A Labour Party policy we look forward to

In the interests of being fair handed, for recall that we are not a party political organisation, here is a Labour Party policy just announced that we thoroughly look forward to:

He added: “David Cameron’s ideological selloff has ended a public sector service which has delivered over £1bn to the Treasury, kept fares down, had record passenger satisfaction and engaged the workforce with unparalleled success.
“It is clear that when it comes to transport, people have a straight choice – the status quo or Labour’s better plan. Labour will start the process of legislating in the first 100 days of a new parliament to allow a public sector operator to be able to take on lines and challenge the private sector on a genuinely level playing field.”

We have no problem with public sector organisations applying to run anything at all. Nor with capitalists, cooperatives or Uncle Tom Cobbleigh. Our desire is that there should be that level playing field so that the best people for the job do the providing. And we’re just overjoyed at the idea that there might be competition between forms of organisation just as much as there might be between individual examples of the same type of organisation.

So, yes, we fully support this.

However, in the same story:

Stagecoach has pledged to invest about £140m to deliver what it calls “an improved service and a more personalised travel experience for customers”, and is scheduled to pay £3.3bn in premiums to the government.

That capitalists are pledging to give the government £3.3 billion over 8 years, the public sector organisation gave the government £1 billion over 5. So this is actually going to be a level playing field is it? That the privatisation would have gone ahead anyway as the capitalists are quite obviously offering the better deal?

Good, excellent, glad we’ve got that sorted then.

Economic Nonsense: 16. Government should own and run vital industries such as transport and energy

This is laughably untrue.  Where governments own and run industries, whether ‘vital’ or not, they pursue political rather than economic objectives.  In the case of things such as transport and energy, they will be tempted to keep prices below economic levels to gain electoral popularity, or at least to avoid unpopularity.

Such industries will tend to be under-capitalized, since capital expenditure is less visible to the public than are transfer payments such as pensions and welfare.  Governments cannot spend the same money on both, and the former attracts less support than the latter.  This under-capitalization threatens future supplies.  In the case of transport it means that there will probably not be enough infrastructure built to meet future demand.  In the case of energy it poses the threat of future power cuts.

If the state owns and runs transport and energy, those industries will be more prone to strike action.  Unions behave more cautiously with private firms because they do not want to risk the firms closing or going bankrupt.  This does not happen in the public sector, so the unions have more clout.  For the same reason state industries will also tend to be over-manned.  This is not mere theory.  All of these things actually happened in state-owned industries in Britain, including transport and energy.  Train services were unreliable and equipment was shoddy and outdated.  In the energy sector there were blackouts.

Although we use the term “public ownership,” the public cannot exercise any of the rights of ownership as they do when things are privately owned.  Instead it is politicians and bureaucrats who decide priorities, rather than businesses trying to anticipate and cater for public demand.  When people talk of the need for the state to run ‘vital’ industries, we do well to remember that few are more vital than the food industry.  One can imagine what it might be like if the state controlled the supplies, determined what should be produced, and only sold through state-owned outlets.  We don’t have to imagine this.  It happened in Soviet Russia and was characterized by shortages, low quality produce, and interminable queues at state shops.

Logical Fallacies: 14. Shifting the burden of proof

 

In this, the latest in his Logical Fallacies series, Madsen Pirie looks at ‘shifting the burden of proof’.

You can pre-order the new edition of Dr. Madsen Pirie’s How to Win Every Argument here

Ed Miliband proposes double taxation of incomes

This is a woefully bad policy proposal from Ed Miliband:

The Labour leader pledged to cut tuition fees from £9,000 a year to £6,000 from September 2016.

It will apply to students mid-way through their courses, meaning a student in their first year of university today will pay less in their third and fourth years.

The programme will be funded by a £2.9 billion raid on middle class pensioners, and by making graduates earning over £42,000 pay a higher rate of interest on their loans.

We’ve struggled for a number of decades to encourage people to save for their own old age. The current debates are surrounded by plaintive cries of how we’re going to pay for all of that care that the elderly are going to need in the future. So then someone proposes to reduce the amount people save for the future by taxing it more?

