Woo time on tax poverty

Yes, it's still tax poverty week and the claims about moving from the current minimum wage to the living wage are coming in thick and fast. The latest piece of woo on offer is this:

Unlike previous research, today’s Landman Economics Report looks at what would happen to the jobs market as a result of the stimulus to the economy from raising the pay of millions of low paid workers to the Living Wage. More people spending money in local shops and a reduction in the amount the government needs to spend on in-work benefits. The report finds that, when you take this into account, shifting the NMW up to the Living Wage could create an extra 58,000 jobs.

Howard Reed manages to reach this amazing conclusion, that raising the price of labour will lead to an increase in the demand for labour, by simply assuming away the effect that raising the price of labour will have.

For these two reasons, I have assumed here that the short-run impact of reduced profits on consumer demand is zero.

There won't be any bad effects because I have assumed in my workings that there won't be any bad effects. That's bringing the eonomist who assumes a can opener into disrepute.

I have to admit that I much prefer this point made by my fellow Fellow, Gavin Kennedy:

Employee tax payments go to the government, so removing them for the ‘Living Wage’ does no affect employment because the total wage cost remains the same, and does not have detrimental employment affects.

The argument against raising the minimum wage is that yes, there really will be unemployment effects. The argument in favour of reducing the tax bill on those in employment is that it will still increase their incomes but it will have no effect whatsoever on unemployment. Indeed, removing, as Gavin points out, the employers' NI would probably increase employment.

As before, we do not have a problem with low wages in this country, we have a problem with taxes being too high on the lowly paid. It is all a matter of tax poverty, nothing else.

And now for the ritual conclusion: if you want the lowly paid to have more money then just stop taxing them so damn much.

The value to us of Sainsbury's is not the amount of tax that they pay

This is a slightly strange thing for a businessman to be saying:

Justin King, chief executive of J Sainsbury, has challenged business leaders to “stand up” and reveal their tax practices, arguing that “tax is a moral issue” for British companies.

The supermarket boss argued that “consumers have every right to ask” how much a company is putting back into the country where they operate and make their profits. Speaking on a panel about Business Trust at the CBI annual conference he said that he “strongly disagreed” with those - including the CBI - who have said that company tax bills should be based on the letter of the law, not social responsibility.

He told the CBI conference: “How we do business, how we put back into the community of which we are a part, put back into the society from which we draw our revenues is a moral issue and it’s one that our consumers have every right to ask us.”

How Sainsbury's put back into the society they draw their revenues from is by drawing those revenues. Their job is to be a grocer for goodness sake: to provide us with somewhere we can attain nirvana with 15 brands of baked beans and 17 of toilet paper. That's the point of them, the only point of them. If we didn't think we gained more value from their existence and services than we would from their absence then we wouldn't shop there. Thus, given that we do shop there we must value their existence and the services they provide.

And that really is the end of it I'm afraid. How many people they employ to provide these services, what profits they make, what bite the government takes out of their revenues or profits are all entirely irrelevant things. The contribution Sainsbury's makes to our society is that we have somehwere to get beans and bogroll from.

Nowt else.

Yes, it's still tax poverty, not a Living Wage

So we've had the announcement of the new Living Wage rate: that level of income which allows a full year, full time, worker to earn and not be in poverty in the UK. That definition being, rightly, what people think people should be able to do and not be in poverty: as with Adam Smith's linen shirt.

That number that has been announced? 7.65 an hour.

But as I have been shouting for years that is a pre-tax number: that's the earnings before the State gets its grubby mitts on these paltry earnings of the working poor.

If you do work full time full year at that Living Wage rate you'll get 14,917.50 over the course of the year. I don't think that's a large amount and I'm sure that you don't either. Which is why it is so appalling that at this low level of income said Living Wage worker will be charged 1,095.50 in income tax and 1,110.00 in employees' national insurance. For a net income of 12,712.00

Compare and contrast this with the 12,304.50 that someone would earn on the national minimum wage of 6.31 an hour, if no tax were charged on it, and we can see that what we have here is not wages which are too low, it is taxes which are too high.

And of course there is also employers' NI of a further 1,100 or so: opinions differ as to how much of that is really carried by the employee, most to possibly all being the general view.

