How glorious is that lust for gelt and pilf

As and when the attributes of a population change it’s easy enough to see that the things desired by that population might change. Say, longer lifespans moving the seaside holiday market from something like Club 18-30 to Saga. Or, possibly, immigration over the decades changing the average melanin enhancement of said population.

The question then being, well, how is that change in desires to be assuaged?

The UK’s largest retailer Tesco is introducing a range of plasters to match different skin colours and better reflect racial and ethnic diversity.

In a supermarket first, its new own-brand fabric plasters, available in light, medium and dark shades, go on sale in all 741 Tesco stores nationwide and online from Monday.

Tesco developed the plasters after a member of staff spotted a now-viral tweet last year, when a black American man described his emotional response when he first used a plaster on his cut finger that matched his skin tone.

Tesco has done this because they expect to make money from it. If they don’t, ah well, no great harm done, plasters are going to be dyed one colour or another after all. The experiment will have been carried out. If it does make money then all other retailers will follow because capitalists are not only greedy but observant.

The same is - has been as well - true of hair care products, make up colours and so on. People have noted that they can make money out of catering to these previously non-extant desires among the British population. Thereby those desires get assuaged. Pretty neat system, eh? Something only comes into existence when people want it and does so when they do.

We might note that the NHS, that glorious and wholly planned system, is not providing such plasters - and, we’d assume, won’t be for some time.

Vespasian pointed out that pecunia non olet and it’s that same idea applying here. Money has no colour which is why capitalist and market systems cater so well - better than any other system - to the variability of the population and the variances in their desires.

Sure, it’s possible to complain that it should have happened already, these differently hued plasters, but do note that no planned or any other system did it before markets, fueled by the desire for other peoples’ cash, did so.

Action on NHS consultants’ and GPs’ Pension Tax Rules

Complying with today's pension tax rules is akin to playing rugby with only the referee being allowed to know where the ball is. HM Treasury provides pensions to attract and retain senior NHS medics and other public servants.  They reduced the Annual (AA) and Lifetime (LTA) Allowances for personal pension savings from £255,000 and £1.8M in 2010 (thereafter to rise with inflation) to £40,000 AA (with no inflationary rises) and £1.055M LTA (inflation linked) today. Worse still, the “Tapered AA” shrinks the £40,000 to £10,000 for “adjusted income” over £150,000. [1] Exceeding the Allowances triggers unexpected tax demands, removes the incentive for senior medics to give their time and skills precisely when they are most needed and promotes early retirement. All disastrous for the NHS. The allowances are for the annual increase in pension values based on defined benefit (CARE [2] and final salary) pensions, not the amounts put into pension pots by NHS employers and employees.  

Those increases in pension are obscure but HMRC have a formula. The Pension Administrators will provide a statement for the previous tax year if one does not mind waiting at least three months. The nub is that higher earners have no means of knowing when the ceilings are breached.  Government has talked about the issue since April 2019, and even encouraged the NHS to break the law to get around it, but the policy error has yet to be corrected. The “sticking plaster” current fix and all the briefings the NHS has to provide its staff are costing millions of pounds. The January House of Commons Briefing Paper (HoCBP) sets out the problems, and in October last year the Office of Tax Simplification also made suggestions. This note suggests solutions, or at least ameliorations.  The present system is too complex so the ideas of introducing more pension flexibility or different tax systems do not merit further consideration (7 February HoCBP).

1. Abolishing AAs and LTAs altogether would be the simplest solution but HMT would need to find the income elsewhere. The changes were aimed at the private sector with the argument that it was “unfair” to allow the well-off to make so much pension provision free of tax.  This is nonsense because deducting pension contributions only defers tax; the pensions themselves are taxable in due course, albeit, perhaps, at lower rates.  It would be complicated, but possible, to tax the future pensions at the levels at which the contributions were deducted, i.e. 45% for top earners.  I doubt if HMRC could cope with that. Exceeding the Allowances is unfair in that those savings are taxed twice: on original earnings and then on the pensions themselves.

2. Alternatively, the AA and LTA should be returned to their 2010 levels.  Failing that, raising them to £100,000 and £1.5M, say, would ameliorate the immediate problem.  But the employee would still need to know when those ceilings are being reached. At present they are completely in the dark. The PAYE change proposed in paragraphs 4 and 6 below would apply irrespective of the levels of AA and LTA.

