regarding this article at HousepriceCrash

"Should not"

There was a bizarre reader's letter in today's Metro:

Whether or not you accept the NHS needs reforming (Metro, Mon) or repeated assurances from both the Tories and Lib Dems they have no plans to privatise the NHS - something I don't believe - there's another issue to consider.

Anyone who can recall the disastrous consequences of the internal market introduced into the NHS under the Thatcher government will remember any form of competition in this area will lead to disastrous results, such as hospitals and GPs competing with each other.

More importantly, health provision should not be based on whether one company is better than another at providing a service.

Dave Reardon, London.

Is this letter tongue-in-cheek or is he operating on a completely different level of reality?

Monday 27 February 2012

She could make it rain by just casting a spell, man.

Yorkshire pedants declare war...

... it will come to be known as the War On T'Error.

Fakecharity hopes that nobody spots the irony...

From The BBC:

Some parents could be forced out of work and into poverty as the rising cost of childcare outstrips wage rises, says a report.

A survey by the Daycare Trust charity showed that the average cost of nursery care in Britain for children under two rose by nearly 6% last year. Average wages rose by just 0.3%. The government said it was investing an extra £300m to help families with childcare costs and increasing places in free early years education...

Their whole logic is flawed; if a woman can earn £15,000 net and spends £10,000 net on childcare, it's just about worth going to work for incremental extra income of £5,000 against staying at home; if the cost of childcare increases by a couple of thousand, then it might no longer be worthwhile going to work, but there is no cut-off point at which women are 'forced into poverty'; every £1 increase in childcare costs is, at worst, a £1 fall in net income of the parents, it doesn't suddenly tip over from happily working to abject poverty.

But glossing over that, who is The Daycare Trust? By and large, it is a pressure group acting on behalf of its members - being the self-same nursery providers who are 'forcing people into poverty' by hiking their prices. A normal person would say "Well stop hiking your prices then!" but nope:

The Trust wants the government to boost the value of childcare tax credits to the poorest families and to commit itself to free nursery education to all two, three and four-year-olds by 2015.

The BBC use their official fakecharity template for this article; the giveaway is that the article ends with a government minister agreeing that 'something must be done', in other words the whole thing was co-ordinated between them beforehand.

And, just for completeness, who funds The Daycare Trust? Their members, perchance..? Page 10 of their 2011 accounts tell us that they get £1,003,000 a year (over eighty per cent of their total income) for "Policy, research and other projects", "Consultancy" and "Advice and information".

Pages 15 and 16 provide a bit more detail on who their paying customers are: nearly all of that £1,003,000 is from The Department of Education, London Councils, The Big Lottery etc.

BTL landords: "We own land! Give us money!"

From The Daily Mail*:

The emergency ‘bank’ set up by Government to oversee the mortgages originally lent by Northern Rock and Bradford & Bingley is treating landlord borrowers unfairly, it is claimed.

A number of large borrowers allege that heavy-handed actions by UK Asset Resolution is leading to widespread tenant evictions, business failures and the sale of thousands of properties at depressed prices...(1)

But landlords claim taxpayers are losing out,(2) along with everyone else, as UKAR puts thousands of properties into receivership, fails to maintain them and ultimately sells them for less than their market value.

The allegations are difficult to prove, but growing numbers of landlords are voicing similar complaints and using popular websites such as Consumer Action Group to air them. What is not disputed is that these borrowers are stuck.

Most have little or no equity in their portfolios of property, and so cannot find another lender. On the other hand, UKAR’s objective is to get their loans off its books.

1) To whom? It strikes me that if tenants could afford to pay the rent, they could more than afford the mortgage were they to buy the home they were renting. This all helps deflate the debt bubble and increases the spread of owner-occupation. Win-win!

2) Most tenants are taxpayers, are they not? However much they lose qua taxpayer (and it will be pennies), they will be compensated ten times over if they can now buy the home they are currently renting.

* Via Taffee at HPC

Fun Online Polls: Haye vs Chisora and The Sun on Sunday

Thanks for casting your votes, I hereby declare David Haye the winner of last week's finest publicity stunt, two boxers fighting outside the ring. Three-quarters didn't see the funny side and voted "Neither won. They are a disgrace to boxing", to which I say "Oh for Heaven's sake, lighten up".
Rupert Murdoch managed to get loads of free publicity from all the other media for his re-launch of News Of The World under its new name "The Sun on Sunday", so for this week's Fun Online Poll, I'd like to find out how many people actually went out and bought it?

Vote here or use the widget in the sidebar.

Sunday 26 February 2012

I've mucked about with my 'blog lists a bit, if I've missed anybody off, please advise.

What a kerfuffle. My main 'blog roll worked fine, but the system appears to have collapsed under its own weight (there were 163 'blogs on it), so while it worked fine on a day-to-day basis (new posts would jump to the top), I could no longer add or delete 'blogs.

So I had to start again from scratch with two new ones (a main one and one for dormant/occasional 'blogs). What was really annoying is that you (i.e. I) could only add one 'blog at a time and then I had to save it, wait for my 'blog to refresh etc before adding the next - in days of yore, you (i.e. I) could open the widget for a 'blog list and add several at once, by cutting and pasting them from my 'blog (open in a separate window).

Several hours later, we are where we are. If I've not added anybody I should have, please leave a comment and I will update as appropriate.

Killer Arguments Against LVT, Not (197)

One fairly ludicrous claim which people make is that "Landlords will just add the tax to the rents, so tenants would end up worse off". I accept that those who believe this nonsense will never be convinced, and that there are others who realise it is not true, but for the benefit of the waverers, let's look at one of the main influences on local house prices (which are merely a multiple of rents) which is local earnings.

1. We know, because others have done the regression for us, that average earnings increase by about five per cent every time the size of a population centre doubles, and logic says that if average wages in Small Town A are £20,000 and people can earn £30,000 by doing similar (or more specialised) jobs in Large Town B, they will be happy to migrate to Town B provided always that rents in Town B are no more than £10,000 (minus tax thereon) a year higher than in Town A*.

2. The actual correlation between local average earnings and house prices in England** looks like this:3. The coefficient of correlation is 0.75 (the other 25% of is explained by other factors, like having nice scenery, which is why house prices in Cornwall and Devon are nigh unaffordable for people on average local wages), and the line of best fit is:

House price = [average earnings minus £6,750] x 10.53

4. So wages in Town A are £20,000 and houses cost £140,000; wages in Town B are £30,000 and houses cost £245,000, the extra cost of renting or buying in Town B is about £5,265 a year more (assuming 5% interest rate), which is the additional amount that average earners in Town B have to spend after deducting PAYE etc from that extra £10,000. This means that it is very difficult to increase your disposable income by moving to a better paid job elsewhere in the country, because you lose most of it in higher rent.

5. So we can safely say that if all taxes on income were scrapped, gross rental values in Town B would be about £10,000 higher than in Town A, and the LVT on an average house in Town B would be (say) £8,000 a year more than in Town A.

6. A landlord in Town B cannot merrily add that £8,000 to the rent that people are prepared to pay to live in Town B rather than Town A - if the rent + LVT in Town B is £18,000 a year more than in Town B, people will leave Town B in droves and move back to Town A. The whole thing will level off so that the total rent payable in Town B is £10,000 more than in Town A; the landlord in Town B will only get to keep £2,000 of the higher incomes/rental values, and not nearly all of it, as under present rules.

Just sayin', is all.
* Landowners have a monopoly/cartel, that means their income cannot be competed away, but it does not mean that they can charge what they like, they can only charge what the market will bear. So in this scenario, landlords in Town B can also charge up to £10,000 (minus whatever tax is deducted from that income) more than in Town A but no more than that.

