What a hopelessly mixed up policy the BBC is proposing

The BBC, Britain’s state-protected broadcaster, gets its funding from a tax of £145.50 on every household that possesses a TV capable of showing live broadcasts. That means live broadcasts from any broadcaster, so even if you never watch any BBC channels, you still have to pay. The exception is people over 75, who get their TV viewing for nothing because past governments ruled that television was an important source of companionship for the over-75s, many of whom live alone. This week it has been suggested that since the BBC is short of money, the over-75s should be asked to pay the licence fee voluntarily, even though they do not have to.

What a hopelessly mixed up policy this is. Firstly, Britain should not even have a state-sponsored broadcaster. It might have made sense in the 1930s when broadcast technology was new, and required fabulously expensive national infrastructure, but no longer. Increasingly, the BBC looks like a dinosaur among a growing number of independent and international broadcasters. But it has a near-monopoly grip over Britain’s media sector, of the sort that Rupert Murdoch can only dream of. Plainly, it should lose that protection and operate as a commercial broadcaster, using whatever mix of subscription and advertising it deems fit.

Not only should we not have a state broadcaster, nor should it be financed by what is in fact a poll tax on households. Nearly everyone has a TV, so the licence fee is more of a universal tax to support a state service, rather than a subscription for a broadcast package of your choice. And the same tax is paid by all households, rich or poor (apart from those comprising 75-year-olds, of course). So that is hardly a fair system either.

But if we are determined to keep this unfair license system and we really think it essential that people over 75 should be able to watch television without having to worry about the cost, there are better ways of doing it. One would be simply to raise the state pension by the equivalent £145.50 a year. At least then, the money would go to poorer households, because richer ones pay tax on their pension income. Again, the sate pension is an unfair and poor-value system (and it is also a Ponzi scheme, relying on current contributors to pay current pensioners), but this uplift would be better than what we have now.

There was a time when pensioners were, almost by definition, poor. That was the thinking behind making it universal at age 65 (for men, and 60 for women) when it was introduced in 1911. At that time, most people were in some form of manual labour, and by age 65 there was a fair chance that you were so exhausted by a lifetime of it that you could no longer do much useful work, and therefore could not support yourself. Today, however, pensioners are on average richer than the working population.

So it is certainly unfair to make the younger population pay to subsidise the TV viewing of everyone over 75, many of whom will be far richer than they. The Queen, and Rupert Murdoch, are both over 75: but why should a single mother in depressed Middlesborough pay higher taxes, or a higher licence fee, so they can get free television?

This is the kind of absurdity you get when things like broadcasting and pensions are run politically. Now we are trying to make the over-75s feel guilty for the absurdities that the political process has created. They should not fall for it.

As we've been known to say before, let's stop government doing some things

As our friends over at the IEA point out, close regulation and control might not in fact be the best way of managing matters:

Four in five sets of UK traffic lights should be torn down to reduce travel delays and boost the economy, a leading think-tank has claimed. The proliferation of traffic lights, speed bumps and bus lanes seen in Britain in recent decades is “damaging to the economy”, the report from the Institute of Economic Affairs (IEA) finds. It estimates that a two-minute delay to every car journey ends up costing the UK economy about £16 billion every year. “Not only is a majority of traffic regulation damaging to the economy, it also has a detrimental effect on road safety and the environment,” the report claims.

The full report is here.

There have been a number of empirical proofs of this contention. Traffic flowed better when a notorious set of lights in Beverly failed, a Dutch town has seen better traffic flow since mostly abandoning any detailed control. So, in the specific sense of traffic management, in certain conditions (we would not go so far as to say all) it is better to set general rules and then leave it to individuals to navigate their environment than it is to try and set detailed prescriptions for how each must act. Keep left, yield when necessary, be alert to what others are doing: rather than this file may move forward now, that in 30 seconds and so on.

What interests us is that this does, we are certain, apply in a more macro sense too. Yes, certainly, the economy as a whole needs certain basic rules. Don't cheat, play fair, do the best you can perhaps, but what it doesn't need is detailed rules. Bakers may only start to bake at 4 am, only shops at train stations may open on a Sunday, only those with a two year apprenticeship may drive a taxi in London, only a licenced electrician may change a kitchen plug.