3. The Tapered AA should be abolished forthwith.

4. The levels at which AAs and LTAs are set pose less of a problem than the complexity and lack of understanding by pension savers, leading to large unexpected and incomprehensible tax bills. The main employer PAYE should track the individual’s annual pension gains against AAs and LTAs on monthly payslips and P60. Those for the month that either or both ceilings are breached should warn the employee that pensions tax deductions will cease for the rest of the year. Remaining in the scheme even without the tax benefit would usually be beneficial; it would not be practical to drop out of a scheme when the levels are breached and rejoin at the start of the next tax year. The net monthly payment for the rest of the tax year would be the usual PAYE amount less the tax on the employee pension contribution. The first month of breach should be called the “grace month” and HMRC should not recover the relatively trivial excess.

5. Legislation would also be required to allow the main taxpayer’s payroll department full transparency, with the employee’s consent, on his or her pension entitlements, e.g. from prior employment.  At present this information is limited to the Pensions Administrator, e.g. NHS Pensions.

6. Paragraph 4 above does not deal with pension savings funded by income other than from the main employer. Tax relief on these only represent 1.3% of the total.  Consultants, for example, often have private practice alongside the NHS. The simplest procedure here is not to allow any deduction for tax purposes during the year but for HMRC to refund the tax on any pensions savings where the total gain would be below the AA (if also within the LTA and given proof that the non-main employer pension savings at least cover that amount), as part of the annual tax calculation.  Thus some taxpayers would receive welcome refunds rather than unexpected bills and HMRC cash flow would benefit.

Whenever these changes are introduced, a year should be allowed for programming changes to PAYE and payroll systems.  This year, called perhaps the “grace year”, should be free of all forms of AA and LTA or, failing that, return to 2010 levels plus inflation since as originally envisaged. 

The assistance of Mark Belchamber, Income for the Third Age Ltd, is gratefully acknowledged.

[1] Adjusted income is total gross earnings, plus employer contributions, dividends, property income, and interest on capital. The AA tapers by reducing by £1 for every £2 of Adjusted Income over £150,000 and reaches £10,000 after Adjusted Income exceeds £210,000.

[2] Career Average Revalued Earnings

But why is this a better world?

Apparently having more women in power making decisions leads to more decisions being taken which make the world a better place. We’re not so sure.

In fact, we’ve been stuck with at best 30% of the cabinet being women since that threshold was first reached in 2007. Does this matter? Yes, finds recent research into the effects of female representation on policymaking.

With some impressive data collection from that most glamorous of political arenas, Bavarian councils, the study examines the impact of female councillors on what decisions get taken. The results are… striking. One additional woman on a local council resulted in a 40% expansion of public childcare in their district. You can see the same dynamic in the UK. The British state basically ignored childcare before the 1990s, when a larger cohort of female MPs such as Harriet Harman helped put it on the agenda. Childcare spending even went up during the last decade of austerity.

Our point is not about whether paid childcare is a good idea or not. We can see value in moving something from the unpaid, household, labour section of the economy into the paid, market sector of it. It allows greater division and specialisation of labour for example, thus greater efficiency. We can also see that this effect might not be all that great - depends on how many children any one employed person is allowed to look after. There’s also that small point that kids might like being looked after by their Mums. Possibly, even, that mothers like being Mums - we do find a decent portion of the population deciding to just that, after all.

Rather, our point is the assumption there. It is simply assumed that more paid childcare is good. Thus anything that provides more of it is good, like female political management. The argument in favour of equal political rights is not, to our minds, a consequential one. That is, it’s not dependent upon, nor even supported by, the decisions that result.

After all, we don’t use whatever Caroline Lucas is getting wrong this week to argue against female MPs, despite the temptation.

That JPMorgan climatechangeisgonnakillusall report

Much fuss as it appears that JP Morgan has a report stating that climate change is going to wipe out human life upon this lovely planet:

The human race could cease to exist without massive worldwide action to tackle global warming, economists at JP Morgan have warned in a hard-hitting report on the "catastrophic" potential of climate change.

And:

The world’s largest financier of fossil fuels has warned clients that the climate crisis threatens the survival of humanity and that the planet is on an unsustainable trajectory, according to a leaked document.

The actual report is here.

