Mark Wadsworth

Fun Online Poll

2009-11-04T15:53:00.000Z

Over at The Metro:

"Has Britain been sold short by its politicians over the now-ratified Lisbon Treaty?"

Nine years? Really?

2009-11-04T15:08:00.001Z

Pöttering,who was president [of the EU Parliament] for two-and-a-half years until June, added, "Some may suggest the EU went too far to placate Klaus but, let us remember that this is a treaty some of us have been fighting nine years for."

Denis Cooper's comment (via email):

Oh, surely not? Surely this is a new and different treaty, one which didn't need the UK referendum promised for the previous treaty?

Non-essential flights of the week

2009-11-04T14:17:00.003Z

From The Metro:

Natural beauties gather for Miss Earth pageant

[caption] Women from around the world compete in eco-friendly beauty contest

This year's contest has attracted 90 entrants – or 'environmental diplomats', as they are properly known – who compete in the usual pageant disciplines of talent, evening gown and swimsuit competitions, as well as the final interview stage.

Of course, the contestants are also expected to be aware of environmental issues and keen supporters of preservation campaigns. The winning beauty gets to serve as a spokesperson for the Miss Earth Foundation, the United Nations Environment Programme (UNEP) and other environmental organisations.

Richard Branson

2009-11-04T11:50:00.000Z

Another day, another reckless throw of the dice (30)

2009-11-04T09:50:00.000Z

This is The Big One, e.g. from The Daily Hatemail, RBS and Lloyds cancel bonuses for bankers - in return for £40bn MORE of taxpayers' cash.

The politicians will waffle on about "stabilising the banking system" (1) and "encouraging banks to lend to businesses" (2) and "getting value for the taxpayer" (3), of course. To their credit, they appear to have steered the debate in a completely different direction, i.e. breaking up the large taxpayer-owned banks (as instructed by the EU) to "encourage competition" - despite the fact that a few months ago the government was boasting about having arranged Lloyds TSB's "rescue" of HBOS when all that happened was that HBOS dragged Lloyds TSB down all the quicker, so double points there.

(1) Missing the point. The government allowed them to get themselves into this mess, and once they were in it, debt-for-equity swaps could have sorted this all out a year or two ago. Note that it says that Lloyds' rights issue "will be accompanied by a debt conversion offer expected to generate £7.5 billion."

(2) If the government really wanted to help businesses, it could just cut taxes by £40 billion. It would even need to do this all in one go, it would be sufficient to offer a £10 billion cut this year and make it clear that this would be permanent; this would make simultaneously reduce businesses' need for credit and make them a better credit risk. So that can't be the reason.

(3) What does that have to do with anything? Maybe they'll make a profit on this, maybe they won't, but if taxpayers wanted to invest in banks, then they are free to do it on their own account.

So the real reason for all this is to encourage banks to lend to mortgage borrowers to keep the house price bubble inflated, and as long as the government controls over half the banking system, they have the whip hand. When I first started this series on their efforts to keep the bubble going - which commenced nearly three years ago - I didn't think it would work. To my horror, it does appear to be working and the house price crash has been flattened off, or even reversed, over the past six months. I think we've gone a bit beyond "Spring Bounce" by now. The question is, how long can they keep it up?

Bugger.

2009-11-03T17:07:00.002Z

From the BBC:

Czech President Vaclav Klaus has signed the European Union's Lisbon Treaty, the final step in its ratification....

I genuinely feel a bit depressed now.

The Laffer Rainbow: Value Added Tax

2009-11-03T16:03:00.002Z

Click to enlarge:

The Laffer Rainbow applies just as much to the Worst Tax Of All, VAT which is forecast to raise £63 billion in the current tax year, or about twice as much as corporation tax (HMRC, Table 1.2, Excel). Mathematically, it is a tax on turnover, or on gross profits before salaries and interest (depending which way you argue it) and is only payable by normal, productive businesses. Very small businesses are exempt, as are banks, and residential construction is zero rated.

