One way to narrow the North-South divide

We all know there’s a North-South divide, but from a policymakers perspective it’s not clear what – if anything – we should be doing about it.

To a significant degree, the relative economic success of London and the South East is due to factors beyond the powers of politicians to rebalance (without simply dragging the country’s capital down). The decline of manufacturing, the rise of London and Cambridge as tech hubs, and the cultural pull of the metropolis cannot be overturned – no matter how much money the government throws at it.

But even though we can’t turn the country upside-down, given that most of us would prefer wealth and opportunity to be a little more evenly distributed, we should try to identify instances where we are prejudicing the South at the expense of the North. Here, one thing stands out above all others: the decision to postpone the revaluation of business rates.

As Simon Danczuk MP wrote a few years ago in the Guardian: “The problem is in my constituency – and no doubt many others – some commercial property values have fallen by up to 40 per cent since 2008.” For Danczuk’s Rochdale constituency, the FT reported that “a study by Liverpool university showed that if business rates were set using up-to-date property values, shops in Rochdale would experience a 65 per cent fall in rates bills.” In contrast, London shops would see a 52 per cent increase.

These costs weigh heavily on the North. Of the top 10 town centres with the greatest percentage of empty shops, seven are in the North East or North West. The Daily Mail reported last year that the North West is suffering from 16.9 per cent empty shop space, versus London’s 7.9 per cent. In Hartlepool, County Durham, 27.3 per cent of stores in the town are up for rent.

Demanding regular revaluations shouldn’t be confused with a call to cut business rates. As has been argued forcefully on this blog, business rates are about the least worst form of taxation: “Repeated taxes on property, that is business rates, have the lowest deadweight costs of any form of tax. The only one that could be better is a proper land value tax.” Nevertheless, landlords and the entrepreneurs that want to use the abandoned spaces deserve rates that reflect the value of the land – the first step of a Northern regeneration should be a revaluation.

Philip Salter is director of The Entrepreneurs Network.

These people are crazy you know

We do, of course, believe in free speech around here. However, that also includes the right to point out when one thinks that someone is wrong. Or misguided, or off dancing with the fairies or possibly just even crazy. And so it is with this group, Transforming Finance. They’ve just released their suggestions for how the financial and banking markets might be improved in the UK. Two of which seem worthy of note. The first being this:

Ensure the new Competition and Markets Authority investigation into retail banking is tasked to specifically promote greater diversity in the finance sector including more mutuals, local banks, credit unions, peer to peer finance, community finance institutions and opening up the payment system.

We believe that this means more Crystal Methodists should be allowed to run banks. Amusing but possibly not quite what would constitute good public policy. However, this is simply crazed lunacy:

The UK should immediately sign up to the European Financial Transaction Tax, in order to help reduce some of the unnecessary speculative trading of financial assets.
The dominant culture of short termism in financial markets is one of the root causes behind the misallocation of capital, whether it is overvaluation of fossil fuel stocks, periodic asset and property price bubbles or instability caused by high frequency trading. Given the City of London’s dominant position in European markets, participation of the UK in the FTT would make it a more effective global policy and give confidence to other markets such as the US to introduce similar measures. The FTT would also be in the interests of pension investors, as it would mean more attention paid by asset managers to long term prospects of their holdings and reduce costly, often hidden, fees for excessive trading.

The one and only peer reviewed academic paper by your humble author is on this very subject. The desirability or not of the FTT. And one of the points made in that paper is that the incidence of such a transactions tax (as it is with Stamp Duty on share purchases, a finding from the IFS) is upon pensions and pensioners. A transactions tax on investing reduces the returns to investing and thus to lower pensions for pensioners. So our mad gabblers are in fact proposing a tax which would reduce pensions as a way of increasing pensions.

They’re mad, crazed or, to be fair about it, simply ignorant.

Zoe gets horribly confused about the difference between charity and taxes

An alternative headline for this would be since when did Zoe Williams become a libertarian? For she’s managed to get herself horribly confused over the difference between charity and taxation.

It is impossible to devise good tax policy on the basis that reasonable people don’t want to pay it and have to be either coerced or conned into doing so.
You cannot collect tax unless you believe in tax; likewise you cannot pay tax gladly unless you love it, not for the useful stuff it might buy but in itself. This is seen as a political impossibility. But why? Tax is no more and no less than an investment in the future.

What is being described there is charity, not tax. And any good libertarian would rub their hands with glee at the idea that we should all be paying only what we voluntarily wish to pay for the good of our souls and of the society at large. And it’s also a goodly part of the classical liberal point that if taxation were lower then there would be more charitable giving as we all gladly would alleviate the suffering of our fellows.

Quite how this got published in The Guardian I’m really not sure. For she really is insisting that we should be forking out only that amount that we love to: and let the coercive aspects of the State demanding money from us go hang. At which point, if that really happened, quite a lot of us would have to pack up and go home, job done.