Much of it is entirely reasonable. Discount rates are discussed, it is pointed out that any economic losses are counterfactual:

And fourth, these are counterfactual losses rather than actual losses. Nobody would have an income in 2100 lower than today in absolute terms, but rather lower than it would have been in the absence of climate change.

Sadly, they don’t go on to point out that if policies are adopted which reduce emissions by reducing economic growth then the losses will be larger - something many of the IPCC’s own models make clear.

They also point out, as with Stern, Nordhaus, the IMF etc, that if all of the predictions about emissions, their effect, temperature change are correct then the solution is a carbon tax. Anyone insisting that all the predictions are all correct and not agitating for a carbon tax is not taking the matter seriously - although that’s us, not the report.

However, there’s a gross mistake in the report. The assumption is:

Using their model and the IPCC Representative Concentration Pathway (RCP) scenario 8.5―broadly a business-as-usual emissions outlook …

Everything they say is based upon the idea that we’re following that RCP 8.5 path. Which we’re not. We’re not in current emissions and we’re not in future either. For to do so requires the use of coal in ever greater quantities, something that isn’t being done and isn’t going to be either - technologies that don’t use that ever more coal have already been developed and are being deployed.

In fact, the one thing we are absolutely certain about over climate change is that this emissions pathway isn’t going to be one that happens, it’s a gross over-estimate of the future. Thus any predictions based upon it are false.

There is also a more subtle point:

If no new policies are enacted relative to what was legislated as of the end of 2017, emissions would rise to 60GtCO2eq by 2030 and 70GtCO2eq by the end of the century (Figure 4, Business-as-usual (BAU) scenario).

No. This is to assume that technological changes - and thus variances in emissions - only come from legislative fiat. Yet this is not so. The most obvious example being fracking, which has distinctly reduced emissions by making natural gas significantly cheaper than coal for electricity generation in the places that it has been done at scale. You can add whatever effects you wish from those claims that wind, or solar, are price competitive as well.

The actual claim in the report is that something which isn’t going to happen would be dangerous. Which might even be true but it’s not a hugely useful addition to the debate for it’s not going to happen.

But Polly, we were warned this would happen

Polly Toynbee wants us all to know that Brexit is going to mean higher wages for the low paid in our society. Polly thinks this is a bad idea and we’re not quite so sure.

The argument in favour of free migration is that those migrating benefit - they, as we, are God’s special snowflakes and why should they be denied the wealth and glory of our society based upon nothing but accident of birth? Whatever your answer to that it is clear that restricting the free movement of labour will raise local wages.

If there is to be no more cheap foreign labour, he will need to raise pay steeply to attract enough British staff.

Yes, quite so, and the problem with this is? As we pointed out elsewhere last year:

Brexit is about to give us a problem with this, though. Karl Marx was right: wages won’t rise when there’s spare labour available, his “reserve army” of the unemployed. The capitalist doesn’t have to increase pay to gain more workers if there’s a squad of the starving eager to labour for a crust. But if there are no unemployed, labour must be tempted away from other employers, and one’s own workers have to be pampered so they do not leave. When capitalists compete for the labour they profit from, wages rise.

Britain’s reserve army of workers now resides in Wroclaw, Vilnius, Brno, the cities of eastern Europe. The Polish plumbers of lore did flood in and when the work dried up they ebbed away again. The net effect of Brexit will be that British wages rise as the labour force shrinks and employers have to compete for the sweat of hand and brow.

As we were in fact warned before the referendum in 2016:

The wages of low-paid workers would rise if Britain left the EU, the chairman of the campaign to remain in Europe admitted yesterday.

Lord Rose, the former boss of Marks & Spencer, told MPs that ending free movement would mean less competition for Labour, so pay would go up.

British wages for workers in Britain rise. Especially at the low end. Isn’t this what Polly has been campaigning for over the past 5 decades?

Certainly, we can see the downside of it - we are cutting off considerable numbers from the glories of working in Britain. But the actual thing being complained about, that wages will rise. Someone is going to have to tell us what’s so horrible about that.

There's really no excuse for it these days

There is controversy at the World Bank over a paper published by a research team there. When aid to certain countries rises so too do the Swiss bank accounts of those who rule there. “Swiss” here just standing in for private and secret and not in the country being ruled. The controversy being that all know this to be true but such things are not to be said. Rather like commenting upon the gastrointestinal interestingness of the elderly aunt at the tea table - obvious but not mentioned.

