"There was no UKIP candidate, so I voted Green"

Our local UKIP branch chairman recently reminded me that there was going to be a Parish council by-election in my ward, but I assumed that he was going to sort out the paperwork and he assumed that I would. Suffice to say, I didn't get my name on the ballot paper.

I was doing my pre-Xmas tidy today, which consists mainly of opening unsolicited mail and chucking it in the recycling when I stumbled across the voting cards for me and the Mrs.

Oh dear, I thought, I even forgot to vote! But lo and behold, the election was being held today, so en route to somewhere else this evening, I fulfilled my democratic duty. I lit up my usual rollie on the way, which usually lasts me from my front door to the train station. The polling station is half way between my house and the train station, so I politely asked the two gentlemen sitting outside (the ones with the rosettes sitting on plastic chairs who ask for your voting card on the way out) whether there was an ash tray handy for me to park it.

I'm afraid not, replied the younger of the two, but I can hold it for you. Result. The chap behind the desk handed me my ballot paper and solemnly informed me that I could cast no more than two votes. Once at the polling booth (about two paces away from the desk and not even curtained off) I looked at the ballot paper and established that there were only three candidates on the paper - two Conservatives and one Green Party. Short of spoiling my ballot paper, this left me with little choice.

On the way out, I was duly assailed by the two gentlemen on plastic chairs, who went through the usual routine. I merrily handed over my voting card and answered their question. The younger man with the blue rosette gave me a sour look and handed back my rollie. The older man with the green rosette was slightly taken aback but said 'Thank you' anyway.

"Shocking truth about pension charges..."

The Daily Mail has mentioned this topic often enough, but today they really get down to facts and figures...

The Treasury must bite the bullet and tell Britons the whole truth about pension fees even though the shocking facts risk 'permanently damaging' our savings culture, advisers say.

This is Money can reveal the inside story on a damning presentation on pension charges, in which consultants showed the Treasury evidence of a £67billion-a-year hit. (1) Advisers from a low cost investment provider laid their facts bare for officials, revealing how hard-hit retirees are sometimes left with less than they paid in once an average 3.2 per cent in fees is siphoned off each year. (2)

The presentation warned the Treasury the truth is so explosive it would put off some savers forever. It said the UK's 'fragile savings culture (3) may be permanently damaged' if all hidden charges were exposed. Their words will have terrified the Treasury, which would be forced to pick up a rapidly ballooning bill from pensioners falling back on state handouts, (4) in turn heaping more pressure on Britain's bloated £127billion deficit.

1) £67 billion a year looks a little on the high side to me, but broadly speaking that ties in with my own calculations and estimates of about £50 billion a year. Their total commissions are broadly equal to the total value of tax breaks for pension saving, which are about £44 billion a year (workings here).

Either way, this is an inevitable result of tax/subsidy arbitrage*. In the absence of tax breaks, people who wanted to save £100 would buy shares for £100. If you know that the tax man will give you (say) £30 back (or pay it into your pension fund) for every £100 gross (or £70 net) which you invest via a pension fund, then as long as the pension fund invests at least £70 in shares and helps itself to no more than £30 in commissions, you are still no worse off for having invested via a pension fund.

Of course the maths is more complicated than this, because your pension income is taxed when it is paid out again, albeit at a lower rate (call it 15%), so the pension fund helps itself to (say) £10 on the way in and another £5 on the way out, leaving the gullible pensions saver no better or worse off than if he'd just saved up out of his net income.

2) Again, that does look very much on the high side. But the total value of investments managed by UK pension funds is about £2,000 billion, according to the ONS, so if total charges are £67 billion, then 3.2% looks about right.

3) Which 'savings culture'? We are a debt culture, that's a vital aspect of Home-Owner-Ism.

4) So what? It's up to the government to decide what level of 'state handouts' to give older people. The best idea is to roll the basic state pension, SERPS, public sector pensions, pension credit, winter fuel, bus passes, free TV licence, the whole lot, into a flat rate Citizen's Pension, fiscally neutral would be about £200 a week let's say.

But let's imagine we only have the £44 billion a year tax breaks to play with. There are about 11 million people in the UK over pension age, so simply giving every pension an extra £20 a week, cash in hand, no questions asked, would only cost a quarter as much as the tax breaks and would do a damn' sight more good. And if that were non-means tested, it would not discourage people from saving up for their old age in the slightest.

Via Taffee at HPC.
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* I covered another example of tax/subsidy arbitrage in my final year project at Uni. In Germany, there were no tax breaks for buying a second hand home but the tax breaks for a new home were worth about 30% of the cost of the new home. At the time, the German association of building societies sent me statistics saying that the average selling price for a second hand home was DM 300,000 and for a new home it was DM 433,000.