The rate was reduced from 17.5% to 15% this year, but is expected to go up again to 17.5% or even 20% next year, so I have used 17.5% as the normal rate. If the rate were cut to 0%, VAT receipts would fall to £nil, of course, but other taxes would rise.

On a static basis, business profits would increase by £63 billion, so there'd be an extra £20 billion corporation tax (or possible more, if businesses which are currently loss-making move into profits), illustrated by the red area.

On a dynamic basis (the green area), more new businesses would open to take advantage of the higher profits to be earned, so prices would be competed down ("some of the cut would be passed on to the consumer" is how they like to say it), but if people still have £470 billion to spend and businesses can keep £470 billion rather than just £400 billion, we'd expect business activity and employment to increase by 15% or thereabouts. So the blue area would increase corporation tax or income tax receipts by half as much again as the red area, call it another £10 billion.

Finally, the blue area), even if employment in the previously VAT-able sector was only ten million and only went up by 10% or so, that'd be another million jobs, assuming that a lot of these workers were formerly claiming benefits (costing the taxpayer £5,000 a year each) or superfluous public sector employees (costing the taxpayer £25,000 a year each), that'd reduce government expenditure by £15 billion.

Tot up those three areas, and we see that getting rid of VAT entirely would only reduce the amount that the Exchequer has to play with by £18 billion, or only about a quarter of the amount that VAT raises in the first place.

UPDATE: (re JH's comment) in case that's not clear, this is the main reason why VAT ought to be scrapped - the productive economy ends up (say) £60 billion better off and 'the state' has (say) £20 billion less to spend. What's not to like?

UPDATE: (re Adam C's comment) the other reasons are, it is hugely complicated to administer; open to all sorts of fraud and error; sublimely stealthy and dishonest; it distorts economic activity away from productive stuff and towards banking & property development/ownership; and acts as a barrier to entry (it burdens large or profitable businesses far less than smaller or marginal ones).

If at first you don't succeed; lie, lie again

2009-11-03T15:07:00.003Z

Just over a month ago, Asbestos Watchdog had a minor breakthrough with the Advertising Standards Authority:

The Advertising Standards Authority [ASA] have recently upheld our complaint about the HSE’s massive advertising campaign claiming that asbestos kills 4500 workers every year. That was further refined to claim that 9 plumbers, 9 carpenters, and 9 electricians will die every week from asbestos exposure. The HSE must now stop making these exaggerated claims...

Lo and behold, the Elfin Safety Executive have relaunched their Hidden Killer campaign spouting the same old misleading crap.

Their advert in today's Metro shamelessly states that "Estimates show that each week approximately 20 tradesmen die from this hidden killer ... Asbestos is responsible for an estimated 4000 deaths every year, and it could be hiding in anything built or refurbished before the year 2000. Protect yourself."

So they've rounded 27 a week down to 20 and 4,500 down to 4,000, big deal. The numbers don't even stack up, as 52 times 20 is 1,040, which falls far short of 4,000. Sure, workmen would be well advised to wear face-masks when working in a dusty environment, and have it ventilated properly etc., but for the zillionth time, white asbestos dust is no more harmful than any other kind of dust.

The Laffer Curve and means-testing benefits

2009-11-03T11:23:00.004Z

Click to enlarge:

Out-of-work welfare benefits in the UK are savagely means-tested. The first £10 per week or so of earned income is ignored, and then the benefit is withdrawn by £1 for every £1 you earn, a withdrawal rate of 100%.

There are different withdrawal rates for different benefits and different income levels etc. People receiving in-work-benefits (Tax Credits) lose benefits and also pay tax on what they earn, so the total withdrawal rate is at least 70% on incomes all the way up to £11,000 per annum for an individual or well over £20,000 per annum for the head of a family with children.

Benefit withdrawal is to all intents and purposes the same as taxation - if your gross income goes up by £1 and your net income only goes up by 30p, the behavioural effect is much the same whether you are paying 70% income tax or facing a 70% benefits withdrawal rate.

