It’s not often that we write with unreserved praise for Owen Jones but his piece today deserves it:
This week the ASI hosted the feisty Ruth Davidson to deliver a lecture on lessons from Scotland’s founding father of economics – Adam Smith – as she outlined her vision of an alternative to the SNP’s statist agenda.
Good Evening Ladies and Gentlemen.
Thank you for the opportunity to speak to you this evening.
It seems to me that there is a rather long and – if I might say – inglorious tradition of Scottish politicians hanging speeches round the neck of Adam Smith and his legacy.
I’m sure you’re familiar with them, but – for me – there seems to be two main types.
The first type is what I would refer to as the Gordon Brown method.
The Brown method is where you examine Smith’s philosophy from three hundred years ago and demonstrate that, astonishingly, it coincides almost exactly with your own policy agenda here in early 21st century.
Yes, it turns out that Adam Smith was a kind of New Labour prophet, just waiting to be discovered all this time.
Which shows your current policy platform isn’t a tricksy wheeze to triangulate left and right, all the better to scoop up the votes of middle England. Oh no!
It turns out that it has a “golden thread” linking it right back to the heart of the Scottish enlightenment where, before the words “Tony Blair” were ever heard, it was first discovered that liberal economics and social justice could go hand in hand.
The fact that Smith actually came from Kirkcaldy is just the cherry on top of the cake.
I can only say that if I was Gordon Brown looking for some kind of ballast to hold my political beliefs together, I probably wouldn’t have been able to resist either!
But that isn’t the only type of speech of course. There’s a slightly shabbier version of the Brown method which adds a great dollop of parochialism mixed with hubris.
This is the one where Politician B seeks to assert that pretty much everyone has got Adam Smith wrong from Day One. Apart, of course, from the speaker himself.
And why have they got him wrong?
Broadly speaking, continues Politician B, this is because they are not Scottish.
And, in not being Scottish, they therefore fail to understand the true meaning of Adam Smith.
Target number one is, of course, the Adam Smith Institute.
One of the joys of Corbynomics is that it’s all largely the invention of Richard Murphy. We therefore know that it is wrong on any specific subject, we’ve just got to work out how it is wrong on any specific subject. Which leads us to the idea that this peoples’ quantitative easing will be able to replace the private finance initiative. The idea being that if the Bank of England just prints money with which we can do nice things then we won’t have to go off and borrow expensively from the hated bankers and kittens will ride sunbeams once again.
The problem with this being that PFI really has very little to do with the price of the finance used to build these lovely things. Sure, bankers get their cut of the interest, as do investors, but that’s really just not the point of it all. Instead, the point of PFI is to get some people into state run projects who are worried about losing all of their money. That is, it’s really about getting equity partners in.
The point of that being that we all know how projects work out if they are funded by the magic money tree. They come in late, vastly over budget and thus waste vast amounts of real resources. And the only way we’ve ever figured out how to introduce some rigour into the management of these sorts of projects is to make sure that someone is indeed sweating over the idea that they could lose all their money. PFI is thus far more about bringing the strictures of value for money, completion on time and to budget, into public procurement than it is about either gaining the finance to build something or the price that is paid for that finance.
Thus, changing the price paid for the finance doesn’t change the argument in favour of PFI at all. Yes, it’s superficially appealing to pay nothing to the Bank of England for the finance rather than 5% to hte City, but compared with things like the 276% cost over run of the Humber Bridge it’s not the point at all.
There’s always someone willing to take advantage of a good crisis, isn’t there?
British railway passengers could be subject to airport-style screening at intercity stations, under plans being considered by the European Union in response to the Arras train attack.
Train operators could be obliged to introduce surveillance cameras in every carriage and stations instructed to install scanners for passengers boarding high-speed trains, under options being discussed following the foiled attack.
For the first time, Brussels officials are drawing up plans to create common EU rules on railway security. At the moment it is a national competence.
Before deciding whether to let the bureaucrats in Brussels make the rules it’s necessary to work out whether the rules themselves make sense. That is, let’s test the competence of the proposed rule makers, shall we?
Fortunately we’ve a method that allows us to do this: cost benefit analysis. Predictions are that soon enough we’ll have some 1.4 billion high speed rail passenger movements each year in the EU. So, if we’re to scan passengers, that means 1.4 billion passenger scans. Say, given the inevitable queues, this costs each passenger 10 minutes. And let’s simply ignore the cost of the scanners and the people to man them. 14 billion minutes, 230 million hours, that’s quite a lot of time being spent there. And we should value time at something….the Sarkozy Commission recommended that this sort of time should be valued at “undifferentiated labour rate” or minimum wage for ease of calculation.
230 million hours at, say, 7 euros an hour? That’s €1.6 billion euros a year, just in the time spent being and waiting to be scanned. Hmm…and so what’s the benefit?
Well, in order for this to be of benefit overall we’ve got to look at what will be saved. Lives, presumably. And we do know the statistical value of a life. Around and about €5 million in fact. That means, that to be of benefit, these scanners must save 320 lives a year. Each and every year.
Do we have 320 people a year being killed by terrorist attacks on trains? Are we likely to? Not that we can see it has to be said.
So, rather than imposing all of this cost on the good people of Europe it would seem more sensible to simply stay with the system we have. Punch any bearded nutters who start waving AK 47s around. After all, we do have good evidence that the current system works.
One of the standard bits of economics that we need to explain again and again is the incidence of taxes. Corporations don’t pay profits taxes, shareholders and workers bear the burden. similarly, business, in the form of a business that uses commercial property, doesn’t pay business rates: they fall upon the landlord. But if business itself doesn’t manage to grasp this point then what hope of getting everyone else to grasp it?
The Government’s “business tsar” has backed an emphatic call from the nation’s retailers for a fundamental reform of business rates to boost Britain’s productivity.
Sir Charlie Mayfield, chairman of the John Lewis Partnership and president of the British Retail Consortium (BRC), has thrown his weight behind a chorus of complaints from the bosses of Britain’s high street traders that the hefty business rates tax is hampering investment in the sector.
An overwhelming 95pc of 100 UK retail bosses surveyed by the BRC said that a reform of business rates would boost the nation’s productivity.
“Business rates bills have continued to rise when property values have fallen,” Sir Charlie said.
“Retailers are now paying £2.40 in business rates for every £1 in corporation tax. Reforming the rates system would be a welcome boost for retailers and help drive investment in training and technology,” he added.
The level of business rates makes no difference at all to the operating costs of those who rent buildings or space. The total rental value is determined by what people are willing to pay to occupy such space. How that is split between landlord in rent and government in rates is irrelevant to that price the occupier will pay. Thus the incidence of the rates is not upon the operating business but upon the landlords.
And reducing taxation upon landlords is not going to make any difference at all to the adoption of technology nor productivity.
What this is is a rather more naked call from landlords that they should be taxed less: any reduction in the rates bill will lead, as above, to their being able to increase rents. And of course there’s a few retail chains that own their properties, rather than lease them…..such a reduction in rates would privilege those businesses over others.
We’re not so naive as to believe that any part of Britain’s taxation system is perfect but business rates are one of the better parts of it as is. Taxing landlords and their rent is closer to a land value tax than anything else and as such is one of the least distortionary taxes and one with the lowest deadweight costs. Don’t reduce it.