Thursday 30 November 2017

When is land banking not land banking? (2)

When it isn't, says Sobers. As a landowner/developer he sticks to the party line that it's all the government's fault:

... there is no way the developer can build houses for much less than he has budgeted for, once the planning is signed and sealed. If the market drops, and houses aren't worth enough to cover the already agreed s.106 costs (or indeed any site specific infrastructure costs) then the project gets mothballed. No-one is going to build houses if it means you lose tens of thousands on every one.

That is why developers have large banks of land with extant planning permissions, they have to keep the price of houses up to make the numbers add up. The State already HAS a development land tax, its called the s.106 agreement system. That is why the price of houses is so high, the State is setting a fixed tax on every house that is sold. Not a % of the value, a fixed cash amount. And if the house doesn't sell for enough to cover that fixed amount plus the cost of building it, then it doesn't get built, as simple as that.


To fight him on his chosen turf, this is part of the explanation of why some projects are mothballed in a downturn. We note that the downturn was the period 2008-2010. Since then, prices have been ticking up in most areas, shooting up in some. Funnily enough, volumes have not increased, they have stuck to the time-honoured profit maximising level of "one new home for every nine existing homes bought and sold".

So this has naff all to do with land banking, as such. It certainly does not refute the observation that house builders are ruthless profit maximisers, unaffected by anything as troublesome as "competition". As I said in the earlier post, these land banks are just symptoms of their monopolistic position and not a problem in themselves.
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To go into a bit more depth...

1. It's not just the s106 payments/obligations. Between bare site and finished, occupied home, the farmer pays CGT on his profit, the developer pays SDLT on the land he buys, the council charges planning fees, imposes an affordable housing quota, charges Community Infrastructure Levy and s106 agreements, and the new owner pays another layer of SDLT.

These all act as a kind of "development land tax", which clearly discourages development. On the other hand, home builders can reclaim all input VAT (but do not have to charge it) and benefit from Help To Buy and similar subsidies.

It can't be too difficult to work out what the net revenues are (taxes minus subsidies) and replace it with a flat rate LVT that is approximately fiscally neutral, and applies as soon as planning permission is given (with maybe a grace period of a few months or a year). Which would encourage development.

2. As I learned at the one-day RICS conference I attended, it is quite clear that town planners know perfectly well that by granting planning, they are also granting massive unearned windfall gains to landowners and they try and claw as much of this back as possible (planning fees, affordable housing quotas etc).

We also know that if there's any sort of a downturn, developers do go back to councils and haggle them down with so-called viability assessments.

These viability assessments always start with the original price paid for the land as a "cost", which ought to be taken as zero in all cases - or else developers can wriggle out of their commitments by selling to another developer for a higher price. Funnily enough, councils don't haggle them back up again if there's a subsequent upturn. So it is not a fixed cash amount anyway.

It is, as Sobers says, all a kind of tax. But it is a million miles from being a "fixed cash amount", it is very much a percentage of the available windfall gain. Councils in the south east can claw back up to £100,000 per home; in Newcastle it's only £10,000 per home.

3. In real life, the selling price of existing homes dictates the selling price of new homes; which in turn dictates the amount of planning gain the council can claw back. Sobers gets it completely arse-backwards and suggests that the amount the council claws back dictates the price of new homes; which in turn dictates the price of existing homes.

4. Even if Sobers' conclusion were correct (it isn't), this is still no explanation for why the home builders cartel kept output low once the downturn finished and why they have since acquired enough surplus land  to cover ten years supply.

Let's contrast home builders with a free(ish), competitive market, like car manufacturing.

Ford, Volkswagen et al want to sell as many cars as possible; new cars have to sell for slightly more than cost to be viable, that's about it, the rest is about volume (spreading the fixed cost of development over as many units as possible) The price of new cars, and the number of cars available dictates the price of second hand cars. Which is quite the opposite of the situation with housing.

And yes, luxury sports car makers restrict output to keep prices high, which means that their cars maintain their resale value much better than Fords or Volkswagens - but as sure as heck, Porsche and Ferrari don't have massive warehouses somewhere, stashed with ten years' worth of raw materials.

Ford and Volkswagen don't have ten years' worth of finished cars that they are sitting in car parks, wailing that it's really difficult getting them through the initial MOT and blaming bureaucrats. Which, again, is quite the opposite of the situation with housing.

When is land banking not land banking?

When City AM says it isn't:

Hammond said the government will be commissioning a review of the gap between the number of planning permissions granted and the number of new homes being built. If developers are holding back land for “commercial, rather than technical” reasons, the government will intervene, Hammond said, using compulsory purchase powers if necessary...

According to analysis by Shelter, the current land bank of the ten largest listed developers could provide 404,040 homes. At the current rate developers build at, this land would take six years to develop... So, it is beyond doubt that developers own land they haven’t built on yet. But are they deliberately holding onto it to push up house prices?

Anthony Codling, a property market analyst at Jefferies Bank, says land-banking is a “myth”. He argues there are many other limiting factors behind the surplus land. Obtaining planning permission is difficult, there is a limited workforce, and there may be inadequate infrastructure at large sites. Utilities companies, for example, can also be accountable for a delay.

Alan Brown, chief executive of housebuilder CALA group says tying up capital in land with no houses on it “simply isn’t in our financial interests”. Instead, the delay is caused by cash-strapped local authority planning departments, he said. Housebuilders need evidence of cash-flow to drive investment; this is also a reason why they need to acquire land in advance.


They whitewash the issue by redefining "land banking" and as per usual blaming it on local councils.

Hammond, himself indirectly a land banker, defines it correctly as "holding back land for commercial reasons". House builders are profit maximising enterprises with a monopolistic position, so of course they keep new supply at whatever the profit maximising volume is - which Neal Hudson worked out was one new home for each nine existing homes bought and sold in the year. The ratio has been constant for decades, and was the same decades ago when there were lots of small home builders instead of today's oligarchy.

This is smoking gun #1. In 2008-09 when home sales plummeted, home builders mothballed a lot of their developments to maintain the one-to-nine ratio. They gave spurious reasons such as lack of finance, which is clearly a lie - if you have lenders snapping at your heels, the best thing to do is to get developments finished and sold and the debts paid off. Conversely, if you have agreed to lend somebody £100,000 to finance a project, you would be mad to lend them half the money to half-finish something and then refuse to hand over the rest. At that stage you've got to keep going.

As output is decided by external factors, if new planning permissions exceed this level of output (as they do), then these companies will accumulate land banks - the land banks are evidence of profit-maximising behaviour (Hammond's "commercial reaons") and not a crime in themselves. If there were plenty of affordable housing, then it wouldn't matter whether the large home builders have land banks for one, ten or a hundred years' worth of output.

