Quote of the day - tax incidence ain't what you think it is...

From John Cochrane's blog:

The top two things our politicians say they want to encourage are jobs and home ownership. Jobs are perhaps the most highly taxed economic activity in the economy, and by this calculation houses come in a close second

So, for all that we want jobs and homes, the tax system makes those jobs and homes more expensive. Cochrane also points out that the incidence of wealth taxes depends on the interest rate - where the level of tax equals the interest rate (or yield or whatever measure of return to property investment you're using) it's effective rate is 100%.

So it makes more sense to tax the returns rather than the sum invested (or indeed its actual, estimated or putative value) and, life being what it is, this is what we do most of the time. Now this might all seem a bit obscure but, if people respond to incentives (like the economists say) then it is the actual incidence of a tax that matters not the rate or the person who writes the cheque.

And, since I'm here and talking about taxes on property, let's talk about business rates. Any, even passing, conversation about business (and especially retail) ends up with a discussion about business rates. Just about everybody says that the tax is to varying degrees unfair, not flexible, and impeding investments. The problem is that every proposal for reform (like this one from Centre for Cities) amounts to tinkering rather than a change to the way in which businesses are taxed.

And we should remember that businesses want to pay less tax because they simply represent a cost to the business with the result that they either reduce returns (see above for why this matters), lower wages or raise prices. As Cochrane pointed out - we want jobs, business and a thriving high street but, at the same time, don't realise that the tax system reduces the incentive for people to do the things that make these investments happen.


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"We need safe spaces..." - how the NHS ducks the big questions

I can't remember the precise moment or why the subject came up but some point in 2016, in a meeting with NHS folk, something along these lines was said: "we need safe spaces to discuss the real challenges facing the health and care system". What they really meant was that some subjects are just to difficult to discuss other than in a carefully protected space - protected, that is, from the public. This answer is a reminder that our populist, planned health system is facing something of a crisis.

Before we go on to talk about the challenges we can't discuss in public we have first to talk about money. I had a Twitter exchange with someone recently where I asked what she meant by 'adequately resourced' in the context of the NHS. The answer, as these things often are, was something of a cop out but was at least better than the more usual response to such questions - a response typified by this piece of populist cant from Tim Farron:

Farron said voters had reached the stage of not believing the NHS’s problems could be solved through efficiency savings and might be willing to pay more if they were convinced it would go to the health service.

He said he did not want to pre-empt the conclusions of an independent panel formed by the Lib Dems, which will look at possible taxes to help the NHS.

In varying forms this is the default response to concerns about our health system - more taxes, more resources. The problem is that, for all that sticking a ring-fenced penny on income tax sounds good, it goes nowhere to making the NHS more sustainable. Bear in mind that, despite the claims of its founders, the NHS has required above inflation increases in funding throughout its existence meaning that it now spends approaching £120 billion out of those taxes.

In one respect our health system needs that extra cash - as Jonathan Portes pointed out recently the proportion of GDP spent on health has fallen and we do spend less per capita than other places (significantly so than the USA). But when you open the NHS up, every single element within the system will tell you that with a little extra cash they can solve this or that problem. Indeed most of those individual bits of healthcare systems - the non-clinical as well as clinical - will tell you that right now they are starved of cash meaning that people might die.

So maybe we do need more cash. But first we need to huddle in that safe space and discuss some more fundamental things about the NHS. By way of example, West Yorkshire has eight or nine general hospitals (I forget the precise number but it doesn't matter for this discussion). All of them are seen by their local community as "their" hospital and the popular expectation is that the general means they do everything that community needs. The question we need to ask in that safe space isn't how do we get more cash for those hospitals or what services do we cut to stop them overspending. No the questions are more fundamental - does West Yorkshire need all those hospitals, are they in the right places, do the facilities meet modern needs or public expectations?

We might ask, for example, why Leeds has two huge general hospitals with real access issues right bang in the city centre? Should we be finding a greenfield site somewhere more convenient and building a new large hospital? And do all those hospitals need to have high support accident units, heart care centres and cancer wards or would it be a better service to have specialised units?

I don't know the answer to these questions - or indeed to thousands of other questions about health and care provision - but I do know (because I've been given a privileged peep inside the system) that the NHS simply isn't discussing these issues at all. Mostly for fear of adverse public reaction but also because the planners within the health system are driven by issues of sustaining what's already there rather than by more fundamental questions about structure and organisation.

There's a further problem, one stemming from the very top of the NHS (indeed from the World Health Organisation), which is the belief that the drivers of rising costs are lifestyle factors especially smoking and obesity. Even when the health systems own statisticians point out that longevity is the problem, we still get strategies founded on the idea that being fat and liking a fag is the problem. This is where the proposals for limiting access to surgery come from (like this one from York) - they don't really address the problem, they're usually overturned and they make it look like the Clinical Commissioning Group (CCG) is doing something.

