Wednesday 31 July 2019

"The dangers of slot auctions"


Recently, China experimented with the idea, putting a selection of slots on the market at Guangzhou Baiyun and running a slot lottery at Shanghai Pudong. This raised a substantial amount of cash but, according to an IATA assessment, that is part of the problem.

“The experiment showed that paying a large amount of money for slots is not sustainable,” says James Wiltshire, IATA’s Senior Economist. “If you boil down the money paid for the Chinese slots to a per passenger basis, it pretty much wipes out the anticipated $4.44 per passenger average profit for Asia-Pacific carriers in 2017, and that’s only for slots at one end of the route.”

In other words, even a small-scale slot auction can be the difference between profit and loss for an airline. The same conclusion can be reached from a different viewpoint.

In China, the auction winners have been granted the right to use the slot for three years. It typically takes up to three years for airlines to make money on new routes, given start-up costs, marketing, and the time taken to develop consumer awareness.

Are they saying that airlines are so f***ing stupid, they would a single dime for a slot which is not going to earn them a profit?


I think the three year claim is an outright lie as well. If you want to fly from A to B, you type in A and B on one of these comparison sites and choose whichever time and price suit you, I'm sure most people don't care who the actual airline is. I doubt anybody cares whether that airline has ben flying that route for decades or for a couple of weeks.

As it stands, at the 177 airports where IATA’s Worldwide Slot Guidelines (WSG) are used, demand outstrips infrastructure supply.

This makes slots a scarce commodity. Airport owners, government or private, would have an incentive to keep slot prices high by drip-feeding capacity.

Brilliant one-sided economics worthy of the Faux Libs. Slot prices are only high because ticket prices are high; and tickets prices are high because supply is restricted. So incumbent airlines are actually quite happy with restricted supply - it keeps their profits up. (I am heartily indifferent as to whether there should be more capacity or not, the Greenies would say definitely not).

Secondary trading

Secondary trading is completely different from slot auctions, which concern primary allocation. With secondary trading, airlines can swap slots that they have been given the right to use under the WSG but are unable to use in the future.

Not every jurisdiction allows secondary trading and it is probably only required at the most congested gateways. In the UK, secondary trading has been used successfully at London Heathrow and, to a lesser extent, at London Gatwick.

Airlines must have used a slot for two years before it can be traded but the final deal is dependent purely on the negotiations between the two parties.

And at the major hubs, large amounts of cash change hands.

But that is somehow COMPLETELY different to a public auction. Not.

Tuesday 30 July 2019

Confusing two separate issues and tbus drawing the wrong conclusion

It is generally accepted (whether entirely true or not) that

a. Energy, mobile phone, broad band and insurance companies offer new customers discounts and overcharge continuing customers. Some people waste hours every year switching to a different company; and the companies then have the added hassle of closing old and opening new accounts. This is not proper price competition and does not make the companies/the economy more efficient, it just wastes a load of time.

b. Energy companies in particular enjoy a monopoly-cartel position and overcharge generally.

Problem a. is solved by banning new customer discounts i.e. expecting companies to offer the same price to new and continuing customers. This seems fair enough to me. Whichever companies have the most competitive price/service will gain market share naturally, as it should be.

Problem b. is easily fixed with a price cap. It's not difficult to set the price of electricity, gas or water so that providers still make a reasonable return, and the original privatisation was done on this basis. The most efficient companies will still be the most profitable. I don't see how this applies to mobile phones, broadband or insurance, that is proper competition IMHO.

Sam Bowman went off on a tangent in yesterday's City AM:

Even if you’re a savvy customer who remembers to switch insurance and energy providers every year, and cancel your mobile phone contract once you’ve paid off the handset, it’s a near-certainty that you have relatives and friends who aren’t. To many people, it’s too much of a hassle to switch, and the gains are too uncertain to bother checking.

This practice seems like a rip-off, and that was the motivation behind the energy price cap proposed by Ed Miliband and implemented by the May government at the start of this year.

No, that's confusing issues a. and b, which is where he goes wrong.

As critics of the policy predicted, the energy price cap is now being ratcheted downwards, so that more and more customers will be caught in it and the price discounts that energy companies can offer will become smaller and smaller. In telecoms, Ofcom has just reached an agreement with most of the mobile operators to curb loyalty penalty pricing in mobile phone contracts.

This may sound like a good thing, but trouble with price caps and contract regulations is that customer switching is good for efficiency overall. Customer switching forces companies to compete with each other and try to find ways of doing business more cheaply. Diminishing the rewards for switching means that fewer people will be willing to shop around, which weakens the incentive these companies have to improve.

Even if domestic electricity prices were fixed at a uniform price, companies would still have every incentive to generate electricity/supply gas as cheaply and efficiently as possible.

'Contract regulations' just means no new customer discounts/loyalty penalty. This reduces the amount of entirely artificial and unnecessary switching, but there would still be the incentive to switch to a cheaper/better provider. The overall competitive pressure would focus on price/service and not on pricing/marketing gimmicks.

The current regulatory approach tries to protect non-switchers by hurting switchers. That’s a dead end, making markets affected by it sclerotic, uncompetitive, and less innovative in the long run.

Neither policy a. nor policy b. 'hurts switchers'. They are entirely neutral.

A better approach may be to make switching easier, or even entirely automatic.

Agreed, but that is complementary to policy a. If companies aren't allowed to penalise existing customers with a 'loyalty penalty', they can't be allowed to penalise them with a 'leaving penalty' (to cancel out the other company's new customer discount). Gym's stay in business with savage leaving penalties, and that is not a healthy business model.

Monday 29 July 2019

Yeah, Sure

From the BBC

The way of life of a secluded community of nuns would be "devastated" if new homes planned nearby get the go-ahead, a council leader says.

Malling Abbey in West Malling, Kent, which was founded in 1060, is home to an order of up to 15 Benedictine nuns.

We can add penguins to newts and bats in the protected species lists that NIMBYs will use to prevent any new building.

Rev David Green, vicar of nearby St Mary's Church, said: "Their whole way of life is built around isolated prayer and peace and quiet."


Trudy Dean, chairman of West Malling Parish Council, said: "The whole community has come together to support the nuns against this highly intrusive plan."

Mrs Dean, who also sits on Kent County Council and Tonbridge and Malling Borough Council, said: "If the sisters cannot carry on their work, we risk them quitting the site.

So? If their way of life is built around isolated prayer, why is anyone going to miss them?

Seems to me that people who want to live in isolation would be just as happy in mid-Wales or rural Wiltshire. Sell up, sisters, pocket the cash and move somewhere really quiet.

Daily Mail On Top Form

Man, 24, is found dead in a swimming pool at £3million mansion after 'drowning at house party'

With French like these, who needs enemies?

From The Evening Standard:

Prime Minister Boris Johnson has been warned that there can be no Brexit deal without the Irish backstop by one of Emmanuel Macron’s strongest allies. Former French EU minister Nathalie Loiseau sent the stark warning to Mr Johnson on Sunday morning, telling Sky News “we would not ratify the Withdrawal Agreement without a backstop”.

Ms Loiseau told Sky’s Sophie Ridge: “The way the UK wants to leave the EU, you have a choice – there is the Withdrawal Agreement which is on the table or there is no deal. Let me say this clearly, there is nothing in between. You have the British Parliament but we have the European Parliament and we would not ratify the Withdrawal Agreement without a backstop.”

Fair enough, that's what the EU wants; we don't and so we'll have to agree to disagree.

Asked what the EU would insist on before starting trade talks, she said: “There will not be – if there was to be a no-deal – any negotiation on the future relationship with the EU without having clarity for Ireland, without having clarity for due payments and without having clarity for protection of citizens.”

In other words, if we go for No Deal, then they want to impose the Withdrawal Agreement on us anyway, which we won't accept... and then what?

I guess there's only one way to find out.

Sunday 28 July 2019


A month ago, I was driving along, minding my own business when the radiator exploded. The coolant actually came up under the bonnet and showered the windscreen as well as making impressive clouds of steam. Turned out, the top part of the radiator is made of Bakelite, and after 154,000 miles, it had given up the ghost. The top outlet had disintegrated and the rubber hose popped off (centre of picture):

The radiator (and replacement air con fan) were easily sourced and arrived within a couple of days.