The reason that the national minimum wage is not a living wage is because government taxes the working poor too much. We do not have a low wage problem at all, we have instead tax poverty.

And, as is ritual now on this point, if you want the working poor to have more money just stop taxing them so damn much.

Curb the ministerial credit card

Attention has focused on energy bills, but Britain’s water industry has its own troubles –drought orders, hosepipe bans, and tariff hikes.  The new management at water regulator Ofwat should focus on changing the counter-productive incentives that are damaging efficiency and choice.

Because companies are regional monopolies, regulation involves careful balancing between enabling companies to finance investment, and protecting customers from higher prices. It’s now time to tip the scales: the drive towards attaining ever-increasing water and environmental quality at an ever-increasing cost must come to an end.

Following reductions in real incomes, the 2014 Ofwat price review should set below-inflation price limits that would give nominal stability to the tariffs paid by customers.

The focus on environmental improvement has driven up costs for consumers and choked supply. Massive investment has been financed by rising tariffs. Now it is time to intensify the search for more cost-effective – and less capital intensive – methods.

Ministers have treated regulatory financing arrangements as an environmental credit card, with too little concern for those paying the bills. Take the Thames Tideway – a major new sewer under the Thames at an estimated cost of £4bn, the need for which may arise from neglect of sewer maintenance. The objectives of dealing with storm water could be dealt with much more cheaply than by a grandiose tunnel project.

More use should be made of markets. Retail competition – along Scottish lines - should be extended . There should be more trading of raw and bulk water, including supplies from independent providers.

Existing company networks should be linked to enable water to be transferred, by trading, from the water rich North to the thirsty South, reducing the incidence of hosepipe bans, giving choice to customers, and incentives to companies. Extension of metering should be linked to the use of pre-payment devices that would reduce bad debt by helping customers to budget for their water bills.

And water companies, especially when private equity owned, need to improve their governance: footloose global money has now acquired ownership, and should behave more responsibility to its customers.

Chart of the week: Deflation risk as Eurozone inflation falls to 4-year low

Summary: Euro area inflation is at a 4-year low; a bout of falling prices in 2014 is possible

What the chart shows: The chart shows the twelve-month per cent euro area inflation, headline and core,

Why the chart is important: Deflation, like rapid inflation, is bad for countries. This is even more the case when there is a debt overhang, as there currently is in many euro area countries. A number of factors highlight the risk of falling prices in the EA in 2014. Broad money growth is once again slowing. There are large and persistent negative output gaps in all EA countries, showing substantial slack in the economy. The euro is now more likely to rise than to fall. And, finally, the scope for further increases in taxes and administered prices is limited. In theory, the ECB could easily avert deflation by boosting broad money growth. But technical problems and a disinflationary bias mean that this is unlikely to happen. The most we are likely to see are, in order of likelihood, a cut in the policy interest rate; the introduction of negative interest rates for bank reserves held with central banks; and attempts to talk down the euro. The first and the third will have little effect, the second may prove somewhat useful. 

Libertarian film screening of V for Vendetta

Tom Stringer has arranged a really fun Monday evening outing on Monday November 4th.  It's a showing of the movie "V for Vendetta" at the Bowler Bar and Pub in Clarkenwell. The screening starts at 7, but people can arrive from 6pm onwards and there'll be plenty of time to chat with fellow libertarians. There's an amply stocked bar and what's more there is a free drink for every attendee courtesy of EzyOrder when you arrive (all you need to do is download their app onto your smartphones).

You can purchase your tickets here.

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Welcome To Tax Poverty Week

 

Someone or other has decided that this is Living Wage Week. A far better name, one that properly describes the reality, is Tax Poverty Week.

I've a long piece here laying out the basic argument. Cutting to the chase the core arguiment is very simple. The sugggested Living Wage of 7.20 an hour is a pre-tax wage. Once you've taken off the tax and NI due on that sum the resulting post-tax income is only 50 pounds a year different from what the minimum wage untaxed would be. Therefore the minimum wage is indeed the living wage except for the depredations that government makes into the pocketbooks of the poor.

That is, the poor are being taxed into poverty, it isn't that employers are paying too little. So let's start calling it what it is: tax poverty.