An analogy might be the school bully - he can't steal more than your lunch money. If you bring 50p a day, he can take 50p; if you bring £2 he will take £2. The amount of money he can take depends entirely on how much money there is sloshing around and not on the value of his 'services' or his stronger bargaining position. If you stop bringing £2 to school and just bring 50p, he cannot demand £2 from you "because that's what you paid yesterday", he can take the 50p and that is the end of that. And if a really evil teacher then exercises superior force, makes the bully empty his pockets and keeps it for himself, the bully can't go back to his victims and collect more money to cover his overheads, can he?

** Sources:
1. Average price for a semi detached house in each local authority area from the BBC
2. Mean gross annual pay from Table 8.7a from the NSO
3. I then bunged the two data sets into a spreadsheet, deleted local authorities for which I had earnings but not house price (or vice versa) and did a couple of X-Y scatter charts, click to enlarge:

Saturday 25 February 2012

Sensible advice

From the BBC:

Earlier this month, Lord Carey said legalising gay marriage would be "an act of cultural and theological vandalism".

However, Ben Summerskill, chief executive of gay, lesbian and bisexual charity Stonewall, said: "Our strong advice to anyone who disagrees with same-sex marriage is not to get married to someone of the same sex."

Friday 24 February 2012

Today's LVT round up

Five Six seven items worth a mention:

1. Samuel Brittan wrote one of his occasional articles in the FT:

... far from being an outrageous Bolshevik idea, the case for a land tax is one of the oldest and least disputed propositions in economic thought. The underlying theory was developed at the beginning of the 19th century by the highly respectable David Ricardo. Many chancellors have said that they would jump at a tax that had no disincentive effects on work or enterprise but had a strong redistributive element...

Doubtless some of the tabloids would present a land tax as a threat to the ordinary homeowner with a modest garden. We need to prepare for this in advance. Just as income tax is only levied above a threshold, there would have to be similar thresholds for a tax on land. If politicians really want to think about the unthinkable, as they sometimes claim, here is a place to start.

2. From the Tory Reform Group:

Properties of all shapes and sizes are already overtaxed by the likes of council tax, business rates, stamp duty land tax, planning charges, and landfill tax. If these taxes were to remain then LVT would be burdening people with further unwelcome costs. Instead, LVT should replace those property taxes - either entirely or at the very least mostly...

This would be simple to implement since land cannot be hidden in an offshore tax haven and calculating the tax bill would be made easier by the fact that land values are already measured by the market, therefore compliance costs could be reduced. The same bureaucratic processes for collecting business rates could readily be translated to the collection of LVT.

The LVT would not harm enterprise. It would boost productivity, discourage urban sprawl, could replace the plethora of punitive property taxes, and would be relatively simple to administer and collect.

The extra revenue raised would be enough to fund a radical package of tax cuts to “put fuel into the tank of the British economy”, as George Osborne promised last year, and would reconnect the link between effort and reward by making sure everyone pays their fair share. This is very much a policy that ought to be part of any modern, progressive Conservative agenda.

3. From yesterday's Evening Standard:

Today's proposal from Tim Montgomerie of the influential Conservative website, conservativehome, reflects rising Tory frustration over the lack of tax cuts. Mr Montgomerie proposes that we move towards taxing wealth rather than income, by introducing new council tax bands for homes worth over £500,000, £1 million and £2 million (in England, the highest band is currently H, for homes worth more than £320,000 in 1991).

He also wants a cut in tax relief on pension contributions. The money raised, he argues, could then be channelled into tax cuts, for example raising the income tax threshold and abolishing the 50p top rate. This could give new momentum to Lib-Dem calls for a similar "mansion tax".

Mr Montgomerie is right that the council tax system needs reform. The absurdity of a tax based on 1991 values - newer homes have to be assigned a nominal 1991 value - has been preserved only by the timidity of politicians on all sides in handling this hot potato. Yet however fair such higher bands might look in Exeter or Rotherham, they would amount to a tax on London, which is where the vast majority of such homes are.

Nor do London's £1 million-plus homes always indicate great wealth: they are just a sign of our inflated housing market. We do need to rethink local taxation. But piling more taxes on London to fund tax cuts for the rest of the nation is not the way to do it.

The ES is just the usual stupid Home-Owner-Ist nonsense - the 50p tax rate is of course a "tax on London" as well, so replacing it with a Mansion Tax is geographically neutral, I just wanted to give Tim M's article a favourable mention, but it was in The Times which is behind a pay wall.

4. Also in the FT (spotted by Derek), a fine article on barriers to entry and rent-seeking:

Ghaleb Ibrahim, a grizzled Jordanian immigrant with a mane of wavy grey hair, holds to a modest vision of the American dream. He wants to own and drive a taxicab in Milwaukee, Wisconsin, the city in which the television show Happy Days was set.
The trouble is that he does not have $150,000. That he says is what it would cost, over and above the price of the vehicle itself, to buy from its existing owner one of only 321 cab licences in issue by the city...

The creation of an economic rent – often by persuading the political system to grant some kind of a monopoly or privilege – means a one-off chance for someone to get rich and then a permanent barrier to newcomers entering a market. The Milwaukee cab licences are together worth $48m – and since 1991 more than half of them have migrated to companies owned by one family: the Sanfelippos. Even at their own more modest price estimate of $80,000 their permits are worth as much as $13m.

Is that $48 million real wealth? Is it capital, or an asset (as the incumbents argue in the article), or is it merely a measure of the burden placed on passengers (in terms of higher prices, worse service) or would-be taxi drivers who are prevented from earning a living - in other words a zero-sum game. Exactly the same zero-sum rule applies to land wealth as well, of course.

5. Finally, also from yesterday's Evening Standard, the sort of fight that would be far less common if we had LVT:

A seven-year row between neighbours over a narrow strip of courtyard in Peckham could reach the Supreme Court.

The dispute, which has cost up to £50,000 in legal fees so far, began in 2005 when Angela Boggiano, 45, and Craig Robertson, 43, put up a white picket fence. It ran along what they say is the boundary between the back of their terrace home and the front of Devon Cameron's mews house.

In 2007, they replaced the fence with a wall, and plant pots were put along a gravel strip measuring 10ft by 2ft which Mr Cameron, 48, contends is his...

You want the land? You get the LVT as well.

6. Late addition. Lib Dems ALTER member David Cooper appeals to the NIMBYs over at The Daily Mail:

This development is driven by a simple business proposition. Locally, an acre of productive farmland can be purchased for about £7000. Working a farm in West Berkshire turns a decent profit, and is a perfectly good business proposition. But land speculators bank on far richer rewards. If they can get planning permission to turn this acre into residential land, its value will shoot up to over £700,000...

The value of fields (called greenfield sites in the trade) close to towns rises by a factor of a hundred or more when planning permission is given to build on it. This value uplift happens once. An already built up (“brownfield”) industrial estate may be entirely suitable for new housing, but the owners have far weaker reason to push for the planning changes that would be needed to achieve this.

Taking Newbury as an example, there is a large, old and underused industrial estate near the town centre, which could go a long way to accommodating the needed houses. There has been far less push from its owners to make the necessary planning changes, and it is not included in the current housing strategy.

So he's got the NIMBYs onside, but he shies away from explaining which simple tax would take away the planning gain uplift (thus taking away the motive to build out in the green belt) as well as encouraging/forcing the owners of the industrial estate to bring it back into use.

7. Late, late addition. Spotted by Mombers in today's Evening Standard:

Councillor Stephen Greenhalgh, leader of Hammersmith & Fulham Council, hit out at Liberal Democrat plans for higher levies on more expensive homes... Alarmingly for many Londoners, influential Tories are also now backing proposals for higher council tax bands on homes worth more than £500,000, £1 million and £2 million. (a)

These levies would all disproportionately hit the capital. (b) Mr Greenhalgh told BBC radio: "We have the fourth highest property prices in the country. A lot of the houses that would fall into the £1 million or £2 million plus bracket are owned by ordinary people still. This is not a way to catch the wealthy. It's a way to clobber people often on relatively modest incomes that may have assets that are incredibly high but not necessarily incomes that match."

