Maybe Lin Homer is just pensioned out?

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We find ourselves rather amused by this retirement of Lin Homer from HMRC. Because, while this is to a large extent just idle speculation from ourselves, there is still a nub of truth under the idea that it's as a result of the tax treatment of pensions. And it's going to people who have done well in the public service who are going to get so hard hit by those tax changes. We could, of course, just say "Aw, diddums" and go off for a celebratory pint but it's still true that this interaction of public sector pensions and the restrictions on tax relief, the taxation of amounts over the pension cap, which are going to hit those public services hardest.

So, the basic news is that Dame Lin is off:

The country's top tax collector who has faced intense criticism from MPs, is quitting her post in April, the Government has announced. Dame Lin Homer, the chief executive of HM Revenue and Customs, was due to give evidence to MPs on Commons Public Accounts Committee on tax evasion on Wednesday afternoon this week. HMRC sources said Dame Lin had told Sir Jeremy Heywood, the Cabinet secretary, last summer of her intention to leave her job at the end of the tax year.

That explains the when of the DBE at least. However, consider this career path:

She qualified as a lawyer in 1980 whilst at Reading Borough Council. In 1982, she joined Hertfordshire County Council where she stayed for 15 years, rising to director of corporate services. She then left to join Suffolk County Council as chief executive in 1998. After four years at Suffolk, Homer went on to be the chief executive of Birmingham City Council in 2002[1] and joined the civil service in 2005.

There's a 36 year public sector pension pot there. And we've now got the new rules about pension pots that exceed £1 million in capital value. And those rules now bite on final salary schemes as well as defined contribution schemes. And once you've got up into the rarified atmosphere of the upper echelons of the civil service a £1 million pot is easy peasy to achieve. Which means that rather a number of those up there are in the same situation as this doctor:

With just two years to go until her minimum retirement age (55), having had the benefit of the generous salary-linked NHS scheme, Gillian has broken through the £1.25m maximum lifetime pension allowance. Anyone whose pension is valued at beyond that sum (which falls to £1m next April) faces penal tax.

When the penal taxation on the accrual of greater pension benefits is taken into account then the marginal tax rate starts to approach insane levels of 70 and above percent. At which point our old friend the Laffer Curve comes into play again and people become subject to the substitution effect. Why spend the Golden Age shuffling paper if I'm not in fact increasing my lifetime income by very much by doing so? So, they don't.

As we say, this is speculation on our part about Homer herself. But it is a real change in the incentives faced by such people. And there's a certain joy to all of this as well: the people who have been calling loudest for these reductions in the gentle tax treatment of pensions are those over on the left. Those who also tend to believe in the idea that senior civil servants are very important people indeed who should be well paid. Rather than what we think they are, our hirelings there simply to handle society's scut work.

These tax changes will fall hardest upon those civil servants. Simply because they cannot opt out of greater pension accrual, unlike everyone in the private sector. Any one of us, when our pot limit is reached, can reach agreement with our employers to not add any more to our pensions: instead, just give us the cash. Not something possible for those locked into government and union approved contracts. Aw, diddums.

And perhaps this should be a lesson for those who scream loudly about tax reform: it's a complicated system, just as is the economy, and fiddling with one bit of it is highly likely to have unexpected effects elsewhere. You know, stop the fat cat FTSE directors amassing vast pension pots and you find senior civil servants all bailing out at 55.

Tube strikes: Driving London insane

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They say that lightning doesn't strike twice, but unfortunately tube drivers never seem to stop. It is expected that there will be three more tube strikes in the coming five weeks (on 27 January, 15 and 17 February), for a number of predictably dubious reasons, with the main ruckus surrounding driver’s pay and the Night Tube. The tube driver’s union, Aslef, is up in arms about the fact the government has refused to sit down with them since November to discuss the pay of their drivers -and it’s no wonder they don’t want to. This same debate has been dragging on for what seems like forever, back and forth between London Underground and some very uncompromising Union leaders.