To us quite the most interesting part is this:

For countries receiving more than 2 per cent of GDP in aid “the implied average leakage rate is approximately 7.5 per cent”, the report, by three economists, states. “On the other hand, raising the threshold to 3 per cent of GDP (sample of seven countries), we find a higher leakage rate of around 15 per cent. This is consistent with existing findings that the countries attracting the most aid are not only among the least developed but also among the worst governed and that very high levels of aid might foster corruption.”

Poor places are badly governed. We would go further and insist that there’s no excuse left either. Places are poor because they are and have been badly governed. For what the past few decades have shown is that a modicum of capitalism and markets - Adam Smith’s peace, easy taxes and the tolerable administration of justice being much the same thing - can make anyplace rich. Places that were colonies have done it, places that were not. Places with natural resource endowments, places without. Places of every religion and none. There is simply nothing left to blame but that bad governance - something we could and would define as not allowing that modicum of capitalism and free markets.

Another way around to put much the same point. Assume that those who would plan an economy are correct - they’re not, but assume. That does require that those governing are competent and at least vaguely honest. If that government doing said planning and economic direction is a nest of thieves then it’s all most unlikely to work. In fact, the place would do better with the thieves having nothing whatever to do with the economy. That is, if poverty is caused by bad government then riches will be achieved with less of it.

Sometimes making something a right is the wrong way to provide it

There is really nothing new here, it’s just a good exemplar of an old point:

The Consequences of Treating Electricity as a Right

This paper seeks to explain why billions of people in developing countries either have no access to electricity or lack a reliable supply. We present evidence that these shortfalls are a consequence of electricity being treated as a right and that this sets off a vicious four-step circle. In step 1, because a social norm has developed that all deserve power independent of payment, subsidies, theft, and nonpayment are widely tolerated. In step 2, electricity distribution companies lose money with each unit of electricity sold and in total lose large sums of money. In step 3, government-owned distribution companies ration supply to limit losses by restricting access and hours of supply. In step 4, power supply is no longer governed by market forces and the link between payment and supply is severed, thus reducing customers' incentives to pay. The equilibrium outcome is uneven and sporadic access that undermines growth.

Some things are indeed rights and not only should but must righteously be supplied to all. Civil liberty, equality before the law, property rights. Somethings are badly provided if they are rights and therefore should not be such - health care, education, electricity, housing, food and so on. The difference being that old one of negative and positive rights of course.

Do note that even if something is not to be provided as of right there’s still plenty of room for government aid in that provision. It’s just that the how of the aid needs to be carefully thought about. Rather than a food ration perhaps a cash handout to purchase food with and so on. Rather than a housing ration financial support to purchase housing services to those who need it.

Another way to put this being that rights really are different - therefore it’s necessary to be highly selective about what is determined to be that right.

This is casuistry up with which we shall not put

The Institute for Alcohol Studies wants to tell us that while an increase in booze taxation would indeed be regressive it wouldn’t be really. For, if the money raised were spent on the National Health Service then it would be the poor who gain more from the extra spending, even as they pay more because of the extra taxation. This is casuistry and we’ll not allow it:

Raising alcohol taxes does not disproportionately affect poorer households, once the effects of the potential additional funds generated to plough into the NHS are taken into account, according to a study.

Although the research acknowledged increasing duties on alcoholic beverages may hit the most economically deprived proportionately harder than the rich, it claims this is outweighed by how the poorest benefit more from increased healthcare spending.

The report by the Institute of Alcohol Studies (IAS), has prompted calls for the Treasury to increase alcohol duties – known as one of the so-called “sin taxes” alongside sugary drinks and tobacco – in next month’s budget to combat binge drinking. The research challenges long-held concerns that alcohol taxes are regressive.

The research - a far too grand name for this perversion of the language - is here.

Regressive taxation is when the poor pay a greater portion of their income in this tax than richer people do. Raising booze taxation meets this standard of what regressive means. Thus higher alcohol taxes are regressive and that’s that, no twists and turns change it.

Higher NHS spending - assuming that it’s not just on the diseases of the rich - will be progressive, we can agree upon that. So, it is indeed possible to say that taxing the poor more - a regressive move - and spending more, in a more progressive manner than the regression of the receipt of income, is overall progressive policy.