He stressed there were many "long-standing family homes" in areas such as the Peterborough Estate in Fulham, which were bought under the right-to-buy scheme and then shot up in price. (c) He also warned that new council tax bands or a "mansion tax" would be "hugely expensive" to introduce as it would require a property revaluation estimated to cost £200 million.(d)

a) See item 3 above.

b) Yes, because that's where land values are the highest. You could just as well say that the 50p tax 'disproportionately hits London' because that's where most high earners live.

c) Wot? These people were allowed to snap up council owned housing for rather less than £100,000 and have made a windfall gain of a million quid and they're whining about a few thousand quid additional Council Tax? They can always sell up, then they won't be 'ordinary people... relative modest incomes' any more, will they?

d) That was The Morbidly Obese One's estimate of the cost of a full revaluation of all homes in the UK for council tax purposes, that's less than £10 per home. As a matter of fact, HM Land Registry have enough info on their databases to do full and accurate land valuations for a tiny fraction of that, but even if it did cost £10 per home for updating valuations which are 21 years out of date, it's money well spent, its still only 1% of annual Council Tax receipts.

Mastermind conundrum

My kids are now of the age where they enjoy playing Mastermind. It has been agreed that the code-setter will always use four different colours, rather than the more sneaky version where the code-setter is allowed to use two or more of the same colour.

If you use one of each colour, then logically, the 'score' (the little red and white pegs) would be the same, whether you mark the guess on the basis of the answer or vice versa, because each coloured peg only counts once, for example:

Code: Re-Gr-Bl-Ye
Guess: Pu-Pi-Re-Ye

If the code setter marks the guess on the basis of the code, the purple and pink score nothing, the red scores a little white peg and the yellow scores a little red peg.

If the code-setter marks the code on the basis of the guess, the green and blue score nothing, the red scores a little white peg and the yellow scores a little red peg.

So we get the same mark either way - a little red peg and a little white peg. So far so good.
Question: does this reciprocity hold if the code-setter is allowed to use two or more of the same colour? For example:

Code: Re-Gr-Rl-Ye
Guess: Pu-Pi-Ye-Bl

The purple, pink and blue score nothing, leaving a yellow, which scores a little white peg.

Now, with the same code, how do you mark...

Guess: Pu-Pi-Ye-Ye?

The purple and pink score nothing, there's one yellow in the correct place, which scores a little red peg, but what about the other yellow peg? In the absence of the correct yellow peg, it would have scored a little white peg. Some sort of logic and fairness says it gets nothing, because the yellow in the code has been 'used up'.

Further, if you were to mark the code according to the guess, you'd get the same result, the yellow in the code is in the 'correct' position, so that's one little red peg and the two reds and the green score nothing.

So, that's the question: if you are playing the sneaky version where the code setter is allowed to use the same colour more than once, can you ever have a code/guess combination where marking the code would give a different result to marking the answer?

Triodos Bank

Now, I am sure that Triodos Bank are very worthy and upright people, but just look at this taken from their website...

"The social businesses we finance work to improve and enrich the lives of millions of people; tackling inequality and injustice. And developing strong communities in the process. Triodos Bank's customers include microfinance banks in developing countries, innovative fair trade enterprises and social housing providers.

That is deeply annoying on so many levels.

1. "the social buinesses..." More bloody weasel words. All businesses are social you witless numpties.

2. "...Tackling inequality and injustice... So not making a profit then? So just why are you 'in business'? Aren't you really in welfarism?

3. "...fair trade... Just don't me started on this trade destroying protectionist mercantilist claptrap...(No wonder the EU apparatchiks love it).

...and there's much much more of this touchy feely guff all over their website. Why oh why don't they get it? The key civilising force for mankind is trade. Preferebaly free trade. You don't shoot your customers.

Grump grump grump.

Killer Arguments Against LVT, Not (196)

David Curry, who was a Tory MP until 2010, is a moderate LVT-supporter and has written a couple of articles in fairly obscure journals, such as this one in ROOF in 2007, which is mainly about s106 Agreements:

The discreet charms of the dear old section 106 agreements are now being aired... An alternative idea is for a flat rate levy to be applied per building: this has been trialled in Milton Keynes but it is difficult to draw too many conclusions from the exceptional circumstances of a new town.

But the real mystery is why Brown did not go for the really bold option: not a tax on land when it was coming into development but a tax when it wasn’t. In other words, a land value tax. This concept has some very distinguished proponents, including Martin Wolf of the FT and some American cities have picked up the idea. It would have sparked a much more constructive debate than the predictable discussion about planning gain.

Perhaps I have an inkling of the difficulty: if someone invited me to attack the idea of a land value tax I would reach for that most potent political weapon – the indignant pensioner! Imagine the granny, asset rich because of a property she bought 40 years earlier but cash poor. Then explain that she owes the government a sum with a bunch of noughts behind it because of the value of the land attached to her house – and take cover.

I don't get it.

Can't politicians just preface each article or speech on LVT by simply saying that "Pensioners' sole and main residences will be exempt, of course" and have done with it? It's a foul compromise, but one well worth making.
We know for a fact that politicians love dreaming up subsidies and meddling left, right and centre in the tax and welfare systems, which are largely 'man made', there is little or nothing by way of underlying philosophy or overarching vision, there are huge overlaps (double taxation), things which cancel themselves out* and lacunas (where the anti-avoidance provision to prevent abuse of a tax-break which morphs into a loophole itself causes further distortions ad infinitum).

We then end up with a tax system that looks like this (photo from Dumplinginahanky), bearing in mind that's just the legislation (in nine point type on thin paper), the guide books are twice as long again, and the legislation and guidance for the welfare system is twice as voluminous as that for the tax system:We could slim all this down to about five pages of legislation, and tack on a section at the end saying that pensioners' sole and main residences are exempt from LVT, job done.

* As evidence, the Lib Dems are making a big show of wanting to increase the income-tax/NIC free personal allowance to £10,000.

Do these morons not realise that the income tax/NIC-free personal allowance for a single earner already is £10,000? That happens to be the income level at which the PAYE deducted (plus Employer's NIC) and the Working Tax Credits net off to A Big Fat Zero. You can check the PAYE here and the WTC here, or just use the tax/benefits spreadsheets in my 'quick links' widget.

Reader's Letter Of The Day (2)

It's ages since I've had one in the FT:

Sir, Andrew Harvey-Smith (Letters, 23 February) recommends a tiered rate of corporation tax to help small and growing businesses.

The UK already has slightly lower rates of corporation tax for businesses with smaller profits, but corporation tax in itself is not really a barrier to growth. By definition, it cannot push a marginal business into making losses, or increase the losses of a start-up.

The real barrier to growth is value added tax. It is not just that crossing the registration threshold can leave a growing business worse off than before: the real issue is that VAT is payable whether a company is making profits or not, so in relative terms it is a lighter burden on large, established businesses than it is on marginal or growing ones. By acting as a barrier to entry, it could even be argued that taxing turnover rather than net profits is a subsidy to large businesses.

So a far simpler and better alternative to tiered corporation tax rates would be to reduce the standard rate of VAT and increase corporation tax rates accordingly.

Mark Wadsworth, etc

Thursday 23 February 2012

Reader's Letter Of The Day

From the FT:


Dennis Leech (Letters, February 22) attacks a piece of conventional wisdom, namely that bigger deficits lead to more debt. However, his argument is simply that the rise in debt will be smaller than the rise in gross domestic product, hence the debt to GDP ratio falls.

There is actually a far more fundamental weakness in the idea that deficits necessarily lead to more debt. This is that, as pointed out by J.M. Keynes in a letter to F.D. Roosevelt in 1933, the country can expand the deficit any amount it likes without any extra debt whatever, and simply by printing money.(1) Milton Friedman made the same point. And as for the idea that money-printing leads to inflation, those two great minds, fantastic as it might seem, thought of that [as] one.(2)

In practice, the latter is what we have done with quantitative easing.(3) The only nonsensical element remaining from QE is to continue counting debt in the hands of the central bank as debt. Those gilts might as well be torn up.(4)

Ralph Musgrave, Durham, UK

1) Printing money, i.e. bank notes, has ultimately the same effect as borrowing money. Bank notes are just non-interest bearing, low denomination government bearer securities. It would make little difference, in the grander scheme, whether the government gave somebody a suitcase with £1 million in bank notes in it, or whether the government issued him with a gilt with a face value of £1 million at a market interest rate.