What was a bugger was buying new lower hoses to connect the (automatic) gear box to the radiator (the old ones couldn't be shifted and had to be dispatched with a Stanley knife). None of the usual sources had a clue how to get hold of them, except MX5 City who ordered them for me, fresh from the factory in Hiroshima. £67 incl. postage, VAT, duty, blah blah blah and a two week delivery time. An outrage for two bits of rubber tube, but saved several hours faff.

TBH helped me replace it all today (that is to say, he replaced it all and I helped him). I now have a shiny new radiator plus bits:

That's it, car sorted, it will run smoothly for the next decade and/or 50,000 miles. Which is what I say after every repair, as Her Indoors will confirm. One day it will be true!

Rockstar Economics

From the Times

The developer of the computer game Grand Theft Auto V — criticised for a graphic torture scene and sexual violence against women — is paying no UK corporation tax but claiming millions of pounds in public subsidy for the game’s contribution to British cultural life.

You could probably say the same about what the Welsh National Opera puts on. There's a torture scene in Tosca, and attempted rape in Don Giovanni. They also receive a whopping subsidy and I doubt they pay any corporation tax (as a charity). And somehow count towards British cultural life, when putting on operas in Italian set in European countries.

The "cultural life" thing is, if I recall, in the legislation, but actually a ruse. The simple reason we subsidise film, TV and video game production is that it isn't particularly location dependant. Game of Thrones, A Knight's Tale and Braveheart shot their olde worlde scenes of Westeros, England and Scotland in Northern Ireland, Czech Republic and Ireland respectfully. When it comes down to films shot on a soundstage, location matters even less.

OK, there's some restrictions. You can't go shooting Braveheart in Nepal or Saudi Arabia. Soundstages tend to be not too far from rail and air links. But there's lots of places that tick those boxes.

So, it's entirely reasonable for the UK government to offer some tax breaks for video games. If they don't, Rockstar will just have more developer jobs in Toronto. Do you want the jobs, the income tax, the extra money going into the economy, or do you want nothing?

It's called a subsidy, but it's really a correction to the problems of tax not taking account of mobility. We've had this for a long time, right back to Mrs Thatcher offering companies sweeteners to move their TV factories to Wales. So we have these blunt subsidies to correct the problem, when really, I think LVT would do it automatically: somewhere gets poor, land values fall, incentives appear to drive business towards them.

Saturday 27 July 2019

Killer Arguments Against LVT, Not (466)

My self-appointed tormentor emailed me a link to this.

His KLNs kick off with this:

There are precisely three reasons for any tax or subsidy. They are:
1. To directly affect the welfare of the recipient. (Money has a decreasing marginal utility, so you generally want an extremely progressive wealth tax, with redistribution to poorer citizens.)
2. To address an externality (Pigovian taxes/subsidies).
3. Because the income was unearned, thus taxing it away won’t distort incomes. (Incredibly minor in significance compared to the first two.)

Nope, those are actually reasons #2, #3 and #4.

#1, the only one which really matters, is that the rental value of any plot of land is a good approximation of the value of the services provided by society in general (or the burdens placed on them) and the value of government spending which benefits that particular plot.

Therefore it seems fair and reasonable to fund public services out of an annual charge on the rental value of each plot of land ("user pays"), with a corresponding reduction in taxes on "everybody else", i.e. reductions in sales taxes and payroll taxes (and ultimately, reductions in income tax or corporation tax in the narrow sense, but that is not quite so urgent).

Rather neatly, LVT also ticks boxes #2, #3 and #4. These are welcome bonuses, but not really central to the debate.

Once you have understood this, all his KLNs melt away:

Even if we ignore the differential marginal utility of wealth, and buy the argument that we want to tax “unearned” wealth, an LVT effectively becomes a random tax on a name picked out of the phone book.

For instance, suppose Alice buys land at a value of X. It appreciates to X+Y. Then she sells it to Bob for X+Y. Then the LVT goes into effect. Bob suddenly loses the assessed net present value of all future LVT payments, i.e. Y. If he sells it to Eve, she pays X, not X+Y.

So in effect, 100% of the LVT is paid by Bob. So an LVT is effectively just a one-time tax on the poor sap who happens to own the land when it goes into effect. You might as well throw darts at a map and tax the targeted household by some arbitrary amount of money.

It's not a one-time tax on Bob and not arbitrary in the slightest. It is an annual user charge payable by all current and future owners of any plot of land. The selling price of land is the value of all the future tax-free benefits which the purchaser expected to receive by owning it, i.e. the value of all the future taxes which "everybody else" will pay (and the future burden placed on "everybody else").

"Everybody else" was not party to the contract by which Bob bought from Alice and is under no moral or legal obligation to pay for Bob's (or Eve's) future benefits. "Everybody else" could stop paying tax completely by simply moving abroad, and what would Bob or Eve do then?

So Bob made a gamble - expecting that the government would force "everybody else" to pay for his benefits in perpetuity - and Bob lost. The buck has to stop somewhere. Chances are that Bob will end up paying less tax overall, assuming he's still working or running a business.

And if it were a one-off tax, which it isn't, then that's an argument in favour of LVT - it means that in future, we will all be living tax-free, including Bob.

... when addressing an externality, we only want to tax or subsidize the affected party in order to optimize behavior. In this case, we want to subsidize people in order to incentivize those behaviors which added value to the property, e.g. the building of a new road. That does not imply that we should fund the subsidy by a tax on the individual who received the benefit.

Just look at that last sentence. Who the hell does he expect to pay for the new road? Some will benefit from it (their plots now have better access) and some will be burdened by it (their plots now suffer from noise, pollution or congestion). The former group pay a higher user charge and the latter group get a reduction in their user charge, because the rental value of their plots will go up or down.

This is neither a tax nor a subsidy and not to be judged as such. Behaviour is optimised later on - people who don't need better access will sell up to those who do; people who don't mind traffic noise will buy the negatively affected land, and so on.

The second flaw in the quoted argument is this. Suppose the unimproved value of the land is X, and the publicly added value is Y. The correct Pigovian subsidy would be to credit the exact amount of Y back to those individuals who added that value (e.g. the taxpayers who funded that “new road nearby”), as precisely as feasible as possible.

All land value is publicly added (including whatever was provided by nature), there is no need to split it into X and Y. By taxing land values instead of wages and output, this would meet his test of "the correct Pigovian subsidy". "Everybody else" gets their credit by simply paying less tax. So I fail to see how that is a KLN, even on his terms.

Lastly there’s nothing special about “unimproved value of land”... Perhaps the most bizarre thing about the LVT is its core focus on land as opposed to any other arbitrary asset.

Whether there is or isn't anything "special" about land rental values is by the by.

There are other state-granted or natural monopolies which are equally worthy of being subjected to user charges analogous to LVT. This is not an arbitrary list. Most Georgists agree that the LVT logic also applies to other privileges, such as patent rights, exclusive use of radio spectrum, mining rights, take-off and landing slots, driving a car generally (fuel duty, congestion and parking charges), taxi driver permits, and so on and so forth.
We also note that nowhere in his entire screed does he explain why it is noble and just to tax wages and output in order to subsidise land owners. If we substitute "income tax" into all his arguments, you see just how feeble they are, and would in fact be good arguments against income tax.

What if Bob just started his first job and has a life time expected income of $1 million and then the government introduces income tax. His lifetime earnings have now fallen by the amount of the tax. Is that a one-off tax on Bob? Going by his logic it is Eve, who starts her first job next year pays a one-off tax. Everybody who starts work will be imposed to a one-off tax of several hundred thousand dollars. for ever. Wouldn't it be better to impose a large one-off tax today and then let everybody live tax-free in perpetuity?

I'll probably get righteous grief for this...

Sunday 21 July 2019

MX5 NC/Mk III remodelled

The third gen were objectively good cars which looked fine from most angles, but the headlights are too small, too high up and too close together, especially if viewed from the front, and the front wheel arches are much too conspicuous.