This is hardly surprising, is it? A potential landlord was indifferent between paying DM 433,000 for a new home and getting 30% of that back in tax breaks, bringing the net cost down to DM 300,000 or buying a second hand one for DM 300,000 without tax breaks. The irony is that the DM 133,000 didn't even result in higher earnings in the construction sector, because that's a competitive industry, most of it went straight into higher land values, because land is always a (local) monopoly and cannot be competed away.

Hence and why the Germans are so keen on knocking down buildings and building new ones in their place, by doing this, you can trigger the tax breaks all over again!

Happy Xmas from The Three Wise Persons

Yes, but everybody in my family is quite slim...

From the BBC:

Christmas may be a time of indulging for many, but health experts believe it is the perfect time to tell a loved one they are overweight. The National Obesity Forum and International Chair on Cardiometabolic Risk said it was important to be upfront because of the health risks...

And no, the NOF is not a traditional fakecharity, it is primarily a lobbying front for Big Pharma. And why people would take advice from pieces of furniture is beyond me, no matter how fancy the name for it.

I note that the article does not end with a Department of Health spokesman promptly agreeing that something must be done, as is so often the case.

The smoking ban had nothing to do with it...

From The Daily Mail:

Britain is shaking off its reputation as a nation of beer drinkers.

Consumption has fallen by almost a quarter since 2006 largely because many men have given up on going to the pub, research shows. Increasingly, they are drinking at home with wives and girlfriends, where they are more likely to share a bottle of wine, cider or spirits.

Beer sales through pubs, restaurants and the High Street are down from 4.1billion litres a year to 3.2billion over the past five years – a drop of 23 per cent. The net effect is that the nation is drinking about 4.3million fewer pints each day, taking the figure to around 15.2million.

The research comes from Mintel, which suggested the high cost of beer in pubs was a major reason for men staying at home...

Tobacco duty and The Laffer Curve

There was an interesting debate in the comments at VGIF. Here's my adaptation of Pub Curmudgeon's theory on how countries set their tobacco duty rates...

It is clearly impossible for every country to set the duty rate a little bit higher than their neighbours, neither is it possible for every country to set it lower than their neighbours.

Assuming equal size countries, the rate would be the same everywhere (with a lower upper limit for booze than for tobacco). We can then introduce your perfectly valid observation about the ideal rate being lower in small countries and higher in large countries and we lead to some sort of equilibrium.

My caveat would be that it's not 'size of country' that matters as much as 'how easy it is for your citizen's to go abroad' i.e. UK and France are similar size/population, but we Brits are stuck with buying in the UK, the French can go to E, CH, D or Benelux quite easily.
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So let's see whether this stacks up in real life...

The price of a packet of twenty in various European countries is relatively easy to find, e.g. here, plus two missing ones from here. Populations are easy to find e.g. here.

The resulting scatter graph looks like this:The generalisation that big country = high tobacco duty clearly holds for the seven largest countries. In order from left to right these are Romania, Poland, Spain, Italy, UK, France, and Germany, the coefficient of correlation between population and price per packet is quite high at 0.76 (see footnote).

But for the smaller countries with populations under 20 million, there is no correlation whatsoever, and the coefficient of correlation for the whole data set is only 0.13, practically meaningless.
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So let's strip out the 'big seven' and do another chart plotting price per packet against 'how easy it is for a country's citizens to pop over the border to buy cheaper elsewhere' for the remaining countries. The simplest way of measuring 'how easy it is [etc]' is to count the number of land borders a country has with other countries. The resulting chart looks a lot more promising - rather unsurprisingly, the most expensive cigarettes are to be found in countries which have no or only one land border(s) with another country (Iceland, Malta, Ireland, Norway).

The coefficient of correlation for this sub-set is -0.55, not staggeringly high but enough to mean something:Footnote: The 'border' effect also conveniently explains why line for the big seven diverges at the top. Germany is larger than the UK but it has land borders with nine other countries whereas the UK has none (ignoring the border between Northern Ireland and Ireland). The 'border' effect thus has a stronger impact than the size effect and cigarettes are cheaper in Germany than in the UK.
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Finally, we can put the two theories together.

Let's assume that the price per packet is EUR 9, reduced by EUR 1 for each border a country has, plus EUR 1 for every 15 million in the population of that country, and then plot price per packet against the result. The constants 9 and 15 million are arrived at by observation, trial and error* so as to end up with the highest possible coefficient of correlation, which is 0.52. The resulting chart looks like this:* For example, Germany has borders with nine other countries, so the border element of its tobacco duty is EUR 9 minus 9 x EUR 1 = EUR 0. It has a population of 82.2 million, divided by 15 million = a population element of EUR 5.48, EUR 0 + EUR 5.48 = EUR 5.48. The actual price of a packet of cigarettes = EUR 5.16.

