Just how unequal is Britain?
The Sunday Times has a fascinating little article.
What it’s like to live in England’s richest and poorest neighbourhoods
On the ground in Clapham and Grimsby, where household incomes differ by nearly £90,000
Well, OK. Except this offers us the opportunity to think about how really unequal Britain is.
That average household income in Clapham is £108k. In the worst - sorry, poorest - ward of Grimsby it’s £22k. So, that difference is 5x. That’s a pretty big difference between poorest area and richest.
But they also give us post housing cost net incomes (which we assume is after income tax and NI). £54k and £17.7k. That’s a 3x difference.
So, what’s the income difference we should be using? Is Britain geographically unequal by 5x or 3x?
We can go further too for other prices vary by geography, not just housing. A pint (hey, journalism and booze, why not?) is apparently about £5 in London, £2.30 in Grimsby. Yes, we know, beer prices vary by geography rather more than most other prices except those of land and housing. But still, use that as our measure and geographical inequality falls from 3x to 1.5x.
This modern world takes economic inequality to be the besetting sin of modern society. We disagree but so what? We would though insist that the only economic inequality that can possibly matter is consumption inequality. And that’s very much lower than the standard numbers portray.
Don’t forget that everyone is taxed upon the national numbers. All benefits (other than housing) are paid according to the national numbers. The leverage of the tax and benefits system when applied across those variations in regional or more local income is huge. As above, we can argue that inequality declines from 5x to 1.5x. A pretty extreme argument, we agree, but it’s certainly to less than the 3x that just post tax and post housing numbers give us. For prices of many to all things do vary by geographic location.
So, what’s the correct level of inequality that we should be striving for? And what’s the number which, when reached, we say “That’ll do”?
As we’ve suggested before we think that the inequality numbers should be measured using local PPP calculations. That is, just as we compare incomes between countries by the local costs of a specific lifestyle in those different countries so we should do so over the geography of Britain.
The reason we don’t is obvious of course. Once we do that then much of the claimed geographic inequality we must strive to get rid of has already been got rid of. And those who would tax the bourgeoisie out of existence would never want to give up their grand excuse now, would they?
Of course NHS hospitals pay business rates - a very sensible idea it is too
That old outrage, that NHS hospitals pay business rates but private hospitals can be charities and so gain an 80% reduction is doing the rounds again. A good explainer - and the one usually referred to - is here.
Hospitals in England receive most of their funding from NHS England and ultimately central government (mostly from general taxation). These hospitals then pay business rates to councils, which keep some of the money to spend on services and give the rest back to the government. The government then redistributes that money to other councils using the Barnett formula, which is designed to distribute based on need.
At worst it’s a bit of a money go ‘round, the NHS budget includes the business rates bill which then returns back to government. If NHS hospitals didn’t pay business rates then the NHS budget would go down by that same amount. Or, perhaps more likely given the terror any politician has of cutting the NHS budget, wouldn’t rise so quickly for some years until the effect was the same.
But if it is just that money go ‘round then why on Earth do we do it? For the same reason that we charge the contracting company lane rental on a roadway while it’s undergoing works. We have to pay the rent money to the contractor and then they pay it back. A go ‘round - except it produces an incentive for the contractor to economise on how long the lanes are closed for. Because they get to keep the daily rent for any time underruns but have to pay it for any overs. Beats a Cones Hotline as an incentive.
Spectrum is a scarce resource - we also know that the military needs some of it. So, we allocate spectrum to the military rather than selling all of it to the mobile telecoms companies and TV stations. But we charge MoD for it - and increase the MoD budget to account for that. A go ‘round again. On the basis that seeing that cash flow across the budgets is going to concentrate military minds on whether they need quite that much spectrum. Spectrum which, if they didn’t really, really, need it we could sell to the telecoms companies and TV stations. A weaker incentive than the roadworks people, obviously, but then it’s been a long, long, time since a Colonel was personally responsible for the finances of a regiment.