In a report on land-banking, the Home Builders Federation said: “A house building company will be judged by investors on the land that is available to it. If one considers land to be a housebuilder’s most important raw material, a company seeking investment with little or no viable land in its ownership would be unlikely to attract the investment required to finance construction and generally operate as a well-functioning business.”

This is a straight forward admission that his members are land banking, he just says it's for a different reason.

Wednesday 29 November 2017

Can you help a friend in trouble?

From: Michel.barnier.EUParliament@gmail.com
To: May.T@Parliament.uk

Dear Friend

I am sorry to contact you like this but I have some bad news. I am on holiday in Africa and my wallet and passport have been stolen.

Can you extend me the kindness of a short term loan so that I can get home? I need €50 billion which I will repay as soon as I am back.

Please send money to my PayPal account using my email address.

Many thanks for being such a true friend!

Michel Barnier

Tuesday 28 November 2017

Killer Arguments Against LVT, Not (427)

Via MBK, a fairly positive article about LVT at Bloomberg, which then goes into the political objections:

Why so unpopular? Here's Friedman's theory:

"It's not unpopular for good economic reasons. It's unpopular in my opinion for one simple reason: It's the only tax left on the books for which people have to write a big check."

Income taxes and Social Security contributions are withheld from paychecks before the recipients get their hands on the money. Sales taxes (and value-added taxes outside the U.S.) are remitted by merchants and other business. It's only with property taxes that a regular person gets a bill and has to pay it.


Seeing as Friedman himself helped design the US PAYE system back in the day, this is partly his fault.

As the author of the article himself explains in footnote 3, it is perfectly possible to deduct LVT monthly from paychecks via the PAYE system. That would be a good idea, even if we only have a low level property tax, like Council Tax. If LVT replaced taxes on earnings and output, for most working households, the total tax deducted would go down. For lower income pensioners (Poor Widows In Mansions, whose annual tax bills would inarguably increase), there would be the deferment option anyway.

If people are thinking of buying a home, the decision will be no different to now - they compare the rent they currently pay with the total of mortgage payments (and LVT) which they (as landowners) will have to pay. Experience shows that recent FTBs pay roughly as much on their mortgage as they did on rent, or would have been paying if they'd been renting the home they ended up buying. There's no reason to assume that this would change - the two would move in line. So the choice would be between paying £1,000 rent a month and paying £600 in mortgage repayments and £400 in LVT a month (or whatever), absolutely no disincentive to owner-occupation.

I can think of at least two other reasons for property taxes' unpopularity that are actually side effects of what economists like about them. To wit:

1. Property tax bills can rise without property owners doing anything, and
2. Rising tax bills can push property owners (homeowners in particular) to make economic decisions they might prefer to avoid.

People can adjust their spending, and often their income. But they can't help it if, say, house prices go up 80 percent in just three years -- as they did in California from 1975 to 1978. Well, actually, they could help it, by going to the polls in June 1978 and approving Proposition 13, a set of restrictions on property tax rates and assessments that have shaped the state's economy and government ever since.


Argument 1 is classic Homey DoubleThink: "I worked hard, invested wisely and deserve my land value increase; but as I contributed nothing towards the increase, I shouldn't be taxed on it".

Basing LVT on selling prices is a bad idea as they fluctuate wildly (unless you are doing a really low level LVT of 1% or less). Proper LVT would be based on rental values, which go up in line with local average earnings.

So let's assume a typical couple's wages are £4,000 a month and their LVT bill is £600, so their net wages are £3,400. If wages go up by £100 a month in that area, rents go up by a bit less £100 a month and their LVT goes up by a bit less than £100 a month, let's say from £600 to £680.

A 13% increase in their LVT bill sounds dramatic, but even if their wages don't go up, their net wages only fall by 2.4%, which they'd barely notice. Even if they think, sod this home-ownership lark, let's go back to renting, there's no incentive to do so, because their monthly housing costs would not go down as a result (if they stay in the same sort of home in the same area).
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If we think all this through to its logical conclusion, LVT will then be attacked from the left by the Socialists, who say, "Ha! What you Georgists really want to do is price lower earners out of "nice" areas! You bastards!"

True dat, but so what?

Younger people and tenants of all ages are already priced out, even out of cheaper areas. It's only older low earners who bought decades ago who live in "nice" areas. Secondly, taxing land wealth (which is highly concentrated in a few hands) instead of earnings reduces inequality overall, it's redistribution from the few to the many, which is one of Mr J Corbyn's better slogans. Low earners who bought decades ago in "nice" areas are very much among "the few" and the priced-out under-40s; tenants of all ages; and low earning owner-occupiers who live in normal areas are "the many" for these purposes.

Monday 27 November 2017

Fun Online Polls: Brexit bill, royal weddings and riots

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

How much should the UK be prepared to pay the EU to kick start the Brexit negotiations?

£40 billion - 2%
Zilch - 34%
Zip - 2%
Jack - 3%
Nix - 3%
Diddly squat - 47%
Other, please specify - 8%


A clear for "diddly squat" with "zilch" in a good second place, is how I'd sum that up.

Thanks to all 95 who took part.
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And lo, the Powers That Be have decided to distract us plebs with another shameless display of consumption at our expense.

It occurred to me last time this happened that the worst outbreaks of rioting seem to follow royal extravanazas, when the distraction has worn off and people have to face back up to the normal joyless day-to-day grind.

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

"Will there be riots after next year's Royal Wedding?"

Vote here or use the widget in the sidebar.

Sunday 26 November 2017

Killer Arguments Against LVT, Not (426)

Paul Lewis did a fairly positive piece on LVT (in Scotland) on his Radio 4 Monyebox programme yesterday (h/t Bayard). Duncan Pickard was on top form.

They then invited David Melhuish of the Scottish Property Federation to put the arguments against:

I think, at the moment, we don't know enough about [LVT], so we are unpersuaded at this point, as [the MSP] said, there have been a number of studies of this in recent years and I think most of the conclusions have said that we need to do much further analysis on it.

I think that there's two big problems there.

Yes, I know that the economic theory is supportive of it, but there is a point about how this interacts with the planning system as well, and whether land is unimproved or not, it'll have to have a planning designation and the planning system is not easy to deal with and often a point of frustration. So I think the practicalities come into question at that point.

My other point would be, if you are talking about replacing other instruments of tax, you're probably shrinking the tax base considerably with some of those, and I think there's a risk inherent in that you could have a sizeable redistribution of tax on much fewer shoulders.

It could happen, it's a devolved area. I think there's a huge amount of practicalities to overcome. You've still got between Council Tax and Business Rates £4.5 billion of income and the fact that you would be shrinking the tax base, you know, I think that would put quite a burden on more people than [Duncan Pickard] thinks.


Wow. I'd have expected him to go in much harder than that, but he chose to get bogged down in technocratic sounding waffle.