This is easily fixed with Excel and iPhoto.

BEFORE (image from MX5 City, o/t, I have ordered a couple of used parts from them, excellent service)


This makes it look a bit S2000-ish, but that car had its own (unfixable IMHO) styling issues which are avoided here.

The curve of the front bumper could do with flattening off a bit so that it doesn't protrude so much, but I think that's a pedestrian safety thing, plus I can't fix that with Excel and iPhoto.

Saturday 20 July 2019

Gloriously missing the point about housing supply and demand in London

Shaun Bailey in City AM:

We need a bold new approach to tackle London’s housing crisis...

Since 2000, London has added over two million people, but has built fewer than 400,000 properties. Add in the surge of foreign money into our housing stock, plus more people living on their own, and you have an expensive – and exclusionary – mix.

The only way out of our current mess is to build, but politicians have promised to do that for years. While some have done better than others, every single one of them has failed to meet London’s actual needs.

The lack of self-awareness is staggering.

Those two million extra people moved to London from somewhere else, quite voluntarily, mainly attracted by the higher wages. For a given supply of housing, people will continue to move there until rents have risen to a level where the higher wages are cancelled out by higher rents.

If housing supply increases, rents might fall, very briefly. People who were previously deterred by the higher rents will move to London. Rents will increase to their previous level, probably within days or weeks.

Fair play to the lad, he seems to be recommending that London builds a lot more council housing for fixed rents. Let's assume they give priority to people who already live in London, this frees up private rented accommodation and people from elsewhere will move in to them, it makes no difference to the new arrivals.

The "unlimited supply of high-income tenants" conundrum

Jamie Ratcliff (on Twitter), links to the BBC article about changes to Section 21 (i.e. reinstating the original pre-1996 position):

The Residential Landlords Association (RLA) said its survey of 6,400 landlords suggested that 84% of its members would be more selective, picking tenants on higher incomes and leaving those earning less to fight over fewer properties. Landlords could even decide to let fewer homes to tenants with pets, as they would be considered as carrying a higher risk of causing damage.

and points out the obvious flaw in their logic:

It's interesting that landlords groups seem to think there are unlimited numbers of dual-income households ready to take the place of low income tenants (& tenants with pets).

I suppose this is the flip side to the Disappearing Homes Conundrum. Common sense tells us that landlords will always prefer higher income tenants to lower income tenants, whatever the rules are. Lower income tenants have always been at the back of the queue. Do they seriously expect us to believe that so far they have been turning away higher income tenants?

Friday 19 July 2019

The Disappearing Homes Conundrum

... is trotted out again by the National Landlords Association:

The NLA is opposed to the abolition of Section 21

To highlight the short-sightedness of this policy to Government, we’re launching a postcard campaign to tell the Prime Minister directly the impact this will have on the market...

Without Section 21, many landlords will leave the market. This will have a negative impact, both for landlords – many of whom have invested in property as a pension alternative – and for tenants, who will face lower supply, higher rents and increased personal and credit referencing requirements.

Richard Lambert, CEO of the NLA, says:

“Landlords currently have little choice but to use Section 21. They have no confidence in the ability or the capacity of the courts to deal with possession claims quickly and surely, regardless of the strength of the landlord’s case. England’s model of tenancy was always intended to operate in a sector where Section 21 exists. This change makes the fixed term meaningless, and so creates a new system of indefinite tenancies by the back door."

I wouldn't call it "by the back door", this is exactly what is intended. Indirectly, it is the government's aim to prise some landlords out of the market, because one fewer potential Labour-voting tenant means one more potential Tory-voting owner-occupier*. It will be the higher earning tenants who make the leap, so the average income of - and rent paid by - the remaining smaller pool of tenants will be lower, not higher. Which is the opposite of what The Disappearing Homes Conundrum predicts.

* There is an upper limit to Home-Owner-Ism in a democracy as you need a majority of households to be owner-occupiers to vote for this bullshit. Without this natural brake, the ultimate stage of Home-Owner-Ism would be a handful of people owning all the housing and everybody else would be paying them rent.

Thursday 18 July 2019

Daily Mail On Top Form

From The Daily Mail:

The son of a murdered civil servant branded her sex-obsessed killer an 'evil being' as he faced him down in court today.

Kasim Lewis, 32, bound and gagged Catherine Burke, 55, in her £700,000 home in Muswell Hill, north London, before stabbing her to death in November 2017.

He was given a minimum 40-year life sentence this afternoon.

Killer Arguments Against LVT, Not (465)

I received an email from a drone at Tory propaganda unit, it's a classic of the genre, and illustrates the sort of crap we have to put up with:

Anyone who thinks there is a simple solution is either a conman or particularly dumb (see also MMT).

Firstly, if you introduce LVT, you need to abolish all planning laws.

It heavily penalises everyone who has scrimped and saved for a house.

Further it discriminates heavily against manufacturing (you need more space to actually make stuff).

This is why no country in the world has introduced this idiot idea save Taiwan, where predictably it has been a disaster.

There is a "simplish" solution: tax at Scandinavian levels - 25% VAT, 30% basic with little to no personal allowance. It is proven. Unfortunately it is bloody hard work and involves sacrifices

Additional KLN says it was "disaster" in Taiwan: This is why no country in the world has implemented it to any serious degree except Taiwan, where it has predictably been a complete disaster. There are no easy, elegant solutions, only hard ones.


I emailed back, "You and I both know perfectly well that every single one of your claims is either untrue, irrelevant or both. Why do you bother?"

To which he replied: "Mark, this is a prank. I am a satanist and a bit of a weird person. Stop worrying about LVT or if you do worry, try to become an adviser to Corbyn. Maybe be the devil for a short period of time?"

Well, he had me fooled.
Henry Law from LVTC received a similar load of crap by email:

I started reading and found my blood pressure starting to rise as I detest the bigoted, naive and simplistic viewpoint that is typical of socialism/marxism/whatever or from anyone of a left-wing bent. It’s pointless trying to explain the holes. Socialism - the race to the bottom, the champion of mediocrity, the stifling of enterprise.

And just for the record, my wife and I grafted all our working lives. Neither of us had a silver spoon in our mouths or a rich daddy. What we’ve got is down to our own hard work. So if we can do, why can’t the feckless and the idle ? We like where we live but on limited income. So why force us to sell our home to pay some land tax? Why should we defer it until the house is sold ? I’ll tell you why.

Not because we want our children to inherit because we decided long ago that much of the ills in our society (and the world for that matter) is down to too many people.

Not because we want to keep our money to pay for care as neither of us intends to get to that state of decrepitude and be an eternal drain on the NHS. We’ll find a way to depart this earth somehow.

But because we have researched carefully and are leaving our estate to selected charities. I’m damned if any of that money should go towards yet another pointless, resource draining Govt ‘initiative’.

Please - don’t bother to reply.

Please - don’t send me any more socialist bile.

OK, so he'd like "everybody else" to pay extra tax to fund his landowner benefits, and he would like to gift the net present value of those benefits to "selected charities". That's called "spending other people's money".

Why does he think that other people are happy to pay for the "pointless, resource draining government initiative" of subsidising landowners?

Wednesday 17 July 2019

Killer Arguments Against LVT, Not (464)

From Bristol Live, a fairly favourable write up about a local Green councillor's proposal to replace Council Tax with LVT.

He is top man and makes some good points:

As a result, said Mr Stevens, tenants will end up with more money in their pockets, which could improve the local economy as people visit shops more frequently. Describing the overall impact, Mr Stevens said: “The tenant is better off and the landowner is worse off and the shopkeeper is better off and the owner-occupier is about the same.”

Another advantage that LVT enjoys over council tax, according to Mr Stevens, is that it takes into account ‘unfair enrichment’ - which is when a property’s values are affected by state spending. An example, said Mr Stevens, was the establishment of Redland Green School in north Bristol.

“Local property values jumped because it meant you didn’t need to send your children to private school and that enrichment is caused by the state investment - but the taxpayer bears the cost and people living nearby get the benefit,” said the councillor. If LVT were implemented, public investment which raises the value of a site would end up benefiting the community through higher tax receipts, proponents of the tax argue.

