A puzzling policy committment from Scottish Labour

Perhaps we should spend too much time puzzling over whatever it is that Scottish Labour wishes to promise us all given that current indications are that there’s not going to be a Scottish Labour soon enough. But their attitude towards food banks does deserve some puzzling over:

His announcement came the day after he promised a £175 million anti-poverty fund that he said would be used to end food banks in Scotland.

Why would we want to end food banks on Scotland?

It’s entirely true that use of food banks has soared in recent years. But it’s also true that we’ve got to be very careful in determining whether this is a supply shock or a demand shock. And all the evidence we’ve got is that it is indeed a supply shock. As the Trussell Trust itself points out, back a decade and more there simply were no food banks (OK, perhaps two or three) in the UK. Now there’s a great network of them, alleviating the number of tens of thousands of people each week.

It is possible that there was no hunger back a decade. But anyone with any experience of the benefits system of the past would not claim that it did not make mistakes, that it did not underpay, take a long time to pay, take weeks to start getting the impoverished some cash to alleviate their hunger. Some of us here have direct experience of just those situations.

So, it is not that the benefits system is worse today than it was: it’s that we’ve a new technology, those food banks, to deal with an already extant problem. That is, it’s a supply shock, not a demand one.

At which point we come to something of a logical puzzle. The little platoons have worked out a way, a very effective way, to deal with the inefficiencies of the State. The response is thus to nationalise by that very State the thing that alleviates the State’s inefficiencies?

Umm, why not just leave the little platoons to get on with the job they are doing so effectively?

These people are mad you know

Sad to have to say it but this is a most startling claim:

Private landlords are benefiting from subsidies worth the equivalent of £1,000 for every household in the UK, the campaign group Generation Rent has claimed, with tax breaks and housing benefit bolstering their gains from house price increases.

Figures shared with the Guardian by the group suggest landlords could be gaining as much as £26.7bn a year from the taxpayer, equal to £1,011 each for the country’s 26.4m households.

So, how have they calculated this figure?

The group’s figure is made up of £9.3bn of housing benefit paid on behalf of low-income tenants, £1.69bn through the “wear-and-tear” tax relief landlords can claim on their properties, £6.63bn of tax that landlords do not have to pay on mortgage interest payments and £9.06bn of tax landlords do not pay on their annual average capital gains.

Oh dear. Capital gains, capital gains on anything at all, are only taxed when a transaction takes place. Thus the not taxing of a capital gain when a transaction does not take place is not a tax break. Similarly, the paying of interest for the purchase of a business asset is tax allowable. This is true of buying a JCB for a building firm, buying a house to rent out and buying a mobile phone mast to provide service to said house. This is not a tax break therefore. It’s simply a cost of doing business that must be included before calculating the profit which will be taxed. Wear and tear relief is very much the same thing.

Housing benefit is a little more complex. We can indeed view it as a subsidy to landlords. For without housing benefit being paid we might expect rental prices in general to be lower. We might also view it as a subsidy to low income tenants of course. That’s what it’s intended as. The way to decide between who is getting that subsidy is to ask, well, what would happen to prices in the absence of it? If we think that removing that £9.3 billion subsidy would mean that rents in general would fall by £9.3 billion then it is indeed a subsidy to landlords. If we think that prices would stay largely where they are but that poor people wouldn’t have anywhere to live then it’s a subsidy to those poor people. And, of course, if it’s the first then we should simply abolish that subsidy immediately.

Which is rather the point of that thought exercise: those who claim that it is a subsidy to landlords should be campaigning for the immediate abolishment of that subsidy. They ain’t, so they don’t really think it is, do they?

Spotting C Northcote Parkinson in the wild

That Parkinson’s Law is generally applicable is obvious. But in the great man’s work there are other observations which we can spot occasionally out there in the wild as it were. That the Royal Navy will have more Admirals than ships has been true for some time now, that committees and bureaucracy will, in the end, strangle the life out of any and every organisation is also obviously true. He also pointed out what is happening here:

Civil servants went on a £1billion spending spree in just eight weeks to hit the Government’s target of spending 0.7 per cent of the nation’s income on overseas aid.

The extra cash was spent at the end of 2013 on humanitarian programmes in Syria and the Philippines and a fund which was started by billionaire Bill Gates to help victims of Aids, Tuberculosis and Malaria.