Barely worth debunking, but here goes:

1. Initial valuations can be based on current actual use, same as council tax or business rates are/were. We can easily tweak those two existing assessment/collection systems to be so close to LVT as makes no difference. Then it can be extended to plots with actual planning permission, we know perfectly well what they've got planning permission for.

2. As it happens, the Scottish Land Revenue Group invited me to do a talk last year, so I know the numbers on this. Total receipts from Council Tax, Business Rates, Land & Buildings Transaction Tax (Scottish SDLT) and other bits and pieces that can be swept up, like planning fees, s106 agreements, Community Infrastructure Levy etc are just shy of £5 billion.

The total tax base, the total of the site premium of all residential and commercial buildings is at least £20 billion. That is completely unaffected by the taxes levied on it.

So a straight replacement LVT, just to get the ball rolling would be a bit less than 25% of the site premium. For most households or businesses, the initial LVT would be the same or less than Council Tax or Business Rates is now, for homes in higher value areas - and a very few shops or office on Princes Street in Edinburgh - it will be a lot more. Unfortunately, Inheritance Tax is not a devolved tax, in an ideal world that would be replaced as well, which would compensate for the higher taxes on the most expensive homes.

He confuses the 'tax base' with the number of people paying what proportion, and contradicts himself on whether more people would pay more or fewer people would pay more. Which is a classic Homey strategy. If those 'fewer shoulders' don't want to pay the LVT, they can sell up to somebody else who will.

Clearly, if LVT were then extended to replace income tax in its entirety (which the Scottish government could now do, if it wanted - see s11A of the Income Tax Act 2007, as inserted by FA 2014), this would mean that the tax rate would have to be about 70% of the current site premium. If the income tax cuts feed through into higher rental values, the LVT rate would be less than 50%. So it's perfectly do-able.

Assuming no change in behaviour, that would mean significant changes (increases or decreases) in how much tax some households or businesses pay, but once people have upsized and downsized, it will all sort itself out. The chances are, most will end up paying the same total, but out of larger overall incomes - with the other big bonuses that taxpayers are getting something directly in return for the taxes they pay, it will be semi-voluntary, as well as dampening land prices and having more efficient use of existing urban land.

What's not to like?

"No EU-UK deal? It is not the end of the world", says WTO chief

From The Telegraph, via @montie:

Roberto Azevedo is not your typical Brazilian. Quietly spoken, and instinctively cautious, the director general of the World Trade Organisation is a career diplomat to his well-manicured fingertips. While a highly effective communicator – fluent in four languages – he belies the national stereotype for flair and flamboyance...

A bit of unnecessary stereotyping there to start the article, here's the relevant bit...

So what of the UK? If Britain fails to strike a free trade agreement (FTA) with the EU ahead of March 2019, when we’re scheduled to leave, then UK-EU trade reverts to WTO rules. While some claim this would be a disaster, not least parliamentarians determined to frustrate Brexit, Azevedo disagrees.

“About half of the UK’s trade is already on WTO terms – with the US, China and several large emerging nations where the EU doesn’t have trade agreements. So it’s not the end of the world if the UK trades under WTO rules with the EU. 


Acknowledging that an FTA would be best, with WTO rules involving reciprocal UK-EU tariffs, Azevedo still gainsays the gloom-mongers. “If you don’t have a fully functioning FTA with the EU, there could be rigidities and costs – but it’s not like trade between the UK and EU is going to stop. There will be an impact, but I suppose it is perfectly manageable.”

He points out that to maintain current levels of access in nations where the EU has already struck FTAs, the UK will need to negotiate new agreements with such countries after Brexit. But won’t the fact that EU agreements already exist with such countries help the UK to reach such deals?


“Trade deals are always complex,” says Azevedo. “But it may be helpful as some of the trade harmonisation is already there – that could act as a shortcut...”

AFAIAA, that's a non-issue, those trade terms will more or less automatically be replicated with new agreements between the UK and the other countries.

While the EU has cut around 50 FTAs, most are with very small countries. Despite 60 years of trying, Brussels has failed to strike deals with the US, China, Brazil, India and almost all other large economies. Why is this? “Trade deals are difficult but there is an additional complicating factor for the EU, which is agriculture,” says Azevedo. “Once you start negotiating with a big agricultural exporter, they want market access – and, for the EU, that’s a sensitive sector, both politically and economically, a sector that makes itself heard..."

After Brexit, Britain can be “more flexible in its approach and quicker to react within the WTO, as you don’t have to coordinate with all the other members of the EU”, observes Azevedo. “You will lose the weight of the EU as a market, but the UK is by no standards a minor economy or a minor player in the multilateral system.”


All good stuff. The article does not point out that adopting unilateral free trade is perfectly compatible with WTO membership, but maybe that's just taken as given? On a practical level, the UK doesn't really have the time and manpower to have anything else in place by 2019 (or whenever).

Saturday 25 November 2017

Timeless classic

Friday 24 November 2017

Philip Hammond v Philip Hammond

From (rather surprisingly) The Telegraph:

A housebuilding business founded by Philip Hammond has been accused of sitting on an undeveloped plot of land which has been granted planning permission for four new homes.

Castlemead Limited, which was co-founded by the Chancellor in 1984, builds new homes and doctor’s surgeries. It has been reported that Castlemead Group, which is majority-owned by the company, was granted permission to build four homes in north Wales in June 2010 on the condition work on the site would begin within five years...

The revelation comes after Mr Hammond gave an interview with The Sunday Times this week, in which he hit out at house builders who are sitting on hundreds of thousands of undeveloped plots of land which have planning permission for new homes...

A spokeswoman for Mr Hammond said: “Any shares in Castlemead are held in a trust. The chancellor has no direct influence or involvement and so is unable to comment.”

Daily Mail on Top Form

From The Daily Mail:

Shocking moment middle-aged men struggle to break up vicious street fight between two young girls as they punch, kick and pull each other’s hair in in wealthy city suburb

* The two girls were filmed fighting in the Edinburgh Old Dalkeith Road area

* Two middle-aged men were forced to intervene and try and split up the girls

* A group of younger boys were encouraging the girls to continue fighting

* Homes in the Old Dalkeith Road area of Edinburgh regularly sellf [sic] for £1 million

Thursday 23 November 2017

Life copies satire

Turns out, The Daily Mash was spot on accurate.

From the Evening Standard:

Lucy Pendleton, director of south-west London agents James Pendleton, said: “We had one person whose offer of £358,000 on a flat in Wandsworth was not acceptable at 12.30pm increasing it by £5,000 to £363,000 at 2.30pm.

"That was as a result of the stamp duty relief — the offer was accepted.”

However, there were fears that the change would stoke up the lower end of the property market, making it even harder for less affluent buyers.


"Fears"?

"House prices increase by precisely the amount of stamp duty cut"

From The Daily Mash:

Prospective first-time buyers of a £280,000 London flat, set to save £4,000 in stamp duty, will now find that the flat costs £284,000.