In a further endorsement of LVT, Mr Stevens emphasised how easy it is to collect. He said: “Wealth tax is very easy to avoid, as has been proven in a number of countries, but land tax you can’t avoid because the land is here - you can’t tow the land offshore. So even if your company is offshore you still need to pay Land Value Tax.”

There's a rather bizarre KLN in the comments:

Stevens says that council tax is regressive and should be replaced by the 'progressive' LVT. Whilst it is true that council tax is regressive it is by no means clear that LVT is progressive, as half the population (those who own land) will pay all of the tax and tenants (council and private) will, by very definition, be exempt. Progressive taxation means everyone pays something (however small) towards services and facilities. It's an important principle.

That's pretty much the opposite of 'progressive' means!!

'Progressive', in a tax technical sense, simply means that people with more [of something] pay a higher rate of tax than people who have less [of that thing]. So income tax is 'progressive' (20% then 40% then 45%) and Employer's Employee's NIC is 'regressive' (12% then 2%). The ultimate in regressive taxes is a Poll Tax, which is what he is alluding to.

(Actually, LVT based on land values could be designed to be progressive or regressive (i.e. with higher rates or lower rates on land over a certain value). IMHO, a flat rate of LVT is best, but this would still be 'progressive' in the wider sense.)

The fact that only half the population would be legally liable to pay the tax (those who own all the land) makes it a 'progressive' tax in the wider sense.

Householders who own their home and garden could, under this system, end up paying three times the amount they are now paying in council tax.

Sure, if it were a £ for £ replacement for Council Tax and applied at a flat rate, the tiny minority own homes worth three times as much as the average will be paying three times as much as they did under Council Tax. And more than half of owner-occupiers will pay less. So what? Those are the rules and this is neither an argument against or in favour.

Tenants will still pay the tax of course, it is included in their rent. Their landlord will collect the rent, pass on the LVT element to the council and keep the rest.

It's also nice to see the "tenants won't pay anything" KLN, I'm sure if I scroll through the comments, there'll be the "landlords will just pass on the tax" KLN, which is equal and opposite bollocks.
And then there's the tired old classic:

And how do they intend to tax the estimated 25% of land in England and Wales which the Land Registry say isn't actually registered? Because if it's not registered, they won't know where to send the bill...

Which is ably batted away by...

Send it to the new owners after that 25% of land has been publicly auctioned.

Although the actual answer is a bit more mundane.

The mythical 25% of land that is not registered is mainly low value farmland (not worth taxing), 99% of which is registered on a separate list for for landowner subsidies (if it were worth taxing - easiest is just get rid of the subsidies and busk it from there).

99% of urban land (which is 99% of all land by value) is very much registered. And that's never been a problem for Business Rates or Council Tax, why is it suddenly a problem now?

If tenants'occupants don't want to pay, they just have to tell the council who and where their landlord/the owner is. That covers 99% of the 1% of cases where the owner of urban land and buildings is not registered. So only a handful of cases will fall through all these cracks and have to be auctioned off.

Tuesday 16 July 2019

Fun with Extinction Rebellion

From the BBC:

But those involved with Extinction Rebellion say the future of the planet depends on it.

"We have left it so late that we have to step up in a semi-miraculous way to deal with this situation," said co-founder Gail Bradbrook.

However, the group doesn't say what the solutions to tackle climate change should be.

Instead, it wants the government to create a "citizens' assembly", made up of randomly selected people representing a cross-section of society. Its members would decide how to solve the climate crisis, with advice from experts.

But who's going to choose the 'experts'?

Monday 15 July 2019

Amazon Prime Days

They spent a lot of money advertising their Prime Days, which appear to be 15 and 16 July.

15 and 16 clearly aren't prime numbers, so that's a bad start.

If you write the date and month the English way, 157 and 167 are prime numbers (hooray, the world makes sense again) but if you write them the American way as 715 and 716 they are clearly not prime (bugger).

There are plenty of consecutive prime dates using the English format in January, March, July, September and November (apart from "2" and "5", all prime numbers end in 1,3,7 or 9).

But the only pairs of consecutive dates which are prime using the American format, are:
2/29 (in a leap year) - 3/1;
3/31 - 4/1.
12/31 - 1/1.

(You can't have consecutive primes in any calendar month using American format because one of them will be even, so you are restricted to the last day of a month with 29 or 31 days, followed by the first day of next month.)

I couldn't find any consecutive dates which are both prime using English format and American format.

Just sayin'.

Sunday 14 July 2019

Economic Myths: Miller & Modigliani Theorem

The first part of the original M&M Theorem makes perfect sense:

The Modigliani-Miller theorem (M&M) states that the market value of a company is calculated using its earning power and the risk of its underlying assets and is independent of the way it finances investments or distributes dividends.

There are three methods a firm can choose to finance: borrowing, spending profits (versus handing them out to shareholders in the form of dividends), and straight issuance of shares. While complicated, the theorem in its simplest form is based on the idea that with certain assumptions in place, there is no difference between a firm financing itself with debt or equity.

So far so good. If the value of the business is more than the outstanding debts, then the shares have value; if the debts exceed the value, then the shares are nigh worthless. The total value of debts + shares remains roughly the same. The value of the bonds can't exceed value of the business and the value of the shares can't go lower than zero.

If you aren't sure whether to buy shares or bonds in a company, the best strategy is to have a mix. For example Mike Ashley/Sports Direct spent £150 million on acquiring 30% of the shares in Debenhams. Unfortunately for him, the debts ballooned to far more than the value of the business, so the lenders took over the business and his shares were wiped out (a kind of debt for equity swap).

His better strategy would have been to spend less on shares and more on acquiring Debenhams debts pro rata (say 15% of each). If the business had done well, his shares go up in value and if it does badly, his shares are wiped out but he still ends up with 15% of the business in his capacity as lender.
What's nonsense is the related claim that the tax system encourages businesses to borrow money instead of issuing shares:

Third, the use of debt is less expensive than the use of equity because debt is generally subsidized by the state through the tax system –since debtors can deduct the interest payment associated with the use of debt. Therefore, the use of debt may reduce the firm´s cost of capital.

That's a generalisation across many countries' corporation tax systems, but whether it is true or not depends on the rates of tax applied to corporate profits (at corporate level) and dividend and interest income at shareholder/lender level.

(I started as a tax adviser in 1989 and had to advise clients on 'what is better for tax', the answer depended on the circumstances. I later did an accounting and finance degree, and the lecturer trotted out the M&M tax drivel and would simply not listen to reason and logic.)

IIRC and generalising a bit, Singapore and Hong Kong governments get so much money from land rent, land auctions, stamp duty and capital gains on land that they barely need to bother with taxing incomes. So companies pay 15% corporation tax and individuals pay 15% income tax. If an individual gets a dividend, it is treated as tax paid, so no further income tax due. If an individual receives interest income, it is taxed at 15% so it is as broad as it is long.
In the UK, we had a brief period in 2012 or thereabouts (before Osborne started messing things up again), when it simply did not make a difference for corporation tax/income tax (ignoring National Insurance, which clearly distorts things, the 45% additional rate and overseas stuff).

The rates were:
Corporation tax - 20%
Basic rate income tax - 20%
Higher rate income tax - 40%
Withholding tax on interest - 20%.

* If a basic rate taxpayer received a dividend, there was simply no more tax to pay (same as Singapore or HK) because the company had already paid 20%. (Ignore the bullshit with the 10% tax credit and the 10% nominal rate, it worked out at nil, unsurprisingly).
* If a basic rate taxpayer took a salary bonus, the employer took 20% income tax via PAYE and the employee had no more income tax to pay.
* If a basic rate taxpayer received an interest payment, the company paid over 20% withholding tax/income tax on a CT61 and the individual had no more tax to pay.