The analogy is pretty direct really: leaving adults to navigate their local environment dependent upon the local conditions leads to smoother flow. Leaving most people, most of the time, to their own devices in navigating the economy leads to a better flow through said economy. And, of course, flow here is what we mean by economic growth: that's what it is to a great extent.

This is not to argue for no regulation: it's to argue for the necessary minimum to produce the flow. Traffic will not flow smoothly if people start to drive on the right in the UK (as the joke has it, odd plates the day before even). The economy will not flow, will not grow, if we do not have rules about what is whose and how exchange takes place and is acknowledged. But once the general rules are set then leave people to it. It is, perhaps, to argue for the common law approach to regulation: anything we've not said you may not do you can. Rather than the Roman Law approach, and yes we know this is over egging the difference a little, which is that only those things we've said you may do may be done.

An analogy rather than a hard and fast comparison, but the underlying point the analogy is noting is that local conditions are much too complex, to changeable, for any centre to be able to provide prescriptive rules for all circumstances for both traffic and the general economy. Thus we should concentrate on producing the decision making rules, simple ones, by which people can navigate those local conditions.

If you prefer, if it turns out that just us normal folk can guide a tonne or two of metal capable of 70 miles an hour and up through the complexities of life better than the bureaucrats can tell us how to do it then we're entirely capable of sorting out our desired toothpaste, sugar consumption, booze quantity, weight, exchange and style of living without their intervention.

Which leads us to something we say quite a lot around here. It's amazing how much better things can get if we just stop government doing some of the damn fool things it already does.

Watch the Somali pirates and the process of state creation

That's not exactly a terribly flattering picture up above there but it is a typical one of the process of state creation. Yes, this is how polities are born: men with guns enforcing it. as the newspaper says:

Somali pirates who raked in millions of dollars in ship hijackings have developed a lucrative new racket - acting as armed "escorts" to foreign trawlers that steal the country's fish. In a striking case of poacher-turned-gamekeeper, the same armed gangs who once preyed on the trawlermen are now acting as their bodyguards, earning huge "protection fees" in return for letting them poach Somalia's rich fishing stocks.

this is not poacher turned gamekeeper so much as the transition from Mancur Olson's roving bandits to stationary bandits. Olson's point being that it always has been the men with the weapons who decide how things get done and who gets what. But for the general population it's rather better when those men with guns decide to farm the population or a resource on a continual basis, rather than simply steal whatever and everything. For, eventually, it will click that slicing a bit off the top while growing the pie increases the amount that can be stolen. Thus even though the ruling class might be robbers, even robber barons, it is still possible for things to advance.

The way to look at this particular story is that this process is just starting in that part of the world. The other way to look at it is of course that it wasn't all that long ago that it was happening in our part of it. 1066 was most certainly exactly the same and there's various incidents since that we could say very much resemble it. Government isn't therefore just the name for what we do together. It is, rather, what is imposed upon us and the best we can hope for is an enlightened stationary bandit. Or, as we might also put it, one with enough guns to stop others imposing upon us but with not enough other powers for that very government to impose upon us.

Google's tax bill is nothing to celebrate

Google is to pay the UK £130m in back taxes. This has been hailed as a great victory against international corporations, which make profits in the UK but 'do not pay their fair share' of taxes'. Many others, like Amazon and Facebook, have also been cited as delinquents. A great victory for the UK Treasury? A boon for UK taxpayers? Hardly: by my calculations, £130m will keep the UK government going for just 91 minutes. If governments spent (and overspent) a lot less, individuals and firms might be more willing to pay tax to fund them.

The fact is that economic reality has changed (as it necessarily does) and companies are no longer as rooted to the land, in their factories and plant, as they were. Many, particularly in IT and services, can locate just about anywhere on the planet that they choose. And of course a number of enterprising countries are delighted to host them.

Moreover, with increasing volumes of trade done internationally over the internet, supplies sourced from many different countries, and semi-manufactures created in yet others, it is by no means clear where such companies' profits are actually made. A government might claim it is theirs, but they will be competing with others who think differently. If we are going to tax international corporations, we need to find a better way of doing it.