Estate agent Carolyn Ryan said: “I’ve just finished changing all the prices in the windows. “It took two hours actually, so unfortunately we will have to pass that on to buyers as an extra £200 admin fee.”


Read article for punchline.

Tuesday 21 November 2017

Fun Online Polls: Fixed-odds betting terminals & The Brexit Bill

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

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

£2 - 19%
£20 - 4%
£200 - 1%
It's none of the government's business - 76%


Thanks to everybody who took part, 105 votes in total, a good turnout (albeit spread over two weeks).

'Nuff said, I think. These machines - and gambling in general - is something I (and presumably a lot of other people) instinctively dislike, it's always a negative sum game and seems all rather depressing. But that in itself is no reason to ban something.
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Our strong and stable leader appears to be adopting a bizarre variant of the black sheriff in "Blazing Saddles"'s negotiating tactic, i.e. taking the whole country hostage and offering to pay the EU £40 billion in ransom for a safe return of the Brexit negotiations.

Ho hum, seems a bit craven to me, but not as bad as the original ransom demand of about £100 billion.

So that's week's Fun Online Poll.

"How much should the UK be prepared to pay the EU to kick start the Brexit negotiations?"

Vote here or use the widget in the sidebar.

Monday 20 November 2017

Killer Arguments Against LVT, Not (425)

Ben Southwood @bswud referred to this article in The Guardian:

Construction has begun on a $2bn (£1.5bn) scheme to reclaim land from the sea around Monaco so that more luxury apartments can be built for the thousands of extra millionaires expected to move to the principality in the next 10 years...

... and he commented thusly

"The easier this is, the more value a land value tax would destroy"

Which is about as wrong as it would be humanly possible to be. Quite the opposite!

Let's remind ourselves of the facts:

1. Monaco has no or low income tax, it is a 'tax haven'.

2. The main reasons why apartments/land in Monaco is so expensive is because the world's super rich are prepared to pay for the privilege of not paying income tax. The extra few million you pay for a flat in Monaco instead of the much more pleasant Nice is broadly speaking equal to the net present value of the future income tax saving. If the Prince so wished, he could collect that value via LVT (and to some extent he does).

3. To all intents and purposes, 'Monaco' could mean the Prince of Monaco (as a landowning individual) or the government of Monaco (as a public body which controls land use). They are the same thing from point of view of the company doing the reclamation. They need 'Monaco's' permission before they can do anything.

4. As The Telegraph explained:

In recent days, Bouygues, the construction company, began work on the foundations, starting with dredging operations via a giant offshore vacuum that spits out sediment at a depth of 200m.

The principality is not paying a centime for the project but will receive an undisclosed payment for the concession and will own public buildings on the new site estimated to be worth €500 million.


The 'undisclosed payment' is a lump sum LVT in advance, and the future rental value of the public buildings is like ongoing LVT (instead of getting the location value of all of it, they are getting all the value from some of the buildings on it). The effective tax rate is clearly less than 100% or else the (risky) project would not be going ahead, but it is safe to assume that 'Monaco' wangled as much as it could.

To sum up: 'Monaco' actually runs a Georgist tax system - low income tax and high land values/government income from land values (a lot of Monaco is owned/controlled by 'Monaco'). So it would be more accurate to argue that this reclamation is only happening because of - and certainly despite - LVT!

If France shaped up, scrapped income tax and collected LVT instead, the value of apartments/land in Monaco would collapse. It would be worth no more or less than in Nice. As in most cases, it is government action which causes land/location values, in this case, the French government. It's just a question of who gets it. And of course, such ridiculously expensive and ultimately value destroying projects would not happen.

I read this the other way about

Here  h/t guido

Intriguing.

All this horrible bureaucratic complexity is a function of the failure of the Single Market - in fact a Customs Union, aka a protectionist bloc.  In other words this is not a problem caused by the UK's decision to brexit but of the ludicrous nature of the EU's bureaucracy.  (Confession. In my case getting out from under all this is one of my prime reasons for voting out.)

Of course there are all the politics here.  Eire wanting NI 'back'. The EU necessarily determined to demonstrate how difficult and expensive it is to leave its empire so that other nations do not follow our example.

So why not just declare unilateral free trade?  That immediately puts the emphasis back on the EU / Eire to resolve all the small print, with our agreement, not the other way about.

Sunday 19 November 2017

Economic Myths: We are too reliant on tax paid by the top one percent of taxpayers.

From The Telegraph:

The tax burden shouldered by Britain's wealthiest has almost trebled since the 1970s, analysis of historic data reveals - further undermining the Conservative's reputation as a "low tax" party.

Daily Telegraph analysis of nearly four decades of tax and income records shows high earners are now responsible for paying a higher proportion of Britain's total income tax bill than they have done under any Labour government. Today the top 1pc of income taxpayers, who earn in excess of £162,000 a year, now pay nearly a third (27pc) of all income tax...

Lord Lamont, who served as Chancellor under the Conservative Government in the early nineties, warned higher taxes could put off wealthy foreigners from coming to the UK.

He said: "We have succeeded in attracting a lot of high-net worth individuals and that should be applauded. [But] It would be wrong to think you can always rely on someone else to pay taxes. Robbing Peter to pay Paul, Paul will always vote for that but it won't always work. I'm not a great fan of ever increasing the personal tax allowance because everyone should pay some tax."

Andrew Brigden, a Conservative MP, warned taxes on the wealthy were at the point where any further increase could threaten their productivity.

He said: Tax should never be a punishment for the wealthy. The higher you raise tax, the less money you get in. I think we have reached that point. If we put the top rate of tax back to 40pc [from 45pc] we would raise more revenue because people would be more encouraged to be productive."


There are a few important things they deliberately overlook:

1. Income tax is only about a quarter of total tax receipts; since the 1970s, income tax (and corporation tax) rates have come down and stealth taxes on earnings (National Insurance and VAT) have steadily gone up. So while the top 1% pay 27% of all income tax in the narrow sense, they pay a smaller share of total taxes (as National Insurance and VAT are regressive taxes). It's the same principle with Domestic Rates v Council Tax.

As Fullfact.org explain, if you look at all taxes, the top ten percent of earners pay 27% of all taxes, and they probably receive about 27% of all income. The progressive taxes and regressive taxes seem to average out, and ultimately, the UK tax system is surprisingly flat. It's the same with Council Tax (regressive) and SDLT, IHT and ATED (progressive) - if annualised and expressed as a percentage of the value of the underlying land and buildings, the total tax bill is pretty flat as a percentage.

2. The share of income earned by the top 1% has increased enormously since the 1970s. Even in the mid-1990s, there was an outcry when the boss of the recently privatised British Gas paid himself £475,000 a year.

In 2017, FTSE100 CEO's paid themselves on average ten times that, (not adjusted for inflation), and we're supposed to think this is normal.