MPs said the fact that the taxpayer funds were spent so quickly raised serious questions about whether value for money was achieved. Civil servants are now set to be called in front of an influential committee of MPs to justify the spending.

The point of spending by a bureaucracy is not to provide value for money. Nor is the point of political spending to actually achieve anything. In this story we combine those two to lethal effect.

The point of political spending is to allow a politicians to announce that something is being done so vote for me. Doesn’t matter what is being done, how effectively it is being done or even whether it needs to be done at all, let alone with other peoples’ money. The point is the purchase of those votes.

Similarly, the point of a bureaucracy is not to provide value for money. It is to spend the budget allocated to that bureaucracy and to thus make the case that the budget, and thus the bureaucracy, should be larger in the next budget period.

These two have combined here to produce the sight of a bureaucracy shoveling money out the window, into and on anything at all, in order to enable the politicians to purchase votes.

Well done everyone.

The solution Parkinson offered to such problems was simple. It isn’t possible to reform such practices. One must simply stop doing the thing itself. No, we don’t mean stopping charitable aid to poor people if that’s what we all decide we want to do. But stop running it through these inefficiencies of government.

Unemployment, home-ownership and accommodation vouchers outside London

In a much earlier post, Tim Worstall pointed to the findings of Blanchflower & Oswald (2013), which is particularly important when considering that increasing home-ownership is something that the government has been encouraging. They showed “that rises in home ownership lead to three problems: (i) lower levels of labour mobility, (ii) greater commuting times, and (iii) fewer new businesses.” Alarmingly, they found that “rises in the home-ownership rate in a U.S State are a precursor to eventual sharp rises in unemployment in that state… a doubling of the rate of home-ownership in a U.S. State is followed in the long-run by more than a doubling of the later unemployment rate”. They also postulated that since “the time lags are long”, this could explain why “these important patterns are so little-known.” This means that the “negative externalities” felt from housing policy in this time-period may be felt further down the line and that future generations may be in for a nasty unemployment shock.

In the UK, we have lots of council housing but still, we supposedly don’t have enough low-cost housing. Milton Friedman famously suggested that, if we want to continue funding education in a way whilst ensuring that it is of a higher quality than what is currently provided by state schools, we should introduce education vouchers. Analogously, if we insist that society should house those who cannot house themselves, why don’t we introduce accommodation vouchers or housing vouchers which people can spend either on an extremely cheap mortgage (though, admittedly, the claim is that we’re short of low-cost housing) or on going towards rent for another place.

If current tenants of council housing are given the choice between vouchers and their current unit, we may see enough people move out for the council housing itself to be sold to real-estate developers which would, therefore, enable development of more accommodation over and above pre-existing units. This would help plug some of the government’s budget deficit, possibly increase the amount of low-cost housing and ensure dispersion rather than concentration of relative poverty (this last possibility would enable effective local, communal altruism).

Of course, such a policy may not be feasible in London where rents are already very high (due to the government’s ridiculous land-use policies) since accommodation vouchers may only serve to increase them further. However, in the rest of the country, rents are far more reasonable and haven’t grown as quickly as they have in London.

Ultimately, the provision of accommodation vouchers in regions outside of London and the sale of council houses could raise some much-needed revenue and lead to reduced house cost and increased labour mobility at the cost of higher rents.

The UK just isn’t as unequal as people seem to think

We’ve often said around here that the national inequality figures overstate the actual amount of inequality that there is in the UK. Yes, there’s very definitely regional inequality in incomes. But there’s also significant regional inequality in the cost of living. Not all that surprisingly (with the exception of parts of the SW) the higher living costs (most especially housing) are also where the higher incomes are. The UK is very much more unequal in such regional terms than most other countries simply as a consequence of London’s domination of the economy.

What that in turn means is that consumption inequality, the only form of inequality that we could possibly really worry about, is a lot smaller than the income inequality that we all normally measure.

And from the Taxpayers’ Alliance recent report, this little snippet:

The analysis showed a geographical divide in taxpayers and benefits recipients. Households in the East Midlands and London, as well as the south east, east and south west of England paid more in taxes than they received in benefits. All the other regions received more in benefits than they paid in taxes.

Households in the North East of England received an average of £3,175 more in benefits and benefits in kind than they paid in taxes, whereas in London households paid £4,119 more in taxes than they received.

The tax and benefit system also reduces that regional inequality even further.

We’re really not as unequal as everyone likes to say that we are.