Well, Well, Well...

I am not Mark Wadsworth

It's always very nice to have one's own prejucies, or suspicions even, confirmed by those more gifted with time and intelligence than oneself. This article just about sums up what I've suspected, and consequently how I've been working for the last 20+ years.

I've long considered, that except for a few minor admin bits and pieces and some client education, that my job and business was largely redundant. And that in 'investing' for clients all I am really doing is defending them from inflation at the least possible cost.

What they really pay me for though is comfort. Trouble is the more this ludicrous financial charade between the Gummint, the central bank and the banking systemn goes on, the less comfort I can give them.

(The link is a 'must read' piece for all my peer group, and especially the FSA)

Love, Lola.

Same old, same old

From The FT:

George Osborne, the chancellor, responding to Mr Miliband’s claims [that VAT was "the wong tax at the wrong time"] said: “Labour left Britain with record debts that people know we have to deal with to avoid an economic crisis... The question Ed Miliband faces is this: if you’re not raising VAT, where are the extra £13bn of spending cuts coming from? The NHS? Schools?”

Isn't this the same stupid game that Labour played for thirteen years - they simply had to increase taxes all the time to make up for "decades of under-investment under the Tories", and any Tory suggestion that taxes be reduced a bit was batted back with accusations that they wanted to reduce spending on schools and hospitals? Only now it's a Tory justifying a tax increase with the logic that the alternative is a reduction in spending on schools and hospitals.

And if Ed Miliband weren't who he is, he could have rattled off a long list of ways in which the UK government could easily save £13 billion a year (payments to EU budget, overseas aid, Green tomfoolery, cut private sector procurement by 5% etc) or he could have pointed out that only half the NHS budget is actually spent in hospitals and only half the education budget is spent in schools (heck knows where the rest of it goes). But he is who he is, and don't the Tories just know it!

Killer Arguments Against LVT, Not (86)

Philip Legrain proposes LVT in preference to VAT over at The Guardian and reaps a rich harvest of abusive nonsense.

The pinnacle is a long rant by Eachran, which contains the following nugget: "Rent? It doesn’t exist and neither does land value except in fantasy economics and accounting. How some of you people can use the word value without blushing is shocking." and culminates with this:

It beats me why anyone would want to tax a physical creation of society as a whole that endures beyond generations for society as a whole. Perhaps someone can explain other than using the practicality excuse which I accept, of “cheap and easy”.

To which I responded:

That is the whole point (on a moral level, let alone the economic advantages). It was society as a whole that created these values, so why shouldn't the profits be collected by the government and used to:

a) Reduce taxes on income and output and personal efforts, and

b) Once all other taxes are phased out (and the national debt paid off), to dish out the receipts to "society as a whole" as a Citizen's Dividend?

It beats me why you think that the income and profits from a state protected monopoly/cartel like land 'ownership' should be generated by society as a whole and then privatised by a few (bearing in mind that yer average person is both homeowner and worker, i.e. for the average person, the two net off).

Crash Course in VAT

As I've said before, VAT is The Worst Tax of All.

The Chartered Institute of Personnel & Development have also come to the conclusion that increasing VAT from 17.5% to 20% will result in 250,000 private sector job losses, which gives us a nice easy rule of thumb: 1% VAT increase = 100,000 jobs lost.

Extrapolating is always a risky business, but it's also a not unreasonable assumption that 20% VAT adds two million to the unemployment statistics, plus a corresponding number of businesses which go under (or never got off the ground).

I shall have to wait until later in the year when the supermarkets* report their half year figures for a period when VAT was 20%, and then we can see what impact the changes from 17.5% to 15% to 17.5% to 20% have had on their gross profits. So far all the evidence says that the bulk of the tax is borne by the producer - if the old lie, that 'the consumer bears the tax' were true, then changes to the VAT rate would see overall business income change when the rate changes (consumers have limited budgets) but gross margins would stay the same.

* Taking them as a proxy for the economy as a whole.

Oh bugger...

In the spirit of always saying the opposite of what everybody else says, I have been steadfastly labelling posts on a certain topic with the tag global cooling. Now, via the SPPI Blog we get this:

As winters get harsher and the snow piles up, more and more scientists are now warning of global cooling. Reader Matt Vooro has compiled a list (see below) of 31 prominent scientists and researchers who have words that governments ought to start heeding...

The only name on that list which is familiar to me (as a complete non-expert) is Piers Corbyn, somebody who appears to do climate/weather forecasting as an intellectual challenge rather than as part of some political agenda, but who has been terrifyingly right so far. Damn! I hate it when it's cold.