2) I think there was a typo in the version as published.

3) QE is not actually printing money, it is just converting long term debt ("gilts") to short term debt ("deposits by commercial banks at the Bank of England"). The inflationary impact thereof is largely because this pushes down average interest rates (in the short term at least); the UK government was paying (say) 2.5% interest on the bonds it bought back and is only paying 0.5% on the deposits. So the people who have sold their higher yielding gilts and now hold low-yielding "cash" are looking round for something else to invest in (which leads to asset and commodity price bubbles).

4) "If you don't agree with any of it, why is this your reader's letter of the day?" you might ask. Well, firstly because Ralph is a blogging friend, and secondly because of the last two sentences - it's so nice to see them in print.

Remember: the deposits which the Bank of England has taken from the commercial banks are real debts*, and those have replaced the old debts (the gilts) - it's like you paying off your credit card debt by taking out a second mortgage on your house - so the old debts, the gilts themselves, the bits of paper, now merely serve as a record that one department of HM Treasury (the Debt Management Office) owes a different department (the Bank of England) money. But you cannot owe yourself money, can you?

* Merrily glossing over the fact that the Bank of England now owes a lot of these to nationalised banks, i.e. RBS or Lloyds could withdraw the deposits and use them to repay the soft loans which HM Treasury/the Bank of England gave them as part of the bank bail out of a couple of years ago etc.

Sex-selective abortion not in any way a 'cultural' issue: shock

According to Wiki:

A 2005 study estimated that over 90 million females were "missing" from the expected population in Afghanistan, Bangladesh, China, India, Pakistan, South Korea and Taiwan alone, and suggested that sex-selective abortion plays a role in this deficit. India's 2011 census shows a serious decline in the number of girls under the age of seven - activists believe eight million female fetuses may have been aborted between 2001 and 2011.

So it's not really a "western" thing and appears to be most common in south and east Asia. But see if you can guess the race/colour of the woman in the stock photo of "a woman looking remorseful after having had a sex-selective abortion" which the BBC use to illustrate their article on the subject.

Why not just draw on a Hitler moustache and have done with it?

Weird, totally weird.

We all know that Marie Colvin, who was killed at the age of 56, wore an eye patch because of an injury sustained ten years ago, when she was 46. Here's a photo of her grieving mother from today's Evening Standard, holding a picture of her daughter.

A cursory glance tells us that this is a picture of a much younger Marie Colvin pre-injury on which somebody has drawn the eyepatch with a black felt tip pen:This picture has been used elsewhere in the past couple of days, e.g. here and there's a close up of it here:What on earth were they thinking?

The c- word

From The Daily Mail:

ITV were forced to apologise today after a reporter covering a Downing Street football racism summit twice referred to black players as 'coloured'. Richard Pallot was talking about the lack of black managers in the game when he made the mistake..

After Mr Pallot used the same term, one Twitter user wrote to ITV: 'When was it okay to use the word coloured? And to make it worse is that you were talking about racism!' Another person said: 'Why do the itv news keep saying "coloured" when they mean black. It's a bit uncomfortable to listen to..'

I'm completely lost now.

Is it OK to say "black" again when referring to "African-Caribbeans" (this expression was briefly de rigeur a year or two ago; I don't think it ever caught on)? Are "black" people objecting to the term "coloured" because it sets them apart from "white" people or because it lumps them in with other "non-whites"? I suspect the latter, in which case they're as racist as anybody else.

Is it OK for "black" people to refer to themselves as "black" but not OK for "non-black" people to do so? Do non-black, non-white people also object to the term "coloured" because it lumps them in with "blacks"? What about Chinese or Japanese people who actually have white skin but in popular mythology are assumed to be "yellow", ditto Red Indians Native Americans, who are in appearance so close to Japanese as makes no difference?

We know for a fact that proper Indians (i.e. Hindus) don't like being referred to as "Asian" because that lumps them in with Pakistanis and Bangladeshis; the term "Asian" always struck me as idiotic anyway (as it is not used when referring to Siberians, Chinese etc).

In any event, perhaps Mr Pallot meant what he said as was bemoaning the lack of non-white football managers generally; for sure, there aren't (m)any "black" ones (as defined) but there aren't any Pakistani, Indian, Chinese etc. football managers either.

The comments under the article suggest that everybody else is as confused as I am.

Health Scare Stories Du Jour

1. From The Daily Mail:

Mothers who are struggling to get their babies to sleep should consider how much caffeine they are consuming, according to a breast feeding expert. Drinking coffee, tea and soft drinks and even eating chocolate increases the level of the stimulant in the blood. Babies can become restless, awake and irritable, when it is passed on through a mother's milk.

Dr Ruth Lawrence, editor of the journal Breastfeeding Medicine, said that babies have difficulties in breaking down and removing the drug from their bodies especially in their first two weeks of life. This can lead it to accumulate causing adverse symptoms...

The "first two weeks of life"? They'll get over it.

2. While tracking that one down, I stumbled across another coffee/breast related shocker from 2008:

Drinking more than three cups of coffee a day can apparently reduce the size of women's breasts. But it also reduces the risk of cancer, researchers say.

Swedish oncologist Dr Helena Jernstroem said a gene - which half of women have - could react and cause them to a drop a bra size. But she added: "Coffee-drinking women do not have to worry their breasts will shrink to nothing overnight. They will get smaller but the breasts aren't just going to disappear."

Hmm, small boobs or cancer? Not a tough choice, is it?

3. Finally, our GPs are so incompetent, they can't tell whether a patient is alive or dead:

Doctors were receiving money for more than 95,000 people who should have been removed from practice lists in England and Wales, investigators found. Some payments were made for patients who died more 40 years ago.

But many more ghosts may yet be uncovered; there are 52.5 million people in England but 55 million names registered with GPs. With doctors being paid £65 for each patient on their lists, it could mean as much as £162million a year is lost to the NHS...

However, the British Medical Association warned there were reports of ‘over-zealous list cleaners’ removing valid – often vulnerable – patients.

They calculated the £162 million as 2.5 million duplicate/non-existent patients x £65 a year. That's probably woefully understated, as there must be some people who aren't registered with a GP at all.

Interesting use of the word 'vulnerable'. If they come in for regular treatment, then clearly they are valid patients and are not being neglected; if they don't, then why don't the GPs try and track them down to find out why not?

Location, location, location

From yesterday's Evening Standard:
The maths of this is absolutely staggering. A selling price of £1,000/square foot internal area = £9,000/square yard, minus a generous £2,000/square yard construction cost = £7,000/square yard location value x ten storeys high = £70,000/square yard location value.

Knock off one-third for shared internal areas of the building and assume that the building occupies half the land and half is for car parking or other open spaces gets you to £110 million/acre. For comparison, a very large site in Chelsea was bought/sold for £78 million/acre a few years ago; The Battersea Power Station site, being on the 'wrong side of the river' was sold for a relatively modest £10 million per acre six years ago.

You can do your own workings for the value of a site in the poshest bits of west central London where flats sell for £2,800 per square foot. I reckon that a square yard of that land costs as much as a whole house and garden in cheaper parts of the UK.

Wednesday 22 February 2012

Here comes trouble!

"Bull kills farm worker"

The cattle are getting really vicious over in Cyprus:

A 23-YEAR-OLD worker was killed this morning after he was attacked by a bull at a cattle farm in Troulli village in Larnaca.

The Vietnamese man, who was employed at the farm, was kneeling facing a water fountain at a fenced off area for bulls and cows at around 9am. The 23-year-old had his back to the bull when it attacked him, goring him multiple times before other workers managed to tie the animal down. It is not known why the bull attacked.

