The Pin Factory Blog

But please, don't try to invent your own facts. The TUC has a paper out on how we really ought to raise Capital Gains Tax. You know, stick it to those rich people. A paper in which they say the following:

There was an unambiguous rise in the effective tax rate with regard to Capital Gains Tax when the tax rate rose from 20% in 1987/88 to be set at income tax rates throughout the rest of this period. In other words, the tax rate increase resulted in extra revenues. The so called “Laffer” effect, where it is claimed that increased tax rates result in reduced revenues did not happen.

The first problem here is the logical misunderstanding of what the Laffer Curve is trying to point out. Sure, a rise in the nominal tax rate is going to raise the effective tax rate. Raise income tax from 10% to 90% and the effective tax rate on incomes will rise.

*Shrug*.

What we actually want to know, and what the Laffer Curve is indeed all about, is does a rise in the effective tax rate lead to a rise in revenue collected?

So, why don't we have a look at what revenue was collected when the effective tax rate rose? That information is here.*

Well, when the CGT rate rose, the amount collected, the actual revenue from the tax, fell. In fact, when we account for inflation (those HMRC numbers are nominal, not inflation adjusted) the revenue from CGT did not rise to its 1989 level until 2006/7 (they just peeked over the earlier level at the very peak of the internet and stock market boom in 1999, to be entirely accurate). By which time of course CGT rates had been lowered again.

So, contrary to the claims of the TUC the revenue collected from Capital Gains Tax in the UK does indeed seem to show Laffer curve effects. A raise in the rate led to a fall in revenue collected and a fall in the rate led to a rise. It's still entirely open for people to argue that this is correlation, not causation, of course: but the claim that a rise in the rate led to increased revenues is simply flat out wrong.

In the spirit of comity and amity which we here at the ASI are famous for (and myself being both a paragon and exemplar of that, of course), might I suggest to the TUC that they find someone new to write their tax papers? I have a feeling that I know who wrote this one but to spare blushes won't point any fingers. I would very strongly suggest though that the employment of someone who has a grasp of both economics and data would be a good idea: however vague that grasp might be, some connection with reality is to be hoped for.

* My thanks to fellow Fellow at the ASI, Richard Teather, for pointing me to this table.

I love Jeremy. I love fast cars. I love progress. But I learnt some things and those things terrify me. I learnt that climate change will make my future unrecognisable. I know that I’ll not have the same choices that Jeremy has now. If we keep on loving the fossil-fuelled lifestyle then by the time I hit 49 the world will be too busy coping with the impact of climate change to bother about how big an engine is possible. I’m the biggest libertarian of them all – I’m dumping dung at Clarkson’s gates so he might understand that his attitude will land us all in [it].

So said Tamsin Omond after dumping a load of manure on Jeremy Clarkson's lawn. Oh dear. This graduate seems to be using words she doesn't understand. Perhaps she should go back to university and find out what it means to be a libertarian.

Libertarians certainly wouldn't dump manure on the gardens of those who held views that were opposed to their own. They adapt to their surroundings and/or compensate others who they impose upon. What they don't do is run amok based upon some perceived future that may or may not actually occur. They found their beliefs in fact based upon a thirst for knowledge. Libertarians change their own lives so that they can live happily with themselves. They refrain from imposing their views on those around them recognising, maturely and respectfully, that they have no ownership over others. This is undertaken so that they themselves do not have their way of life infringed.

Sorry Tamsin, but you are not a libertarian. You're an enviromental-fascist. Please leave us alone so that we can avoid having our progress hindered and our futures' ruined via inhibitive enviromental legislation aimed at saving mother Earth.

If you picked up the Daily Mail this week and came across this article you may have been quite cynical. Glass, in bones, that heals? They must be joking! Well, no, it is true.  Scientists at three English universities (Imperial College London, University of Kent, and Warwick) are working together to develop just that – a glass to heal bones. 
 
