Do you think we could surcharge John Prescott for this?

This is something I don't actually know. Is it possible to surcharge a Cabinet Minister for the losses to the taxpayer caused by their own gargantuan stupidity? Or is it only local councillors we can go after in that manner? I rather assume that we can't go after Ministers because I note that there's at least some of them who are not bankrupt at present: but it would be interesting to know.

The reason for this musing is this story from Liverpool:

UP TO 400 people have already shown interest in buying homes in Liverpool for just £1. And with only 20 homes so far earmarked for the rock bottom price deal there will be stiff competition between the competing buyers. Liverpool city bosses have yet to confirm what the criteria for deciding who will be sold the houses will be, but it is understood they are keen to prioritise people who have links to the area and will commit to living there for five years. Many of the houses in Kensington and the “Granby Triangle” have been boarded up and empty for years because successive regeneration schemes have fallen through.

OK, so we've empty and derelict properties owned by the council. A council which cannot actually manage to renovate them itself. So, yes, why the heck not? Flog 'em off for anything at all and allow the little platoons to do them up and then live in them. Or rent, them, sell, them, do absolutely anything they want to with them really.

But why would I want to surcharge John Prescott over this? Well, for this reason:

Many of the Liverpool homes bought up under the failed Housing Market Renewal scheme cost the council around £70,000 each to compulsory purchase.

We really are seeing the gargantuan stupidity of government planning here, aren't we? These are Victorian two ups two downs in Liverpool. And they managed to pay £70,000 for each of them? I mean, what? If something is worth £70k in Liverpool then it's not actually derelict or in need of regeneration is it? And then we find that even having done that they cannot manage the regeneration so thus have to, to all intents and purposes, give them away. This isn't government's most shining hour.

And as to John Prescott: this was part of his "Pathfinder" scheme. The basis of which was that to increase the amount of low cost housing in the country we should buy up 400,000 low cost houses and destroy them. And there in Liverpool we're seeing the scrag end of exactly that plan. At which point my call for being able to surcharge Prescott himself. It was clearly and obviously an entirely lunatic plan in the first place and much taxpayers' money has been wasted in the process. i think we should be able to claw back the losses from those who initiated such a monstrosity.

There's only one real problem here (leaving aside whether we can in fact surcharge a Minister) and that's well, why should it only be Prescott? We've this thing called collective ministerial culpability and at least some of the last lot were nominally adults so why should they get off scott free for allowing this plan to go through?

Bankrupt the lot of 'em pour encourager les autres. But only bankrupt them mind: the Royal Navy no longer has enough quarterdecks to take more traditional measures on.

The failure of the welfare-to-work scheme

Britain's £5bn Work Programme to get people off benefits and into work is failing, according to the House of Commons Public Accounts Committee, which says it's performance over the first 14 months of operation 'fell well short' of government expectations. It seems only 3.6% of claimants moved off benefit and into sustained employment as a result of the scheme, less than a third of the 11.9% target.

The Committee chair, Labour MP Margaret Hodge, complains that young people in particular are being let down (around a million of them are unamployed), along with those people who are hardest to help into a job.

Should we be surprised? Both this government and its predecessors have a history of dreaming up all sorts of work or investment schemes that grab a day or two's headlines for them, or maybe get a hostile story parked harmlessly – schemes that invariably cost a lot of money and, in the event, produce little or even negative results. That is because they do not focus on the root of the problem.

Workers are getting cheaper, it is true – wages have been falling in real terms since the financial crash of 2007-08 – and firms have carried on hiring, as yesterday's employment figures demonstrate. But employers are still sceptical about taking on young people in these difficult times. When you take on an employee, the law makes it hard to get rid of them should they turn out to be unsuitable or should business simply not be up to carrying them. When things are booming, there is less risk. When business could nosedive at any point, the risk is daunting.

Young people come to employers with few or no skills and little or no workplace experience. Employers have to train them up – to get them into the habits of work, to getting along with others in an office or factory environment, and of course to actually do the job.That can take months, even years. Until comparatively recently, the value of this training was understood and young people did apprenticeships at very low wages until they acquired their skills. Today, however, we increase the hurdle and the risk of employing them with a minimum wage. Is it any surprise that employers are choosing well-skilled, experienced workers over kids?