The Night Tube was originally planned to open back in September 2015, but unfortunately it was pushed back as no agreement could be reached. The latest round of proposed strikes come after the government has already offered a 4-year pay plan for existing drivers (a compromise up from their original 3-year offer) and an agreement to hire new part-time drivers to manage the Night Tube service, in order to avoid ‘overworking’ current employees.

It all sounds rather frustrating, but the real argument behind why these strikes are so misguided comes when we break down the figures. The introductory salary for a newly-qualified tube driver is an incredible £49,673 a year, with the average driver working on average only 36 hours a week. They also enjoy other perks such as 43 days annual leave, and drivers can expect to earn as much as £60,000 after five years service. Those figures are ones that the average person yearns for. Compared to other public sector jobs, tube drivers also have a pretty nice income. The average starting salary of a teacher is only £22,023 and a fire fighter earns £21,583, despite the fact that they work 20 hours more a week and get 15 fewer days annual leave a year.

At this point, many people have lost a lot of sympathy for the tube drivers, but it gets worse. The Union leaders have repeatedly rejected London Underground’s various pay package offers, including a 2% pay rise, followed by guaranteed pay rises for the next three years, and there was even talk of a bonus scheme of up to £2000 for drivers offering to work night shifts on the new service. But when this was still met with of cries of concern about ‘forcing drivers to work anti-social hours’ (because 36 hours a week is already so strenuous), London Underground changed their strategy.

They have instead proposed to open applications to external candidates to work part-time on the night shifts. Steve Griffiths, the chief operating officer for London Underground, has said that the new part-time drivers will be “on permanent, part-time contracts with the same rates of pay and the same benefits as existing drivers.”. Sounds like a win-win situation for everyone, right? Drivers won’t be forced to work night times, and the night tube can go ahead, generating 200 new jobs and potentially contributing£6.4 billion directly to the London economy within the next 15 years.

But no, Aslef are still unhappy with this agreement, which Boris Johnson has called a “no-brainer”. Boris also said that since applications have opened for 200 new part-time drivers, more than 6,400 applications have been received- showing there’s clearly plenty of people willing to work for the current pay, and making the Union’s demands look even more unreasonable.

Striking is obviously not the answer here, and is a sign of an overly-powerful union in an industry where competition is impossible to achieve. The balance between protecting worker’s rights and the public interest is a delicate one, and in the case of the tube strikes it is becoming an increasingly important issue to resolve. Drivers already earn over double what other public workers do, for nearly 20 fewer hours work a week. It seems foolish that although Aslef’s demands continue to be met, each day of striking is expected to cost other workers and private enterprise £300 million in lost productivity, and delaying the opening of the Night Tube continues to withhold economic growth in London. It’s about time the union leaders piped down on the whole issue- if drivers are unsatisfied with their jobs, there are 6 and a half thousand others who would happily take over. Open up the labour market for tube drivers and the issues surrounding pay will quickly subside.

A Review of Adam Perkins’s ‘The Welfare Trait’

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The Welfare Trait has thus far attracted little media attention. This is perhaps a mercy. Were it to do so, its author, Dr Adam Perkins, would no doubt be forced to confront a howling hate mob outside his office twenty-four hours a day. Perhaps he would even have to move to an East Asian university, which these days is the usual route taken by European eccentrics (such as Nick Land and Neven Sesardic) who are determined to make fools of themselves in public by uttering unpalatable truths.

Painstakingly, Perkins constructs his core argument: that the welfare state, the foundational institution of modern Britain (the Church of England having sadly declined), contains the seeds of its own eventual destruction. A large body of evidence, which Perkins reviews, supports the intuitive idea that habitual welfare claimants tend to be less conscientious and agreeable than the average person. Such habitual claimants also tend to reproduce at higher rates than the general population, a pattern found across nations and time periods. They also seem to adjust their fertility in response to changes in the generosity of welfare provision, having fewer children in times of austerity and more when governments turn on the spigot marked “spending”.

