Ten initiatives to help young people: 10. Young person's business package

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  Government should help young people who wish to start up their own businesses by putting together a "young person's business package."  There is unused space at both local and national government level that could be converted into start-up work spaces.  These could be made open plan with desks, computers and wifi, with shared facilities such as toilets and vending machines.  These could be rented very cheaply to people under 25 looking to start a business.

Government could also take an active role in matching young people with mentors from among those who have followed this route successfully themselves.  The business community can be asked to participate, supplying lists of mentors to teams within the Department for Business, Innovation and Skills, who can then match them up to young people starting up a business, in order to provide them with help and guidance.

Finance should be available in the form of loans.  Many start-up businesses require very little initial capital because they tend to grow organically, lifting themselves up by their bootstraps.  But there are stages where some capital is required, and government should join in a scheme with banks and businesses to make it available as loans to start-ups deemed to be sufficiently merit-worthy.

There is considerable evidence that young people are inspired to become entrepreneurs when they are in contact with other entrepreneurs.  Government should work with business to set up a series of school visits by successful entrepreneurs to talk from their own experiences about the nuts and bolts of starting and running one's own business.  Schools should be encouraged to apply for such visits and to make time available for them.

Local governments should be asked to run one-day workshops for young people, with sessions throughout the day on various aspects of entrepreneurship.  These should feature successful people, plus professionals such as tax experts and people with skills in marketing and advertising.  School students should be given time off school to attend them.  The aim would be to impart a thorough grounding into what it takes to launch a successful business, and how to avoid some of the common pitfalls.

The aim of the "young person's business package' should be not only to impart the essential information, but also to motivate people to strive to become successful entrepreneurs.  It is contact with others who are following this path, and with those who have already trodden it successfully, that can do this.

 

There's silly tax laws and then there's silly ones

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No doubt we rather differ among ourselves in our overall estimation of the current Chancellor, George Osborne. But whatever that overall view is it's still possible to point out that not quite everything he does is all that sensible. For there really are silly ideas for taxation:

A senior member of the Government's fiscal watchdog has described George Osborne's raid on big businesses to fund apprenticeships as "a pay cut" for ordinary workers. Stephen Nickell, a member of the Office for Budget Responsibility's (OBR's) leadership team, said the Chancellor's move to raise £11.6bn over the next five years from a new apprenticeship levy served as a payroll tax that would be reflected in lower wages.

Yes, this is so:

"[The apprenticeship levy] is a form of payroll tax [and] in the end the incidence of a payroll tax tends to fall on workers. So in some sense it ends up being a pay cut and it doesn’t have much impact on profits,"

And a cut in wages perhaps isn't quite the thing that we wish to achieve.

Yes, of course, tax revenue needs to come from somewhere but payroll taxes are a really bad place for them to come from. Half or more of the country believes that as the company hands over the cheque then it's the company paying the tax. And as more than half the country likes the idea of someone else paying tax rather than they themselves they think this is just great. But the incidence of a tax does not depend upon who pays it. And payroll taxes almost entirely and always come out of the paycheques of the workers. Thus they're good politics, who suffers being disguised, and bad economics. Because we generally don't think that the workers' wages should be reduced.

Tax things in inelastic supply (land), inelastic demand (tobacco, petrol) and then consumption and, if absolutely necessary, incomes. But silliness like this Apprenticeship Levy really should be avoided.

What exactly is the case for Brexit?

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I tend to see myself as an agnostic on the European Union. I’m not a particular fan of anything about it, though I think it does have its qualities. Stopping politicians from throwing up barriers to migration and effectively banning them from renationalizing private industries are both good things, however undemocratic they may be. And I tend to think of the EU as being a force for good for Europe in general, the disastrous euro project notwithstanding. Of course there are huge problems with it as well. It is opaque, difficult to hold accountable and seems to hand down endless new regulations on everything from permitted working hours to olive oil storage. Britain’s legal and political institutions have evolved (and I stress the word evolved) quite separately from most of continental Europe’s, making it perhaps a poor fit with the rest of Europe. And, fundamentally, the EU is one extra layer of government, adding bureaucratic and political inertia to an already sclerotic political process.