Now, before you go thinking they’re crushing up windows and putting them in people, glass can be (simply) defined as: a brittle, transparent solid made from silica without a crystalline molecular structure.  Back in the 1969, Larry Hench developed BioGlass (pictured left), after being challenged by a US colonel to help Vietnam War vets with devastating injuries.  BioGlass was the first man-made material to bond with living tissues, and has many uses today, including dental, middle ear implants, and orthopaedic applications.
 
In patients where grafts are necessary, often there is little spare bone to graft from one place to another. Animal grafts or bone from donor banks introduce immune responses, and require lots of medication to prevent rejection. This research aims to eliminate that need altogether.
 
Today, scientists are working on improving this glass, making it more bioactive and like the shape of trabecular bone.  Researchers at Imperial College were the first to take BioGlass and make it into a 3-D porous structure. The improved shape allows cells to grow and form tissue, while providing strength and support like native bone. 
 
When implanted, these bioactive glasses gradually release necessary ions, such as calcium and phosphorus, stimulating the bone to mend itself.  They are also biodegradable, and slowly break down as the bone re-grows, preventing a loss of strength while repairing. These glasses are now being combined with other materials on the nanoscale, widening their potential applications in the body. These implants have the potential to greatly improve patients’ quality of life and change the future of medicine.

I have a little confession. I've been a member of the Obama campaign for nearly a year. I signed up when the inspiring, energetic junior Senator from Illinois was the long-shot candidate struggling against the Clinton machine and its sense of entitlement. As a member of the campaign I get regular updates, letters from the candidate, and the occasional request for a campaign contribution. But lately I have been stunned by the deluge.

With less than two weeks till the election, almost every day, I receive emails asking me to donate money. Emails from Sen Joe Biden, the would be Vice-President, from Mr Plouffe, the manager of the campaign, from Mrs Obama, the lady who would be first, and from Sen Obama himself. Pleading, cajoling, prodding. Telling me of their desperate need. Urging me to give. I've been scratching my head in bewilderment. Sen Obama has raised more money than any other presidential candidate in history. By recent count he has raised in excess of US$ 600 million (over US$ 150 million in the month of September alone). He has raised more than twice the sum Sen McCain has raised and is out-spending the Arizona senator, several times over, in almost every state and county. How much is enough?

In response to the most severe financial crisis in 70 years, Sen Obama often crows about the economic hardships that hard working, blue collar Americans face. Yet with this gross, bloated, obscene political treasure chest, Sen Obama has the temerity to ask these people who struggle to feed their families, to pay their rent or mortgages, to school their children, for more money. It's simply astonishing. During the Great Depression, men would pull the tongues of their trouser pockets out to show they were penurious. They called them Hoover Flags, as a sock to the then President. I've just reached into the pocket of my neat Saville Row suit and pulled the tongue out. I'm waving it at the Obama campaign. Joe the Plumber, Tito the Builder, and Ed the Dairyman ought to do the same.

Simon Jenkins is quite possibly the most engaging journalist around. His book Thatcher and Sons is certainly one of the best critiques of modern politics as it is practiced today. However, his recent article in The Guardian shows that, like self-proclaimed 'non-libertarian' David Cameron, he is not a libertarian.

In fact there are many similarities between the Tory leader and Jenkins in this article. We have of course the inevitable rant against people being paid too much, but we also have echoes of Cameron's argument last year that it is the job of politicians to make people happier. Jenkins writes:

We might even see a resurgence of the "happiness" movement of the early 1970s; of Schumacher's "small is beautiful" economic theory. We might find a new appreciation for the king of Bhutan's edict on the importance of "gross national happiness", and for John Ralston Saul's remark that the American mission of "life, liberty and the pursuit of happiness" was nothing to do with money. Saul called for a more subtle understanding of contentment, "to escape the 20th-century idea that you should smile because you're at Disneyland".

Of course, Disneyland is not for everyone, especially it seems members of the Canadian Intelligentsia such as John Ralston Saul. Much better a night at Toronto's Opera House, I presume. Yet such judgements are limited. Better that everyone is free to enjoy their lives without the judgement of others; especially the judgement of the King of Bhutan, living in exquisite luxury, while his underlings just survive.