Which is also why we charge business rates to NHS hospitals. Land and buildings are a scarce economic resource. We’re obviously going to allocate some of those to the NHS - well, until that blessed day that we abolish it and decide to have a decent health care system instead. But we want those who have them allocated to to also think about whether they need quite as much as they’ve got. Thus the business rates go ‘round. All the money to pay it comes from government. All the money paid out goes to some level of government. But that it flows across the budgets of the varied levels of NHS management means that minds are concentrated upon whether quite that much of the scarce economic resource is actually required.
It is, in fact, sensible that NHS hospitals pay business rates.
Baumol's Disease isn't inevitable, it's just difficult
Baumol’s Disease is an entirely true observation that gets politically misused. It’s used as the justification for the NHS having its own inflation rate, requiring a 4% real rise in budget each year for example. So too some insist that government should always get ever larger. What government provides is largely services, these will become relatively more expensive over time, therefore we should inevitably have more government over time. Along with the tax bill to pay for it.
This is to slightly abuse the insight. Which is that wages are set by the average productivity of the economy - a truth. It is easier to increase productivity in manufacturing than it is in services. Therefore the labour embeded in services becomes more expensive, over time, relative to that in manufactures. Services become more expensive relative to manufactures. Or, another way of saying the same thing, services have their own, higher, inflation rate than manufactures.
The misuse is in insisting that services cannot be improved in their productivity. That’s not true. It’s just more difficult. And the way to do it - or one way - is to turn the services into a manufacture. As has just happened:
Novo Nordisk today announced the decision to stop the kidney outcomes trial FLOW (Effect of semaglutide versus placebo on the progression of renal impairment in people with type 2 diabetes and chronic kidney disease).
The decision to stop the trial is based on a recommendation from the independent Data Monitoring Committee (DMC) concluding that the results from an interim analysis met certain pre-specified criteria for stopping the trial early for efficacy.
Semaglutide is that same drug that is shrinking waistlines and also, in a different formulation, treating diabetes. The impact here is that this trial shows that it slows to ceases the progression of chronic kidney disease. Meaning that many fewer will need to have dialysis to treat kidney failure.
At which point we can marvel at the information efficiency of markets for the share prices of the major dialysis providers dropped 20% within hours of this press release. That’s the efficient market hypothesis - which, recall, only says that markets are efficient at processing information - tested and rather supported then.
But rather deeper we can see that this is a solution to Baumol’s Disease. We’ve just converted that service of dialysis into a manufacture of an injection. This is a large increase in productivity - we’ve beaten Baumol by converting that service into that manufacture.
All of which is interesting by itself. But it also gives up the political plan. Baumol doesn’t say that increasing services productivity is impossible, only that it’s difficult. That means that we have to apply more effort to that productivity improvement then - difficult things do require more effort. And what system do we know of that increases productivity? Pushes forward innovation? Quite, that’s markets - a result derived from another part of Baumol’s work in fact.
That is, Baumol tells us that the very problem identified, the rising cost of services, is exactly why we must have markets in the NHS. Because that’s the necessary system to overcome that difficulty over productivity.
Isn’t economics fun?
Apologies, but this has us laughing like a drain
Varied newspaper groups have been spitting blood over social media for some years now. That sharing of links and stories has been described as tantamount to theft of copyright. As a result of which varied countries are now insisting that social media companies must pay the newspapers for those links and headlines.
The social media companies are therefore dropping news as a product. Even, in countries like Canada - with very strict rules about payments that must be due - refusing to allow any news stories to be posted. We’d also suggest that Twitter’s recent change, so that headlines are not shown in such a link, is based upon the idea that if you don’t show any of the copyrighted words then you’ll not be charged for the copyright.
We’ve done our fair share of journalism - OK, writing for newspapers - over the years and this insistence from the newspapers has long puzzled us. Because every editor positively lusts after links from social media sites. But, you know, if money can be gained from shanghaing politicians.