Successive governments have justified these withdrawal rates by saying they save money (a lower withdrawal rate would mean more people are entitled to them, which may be true), but this is still complete rubbish, of course.

The traditional Laffer Curve plots total tax revenues against different tax rates, with the highest point in the middle somewhere (let's say an income tax rate of 40%). Exactly the same logic must apply to keeping the cost of welfare down - if the withdrawal rate is reduced from 100%, more people are likely to go out and work (and admit to it - rather than staying at home or working cash in hand). There must come an expenditure minimising point, which I have assumed to be where the withdrawal rate is 50%, for sake of argument, but the bottom of the curve is fairly flat - so there probably isn't much difference in the total cost of welfare whether it's 40% or 60%.

If I were setting income tax rates, I would also prefer to be on the left-hand side of the curve (so even if the revenue maximising rate is 40%, we ought to go for 25% to 30%, just to be on the safe side). Exactly the same applies to benefit withdrawal rates, shouldn't we prefer the left-hand side of the curve, i.e. a lower rather than a higher withdrawal rate?

Either way, a withdrawal rate of 50% must, by any reaonable standards of logic, lead to a lower welfare bill than rates of 70% to 100%. And just as importantly, with a lower withdrawal rate, people are less likely to be stuck on benefits for years and there'd be more people working, a bit less crime, it would be good for the economy etc. etc.

The Laffer Rainbow: Employer's National Insurance

2009-11-03T09:29:00.003Z

Click to enlarge:

The right-wingers are the only ones who vaguely grasp the concept that income tax would raise nothing if the tax rate were either zero per cent or a hundred per cent, and that the 'revenue maximising point' must lie somewhere in the middle (nobody quite knows where - it's different in different jobs or at different income levels). For some reason they mainly talk about it in terms of the income tax rate or corporation tax rate, but there is of course a Laffer Curve for every individual tax, be it tobacco duty or dog licence.

What interests me is the "Laffer Rainbow" for taxes which are effectively double-taxes on income, such as our Second Worst Tax, Employer's National Insurance. An employer in the UK currently has to pay a tax of 12.8% on top of salaries and wages paid out (above a certain very low weekly level), whether this is economically borne by the employer or the employee is not so important, and currently raises about £40 billion* per annum.

What would happen if the rate were cut to 0%? Would total tax revenues fall by £40 billion? Of course not. In the very short term (the 'static basis'), business income would rise by £40 billion, so corporation tax or income tax/Employee's NI receipts would increase by about 30% of £40 billion, i.e. by £12 billion (the red area).

Next, new businesses would enter the market once they see the great profits to be made, so overall business activity would expand. Sure, this would compete away some of the profits made by existing businesses, but by the same token it would bid up wages in existing businesses, so the additional corporation tax/income tax revenues would increase by at least half as much again, say £6 billion (the green area, the 'dynamic basis').

Finally, even if the 12.8% cut in employment costs only increased business activity by 5%, that would mean an extra million jobs, so assuming a lot of these go to people currently on welfare or in a public sector non-job, and that each person who finds a job claims £5,000 a year less in benefits or £25,000 less in salary, that would be another £15 billion saving (the blue area)

So, scrapping a stupid tax which currently raises £40 billion would not lead to a £40 billion fall in revenues, the overall 'cost to the Exchequer' would be no more than £10 billion, and might even be revenue-neutral, so this is pretty much a win-win.

* I used that figure for illustration, prompted by Neil Craig I've checked the stat's and actually it is probably more like £50 billion, i.e. considerably more than corporation tax, but the principle stands.

Fun with numbers: Six months times four million

2009-11-02T20:51:00.003Z

From the FT:

Jacques Chirac yesterday became the first former head of state in France to be ordered to stand trial after investigators formally charged the retired president with abuse of public funds and breach of trust during his time as mayor of Paris...