Jenkins writes that Britain might even "inch up the University of Michigan's world happiness survey from its present miserable ranking of 21st, below Mexico and the US". I thought all this nonsense about happiness had gone away. Any attempt politicians make to turn this into policy will result in incursions upon our freedom as well as being destined to fail.

Freedom is what matters when it comes to happiness, because happiness comes in many shapes and sizes. To quote the great Dennis Miller: "You like the Red Skelton painting? Buy the Red Skelton painting. You like "Home Improvement"? Tape it and go over it like the Zapruder film. It's your life; live it on your terms".

Current political debate ahead of the UK budget puts me in mind of the set of jokes originally inspired by the US comedian Chris Rock. Chris Rock’s original quip went like this: 'You know the world is going crazy when the best rapper is a white guy, the best golfer is a black guy, the Swiss hold the America's Cup, France is accusing the U.S. of arrogance and Germany doesn't want to go to war.’

But now we have a world where the Liberal Democrats argue for tax cuts, the Labour party calls for wider tax cuts, and the Conservative Chancellor is at pains to damp down any speculation that he is about to make tax cuts.  This of course isn’t as funny and isn’t quite the political reality. Osborne has constraints on what he can achieve in next month's budget, both in terms of what the market will accept and what his coalition partners will allow.

But even if he doesn't have the scope for big tax cuts to help the economy, there are some useful pro-growth measures that the chancellor might include in his budget. The MP John Stevenson has suggested that stamp duty to be altered so that is borne by the sellers of properties. This is a reasonable idea: it could enliven the housing market by moving the cost from first time buyers onto those (the sellers) who are more likely to be able to afford it.

However, much better would be allowing small and medium sized businesses (SMEs) to opt out of onerous health and safety rules, a whole host of labour market regulations, and the minimum wage. This is where the chancellor could really help the UK economy, and it wouldn't cost the Exchequer a penny.

It is self-evident to anyone who deals with small businesses that HSE directives don't make workers any safer, that labour market regulations unnecessarily restrict employment, and that the minimum wage is higher than a free market would bear. Party political cross-dressing aside, the government's continued failure to deal with the onerous (and sometimes plain ridiculous) legislation imposed on SMEs is no joke. The forthcoming budget is a good opportunity to turn the tide.

A couple of weeks ago I said that we were being softened up for a new assault by HM Revenue & Customs. All the fuss about PAYE mistakes was the perfect excuse for the Revenue to say that the system needed a complete overhaul. It was riddled with errors. It put too much of a strain on hard-pressed employers to collect. How much easier for employers it would be, and how many mistakes and how much tax avoidance we would be spared, if employers simply sent the Revenue your gross pay and they did the rest.

Now in a discussion paper, that is exactly what is proposed. Under a 'Centralised Deductions' system, employers would tell the Revenue what your gross pay is, and pay that gross amount to HMRC – which would then take out your tax, national insurance, student loan payments and suchlike, and then pay what is left into your bank account.

It speaks volumes that our tax authorities are talking about this as if it is the most natural thing on earth. But this idea could only come from a body so out of touch with the rest of us that it says there's no need to apologise after it messes up millions of PAYE payments. I don't believe even the most totalitarian regime in history has ever given itself such centralised financial power.

Just think about the implications of it. Not only did the revenue mess up PAYE and leave millions of people with unexpected tax bills. It also managed to lose 25m of our names and addresses. Let's face it, the Revenue's ability to deduct the right amounts of tax from our gross pay must be in question. And when they deduct too much and are sitting on the cash, how long do you think it will take employers – or you, the employee for that matter – to get it back? Possession is nine points of the law, and in a fight between a citizen and a civil servant, there's no doubt about who is the servant and who is the master.

It's one of those subtle but crucial changes in the relationship between the state and the citizen. At the moment, our earnings are our money, and when we elect a government, we agree to hand over a bit of it for those purposes. Under this scheme, our earnings become the government's money – it has gone into their bank account, after all – and they give us a bit back. We've suddenly lost power over our own finances.

Think also about the bank charges you are going to get when the Revenue deducts some amount you weren't expecting, and leaves you a penny overdrawn. At least with your employer you know when your cheque is coming, and you can see how much you are being paid, and you can complain directly if you think it is the wrong amount. Under the Revenue scheme, you would never even know how much is being deducted.