It seems to me that the NHS, for all the "Our NHS" and "Save the NHS" rhetoric, isn't really all that good. OK, I'll grant that it's better than a system such as that in the USA which manages to be both very expensive and to leave out great chunks of the population from effective care, but there are other approaches - Sweden, France, Holland, Singapore - that might offer some ideas about how we might improve our health outcomes. The UK has a very centralised system that is painted to look like a dispersed and localised system. As the recent round of reorganisation - called Sustainability and Transformation Plans in that jargonistic NHS way - has shown, the idea of local control or direction is anathema to the system's bureaucracy.

The Tim Farron solution - whack up a few taxes - sticks a slightly bigger plaster over the wound but doesn't address the fundamental problems (just as allowing councils to stick up council tax a bit more does solve the care crisis) in the health system. We have a health estate that was mostly designed by Victorians (to which we've added a lot of prefabs) and a structure that would do the Soviet Union proud - right down to the endlessly revisited five-year plans. Until we actually use that safe space we mentioned to discuss the real problems of the health system the NHS will carry on lurching from self-generated crisis to self-generated crisis. And worse, populist politicians like Tim Farron will go on waving the NHS's problems about as a cheap source of votes.

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Private bin collections, vulnerable people and the funding of local councils

I'm going to be very careful here because I don't want you all to think I've an issue with the concept of 'vulnerable' people or indeed our obligation to support them. But we need to look at how two factors are throwing a spanner into the works of local government (and the local delivery of services):

1. We're getting better at keeping people alive, which is great, but we're also getting better at giving those people a real life

2. We've realised that year on year real terms increases in the cost of government are unsustainable in an era of (relatively) low growth rates

The consequence of these two - somewhat contradictory  - factors can be seen in stories like this:

Some householders in Greater Manchester are paying a private firm to empty their bins.

Many are angry because some councils have reduced rubbish collections in an attempt to cut costs, and to motivate people to recycle more.

A local businessman who bought himself a truck eighteen months ago is now emptying up to 800 bins a week.

Collecting the rubbish is, as far as most people are concerned, the main - they'll say "only" - service they get from their local council. Yet nearly every local council has now moved from weekly to fortnightly collections (all wrapped up in nice weasel words about recycling) and some are now creeping from every other week to every third week - even once-a-month.

Many of you will have noticed how local roads are getting worse too. There's a simple reason for this - to maintain roads in Bradford over a 25 year cycle, we currently need between £10 million and £11 million spending on them every year. We're actually spending £7 million to £8 million. Even with efficiencies and new technology, those roads will deteriorate.

It's easy to blame austerity - "the cuts" - for this parlous state of affairs. After all that's the second of the two points above. But what you should appreciate is that, even without 'austerity' (which I'll define as spending by local councils remaining at 2010 levels) there would be huge pressures on those general services as a result of 'vulnerable people'.

To illustrate this, I'll talk about the police. Recently I met with a couple of senior coppers to discuss policing challenges in Bradford. For the police (even with, now, a relatively protected budget) there's real pressure on basic frontline service - 'bobbies on the beat' as we most often call it. This is because, quite understandably, the police have been told to give more attention to child sexual abuse, missing people (especially children) and getting better at dealing with people they encounter who have serious mental health problems. These new priorities - usually just added onto the old priorities - are very resource intensive. One missing girl takes up a great deal more police time than one house burglary meaning that more and more resource is redirected to this work with 'vulnerable people'.

For local councils (and here I'm talking about unitary authorities like Bradford) approaching 50% the spending we control is now directed to dealing with these 'vulnerable people'. And there aren't very many of such folk. Looking at the numbers in Bradford, between adult social care, children's social services and programmes in public health (drug and alcohol rehabilitation and so forth) we work with about 15,000 people out of Bradford's half-a-million population - that's 3% of the District's population taking up nearly 50% of the money spent by the Council. And the looking after is expensive - one out-of-district placement for a child with special support needs can cost up to £200,000 a year.

As a result of this, small changes in predicted numbers have a huge impact on budgets - 900 looked after children rather than the 850 we expected and there's a multi-million pound overspend. And other support extends too - we seldom used to get situations where learning disabled adults ended up as carers for their physically disabled parents but this is now happening because we've helped those learning disabled adults have a better, longer and happier life. I could go on - more old people living longer in their homes, disabled children who used to die in their teens are now living into their twenties and thirties and we've rightly decided that children in care shouldn't just be dumped in kindly but crowded children's homes.

The result of all this is that, in one way or another, we're going to end up paying more for things we once considered free. And, while taxation is one way of doing this, I'm not sure I want the council tax of a young family struggling to pay the rent or mortgage to go up and up so we can provide care for an older person living in a house worth £250,000 or more. Unfortunately the debate about funding local services is trapped in a model of property taxes plus grant that precludes alternatives - even in places trying radical approaches like Swindon the solution is based on taxes rather than charges.

Regardless of national funding settlements, local council spending will continue to shift onto personal support services and away from the universal visible services we tend to think of as what our council does. This rather brings into question both the purpose of the local council and also the means by which we fund local government. Property taxes make sense when the services are primarily directed to place rather than people (emptying bins, sweeping streets, fixing potholes, running parks and so forth) but make much less sense when those taxes are overwhelmingly directed to personal support.