But, as an agnostic, I am finding myself baffled and underwhelmed by the arguments currently being floated by “Leave” campaigners. So far, virtually none of them stand up to scrutiny. Unless something changes, I cannot see how these arguments can fly in a proper referendum.

Benefits: The issue of the day, thanks to a row between David Cameron and Donald Tusk that seems to be political theatre. The irrelevance of this was shown (by accident) by Julia Hartley-Brewer in a pro-Brexit piece today:

the argument often given by EU supporters is that very few migrants actually claim these benefits anyway, so it doesn’t really matter. According to the Government’s own figures, EU migrants on “in-work” benefits cost the taxpayer £530m in 2013. Total Government spending is £733 billion this year.

While half a billion quid is not a small number to ordinary taxpayers, it is the principle that matters to most of us. Why should anyone be entitled to come to live in this country and claim welfare benefits without having first made any contribution?

Got that? The £530 million (0.07% of the budget) that we spend on tax credits for Europeans – less than we give to the Arts Council England every year (including Lotto funds) – is a ‘principled’ reason to leave the EU. Never mind that by any decent measure EU immigrants are net contributors to the budget in other respects, or that British citizens receive reciprocal benefits when they work abroad, I suppose. If this is the principle over which we should decide whether to stay or go, count me In.

The balance sheet: Vote Leave say we should stop spending £350 million a week (£18.2bn/year) to Brussels so we can spend that on the NHS or on science fuding.

Well, maybe. Firstly, that number appears to be misleading – it’s a gross figure and doesn’t include the UK’s rebate or other EU grants. When you do include those things, it falls to about £9bn a year. And, as (pro-Brexit) Pete North points out, quite a bit of the remaining money goes on projects we’d want to be involved in whether we were in or out, like Europol and Single European Sky, which coordinates airspace across Europe.

Yes, it also includes disgraces like the Common Agricultural Policy. But it’s hard to believe that any government would have the spine not to just subsidize farmers domestically if we left the EU. And our net contribution to the CAP is quite small anyway – almost as little as we spend on tax credits for Europeans.

Regulation: It’s not difficult to find annoying, wasteful, illiberal regulations that come from the EU. But the question is the counterfactual: if we were out, what would we have instead?

Practically everyone agrees that we’d want, and probably get, a free trade agreement with the EU if we left. But tariffs are not the main barriers to trade between developed nations. The TTIP negotiations underline that – only 10% of the projected benefits will come from abolishing tariffs between the EU and the US. The rest will come from removing regulatory barriers, whether through mutual recognition (we accept US regulations, they accept our regulations) or harmonization. Mutual recognition is preferable, but obviously is only politically viable if each set of regulations is roughly as harmful as the other. If not, one side of the agreement will be outdone on everything by its freer rival.

So what should we expect a UK-EU free trade agreement? At best we can hope for a situation where only British exporters (and their suppliers?) are bound by EU rules; at worst, one where we end up with exactly the same set of rules, only now without any say in how those rules are made. Arguably, these rules are not even really designed at EU level at all.

But even if we get the better end of that stick, who has confidence that a Britain freed from the EU would actually be particularly free market? Maybe we’d lose things like the Working Time Directive, but in the grand scheme of things is there any reason to expect this or any likely alternative government to be any less interventionist than Brussels is? Remember the Red Tape Challenge, or the ‘bonfire of the quangos’ that never was. The counterfactual is just not very encouraging.

The big picture: Perhaps the question is, as Madsen and the pseudonymous WhiteWednesday both say, not about the details at all. They say that it doesn't matter what the reforms secured now are: being in the EU means an inevitable drift towards further centralization and federalism. And the fact on regulation that little would change immediately is a feature of Brexit, not a bug – it takes the risk out of it, and makes reform a long-term project that we can approach on a case-by-case basis, not as the sort of all-or-nothing deal that some others are telling us is on the table.

Perhaps. This does seem to assume a certain degree of inevitability in the European project that is at odds with the idea that the EU, not just the Eurozone, is ready to collapse at any moment. I’m not so sure, and against this I must weigh the possibility that our immigration policy would become a lot more restrictive. For now, the arguments being made by the Leave campaigns just do not cut it.