When veteran journalist Campbell Brown stepped down from Facebook-owner Meta last week, it signalled the end of the social media giant’s brief flirtation with news.
Ms Brown, a former NBC and CNN anchor, was hired to much fanfare in 2017, vowing to rebuild relations with the media and oversee a revolution in the sector following a rush of fake news that plagued Donald Trump’s election.
Six years on, her quiet departure underscores how, for boss Mark Zuckerberg, news is no longer top of the agenda.
For ad-funded publishers, particularly those at the tabloid end of the market, the shift in priorities at Meta has been a painful blow. After building their businesses on a wave of social media clicks, digital mass market titles now face a sharp downturn in traffic.
The impact was clear to see in the numbers published by Reach on Tuesday. The publisher of the Mirror and Express newspapers blamed Facebook’s algorithm changes as its revenues continue to fall.
Yes, this does make us laugh. Right drain-like. For the newspapers are now complaining that social media has stopped stealing.
Nothing quite like people getting what they’ve been demanding, is there?
A proof that government's a bad way to run things
That certain things just do have to be done by government is true. For there are things that have to be done and also only government can do. We are not, after all, anarcho-capitalists around here. But a generally agreed idea around here is that government should be limited to only those things which must be done and also can only be done by government. One practical reason for this being that government’s not very good at doing things.
Breakdowns caused by potholes have risen by almost a third in two years, according to the AA, as Britain’s worsening roads snag tyres and wreck cars’ suspension.
Jakob Pfaudler, the chief executive, said callouts linked to Britain’s broken roads had risen by 30pc in the past two years.
He welcomed Rishi Sunak’s plan to spend £8bn mending holes in roads, saying it would be appreciated by his customers.
Mr Pfaudler said: “We were pleased that there’s investment in road infrastructure, particularly potholes, that’s something our members are very concerned about.”
The Prime Minister recently set out plans to spend some of the billions that were earmarked for HS2 on fixing Britain’s broken roads, after axing the Northern leg of the rail project.
The above being just an example of why this is so. Government is terrible at maintenance. That just general and boring grind of making sure that the little bits are tidied up around the edges, that things we’ve already got get fixed and stay fixed at that micro level.
For look at what is happening. Government currently spends around 45% of GDP. That’s 45% of everything. They tax motorists multiples of what it costs to enable people to be motorists - fuel duty, the VAT on it and so on is vastly, hugely, greater than the roads budget. But look at what then happens.
Firstly, as we know, the tax revenue from this activity is used to finance other lovely things for other lovely people. That’s a part of politics, using other peoples’ money to buy the votes of a third party.
Secondly, and more importantly, that good, service or infrastructure just never is properly maintained. For maintenance just isn’t one of the things that allows public posturing - that essential in vote buying. As no politician can cut a red ribbon over a pothole repair then pothole repairs don’t get done.
Until, obviously and as here, it’s possible to dress up that myriad of £50 repairs as a national £8 billion plan.
Politics, the political system, just never does deal with the fifty quid things. That’s why it’s such a bad way of actually running something.
No, this is a bad idea
Rachel Reeves will pledge to “hard-wire” net zero into the planning system to speed up the construction of onshore wind turbines and other green energy sources.
The shadow chancellor will use her Labour Party conference speech to announce a strategy to fast-track infrastructure such as wind turbines, pylons and solar farms through the planning system and protect developers from legal challenge.
No.
Reform of the planning system, yes, of course. Our favoured idea is to blow it up. Proper blow up, Kablooie. In the absence of that surely we should welcome some reform though?
Some reforms, yes, others now. The reason for the no here is that the reform is to be only for those favoured activities. Which isn’t the way to do it at all.
Even by the mere mention of reform being necessary then we have an admission that the current system does not work. But it does not work for everything, not just for the proto-Chancellor’s favoured list of activities.