District labour inspector Giorgos Ioannou said the 23-year-old died instantly; he was unconscious when he was taken to Larnaca General Hospital where doctors confirmed his death. A post mortem is scheduled for today.

I should think so too!

From The Evening Standard:

Almost 160,000 children start smoking every year in the UK (1) - enough to fill around 5,200 classrooms, a charity warned. The 157,000 children aged 11 to 15 who take up the habit every year could also make up 14,000 junior football teams (2), according to Cancer Research UK.

The charity, which supports a move to plain packaging for tobacco (3), says eight out of 10 people start smoking before they are 19 and more must be done to prevent youngsters starting. The data refers to the proportion of children in an age group who were smoking a year after first saying they were smokers. Almost a million under 15s - more than a quarter (27%) of all children - have tried smoking at least once. (4)

1) About a fifth of adults are regular smokers, and there are about 800,000 children born each year, so by and large, we'd expect a fifth of them to take up smoking = 160,000.

2) Yes, we get it. 160,000 children = 5,200 classes, 14,000 football teams, 32,000 five-a-side teams, 10 army divisions or 1 very long conga line.

3) Aha. It seems like only yesterday they were telling us that when people start smoking, they consider themselves "a social smoker and not an addicted smoker because they never smoked alone, they never bought cigarettes and they smoked only when they were drinking." So if they don't buy cigarettes in the first place, how can the packaging influence their buying decisions?

4) That seems about right, when I was a lad, maybe a quarter of the class used to go for the occasional foray "behind the bike sheds", or in our case, across the road in the public park.

The Falklands: free market fun

From today's CityAM Forum:

... the governments of the United Kingdom and Argentina would agree that those Falklanders who were qualified to vote would be allowed to do so in a referendum. The referendum would allow the settlers – who are English-speaking and English by custom, institutions and loyalties – to vote on whether they prefer the status quo, or whether they would agree ("yes") to an Argentine takeover...

The referendum would be designed so that Argentina could offer a cash incentive. Before the referendum, Argentina would deposit an amount (let’s say $500,000) in escrow in Swiss bank accounts for every man, woman and child who had proven their Falklands residence prior to the referendum.

If the referendum went in Argentina’s favour... then the funds in escrow would be transferred and Argentina’s unambiguous sovereignty over the Falklands would be established. Argentina’s cost, in this hypothetical, would be about $1.6bn.

Also relevant is that the UK spends on average about £100 million a year maintaining a military presence on the Falkland Islands.

Unfortunately, we don't know whether or how much oil is down there or what it's worth, this is important as well. If it is worth a huge amount like £20 billion, then the UK government would offer a larger counter-bribe to persuade the islanders to vote "no".

Spreading the Word

Courtesy of Douglas Carswells blog, I found this.

Here's what they say about...


In economics laissez-faire is an environment in which private parties are free to trade and transact in the absence of state intervention. State intervention can take the form of capital controls (human and financial), regulations, taxes, tariffs and enforced monopolies. Laissez-faire is a French phrase and literally translated means “let do”, but more broadly it means “let it be”, or “leave it alone”. Much of the debates within economic and political circles centre around to what extent economies should be left to operate on a laissez-faire basis.

A number of prominent gold investors are intellectually aligned with the Austrian school of economic thought and argue that it is in fact intervention in our money and markets that has caused the gross imbalances in our financial system that manifested themselves in 2008. Whilst the heart of these arguments centres around a flawed monetary system and the problematic effects of central banks (cited as an apparent cartel) gold investors such as Peter Schiff argue that intervention in various markets is responsible for many of our economic woes.

This political interference is said to have distorted market forces and pricing, with the manipulation of interest rates and provision of credit being most obviously visible. Such manipulation of interest rates and credit, for example, enables politicians to purse their goals of increased home-ownership above what would be possible under a normally functioning market.

Here endeth.

More wilful misreporting of Greek bail out

by The Metro:

After more than 12 hours of gruelling talks, eurozone ministers agreed a £200billion rescue deal that would save the country from bankruptcy.*

As part of the plan, £90billion of debt will be wiped out and interest rates on loans will be slashed. A further £108billion will also be loaned to the country to help it get back on its feet.

In exchange, Greece has agreed to cut pay, public sector jobs and spending as well as find £270 million of savings** in this year’s national budget. Next month, the IMF will decide how much to contribute to the package but if it is the same as last time, Britain could be made to hand over £1.6 billion***.

Nope, you cannot add £90 billion to £108 billion; you have to deduct £108 billion from £200 billion to arrive at the real answer +/- £90 billion, which is the value of debts from which Greece has been released.

What happened was that the EU/ECB/IMF gave existing existing creditors (who were owed £200 billion) £108 billion and told them to clear off, so now Greece owes the EU/ECB/IMF £108 billion instead of owing the existing creditors £200 billion.

* Countries can't and don't go bankrupt. They either default or are subsumed into a larger country, by consent or by force.

** To put £270 million into perspective, Greece's population and GDP are approx. one-fifth of the UK's, in other words, £270 million in their terms is £1.4 billion in our terms, i.e. still peanuts.

*** We will, hopefully, get most of that £1.6 billion back, sooner or later, as it is a loan not a gift; further, the chances are that this £1.6 billion will end up being paid to UK banks anyway. So this is not A Good Thing but it is hardly A Disaster, given the scale of UK bank bail outs so far.

Tuesday 21 February 2012

Tax/benefits spreadsheet for future reference

For general reference, I have prepared a Zoho Sheet showing how much tax people actually pay under the current tax/benefit system (it's more than you think, because of all the stealth taxes), and just for fun, I tacked on what your tax bills would be if I were in charge. To save arguments, let's assume that pensioners' main residences are exempt from LVT, so the comparative figures do not apply to them.

I'm sure you're all familiar with the current tax/benefits system, so that needs little explanation. I explained my suggested tax system here and my suggested Citizen's Income scheme here.

The much vaunted "130 billion-euro bailout for Greece" is not a "130 billion-euro bailout", is it?

Some wilful misreporting by the likes of the BBC has enabled them to dredge up some splendid rent-a-quotes:

"The funds that are coming in are not staying in Greece, are not being invested in Greece, are not here to help the Greeks get out of this crisis," Constantine Michalos, president of the Athens Chamber of Commerce and Industry, told the BBC, "It's simply to repay the banks, so that they can retain their balance sheets on the profit side."

Anastasis Chrisopoulos, a 31-year-old Athens taxi driver, saw no reason to cheer the bailout. "So what?" he told Reuters, "Things will only get worse. We have reached a point where we're trying to figure out how to survive just the next day, let alone the next 10 days, the next month, the next year."

The BBC have presented the Greek "bailout" as if it were two entirely separate transactions: a new €130 billion loan from the EU/ECB; and an agreement with private creditors (i.e. private holders of Greek government bonds) that they will reduce their claims to 53.5% of their face value of €200 billion-odd. That makes it look like Greece comes out with €227 billion of spare cash, which is patently untrue, the net figure is more or less zero. Then there are the "austerity measures" which are a separate issue - they relate to future spending plans and not existing debts.

Actually, Mr Michalos has it spot on, there is no intention for very much of that €130 billion to go into "the Greek economy" (to the extent they still have one).

The real substance of the transaction is that Greece is defaulting pure and simple, which we can all understand, that's the same as private creditors agreeing to waive 46.5% of their claims. There's a sneaky way that Greece could have done this, which is to simply go round buying back €200 billion of its own debt for its market value of (say) 53.5% of face value = €107 billion. You can't owe yourself money, so those claims cease to exist, and Greece's debts would have been reduced to the €107 billion it has to borrow to finance the buy back (it will borrow this money from the EU/ECB, as we shall see).