* If a higher rate taxpayer received a dividend, he had to pay 25% income tax on the dividend, so the overall rate was 40%. Remember - company earns £100, pays £20 corporation tax, pays £80 dividend, individual pays £20 income tax and nets £60. (Ignore the bullshit with the nominal 10% tax credit and the 32.5% nominal rate, it worked out at 25%).
* If a higher rate taxpayer took a salary bonus, the employer took 40% income tax via PAYE and the employee had no more tax to pay, net pay £60.
* If a higher rate taxpayer received an interest payment, the company paid over 20% withholding tax/income tax on a CT61 and the individual declared the gross amount and paid a further 20% of the gross amount, net interest £60.

Osborne and Hammond then busily messed up this state of affairs and now you have to do the three calculations each time to see 'what's best for tax'.
There are lots of other wrinkles...

* Pension funds can receive interest or rent truly tax-free, but receive dividend payments out of after-tax income. It would make more sense to tax all sources at a flat, lower rate, so that they get some refund of the corporation tax on dividends but pay some tax on interest and rental income.

* Some companies have large tax losses (R&D tax credits, Film Tax Credits etc) but have distributable commercial profits, so are advised to pay dividends so that shareholders get the (slightly) lower income tax rate that applies to dividends.

* Some companies don't have distributable commercial profits, so aren't allowed to pay dividends, but can still pay salary bonuses or interest.

In a perfect world, therefore, dividends, interest, rent and wages would be taxed exactly the same way i.e. there would simply be a flat withholding tax at the same rate on each when the company pays them out.

We used to do this for dividends (Advance Corporation Tax);
Banks used to withhold 20% income tax from deposit interest;
Non-banks still have to do it for interest payments (CT61s);
PAYE applies to wages;
CIS deductions apply to sub-contractors in the construction industry;
and tenants with non-resident landlords are supposed to, by default, pay 20% of the rent to HMRC and pay the landlord the balance of 80% (though most wriggle out of this).

You wouldn't even need to bother having special rules for foreigners and there would be no need to distinguish whether it's wages, rent, dividends, interest, sub-contractor payments etc. It could all be included on one return/reporting system and paid to HMRC in one payment. As a final flourish, dividends paid net of tax would be an allowable expense for corporation tax purposes.

Individuals who have to submit income tax returns (i.e. higher rate taxpayers) can then just enter all 'net of tax' payments in one box and pay the same tax rate on the lot, minus the credit for income tax withheld at source.

Here endeth.

Saturday 13 July 2019

University Open Days

Funnily enough, we've been doing some of this, so interesting to see an article:-

"It's important to talk about the cost of going to open days," says Rachel, a sixth-former from Plymouth, in Devon, who is looking at university choices.

"Not everyone can afford to go out of their area. Train tickets are expensive and there's most likely accommodation as well."

This is peak season for university open days, when tens of thousands of teenagers and their families are criss-crossing the country viewing places where they might study.

A return trip by train from north to south can cost £200 or even £300. And even with railcard discounts, when there might be four or five universities to visit, the open-day season can soon become an unaffordable closed door.

"Can". Yeah. Plymouth to Manchester, maybe.

There is no charge to attend these events. But Rachel says the travel costs mean she has effectively ruled out universities in the North of England.

"I wouldn't want to apply to a city I hadn't been to before, in case I'd regret it," she says.

Why does someone from Plymouth need to study in the North of England? I'm not saying there aren't sometimes specific courses in certain places (like Southampton excels at marine biology), but I doubt most people in Plymouth can't find something close to what they want at Bristol, Exeter, Bath, Southampton, Cardiff, Reading, UCL, Imperial, Oxford, Cambridge, Birmingham and Warwick (plus all the ex-polys).

"It is unfair. We all know rail fares are phenomenal in this country, particularly if they're choosing to go at the last minute. Planning an open day in advance isn't always easy," she says."

Actually, rail fares aren't "phenomenal" in this country, unless you go to certain places at certain times. Mostly into London at peak hours. Travelling from Swindon to Cardiff is about £30-35 by train. Exeter is about £50, which I don't think is any more than most places in Europe.

It's usually left to parents to provide the money and organisation for their teenagers, so they can meet tutors, find out about applying for courses and check out the accommodation.

And when thousands of families are descending on a university town at the same time, the trains are not going to be cheap.

That's actually bollocks. None of the fares rise on university open days. Mostly because they're on Fridays and weekends when demand is lower on trains, anyway.

Sadie, from Hastings, in East Sussex, says her friends are working out which universities they can afford to reach.

She won't look any further north than Nottingham, which means ruling out places she might otherwise have considered, such as Newcastle and Durham.

Well, that seems like a good thing.

Sarah, from Plymouth, says she probably wouldn't go any further than London.

Which is a long sodding way from Plymouth and actually, an expensive train route. Birmingham is quicker and a similar price.

And if you think travel is expensive, wait until you find out how much more accommodation is in London.

Friday 12 July 2019

Daily Mail On Top Form

No mucking about here, they included the value in the headline to save us the bother of scrolling through the article:

Tenant fights for life after being hit in the throat by hail of bullets in 'targeted attack' at £780,000 house owned by comedian Russell Kane

UPDATE: Thomas (in the comments) noticed that one of the neighbours complained that the valuation was too low, and it's been relisted at £1.2 million

Twisted PC Logic Of The Day

From the BBC:

A Republican candidate for Mississippi governor has refused to be interviewed by a female reporter unless she brings a male colleague with her.

Larrison Campbell, 40, said she had asked to shadow Robert Foster on a 15-hour "ride-a-long" on his campaign, but was denied because of her sex.

Ho hum, does he explain why..?

Mr Foster said he was acting out of precaution and he did not want to raise any suspicions about his marriage. "This is my truck, and in my truck we go by my rules," he said on CNN.

During the CNN interview with Ms Campbell and Mr Foster on Thursday, the 36-year-old gubernatorial candidate cited his religion and faith, arguing he had made a vow to his wife to not be alone with someone of the opposite sex.

"I don't trust the perception that the world puts on people when they see things and they don't ask a question, they don't look to find out the truth," he said, "Perception is a reality in this world, and I don't want to give anybody the opinion that I'm doing something that I should not be doing."

Mr Foster said following the #MeToo movement, "men are under attack all the time". "I'm not going to allow myself to be put in a situation with any female where they can make an accusation against me" without someone else in attendance, he said.

So he doesn't want to make his wife feel insecure and is worried about false claims. I think it's fair to infer that he fears he will be Led Into Temptation and or that he might end up with a Bunny Boiler. And that is the end of that. As the man says, his truck, his rules. And fifteen hours is a heck of a long time, quite unnecessarily long to conduct an interview. What next, a reporter asks whether she can camp out at his house for a weekend?

Here's the PC leap of logic:

"What you're saying here is that a woman is a sexual object first and a reporter second," Campbell told Mr Foster on Thursday.

No, that's exactly the opposite of what he said.

If he really "viewed women as sexual objects" he would have invited her along unaccompanied and tried it on. He wanted to have a neutral situation where they could both concentrate on the actual reporting/interview,.

Can Someone Tell Me the Truth About This?

Madeleine Grant, on High Streets, wrote this

Our business rates, levied on the rental value of the premises, penalise physical shops in favour of e-commerce and price many out of trading on the high street altogether. Charity shops are exempted from paying the majority of these fees, which explains their proliferation in recent years. Any relief here would be of great assistance to Britain’s ailing high street, as would a rethink of other ill-advised tax policies.

First of all, I don't see anything wrong with e-commerce not paying the same rates. They use cheap land that no-one is fighting over, so they pay cheap rates. They do their thing without scarce resources.

And yes, I know charity shops get some exemptions

But other than that, is any high street half empty because of business rates? What's the mechanism for setting them, because if I was a council, I'd rather get £100/yr of rates than £0/yr of rates. Having empty shops because you set rates too high would seem to be shooting yourself in the foot.

Thursday 11 July 2019

Gloriously muddled thinking on corporation tax.

Article in City AM this morning by John Penrose MP who "is Jeremy Hunt's policy guru".

After some fawning drivel about the German Mittelstand and dissing of UK businesses...

The OECD says that corporation tax is the most damaging and distortive, stopping investment flowing to wherever in the economy it is needed most.

This is clearly nonsense. Tariffs and turnover taxes (VAT) are the most distortionary and damaging taxes. Things like currency controls and foreign ownership restrictions (which the UK doesn't have, by and large) are awful non-tax distortions.