Over time, therefore, the work motivation of the general population is lowered. This occurs through both genetic and environmental channels. Personality traits are substantially heritable (meaning that a decent percentage of the variation in these traits is due to naturally occurring genetic variation). Given this fact, habitual welfare claimants with employment-resistant personalities are likely to have offspring with similar personalities. Furthermore, Perkins argues that children raised in a household with disagreeable and unconscientious parents are likely to become more employment-resistant than they would if raised in more fortunate circumstances. It could be argued that the null shared environmental effects on personality usually found in twin studies mitigate against the family environment as a vessel for the transmission of work-resistant personality, and Perkins, surprisingly, does not really defend himself against this charge. Such a defence is easily mustered however - problem families from the very lowest percentiles of socioeconomic status are rarely retained in twin studies, even if they are initially recruited.

With praiseworthy boldness, Perkins gets off the fence and recommends concrete policy solutions for the problems that he identifies, arguing that governments should try to adjust the generosity of welfare payments to the point where habitual claimants do not have greater fertility than those customarily employed. The book no doubt went to press before the Chancellor announced plans to limit child tax credits to a household’s first two children, but such a measure is very much in the spirit of this bullet-biting book. The explicit targeting of fertility as a goal of welfare policy, however, goes beyond current government policy. Perkins perhaps should also have argued for measures to boost the fertility of those with pro-social personalities, such as deregulation of the childcare and housing markets to cut the costs of sustainable family formation.

He also argues for greater provision of early life intensive childcare, albeit highly limited in scale - essentially offered only to the offspring of the worst households. As evidence from Quebec shows, universal kindergarten provision is just warehousing, likely to do more harm than good. When such programs are implemented en masse, it is difficult to employ sufficiently high-quality staff, given the low pay and status of the work. For these and other reasons I think this is a more questionable policy proposal - it is necessary to stop such programs being taken over more affluent parents who do not really need them, but it is presumably quite difficult to get highly employment-resistant parents to sign up for Perry Preschool-style projects in the first place. Careful trials are needed - the Quebec experience, and the failure of Sure Start in the UK, illustrate the pitfalls. It is a slight weakness of the book that Perkins is overly reliant on Perry Preschool for his estimates of the economic benefits of intensive early-life educational interventions - but given the state of the extant literature there is probably little else he could have done.

Perkins is perhaps to be praised most of all for the breadth of his thinking and integrated knowledge of scholarly literatures. The incentive structures of academia encourage extreme siloization, meaning that academics are often extremely ignorant outside of their little area of specialism. Perkins, by contrast, draws with great fluency on economics, anthropology, behaviour genetics, biology, and personality psychology. The result is a courageous and carefully researched book teeming with novel insights and highly original sweeping syntheses. It deserves to be an integral part of the political debate on welfare, as we struggle to construct sustainable structures that can survive the demographic demands of the 21st century. It is also a model of clear writing that is easily accessible to the layman and the policymaker alike. I recommend it to readers in the confident expectation that they will think likewise.

Click here to buy 'The Welfare Trait'

New paper: Sound Money: an Austrian proposal for free banking, NGDP targets, and OMO reforms

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Our new paper on nominal GDP targeting is out now. Below is part of the press release we sent to the media; for the full press release, click here. To read the whole paper, click here. The Bank of England should abolish the Monetary Policy Committee, use Quantitative Easing instead of interest rates to conduct normal monetary policy, and switch from an inflation target to targeting the total amount of nominal spending in the economy, also known as nominal GDP, argues a new paper from the Adam Smith Institute released today.

The Bank should prefer a rules-based system like this to the discretionary system it currently uses but, the paper argues, it should ultimately look toward ending monetary intervention altogether. The UK’s monetary regime should eventually aim towards the ‘free banking’ systems that brought financial stability to 18th and 19th century Scotland and elsewhere.

The paper, Sound Money: an Austrian proposal for free banking, NGDP targets, and OMO reforms, is a comprehensive critique of the flaws in the way the Bank of England currently does monetary policy and offers a superior means of achieving their goals of macroeconomic stability.