People always complain about the banks taking days to clear cheques – and no doubt earning interest on your money before it actually gets to you. With the Revenue taking in the gross pay of every employee in the country, that is a huge wall of money that the authorities will be sitting on; and every extra minute they sit on it means more interest earned by them, and less by us.

I like to believe that, when employers and employees realise what this plan could mean for them, their outrage will overwhelm it. Again, it is a mark of how distant and self-obsessed our tax authorities have become – after years of pursuing their Brownian targets rather than serving the public – that they even propose it. Either that, or a mark of what an authoritarian state we are living in, where our opinions aren't going to matter anyway.

With EU currency and bond markets in turmoil, Lady Thatcher’s famous aphorism rings very true. For many months, the euro has been taking a hammering as its constituent members find their economies diverging so starkly – without the scope for currency adjustment to boost exports.

The current state of both the Greek and Irish economies is dire. Both have imposed harsh public expenditure cuts to reduce their excessive public debt. But yields on both Greek and Irish bonds continue to soar as the markets adjust to the risk of default. In Ireland’s case, its 10-year bond is now yielding around 8.2%, compared with just 2.6% in Germany and 3.3% in the (non-Euro) UK.

The Celtic Tiger of the past, whose banking system is on its knees, now faces pay-back time. Despite vigorous denials by the Irish government, it is expected to receive a massive bail-out from the EU in order to save the euro from collapse. The euro’s fate will depend largely on the European Financial Stability Facility, which – along with the promised IMF support - is probably robust enough to prop up Greece, Ireland and Portugal, whose plight is almost as grim.

Most concern will focus on Spain, whose economy is far larger – and therefore far more capable of collapsing the Euro. Hence, saving the euro in Spain is of paramount concern to the EU, especially since European banks have an estimated £750 billion exposure to the Spanish economy.

If there are widespread bond defaults in the weaker EU countries, the impact on many leading banks, especially in Germany and France, will be devastating. The size of the ‘haircuts’ would do immense damage to their already stretched balance sheets. Neither are UK banks immune, especially the 83% state-owned Royal Bank of Scotland (RBS), whose share price has weakened to just over 40p. What a mess – you really can't ‘buck the market’. 

Just a few months after a very public fight with Lord Macdonald over control orders, Theresa May is back in the news with controversial – even inflammatory – comments regarding Islamic extremism at English universities.

In an interview with the Telegraph, Ms May charged universities with “complacency” vis-à-vis the hotbeds of Islamic terrorism that are their Muslim students’ associations and Islamic Studies departments. She announced that the Home Office had identified 40 English universities as being at “particular risk” of Islamic extremism. In addition to other measures, the Home Office will push for restricting access to extremist websites from public buildings. “I don’t see anything wrong with identifying people who are vulnerable to being taken down a certain route, who could become a threat to members of the public.” If you’ve got nothing to hide, you’ve got nothing to worry about?

The problem with universities, May said, is that they have not “been sufficiently willing to recognise what can be happening on their campuses and the radicalisation that can take place.” Hence the supposed need for government intervention.

Students, radical? You don’t say. But there is neither a legitimate government role in preventing radical speech nor necessarily causality between such speech and violence. Most charitably, this is a misguided attempt on the part of Government to “protect” the public – by infringing upon freedoms of speech and of association. Less generously, May’s comments seem to conflate Muslim students’ associations and terrorist cells.

Universities are, ideally, centres of free thought; it seems particularly perverse to limit freedom of speech at schools. Worse still is the overbroad definition of extremism. Ms May intends to target any group that may serve as a “stepping stone” to terrorism. One can only imagine that the litmus test for “stepping stone” status is as expansive as Potter Stewart’s threshold for pornography.

The measures May has proposed will merely add vitriol to the rhetoric she seeks to discourage. Singling out Islamic student groups as not holding what May calls “our values” is almost certain to alienate their members. This only makes students more likely to turn to violence. It would be far better to preserve freedoms and allow organic integration than to force speech underground.