I don't know the answer to all this but I am sure that our national debate needs to pay attention to these trends. As a conservative, I'm in favour of personal responsibility with a safety net - where people are able to pay they should pay - but I recognise that we've somehow got the "I've paid into the system, I'm entitled to free stuff" mindset to deal with if this is going to change. In the meantime, Councils will continue to scrimp with the result that you probably won't get your bin emptied so often, the roads will be poor and the park will be tatty.

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You want less corruption? You need smaller not bigger government for that.

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This is what we must guard against yet is exactly what those who take the 'who will build the roads' line on government.




Government must be limited - in its size and in its powers - to prevent it becoming a protection racket for the select few, for the connected and powerful. I am always aghast when I see those concerned with corruption who see the solution in giving more power to politicians and the officials they appoint. They attack those like me who believe in small government and are blind to how the rules, taxes and controls they love are meat and drink to the powerful.

If you want a fairer society, if you want a less corrupt society then you should reject the idea of big government, high taxes and constricting regulation. Support freedom not authority folks.

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This is it? Seriously? Devolution should be about a whole lot more than buses and new taxes

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Some chap from IPPR North has bunged his challenge to 'metro mayors', you know the powerful folk who'll be elected once all these devolution deals are done. And Luke tells us these mayors should "shake up" their cities.

So what exactly does this shaking up involve for our Luke? Well firstly there's buses - yes folks, buses:

Mayors could connect their more deprived citizens with the jobs they need with new bus routes;

That's right, this IPPR chap puts creating new bus routes (something that existing public transport authorities can already do) as a great win for our new elected mega-mayors.

Next Luke says mayors can raise lots of new taxes - that's right, the economic underperformance of Manchester, Newcastle, Leeds and Bradford is because the citizens of those cities don't pay enough tax;

To do so they will need to invest, and that means raising revenue from the right sources. Each city is different and will require a different approach. But the candidates should first look at the powers they're already set to have: workplace parking levies, congestion charges and the 2p business rate premium.

But central government should enable them to go further. Whitehall should make implementing these charges far easier, and lift the cap on the business rate premium. It should allow mayors to spend this money on whatever mix of transport investments their city needs.

Forgive me for being completely underwhelmed here and frankly a bit concerned that, given all the things that could be done, this clever bloke can only come up with more buses and more taxes.

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Taxing supermarkets won't save the high street...but it will stop the high street saving itself

The 'supermarket levy' campaign has been around for a while and, thanks to the thoughtlessness of local politicians in assorted places, has now reached the national media:

BBC News has learned that Derby City Council has called for the right to bring in a levy as a "modest" effort to ensure supermarket spending "re-circulates" in local communities.

Some 19 other local authorities back a so-called "Tesco tax" on big retailers, which could raise up to £400m a year.

The premise for this is that supermarkets and other out-of-town retailers are to blame for the decline of town centres and, when we're asked, we all say town centres are really important. Except that we don't do very much of our shopping there any more. And the reason we don't shop there is because town centre shopping - at least for every day purposes - is inconvenient, inconsistent and often expensive. We have to get into town, park (often at considerable cost) and then lug our tired bodies round assorted shots that may or may not have the things on our list.

The 'supermarket levy' is promoted by an organisation calling itself 'Local Works'. Here's something about it:

Local Works was the coalition campaign for the Sustainable Communities Bill, originally set up by the new economics foundation. The campaign was successful when the Bill became law - the Sustainable Communities Act - in October 2007. Since then Local Works, as a part of Unlock Democracy, has been promoting the Act and urging people to get involved and government to implement it properly.

What nef did was to cobble together this coalition on the manifesto of 'localism' and the Sustainable Communities Act was sold to us on the basis of positive proposals to improve town centres and local communities. It is pretty sad that the usual green left wibble about the malign affect of supermarkets has been allowed to dominate the campaign's agenda. A fine idea that local initiatives shared can prompt national action has become just a campaign for a tax on food retailing, a campaign that won't save the high street, won't make people use independent shops but will impact on food prices in the places where most people - and especially less well off people - shop.

Seeking to rescue the traditional town centre by this route merely replaces trade with subsidy. The independent retailers and town centres become dependent on the money that flows from the levy. This doesn't really make those businesses and those centres viable, it merely acts to ossify a failed model. The future for high streets - as I have said many times before - doesn't lie with mere shopping but with being places of leisure and pleasure. This probably means fewer shops and smaller centres but it also means a different approach starting from what people want - not defined by opinion polling but rather by what people actually consume.

In the widest meaning of these words, the successful town centre is about the event, about theatre and about occasion. Some of the events are grand, some might be political or campaigning or even smaller and localised. But most of the events and occasions are personal and private - Susan's 40th birthday, the end-of-season night out for the football team, a reunion of old university friends or perhaps just a walk round town with mum and dad. The best town centres are the ones that provide for these events and occasions and not the ones harking back to a time before most people had cars and fridge freezers, a time when shopping was daily and a real chore.

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Do they not get it? We don't pay taxes to fund politics...