So my suggestion for this coming week is that every time someone mentions the living wage we should just replace that mention with the phrase "tax poverty".

And then we've got a truly ludicrous suggestion:

Miliband will pledge that in the first year of a Labour government firms which sign up to the living wage will receive a tax rebate of up to £1,000 for every low-paid worker who gets a pay rise, funded by tax and national insurance revenue from the higher wages.

You what? Someone is suggesting that we make sure the working poor have more money by taking more off them in tax?

Eh?

It's really terribly, terribly simple. The UK tax system dips into incomes too far down the scale. Thus if you want the working poor to have more money please, just stop taxing them so damn much.

Intending to tax them more is an insanity worthy of a lunatic asylum.

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So, does competition work in health care or not?

We can all refer to theory about whether competition, markets, works in health care or not. There are still those who insist that competition and markets never work at all (yes, sadly, still some antediluvians out there) and even I will agree that there are areas of life where markets, pure and unadorned, are not the optimal solution. The question is though, well, do markets improve heatlh care provision or not?

Fortunately, we've an answer. This is the final version of a paper that looks at what happened in NHS England a few years back, at a time when NHS Wales and Scotland did not take the same market opening path. We can thus compare and contrast what happened in England against the other two, further we can look at those areas where there was more competition in England and see what happened. Interesting results:

The effect of competition on the quality of health care remains a contested issue. Most empirical estimates rely on inference from nonexperimental data. In contrast, this paper exploits a procompetitive policy reform to provide estimates of the impact of competition on hospital outcomes. The English government introduced a policy in 2006 to promote competition between hospitals. Using this policy to implement a difference-in-differences research design, we estimate the impact of the introduction of competition on not only clinical outcomes but also productivity and expenditure. We find that the effect of competition is to save lives without raising costs.

That seems pretty clear, doesn't it? Lives saved with no more money expended simply by bringing in a bit of market discipline?

We'd probably better have some more of that market discipline, hadn't we?

No, no, I'm afraid this isn't quite how it works

A very badly aimed piece of snark in the Telegraph's city gossip column:

 

Here's a tale of how public money for good works can end up in private offshore hands that is troubling conscientious corners of the City. It involves the Emerging Africa Infrastructure Fund (EAIF), an enterprise set up by a fund co-founded by the UK Department for International Development, which decided to invest $25m (£16m) into a start-up satellite services provider called O3B Networks. If the EAIF really wanted to make “a real and lasting difference on the development of sub-Saharan Africa’s infrastructure”, as it states on its website, wouldn’t it have done better to invest in an African-owned satellite company? Channel Islands-based O3B prefers not to break down its exact ownership structure, says a spokesman. But, given its largest shareholder is the Luxembourg-based satellite group, SES, accompanied by the similarly tax-conscious Google, it has a distinctly first-world flavour.

No, no, I'm afraid this isn't how it works. As Adam Smith reminded us all, consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer. As he didn't go on to point out, not only must we not attend to the interests of the producer over and above those of the consumer we should also ignore who is the producer when attempting to gain that consumption opportunity.

A satellite firm, one that knows what it is doing, backed by the likes of Google among others, seems like an excellent choice to provide satellite internet links (this is what the company does) to those sort of places in Africa that currently do not have decent internet links. Further, we know very well that the provision of simple mobile telephone increases GDP growth. One researcher says that growth increases by 0.5% of GDP for every 10% of the population that has a working mobile. And there is similar research showing that simple broadband, up to 2 Mbits/s (we don't know about higher speeds, no one has had widespread coverage for long enough for us to check) similarly increases GDP growth. And finally we also know that those countries which do not currently have a landline network are never going to get one: it's so much hugely cheaper to wire everyone up using mobile technologies.

So, what we'd actually like to do for the poor of the world is whack some satellites up there and let them get access to that mobile telephony and internet. Which is what the company does, its name standing for "The Other 3 Billion".

Who owns it, whether they pay their taxes, whether they pay any taxes at all, are entirely irrelevant compared to the benefits that will come from the consumption of the company's products. After all, as I repeatedly say, the benefits to us of Google are not the number of people the company employs, not the taxes it does or does not pay, but the fact that we get to Google. So it is here: who gives a damn who is building the thing, it's who gets to use it that is important.