The reality behind the employment figures

Economists are finding it hard to understand why Britain's labour market is so buoyant. At a time when output seems resolutely flat, the number of people in work is growing and the number of people unemployed is falling. This week the Office for National Statistics (ONS) reported that in the last quarter of 2012, a record number of people were in employment in Britain, a rise of 154,000 on the quarter before. Some two-thirds of these jobs have gone to British-born workers – the record employment numbers do not simply reflect a wave of immigrants making work for themselves. And fewer people are looking for work but unable to get it: the number of people on unemployment fell by 12,500 in the last quarter, far ahead of economists' expectations.

Of course, mainstream economists have been wrong-footed throughout the financial crisis and our continuing economic malaise. When the Queen visited the London School of Economics last year and asked "Why did no-one see this coming?", they all stared at their shoes.

That's what you get for having the wrong model – looking at (and trying to manipulate) statistical aggregates is to mix up apples and pears, chalk and cheese. You need to look at what is happening at the micro-level – the things that actually influence people's economic decisions.

So why are firms still hiring when output seems so flat? (1) For a start, good micro-focused economists never trust their macro-colleagues' figures. As Richard Jeffrey, Chief Economist at Cazenove Capital has said, it may be that output is a lot stronger than the figures suggest. That wouldn't be surprising, as the shape of production changes constantly, and the statisticians struggle to keep up with it. (2) Wages are now much lower in real terms than they were at the start of this episode in 2007-08. Firms that are bumping along can simply afford more workers than they could back then. (3) Firms are sitting on cash rather than risking the purchase of expensive new equipment that might become a white elephant if things do not turn up. In other words they could be substituting human labour for mechanisation. (4) Very low interest rates are propping up firms that really should go bust, given the post-boom realities. But they are still there, and hiring.

So if you look at what actually motivates people, and not just the broad numbers, you might well get a much better picture of what is going on.

Samizdata on what the Adam Smith Institute did

This week on Samizdata, Brian Micklethwait has been writing some very nice things about the Adam Smith Institute and Madsen Pirie's book 'Think Tank'.

He writes in regard to 'Think Tank': "The fact that I particularly enjoyed these early pages suggests to me that someone who only recently became aware of the ASI might enjoy this book even more than I did, which was a lot. If you have only recently arrived on the libertarian-stroke-pro-free-market scene, and the only thing you know about the Adam Smith Institute is that they are there, alive and kicking, blogging and publishing, arranging public meetings and not so public meetings, generally advancing the libertarian economic and political agenda wherever they can, in London and everywhere else on earth that beckons, and that everyone else you admire thinks they’re terrific people, then this could be just the book for you. It will tell you how they got where they are, and what they did for the next three decades. And it does this in the style of a man who is not, as he freely admits, always accomplishing all that he wants to accomplish, but who is nevertheless engaged in the exact struggle that he wants to be in, and who is therefore fundamentally happy. The style is long on entertaining and often quite self-critical anecdotage, less burdened with much in the way of earnest tactical or strategic theorising."

You can read Brian's full review here. 

Internet freedoms are under threat – politicians must act

Today the Adam Smith Institute is calling on the government to commit to a ‘Digital Freedom Charter’ ahead of the Communications Bill. The charter should set out principles to protect competition, innovation and growth in and around digital communications and the Internet.
 
The Internet is currently under threat from an increasing regulatory burden.  Only if politicians in power and opposition commit themselves to Digital Freedom Charter can we ensure that the Internet remains a place where people can conduct business, engage with others and communicate freely. The charter should include the following principles:
 
·     Freedom from EU/EC regulation: UK based businesses should not be impacted by regulation from the European Commission. EU regulation, such as the Privacy and Communications Bill and General Data Protection Regulation, increase compliance costs. This means money and time is taken away from businesses and invested in compliance. Businesses should not be forced to comply with onerous regulations – instead the UK should enforce existing competition and anti-trust laws.
 
·     Freedom to Contract: Websites should be free to form contracts with their users. The government should not seek to get involved with the relationship between a user and website. If a user has agreed to terms on a website, but feels that this contract has been violated, this should be dealt with by laws that already exist for breaches of contract. The EU is wrong to push for the regulating of user terms on social media sites like Facebook. Users are not coerced to join social media sites, which make their money out of targeted advertising, and therefore need access to user data. There is a danger that the privacy regulation called for by a vocal minority will end up punishing all users by killing the dominant and popular free-to-use social media business model.
 
·     Freedom to Finance: Individuals and firms need to be responsible for how they spend and invest their money, in order to allow market discovery processes to take place. Government investment in content creation, broadcasting, and communications infrastructure are distortionary, crowding out the private sector and using up resources in an inefficient way.
 