But that still leaves us with the taxation part being regressive. For, obviously enough, it is possible to have some progressive form of taxation to pay for the spending and thus make the overall policy stance rather more progressive.

Note that all of this is entirely independent of whether you think there should be more tax on booze. Or more spending upon the NHS. Or even whether the tax system, the benefits and spending one, should be more progressive, more regressive or anything else.

Taxing alcohol is regressive taxation. That’s just what it is, whatever the casuistry of those urging us to pile imposts upon the modest pleasures of the working man. The IAS can go boil their heads on this one.

Funding Institutional Care

Archie, Bertie and Charlie are all elderly and require full-time institutional care: food and accommodation, supervision and security (they need to be kept in) and visits from family and friends. Archie is the lucky one: he has his own bedroom and his institution is dedicated to making his stay as pleasant as possible. Bertie shares his bedroom with five others who keep him awake at night with snoring and strange noises. The staff try to be kind but it is clear they don’t think he should be there. Charlie shares his bedroom with just one other and they get on well. The staff, on the other hand, are dedicated to making his experience so disagreeable that he will not wish to return once he leaves.

Archie’s stay would cost a paying customer an average of £93 per day without nursing or £130 with full-time nursing. Local authorities can achieve lower prices. Bertie costs £400 and Charlie costs £103. Suppose England has Archies, Berties and Charlies. HM Treasury would save £510M a year by putting all the Berties and Charlies in the same type of institution as Archie and they would be better off there too.

Unfortunately the Bertie and Charlie institutions, namely NHS hospitals and HM Prisons, are nothing like as underfunded as Archie’s, the local authority social care institutions. NHS hospital beds are full of elderly people who should be in residential homes and our prisons likewise could reduce overcrowding with a more imaginative re-location of their older inmates. The government is cutting off its nose to spite its face by the gross underfunding of adult social care.

Looking more closely at the figures:

• In 2019, the average number of “bed-blockers”, i.e. NHS hospital patients who should have been discharged, was about 4,500 per day.

• The average cost of prison to the state is £37,543 p.a. per prisoner or £103 per day. There are about 1,700 prisoners aged 70 or over in England and Wales, one of them (in January 2019) aged 103. How likely is it that these old folk, locked in secure homes, would escape and ravage the community?

The moral of this story is that government thinking is not joined up, even within HM Treasury.  The green paper on adult social care is now overdue by several years, there is no sign yet of the “urgent” cross-party talks on the subject and the budgets are set in isolation with little regard for the best outcomes for individual frail, elderly people.

Tesla shows why China grows quite so quickly

Something we’ve noted more than once before - China is probably the most free market economy in the world at present.

Clearly, this is using free market in a fairly specialist sense - a communist shading into merely authoritarian government isn’t usually thought of as that. However, it is true, in the sense that is being used. People, organisations, are able to start new economic activity there faster than they are anywhere else. Take the example of Tesla. Their China factory:

How Elon Musk Built a Tesla Factory in China in Less Than a Year

Their German factory:

Tesla has been ordered to stop work on its German factory, in a win for environmental campaigners.

A court ruled that the electric car company must stop clearing forest land near Berlin to prepare for the construction of the facility, its first so-called "gigafactory" in Europe.

Planning permission has not yet been granted on the site, and a complaint has been brought by a local environmental group, the Gruene Liga Brandenburg (Green League of Brandenburg).

The German process started in November, thus has 8 months left to match the Chinese experience. And one third of the time into the process they’ve not cleared the land, not cleared the courts and not cleared the planning process.

Something which rather neatly explains the different speeds of growth. Economic growth is, obviously enough, the outcome of doing new things or old things in new ways. The speed of economic growth is determined by how fast you can do new things, old things in new ways. We in the already rich countries place significant barriers in the way of people doing those new things. Therefore our economic growth is slower than it could be, slower than it might be in other places.

Note what we’re not saying, that there should be no such controls. Well, not here, not now, we’re not. Instead we just want to make, again, the point that everything has costs whatever the benefits that may also flow from the same thing.

Regulation slows economic growth simply because it slows down the rate at which people are able to do new things. This is a cost that has to be kept in mind when considering any proposal for regulation. It might even be true that proper consideration of all those costs, when set against the benefits, will lead us to putting fewer regulatory constraints on our children getting richer.