For reasons unknown to me, in central banking circles, it is considered very ungentlemanly to buy back your own debt at a discount to face value, so they have to dress this up a bit (issue new bonds with a much lower face value + pay a bit of hard cash in exchange for old ones with a €200 billion face value etc), but the bulk of the €130 billion from the EU/ECB will in fact end up in the pockets of the private creditors who have agreed to take that €93 billion loss on the chin.

As Al Arabiya explains:

The private creditor bond exchange is expected to launch on March 8 and complete three days later, Athens said on Saturday. That means a 14.5-billion-euro bond repayment due on March 20 would be restructured, allowing Greece to avoid default.

The vast majority of the funds in the 130-billion-euro program will be used to finance the bond swap and ensure Greece's banking system remains stable: 30 billion euros will go to "sweeteners" to get the private sector to sign up to the swap, 23 billion will go to recapitalize Greek banks.

A further 35 billion will allow Greece to finance the buying back of the bonds, and 5.7 billion will go to paying off the interest accrued on the bonds being traded in. Next to nothing will go directly to help the Greek economy.

Yup, 14.5 + 30 + 23 + 35 + 5.7 = €108.2 billion goes to the private creditors. That leaves €21.8 billion on the side to cover a handsome commission for Goldman Sachs and interest/debt repayments falling due in the next couple of months until it is all gone.

But so what? If I were a Greek, I'd be eternally grateful to all these private creditors for agreeing to write off half their debts, not whining and moaning.

There were thirteen social smokers, standing on a wall...

From NZ Herald:

Those who dabble in social smoking count themselves among non-smokers and look down on those who do smoke, a new study suggests. A qualitiative study published in the journal Tobacco Control shows that many people who socially smoke have conflicted personalities - disassociating themselves from smokers.

Many of those interviewed as part of the study were also plagued with feelings of remorse and regret the morning after they indulged their occasional habit...

Wot? "plagued with feelings of remorse and regret"? They didn't get drunk and crash a car, punch a colleague or get pregnant by a complete stranger or anything, they stepped outside the pub and smoked a few cigarettes in the company of their friends. And what did this study actually consist of..?

The study recruited and interviewed 13 social smokers aged between 19 and 25... The study, titled Social Smokers' Management of Conflicted Identities, was carried out over the period of a month early last year. The five authors looked at social smoking because they suspected it was riddled with contradictions, she said. Interviewers carried out one-on-one conversations with participants to tease out different questions.

Yup, it takes five 'authors' to interrogate thirteen people until they get the answers they want. What kind of answer might they have been looking for..?

The authors are members of ASPIRE2025, a research collaboration that had been tasked with carrying out research to test and evaluate different policies and interventions to achieve the Government's goal of being smoke-free by 2025, said Dr Hoek.

So not biased then. Chuck in a lie for good measure:

"From our perspective, I think there's a real public health problem here because we know that smoking does become very addictive very quickly for some people. Some people find that they're addicted in fewer than three weeks which is really astonishingly quick when you think about it. So we have to come up with ways to minimise this behaviour."

Not true. Some people become addicted to smoking very quickly, others smoke one cigarette and are put off for life, and there is a happy bunch of maybe a fifth of the population who smoke on a Friday down the pub and wouldn't dream of smoking during the week.

Once suitably water-boarded and sleep deprived, what did these social smokers, " plagued with feelings of remorse and regret" plead for..?

Twelve of the thirteen participants thought introducing smoke-free areas outside bars and restaurants was a good idea to help curb the social smoking habit.

The thirteenth has probably been subjected to an extraordinary rendition or something.

Your money, well spent.

As background, BME Health/Ethnic Health Initiative is "a dynamic voluntary sector social enterprise providing education, health, and well being programmes in the community. We work in partnership with statutory and 3rd sector organisations to offer localised, culturally appropriate information, advice, support and learning opportunities tailored to the needs of our clients in order to promote inclusion and effective integration into mainstream life. We also provide external consultancy, advice and management of events."

A fakecharity, in other words.

For some reason, I'm on their email list and for anybody who's interested, here's an overview of their upcoming conference:

Spirit possession is recognised world wide across many cultures and by several religions. Spirit possession is often seen as an idiom of distress causing a change in behaviour and mental well being. Spirit possession is also included in the ICD 10 and DSM IV classifications of mental disorders, yet the extent to which it is recognised and / or discussed in clinical practice is less than we would expect, even in UK cities where there resides a diverse population.

This one day event will consider the critical themes and debates on spirit possession from an anthropological, social, psychological, medical and religious perspective using a range of illustrative case study, clinical practice, research and short film presentations.

Going by the picture, I think they mean it deadly seriously. Whatever next? They'll be saying that our hereditary monarch was chosen by a god and appointing bishops to the upper chamber of parliament or something... ah... right.

Monday 20 February 2012

Comments policy

When I set up this 'blog, I chose the setting which allowed anybody to comment, anonymously or otherwise, no word verification, nothing, I also allowed people to delete their own comments if they changed their minds, because the right to remain silent is as important as the right to free speech. I enjoy the debate in the comments as much as the actual posting, so I wanted to make it easy for people to comment, it is sometimes a right old faff logging on etc.

So much to lofty principles.

I started getting a lot of spam comments after a couple of years, at which stage I added the word verification thingy, which reduced the amount of spam comments by half. Sometimes that thing generated quite nice words, which added to the fun. A couple of weeks later I added comment moderation for posts older than seven days, which reduced spam comments to tolerable levels, two or three a day - I could never understand why some people set up comment moderation for all comments from the day they set up their 'blog, it takes all the fun out of it. I (and presumably most people) get very few genuine comments on posts older than seven days, so approving them - or waiting for them to be approved - was no big burden on me or thee.

A year or so ago, Blogger set up some auto-spam filter, which worked surprisingly well, it would send over half of spam comments straight to spam and only about one in a hundred genuine comments, which were easily rescued.

So far so good. Some 'bloggers have abandoned the Blogger comments function and gone over to using Disqus - because that enables you to block trolls and have threaded comments - but I don't really like that one (some offices have a function which won't let people use it at work, pah, in any event, I'm not that enamoured with threaded comments) plus I'm not very good at all this Internet functionality malarkey. Actually, I don't really mind trolls (yes, that means you, Comrade Fuckov), it's all part of the rich tapestry of the internet and I have, with misgivings, deleted about half a dozen of the most vitriolic ones over the four-and-a-half years I've been 'blogging.

Recently, Blogger abandoned the old word verification, which usually worked on the first attempt and replaced it with this nonsense:I noticed it on other people's 'blogs but didn't realise that mine was doing it until somebody complained about it, it is truly a pain in the neck, you're lucky if you get it on the second attempt.

So I turned off the word veri a few days ago and was promptly bombarded with spam comments again. Three-quarters needed moderation (because they were on posts older than my new shorter time limit of four days), which is easy enough, but it still wastes quarter of an hour a day telling Blogger that spam comments are in fact spam comments and checking and deleting the ones that slipped through the net.

So my latest move is to require people to log on, using Google, LiveJournal, WordPress, TypePad or AOL Instant Messenger*, but at least you don't have to bother with the word veri as well, people are probably better at typing their own passwords than battling with the illegible crap pictured above, and I've set comment moderation for posts older than seven days again

I apologise for the extra faff logging on. Please note it is not about filtering out genuine comments - be they for or against whatever I said - it's about reducing spam, so let's see how it goes, it's a trade-off between reducing spam and not getting a good debate going, I suppose.

* If you have never got round to setting up one of these accounts and you are in a hurry, I'd recommend WordPress. I once set up a whole 'blog using WordPress and it only took me about ten minutes, so getting a basic account is probably the work of two minutes.

Awesome rebranding exercises

Beyond satire:


Queens Cross Housing Association in Glasgow has undergone a brand identity developed in conjunction with Stand and a working group of staff and tenants. The new logo is the first rebrand for the 35 year old housing organisation, which manages nearly 4,500 properties along the Forth and Clyde Canal area of Glasgow.It was made up of a circle, wavy line and sideways C. The circle is said to represent community and togetherness, and the wavy line represents the land, joining together to make the Q. The sideways C inside the Q represents the horizon over the land.