·     Autonomy for families and individuals: Family and individual autonomy is of the utmost importance. There is a growing fashion for government to decide what should and should not be viewed online. Such website blocking would put the UK in the same place as Russia, China and other authoritarian states.  Website blocking doesn’t work. The government should leave the decisions to individuals and families rather than having a government committee decide what we view online.

Dominique Lazanski, author of the report, adds, “The internet has brought countless benefits to our society, but is under threat from piecemeal regulation. Although well intentioned, it is fundamentally misguided and leads to the increasing erosion of Internet freedom.
 
“We need this Digital Freedom Charter to ensure the Internet remains a free and innovative market place. The state must roll back its involvement in the growing digital industry and stop state funded content, state mandated website blocking, and the state sanctioning of businesses.”  

Allister Heath calls it correctly on growth

Allister Heath, editor of City AM, has an Editor's Letter in Wednesday's paper calling for urgent action to stimulate growth.  He is right, and time is running out for the Chancellor to act.  Allister calls for Corporation Tax to be slashed to 11 percent (below Ireland's 12.5 percent) and for Capital Gains Tax to be abolished. He says:

"While this sounds drastic, this would immediately up the returns on capital from all UK investments; at a stroke, it would become significantly more profitable for firms to invest and operate in Britain."

Again, he is right, but he points out that in the short term this would increase the deficit.  Yes it would, but it would generate so much economic activity that in the medium term it would more than pay for itself.  Indeed, it is a sure way, maybe the only sure way, of reducing both the debt and the proportion of the economy taken by government.

He also backs raising the personal allowance (as the ASI does) to take those below the minimum wage out of income tax and national insurance payments altogether, "a job-friendly alternative to a compulsory living wage." And he wants to kick-start a shale energy revolution, a revision of planning laws to boost house-building, and private sector infrastructure projects.  To all of this we can only say yes.  Yes, it would work, and yes, it must be done now.

International companies stand between us and tax tyranny

The OECD is very worried about the erosion of different countries' tax base, they say. The acronym (everything needs a catchphrase these days) is BEPS - Fiscal Base Erosion and Profit Shifting. I guess the full acronym, FBEAPS, just wasn't so trip-off-the-tongue.

The target, of course, is international companies who choose to base themselves in low-tax countries even as they operate in high tax countries. Now I can see why people in high tax countries might get irritated when companies do this. And no doubt there are moral abuses of international tax differences. But it isn't against the law for companies to set up where they choose, nor to manage their affairs in such a way as to keep their tax burden under control. And, for the time being, it isn't against the law for countries to try to attract business into them by keeping down their taxes.

What would be the alternative? All countries getting together and adopting identical tax codes, so that no one location would be more tax-favourable than any other? That would put all of us at the mercy of high-taxing, high-spending governments. They could jack up tax rates as high as they liked, and there would be no escape. They already have huge power to do this, as most of us aren't mobile. International companies are mobile, though – and they are the only ones standing between us and tax tyranny.

It is not obvious, by the way, that companies automatically choose to locate where taxes are lower. Companies have to hire people, and their bosses have to live near their HQ, so what they actually look for is good value for money. If there is good healthcare, good education, and good infrastructure, those are benefits that they put into the equation along with the amount of tax they could be liable for. So the fact that they can shop around between tax jurisdictions puts a pressure on governments, not to be low tax, but to provide good value for money. Isn't that what we want?

A number of countries with few other things going for them have chosen to make themselves very favourable to companies with low taxes and with regulations that are not as labyrinthine as ours. I respect their right to do so. But I feel the high-tax, high-regulation countries in the world fear that competition and would like to kill it. We should not let them do so.

Regulation as a barrier to free trade

Tim Worstall expressed his exasperation as to why free trade negotiations are going to take two years to complete. He's absolutely correct that, in a sane world, trade negotiations wouldn't exist - in the nineteenth century Britain simply unilaterally repealed tariff and legal barriers. Despite being a less substantial player in the world economy, there's no economic reason why we ought not do this today, although there are many political ones. It's reasonable to blame politicians for the problem, although I would argue that politicians are representative of both special interest groups - (business lobbies, labour lobbies and ideological protectionists) who seek to erect trade barriers-  and a supine and ignorant population. 

However, there is a genuine cause to the length and complexity of trade negotiations, namely: regulation. Tariff barriers between the US and EU aren't particularly high - the European Commission puts them at 3% on average. The real block to EU-US trade is the non-tariff barriers derived from 'from diverging regulatory systems (standards definitions notably), but also other non-tariff measures, such as those related to certain aspects of security or consumer protection'. The other area at issue is agriculture - the US and EU heavily subsidies these industries.