So inevitably, the share of income tax paid by the top 1% has increased accordingly.

3. As to "driving talent abroad", what is important here is the territorial principle, a general rule in designing tax systems, that countries should only tax income which arises (or assets situated) within their own borders at source; to do otherwise means that people can save tax by relocating abroad. And if you tax your residents on income they receive from abroad, they are less likely to come here.

IMHO we should be welcoming wealthy foreigners with open arms (and not taxing their remittances from abroad), not because there is anything noble about them, but because they will be spending money here - like tourists, they are good for the balance of trade.

4. Most of those high incomes are simply rent. One person on his or her own (a self employed plumber or mobile hairdresser) can't possibly earn more than £50,000 a year. To earn more than that, you need to be higher up an organisational pyramid (state or private).

Those high incomes do not arise because of any special skill or ongoing hard work (people who set up their own business decades ago are reaping the benefit of hard work they did, or risks they took in the past), or because of people's personal contributions to overall wealth, they are just exploiting privileges created by the way the system is set up (long list, and as a tip-top tax adviser, I'm on it; but my employers are far higher up the list than I am).

Even if everybody earning more than £162,000 were to disappear abroad tomorrow, the size of the economy would barely change. Either others would step into their shoes (and pay the tax), or even better, inequality would be reduced and there would be less need for redistributive taxes in the first place.

5. If you draw the logical conclusion from all this, the best place to start is by scrapping all taxes on earned income (National Insurance, VAT) and increasing the personal allowance to about £50,000* and just taxing rents. That'll be mainly the rental value of land, but until and unless we can actually split these high salaries into 'earned' and 'rent', we'll just have to draw a line somewhere, like at £50,000 a year.

Think about it - if somebody offered you a full-time job involving proper work paying £50,000 with a tax rate of 80%, you'd turn it down, there'd be no point. But if somebody offered to sell you their buy-to-let 'portfolio' for £1, and that 'portfolio' generates £50,000 gross income taxed at 80%, you'd happily accept it. It's only £10,000 extra income, but well worth it for a few hours work a month.

If the choice were between a normal full-time admin job paying £50,000 a year tax free and a job as a university vice-chancellor for £250,000 a year taxed at 80%, you would be largely indifferent; it only needs one person in hundreds of thousands to accept the vice-chancellor job. That's clearly a UK based job, so no danger of all vice-chancellors skipping off to a tax haven.

*6. An alternative proposal - which would admittedly be administratively unworkable - would be to get rid of the concept of the annual personal allowance and have an hourly personal allowance instead, call it £25/hour. So somebody who earns £50,000 for being a non-exec director, involving one board meeting a month would pay income tax on nearly all of it, but a self-employed plumber/hairdresser who does fifty hours a week would pay little or no income tax.

Saturday 18 November 2017

Ricardo and UK House Prices

David Ricardo's Law of Rent states (as a stylised fact)  that rents are set by the difference in incomes (productivity) by those found at the margin of production and those found within it ie infra-marginal. That difference currently gets capitalised into rental incomes and selling prices.

We know that agglomeration increases productivity, so as London is over twice the size of any other European capital, its no surprise it has the highest incomes.

Furthermore, the margin of production for the UK no longer ends within its borders. It is arguable that due to free movement of people within the EU, it stops there. But to a certain extent, due to globalization, margins extend around the world.

Is it really therefore such a surprise, as some people most definitely are, that prices in the UK, especially London/SE are so high?

Yes we can build, and in the short term prices will fall. But in the long term, margins will simply readjust and we'll be back to square one. 



Above taken from Inequality Matters

Friday 17 November 2017

Economic Myths: "those who have worked hard all their lives to buy a home"

Sayid Javid was doing a fine job of playing both ends against the middle, as reported in The Daily Mail:

Mr Javid, a frequent critic of so-called Nimbys, said it was time to deliver 'moral justice' for the young – and warned older people they would not be permitted to stand in the way of a massive house building drive.

"What we need now is a giant leap … I still hear from those who say that there isn't a problem with housing... that affordability is only a problem for millennials that spend too much on nights out and smashed avocados.

"It's nonsense. The people who tell me this – usually baby boomers who have long-since paid off their own mortgage – they are living in a different world. They're not facing up to the reality of modern daily life and have no understanding of the modern market."


He's trying to claw back a few of the under-30 votes for the Tories with a couple of well-aimed blows at the NIMBYs and Boomers while ensuring that his party's major donors find it even easier to get planning permission.

He must know that you can give the land bankers as much planning permission as you like; it will not change their profit maximising level of output one iota - why would it? Even if they did increase output, it would only have a very short term and marginal downwards effect on prices.

But hey, he's a politician.

Here's the Economic Myth:

Lib Dem housing spokesman Wera Hobhouse last night criticised Mr Javid for his attack on baby boomers. She said: "This kind of language is divisive and unnecessarily sets one generation against another. It is patronising to tell those who have worked hard all their lives to buy a home and raise their children that they don't understand the housing market."

This "worked hard all your life" to buy a house is complete and utter bollocks (except for the very few people who bought something that was far too expensive). From the 1950s to the late 1990s, you could (if you wanted) have paid off the mortgage in ten or fifteen years and still been paying less per month than you would have been paying in rent for the same home; after that you are living rent free. All these Homeys have paid considerably less than tenants have.

For sure, there were a couple of nasty years in the mid-1970s when interest rates were very high; but inflation was even higher, so in exchange for two or three years of pain you effectively had half your mortgage eroded by inflation. My mum admitted to me that they paid off the rest of the mortgage they took out in 1964 with petty cash sometime in the mid-1970s. I bought a nice house in 1998 with a 20% deposit and paid off the mortgage in ten years (because that was the longest fixed rate period on offer).

There were another couple of fairly nasty years in the early 1990s as well, but so what, it was still cheaper than renting for nine out of ten mortgage borrowers. We note that these two high interest rate periods followed a house price bust; they took a different approach after the last one and pushed interest rates to zero instead.

It is true that some people with mortgages lose their jobs and struggle, but that is irrelevant, they'd have struggled to pay the rent as well. It's your "Losing your job" bit that causes the pain, not the fact that you chose to save money by buying not renting.

And even if it were true, are the Boomers saying that this is a good thing? That they want the all future generations to suffer as well? If that is a good way of deciding policy, then we would have to start another world war every twenty or so years.



But hey, she's a politician as well.

Thursday 16 November 2017

Killer Arguments Against Free Trade, Not (1)

PaulC156 left a comment here:

Not sure exactly what you disagree with or how N Korea gets a mention.

I do not argue above for or against free trade but simply refer to historical reality.