Quantitative easing should be extended to the market generally rather than being an interaction with a few preferred dealers, so as to minimise distortions caused by buying from select financial institutions, it says. It should be made open-ended, with the purpose of stabilising the growth path of nominal GDP—the total amount of spending in the economy—letting the market determine how much of that nominal GDP is real output and how much is inflation.

Author of the report, Prof Anthony J Evans, concludes that, after a century of failure, it may even be time to strip central banks of their powers over monetary policy entirely entirely, and let private banks issue their own notes.

The paper takes inspiration from the free banking systems of the 19th century, especially those in Switzerland and Scotland, but also from the monetary economics of Nobel Prizewinners Milton Friedman and Friedrich Hayek, who both argued that central bank discretion tends to push the economy away from rather than towards stabilisation.

Friedman showed how the central bank’s unwillingness to accommodate massive spikes in money demand in the late 1920s and early 1930s led to the US Great Depression—and how industrial production rocketed at the fastest pace in history when Franklin Delano Roosevelt raised the money supply to meet market demand by going off gold in 1933. This has played out again in the recent financial crisis, where a free banking system would have seen less fanning of the pre-crisis flames and more water afterwards—tighter policy in the run up and easier policy during and following the crash.

Well, they do actually have a point here on taxing public pensions

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It actually is a fair point that is being made here:

The highest paid public sector workers are demanding pay rises worth tens of thousands pounds to compensate them for new pension taxes, the Telegraph understands. A group of 12 trade unions representing hundreds of thousands of workers including doctors, police officers, head teachers and civil servants have held private talks with David Gauke, Financial Secretary to the Treasury, demanding loopholes that would spare them the tax. Staff most likely to be seeking this extra cash will already have pensions worth in excess of £1m - and their calls for "compensation" have been condemned as "displaying breathtaking gall".

It's not gall at all. Pensions are simply deferred pay. If their pay, that they've already earned, is now being reduced then they've every right to scream blue bloody murder.

However, let's do this properly shall we? Let's now seriously, when comparing public and private pay, include the full value of those pensions in our calculations of that public pay. For when we do so we find that the public sector gets paid very much better than the private sector. Which is, of course, why those unions scream blue bloody murder when we point this out, the effects of those pensions.

But, sauces for ganders being sauces for geese we here are entirely happy with this original complaint here. Yep, your pensions are indeed part of your pay. And we're going to count them as such on proper actuarial grounds from now on.

Meaning, roughly speaking if our back of the fag packet calculations are correct, future cuts of perhaps 30% in public pay to bring it into line with that in the private sector.

Can't say fairer than that, can we?

That tricky point about competition in the NHS

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One of the more ridiculous pieces of wibble in the public discussion these days is the idea that competition inside the NHS is a bad idea. The likes of Polly keep on about how cooperation, rather than that competition, is the right way to go. To which there are two responses: the first being that competition is actually how you decide who you are going to cooperate with. We might think that Pepsi competes with Coke, but neither are competing with Tesco: they are competing to decide who cooperates with Tesco. The second is that cooperation is indeed good: it's just that in groups of more than perhaps 3,000 or 4,000 people (derived, not entirely accurately, from Elinor Ostrom) we find that it's not really possible to have central control of peoples' cooperation. We need to use the market to organise that cooperation. All of which brings us to this lovely experiment:

NHS hospitals in England are rarely closed in constituencies where the governing party has a slender majority. This means that for near random reasons, those areas have more competition in healthcare – which has allowed the authors to assess its impact on management quality and clinical performance.

The answer? More competition improves the health care service.

We know the same from other sources as well. NHS England is, as Polly would put it, more accursed with competition than NHS Wales or NHS Scotland. NHS England has been, by all the usual measures (whether financial, patient satisfaction, health outcomes) getting better faster than NHS Wales or NHS Scotland. And that's what we would predict too: for we do't in fact say that competition is necessarily a better way of running something. We do however shout very loudly that it's a good way of making something better over time. Competition incentivises productivity improvement that is.