To enable the regulatory barriers to be removed or reduced - whilst maintaining the same levels of regulation - requires both jurisdictions to have a reasonably common standards. Because there is so much regulation and it is so complex, this requires considerable care and runs the risk of imposing costs against either EU or US producers by altering their regulatory regime.

Of course, the EU itself has for many years been engaged in the process of standardising regulation across its multiple jurisdictions. In theory this is sensible as it does, indeed, allow free trade. However, instead of simply eliminating or greatly reducing regulation,  the EU has instead added greater complexity and bureaucracy whilst harming consumers in the process - the horsemeat scandal illustrates this perfectly. Instead of simplifying regulations in the EU and US, the trade negotiations will simply force exporters to conform to a common set of standards at a high level of complexity. This is good for large-scale enterprises, who find the costs of compliance lower, but it imposes high costs on smaller and more marginal firms and encourages monopolies. So, growth will result and this is desirable, but it may come at the price of even greater dominance of the large multinationals that big-government loving interventions love to hate, but are actually promoting.

Worse, such trade negotiations will still not open EU-US markets to external trade. It's all well and good to create free trade areas but we should remember that free trade blocs are often protectionist to those not lucky enough to be within the bloc. In this case, that's most of the developing world. In the absence of high-tariff barriers, it's regulation which presents the greatest barrier to global free trade in the modern world. The process of standardising regulation across jurisdictions is slow, complex and open to abuse. It protects monopolists and harms the consumer whilst continuing to shut out trade from outside the bloc. Whilst trade bi-lateral trade negotiations will deliver some growth, what we really need is the standardisation of regulation by eliminating it altogether. 

Don't name and shame tax avoiders

British MPs say that tax avoiders should be 'named and shamed' to discourage people from using legal loopholes to reduce their tax bill. It shows just how much of a careless disregard for the rule of law our politicians now have.

Let's get this straight. Evading taxes – fraud and lies to understate your income or your tax liability – is illegal, and people should be prosecuted for it. Tax avoidance is not illegal. It is arranging your affairs in such a way as to reduce the amount of tax that you have to pay. In one way or another, we all do this. Many of us pay into pension funds, which have a special tax treatment. Or we save in a tax-free Individual Savings Account (ISA). We put some of our assets into trust so we don't have to pay 40% on absolutely everything when we die.

Of course, many people come up with much craftier ruses than these. They set up all sorts of vehicles in order to minimise the tax they pay, or maximise their access to tax reliefs for things like business start-ups, research and development, or investing in particular industries. Some of these have little real substance and are designed solely to reduce the taxpayer's bill. That may be morally reprehensible, but it it not illegal.

So the MPs are saying that they are quite prepared to 'name and shame' people who may be stretching the spirit of the law but are obeying it to the letter. We all know people whose acts and lifestyles we might regard as odious and immoral in a hundred and one different ways. But providing they respect the law, our political and judicial authorities really have no right to single out any of those individuals and then vilify them and try to stir up public prejudice against them. Our authorities should enforce the law – the law that they themselves have created. Once we permit them to take action against law-abiding citizens they don't happen to approve of, then liberty will truly have disappeared in this country.

If our taxes are so high that people resent paying them (and remember that high earners now pay two-thirds of their income in tax and national insurance); if people regard their taxes as mis-spent (no shortage of examples there); and if our tax rules are so byzantine that people can find places of shelter within them – well, then our lawmakers have only themselves to blame. They certainly should not be picking on law-abiding private citizens. 

Chart of the week – GDP developments in euro area

Summary: GDP fell by more than expected in most EA countries in Q4

What the chart shows: The chart shows the quarterly percent change in GDP in Q3 and Q4 2012 in the euro area and in its six largest members

Why is the chart interesting: That GDP would fall in most of the euro area in Q4 of last year was already expected before the news release on 14th February. In that sense, this is old data. But the falls were generally worse than expected, notably so in Germany, in France and in Italy (where GDP fell for the sixth consecutive quarter), and hence also for the EA as a whole. While early data for January show some recovery, notably in Germany, the numbers highlight the continued weakness of domestic demand in the single currency group. The strong euro is adding to the problems and a cut in interest rates to help weaken the currency is again becoming likely, although strongly opposed by Germany.

Chart and comments provided by Stein Brothers (UK), www.steinbrothers.co.uk.