Thursday, 23 March 2017

Anti-Business Rates propaganda doesn't even make sense.

From page 8 of Monday's City AM:

SIX OUT of 10 firms facing increased business rate bills are already planning cutbacks, new figures reveal.

The revaluation of business rates is due to come into force next week, and amid building pressure chancellor Philip Hammond introduced some transitional protection for firms in his spring Budget. However, a survey of London’s firms has now laid bare the number of businesses forced to find savings.

A poll of 500 firms commissioned by the London Chamber of Commerce and Industry (LCCI) has found 60 per cent of businesses facing bigger bills will make cutbacks, including downsizing or relocations. Just over one in four of the London firms planning savings expect to look at reductions to capital investment, while a fifth say they plan to look at reducing staff numbers.

And 17 per cent say the increases, which are expected to hit firms in London and the south east hardest, could see them move some activities outside of the capital...

Yes, Business Rates are inferior to proper LVT in many ways (the legal liability is on the tenant not the landlord; they include the value of the building; revaluations are too infrequent etc), but they're the closest we've got.

Anybody whose done more than five minutes of micro-economics knows that proper businesses try to maximise profits (including a notional cost for proprietor's own time, effort and capital). Decisions on staffing levels, pricing, opening hours, whether to do up the premises etc are all geared up to this.

A change in fixed costs (rent and rates) does not change the profit-maximising mix of staffing levels, pricing, capital investment etc one iota. Why would it? So an increase in fixed costs does not change it either. Day-to-day business decisions remain unaffected, unless the increase is so large as to make the whole business unviable (which will only happen in 0.1% of cases).

In some cases it would make sense to relocate to cheaper premises or start selling online. Great, that means more jobs in lower rent/wage areas (hello Amazon!) and more profitable businesses move into the newly vacant premises in high rent/high wage areas. Win-win, what's not to like?

I could understand if a small business owner on The High Street says "Shit, I'll have to extend my opening hours to generate enough money to keep my business afloat" that's not so nice for him, but good for his customers and the economy overall, so still a win-win.

Wednesday, 22 March 2017

"Universal income would make inequality worse, say people who don't do numbers or logic"

Emailed in by MBK, from The Times:

A Labour proposal to replace benefits with a universal basic income would increase inequality and lead to billions of pounds in extra taxes, an independent review has concluded.

Let's just bathe in the warm glow of that self-righteous non-logic for a minute...

Would a fiscally neutral UBI paid equally to all mean that some small segments of the population receive less in benefits than they do at the moment? Yes, of course (mainly unemployed single mothers - many of whom might well have an undeclared live-in partner).

You can consider that A Good Thing or A Bad Thing, and say that it would "increase inequality" if you wish. In my book, treating everybody the same reduces inequality, the same as everybody gets one vote at elections, the right to vote is free and neither contributory nor means-tested.

In the next breath, the author is wailing about "billions of pounds of extra taxes", implying that people would be worse off all the way up the income scale, which in turn would reduce inequality.

Put the two together, and he is saying that everybody would be worse off, which is mathematically impossible.
If you read the full report by Bath University's Institute for Policy Research, you notice that they have indeed played fast and loose with the numbers and ignored their own logic.

Let's go with their Model 2.4, page 20, which is fairly full-on "UBI set at the level of existing benefits" which they consider to be £67/week per child; £73/week per working age adult; and £156/week per pensioner. The gross cost of this would be £288 billion.

This would be part funded by eliminating the personal allowance for income tax, the basic state pension, Pensions Credits, Child Tax Credits and Child Benefit, Working Tax Credits and the various categories of unemployment benefit (Carer's Allowance, Employment Support Allowance, Income Support, Jobseeker's Allowance etc). They say the shortfall would be £76 billion, to be made up with higher taxes.
Let's iron out the easy mistakes first, if you divide total Child Benefit and Child Tax Credits by the number of children in the UK, it works out at about £50 a week, so let's stick with that. No need to worry about funding it.

The same goes for a Citizen's Pension replacing state pensions (basic and earnings-related) and Pensions Credit. Add up current cost, divide by number of pensioners, comes out at about £156/week, job done, no need to worry about funding that.

Next, paying all UK resident working age adults who hold a British passport £73/week would cost £141 billion. The bulk of working age adults have a job and earn more than £11,000 a year, the intention is not to make them better or worse off.

This can be achieved quite simply by scrapping the personal allowance for income tax and the lower limit for NICs and halving the lower limit for Employer's NICs. The extra tax and UBI net off to nothing, so no problem funding this.

This leaves maybe ten million adults who are unemployed, students, low-wage/part timers earning less than £11,000, and non-working spouses. Nearly all these people currently get something or other - unemployment benefit, Working Tax Credits, Statutory Maternity Pay, Statutory Sick Pay, student loans and grants etc. These people break even if they get a flat £73/week.

We could shave off a few billion by sticking with current rules and paying people under 25 a lower weekly amount. The report ignores the current cost of SMP, SSP and student loans/grants or the under-25 savings, but clearly no problem funding this.