At the other extreme, Malta has no land borders, so has a full border element of EUR 9. It has a population of 400,000, divided by 15 million = population element EUR 0.03. EUR 9 + EUR 0.03 = EUR 9.03. The actual price of a packet of cigarettes = EUR 9.

Hungary is somewhere in the middle. It has borders with 7 countries, so the border element is EUR 9 minus 7 x EUR 1 = EUR 2. It has a population of 10 million, divided by 15 million = EUR 0.67. EUR 2 + EUR 0.67 = EUR 2.67. The actual price of a packet of cigarettes = EUR 2.51.

What's the point of that then?

From the BBC:

Eurozone banks have rushed to take out cheap three-year loans offered by the European Central Bank, borrowing 489bn euros ($643bn; £375bn). The central bank had hoped to lend up to 450bn euros to stop another credit crunch crippling the banking system. When the plan was announced, French President Nicholas Sarkozy said banks could use the money to invest in eurozone sovereign debt.

Right, so the ECB, which is explicitly or implicitly backed by EU member state governments, has borrowed money from sources unknown the German central bank* (it has no real money of its own) and lent this to commercial banks cheaply, in the hope that the self-same commercial banks will then lend the money back to EU member states, thereby presumably generating a profit for themselves?

Yes, I know Article 123 of the Lisbon Treaty the EU Constitution says that member states aren't supposed to lend directly or indirectly to other member states** (since when have they ever cared about their own rules?), so they can't just brazenly cut out the middleman, but isn't the transaction entirely circular anyway?

If you strip out the commercial banks as middlemen, all that is happening is that member states have clubbed together to create their own supra-national central bank, the ECB and are not only financing this but also borrowing from it.
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* UPDATE: Ralph Musgrave emailed me that bit.

** UPDATE, Denis Cooper has emailed me to say this:

It's Article 125 which prohibits member states from becoming liable for or assuming the commitments of other member states, while Art 123 prohibits the ECB from direct purchases of debt instruments, but there's also Art 124 preventing
"Any measure ... establishing privileged access by ... central governments ... to financial institutions ... " and if the ECB is lending money to banks specifically to lend on to governments then that seems to me to be "privileged access".

Then there are articles about "the principle of an open market economy with free competition, favouring an efficient allocation of resources" and the ECB conducting "credit operations with credit institutions and other market participants, with lending being based on adequate collateral", and it seems that all of that is being disregarded so it's hardly worth reciting all the details.

"Feed the bears"

Barkingly insane reader's letter from yesterday's Metro:

Another one for Dearieme

From yesterday's Daily Mail:

The first pictures have emerged of James Argent's wrecked and blood-splattered car after it ploughed into a deer on a Scottish road...

The 23-year-old says he was left badly shaken but uninjured. Arg was traveling in a black Kia with his manager Neil Dobias and their female driver after the star sang at Dundee University on Friday night. They were on their way to the airport to fly back to London when their car collided with the deer on the A90 about 5.30am.

The animal was knocked into the air before being hit by another car travelling in the opposite direction. Arg said he and the others looked for the deer afterwards and could not see it anywhere but he believes it would have died from its injuries.

Pictures show the left side of the vehicle's bumper - close to where Arg was sitting in the passenger seat - smashed, exposing the car's battery. The left headlight is missing and tufts of the deer's fur is stuck to the blood.Ironically enough, my wife skidded off the road yesterday and demolished somebody's front wall, the front of her car looks a bit like that as well. Even more ironically, when my wife knocked on the door to explain, provide insurance details etc, the lady who lived there said that this was the second time in a week that a car had demolished her front wall and the third time in as many years. Her house is at the bottom of a hill on the wrong side of an adverse camber, you see.

By the same token, my wife interprets a 30 mph speed limit to mean that you should drive at 30 mph if at all possible and regardless of conditions or iciness, and that at this speed, nothing bad will ever happen and if it does. it's not your fault, it's the fault of the council for not imposing a lower limit.

The relevant pages from my BA final year project

Here's what I had to say on the topic of tax-breaks and subsidies fifteen years ago, based on real life i.e. working as a tax advisor in Germany where are large part of what we did was explaining to our clients how to milk the tax breaks (i.e. subsidies) for new construction and landlords. You then have to find the economic theory which explains the impact of taxes and subsidies and prices and quantity, then you test the theory against real life and so on until you find something which stacks up.

To enlarge, you have to right click on each image and choose 'open in new window'. You can then enlarge the image (click the magnifying glass) and they are perfectly legible: