The Pin Factory Blog

In their 1974 election manifesto, the Tories made their attitude to free markets very clear. Arguing against outright nationalisation, the manifesto said “the desired results can be achieved just as effectively and far more cheaply through taxation and regulation”. Since then it has been made plain that if you want genuinely free markets you can forget the Tories.

Today, the march to corporatism, in which government is the senior partner in any major industry, is rife. In this partnership, big business often promotes state regulations to keep pesky little competitors out and thus enjoy a cosy monopoly. The current bare-faced collusion between government and the banking industry is a case in point, with bankers agreeing to several ridiculous conditions including committing £1billion for “regional growth”, £200 million for a “Big Society Bank” and the same for gross new lending to business – at a currently laughable interest rate. Another case in point is trade, with Britain’s biggest companies now having to work with individual ministers to “manage trade”.

The railway industry is a perfect example of the 1974 manifesto at work, with government granting licenses, owning all the track, dictating consumer prices, and now spending a fortune on a very dodgy new railway between London and Birmingham.

Reverting to banking, the rot began with the Bank of England. [Continue reading]

News that Westminster council plans to ban soup runs for the homeless is being roundly condemned. Rightly so. Arresting people for giving homeless people food and drink is illiberal, counterproductive and punishes the poor for being poor. Homelessness is a social evil that the state has failed to alleviate, and this legislation will simply make things worse by limiting the powers of private individuals to help them. Moreover, it interferes with personal autonomy in the name of a collective squeamishness about homelessness.

Let's give the council the benefit of the doubt. I suppose the objective is to disincentivize sleeping rough, trying to get homeless people into shelters. Conventional solutions to homelessness are, in some cases, futile. Shelter organizations like Centrepoint do excellent work, but there are a few cases where the homeless person has an extreme aversion to being indoors. (Often this is associated with mental illness.) In these cases, stopping soup runs will only make them more miserable by forcing them to choose between a shelter and rooting around in bins for food. If Westminster council seriously wants to help homeless people, limiting the choices available to them is not the way to go about it.

But this is not simply a harm reduction issue, it’s a question of individual autonomy and the role of private charity in society. Homelessness is not illegal, and it shouldn’t be. If a person isn’t harming anybody by sleeping rough, they are no more at fault than someone who spends his day reading on a park bench. And I harm no-one by giving privately to whom I see fit, whether it’s through giving coins or donating to a soup run outfit. As a private citizen it should be my right to do with my property whatever I choose.

Private charity has a vital role to play in alleviating poverty – in fact, if the state gave it some room, it might do things a lot better than government does. And forget the “Big Society” buzzwords – we don’t need the state to nudge us into being good and helping people. What we do need is for the state to get out of the way of private charity, and not try to “pick winners” among charities. The world is too complex, and private liberty too important, for state bodies like Westminster council to use the law to herd people into the outcomes it wants.

We often hear that people are increasingly frustrated and apathetic about politics. However, many socialists believe in the 'democratisation' of institutions, particularly the economy, and even the Conservative party believes that democratising police forces will empower local people.

The problem is that with such widespread apathy, extremist or special interest groups are likely to take control of institutions and then reinforce their position there. For example, student union elections attract tiny turnouts resulting in active far-left groups being more likely to take control. It is no surprise that student politics is so left-wing: once socialists can call on activists to vote time and again, it is very difficult to take them on without trying impossibly to get the apathetic interested. Similarly, even the largest trade union Unite only attracted 16% turnout for its leadership elections.

But if democracy is the least worst form of government, what is the alternative? The answer is less government. In the cases of trade and student unions, the outcomes are fairly irrelevant in that people can always leave them if they are dissatisfied. It is easy to be apathetic: unless people are actively involved, it is much easier to influence outcomes by simply choosing to go elsewhere, by trying to campaign for specific changes, or by creating new institutions ourselves. The level of turnout to elections is therefore fairly irrelevant as people are not at all apathetic about society, being fully engaged in making individual decisions or organising those around them for campaigns and initiatives.