For sure, a couple of million low- and non-earning adults in the UK currently get zilch in benefits (mainly spouses of people with a full-time job), paying them £73/week is an extra cost of maybe £10 billion. But it costs about £10 billion to run the DWP and next to nothing to run a Citizen's Income scheme, so that extra cost covers itself.

So overall nobody knows what the additional cost or saving would be, it's all within the margin of error. Their headline figures of £76 billion and at least 4% on income tax are clearly miles out.

As to higher tax rates, most people would face the same marginal tax rate, a few low-earning non-claimant spouses would face a slightly higher tax rate and several million claimants (and people with children earning more than £50,000) would face much lower marginal tax rates if they find some paid work/increase their earnings.

Added to that is the fact that all this complying and claiming, notifying of change in circumstances, worrying about being overpaid and having to pay it back etc, all the hours wasted filling in forms, traipsing to the job centre, being on hold with a call centre etc falls by the wayside. That's not necessarily a cash cost, but a massive benefit to people in the bottom couple of deciles.

I work in Pensions and Still I Think that this is Wrong headed.

Here ....and it's not a 'raid' you numpties.  You haven't got anything to 'raid' until you've made the contribution.

The fact is that higher rate taxpayers mostly use pension contributions as 'tax planning'.  Given the new access freedoms for pension funds this will likely lead to obtaining contribution relief at higher rates and tax payments on benefits taken at the basic rate and a potential double benefit of tax free transfers on death.

In fact only a relatively small number of taxpayer benefit from higher rate relief for pension contribution.

I for one would wholly support restricting pension contribution tax relief to the basic rate.

Tuesday, 21 March 2017

Fun Online Polls: Immigrants, expat's & trade deals.

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

Citizens from other EU Member States currently living in the UK should…

… all get permanent residence visas automatically - 13%
… apply for British citizenship if they want to stay - 11%
… be made to reapply for work permits every few years - 13%
… given the same rights as other EU Member States give UK citizens - 58%
… be told to leave the UK soonest - 4%
Other, please specify - 1%

Good, I was with the majority on that one, I've absolutely no grudge against foreigners living here (being half a foreigner myself, married to one etc) and in truth I would not like to see any of them made to leave (apart from the crims and the scroungers), but fair's fair and all that.

A good turnout of 104 votes, thanks to everybody who took part.

The gimmick being, this is not actually an EU competence - while the UK (or any other non-EU country) cannot strike trade deals with individual EU Member States, it can very much agree specific rules on immigration/emigration with each individual MS.
While we're on the topic, I'm not sure if we've done what kind of post-EU trade deals we'd like to see, so that's this week's Fun Online Poll.

Vote HERE or use the widget in the sidebar.

Monday, 20 March 2017

They own land! Give them money!

From The Guardian:

The cost of an average stay in a residential care home can swallow up more than half the value of an individual’s house in some parts of the country, according to new research.

The findings, which show that the typical person entering residential care will face a total bill of £50,000-£93,000 depending on where they live, will fuel the debate about social care funding.

The chancellor, Philip Hammond, announced in this month’s budget that an extra £2bn would be granted to social care in England over the next three years. He also said the government would produce a discussion paper later this year that looks into how to fund social care in the future...

The new research from the mutual insurer Royal London, whose director of policy is the former pensions minister Steve Webb, found that variations in house prices around the UK mean the cost of a typical residential care home stay could range from 18% to 56% of the value of the average house.

Webb, a former Liberal Democrat MP, said successive governments had “failed to grasp the nettle” when it came to care costs, and that urgent action was needed.

Sunday, 19 March 2017

Nanny McPhee: The Prequel

Although the first-made film in the series is sugar-coated child-friendly nonsense, I imagine that the prequel is a much darker film, highlighting the pretty brutal attitudes that well-to-do Victorians had towards their servants; that men had towards women; and fathers towards children.

The film propably opens with the birth of Mrs Brown's sixth child, which she adores while Mr Brown (Colin Firth) mumbles some rather unenthusiastic congratulations in the background. The doctor tells the parents solemnly that Mrs Brown is not in the best of health and having another child would kill her.

With little knowledge of contraceptive methods, Mrs Brown then refuses to have sex with her husband any more. In his indignant frustration, he forces himself on his under-age scullery maid Evangeline (Kelly Macdonald) every time his wife is busy with the children, which is often.

Seeing this as a possible way out of her lowly station in life, Evangeline eventually learns to accept his advances. It is unclear to the viewer whether perhaps she actually starts to rather enjoy the submissive and borderline violent sex (you have to have a bit of controversy in a film, a bit of feminist outrage is always good publicity, history professors can hit back that this is just what it was like etc).

Mr Brown eventually loses interest in his wife and becomes infatuated with Evangeline who does all sorts of pervy stuff to him. Mr Brown is an undertaker by profession (he actually is in the first-made film), so has a suppressed kinky side as well as access to poisonous chemicals.