It doesn’t work for net zero infrastructure, OK. But it also doesn’t work for fossil fuel infrastructure, for car plants, car battery plants, for housing, for supermarkets, for anything at all. The solution is not to introduce privilege - literally, private law - for favoured activities. It’s to reform the planning system for everything to that same level we’re going to have it for those favoured activities.
Special planning rules for what the Chancellor likes, no, better planning rules for everything, yes.
Ah, yes, but who values the valuations?
There are ideas that make perfect logical, even economic, sense. Which then don’t work out in reality. The reasons for the ultimate failure is that reality is inhabited by us, us human beings. Take this idea:
Jeremy Hunt, the Chancellor, claimed that Rachel Reeves, his opposition counterpart, was preparing to “fiddle the books” in a move “out of the Gordon Brown playbook”, harking back to claims that the former prime minister hid private finance initiative schemes “off balance sheet” in order to maximise borrowing. Labour insisted the claims were untrue.
The intervention came as the independent Institute of Fiscal Studies (IFS) also sounded a warning over Labour’s plans to introduce a fiscal rule that would take account of “public sector assets as well as public sector debt.”
Entirely sensible. Yes, of course the public sector should run a proper balance sheet. We do think that should be a proper balance sheet as well - we need to have all those future liabilities from promised pensions on it as well that is.
If government borrows to create an asset then yes, that is different from government borrowing to finance current spending. Our accounting for government should reflect that.
Now, why won’t the idea work? Because of who will value the valuations and how they will do it. For what will happen - no, will - is that the standard GDP assumptions will be carried over. Within GDP calculations we measure value added at market prices. There are not market prices for a lot of what government does. Therefore government is valued at the cost of provision of government.
This has the odd effect that if we increase the number of bureaucrats, increases the wages of bureaucrats, then we’ve increased GDP. Equally, if we fired the bureaucrats who regulate the red flags carried in front of those new-fangled cars then we’d have reduced GDP. Even as we increased value added.
But government is valued in GDP at the cost of the provision of government. So, how will government created assets be valued? At their cost of provision, obviously. At which point having an actual balance sheet doesn’t improve matters. Because we’ll not be valuing the assets created at their actual value.
No, we are not just being cynics. This is how the accounting will be done. Therefore the idea fails.
Think on it. This idea of a public balance sheet, showing assets as well as borrowings. Imagine someone decided to borrow £50 billion - an absurd idea, we know - to build a railway line that cuts 10 minutes off the not-central Birmingham to an outer suburb of London travel time. Truly a ridiculous thought, agreed, but an obesely hyperbolised example just to show the abject foolishness possible. That railway line would have an actual value - either objective or realisable - of zero. But it would be carried on the government’s balance sheet at the £50 billion cost of production. Because that’s how government is calculated in GDP.
The aim of having a government balance sheet would be that sure, borrowing that creates assets worth more than the borrowing is a grand idea - that’s adding value, it’s wealth creation. But given who will value the valuations it won’t work that way. Any government spending upon anything will be concluded to have added value. Something which isn’t the case and therefore this plan fails.
Increasing housebuilding by reducing the profit from housebuilding
That sounds like a very odd plan. But it does also seem to be Labour’s plan. Not that we’re particularly worried that it’s Labour’s plan - it’s simply a very odd plan indeed:
The next Labour government will oversee the biggest boost in affordable housing in a generation by getting tough on developers and reforming planning rules, the party’s deputy leader has said….(…)…Under Labour’s plans, the party would prevent developers from “wriggling out” of their affordable housing obligations, known as section 106 rules, by setting up a new expert unit to give councils and housing associations advice to get the best deal during negotiations with property firms. It would publish guidance to prevent developers claiming that building more affordable homes was not viable, permitting them to challenge 106 rules only if there were genuine barriers to building homes.
A more normal observation - backed by the more normal economics - is that if you want more supply of something allow suppliers to make more profit from doing that supplying. This increases the number willing to supply and so there is more supply.