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...and each time I hear someone suggesting that giving us politicians the ability to dip our fingers into the public purse to fund our political organisations - as a way of stopping corruption - I want to scream.

People don't get up every morning and go to work - often for not very much money - to pay taxes so political parties can run posh offices in Westminster. Nobody does this. If political parties want to run these offices but think that relying on millionaires or trades unions stinks of buying influence then they need to go out there and raise the money from ordinary people. From subscriptions, donations and fundraising events - just like they used to do before they decided that tapping up rich folk was easier (and meant that there were fewer of those pesky members to cause trouble for the leadership).

And what makes me even madder is the cavalier approach to public funds - 'oh, it's not very much' they say:

Nor are the sums large: Sir Christopher proposed a £10,000 donations cap and an increased state contribution of £23m a year over five years – the cost of a first-class stamp for every taxpayer. 

There are hundreds of better ways to spend £23million and, more to the point, there is a matter of principle involved here. It is not the purpose of government - the thing to which we pay our taxes- to fund the conduct of politics. Even more than with funding from the rich or from powerful institutions, the use of public funding for politics is wrong.

The problem political parties have is that nowadays only the ambitious and the anorak joins. The idea of joining a party (my party used to take any sum in return for a membership card - I recall collecting subs with my mum, 50p here, a pound there made for a large membership) to have your say and enjoy a bit of socialising has long gone. Today's Parties have largely given up on members - too much trouble.

If we allow state funding there will be no point or purpose of membership unless you want to be a politician. Is this really what we want for our politics? Where political parties look first to the state to pay their bills rather than make their case - for funding as well as votes - to the public at large? And where even more of our politicians emerge from the shallow, self-serving nomenklatura that populates Westminster. More and more nice posh boys and girls without the first clue about life in the real world but who sound good and know the right people.

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State funding of politics is wrong...

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Unite buying up constituency Labour Parties isn't an argument for state funding. Not a bit.

I heard Angela Eagle interrupting Andrew Lansley on Radio 4 but it wasn't this that struck me but that her solution to the corruption of the Labour Party by its Union paymasters isn't stopping them buying up the party wholesale but state funding.

That's right folks, rather than reforming party funding to prevent what has happened we should make it unnecessary by simply allowing the parties to dip into tax funds. Put simply this would represent the final severing of the link (and it is the thinnest and most fragile of links) between individual members and politics.

Instead of political parties having to seek active support from members, we will see - if Ms Eagle gets her way - party officials being little different from the other courtiers, from all those special advisors, members of executive boards, campaign organisers, advertising people and media manipulators. Instead of at least a pretence of the parties being accountable to individual members across the country, we will instead see parties accountable to no-one.

Right now British politics is pretty remote from the public - back in the 1950s there were perhaps as many as 4 million members of political parties (more if you included actively involved trade unionists, members of Conservative Clubs and so forth). Today the entire collection of parties can barely muster 500,000 - a number that continues to fall. Across whole swathes of Britain one or other of the two main parties has no significant presence - a few old activists long past their most effective and perhaps the occasional student anorak of ambitious pole-climber (although the latter now flock ever more thickly in central London).

That Unite feel able to buy up local Labour Parties is a symptom of this problem. Just as are the frequent squeals about major donors from the business community to all the parties. For a few million over several years an organisation or individual can purchase a disproportionate influence over policy-making machinery. 

But how does replacing that corruption with direct funding from taxes - a different form of corruption - improve matters? We get a political hierarchy that has no need at all to engage with anyone outside the 'Westminster bubble', the system would be closed to folk from provincial backwaters who haven't the time, cash or obsession to park themselves in London. Policy would be ever more London-centred, increasingly about the preferences and biases of a small cluster of courtiers attached like limpets to the grandees of politics. Grandees who, a few years previously, were those very same courtiers.

Perhaps, instead of robbing the taxpayer or sucking up to big paymasters, politicians might consider instead refusing such funding. And then walking the walk - asking for small donations and embracing the principle of democracy rather than the idea that votes are gathered by spending other people's money and boasting about it. Maybe the parties might turn their backs on big donations - whether from the wealthy institutions or rich people - and seek support locally.

There was a time when the Conservative Party had no minimum subscription - give us 50p and we gave a membership card. And those people who paid the little subs came out to coffee mornings, to dinners and to strawberry teas - raising the money for a local agent and an office, funding election campaigns and providing the voice of the Party. Now those people are gone or going. And they are not replaced with more of the same but with a coalition of political obsessives and the ambitious.

Old-fashioned party politics isn't dying out because of policy or because of bad government, it's dying out because the leaderships of the parties no longer care. The voluntary party, the local association, is a pain, an annoyance. Party conferences are grand affairs designed as media showpieces rather than as a gathering together of people from a mass party, from a movement. Everything is shiny, politicians spend time with journalists, lobbyists and clever folk from think-tanks. No time is given to the folk who've spent their own cash to come to conference; they're just a backdrop a little local colour rather than anything of importance.

State funding would make this worse. If it arrives the idea of the people influencing the state will have died. And let's face it, we don't pay taxes to fund political parties, do we?