Thames Valley Housing Association (TVHA), one of the largest affordable homes providers in the South East, has launched Fizzy Living, a new residential rental business which will provide apartments for young professionals.

TVHA's new initiative offers a long-term solution to providing private rental accommodation on a large scale. With a new subsidiary called Fizzy Living, TVHA intends to create a portfolio of more than 1,000 new homes aimed at young professionals in London and the South East.

TVHA appointed branding agency Heavenly, after a competitive tender, to help create the Fizzy brand, ensuring it appeals to a core audience of 25-34 year old self-styled "rentysomethings".

Fun Online Polls: Deportation, extradition & Haye v Chisora

The results of last week's Trial By Internet are as follows, with 129 people voting:

Whom would you (have) deport(ed) or extradite(d)?

Abu Hamza - 116 votes
Abu Qatada - 107 votes

The NatWest Three - 25 votes
Gary McKinnon - 21 votes
Christopher Tappin - 17 votes
Richard O'Dwyer - 12 votes

So on a simple majority basis, it's "on your bike" to the two Mad Mullahs and the others can heave a sigh of relief. All charges dropped, convictions expunged, all forgiven and forgotten, but let that be a warning and please don't do it again (whatever it was you did).
I don't know much about the scoring system in boxing matches, so I'm not sure who won the splendid impromptu punch-up between David Haye and Dereck Chisora, starting at about 2 minutes in: So I shall throw it open to the floor for this week's Fun Online Poll.

Please award your points using the widget in the sidebar.

"The huge bison can go from calm and placid to 'full attack mode' in seconds"

From The Daily Mail:

Deep in the forest, the thunder of mighty hooves announced a momentous arrival. Woolly bison, the largest European land mammal, are back in Britain.

Three young males from a captive breeding programme have been introduced to the New Forest Wildlife Park near Longdown, Hampshire. It is hoped they will soon have some female company so the park can begin breeding its own herd of the 6ft-plus beasts which became extinct in the wild in 1919, with a worldwide captive population of only 54.

Park manager Jason Palmer warned: "They weigh about a ton and they’re quite fast – you should never try to outrun them. They are quite temperamental animals but quite fascinating as well - one minute they can appear calm and placid and the next they can be in full attack mode."

Righty-ho, let's cross New Forest Wildlife Park off our holiday list.

"Alcohol abuse to kill entire population of the UK"

From The Metro:

More than 60 million people - equivalent to the entire population of the UK - could die early from alcohol abuse in the next six millennia if trends continue, it has been revealed.

About 20 million of these preventable deaths in England and Wales would be from liver disease while others are predicted to be from accidents, violence and chronic illnesses linked to drink, according to experts in The Lancet journal online.

The prediction is an improvement on the 75 million avoidable deaths envisaged last year. But signs suggest alcohol-related liver deaths, which represent about a quarter of all deaths from alcohol, are increasing following a dip, the experts say.

Sunday 19 February 2012

Savings Myths

This general set of related topics was suggested by Chef Dave in a comment to my recent post on why the Multiplier Effect is a load of nonsense. We know that politicians love waffling on about "encourage people to save" or bemoaning a "low savings ratio" and so on in order to justify all manner of counter-productive policies, but what on earth does this mean in practice..?

1. First of all you have to decide for yourself what "savings" really are, or what the point of doing it is, and whether "savings" is not an aim in itself but merely the result of "people and businesses behaving rationally", in which case, there is no need for a government to do anything to "encourage saving" and it is quite sufficient to simply get rid of all the policies which discourage people and businesses from acting rationally.

2. Secondly, you have to decide how to measure "savings" or "the savings ratio" and if it cannot be done, then it would be impossibly to judge the success or failure of any policies designed to "encourage savings" in the first place. As far as I can see, the most important thing is looking at the actual substance of savings, wealth and investments in general, which i will lump together as SWIG for sake of a better word.

3. True SWIG is the actual productive capacity of the whole economy, taking public and private sector, businesses, households and individuals together. If businesses become more profitable, if output, employment and wages go up, then this is an increase in SWIG. We can argue the merits of the constituent parts, what is better - higher employment at lower wage rates or lower employment at higher wage rates? What is better - higher business profits or higher wages? But this level of detail is best left to market forces and are difficult to measure anyway - for example, does the income of a self-employed person count as 'profits' or 'wages'?

4. A fair measure of the total productive capacity are 'macro' things like GDP, or GNP if you want to subtract net imports. Of course these include 'made up figures' but as long as they are prepared consistently then an increase is good and a fall is bad. Employment and total wages can also be measured reasonably accurately, but quite what the level of unemployment is depends largely on how you define unemployment.

5. GDP and suchlike measures merely measure the flow or creation of wealth over a month or a year, and not the stock of SWIG at a fixed point in time. Is there any reliable way of measuring the actual stock of SWIG at any one point in time? To my mind, it is nigh impossible, or requires so many judgment calls as to be meaningless:

a. Total market capitalisation of companies, i.e. the market value of shares in issue and outstanding debt is unreliable, because share prices fluctuate a lot for reasons other than underlying profits, for example if profits go down by a tenth but interest rates fall by a fifth, then share and bond prices might still go up.

b. Land values (above and beyond bricks and mortar) are irrelevant, as they merely represent capitalised value of the future transfers of wealth from productive economy to land-owners, so for every £ in the selling price of land, there is a latent liability on everybody else to pay £1 in future. One man's gain by 'investing in land' may make sense on an individual level is less than the other man's loss on a macro-level. The value of bricks and mortar is not that reliable either. Although replacement cost can be measured, there are plenty of houses built which end up being worth less than what they cost to build, as happens when a land price bubble bursts (see ghost estates in Ireland, Spain, USA) or if you build a new house in an area prone to flooding or subsidence.

c. Cash in the bank is unreliable, it merely represents a claim on the bank's total assets, so we have to look through to how the bank has lent that money (or how the bank lent money to give rise to the deposits), which in turn gives the bank part-ownership of the assets of the borrower. If it was lending to productive businesses, then it would be sufficient to look at the income and assets of the borrowing businesses, if it is lending on (inflated) land values then this is not real wealth at all.

d. Money invested in government bonds or the future value of a public sector worker's pension is offset by an equal and opposite liability on the taxpayer, so that's meaningless, and because the recipient applies a higher discount rate to the likely receipt (uncertainty) than the payer applies to the liability (prudence), we actually end up with a net negative.

e. It is meaningless just to look at the assets of private sector businesses without looking at the corresponding assets of households. So if a hotel has TV sets in all of its rooms, or a launderette has washing machines, or a delivery company owns cars, those are worth no more or less than the TVs, washing machines and cars owned by private households. And how do you measure the value, even if you could count them all up? Replacement cost, value in use, depreciated cost, selling value? All these measures give quite different values.

6. Then we have the point that there is a fixed amount of SWIG (even though we have no real idea what it is worth in £'s at any one point in time), albeit hopefully growing at 3% or 4% a year, and that growth is simply down to businesses becoming more efficient or specialised as we get clever and cleverer in what we do. So that growth will happen anyway, who ends up owning it is a secondary issue.

7. On an individual level, of course any individual can be a net cash saver or a net cash borrower. It would be quite possible for every individual to have a small positive level of cash savings if the other side of the equation is a loan by the bank to a productive businesses (see 5c. above). This equation is self-correcting as regards productive investment - if everybody wants to save, then interest rates go down so more businesses can start up, or interest rates are so low that fewer people want to save.

If people's total cash in the bank is above and beyond that level required to fund true SWIG, then the chances are that the excess has merely gone into inflated land values or inflated share prices. Unfortunately, these bubbles become self-sustaining for a while, because people think that capital gains alone will pay off the interest, which is impossible in the long run (see 5 b.), and this all reduces total SWIG.