So, every time we go out to test this we find that competition makes the NHS better. The case for not having more competition in the NHS is therefore what?

Well, yes Mr Tyrie, yes, you do have a point

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It is entirely true that the ONS is not perfect. Nothing created by human beings ever will be of course but even then the Office does fall a little short of what could be achieved. So, Andrew Tyrie does have a point in stating that things should be better. The more specific criticisms are also true: no one as yet has quite got to grips with the effects of the digital economy upon the numbers in general and it really should be the ONS leading that charge. We'd also throw in our own bugbear which is someone getting to grips with the appalling layout and logical structure of the website.

However, there's one part of the critique which we think is most unfair:

“The ONS has fallen a long way short, lacking intellectual curiosity, prone to silly mistakes and unresponsive to the needs of consumers of its statistics.”

Because unless you're about to propose privatising the Office there's not much anyone can do about that is there? For you've just described government itself.

A Garden of One’s Own: Suggestions for development in the Metropolitan Green Belt

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Our new paper on where to build on London's Green Belt is out now. Below is part of the press release we sent to the media; for the full press release, click here. To read the whole paper, click here. London must build on low quality Green Belt spaces around existing commuter infrastructure to solve its housing crisis, according to a new paper from the Adam Smith Institute.

Building on 20,000 acres of the Metropolitan Green Belt (roughly 3.7%) would create room for the 1m new homes needed, estimating 50 houses per acre; nearly all of which could be built within 10 minutes walk of a station.

The paper, A Garden of One’s Own: Suggestions for development in the Metropolitan Green Belt, identifies specific areas where tens of thousands of dwellings can be built, and points out how providing the housing Londoners need does not require ‘concreting over’ the countryside, destroying amenity, or overcrowding.

The author of the paper, Tom Papworth, considers the five main justifications given for the green belt: to check sprawl; to prevent towns merging; to safeguard the countryside; to preserve historic towns; and to force land recycling; and notes that many pieces of land currently designated that way do not meet any of these.

For example, there is an area of land between Hainault, Barkingside, Chadwell Heath and Colliers Row, totalling about 1,200 ha—or 60,000 dwellings at standard densities outside of London—where none of these purposes apply. It is already swallowed by Redbridge, it would have no impact on merging with London, there are no historic towns, and land recycling is irrelevant.

The table below lays out the total land available of different types that could be used to fill the 20,000 hectare demand, assuming standard densities. At inner London densities of 120 dwellings/ha it would take much less land, and at lower densities of 30-40/ha it would take more.

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Funny this, Facebook is just like all other media

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Apparently not all is perfect in this new media garden. Facebook does not turn us all into enlightened seekers after truth, Instead, it allows us to reinforce our own prejudices:

Facebook reinforces the beliefs of users because they tend to seek out news and views that tally with their own opinions, according to a new study. The social networking site creates an "echo chamber" in which a network of like-minded people share controversial theories, biased views and selective news, academics found. This means that any bias held is simply repeated back to them unchallenged and accepted as fact.

Quite amazing, eh?

The research, published in the Proceedings of the National Academy of Sciences, analysed Facebook data about the topics people discussed on the social network in 2010 and 2014. It concluded: "Users tend to aggregate in communities of interest, which causes reinforcement and fosters confirmation bias, segregation and polarisation.

"This comes at the expense of the quality of information and leads to proliferation of biased narratives fomented by unsubstantiated rumours, mistrust, and paranoia."

Sounds just like the opinion pages of The Guardian. Or the comments section of the Daily Mail. The reason being that it is exactly like those two things. Because one of the lesser known but hugely important things we know about the media is that it does not shape our views so much as chase our pre-existing ones. Editors do not say "We must convince the readers that coffee cures cancer", they instead ask whether they want to advertise things to those who might be interested in reading an article about whether coffee does indeed cure cancer.

Similarly, amazing though it may seem, there are groups in this country interested in reading Owen Jones' misunderstandings of economics, Polly's insistence that the only way is Labour, the strange neuroses that drive Mail columnists and so on down (or up, as you wish) the list.