The distortionary effects of corporation tax are minimal:

Our businessman has some money to invest in starting or expanding his business. He ignores tax, and identifies Project A with an expected 20% return on investment and Project B with an expected 10% return on investment. He chooses Project A.

His accountant reminds him that he'll have to pay corporation tax on his profits, so actual expected returns are only 16% for Project A and 8% for Project B. The businessman will still choose Project A; corporation tax makes no difference for decision making purposes.

Also, UK plc pays twice as much in cash dividends to shareholders as it pays in corporation tax. If they really needed to retain cash for re-investment, they'd pay lower dividends.

At the moment, we've only got ourselves to blame, because our company tax system rewards firms which borrow much more than ones that invest... So why not reverse the incentives? Stop rewarding borrowers so lavishly and encourage investment instead? It would be fairly simple to do; we could make capital expenditure fully tax deductible as soon as it is spent, and stop company debt interest being tax deductible.

How thick is he? "Borrowing" is money coming in to the business and "investing" is money leaving it. These are completely separate things and have nothing to do with each other.

For example, a company could borrow from a bank and spend it on expanding the business. Does he count this as borrowing or investing? Similarly, it could borrow money without investing it (paying the cash out as dividends or a share buy back); or it could expand the business out of retained profits without borrowing.

The UK corporation tax system is pretty neutral on all this. If a company borrows from a UK bank, it gets a tax deduction for the interest paid and the bank pays an equal and opposite amount of tax on the interest it receives. If one company invests in shares of another, dividends paid on those shares are not an allowable expense of the paying company but are exempt from tax for the investing company. Both of these are completely tax neutral overall.
UPDATE - to illustrate
Co A lends to Co B, receives £10 interest
Co B saves £2 tax (tax relief on interest paid)
Co A pays £2 corp tax on interest income
Co A ends up with £8 after tax.

Co A invests in Co B, receives £8 dividend
Co B makes £10 profit that 'belongs' to Co A, pays £2 corporation tax
Co B pays £8 dividend out of post-tax profits
Co A receives £8 dividend, on which it does not have to pay tax.
He also has a very old fashioned view of modern business. Sure, some businesses make massive investments into physical plant and machinery. But by and large, businesses spend a lot more money on other things which help them grow - market research, R&D, staff training, advertising, renting larger premises and taking on more staff etc.

Such expenditure is fully allowable as a tax deduction when incurred; small businesses can claim 100% first year capital allowances but larger businesses are stuck with laughable 8% or 18% reducing balance capital allowances on qualifying items. So for this and many other reasons, 100% first year capital allowances for all businesses large or small are a good idea as it levels the playing field. So he's right for the wrong reasons - there is no particular reason to assume that the overall amount spent on plant and machinery would go up much.

Treating interest payment as a distribution of profits rather than as an expense is also a good idea, but not for the reasons he gives. The flip side would have to be that lenders don't pay tax on the interest they receive, so overall, the effect would be minimal; interest rates would just fall to the net of tax amount.

Wednesday 10 July 2019

Daily Mail On Top Form

From The Daily Mail:

Romanian national Cristian Sabou was detained on a European Arrest Warrant this morning at his address in the northern town of Dej over the death of grandmother Valerie Graves.

The 55-year-old artist was murdered with a claw hammer in a ground floor bedroom at a £1.6million house in Bosham, West Sussex - a village featured in ITV drama Midsomer Murders.

Another good reason to legalise cannabis

From the BBC:

Teenagers are less likely to use cannabis in places where the drug has been legalised, a new study suggests.

Researchers at Montana State University looked at health surveys of US high school pupils between 1993 and 2017. While overall use among US youth went up, the likelihood of teen use declined by nearly 10% in states where recreational use was legalised.

For sure, we can take all these stats with a pinch of snuff. If it's illegal, are people likely to deny smoking cannabis or more likely to exaggerate (bravado and general trolling)? How do we adjust to get the true figure? Is it even relevant to anything?

Overall, the trend appears to be slightly less usage (which should keep the bansturbators happy) and lower crime (acquisitive crime and turf wars) which is the important bit, so win-win.

But it's sort of OK if just men are murdered?

From the BBC:

Papua New Guinea: Women and children killed in tribal massacre

On Sunday, seven people - four men and three women - were killed in Munima village. Then on Monday, 16 women and children were hacked to death in the village of Karida, EMTV said. Two of the women were pregnant.

According to the Post-Courier newspaper, the attacks took place on Saturday and Sunday with six people killed the first day and 16 - including two pregnant women - in a retaliatory attack the following day.

I've genuinely never understood the extra horror expressed when "even woman and children" are murdered, as if it's acceptable for "just men" to be murdered. At what age is does a male move from being an unacceptable target to an acceptable one?

Feminists would be up in arms - and rightly so - if it were the other way round and things like this weren't reported as long as it's "just women" being murdered and only hit the headlines when "even men" are killed .

Tuesday 9 July 2019

Fun With Numbers

The two articles are unremarkable, given their source. What amused me is that they are one day apart:

Polly Toynbee in The Guardian 25 June 2019:

Out in the real world, only a quarter of voters want a no-deal Brexit. For more than 18 months YouGov founder Peter Kellner has recorded a majority who now think the referendum result was wrong. For a year there has been an eight-point lead for remain, among all polls.

This has become a remain-majority country. This seminal fact – mostly due to Labour voters changing their minds, plus the older, more pro-Brexit voters dying, and the young, more remain, entering the register – is missing from most public discussion.

The Sun, 26 June 2019:

MORE voters want Britain to quit the EU now than at the time of Brexit referendum, a fresh poll has revealed. 57 per cent said they thought we should still leave the EU in some way, three years after Brits originally voted for Brexit in 2016.

43 per cent want Britain to Remain, and 16 per cent wanted a softer Brexit, the YouGov research for The Times showed. Just 13 per cent wanted us to quit the bloc with Theresa May's dead deal, compared to 28 per cent who stressed Britain should leave with no deal at all.

The common ground appears to be that about a quarter support No Deal, so that's probably true. The rest of either article is probably made up.

"We could be wiped out like the coal industry"

From the BBC:

Some farmers have said without long-term guarantees about future subsidy levels, farms could disappear from the landscape.

"We could be wiped out like the coal industry," said Roger Hobson, whose 4,500-acre farm near York qualifies for a subsidy worth £100,000 a year.

"What we fear is that in the future the farm industry will have to go to the government and compete for funding alongside the NHS and other public services."

Monday 8 July 2019

Pointless bureaucracy

I got chatting to an immigration lawyer at the weekend (friend of a friend) who told me that the whole thing is a futile waste of time and money.

The Home Office identifies citizens of EU Member States (who are actually entitled to be here) who are 'homeless' (as defined) and serves them papers asking them to leave the country or else they'll be deported.

Half of them ignore it, homeless foreigners being notoriously difficult to track down, and half of them fill in a 137-page form (I think he was exaggerating a bit here, but who knows?) applying for leave to remain (or whatever the technical term is), some of them get some of the trick questions wrong and are earmarked for deportation. Most of these then go to an immigration lawyer who knows how to fill in the form correctly and do the appeal cover letter, and then most of these people can stay.

And so on and so forth. Of the handful who are actually deported, most of them are back in the UK within days or weeks.

So far so good.

He also said that the HO identified a lot of people by bullying homeless charities into handing over data, which is easy to appeal against. This sounded like a conspiracy theory to me, but lo and behold, this morning's Metro covered the story.

Sunday 7 July 2019

When did post-war romanticism begin?

There's a few people showing these two images on Twitter, I think a before and after photograph of Birmingham. Lots of people horrified at the destruction of fine old buildings by brutalism.

I'm trying to remember back to my childhood, but I seem to recall that in general, people were rather in favour of the new buildings, and the idea that we should keep a load of old stuff around is something that came later. And I think it was about the mid to late 80s, probably when everyone realised how awful a few council tower blocks were that it all went the other way.