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In praise of tax avoidance...

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It's my money for heaven's sake. All of it. It doesn't belong to you. It isn't there for you to spend it on co-ordinating things or for pretending that you care (when really you care only about your pay cheque just like I do).

There's a case for tax - not a good one but a case. But that case is made worse by the waving of bloody shrouds at people who, quite rightly, morally and properly, seek to make sure they keep as much of the money they earn to spend themselves.

In the end I avoid taxes - just like millions of others - for some important reasons:

1. The government demands too much of what I earn - mostly for no good reason

2. The government is very bad (or too good depending on one's perspective) at spending money

3. In its urge to scam every last farthing the government makes tax ever more complicated and therefore avoidable

4. Avoiding tax reduces the power of that government to stop me from living my life in freedom

Tax avoidance keeps government honest. I've no idea how that government raised up a frothing mob to chase down all the tax avoiders but, if we do one honest and moral thing in our lives, we should face down that mob and keep on avoiding paying taxes. If a tax can be avoided it's your duty to do just that, to weaken the power of government, to give the rise to pathetic baby "anarchists" who want to burn down shops to make them pay more tax, and to make the biggest, loudest raspberry in the general direction of the great waste that is government.

Every time I hear another news report of some business or celebrity caught in the headlights of the mob as "tax avoiders" I want to cheer them, to cry out in their defence and to celebrate their sense at avoiding paying taxes to the uselessness of government.

It seems to me that tax avoidance is a moral duty.

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Labour's plan - tax the poor to pay for the care of the wealthy.

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Fresh from championing recipients of housing benefit earning over fifty grand, Labour is now planning to be the hero of the relatively wealthy. Apparently, the proposals on social care - where how much we might have to cough up is capped at £75,000 and people with £125,000 or less in assets will receive state help - still mean that people will have to sell their home.

I'm fine with this. What possesses people like Andy Burnham to believe that the taxes paid by people on minimum wage should go to pay to care for someone sitting in a house worth hundreds of thousands? Does he really think it justifiable - I mean morally - for a struggling family to pay taxes so someone else can inherit mum's house? Is it really OK that government borrowong climbs through the roof - taxing future generations of children - so someone can leave their "life savings" fructifying in some investment fund?

If there's one thing that makes me cross it's the assumption that these assets, these savings are simply there so people can inherit the cash. Surely those assets and savings are precisely there to look after mum or dad in their lifetime - to provide comfort, to secure care and to provide a little pleasure.

So rather than talking rubbish about family homes and nonsense about life savings, sit down with your parents and talk about how to use that money to make the last years of their lives less or a worry, more of a comfort. And stop counting the money in their bank and expecting the poor to pay higher taxes so you can inherit that cash.

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On those fat taxes Andy Burnham likes....

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Denmark - under their decidedly New Labour leadership - decided to introduce them. And now:

The measure, introduced a little over a year ago, was believed to be the world's first so-called "fat tax".

Foods containing more than 2.3% saturated fat - including dairy produce, meat and processed foods - were subject to the surcharge.

But authorities said the tax had inflated food prices and put Danish jobs at risk. 

So the Danes are scrapping the tax and have also decided not to lump a tax on sugar either.

See, I told you, nannying fussbucketry doesn't work. Can we stop doing it now?

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It's my Party too, isn't it? Why state funding for politics is a mad act of cynicism

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I know it's hard down in the Westminster bubble to understand the real world where people are struggling on through the hard times. But our political leaders - and the media that preens and fawns over them - need to try just this once.

Those ordinary people don't pay taxes to fund political parties. They pay taxes for schools and hospitals and roads and policemen and soldiers. They don't pay for spin doctors, communications consultants, campaign teams and expensive offices on Millbank. State funding for political parties is wrong. So why are we speculating about it?

What odds then that in private a deal has been done that will allow both sides to come away with what they want? Here's how it was presented to me: over the next year or so Mr Clegg will find a way to back the boundary review when it comes up for a vote in the Commons. In exchange, Mr Cameron will agree to support some form of state funding for political parties.

This sums up everything that is wrong with our politics - the ghastly corruption created by Tony Blair and continued by every successor regardless of party. A belief that political parties are part of the state's apparatus, a cavalier attitude to spending tax money on what amounts to a political fix and an obsession with the process of politics rather than the outcome of policy.

But then the whole thing is so cynical.

Cameron is more open to the deal than his party because it reduces his reliance on the already decimated grassroots.

Am I thinking that Cameron is prepared - for short-term tactical advantage - to destroy the Conservative Party replacing it with a pathetic hollow shell where the "grassroots" (that's people like me) are pushed aside completely?  That I rather believe this says all you need to know about the management, leadership and direction that Cameron provides at the moment.

It's my party too isn't it?

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Time for tax cuts...

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...and not just because the stimulus they'll bring will help economic growth but because they are popular. Yes folks the age of people meekly telling pollsters they'll happily pay more tax "for the NHS" or some such weakness are over:

One in three British adults think taxes should be cut and the amount of funding for social housing reduced, according to a survey by a left-leaning think tank.