Government, however, is different. Campaigns to influence government decisions are necessarily about how to best spend other people's money. It is also notoriously hard to campaign for change, with the ability to create alternative services crowded out by the fact we already pay for public provision through taxation. We end up becoming disillusioned rather than apathetic, noticing that decisions can be taken at our expense without the ability to refuse or look for alternatives.

Therefore the solution is to return provision of services to the public, not by enforcing democratic structures, but by pulling back government's role and allowing us to experiment and innovate in any way we choose. This policy may be unpopular, but once it is done, it is the people who will be back in control.

I am relieved to hear that chancellor George Osborne is considering merging income tax and national insurance, even if the changes are likely to be slow in coming. The division between these two direct taxes on income tax once (just about) justifiable on the contributory principle – that payment of certain amounts of national insurance made you eligible for certain benefits. That justification no longer holds to any great extent, and if the state pension is changed as planned it will evaporate altogether. The only remaining reason to keep income tax and national insurance separate is for political, presentational reasons: to stop people from cottoning on to just how much tax they are paying.

Moreover, the various changes to income tax and national insurance rates and allowances over the last few years have left us with a dogs breakfast of a tax system, which makes no rational sense whatsoever. The table below summarizes how income will be taxed from the beginning of the new tax year in April, by combining income tax and national insurance.

The two 62 percent tax bands are caused by the withdrawal of the personal allowance for those earning between 100,000 and 150,000. The two very small bands at 12 percent and 22 percent are caused by national insurance thresholds not being aligned with income tax thresholds. Meanwhile, the the employers national insurance contribution (an extra tax paid on the income of employees) will be set at 13.8 percent on income over £7,072 – which adds a further complication.

Wouldn’t it be much simpler and more transparent (not to mention cheaper to administer) if we just said the following:

• The first £7,475 of income is completely untaxed.
• Income between £7,475 and £42,475 is taxed at 32 percent.
• Income between £42,475 and £150,000 is taxed at 42 percent.
• Income in excess of £150,000 is taxed at 52 percent.
• Employers pay their additional 13.8 percent on everything in excess of £7,475 per person.

Naturally, that would be far from ideal. The employee rates are too high, will discourage enterprise, and will push businesses to relocate overseas. Similarly, the 13.8 percent employers tax is absurdly anti-job creation, and is likely to contribute to unnecessarily high unemployment. But at least this simplified tax structure would give us a rational place to start from.

I should add an additional caveat. Merging income tax and national insurance would be hard on pensioners, who currently pay the former on pension income but not the latter. Perhaps we should consider setting up a separate flat tax system for pensioners, like the ones in operation in Austria, Spain, Belgium and Cypress?

There is no doubt that, irrespective of the heroic efforts to regain control of the nuclear reactors at Fukushima, this accident has been a disaster for the nuclear industry. Of course, the combination of a massive earthquake accompanied by an extremely powerful tsunami is mercifully very rare in Japan. Nonetheless, it happened and every possible solution, including dropping water from helicopters as was the case at Chernobyl in 1986, is being tried.

Currently, the impact of this disaster outside Japan is unclear. But Germany has already responded by temporarily shutting down seven of its older nuclear plants. Other governments, including the UK, have indicated that no urgent decisions should be taken about their proposed new nuclear-build programmes. Make no mistake, though, the Fukushima accident has major implications for UK energy policy, even if it is proved eventually that minimal radiation has escaped.

Post Fukushima, it is clear that more gas-fired plant will be built in the EU, thereby raising the price of gas and increasing the dependency on imported gas from countries carrying a high political risk. Whether the UK’s new nuclear-build programme can get underway is now less clear, especially since RWE, part of the Horizon joint venture, is rumoured to be seeking an exit. Furthermore, it is difficult to see how the business strategy of EdF – the UK’s main hope for new nuclear-build - cannot be radically affected by the Fukushima accident.

For the UK, there are three policy options that need implementation. First, the planned closure of some large coal-fired plants should be deferred – irrespective of EU Directives. Secondly, the building of new large gas storage facilities is now paramount. Thirdly, the implicit ruling that no new coal-fired plant can be built without the addition of - so far unproven - Carbon Capture and Sequestration (CCS) technology should be cast aside. But let’s just hope that control is regained of the Fukushima nuclear units.