The problem is that I remember those old buildings and however charming they looked on the outside, they just weren't very good. The town library had poor lighting, was cold and a bit mouldy. The modern library had large windows, and was comfortable.

I also think that we've done a lot now to keep old buildings and make them more pleasant. So, St Pancras station is rather nice. Of course, that also cost something like £800m to do, far more than what was spent on expanding and refurbishing the modern station at Reading (which also works better as a station), but as the traveller doesn't see the cost, no-one notices. This changes the way people think about buildings. Old buildings are fine, if you aren't directly paying the extra cost. It's also why the private sector tends to err towards the modern because if you run an office in a listed building, you're going to pay more than a shiny Regus office.

I think it's a shame this happened. My memories of the 70s and 80s were of optimism for the modern. Moving forward into a better age. And I don't think it's a party thing. Both Labour and Mrs Thatcher were keen on building new, shiny infrastructure.

Friday 5 July 2019

Economic myths: "It's all about lack of supply"

I was involved in another Twitter spat recently with a Faux Lib who insisted that high house prices are all about lack of supply.

Despite our best efforts, he was ignoring logic and facts, so I'll try to explain again why it is nonsense (for my own sanity and for future reference).

OK, first you have to understand the rent-setting process, which I covered here in a separate context (why a Universal Basic Income would not change rents).

It is easily observable that differences in average rents between different areas are pretty much equal to the difference in average wages between areas (plus or minus lots of other things, like nice/poor views, good/bad state schools, ease of commute, but average wages are easiest to quantify so let's stick with that).

To simplify the example, a country has a low wage Area A and a high wage Area B. Averages wages in Area B are £10,000 higher than in Area A, so average rents in Area B end up £10,000 higher than in Area A. This is because people will move from Area A to Area B to earn the extra £10,000, provided the extra rent they have to pay is no more than the extra wages of £10,000. If the difference were greater, people would move from Area B back to Area A, so there is an equilibrium where the higher rent soaks up the higher wages.

The location rent in Area A is zero; the rent you pay in Area A is just enough to justify maintaining existing stock with no surplus. Even in the wealthiest countries in the world (excl. city-states) you will find areas where the location rent is zero and you can buy homes for less than they cost to build, that's just a fact.
Let's assume they build more homes in Area B. So people will move from Area A to Area B for the same reasons as before. Let's assume that this migration has no effect on average wages (agglomeration benefits mean that average wages will go up in the medium term; it could be argued that new comers will be slightly less skilled than current residents, so overall let's assume no effect).

The average location rent in Area A can't fall below zero and the equilibrium difference in rents is still £10,000, and there is no change in rents in Area B, despite the additional supply.

You can build as many new homes in Area B as you like. Even at peak capacity, new construction will only add a couple of per cent to existing housing stock and people can move just as fast as new homes can be built (at least ten per cent of the population move home each year, against a three per cent increase in housing stock, let's say) and the equilibrium will always re-establish itself.
Circling back to real life, the Faux Libs claim that rents in London are only so high because of lack of supply. What they are saying is that people in London pay £15,000 extra in rent to be in an area where wages are only £10,000 higher. That is clearly nonsense - most people who move to London are in their twenties and they move there because they want to be better off. It is madness to say that people move to London to be worse off (they might take it on the chin short term, i.e. do an unpaid 'internship' but not medium or long term).

UPDATE, James Skillen posted this chart, saying it supports the idea that there is a need for more housing in London:

Maybe there is, maybe there isn't, that's not the issue here. If you do the maths, you will find that net incomes after paying rent are pretty much flat in absolute £ terms across the UK, which is a basic law of rent and the basis of the whole thing. For example, London wage £30,000 minus rent £15,000 (50% of wage) leaves £15,000 disposable. North East wage £20,000 minus rent £5,000 (25%) leaves £15,000 disposable.
What is slightly more interesting is to look at Area A once some people have moved away. There are now more households than homes.

Two things can (and do) happen:

a. People spread out a bit; people leave home at a younger age; unhappy couples are more likely to split up etc. So the average number of people per home goes down a bit, and you can now rent more home for the same money - which discourages people from moving to Area B, so the effect is weak.

b. Less desirable homes in less desirable parts of Area A are simply abandoned. Once a couple of homes on a street are left empty for long enough, there is a domino effect and after a few years the whole street or whole estate is almost empty. For every new home built in Area B, one home is abandoned in Area, so the process is only gradual.

These abandoned homes simply fall out of the equation; they are no longer homes and can be ignored - it would be like including the selling price of beat-up MOT failures in a scrap yard when calculating the average price paid for second hand cars. The remaining people in Area A all end up occupying the same amount of housing and paying the same rent as before in the parts which have not been abandoned. The equilibrium rent difference between Area A and Area B is maintained.
Whichever way you twist it, either you accept the simple logic of the rent-setting process which is easily observable in real life (comparison of average wages and average rents) - or you believe that people will move to a high rent area, knowing full well they will be permanently worse off; or will not be tempted to move to a low rent area if it made them permanently better off.

Thursday 4 July 2019

Cannabis-related twattishness

The Evening Standard has launched a laudable campaign to get cannabis legalised in the UK, hooray, nonetheless, the article highlights some cases of extreme twattishness:

Nova Cannabis, just down the road from Hunny Pot, was the third brick and mortar [cannabis] store to open in Toronto, and I pitched up to find the owner, Heather Conlon, looking shell-shocked in her first week of business.

The 50-year-old was one of 58,000 people to enter the licence lottery, and her win has turned her into an instant multi-millionaire. “My husband and I run a locksmith so running a cannabis business is totally new to us,” she said.

The Toronto government should have auctioned off the licences rather than turning a random few people into 'instant multi-millionaires'. It is a protection racket, after all - you pay us, and we'll lock out the competition. Or they could have handed out more licences, or imposed an annual tax on licensed premises, such that the value of the licence is minimal.

“Our competition is not the other legal shops like Hunny Pot, it’s the prolific number of illegal dispensaries that operate without the same restrictions we have,” said Conlon. “They can undercut us on price because they don’t pay tax. It’s unfair. I hope they will make arrests and shut the lot of them down.”

The mark-up for anything illegal, like cannabis, is enormous because of the risks (being shot by a rival dealer or going to prison), the overheads (mainly bribes and hush money) and the fact that a lot of supply is confiscated (by the authorities or other dealers). So unlicensed dealers will have to drop their prices significantly to compete, not the other way round. Dealers aren't paying tax to the government as such, but a bribe to a government official is still a kind of tax.

And if unlicensed dealers have drop their prices significantly, that in itself is A Good Thing. The trade is now less attractive to criminals, so attracts fewer of them and acquisitive crime falls. If the government wants to shut them down, it just has to keep dropping the tax until illegal supply is simply not a commercially viable enterprise.

Wednesday 3 July 2019

Diagonal Comparison

From The Guardian readers' letters page:

Nuclear power is helping to drive the climate crisis

Has the Confederation of British Industry got its head in the sand, or in the record levels of carbon-intensive concrete just poured at the Hinkley C nuclear site (Build more nuclear reactors to help climate crisis, says CBI, 28 June)?

Nuclear power, apart from destroying biodiversity throughout its life cycle, produces up to 37 times the CO2 emissions of renewable energy sources, owing partly to the mining and refining of uranium. The impact of this process on people and the environment is not included in the rationale for nuclear power in the UK...

Linda Rogers, PAWB (Pobl Atal Wylfa B/People Against Wylfa B)

Let's go with the prevailing narrative that today's temperatures are outside the normal range of fluctuations for the past hundred (or thousand, or whatever) years, and that carbon dioxide is causing them - and focus on that "37 times" number.

I don't know what she means by 'renewable energy', but presumably the net carbon dioxide emissions from these is close to zero - thirty-seven times close to zero is still a small number, and surely a few orders of magnitude less burning oil or gas (coal is hardly used any more in the UK).

Therefore, the headline that "Nuclear power is helping to drive the climate crisis" is nonsense. By all means, oppose it for other reasons (rightly or wrongly), but please accept that overall, it reduces carbon dioxide emissions.

The Glastonbury 2019 clean up - I call bullshit.