Britain absolutely was not remotely free trade until they achieved economic dominance well into its industrialisation period circa 1840's. Prior to that it was the most protectionist of nations. Even then it returned to protectionism in the 1870's! Alexander Hamilton came to typify the US approach to free trade in the 18th C. Protect nascent industries (tariffs, quotas) until they are strong enough to outcompete foreign producers. That policy stood until the second half of the 20thC. 


As for Korea, South Korea is typical ditto Japan and modern day China. Massive state led investments allied with protection was the story for all these countries whilst they were industrialising. Still the case in China. S. Korea only liberalised in the 80's well after its industries were well established.

Ho hum.

1. North Korea is very relevant because it has just about the least free trade in the world, and its economy is pretty much on its arse as a result.

2. I certainly wouldn't hold up British Empire as a model of free trade, pretty much the opposite as far as 'everybody else' was concerned. Ditto USA.

3. As to the ASEAN countries, let's agree for the sake of this argument that they protected they 'nascent industries' until they were ready to compete on a world stage. (With those countries, the distinction between government and private, or between society and economy is pretty blurred - are businesses partly state-owned or do business leaders control the government? If Prussia was an army with a country, South Korea is a vast conglomerate with a country. The ASEAN countries also seem to have a sense of national cohesion that allows this. So to say that 'the government protected its domestic industries' is a bit like saying that 'businesses looked after themselves' which is perfectly acceptable.)

But hey, even so, I'd hardly call the UK a developing country, so the justification simply does not arise.

Tuesday 14 November 2017

"Free trade case in a nutshell"

Physiocrat on top form.

Monday 13 November 2017

Please sir, the dog ate my homework.

From The Evening Standard:

A specialist in infectious diseases feared she had lost seven years of invaluable research on tackling Ebola after a prolific burglar raided her home as she treated ill children, a court heard...

Dr Fitzgerald flew out to Sierra Leone in 2014 to spend seven months helping tackle the spread of the virus, and has just finished her PhD on infectious diseases.


Bonus bit for Daily Mail readers:

Describing the moment, on March 28, when she learned of the break-in at her £1.8 million home...

"I live by myself and the idea of someone breaking in and rifling through my belongings was a violation."

Friday 10 November 2017

"How much of your area is built on?"

Splendid stuff from the BBC.

No point me summarising, posted here for reference. Suffice to say, my local council area (half of which is inside the M25) is 80% farmland and only 8% built on - the local NIMBYs have been putting up a fine resistance to anything since forever.

Thursday 9 November 2017

"You ain't nothing but a hound dog..."

The lyrics to that song were a model of brevity and simplicity.

Conversely, what makes "Africa" by Toto so enjoyable to listen to is the fact that each second line is so ridiculously long. They must have had a bet going or something. From lyrics.com:

I hear the drums echoing tonight
But she hears only whispers of some quiet conversation
She's coming in 12:30 flight
The moonlit wings reflect the stars that guide me towards salvation
I stopped an old man along the way
Hoping to find some old forgotten words or ancient melodies
He turned to me as if to say "Hurry boy, It's waiting there for you"


It's only the second and fourth lines which rhyme, the rest all leave it hanging. Genius.

Just imagine Leiber and Stoller had applied this technique...

You ain't nothing but a hound dog
A member of genus Canis (canines) that forms part of the wolf-like canids, and the most widely abundant carnivore.
You ain't nothing but a hound dog
You and the extant gray wolf are sister taxa, with modern wolves not closely related to the wolves that were first domesticated
You ain't never caught a rabbit
And were the first domesticated species that has been selectively bred over millennia for various behaviours, sensory capabilities and physical attributes

"Three men tackle rogue six-foot emu rampaging through North Lincolnshire"

Spotted by TBH in the Scunthorpe Telegraph:

It took three men to tackle a six-foot emu that has allegedly been rampaging through North Lincolnshire for the past week.

Ted Phillips, owner of Shepherd's Place Farm in Haxey, said that he jumped on top of the ginormous bird this morning (Monday, November 6) after receiving calls about the escaped bird all week.

He had been advised previously not to tackle the bird but took the decision to take it on anyway after hearing that it had taken a trip to Haxey Primary in the Isle of Axholme, because emus can be aggressive.

He said: "It's a game changer when children are involved."

Mr Phillips leaped on top of the bird while two other men held and tied its legs together and a nearby policeman "did the best that he could". They then flagged down a conveniently passing builder's truck and took it back to Mr Phillips's farm.

"We don't know who the emu belongs to," he said...


I love the bit about the "nearby policemen".

Wednesday 8 November 2017

Excellent work by the ONS

From This Is Money:

Property in the priciest area of England and Wales cost a huge 25 times as much as in the cheapest spot, according to a new interactive map from the Office for National Statistics.

It shows that one square metre of floor space, an area about the size of a red telephone box, costs £19,439 in the salubrious London borough of Kensington and Chelsea. 

However, in the valley region of Blaenau Gwent, South Wales, the same amount of space costs just £777. Use the interactive map below to see how much a square metre of property costs in your local area and how it compares

I'm not clever enough to embed the interactive map, but it seems accurate enough to me. It's too coarse grained for proper LVT or Council Tax revaluations, because it's at local authority level and in many local authorities there is too much of a difference between the most expensive and cheapest areas, but where I live it's pretty much equally expensive all over the council area, so I can use that to illustrate the point.

It says just under £5,000 per sq metre. On that basis, our house should be worth about £650,000, a tad more than we paid for it three years ago. Seeing as typical build costs for a new build are £1,000 per sq metre, that means that the value of my house is 80% location value and 20% bricks and mortar, a percentage we can apply to the rental value to arrive at the location element/site premium.

All of which puts paid to the KLN that working out the site premium is difficult.
-------------------------
Via Josh Ryan-Collins:



Which sort of illustrates the point that as land and buildings are such a huge proportion of national wealth, there is no point having a general wealth tax, you might as well just tax land (secured on the land and the buildings thereon). Seeing as you can apply a much higher rate to immobile land than 'mobile' (or easily hidden 'wealth'), that means overall you can raise more money more efficiently by exempting all other forms of wealth. There's also the point that most other wealth is used to generate income, and that income is taxed, so most other wealth is already taxed, albeit indirectly.

Which neatly deals with another KLN, and the squealing from the lefties for a general 'wealth tax'.

Epic neo-liberal propaganda fail.

From the BBC:

Could giving property rights to the world's poor unlock trillions?

They are not talking about 'property' in the legal sense, they are using it as shorthand for 'land'.

And no, all that would happen - as the article makes clear - is that banks will tap in to the rental value of land via loans. That's one of the reasons why the Homeys hate council housing - the banks can't earn anything from it.

In 1970s China, for example, where the Maoists weren't the rebels but the government, the very idea that anyone could own anything was seditious, bourgeois thinking. Farmers on collective farms were told by Communist Party officials that they didn't own a thing. Everything belonged to the collective...