Think of it another way. I’d certainly be happy enough to pay, voluntarily, for, say, food banks which feed the hungry in their time of need. Come to think of it, where I actually live, I do (and the fire and ambulance service in fact). It’s the paying for the State professional class that reads The Guardian that I’m not so keen on the State forcing me to do. So, let us bring on Zoe’s system forthwith! Tax is only what we will voluntarily pay, as with charity. All we’re left with now is the thorny question of what on earth Zoe would do for a living….

The confusion of Will Hutton

We’ve Will Hutton telling us that we really need to be taxing corporations more. For they’re paying less in tax on their profits than they used to and this is what ails our State. Sadly, what has really been shown is Will’s confusion in reading GDP figures.

If companies in Britain paid, proportionally, as much tax as they did in the last year of Mrs Thatcher’s prime ministership, the country would be £30bn better off.

Well, no. Moving money from one account to another does not make “the country” better off. It might make the Treasury better off, this is true, at the expense of making investors in companies worse off, but this is not the same as the statement that it will make the country better off. For, as we might all have noticed, living as we do in a place where there are things outside the state, the State and the country are not the same thing. But then we get the more detailed confusion:

Nor is that where the bending of the tax system – and the state – to accommodate companies’ chosen behaviour stops. Over the same years there has been a monumental bidding down of wages as the share of company profits has risen by 6%, in terms of GDP, with wages falling by a commensurate amount.

This is a basic schoolboy error and one that’s embarrassing for someone who was a Governor of the LSE to make. GDP is not made up of the wage share plus the profit share. there are more components than that: most notably the taxes paid upon consumption and the taxes paid upon employment. And a couple of us have been pointing out what has actually been happening over these years. The wage share has indeed been falling. But the profit share has not been notably rising. The difference explained by those two tax shares, on consumption and employment, rising. It’s is not that the capitalists have been stealing the crusts from the workers’ mouths, it is that government has been.

But we will admit that this produced a guffaw:

What is striking about the international system is the variety of tax regimes, wage and profit shares – and the lack of convergence, as the IFS’s exhaustive review of the tax system, led by Nobel Laureate Professor James Mirrlees, pointed out. There is plenty of scope for redesigning our tax system to make it fairer, increase its yield and refashion the bargain between companies and the state if we choose.

That’s the Sir James Mirrlees of optimal taxation theory fame? Whose major contribution to taxation theory is that we should not be trying to tax corporations or capital returns, but instead should be taxing rents and consumption? And this is what is called in evidence to underpin the clai9m that corporations should be paying more tax?

It is to laugh, eh?

Wikipedia: Another answer to the tragedy of the commons

The tragedy of the commons is an oft-cited theoretical example by those who advocate government intervention. It postulates that, without regulation and intervention, public goods that everyone has an interest in using will actually not be provided (or at least not efficiently or to an optimal quantity) if contributions are voluntary. The logic is that everyone’s dominant course of action is to essentially just refrain from contributing because, if one contributes and others don’t, then the public good is not provided and their payoff is worse than if they don’t contribute and the public good is not provided. Additionally, if they don’t contribute and the public good is provided, the individual’s payoff is higher than if they do contribute and the public good is provided. In this sense, a society full of rational, self-interested individuals (as this scenario represents it) could actually lead to a harmful or sub-optimal outcome for society in the long run.

However, Wikipedia is a prominent, empirical illustration of how the tragedy of the commons does not always hold since the website runs purely on private donations. Periodically, the site’s owners ask for donations to maintain it and keep it running ad-free. They claim that if everyone who read their plea paid £3, then fundraising would be over within an hour – nice in principle but not everyone pays up in practice. Some, inevitably, end up contributing more than others and many don’t contribute monetarily at all.

The following chart lists the percentage of donators corresponding to each reason for donating to Wikipedia, according to Wikipedia.


Conversely, here are the reasons cited for not donating:


Of course, one might argue that the knowledge found on Wikipedia is unreliable. However, a study published in Nature found that Wikipedia “is about as accurate on science as the Encyclopaedia Britannica”. Of course, Encyclopaedia Britannica attempted to refute the study. Access to a vast store of monitored, reviewed information via Wikipedia is an incredible asset to humanity and this asset is made possible entirely through voluntary contributions (whether this be in terms of time spent editing or money contributed) rather than through the coercive dictates that people are so often subject to.

Furthermore, it’s interesting to note that if you were to, hypothetically, replace “donating to Wikipedia” with “tax” in the second bar chart, you might find a lot of people agreeing with the affordability, with unwillingness to pay tax based on principle or their belief that it would not be used properly. Similarly, people may want to contribute time to society rather than pay money to preserve it.

In our rapidly changing world, voluntary contributions to fund public goods may become feasible sooner rather than later.