More Home-Owner-Ist DoubleThink

Well, hats off to Shappsy for flushing out a few more f***wits. Over at The Daily Express, we inevitably get comments like this, posted by The_Boss at 03.01.11, 4:53pm:

Where do they get this type of low grade person from? How many homes does HE own??? With membership of the EU and uncontrolled immigration - never mind that IDIOT SHAMerCON wanting Turkey in the EU - home prices are set to go up.

It's not clear which of the two big Home-Owner-Ist lies The_Boss supports more:

a) That house price falls are A Bad Thing, and thus by reverse logic, that house price rises are A Good Thing, or

b) That the trebling of house prices between 1997 and 2007 was purely down to mass immigration.

Let's assume that b) were true, and further that the UK government were capable of adopting some National Socialist type measures to expel all people born abroad who came here since 1997. Further, let's assume that a) were true and that if the UK government expelled a few million people, house prices were to fall by half... would The_Boss still support these expulsions?

Or would The_Boss promptly resort to a third Home-Owner-Ist lie, namely that if all people born abroad were expelled, that the UK would suddenly become a much more desirable place to live (for whom, exactly, people living abroad?), in which case mass expulsions would lead to a further increase in house prices, thus directly contradicting lie b)?

Fun Online Polls; Housing & TV or radio presenters called "Chris"

On a good turnout (seeing as it was a holiday week), the results to last week's Fun Online Poll were as follows:

Which country has the smallest, worst-built and most expensive housing in western Europe?
The United Kingdom - 93%
Other, please specify - 7%

Although 8 people chose "Other" they forgot the "please specify" bit, so "The United Kingdom" wins one hundred per cent of votes cast. It's still not clear to me why we Brits are supposed to be so proud of having the most expensive housing, but maybe somebody will explain it to me one day.
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There has been a definite resurgence in the number of TV and radio presenters called "Chris" recently, so that's this week's Fun Online Poll - who is the most irritating?

Vote here or use the widget in the sidebar.

Home-Owner-Ist DoubleThink

Housing Minister Grant Shapps said something mildly sensible about house prices in an interview with The Observer:

Grant Shapps argues that dramatic increases in the price of property cause "enormous pain" for tens of thousands of young people not yet on the housing ladder. He wants to use government levers to help usher in a new era of "house-price stability" in which prices rise very slowly and below the rate of earnings, making property more affordable long term.

In which he is quite correct - high house prices are a transfer of wealth from young to old; from poor to rich; from free markets to monopolists etc. Anti Citizen One spotted a write up of this on Sky News, which allows comments, the third one down being this rather splendid bit of non-logic:

UNLIKE CONSERVATIVE [MPs] THE COMMON MAN ONLY HAS ONE HOME SO YES SHAPPS IT IS A HOME TO THEM AND ALSO A INVESTMENT FOR THEIR CHILDREN (WHO ACCUALY [sic] HAVE TO "WORK" FOR A LIVING) UNLIKE SOME I COULD MENTION.

So there you go - the Home-Owner-Ists even have the temerity to claim that high house prices benefit future generations, when they actually make them poorer, remembering that "investment" is being used to mean "something that increases in value" and not "something that helps increase economic output in future".

And if you look at that rant closely, what this commenter appears to be saying is that "some I could mention" (i.e. Conservative MPs) don't have to work for a living, i.e. can make money purely from house price rises. If the commenter really wanted to have an economic system which rewards people who "WORK" instead of benefitting property speculators, then surely he would want house prices to stay low and stable?

Interesting things you hear in the pub...

Happy New Year MW readers! I bumped into an old school chum last night who has moved to the Spanish Costas. He's landed a job at a dodgy estate agent/land banking scam/firm. Here's what they do:

1) They advertise for people who want to sell their house fast for cash.
2) They also advertise for people who want to invest in buy to let properties.
3) The seller agree to sell for 70% of the 'market price' (supported by a RICS valuation).
4) The buyer agrees to buy for 80% of the RICS price.
5) The 'estate agent' provide a short bridging loan to the buyer of 20% of the RICs price.
6) The 'estate agent' helps the buyer obtain the property using a 75% LVT mortgage when really they are only putting 5% down, the sale goes through the land registry books at the RICS price
7) The 'estate agent' pockets the spread plus an £800 arrangement fee.
8) RBS and Lloyds end up with more dodgy loans on their books, and HM Land Registry end up with more dodgy data on theirs. (Ironically these people use HMLR data to do their due diligence)

He says he's doing 2 or 3 deals a week and making about £100k a year to boot. Not only that he reckons there's loads of it going on. Of course, IMO this is mortgage fraud so don't get tempted! I wonder what percentage of transactions are like this now?