Come along now, it’s not April 1st yet.

Pensions experts have criticised proposals from the Labour leader Ed Miliband to cut the tax-free amount Britons can contribute to their pensions in order to fund a reduction in tuition fees to £6,000 a year.

Mr Miliband said that he would cut the lifetime limit on tax-free pension savings from £1.25m to £1m, and reduce the tax-free sum saved per year from £40,000 to £30,000 a year, if he wins the general election.

For savers earning more than £150,000 a year, Mr Miliband proposed cutting the pension tax relief from 45pc, the same rate they would pay on earnings, down to the basic income tax rate of 20pc. The Labour leader said these measures would raise £2.7bn to fund the pledge on tuition fees.

But the real problem is not that it’s a deeply stupid idea. It’s that it’s a deeply unfair one.

There is in fact no such thing as “tax relief” upon pensions savings. What there is is “tax deferral”. Your pension contributions come from your gross income, before tax. Your investment gains within the pensions wrapper are tax free at the time they are made. But the income you derive from your pension pot pays income tax just like any other income. You do not therefore get “relief” from the taxation, you get deferral of it.

Which is, of course, why that tax “relief” has to be at whatever the marginal income tax rate on income is. Because, and yes this is obviously so, those who do manage to save up to that limit are going to be enjoying pensions that pay one or other of the higher rates of tax. But they will have had that “relief” only at the standard rate.

They are, therefore, paying income tax twice on that same income, once when earned and saved for a pension and again when drawn down as a pension.

It’s deeply stupid to dissuade people from saving for their own old ages. But it’s grossly unfair to insist that the same income pays income tax twice.

All of us here have our own ideas about party politics but as an organisation we are not, and resolutely so, party political. But of the ideas thought up to gain support at this coming election for one or other political party we’d award this our coveted “worst we’ve seen yet” prize. Admittedly, we’ve not yet read the Green Manifesto but seriously, double income tax for those who save for their own pensions?

Absurd.

The amazingly stupid way the government subsidises renewables

We’ve been complaining about this for a number of years now. In fact, we’ve been complaining about it ever since Ed Miliband lit upon this policy. The manner in which the government subsidises renewable energy projects is, quite frankly, insane:

Two offshore and 15 onshore wind farms have won subsidy contracts in the Government’s first competitive green energy auction, significantly undercutting the prices that have been handed to other projects.

The results of the auction suggest consumers may be paying hundreds of millions of pounds a year too much on their energy bills because ministers previously allocated subsidies without competition, providing much higher returns to investors, critics said.

More generous subsidy schemes should now be reined in and excess subsidies clawed back, they added.

In total on Thursday ministers gave the go-ahead to 27 green energy projects, with estimated lifetime subsidy costs totalling £4bn.

Energy companies were forced to bid against each other in “reverse auctions” with the cheapest proposed projects in each category being awarded subsidies.

There’s part of the insanity. For a decade and more they have not been insisting upon competitive bids. Instead, they’ve drawn up standards for certain technologies and then agreed a level of subsidy. That’s madness.

But sadly, it gets worse. They are offering different levels of subsidy for different technologies. As we’ve long said that’s where it tips over into insanity.

Start from where the government actually is: climate change is happening, we’re causing it and we’ve got to do something about it. That something obviously being reducing emissions by having renewable power supplies. So, what’s the best way of doing this? A series of committees deciding who gets to be the lucky recipient of a cheque? Different amounts of subsidy for different ways of achieving the same aim, reducing emissions by x tonnes?

No, of course not. The correct way to do it is to set just the one price (perhaps a subsidy, perhaps a carbon tax) and then see which technology can best achieve that goal, that reduction in emissions. If, for example, solar can meet the target better than wind then wind should have no subsidy and solar all of it. If onshore wind is better than offshore then no subsidy to offshore, all to onshore.

For we don’t in fact want to have just competition among providers of one technology. We want to have competition among all providers of all potential technologies so as to find out which one solves the problem best.

Whatever one thinks about climate change itself the way that the government has been splashing around our money is simply mad. Yes, under both Labour and the Coalition.