In any case, the tax that is supposedly paid by corporations is in fact paid by people. Studies show that three-fifths of the impact of corporation tax falls on the workers, reducing their wages. Of the remainder, some falls on shareholders by way of reduced dividends, making it harder for enterprising firms to attract new capital and create more jobs. Some is borne by customers in the form of higher prices.

Remember also the enormous benefits that firms such as Google, Facebook and Amazon bring to ordinary people. They have become successful international companies precisely because they offer people goods and services that they pay for quite willingly. In other words, they add value to our lives. Indeed, these companies add a lot of value to our lives. It would be well worth having them operating in one's country even if they paid the government no tax at all. Worth it solely for the benefit they bring to the public.

If only one could say that governments were equally valuable....

Isn't this the point of the NHS in the first place?

We're sure it is you know, the point and purpose of the NHS. At least, whenever we suggest introducing a bit more competition into the system we're told that this is the reason we shouldn't. For, you see, if we avoid the chaos and inefficiencies of competition, of the wasted capacity that must be there to allow competition, then the NHS will be a cheaper method of providing health care than alternative systems. And when we've looked at comparisons like those done by the Commonwealth Fund we find that the NHS is rated very highly because it's cheap, despite the fact that it's not all that good at actually curing people. But then we get this complaint from King's Fund:

Britain’s spending on its health service is falling by international standards and, by 2020, will be £43bn less a year than the average spent by its European neighbours, according to research by the King’s Fund.

The UK is devoting a diminishing proportion of GDP in health and is now a lowly 13th out of the original 15 EU members in terms of investment, an analysis for the Guardian by the thinktank’s chief economist shows.

But isn't that the point? The NHS is the Wonder of the World precisely because of its method of organisation? The one that allows us to have equitable and above all cheap health care as the state simply provides it? So how can lower funding than in other countries, with their less efficient systems and structures, be a problem? Isn't this supposed to be a sign of how marvelous the NHS is? That it does better on less?

Then again, we're not sure all that many arguments about the NHS are all that informed by logic: hysterical emotionalism seems to be par for the course.

We're against regulation because it keeps the poor poor

There's a certain absurdity to the regulatory state around the world. In some US states they insist that you go get a 3 year cosmetology degree in order to be allowed to legally work as a hair braider. We here in Britain shouldn't laugh too loudly: We've told that one of us broke the law by doing a bit of simple electrical work in our own kitchen just recently. That is reserved to those who have the correct chitty from government. But why is it that we are against such regulation of who may enter an industry, who may offer their services? Because, quite simply, it keeps the poor poor:

We examine the relationship between entry regulations and income inequality. Entry regulations increase the cost of legally starting a business relative to the alternatives—working for someone else, entering illegally, or exiting the labor force. We hypothesize that such regulations may cause greater income inequality, because entrepreneurs at the bottom rungs of the income distribution may have relatively greater difficulty surmounting costly barriers to entry. Combining entry regulations data from the World Bank Doing Business Index with various measures of income inequality, including Gini coefficients and income shares, we examine a pooled cross-section of 175 countries and find that countries with more stringent entry regulations tend to experience higher levels of income inequality. An increase by one standard deviation in the number of procedures required to start a new business is associated with a 1.5 percent increase in the Gini coefficient and a 5.6 percent increase in the share of income going to the top 10 percent of earners. Although we cannot eliminate the possibility of reverse causality, we are unaware of any theory that posits that income inequality causes entry regulations.

We're happy enough with the idea that a lorry driver should have some proven ability to drive a lorry before being let loose with a 40 tonne behemoth. But much less certain that we need quite as much restriction on who may do what as we currently have. And why not decide to provide that ladder up out of poverty and inequality by making it easier for people to get those first and entry level jobs?

Or, as we never tire of saying, it's surprising how often the solution to government identified problems, like poverty and inequality, is to stop government doing the damn fool things it already does.