Together, the lovers hatch a plot to be rid of Mrs Brown. In public, Mr Brown misses no opportunity to mention the doctor's warning, while privately he persuades his wife to "try for one more child". As an undertaker, he knows just which poisons to use on his wife and how to disguise the cause of death afterwards.

Having established an alibi in advance, sure enough, Mrs Brown becomes pregnant and duly dies in childbirth - largely because of the large doses of poison which he and Evangline have been administering in the final trimester.

Evangeline is keen to be married to her master as soon as possible, but she and Mr Brown agree that it would be rather unseemly and possibly raise suspicions if they are married too soon after his first wife's death. Privately he worries about what marrying a scullery maid who is not yet of age will do to his social standing.

They agree therefore that it would look best if Evangeline goes away for a while, perhaps entering service for another family until she is old enough to marry.

The End.

Those who have seen the first-made film will know that the opportunity presents itself when Mrs Brown's wealthy aunt offers to take in Evangeline to "make a lady of her", so this all ties in nicely.

Saturday, 18 March 2017

Janet Yellen

Friday, 17 March 2017

"Dutch voters… halt the wave of populist successes that delivered Brexit and President Trump"

Emailed in by MBK, from The Times.

“It is an evening when the Netherlands after Brexit, after the American elections, said ‘Stop’ to the wrong kind of populism,” a beaming Mr Rutte told supporters last night in the Hague.

Richard Ambler, in the comments:

Really? Are we looking at the same figures?

Mr Wilders, was on course to win 19 seats, an increase of over 25%
Mark Rutte, the centre-right prime minister lost over 25% of his seats
Labour, lost 28 of 38 MPs or lost nearly 75% of their seats

This equally could qualify was a massive swing away from the centre left towards the far right… This blatantly biased piece of reporting tries to hide this swing and refer to Mr. Wilders as a populist, extremist who must be stopped at all costs and then tries to present this result as his humiliation.

Thursday, 16 March 2017

'Everything is all right, offshore and out of sight'. As the Song Goes!

You just have to admire the new, Irish economic miracle highlighted by the 2017, Major Foreign Holders of US Bonds figures here:

I must admit that the once common Japanese, then Chinese, consumer electronics goods around my house have been quietly, unnoticed, replaced with the ''Made in Ireland" logo. Only the Kerry Gold butter in my trendy, new red fridge (made in Cork), still has the Chinese moniker on it. 

These figures clearly demonstrate Ireland's growing industrial muscle in the world. Thank god its not all banking fraud and corporation tax 'avoidance' this time Enda? Isn't it Enda?Enda?

Wednesday, 15 March 2017

Fun with numbers: Falling unemployment vs falling median wages.

From the BBC:

UK unemployment fell in the three months to January but there was a sharp slowdown in wage growth.

The Office for National Statistics (ONS) said the unemployment rate fell to 4.7% - it has not been lower than that since the summer of 1975.

However, wage growth has slowed significantly to 2.2% from 2.6% in the previous three-month period. Wages are rising above the rate of inflation, which is currently 1.8%, but the gap has narrowed...

Chris Snowdon at the IEA reconciles this apparent contradiction:

A one per cent drop in median earnings, as shown in the FT graphic, does not mean that people have been slogging away in the same old job on lower wages than they received before the recession.

Nor should it be inferred that life is rosier in France and Spain where median earnings are slightly higher than they were in 2007. When it comes to wage data, you only count if you have a job. The unemployment rate in France is twice as high as it is in Britain. In Spain, it is four times higher.

Understanding changes in the labour market helps us to explain the counter-intuitive finding that median incomes have risen since 2007 while median wages have fallen. Part of the reason is that people who were previously on benefits have found work, thereby raising their own incomes, but have disproportionately taken jobs that pay less than average, thereby lowering the median.

In general, this has made people better off. If, on the other hand, the economy had shed large numbers of low-skilled jobs, the median income would have risen mathematically without benefiting anyone.

His article also mentions this:

But whilst there is no evidence that wages are falling, it is true that they have fallen and that whilst median earnings are rising they have still not returned to the levels seen in 2007. 

That is what the Financial Times chart actually shows and the FT offers several reasons for this, including the relatively high inflation rate between 2008 and 2011, but averages can be misleading and there is one statistical explanation that is so important that the ONS dedicated a whole webpage to it in 2015.

There is another obvious explanation for that. Let's assume our employer has been allocating £100 of pre-tax profit ('value added') to wage costs since 2007.

Back in 2007, the maximum he could pay out was £100 less 17.5% VAT less 12.8% Employer's NIC:

£100/1.175 x 1/1.128 = £75.49

Fast forward to 2017, the maximum he can pay out is £100 less 20% VAT less 13.8% Employer's NIC less 3% Workplace Pension contributions (assuming the median employee has opted in, which is questionable but let's run with it):

£100/1.20 x 1/1.138 * 1/1.03 = £71.10.

Those tax changes would cause a +/- 6% decline in reported total wages over the period, or 0.6% a year on average.