Mr Chirac, whose memoirs of his 40 years in politics are due to be published next week, is accused of creating 21 phoney jobs at the Paris City Hall for friends and political allies between 1992 and 1995... As well as Mr Chirac, two of his former chiefs of staff at the City Hall and seven others have been charged with helping to create or benefiting from the alleged bogus jobs. If convicted Mr Chirac could face up to 10 years in prison.

Right-ho. That makes about six months in prison for every phoney job. The Labour government have created about two million phoney jobs since 1997, and the Tory government had already created two million phoney jobs when Labour took over.

If six months' jail per phoney job is the going rate, then our politicians would have to be sentenced to a total of two million years.

Louise Savage, Kate Muir

2009-11-02T19:37:00.004Z

The Lass wanted me to put two more of her drawings on my 'blog. She means this Louise Savage, BTW not the Paralympithlete, and Kate Muir writes for the Times.

Victimhood Poker - I wish him the best of luck with this one

2009-11-02T13:47:00.002Z

From The Metro:

British National Party leader Nick Griffin was racially abused by a man who made threatening "gun gestures" towards him, a court heard today.

The North West MEP was giving evidence in the trial of 23-year-old Tauriq Khalid, from Burnley, who is accused of shouting "white bastards" towards Griffin and other BNP members who were demonstrating in the Lancashire town. As the far right leader gave media interviews outside Burnley police station last November, Khalid drove past and made the comment, returning shortly afterwards to make the gun gesture, Preston Crown Court was told.

The defendant denies one charge of using racially abusive threatening behaviour against Griffin. He admits he stopped his silver Vauxhall Astra at the scene but says he shouted "Nick Griffin, you f w " and the hand gesture was a V-sign.

Cow attack statistics for James Higham

2009-11-02T10:34:00.002Z

James Higham kindly posted a nice cow picture for me, so in return, here are some statistics on people killed by cows each year in the UK.

As at 25 August 2009, there had been four deaths, summarised in Anorak News, who added: "During the same period, Britons killed more than 4 cows. But these were eaten, mostly. The cows kill for sport. We might be winning the numbers game, but the fear factor lies with the bovine enemy."

There was a further fatality in early October, so that's five so far. And how does that compare with earlier years? According to this, "While such attacks are still vary rare .... statistics show that cows have killed 19 people and injured another 481 over the past eight years in the UK."

That makes an average of 2.375 deaths per year in earlier years, and this year we're already at 5, with two months to go.

Go figure.

Debt-for-equity swap of the week

2009-11-02T07:39:00.003Z

From an article on a large-ish American bank, CIT Group (not Citigroup!) going bankrupt and being rescued in the Times:

The deal will see the unsecured bondholders cut the company’s debts by 30 per cent and in return receive shares in CIT.

Preferred shareholders, including the US Treasury, which received preference shares in return for the Tarp bailout money, will be repaid only if there is money left over after paying the bondholders; ordinary shareholders will be automatically wiped out.

The headline to the article screams "CIT bankruptcy filing will cost US taxpayers another £2.3bn" which it will, of course but there was no need for that to happen; if the administration hadn't been so stupid as to invest money in the bank in the first place, this bankruptcy/rescue would just have happened sooner.

It's also nice to see that Government Sachs are pocketing a £285 million "termination fee". They'll need that for paying this year's bonuses.

Emailed by Anti Citzen One.

1,154 °C...

2009-11-01T08:53:00.000Z

... is the melting/freezing point of cast iron, and, presumably, the temperature at which Dave's cast iron guarantee* of 2007 will turn into something completely different.

* "Today, I will give this cast-iron guarantee: If I become PM a Conservative government will hold a referendum on any EU treaty that emerges from these negotiations. No treaty should be ratified without consulting the British people in a referendum."

Right. Now it's time for another Comment Only Sunday.

Fucking Nazis

2009-11-01T00:36:00.002Z

I was flicking through the channels before I turned in for the night, and was horrified to see an advert on CNN for this lot.

[Thinks] "Oh dear ... there goes my peerage..."