It's time to start the Brexit contingency planning

There were reports this week that civil servants are thinking about what happens if the UK votes to leave the EU (‘Brexit’) – but are not writing anything down in case they get a Freedom of Information request. Sounds more as if they are not thinking about it at all. But if the UK is to succeed in its bargaining, it must have a credible alternative. We should start by creating a small group of advisers and civil servants, led by a (Eurosceptic?) minister, to draft an exit plan that can be put to Parliament very soon after the referendum in the event of a NO vote. If it is a NO vote, we should be prepared to serve immediate notice to leave the EU, under Article 50. We should offer to give up the UK’s presidency (for the second half of 2017) and cancel the UK’s participation in EU elections (2019) while negotiations are going on, and cease appointing UK officials to EU bodies. To be taken seriously in Brexit negotiations, we would need to appoint a tough (Eurosceptic) Foreign Secretary, and a tough Eurosceptic Ambassador to the EU. The Foreign Secretary will need a slick team of negotiators, with skills in trade law, economics, and EU politics.

We would have to reform the existing Economic Affairs Committee (EAC) of the Cabinet, bringing it under the Foreign Secretary and charging it with supervising the withdrawal. It would need to move quickly to identify the economic and legal issues arising from Brexit and establish the UK’s objectives in the talks. We would also need a dedicated communications team to promote the UK’s case and negotiating demands, and to show that it has a future outside the EU. That means identifying genuine free trade as the future framework for the UK’s trade, economic and foreign policy.

The Bank of England should also have plans in place to deal with any financial turbulence following a NO vote. It needs to coordinate with the financial authorities in EU to manage abnormal capital movements. And the MoD will have to revisit how it patrols UK fisheries.

Arrangements also need to be put in place for bilateral talks with countries remaining in the EU, and especially Ireland and our maritime neighbours. And we need to move very quickly on negotiating free trade deals with non-EU countries. At the end of the Brexit talks, we could usefully have not only a Secession Bill, but also a Free Trade Bill – inviting all-comers to trade freely with the United Kingdom. Indeed, drafting that Bill now might and implementing it earlier might just show our negotiating partners in Brussels that we really are deadly serious and that the trade gains will be ours.

That is a lot to think about. If the civil service daren’t put it all on paper, somebody else will have to.

Small Business Medicine is Poison

My teenage neighbour knows that good GCSE grades are better than bad ones. She has an idea that will help all students at exam time. Introduce a minimum grade level of C, so that no student, however bad, can be sullied with D, E and F grades as they enter the job market. Only joking. My teenage neighbour is not that silly. Apparently though my local council hasn’t got this point – having just advertised for a job vacancy in the department that subsidises small businesses. Unfortunately, the idea that it’s a good thing to subsidise small businesses extends far further than my local council – it is a nationwide misapprehension that needs correcting.

Most teenagers could work out that misleading students, parents, exam boards and prospective employers about pupils' scholastic abilities won't help anyone in the long run, because artificially altering GCSE grades to Cs and above gives a distorted picture of academic ability and employability.

Why can't politicians on the left work out similar logic when the case is small business subsidies? The answer, I suspect, is simple: competing parties are not primarily interested in logic, they are interested in securing votes - in this case, the votes of people that think too lazily to realise that small business subsidies are no better than GCSE grade subsidies - as both distort the market in which they operate.

The problem is, small business subsidies amount to the government taking taxpayers’ money and giving it to businesses that may or may not be viable enough to survive in a competitive market dictated by supply and demand. If taxpayers wouldn't voluntarily spend their money in these businesses then they are being artificially propped up against the majority of people's will. If taxpayers would voluntarily spend their money in these businesses then no subsidies are needed. The success of a business is not measured by the state's ability to prop it up, it is measured by whether it generates enough profit in a supply and demand market.

If demand for Jean's Knitwear falls, then prices may fall to increase demand. If Jean’s Knitwear can no longer generate a profit to live, the signals are there that her business is inefficient or that her products are low in demand. Prices in a free market are the signals that make what is being supplied adjust to the demand of those supplies. Alas, prices no longer provide this signal when politicians interfere with subsidies or controls - they stop prices exhibiting changes in the supply or demand for goods and services.

It's easy to see why small business subsidies are popular with voters. They make any party that endorses them seem caring, and mindful of struggling companies, as well as giving the impression of being supporters of the underdog against the often maligned multi-national corporations. In fact, I'd wager that most of the public like the sound of small business subsidies - so public support for them is a bit like pushing on an open electoral door. But like most things that sound too good to be true, the medicine is poison, because nothing comes for free.