That Social Housing Myth

Tim W, in The Register on below-market rents in social housing:

Taking rent foregone as just as much a subsidy as cash paid out, my back-of-the-fag-packet numbers are that housing subsidies cost £40 to £60 bn a year (£20-£40 bn in lost rents, a wide range as no one actually publishes the figure that I can find, plus £20 bn HB).

Nope.

1) Firstly, there are published figures for this, see e.g. Professor John Hills, pages 8 and 9 of his summary from 2007:

One estimate of the “economic subsidy” to social housing (the difference between actual rents and those giving an economic return) was that it had reached £6.6 billion across in England as a whole in 2004, slightly higher in real terms than in 1996. Three-fifths of this total went to social tenants in London, the South East and South West. In Northern regions and the Midlands, actual social rents were £10-20 per week below those that would give a comparable return on housing capital values to those in the private sector, but in the East and South East the difference was £40-50, and in London about £70-80.

2) It all depends on what you consider 'the market rent' to be. In very round figures, there are 20 million privately 'owned' homes in the UK, with rents from £100 per week all the way up to £1,000s per week for a couple of million homes in really desirable areas, let's say the average is £300, which is rather more than the median of maybe £150 - £200 per week:
3) Then there are 5 million units of social housing, with average official rents of (say) £50 per week. There are some estates where everybody is unemployed, so the £50 is a 'made up figure', none of the tenants actually pay that, the DWP just remit that amount to the local council who passes it back to the social housing fund. And there's a lot of social housing that could be let out for far more than £50 a week (or is illegally sub-let for for far more than that, depending on the area):
4) In order to arrive at an implied subsidy or discount to market rent of £40 billion a year, you'd have to assume that these could all be let out for £210 per week each (£40 billion divided by 5 million units divided by 50 weeks = £160, plus official rent of £50). Even taking Tim W's lower figure of £20 billion means that these could all be let out for £130 per week, i.e. rather more than the weekly rents of £100 for 'not so nice houses'.

5) Remember that land 'ownership' is a series of local monopolies or a cartel. The prices (rental values) of housing have little or nothing do with the owner's input costs (remembering that interest on loans is not an input cost, it is a cost of ownership), the prices are set entirely by what people are willing and able to pay - it is largely because there are practical or political restrictions on the amount of housing that is available that landlords can make super-profits in most areas.

6) So what would happen if the state scrapped Housing Benefit entirely (the bulk of which is a transfer between government departments, and not a cost to the taxpayer as such) and sold off all available social housing? There is a fixed number of people in the UK, with a fixed amount of money to spend and a fixed amount of housing. So while it is quite true that there are some council flats in Westminster which could be let out for at least £500 per week, this is largely because of the scarcity of flats that are available for working people to rent.

7) If all existing social tenants were booted out and all ex-social housing were let at 'market rates' (i.e. 'as much as the new landlord can get'), the chances are that market rents for those Westminster flats would fall below £500 per week (to £450? to £400?), and the market rents for London flats that had always been privately 'owned' would fall as well (because there'd be far more flats for working people to choose from). And on the council estates where everybody is unemployed, the rents would be +/- nothing, call it £10 or £20 a week, because that is all that people on the dole can afford to pay.

8) To summarise, there's a grey shaded triangle for 'rent foregone' and a white triangle for 'inflated rents'. By and large, the two triangles are the same size, so (bearing in mind that the whole curve would shift down slightly if Housing Benefit were scrapped and all social housing sold off) the overall subsidy of [Grey triangle] - [white triangle] probably nets off to very little indeed, probably far less than Professor John Hills' estimate of £6.6 billion a year.
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9) As a final thought, it seems a tad unfair to me to mention the implied subsidy to the half of social tenants who genuinely do pay below market rents without mentioning the implied subsidy to private land 'ownership' in the UK, which must be in the region of £125 billion a year*, plus/minus a huge margin of error, i.e. [20 million homes] x [market rents £200 per week minus actual cost of production, i.e. bricks and mortar, repairs etc of £75 per week]:
* About a third of this is collected by the banks as mortgage interest, but glossing over that, this means that even if Land Value Tax were introduced as an additional tax rather than a replacement tax (which I do not and have not ever proposed - most existing taxes are very bad taxes indeed and ought to be scrapped anyway), annual revenues would be in the order of £125 billion, plus/minus a huge margin of error.