This approach worked terribly: if you don't own anything, why bother to look after it... collective ownership of land left farmers in desperate, gnawing poverty.

So, in Xiaogang in 1978, a group of farmers secretly met and agreed a daring plan. Instead of farming as a collective, they would informally divide up the land, and each keep whatever surplus they produced after meeting collective quotas. It was a treasonous agreement in Communist eyes: discovery risked execution.

In fact, they were found out thanks to their conspicuous success: their farms produced more in one year than in the previous five years combined...

The experience in China shows that even informal property rights can be incredibly powerful. If you know your neighbours respect your boundaries, you can feel confident investing time in weeding your vegetable plot, or building a house.


Bullshit. This has bugger all to do with land ownership, it has to do with ownership of the food produced (the results of their initiative and work done, thus truly 'private property').

It is basic human nature. It's like piecework. If you pay an individual $x for each unit he or she produces, most will try and produce more units. In that case, neither the raw materials nor the finished product is ever the property of the workers, but they are paid for the labour element they add (their 'private property').Take a large group of people and tell them they get paid the same, regardless of how many or few the group produces, the ultimate outcome is that little or nothing is produced.

Clearly, with farming, you need some security of tenure (be that long leasehold or freehold) because it is a long term thing, which is why arable farm tenancies tend to be very long. Conversely, sheep farmers are happy to rent pastures very short term, because it's just naturally growing grass. Actually being able to sell the land (i.e. use it as collateral) is irrelevant; or else there would be no tenant farmers.

But in one critical way, it doesn't help me that my neighbours agree that I own my house. If I want a loan - to improve my house, or build a business - lenders need collateral.

Ah right, so the first thing you do if you want to start a business is buy some land, to be able to borrow against it? This is madness. What about the majority of people who don't own land? In real life, you build up a business or find some other way of earning enough money to buy land, just like any other consumption good.

Tenants are quite happy to pay for improvements if they know they have a secure/long term tenancy, I've seen it plenty of times (in Germany or people in social housing). In the UK however, no residential tenant in his right mind will pay for improvement because a
a) he could be kicked out within six months and
b) the improvements automatically belong to the building i.e. the landlord, so
c) the landlord can increase your rent to make you pay for the improvements you made yourself.

And land or buildings make particularly good collateral because they tend to increase in value, and it's hard to hide them from creditors. But the lender needs to be confident it could take the house away from me if I don't repay the loan. So, I need to prove that the house really is mine. That requires an invisible web of information that the legal system and the banking system can use.

For Hernando de Soto, this invisible web is the difference between my house being an asset - something useful that I own - and being capital - an asset recognised by the financial system... 


But how do assets become capital? How does the invisible web get woven? It needs a government. Enforcing property rights is one of the few things pretty much everyone on the political spectrum agrees a government should do, except perhaps the Maoists.

Here we get to the neo-liberal nub of the matter, dressing up land as 'capital'.

De Soto couldn't actually give a shit about third world farmers, he's a shill for the banks (which is why the Cato Institute give him such a glowing write-up). Loans and interest can only be repaid out of the future income/profit from that land anyway.

Farmers can afford to buy most of the stuff they need every year out of their savings from the previous year (by definition) and if they need something bigger, like a tractor, there is such a thing as hire purchase.

Borrowing any more than that, purely backed by the value of land is a recipe for disaster for any kind of economy, agricultural or developed capitalist.

He also inadvertently makes the Georgist point that 'land ownership' and 'government' are more or less synonymous. It is only governments who can really say who owns land (until and unless they are overthrown or the country is invaded).

Utter, utter twats.

Sunday 5 November 2017

Killer Arguments Against Citizen's Income. Not (10)

Martin Farley, at progress.org:

Why Basic Income Needs LVT

* It is the most secure way to provide funding for a Basic Income.
* It doesn’t distort economic decision making so will allow Basic Income to be part of a growing, functioning economy.
* If Basic Income increases incomes of recipients, there is a danger that those increases will be captured by rent-seeking landlords and others (i.e. rents or interest rates will just go up till they have absorbed all the extra money). If this happens, LVT will allow society to recoup most/all of the revenue captured by rent-seekers and push it back to Basic Income recipients.


I am 99% agreed with all this. Being practical about it, LVT is the best (or least bad) way of funding anything, even government programmes with which you personally disagree (and most of us disagree with a lot of it; it's just that different people like or dislike different bits; what's left are any government spending programmes to which no significant majority is strongly opposed). And a Citizen's Income is the best (or least bad) kind of welfare system, however it is funded, being the least distortionary if nothing else. There is of course a nice logical symmetry as well; location values are generated by everybody and nobody, so by default ought to be shared between everybody.

It is just his third point, which I have seen many times, which is not quite correct. In a large country like the UK with a huge disparity in earnings potential or general desirability between locations, there will always be areas where the location rent is close to zero (most farmland; areas with low wages/high unemployment etc).

Using David Triggs' simple formulation, that "rents only arise if two or more people are competing to occupy a site", nobody is trying to outbid anybody to farm, work or live in those least desirable areas, so rents must be zero.

This zero sets the baseline. If after-tax wages in Area B are £15,000 and the cost of living is £15,000, rents are close to zero. Some people there will move to Area Z, where after-tax wages are £35,000, so rents will be £20,000. Workings based on recent actual figures here.

Assuming - which I don't recommend - that a Citizen's Income were funded with much higher income tax (and making lots of "all things being equal" type assumptions), then the difference in after-tax wages between the least and most desirable areas will fall. The rents at the lower bound will still be zero, the differential in after-tax wages falls, so rents in the most desirable areas must also fall.

The Guardian inadvertently argues FOR Brexit

From The Guardian:

Households face increases of up to £930 in their annual shopping bills if Britain walks away from Brexit talks without a trade deal, according to new research that reveals a disproportionate impact on poorer families and the unemployed.

Meat, vegetables, dairy products, clothing and footwear would be subject to the largest consumer price rises under a “no-deal” scenario, according to a study published in the authoritative National Institute Economic Review*, adding to inflationary pressures that have already forced the first interest rate rise in a decade this week.

Stalled negotiations resume next week in Brussels, but the government is also about to publish a trade bill that would result in Britain being required to apply swingeing new tariffs on European imports if it falls back on World Trade Organisation rules.

Since WTO tariffs are highest for fresh food – reaching 45% for dairy products and 37% for meat – and much of this is currently imported from Europe, the team of economists predict an inflationary surge that could match that already inflicted by the falling pound.

This would impact most on those least able to afford it, as poorer households typically spend a much higher proportion of their income on food and other essentials. For the 2m worst-affected households, the study predicts their weekly expenditure will rise by 2-4.7%, equivalent to £400-930 extra a year.


OK. Most would agree that higher food prices are A Bad Thing (unless you believe there is an Obesity Epidemic).