Even in the current S 106 rules we see near all of the available profit being diverted into below market price housing. Which, we think quite naturally, reduces the amount of housebuilding. Do more of this and harder thus seems to us to be a very odd indeed manner of increasing housing supply.
A better solution would be to blow up the Town and Country Planning Act 1947 and successors. Proper blow up. Kablooie. Which would have the side effect of doing away with S 106 and the duty, even the entire concept of, affordable housing. To replace it with all housing becoming more affordable as the supply increases.
The actual problem is that we nationalised land use back in 1947. As ever, government supply has led to a shortage. So, privatise land usage. Simples.
Or to put this more colloquially. Look, we’ve tried this land use planning thing for 76 years now. Housing is ever more expensive, your way just hasn’t worked, Matey. So let’s stop doing that then, eh?
So slippery slope is a fallacy, is it?
Well, given that one of us here has written a book on phlisophical fallacies yes, we do have to say that there is indeed a logical fallacy called the slippery slope one. That this action will inevitably lead to this next one and so on down that descent into madness. However, as those who have actually read this - or other - books upon philosophy and logic will recognise the fallacy is in assuming that what might happen will inevitably do so. If the second thing will happen as a result of the first, not might happen, then it’s not a fallacy at all.
Ahem:
Moves to ban smoking open the door to similar measures to tackle obesity, a former health minister has suggested.
Lord Bethell said that a tax on unhealthy foods should be next on the list, along with measures to stop junk food outlets opening near schools.
The Tory peer, who was a minister under Matt Hancock, welcomed Rishi Sunak’s plans to keep increasing the age that cigarettes can be legally purchased.
He said that the Government should make it “the first step of several” to overhaul lifestyles in Britain.
Lord Bethell said that there had been “a pull back” from efforts to tackle obesity, which was a matter of “regret” to him.
A government-commissioned food strategy in 2021 called for an expansion of sugar taxes, to cover foods as well as drinks, and the introduction of a salt tax, but the measures were never implemented.
Other measures promised under the Boris Johnson administration – including a proposed ban on adverts for such products online and before 9pm on television, and a ban on buy-one-get-one-free deals – have been pushed back.
Banning smoking is the start of that slippery slope. Discuss.
Small Modular Reactors: Why are we so determined to be at the back of the queue?
The Department for Energy Security and Net Zero (DESNZ) has just announced the winners in the competition to select suppliers of Small Modular Reactors (SMRs). GB Nuclear is supposed to be the driving force, independently choosing the latest and the best, but DESNZ has stepped in and included some of the least modern or qualified. The six are: EDF, GE-Hitachi Nuclear Energy International LLC, Holtec Britain Limited, NuScale Power, Rolls Royce SMR and Westinghouse Electric Company UK Limited. These are all old tech: no advanced modular or molten salt reactors. They are high pressure and low temperature. They are all low temperature despite DESNZs claim a couple of years ago that high temperature reactors are the future. DESNZ hopes to get around to ordering the first SMR by 2029 and actually having it running six years later. Four of the six are a long way from receiving design approval and EDF, for example, has no SMRs and has to go back to the drawing board. This should give them time to do so. None of those chosen is “rampable”, i.e. output can be varied by the Grid to match demand. Modern ones are.
Three companies (Terrestrial, Arc Cleantech and Kairos) already have design approval in the USA or Canada or expect to receive it this year and have good high temperature / low pressure designs. They can also ramp up and down to meet demand. It would seem these and other companies have been put off entering the UK market for SMRs because of the slow decision-making process. This is disputed by GB Nuclear. The Americans and Canadians are linking their SMR technical approval systems so that either regulatory authority’s approval is automatically deemed to be approval by the other. approval by the other.[4] The UK was invited to join but declined. Approvals are slow so that will automatically ensure the UK falls even further behind.
This timeline means that the UK will be trailing the US, Canada, Poland, Romania and the Baltic States in SMR development.