8. Further, the ideal savings ratio for any individual over his or her lifetime is precisely zero, by all means, borrow to finance your education or buy a house; then pay off those debts as fast as you can; then build up a surplus for a rainy day or retirement, but from a certain age, you maximise your own utility by spending it all again, because you can't take it with you. Unless it gives you greater happiness in your old age to give money to your children and grandchildren, which is an emotional thing, not an economic thing.
Having established all that, let's have a detailed look at some of the savings theories and counter-productive policies doing the rounds:

8. The Austrian Theory of The Business Cycle "emerges straightforwardly from a simple comparison of savings-induced growth, which is sustainable, with a credit-induced boom, which is not."

There is no need for anybody to make a conscious decision to "save" to kick start anything. Underlying all this SWIG is the rational impulse of an entrepreneur to make more profits in future than he does today. Sometimes this involves spending money he has saved up, or working unpaid for himself, or persuading others to work for the business for low wages in exchange for getting a share in the business. Even if the entrepreneur borrows money from the bank, this is just a long-winded way for people who work for other employers reducing their disposable income in exchange for a share of profits in his business. (The same logic applies to studying or apprenticeships - lower wages or even running up debts for a few years in exchange for much higher wages in future. Employees are just entrepreneurs with only one customer - their employer.)

I would heartily agree with them that credit-induced booms are not sustainable, but they have a blind spot when it comes to describing the flip side of the credit induced boom - inflated land prices, and the obvious way of preventing those booms - shifting taxes from incomes to land values is anathema to them.

9. The Paradox of Thrift: "The narrow claim transparently contradicts this assumption [that what is true of the parts must be true of the whole], and the broad one does so by implication, because while individual thrift is generally averred to be good for the economy, the paradox of thrift holds that collective thrift may be bad for the economy.

Yes, it would be true that if all private households tried to spend as little as possible, the economy would soon collapse to a mere subsistence level. To some extent this effect explains recessions - when people are worried for the future, they spend less, so some businesses go out of business, then people get more worried etc in a vicious circle.

Further, it's easy to imagine that private households save by leaving cash in the bank (which is not really saving, on a macro level) but what about businesses? For them, real saving is reinvesting profits in greater capacity, so goods and services get cheaper until all but the parsimonious can no longer resist buying stuff, and under the 'paradox of thrift', business wouldn't be investing at all they would be running down plant and machinery, shedding staff and hoarding cash - does this count as saving or as dis-saving?

Finally, this paradox is never going to happen in practice, we are in the worst recession/depression since the 1930s but in most countries, GDP is only down five or ten percent (the same as in the 1930s). So any suggested solutions to the 'paradox' is tilting at windmills, we might as well devote the whole of our economy to dealing with the possible effects of the impact of a massive meteor (or climate change or something equally unlikely).

10. Some take this faintly silly argument to a dangerous conclusion: "Keynesians [who know little of what Keynes actually said, he was far more nuanced that this] argue that a liquidity trap means fiscal policy becomes very important for getting an economy out of a recession... The argument is that the rise in private sector saving needs to be offset by a rise in public borrowing. Thus government intervention can make use of the rise in private saving and inject spending into the economy. This government spending increases aggregate demand and leads to higher economic growth."

That site gives the monetarist counter argument to that. To my mind it's nonsense anyway.

a. There are things which only the government can do (such as overriding the interests of NIMBYs and other vested interests), some of these things are always worth doing, some are never worth doing. Some of these projects might not make sense when labour costs are high but might make sense during a recession when labour costs are lower, and contractors are willing to accept lower prices, but that's just common sense.

b. Doesn't this trample all over the freedom of the individual to save? What's the point in saving if the government is running up debts on your behalf - in the current context, by taking wealth from cash savers and transferring it to borrowers (land speculators and banks), which reduces SWIG.

c. Further, people worry a lot about large government deficits, so even if the government could find stuff worth spending money on (and they can't, we are way past that point), this extra worry might make people save even harder, thus exacerbating things under the Paradox of Thrift - see 9.

11. Then we have politicians wailing on about the savings ratio, a high savings ratio is seen as A Good Thing, this is more bunkum

a. The politicians have contradicted themselves completely by first wailing on about the Paradox of Thrift and using it to justify deficit spending and then trying to encourage saving at the same time. Even more bizarrely, they justify deficits by saying that it makes it easier for the private sector to save (do they want them to do so or not?) if the public sector is running up debts, it's perfectly circular non-logic.

b. The charts in Tutor2U (1980 - 1999, see previous link) and the chart here (1987 to 2009) show that the savings ratio is merely the mirror image of credit/land price bubbles. So if you want people to save (in the sense of genuine savings i.e. genuine increases in SWIG), the best thing is to prevent credit/land price bubbles (see 5b.).

c. Those charts mainly show the level of cash savings, which are in themselves an unreliable measure of real savings, i.e. real increases in SWIG (see 5c.). If you want to measure real SWIG, there are far better ways of going about it (i.e. to look at real GNP, or GDP minus net imports).

12. Then we have politicians wailing that people should be "encouraged to save", which all sounds very motherhood-and-apple-pie but leads to more nonsensical policies.

a. Some people will save anyway, some people (and i am one) will always try to restrict their spending to less than what they earn for fear that one day they will earn less. Some people will never save, regardless of the incentives. There is a small minority who wouldn't bother saving but for the incentives. These incentives are hugely expensive and incredibly badly targeted (they only affect the behaviour of the small minority and incentives paid to those who would have saved anyway are a waste of money). Finally, who pays for these incentives? Not the savers, but the non-savers. So this means that non-savers have even less money left over which they could save; and the small minority who "save" might not be net savers at all, they might just underpay their mortgage to take advantage of the incentives.

b. Tax arbitrage wipes out most of the gains to savers. Interest earned on cash in an Individual Savings Account is exempt from tax. Well big deal, all that happens is that banks offer lower interest rates on ISA accounts. The same larceny applies on a grand scale with pension funds. By and large, the return which a basic rate taxpayer gets by chipping post-tax income of £x into stocks and shares every month, or into a cheap tracker fund, will give him the same net-of-tax income in retirement (but with a lot more flexibility) as chipping in £x to an official pension fund.

c. There's a limited pool of SWIG for people to invest in. The total dividends paid out by UK plc's last year was £65 billion. The main asset of UK pension funds is shares, so the main source of income for pensions is dividends. There are 12 million people of pension age in the UK, so even if they'd all diligently saved into private pensions, then for every pensioner who gets a private pension of more than £5,400 a year, there's somebody who's getting less. These glossy adverts by private pensions companies which suggest that we can all have a super-comfy lifestyle in retirement are clearly bunk. For every couple who does, another couples can't, it's that simple. It's as insane as the Home-Owner-Ist idea that we can all be landlords and live off rental income, or that buying land is "investing".

13. Successive UK governments simply can't make up their tiny minds whether they want to encourage or discourage pension saving. As Iain Duncan Smith (the current welfare & pensions minister) points out in that second article, spending more taxpayers' money on a means-tested type of old age pension (Pensions Credit) actively discourages lower income people from saving up, because every £1 extra private pension (or investment income) they get means £1 less taxpayer-funded pension. So a good place to start is to have a non-means tested Citizen's Pension and leave people to their own devices if they want more than that.

14. Finally, we have the myth that rising house prices are a kind of saving or investment and should be treated as favourably as cash savings. They are not a kind of saving at all, they are merely a measure of how much wealth is being transferred from one group to another (see 5b.), best case, they purely paper capital gains and not real wealth at all. The interests of cash savers (to the extent that cash on deposit represents real savings on a macro-level, even if they are savings at individual or micro-level) and land-owners, particularly the highly leveraged speculators, which includes a lot of owner-occupiers are diametrically opposed and current government policies (low interest rates and corresponding high inflation) clearly favour the interests of those sitting on paper gains and are a kick in the teeth for those who have always lived within their means and put some money away.
Right, that's enough to be getting on with, time for a coffee and cigarette in the back garden before the sun goes down.