A survey of 2,000 people carried out by Yougov for the Labour-affiliated Fabian Society think tank shows 32 per cent of people agree that ‘tax rates should fall to pay for less provision’ of public housing.

A total of 35 per cent said the current balance is about right with just 16 per cent saying tax rates should rise to pay for more social housing services.

The survey showed that 72 per cent of people think social housing should be means-tested or partly paid for by the taxpayer. Nine per cent said there should be no state funding for social housing at all.

The findings also showed that two in three people think funding for programmes to help people out of work is too high or about right.

A total of 27 per cent think taxes should be cut to pay for less help for the unemployed, with 40 per cent saying the balance is about right.

Just 16 per cent said there should be higher taxes to fund more services to help people out of work.

The whining mithering left-wing commentariat are wrong - both about the economics and also the politics. And it's the welfare budget that ordinary folk have their eyes set on - the idea that we can give people just enough money that, despite a pretty depressing life, they have an active disincentive to risk that position.

So, rather than pouring endless cash into the bottomless pit of bank balance sheets, or squandering billions of 'grand projects', let's cut taxes for ordinary people. Raise the tax threshold to the minimum wage, cut the basic rate of tax to 15% and lower the top rate to 40%. We might have to lose a few civil servants (perhaps ministers would like to start with their own offices - all those 'special advisors' are an utter waste of cash) and close down some much loved programmes. But the population will have cash in its pockets, cash to spend on food, on home improvements, on clothes - on the things like holidays they can't afford at the moment.

And wouldn't that help just a little? And wouldn't it put a little deep blue water between the Conservatives and that subsidiary of public sector trade unionism, the Labour Party?

Go on George, you know you want to!

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Taxes and the "living wage"

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On Tuesday Bradford Council debated (if that's the right word for a time when we all rather agree with eachother) exploring a 'living wage' policy for the City. And we agreed to look into the matter through the Corporate Scrutiny Committee and subsequently a report back to council.

All this got me to thinking. Mostly about whether such a policy - especially if enforced through public procurement - complied with though tricky EU rules. I have my doubts but that is something we'll doubtless discover in due course.

Meanwhile, some cleaners in Whitehall hit on the idea of popping a letter onto the desks of ministers pointing out that they earned below the "living wage" for London:

Over 150 cleaners from across Whitehall signed – and personally delivered – letters to eight cabinet ministers including George Osborne, Theresa May, Nick Clegg, and Vince Cable, and the president of the supreme court, Lord Phillips, in an attempt to increase their pay from the national minimum wage of £6.08 to the London living wage – two pounds more.

A pretty effective campaign when you also tell the papers!

However, something else struck me at this point - even with the tax threshold raised to £10,000, people who are earning minimum wage pay income tax. Parliament sets the lowest rate at which people should be paid and then takes some of that away in income taxes.

It seems to me that rather than using moral pressure to get businesses to raise their costs (wages are, after all, a cost) we could improve lower earners standards of living simply by saying that people on minimum wage shouldn't pay income tax. Indeed, if people think that actually £8 and odd is the appropriate lowest rate (in London) then people on that minimum income shouldn't pay income taxes.

It seems to me that there is common cause here between us grumpy old free marketers and the massed hordes of lefties - gang up on big, corporate government and tell them to stop taxing poor people quite so much.

Now that's a thought...


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So what exactly is that money for?

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Again the unedifying debate over care for the elderly - characterised by the sons and daughters of comfortable middle-class folk arguing that their parents assets shouldn't be use to provide care for those parents.

"It seems so wrong that after mum and dad worked hard all their lives, everything that they saved for had to go. The day we sold the house my sister and I could barely speak for tears, as we packed all their belongings up." 

The mum in question is on her own, is 85 and has dementia. Of course it's sad that lives end this way, dementia can be a terrible slow death and is traumatising for the person's family. But what exactly did mum and dad save for? It seems to me (and always has done) that part of the reason for saving is to provide care when we can't look after ourselves any more.

There really is a need to look at how we provide care for the elderly, it is one of the biggest public health challenges that faces us. But the standards and breadth of care will never come about so long as we carp and wail about the loss of inheritance. Is it not worse that people with significant assets (or more commonly those who stand to inherit those assets) expect someone else to pay for their care? Especially when that someone else is a struggling family or a young man earning just above minimum wage.

And while we're talking about tax - we are still living with the consequences of Nye Bevan's great lie. With this idea that we "pay in" to the National Insurance system. It is - and always has been - just another tax on income but we still hear this:

"They paid into the system all their lives"

No they didn't. They just paid taxes to provide the things government was providing - they had the benefit of hospitals, schools, roads, police, an army and all the other things we've voted for having. The truth is that they've eaten the cake. And it was a pretty big slice.

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Come on Christine put your money where your mouth is...

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Christine Lagarde called the other day for Greeks to pay their taxes:

And I think they should also help themselves collectively [by] paying their tax"

Today we discover that this grand lady doesn't pay any taxes either:

As an official of an international institution, her salary of $467,940 (£298,675) a year plus $83,760 additional allowance a year is not subject to any taxes.