The importance of this in the wider sense is that calls for "unbiased" media simply don't make sense. Because it presupposes that the creators are trying to create a bias that benefits them, the creators. Not in the slightest: creators are angling to identify an extant view in the population that they can then pander to.

You knew this quote was coming, didn't you?

Sir Humphrey: The only way to understand the Press is to remember that they pander to their readers' prejudices.

Jim Hacker: Don't tell me about the Press. I know *exactly* who reads the papers. The Daily Mirror is read by the people who think they run the country. The Guardian is read by people who think they *ought* to run the country. The Times is read by the people who actually *do* run the country. The Daily Mail is read by the wives of the people who run the country. The Financial Times is read by people who *own* the country. The Morning Star is read by people who think the country ought to be run by *another* country. The Daily Telegraph is read by the people who think it is.

Sir Humphrey: Prime Minister, what about the people who read The Sun?

Bernard Woolley: Sun readers don't care *who* runs the country - as long as she's got big tits.

Pander might even be too weak: chase the prejudices might be more accurate.

Sure there's media bias: but it's not bias emanating from the media, it's the population being reflected in it.

Which does rather lead to an interesting point we can make. The general complaint about media bias is that the free market media has a right wing bias. Something which, if true, says that England at least is a rather right wing place. Because if the largest market in the country weren't rather right wing then that wouldn't be the bias the media had.

The Junior Doctors Row: Striking Won't Help

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Rumour has it that, after the controversy surrounding Andrew Lansley’s NHS reforms, his successor Jeremy Hunt was instructed to do one thing: keep his head down. Instead, it’s wanted on a plate. As talks between the Government and junior doctors again break down once more, one of this Parliament’s most persistent political stories just won’t go away. The health secretary hasn’t helped himself: he came under fire over his misrepresentation of the “weekend effect” (the link between weekend hospital admissions and poorer patient outcomes including higher rates of mortality). He has been rightly criticised for his subtle suggestion that the increase in basic pay is an 11 per cent increase in overall earnings, when in reality most doctors’ salaries are substantially reliant on additional money from working evenings and weekends – which will be cut.

Nonetheless, you may start to feel some pity for Hunt – after all, he’s inherited a ticking time bomb, an obsolete behemoth that works neither for its consumers nor its staff. As Kate Andrews has suggested, the successes of market-based systems in Europe can’t be ignored much longer, as the NHS staggers towards its breaking point.

And doctors have long used collective protest to shape the NHS and their role within it. In 1947, doctors contested plans for the new NHS, looking to retain their independent contractor status rather than becoming salaried employees. In 1975, both consultants and junior doctors engaged in partial strikes over hours and overtime. This ties in neatly with Peter Hoskins’ blog this week. In it, he examines all disputes going back to the 1930s.

Time lost to strikes, he finds, was much higher in the 1970s and 1980s than previously or since. The overall peak came in April 1980, when around 32 million working days were lost to industrial action in the 12 months up to and including that date. He says:

“Industrial action is consistently low, nowadays. In fact, the average 12-month total for the Labour years is about 613,000. For the Cameron years, so far, it is 658,000. This suggests not just that incidences of industrial action are much lower than they were before the 1990s, but also that they have remained consistently low. The unions have been defused by a combination of Margaret Thatcher’s reforms and wider, historical forces. The industrial strikes of the 1980s are unlikely to be repeated in a de-industrialised nation.

“None of this is to downplay or excuse the industrial action that’s being planned by the British Medical Association and junior doctors. Each strike must be judged according to its own facts.” Are doctors paid enough? It depends on whether you believe anyone “deserves” a particular salary. But junior doctors must resist the urge to back a strike, one that would compromise the safety and wellbeing of NHS patients.

Since the resumption of talks in November, there has been significant movement on almost all outstanding issues on the contract. As Sir Robert Francis QC pointed out yesterday, continued negotiations must proceed: both sides have a duty to continue exploring all avenues, including conciliation and meditation.