The visible benefits are obvious - the beneficiaries are small businesses. But the losers are taxpayers who are having their money spent in places in which they wouldn't do so voluntarily. But more than that, the other losers - the invisible losers - are those missing out on opportunities to enter the market. Thanks to subsidies, Jean's Knitwear may now be staying afloat - but as well as taxpayer costs, the cost of such subsidies is the forgone opportunities for others goods and services suppliers trying to enter the market or stay afloat on their own merit. It's a shame when small businesses go under. But you cannot fix the problem by distorting price signals and forcing taxpayers to support them as if they were successful businesses. Only an fool would do that; well...that is, a fool, or someone who saw a popularity-winning policy and flaunted it to secure votes.

Revealing public sector culture

Public sector organisations need to come clean on how they spend our taxes. Progress has been made but too many still obfuscate. An example of good practice is the Scottish Fire Service. You can see their spending here.

While the press like shock-horror reporting on absolute amounts, this is often pointless; much more useful is proper analysis that dissects trends and examines variances between public entities, particularly in service overheads.

Enabling cross comparisons between entities is vital for public policy analytics. Bureaucrats always find it easy to defend their missions by explaining them as political aspirations – safer travel, better social support, a cleaner environment and so on. While it is easy for them to find reasons for continuing and expanding their goals, it is much more difficult to generate proper objective analysis of the prices to taxpayers of these supposedly beneficial activities.

For example, within the Fire Service figures above are travel expenses of board members. We find highly paid officials repeatedly traveling from Edinburgh to London at fares much higher than ordinary economy. There are also hotel stays to catch early flights.

These are what I call presumptive activities: tax-funded officials adopting expensive spending habits in their daily operations; presuming that this is the way top people operate in business and that they will never be called on to defend them. The reality, especially in Scotland where 95% of businesses are small, is that private business would never allow this gravy-plane; they know this money would be far better spent elsewhere.

Public officials choose to spend money on an entirely different basis than private individuals. They gain nothing from self-restriction; and too often they prefer feeling important over actually being productive. Transparent cost reporting therefore opens up an enormous potential for cost reduction in the public sector.

To achieve that potential requires a key institutional change: all public sector functionaries should be made to work within what the private sector would call profit and loss accounting centres. Overheads might be corporately shared but responsibility for any share should be enumerated to each specific function. And while “profits” may in fact be net costs, a calculation can always be made on cash gains or losses in operations that can then be adopted as a control.

Combined with transparent cost centre reporting, the huge gain would be to allow taxpayers to see that function “A” in entity “X” was a known percentage more or less efficient than entity “Y and “Z”. Properly reporting that, and tying it via performance agreements to top official salaries, would weed out presumptive activities, including the easy resort to expensive travel, which are in fact poor productive choices for our communities.

Eben Wilson is the Director of Taxpayer Scotland, and a Fellow of the Adam Smith Institute.

What on earth is Theresa May up to here?

The answer to that headline question is depressingly simple: politics.

A new £1,000-a-year immigration skills levy is expected to be introduced on all firms for each skilled migrant they recruit from outside Europe, under a new crackdown ordered by the home secretary, Theresa May.

There is no sense to this at all. The point about accepting economic migrants is that doing so makes us richer. So why on earth we should be charging people for going through the process of making us richer is unknown. Except, of course, that we do know very well why this is happening.

There is concern generally about the level of immigration. We don't share that concern but then so what? Politics is the art of at least pretending to do something about the issues that the voters care about. But what can the government do about immigration?

It cannot limit any movement of people from within the European Union. Other than family reunion issues and the like the UK doesn't really have much in the way of unskilled ex-EU immigration. Refugees and asylum seekers are also dealt with under international agreements and are not part of domestic policy. The only part of immigration that is actually under the control of those in Westminster is skilled, economic, migration from outside the EU. Thus, if the populace are getting antsy about immigration that's where the people in Westminster will do something.

What they do, how they do it, the sense of what they do isn't the point at all. Given that something must be done and this is the only place where they can do something then this is where they will. Despite the fact that skilled migration is exactly the type we want and charging people for employing those who make us richer is simply nonsensical.

But then, you know, politics. It's rather why we're so adamant that politics should be restricted, as a way of running things, to only those things that cannot be handled in any other manner. Simply because the results from politics are so often so dismal.