Rather a lot of macroeconomics is conducted with models. Given the complexities, this is inevitable, but it is necessary, at least occasionally, to look up and calibrate the model against reality. Which is just what this paper (via Scott Sumner) has just done. For those of a Keynesian persuasion, the results aren't pretty.

You see, the central conceit, that government borrowing to spend boosts the economy by more than the amount of the spending, the multiplier, just isn't true. Just isn't true for us here in the UK, that is. The fiscal multiplier just doesn't multiply.

....the impact of government fiscal stimulus depends on key country characteristics, including the level of development, the exchange rate regime, openness to trade, and public indebtedness.

Higher development (like us) makes for a higher multiplier. Openness to trade for a lower. These two might, in our circumstances, roughly balance each other out. However:

Indebtedness also matters: when the outstanding debt of the central government exceeds 60 percent of GDP, the fiscal multiplier is not statistically different from zero on impact and it is negative in the long run.

Hmm, so, UK debt is, end Jan this year, 57.6% of GDP. So, at current borrowing rates we've about 3 months before the effects of deficit spending turn negative. But that's not the end of it:

Exchange rate flexibility is critical: economies operating under predetermined exchange rate regimes have long-run multipliers greater than one in some specifications, while economies with flexible exchange rate regimes have multipliers that are essentially zero.

The pound is extremely flexible: so none of the fiscal stimulus we've already had has had any effect either.

If this paper is correct then that's it for Keynesianism in the UK, into the dustbin of history with it. For if the fiscal multiplier just don't multiply, there's no point to it all at all.

It was Keynes himself who remarked that people often find themselves in the grip of long dead economists to the detriment of their ability to do economics: M'Lord Keynes died in 1946.

The great Cumberland sausage has won Protected Geographical Indication (PGI) status from the EU, allowing it to join the privileged ranks of Cornish clotted cream and Stilton cheese. However, fans of Cumberland sausages will find that a particular group of Cumbrian producers will in fact benefit at their expense.

Along with other regulations regarding meat content and quality, the PGI mark essentially requires Cumberland sausages to be produced in Cumbria. First of all, this will mean producers outside of Cumbria will suffer. So will producers in Cumbria who don't already meet those quality requirements. They will all probably have to rename their sausages, losing customers in the process.

Due to the restriction of competition, Cumbrian producers who reach the PGI standards will then be able to hog the market and raise prices, causing true fans of Cumberland sausages to suffer. Whilst the Food minister Jim Paice seems to be proud of the award, it's really a matter of concentrated and visible gains for Cumbrian producers combined with costs dispersed amongst the pork-loving population.

Of course, the Cumberland sausage may well deserve to be recognised. Supporters of the move essentially think consumers have a right to know that their Cumberland sausages are the real deal. But this both stifles innovation, for example with new recipes and modifications used under the same brand, whilst also neglecting the fact that private non-governmental initiatives could achieve the same effect without harming consumers or other producers.

So why can't there be a stamp of some sort to indicate the real thing, leaving it up to shoppers to decide if they want it or not, without having to suffer raised prices and damaging the business of other sausage-makers? The answer is government - once it intervenes in this way, affected producers band together to influence legislation in their favour, as Adam Smith noted, "in a conspiracy against the public".

Anton Howes is a co-founder of the Liberty League, a network for UK-based libertarians.

Adventures in government stupidity are of course nothing new: but to raising the bar to sheer howling lunacy is more unusual. Even that toxic brew of special interests, bureaucrats and politicians rarely produce something that is outright insane.

Rarely, but not never:

Local authorities will put up the deposit to allow first-time buyers to get on the housing ladder, under a scheme unveiled today. The organisation behind the ‘local lend a hand’ initiative, Capita business Sector Treasury Services, says it will free up social and affordable housing by making it easier for people to buy their own homes. The initiative is initially being backed by Lloyds TSB, and has been piloted by five local authorities, but Capita hopes to get more lenders and councils on board as the scheme progresses.