So come on Christine put your money where your mouth is...if you want others to pay taxes, pay some yourself.

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"Pay your taxes..." Or how to annoy a Greek.

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As ever, I start with the caveat that I'm not an expert on Greece's economy or how it might resolve its current problems. But I am pretty sure - no absolutely sure - that the solution to Greece's economic problems does not lie in getting the populace to cough up more taxes. That might make a small dent in that suffering country's problems with government finances but it won't deal with the consequences of the 'big lie' visited on Greece by its politicians - that the Drachma was equal to the Mark.

Yet - in a great campaign slogan for the Greek worshippers of the Mystic Money Tree (usually referred to as Syriza) - this is precisely what Christine Lagarde, boss of the IMF has done:

"As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax.

"I think of them equally. And I think they should also help themselves collectively [by] paying their tax"

If anyone out there really believes that getting people to pay more taxes is a route to economic salvation they should be gently removed from any positions of decision-making (and probably kept away from sharp instruments). The resolution is always - absolutely and every time - in the private sector, in economic activity rather than the legerdemain of public financial manipulation, currency fiddling and regulation. These are the things that created the problem and we aren't going to resolve the problem through more self-important central banking.

In the end, the solution lies in the real economy - in the decisions of consumers, in the promotion of economic activity. And the drivers of that economic activity in Greece are the folk who dodged the taxes - take more money off them and, as sure as eggs is eggs, there will be less economic activity. Meaning that next time, there's less money to take off folk in taxes...

As ever, in this matter, government is most of the problem and very little of the solution.

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Austerity - everywhere but government

aus·ter·i·ty/ôˈsteritē/

Noun:

Sternness or severity of manner or attitude. Extreme plainness and simplicity of style or appearance.

Or as European voters would have it, a monstrous evil loaded upon them by bankers and their cronies in government. But what exactly are we speaking of here – what exactly do we mean by ‘austerity’?

I’m not here to present some sort of economic case as to the existence or otherwise of austerity, of a time when financial reality forces us to adopt – from necessity – that plainness and simplicity of style. The truth is that austerity for most of us is a fact but the austerity isn’t being driven by cuts in public spending – there are, in aggregate, precious few of those cuts. No, the circumstances forcing us to live an austere life are coming from the private sector and from the manner in which governments have responded to the unresponsiveness of the private economy.

Look around you, speak to a few of your neighbours, wander down the food aisles of the supermarket and, above all, spend an hour or two watching television advertisements. All will tell you of two things – the two things that are bringing that unwanted austerity upon us:

1. We have less money in our pockets – for some of us this is because we don’t have any work but for nearly everyone the amount has fallen because employers, struggling for business, aren’t raising wages, are reducing hours, cutting overtime and ending bonuses. Plus, of course, the government, fixed on its own cash flow problems has bunged up taxes
2. What money we have in our pockets doesn’t buy as much – that’s right folks, we’ve never had the deflation we were promised at the start of this crisis. The clever folk in the treasury told us that we needed to keep real interest rates negative because otherwise deflation would destroy value and wealth – we would be doomed. Some of us said this was rubbish and that the government wanted some inflation so as to reduce its (and the banks’) debt problems. And we were right – there’s now been at least four years of above trend inflation. That’s four years where savings have shrunk, four years of price rises. Plus, to cap it all, the government has put up taxes – VAT, excise duties, airport tax

Austerity isn’t a consequence of reduced government spending but of other government actions – taxes that are too high, interest rates that are too low, running the Royal Mint’s printing presses at full whack and failing to cut spending. Yes that’s right – failing to cut spending.

Let’s remind you that over three years Bradford Council will have cut over £100 million from its budget – that’s 25% of what we get in grant from government. And it’s true, jobs have gone, some unnecessary cuts have been imposed, a few facilities have closed but, in the main, the “cuts” have barely inconvenienced the majority of the City’s population.

And look a little further – those financial strictures haven’t been applied to the NHS where budgets have risen not fallen, we’re still spending millions each week maintaining an unwanted armed presence in Afghanistan and the merest of dents has been made in the welfare budget. In truth the government predicts that spending will rise by £50 billion between 2011 and 2015 – what sort of dire austerity is that?

Yet there is austerity – people are struggling out there, we may not have starvation but everywhere you’ll see faces telling you it’s tough. As I said, watch those adverts – not just the offers of loans or the debt scams but the everyday adverts. Look at the styling, consider the way we now see less of the flash, hedonistic and aspiration imagery and instead get and older, solid, calming language.

And that austerity is the fault of government – for they have created the inflation, they have increased the taxes, they have made the jobs more expensive. What they haven’t done is cut their own spending.

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On taxes, morals and practicality

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Once again tax has become a matter of moral debate. Rather than asking the sensible and practical questions – “how do we raise the amount of money we need to deliver those ‘vital’ public services?” or “what is so ‘vital’ about this or the other bit of public spending?” – we are debating whether it is or isn’t morally repugnant for a person to use the rules to minimise the amount of tax they pay.