An article in (at? I'm never sure) Somerset Live contrasts the almost pristine state of the field after this year's festival with the amount of tents and rubbish left behind last year, and explains the difference thusly:

Climate change and the environment has been a central theme for this year's event, with organisers urging people to bring sturdy tents that they take home, and it appears that the message has been getting through.

The Love the Farm, Leave no Trace pledge, which launched in 2016, is believed to have resulted in an 81 per cent reduction in tents left at Glastonbury in 2017.


Those pop-up tents are easy to pop up, but very fiddly to fold up and put back in the bag. If you are tired, cold, muddy and dying to go home and your tent is covered in mud (and possibly sewage), you won't be in the mood to struggle with it for ten minutes and are likely to abandon it. Having spent £200 on a ticket and £50 on travel, and having got used to paying £8 for a can of warm lager, who cares about the £40 you spent on a pop-up tent?

If, as happened this year, you and your tent are dry and the weather's still nice, you're happy to faff about for ten minutes, work out how to pack up your tent and take it with you.

The same goes for all the plastic rubbish. Most people won't be willing to gather up plastic bottles embedded in mud (and possibly sewage) while it's pouring down. If it's nice weather, filling up a couple of bin liners with loose plastic items is no great sacrifice, if you're doing it with a few like-minded, it can even be quite satisfying.

Let's see what happens to people's new-found environmental awareness next time it's been raining.

Daily Mail on top form

It's the first bullet point in yesterday's article on the death of a stowaway:

First picture of Oxford graduate sunbather who had miracle escape when frozen stowaway plunged 3,500ft from Kenya Airways jet and landed just THREE FEET from him in London garden

* John Baldock was in garden of £2.3m home where he lives in Clapham, London
* Man's body fell 3,500ft from landing gear of Nairobi to London Heathrow flight
* Neighbours say the body landed just feet from Mr Baldock on Sunday afternoon
* Mr Baldock is a software engineer from Exeter who has a master's from Oxford

Tuesday 2 July 2019

Killer Arguments Against LVT, Not (463)

Sorry to return to the ASI dirge of two years ago, but I saw this excerpt trotted out elsewhere as the inevitable 'but...' in an otherwise fairly favourable article:

One false claim made in favour of the LVT is that it would force the land to be used ‘more productively’. But there is already a sort of ‘tax’ on owning land and not using it as productively as possible: opportunity cost.

If you choose to use your land as a garden instead of a block of flats to rent out, you are ‘paying’ the cost of doing so in the rent you’re forgoing [sic].

LVT and planning is indeed a bit of a red herring. The main benefits are the social and economic benefits of using it to replace taxes on output and employment.

He misses the point by yapping on about people selling their back gardens for housing (how many people have a back garden big enough? One in a thousand? How many of those would bother applying for planning? How many councils would grant it?) The additional value of a back garden beyond a certain size is minimal, so the LVT on a home with a big back garden would be barely more than the LVT on the house next door with a normal back garden; nothing happens.

But there is clearly a big difference between actual cash costs and opportunity costs. Consider two examples:

1. Poor Widows In Mansions

Our first Poor Widow owns and lives in a large/expensive home. She could rent this out, bank £20,000 a year rent and rent herself somewhere for £5,000 a year. I'm sure that some Poor Widows do this, but most of them don't. Her heirs aren't too bothered either, because if they kept nudging her to do this, she might get sick of them and cut them out of her will.

Our second Poor Widow rents the large/expensive home next door for £20,000 a year. Oh no, she doesn't, she traded down to renting somewhere for £5,000 a year decades ago when her husband died/she retired.

They are both getting the same benefits from living at that location (nice neighbourhood, near the shops, good GP, whatever); one has a notional cost and the other a real cost.

So with a real cash cost, housing is being used more efficiently, the larger/wealthier family is living in the large/expensive home and she is living in the smaller, affordable one.

2. Land speculators

Our first land speculator inherited some fields at the edge of a growing town years ago, mortgage free. He knows that its value is increasing by 5% or 10% a year compound (or, the chances of getting planning gradually approaches 100%). He can only earn 1% interest by selling up and putting the cash in the bank. So he will only ever sell the fields if he really needs the money.

Our second land speculator bought some fields nearby, financed with a large mortgage which makes the exercise cash negative. He will be keen to get planning as soon as possible, bank the uplift and pay of the mortgage and interest years. If he leaves it too long, the compound interest will wipe out any gain.

They are both getting the same benefits from owning those fields (steadily increasing likelihood of banking a nice fat planning gain); one has a notional cost and the other a real cost.

So with a real cash cost, land is being used more efficiently, the mortgaged fields are sold and developed, bricklayers get jobs and people can live there.

With LVT in place

LVT doesn't just turn a notional cost into a cash cost, focusing people's attention on optimising land use short term, it would, if handled correctly, keep land/housing selling prices very low and stable, thus discouraging people from hanging on as long as possible.

The heirs of the Poor Widow In A Mansion from the first example can't console themselves with the fact that the longer she remains there, the more they can sell the house for in future. If she really wants to 'pass on her hard earned wealth to her loved ones', she will trade down. If she doesn't care and prefers living there, she rolls up the LVT and her heirs can whistle for it.

Our lucky landowner from the second example will not be sitting back, waiting until he can realise a tasty windfall gain. His fields will never be worth more than a few thousand pounds per acre; when the council lifts planning restrictions, the higher LVT will cancel out most or all of the planning uplift. There will be no incentive to keep his fields out of use as long as possible and he will be sell it on to an actual builder or develop it himself ASAP.

Monday 1 July 2019

Killer Arguments Against LVT, Not (462)

Emailed in by MBK, from The Spectator, in among the shite are these classics:

The report’s editor, George Monbiot, has not thought through the unintended consequences of the proposals.

Well yes he has.

Just one example and perhaps the most damaging is the desire to reduce land prices. With government (national and local), institutions and pension funds and religious organisations being the most prolific landowners, often on our behalf, this would be an economic disaster.

It would undermine the nation’s ability to pay for any of the measures they propose, by reducing our ability to borrow efficiently.

If people already own land, why do they need to borrow? I thought the idea was, take out a mortgage, buy a home and pay it off as quick as possible. The only reason for borrowing on land you already own is to leverage up and by more land etc.

The 'nation' raises the money to pay for by collecting taxes (such as the report's suggested 'Progressive Property Tax'), borrowing is just deferred taxation.

I'm not aware that land speculation is a major source of government finance. With a PPT, land values would continue to be a major source of government finance, only better.

Pensions would see a reduction in their value too.

So what? It's a negative sum game, and one man's pension is another man's poverty.

Replace Council tax with ‘Progressive Property Tax’

This is the idea that won’t go away. In another guise, the Mansion Tax is back. Except it won’t just be mansions caught by this pernicious change. Forget the cost of local services. Or how much you earn. The more valuable your house, or flat, the more you would pay in council tax under Labour’s plans.

Nobody has forgotten the 'cost' of local services; we have to collect taxes to cover that cost. Most services are local services - it's not just mowing the grass verge and emptying the bins. Schools, hospitals, police, roads etc are all local to somewhere and maintain local land values, total cost approx. £250 billion a year.

In ideal world, LVT (aka Progressive Property Tax) receipts would at least be enough to cover the cost of all this stuff; a flat PPT at 3% on current values should just about cover it. The more benefit you get from such local services, the more you pay. Seems like a perfectly fair free-market solution to me.

And these nutters hate income tax, so surely they would welcome a tax not based on 'how much you earn'? It's one or the other.

Getting a mortgage

After a big fall in house prices has been achieved, expect to find it more difficult to get a mortgage as LTV, Loan To Value, rates are tightened.

After a big fall, people won't need to borrow so much (so an LTV cap is probably unnecessary anyway) and it will be easier to get a mortgage large enough to buy a home.

It is simply easier getting and paying off a two-times salary mortgage than getting and paying off a five times salary mortgage (especially if taxes on wages are reduced and potential borrowers have higher disposable incomes).

So this one is really fucking stupid.

To ‘discourage land and housing from being treated as financial assets’ is beyond bonkers.

It is the most sensible thing I have ever heard.