The local authorities will lodge funds with the lender to cover the shortfall in a first-time buyer’s deposit. This can be up to 20 per cent of the mortgage, so for a typical 75 per cent loan to value mortgage, the buyer would only need to find a 5 per cent deposit. Available funds in each area will be capped, although the council shouldn’t incur any actual costs unless there are problems with the mortgage repayments.

So let us try and get this straight. The world's entire financial system is still reeling from its recent effort to walk straight off a cliff by lending money to people to buy houses they couldn't afford. This lesson having been learned, said financial houses no no longer being willing to lend to people without a substantial deposit, showing that they've some skin in the game, that you don't lend hundreds of thousands to people who have bupkiss, we now have the following bright political solution?

The taxpayers should subsidise these deposits so that when (no, not if) something goes wrong in the future the taxpayers have to pick up the bill? That, having seen what people buying houses they cannot afford does, we should insist that more people should buy houses they cannot afford?

This, this, is why we send our finest minds to Oxbridge so that they may rule over us all?

Somewhere up there the Goddess of Irony is weeping bitter tears into her nectar as not even she had thought of that one.

Look, it's terribly, terribly, simple. If local councils want local houses to be cheaper they should grant planning permission for more local houses. Supply and demand really does work you know and it is the planning permission itself which is the most expensive part of a house these days. No, not the land, not the building, but the chitty allowing you to build on that land. The council even makes a profit issuing permissions rather than losses on paying people's deposits.

With ideas at the above level of stupidity I fully expect both Ed Balls and George Osborne to announce next week that the way to close the deficit is to make cucumbers from Moonlight.

This year is the inaugural Liberty League conference, kindly hosted by the Institute of Economic Affairs and the Freedom Association.

For £20 (and a £10 deposit refunded on registration) they've booked out the entire Hatters Hostel, so will provide your accommodation, meals, drink, free books and videos, and give you the chance to meet other young pro-liberty activists from all over the UK. You’ll have the chance to see and meet some of the liberty movement’s best speakers, take part in seminars, and learn from activist training workshops.

The list of speakers is growing every day, but Tom Clougherty of the Adam Smith Institute, Steve Davies of the Institute of Economic Affairs, Alex Deane formerly of Big Brother Watch, Claire Fox of the Institute of Ideas, John Hemming MP of the Liberal Democrats, Mark Littlewood of the Institute of Economic Affairs, and Simon Richards of the Freedom Association have already been confirmed.

Date: 1st to 3rd April

Venue: Birmingham and Midland Institute, and Hatters Hostel, Birmingham.

You can apply here: http://uklibertyleague.org/forum/

Last night, the BBC reported that under the new tuition fees arrangement graduates could end up paying back up to twice what they had borrowed. This was startling, until the crucial caveat was given that the numbers are in cash terms – they’re non-inflation adjusted numbers. In a report about loans that won’t be fully paid off until 2044 at the earliest, this is a big "but". Over this length of time, inflation can have an enormous impact, and it’s misleading for the BBC to (wilfully?) ignore this for the sake of an eye-grabbing headline.

The calculations are here (XLS), and estimate that a student who borrows £39,000 will end up paying back between £71,000 and £83,000 over the course of their lifetime in cash terms. At the 3% annual inflation rate the BBC assumes, over 30 years money's purchasing power will fall by half. In other words, £94,663 will buy as much in 2041 as £39,000 does today. Bearing that in mind, the £83,000 figure at the end of the loan's term seems quite a bit less daunting.

Of course, it’s not quite this simple – students don’t pay their loans all back in one lump sum at the end of the loan (and more interest would accumulate if they did), they pay them back regularly over the course of the 30 years. A pound paid back in the first year of the loan is worth a lot more in real terms than a pound paid back in the final year. Even so, the headline that graduates will pay back double is pretty misleading. Of course the loans will rise as inflation does – every loan’s interest rate is designed to factor this in.

The BBC hasn’t covered, say, government cuts “in cash terms”, even though government spending is rising in cash terms over the course of this government. It's right not to – nominal values are irrelevant in discussions of future costs and spending. So, why the double standard when it comes to this?