2009-10-31T19:38:00.000Z

Fun Online Poll Results: Dampening house-price bubbles

2009-10-31T17:22:00.001Z

The responses to last week's poll, "Which method of dampening house price bubbles damages the economy least?", were as follows:

Liberalising planning laws - 43%
Increasing property taxes (and cutting other taxes) - 30%
Increasing interest rates or imposing lending controls - 20%
None of the above. High house prices are good for the economy - 7%

I am delighted to see that only a tiny minority believe that high house prices are good for the economy, which is pretty much the opposite of what most people seem to think, but maybe I'm wrong.

So that's the topic of this week's Fun Online Poll, I'd like to know which of various economic variables you think that most voters care about most - i.e. not the one which one you care about; or the one that you think they ought to care about; but the one that they actually care about most in practice and the one that all major political parties seem to prioritise.

Vote here or use the widget in the sidebar.
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Going back to the comments in last week's, I'd agree with DCB Reed and Lola rather than with Anti-Citizen One:

AC1: "The purpose of [Land Value Tax] is not to remove bubbles from the economy it's to pay for the externality that the Government grants to property owner. The best way to stop a bubble is to stop credit bubbles from forming so I'd vote for "lending controls" Whereby lending controls are simply increasing the reserve requirements of lenders."

DCB: "Post Keynes, one of the purposes of LVT is to prevent housing bubbles. If you restrict credit to stop housing bubbles, business and entrepreneurs will also be hit. Babies and bath water."

With hindsight, I could have included "Higher capital ratios for banks" as an option as well, that would be another important part of my multi-pronged attack on house price bubbles.

Quote(s) Of The Day

2009-10-31T15:32:00.000Z

Well, yesterday, actually:

Alan Johnson, in his letter dismissing a scientific advisor for complaining that the government was completely ignoring his findings:

"I cannot have confusion between scientific advice and policy"

In case you thought that the main opposition party would be any better, their spokesman had this to say:

"This was an inevitable decision after his latest ill-judged contribution to the debate but it is a sign of lack of focus at the Home Office that it didn't act sooner given that he has done this before."

Full frontal attack on Home-Owner-Ism

2009-10-31T13:30:00.002Z

On a Telegraph 'blog, of all places. The whole thing is well worth a read, but here's a taster:

... we know that there are vast swathes of Middle Britain where the state of the housing market is regarded as an indicator of financial, social and moral well-being, if not as a direct correlative to the size of the male Middle British appendage. See daytime television for confirmation of this. Actually, for Pete’s sake, don’t.

And don’t you just want to plank anyone who talks about “properties”? It’s a house, you plonker, it’s a BLOODY HOUSE! It’s for LIVING IN! We’re not playing Monopoly here!"

Fun with numbers: Celebrities

2009-10-31T10:16:00.002Z

Inspiration: Ross.

Missing beats round (4)

2009-10-30T19:15:00.003Z

Heart Attack Survivor says: "Try Cream's 'Deserted Cities of the Heart' - 4 beats, 4 beats, 3 beats, 4 beats. I've known drummers give up their sticks for ever after trying that."

Genius. Try counting along to this:

The true face of Home-Owner-Ism

2009-10-30T19:09:00.004Z

The Lass (aged nearly seven) drew her own version of Kirstie Allsopp and asked me to put it on my 'blog. What I like is the way she seems to be morphing into The Goblin King:

"Will no-one rid me of this turbulent Drugs Tsar?"

2009-10-30T17:20:00.002Z

From the BBC:

The UK's chief drugs adviser has been sacked by home secretary Alan Johnson after criticising government policies.

Professor David Nutt had been critical of the decision to reclassify cannabis to Class B from Class C. He accused ministers of devaluing and distorting evidence and said the drugs classification system was being used in a "political way". The Advisory Council on the Misuse of Drugs, which he headed, is the UK's official drugs advisory body.

A couple of these quangista actually take their remit seriously, do some proper research and go round telling the truth. Look where it gets them.