And the target for all this is “the rich”, a group of ill-defined, nameless, faceless individuals onto whom we must heap opprobrium if they have the audacity to move their money around so as to pay a little less tax. Every now and then one self-righteous newspaper hack or other latches onto a particular person or a specific company and calls down the anger of the gods upon them – how dare they not hand over nearly all their income and most of their wealth to the government, how dare they!

And so the game goes – today The Guardian latches onto a dead man so as to have a pop at that dead man’s son. Nobody is suggesting that the son has done anything wrong but the sins of the dead man – reducing his tax bill by moving his money around – must mean that the son is a sinner too! And, sadly, the response of many is not to castigate the values that led to such an attack on a dead man but to accuse the paper (and others) of hypocrisy since they too indulge in such international money management for the purposes of tax minimisation.

This way madness lies! We do not have taxes as some form of punishment for those who have the gall to be very rich. Nor do we have taxes so as create some form of “morally beautiful” status of equality. We have taxes to pay for government. That’s it. No other reason is remotely defensible. And the job of the government is to raise those taxes efficiently.

Nowhere in this is there any matter of morals. Merely a set of practical issues: what is the best rate of income tax; what should the balance be between direct and indirect taxes; should reliefs be offered for desired actions such as philanthropy, business investment or saving for retirement?

However, those who cheer at the attack on a dead man choose to make this a debate about morals. So let's respond.

I do not believe that we have any more moral duty in paying taxes than to comply with the rules set down by the government. And if that means that a very rich man can avoid paying tax at the same rate as a much poorer man, the fault lies with those who set the rules not with the man avoiding paying the tax.

Instead we should ask why it is that very rich men – and others who are far from very rich – put such effort into avoiding taxes? Could it be, perhaps, that these men feel that rates of taxation are too high? Perhaps – and it’s hard to take issue with this sentiment – the very rich man believes that it is wrong for the government to seize more than half what he earns? Maybe, the very rich man believes it to be morally wrong for government to take such a large proportion of someone’s income?

We have got ourselves into such a state – with politicians forced into publishing tax returns and hints that ministers will be expected to do the same. I cannot but think that the idea of a very rich man giving public service – as rich men have been wont to do throughout history – is likely to become just that, history. Why should that man bother when his reward will be sneering attacks on him for the apparent sin of being rich? Instead, the man heads to his private island or grand house, shuts the gates and perches on his pile – having first ensured that only the smallest possible part of it goes to the government in taxes.

And the fault for this separation from public service will not be the rich man’s. The fault lies first with government for demanding too much of that man’s income and secondly with the frothing mob led by hypocritical journalists who castigate him and his sort – even beyond the grave – merely for having money.

Attacking the rich may make some of us feel a little better, perhaps more able to tolerate less pleasant personal circumstances. But it does not help the government in that task of raising taxes efficiently and it is not the championing of some moral righteousness. Taxation must be a matter of practicalities not moralities. If we get to the stage of shouting about morals then the only conclusion is that our tax system is not fit for its purpose of raising the money the government needs for its business.

And so it is. Taxes are too high on the rich and too high on the poor. In the former case we can see they are too high because of the lengths that rich men go so as to avoid those high rates. And in the latter case because we have to tax the poor because the rich aren’t there to be taxed.

I don’t know the right answer – the system that would work – but I do know that the current debate misses the point entirely. Taxation must be a practical matter if it is to work. Moralising about it just makes things worse.

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Is London's public transport really so expensive?

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London has a fantastic public transport network yet we still get special pleading:

Travelling in London is nearly three and a half times more expensive than Paris and 10 times dearer than in Rome, according to research by the Campaign for Better Transport.  With successive Governments in Britain allowing fares to rise faster than inflation, the gap has also been widening in recent years.  Next week commuter fares, which are capped by the Department for Transport, will increase by an average of six per cent.

Now this information should be treated with some caution – it’s based on one 23 mile journey rather than an assessment of the system itself. For me the central question is whether Londoners, Parisians and Romans can give up the car (i.e. it is no longer essential to practical living). For most people within the urban area of London Paris the car is only needed to visit maiden aunts in Hampshire, it isn’t needed to get to work, visit locally, shop or do those other regular everyday things.

Rome – crammed to the gunnels with crazy traffic – has just 38km of underground and less than 200km of other urban rail system. Paris Metro is a little longer at 86km and the other light rail is limited. The London Underground alone has 402km of track before we’ve taken account of overground services, trams and bus priority systems.

In London a comprehensive annual ticket (Zones 1-9) costs a little over £3,000. But bear in mind that the transport system in London is so comprehensive you don’t need a car (although this gets a little trickier the further you get from London). The AA gives a running cost for the cheapest category of car (valued at below £12,000 new) at 10,000 miles per annum as £4,553 – over £1500 more expensive than using public transport.

The Campaign for Better Transport is arguing that we should use more of the taxes paid by people who don’t use London’s commuter network to reduce the cost of that commuting rather than getting those commuters to pay the full cost of providing the world’s most extensive and comprehensive public transport system. Especially given that this system is significantly cheaper than running a car (that is only a luxury to most Londoners).

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