The government's new doomsmonger case for HS2

John Burton shows how the government's new case for HS2 is even less convincing than the last.

The Government -- or rather the Department for Transport (DfT), and its offspring, HS2 Ltd -- have  (once again) today published "new, updated" reworkings1 of their strategic, business and economic cases for the High Speed 2 (HS2) rail mega-project; which is forecast for full completion (if eventually approved by Parliament) in 2037.

These are largely reworkings of their earlier argumentation; but they do, now, accept (grudgingly) that the Benefit-Cost Ratio (BCR) of their (Giant!) "pet" project is lower than earlier claimed; and the daft assumption that businessfolk do no work on intercity trains (eg, via ICT) remains, discreetly, embedded in the "new" analysis

What I also think is new about this "new, updated" case for HS2 is that it involves a  histrionic resort to (what can only be described as) blatant scare tactics to try to "sell" the HS2 case to an increasingly sceptical public audience. A day before the publication of these new reports, a "Government source said":2 'The alternative to HS2 is a patch and mend job that causes 14 years of gridlock, hellish journeys, and rail replacement buses. 'The main routes to the north would be crippled and the economy would be damaged'.

However, these reports do not demonstrate this "doom-without -HS2" scenario! There would be some disruption arising from the implementation of alternative, rail capacity-enhancing projects; but not the "14 years of chaos" claimed by the Government. Moreover, the HS2 project would also involve much disruption (eg, around Euston, and in Middle England in particular)... but this is ignored by the  Government in this pre-publication marketing ploy.

What should be done is to compare the alternatives side-by-side, dispassionately...which the new bevy of HS2 reports fails signally to do. In a seperate media attempt to market HS2 by doomsmongering, on the day before publication, the (London) Evening Standard3 was told: 'Tens of thousands more rail passengers will have to stand during their journeys if  the HS2 rail link is cancelled, a new study warns. 'It says that there would be 17 passengers for every 10 seats on trains into London by 2026 if the current growth in rail travel continues...'. Obviously, this specific "marketing" ploy for HS2 was aimed at the (long-suffering) London commuter hordes, trying to read their Standard, whilst packed  like cattle on some commuter line!

However, there are some very basic problems with this scare-tactic argument. First, Phase I of the HS2 project is not planned to open until 2027...one year after the 2026 "crisis scenario" fed to the Standard! So, HS2 could not head off this proclaimed capacity  crisis! Second, HS2 is not aimed at all at relieving London (or other-city) commuting congestion at all...it is, by very design, a high-speed inter-city proposition (with a £50bn.+ price tag).

There are genuine capacity problems looming in the British Rail system; but these mainly relate to the very crowded commuter services in/around Britain's large cities -- notably London, Birmingham, Manchester and Leeds -- plus the Paddington-West Country/S.Wales lines . There are, moreover, plenty of potential ways of incrementally improving North-South rail capacity in the  UK, without recourse to HS2  (should that demand arise).

I have elsewhere4 compared the doomsmongering  that now accompanies proclamations of the case for HS2 to the Great Horse Manure Crisis of 1894; in which a (London) Times analyst forecast that London was doomed to be (literally) overwhelmed by horse manure -- to a depth of 9' -- by 1944 at the very latest... This Doom Scenario did not come about because alternatives to/substitutes for horse-drawn conveyance -- eg, cars, buses, rail, tubes, phones -- were developed. Likewise, if sensible alternative investments are made in infrastructure, we need not fear the "Doom-without-HS2" prospect that HS2's proponents now  espouse to bolster their teetering case.

Sources referred to:

1:DfT, The Strategic Case for HS2, (29/10/13); HS2 Ltd, Economic Case and Other Supporting Documents, (29/10/13).

2: J.Groves, 'Passengers face "14 years of chaos" if HS2 is Derailed', Daily Mail, 28/10/13, p20.

3:Joe Murphy, 'Standing Room Only "Could Become Norm Without HS2"', Evening Standard, 28/10/13, p.8

4: John Burton, 'Conometricks and the new NAFF 'case' for HS2', Institute of Economic Affairs Blog, 24 October, 2013.