In the absence of a trade deal with the EU, the UK government will be free to set its own import tariffs. The UK is (arguably) a member of the WTO, so is bound by WTO rules. WTO rules do not stipulate minimum tariffs, or even standard tariffs, they stipulate maximum tariffs. All they say is that a country should have one set of tariffs which apply without discrimination to all other countries.

As the WTO themselves explain:

Tariffs: more bindings and closer to zero

The bulkiest results of Uruguay Round are the 22,500 pages listing individual countries’ commitments on specific categories of goods and services. These include commitments to cut and “bind” their customs duty rates on imports of goods. In some cases, tariffs are being cut to zero. There is also a significant increase in the number of “bound” tariffs — duty rates that are committed in the WTO and are difficult to raise.


There's another WTO rule that says a country can't offer preferential tariffs to some countries but not others unless they are a member of a customs union, like the EU. Which sort of contradicts Rule One, but hey.

To sum up, having left the EU, the UK could easily set zero tariffs on imported food. The EU imposes fairly high tariffs on food imported from most third countries. Therefore, food could just as well become cheaper. Which is an argument FOR Brexit, not AGAINST it.

NB, this presupposes that the UK does the decent thing and imposes zero tariffs, or lower tariffs than those which the EU imposes, it is unfortunately not certain that they have the brains to do so. Tim Worstall and Physiocrat have already pointed this out in the comments at the NIESR link above.

* Actually, the organisation is called the "National Institute of Economic and Social Research".
---------------------------------------
There's another bald claim making the rounds on Twitter today, that "After Brexit, the UK will lose access to 759 international trade deals negotiated by the EU".

Again, this is simply not true.

As the EU Referendum blog has explained, there is a general rule (or tradition, or convention of whatever you want to call it) of international law that if a country leaves a bloc or a single country splits up into successor countries, existing treaties between third countries and the bloc or predecessor country continue as between those third countries and the leaving country or the successor countries.

So the UK will more or less automatically enter into treaties with all those other countries on the same terms and conditions as those which apply to it as a Member State of the EU.
-------------------------------------
Sorted.

Friday 3 November 2017

One-sided economics: Why I love the Daily Mail

From The Daily Mail:

Banks came under fire last night for using the first interest rate hike in a decade to hammer borrowers but do nothing for long-suffering savers. The Bank of England yesterday raised rates from 0.25 per cent to 0.5 per cent – adding £180 a year to repayments on a typical variable mortgage...

Yesterday’s rate hike – the first since July 2007 – triggered an immediate increase in bills for 1.4 million families with tracker mortgages. A further 2.3 million households on other variable rate mortgages are likely to see their monthly bills increase in the coming days as lenders pass on the central bank’s rate rise.

But there is no guarantee Britain’s army of savers will benefit from higher returns on their nest eggs after a dismal decade of pain since the financial crisis.

Last night banks were accused of using the rate hike to boost their profits – with one analyst predicting a £500 million windfall. They are now under huge pressure to pass on the rate rise to hard-pressed savers, with the Prime Minister and Mr Carney leading the calls for action.


I don't know if it was deliberate, but the url suggests that the original article title was "Banks under fire for hammering borrowers not savers".

This is one-sided economics at its finest:

a. While they cheerfully admit right at the start that non-fixed rate mortgage payments will go up by £15 a month, they then blithely refer to borrowers as being "hammered". £15 a month is not being hammered, it's a minor irritation.

b. On Planet Mail, there is no distinction between mortgage borrowing and cash saving despite those clearly being diametrical opposites. This is typical Home-Owner-Ist thinking, which is embedded in government thinking as well, which is why many governments subsidise/give tax breaks for cash savings as well as mortgage debt. The result being that in many countries, it doesn't make sense to pay off your mortgage early, it's better to have a bigger mortgage and more cash savings, which is all good news as far as the banks are concerned.

c. On Planet Mail, both mortgage borrowers and cash savers are always "hard pressed". Their painted clock is right this time ("a painted clock is right once a day" as Diane tweeted recently), in that the system really has taken the piss out of cash savers for the past ten years, but the Mail is blind to the fact that most mortgage borrowers have been given corresponding massive windfall gains over the past ten years.

Thursday 2 November 2017

YPP (London) meet-up, tomorrow Friday 3 November

We'll be at The Brewmaster nr Leicester Square tube station from 5.20 or so onwards - if you think you'll turn up later than 6.30, please get in touch gmwadsworth@gmail.com or 07954 59 07 44.

Leicester Square Tube Exit 1, turn left and left again into the alleyway (St Martin's Court). We put a yellow YPP leaflet on the table so that you can find us.

Topics: this week's reader's letters.

Dress warm!

Killer Arguments Against LVT, Not (424)

Ben Southwood seeing the wood, not the trees over at the ASI:

Land value tax advocates claim that a land value tax makes housing more affordable. But house prices rapidly adjust to take account of amenities, transport links, and expected taxes that the property owner will pay. These "capitalise in" so to speak. If you add £50,000 of expected taxes to a property (or, precisely, a net present value of that) its price will go down about that much. But it doesn't make the house more affordable! You pay £50,000 less for the house and £50,000 more in tax. No change. Once again, reasoning from the price change leads us astray.

It's an improvement on "landlords will just pass on the tax", I suppose. Ben Jamin's posted his own lengthy diatribe, here's my comment:

Why do you assume that the only purpose of LVT is to get selling prices down? It isn't, that is just a bonus. The main point is that it is simply much fairer and more efficient to tax land values (or any other form of rent) instead of turnover, employment, earned income etc.

As a knock on effect, the overall income of workers and businesses goes up and the overall income of landlords and banks goes down. The rental value of land does not disappear but more of it accrues to workers and businesses (however indirectly) and less of it accrues to landlords and banks.

Wednesday 1 November 2017

Good work by Morgan Stanley

From The Guardian:

… the Morgan Stanley report, headlined “The help to buy premium – and its unintended consequences”, drily unpicks the data, revealing how the beneficiaries have been the major developers.

Researchers compared the price of new-build houses in 2013, when the scheme began, with the price of existing or “second-hand” houses. There has always been a small premium for new-build; people will pay extra for spanking-new kitchens and bathrooms. But since 2013, that premium has rocketed.

“The divergence between new-build and second-hand prices is higher than it’s been since records began,” says the report. It says that the price of new-build has outstripped second-hand by 15% since the start of help to buy. “We are now around 5% points away from the level at which new-build prices have diverged by the full amount of the government’s equity loan (20% of house price across England).”


I suppose it's possible that for every £100 of HTB subsidy, homebuilders get more than £100.
Let's say there are 10 new homes with an original price of £100 each, now inflated to £115.
There's £100 of subsidy on offer.
Four of the new homes are bought by people using an HTB to loan, i.e. £25 each.
The other six new homes are bought without HTB.
The builder actually makes an extra profit of £150, being 10 x £15.