Will the Finns be the first to introduce a basic income?

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Finland may become the first country to introduce basic guaranteed national income.  Although the final proposal will not be considered until November 2016, the basic income plan would replace existing social welfare benefits and instead hand out a monthly tax-free payment of €800 for every Finnish adult.

According to the poll commissioned by KELA, the Finnish Social Insurance Institution, 69 percent of the population supported the idea of a universal monthly income of about €1,000.  The poll indicated that there was especially high support for basic income that was implemented as a negative income tax.  Initially proposed by Milton Friedman and Robert Lampman, negative income tax arrangement would provide payments from the state that would increase in inverse proportion to income.  However, as the Finnish constitution requires an equal treatment of every citizen, an equal pay should be made to one and all, at least those in the wage earning age.  Naturally, some of the basic guaranteed income could be clawed back by taxes from the better off individuals.

Finland’s major political parties back the universal basic income concept as the means of simplifying the country’s complex social welfare system, and perhaps counterintuitively, the plan is seen as the means of tackling high unemployment.  Finland has been in a recession on and off since the mid-2012 having lost its footing in the traditionally strong pulp and paper industry, and after the demise of Nokia in mobile phones, the tech sector has not lived up to its expectations as a national growth engine.  The country’s unemployment rate is alarmingly high, hovering around 10 percent and rising to 23 percent among the young.

The Finns believe that basic guaranteed income could allow people to take low-paying jobs without incurring personal cost.  At the moment, taking a low paying job may result in lower welfare benefits and many temporary jobs go unfilled as the welfare benefits system is not agile enough to cope with temporary employment that reflects the changing nature of work.  There can be a lengthy time lag before welfare payments are restored after a temporary contract employment has been terminated.   

Critics of basic guaranteed income caution that it could remove people’s incentive to work, especially among the young.  However, previous experiments with basic universal income provide support that such programmes produce largely positive social and economic benefits.  In the Canadian town of Dauphin everybody was given a stipend from 1974 to 1979.  Although there was a drop in the hours worked this decline was mainly due because men spent more time at education and women took longer maternity leave.  Other social benefits of the experiment were hospital admissions for mental-health related issues that fell after the introduction of the guaranteed income scheme.  These results were most likely a result of the stress reducing effects at least to some degree of income security.  In addition, economic benefits of basic guaranteed income have been studied in Uganda.  When thousands of unemployed people were given unsupervised grants twice the their monthly income, working hours increase by 17 percent and earnings rose by 38 percent.  The guaranteed income provided a level of security that motivated people to gain further skills and/or take entrepreneurial risks. These experiments indicate that people with a basic income do not lead idle lives.  In developing countries the economic benefits can be substantial in terms of skills development, longer working hours, and a significant uplift in earnings.   In wealthier countries the accrued benefits may include personal and professional development, improved family life, and the pursuit of healthy lifestyles.

However Finland’s basic universal income or negative income tax initiative will ultimately be implemented it is unique in the sense that it has gained support across the political divide.  Other countries that are seriously considering such policy options include the Netherlands and Switzerland that will hold a national referendum on guaranteed basic income in 2016.  The major question that Finland and other countries will have to address is the cost.  Bloomberg has calculated that in the case of Finland the cost would amount to €46.7 billion annually.  The projected government revenue for 2016 is estimated at €49.1 billion.  It will be interesting to follow how the policy discussion evolves and what the projected savings will be from the streamlined welfare administration and what welfare payments eventually will be scrapped and rolled into the basic universal income.

From libertarian perspective, we should support the basic guaranteed income policy development.  The nature of work has changed and unfortunately some of our citizens will not be able to acquire or maintain the necessary skills to gain meaningful employment in our post-industrial societies and hypercompetitive globalized economy.  Assuming that we do not object to our societies providing support for those in poverty, basic universal income is the best policy to replace our outdated welfare systems.  The provision of national income removes the stigma that is often attached to having to apply for welfare payments.  Moreover, basic universal income increases choice as it allows and empowers individuals to make decisions how to spend their income by themselves by removing the state diktat of targeted welfare payments.  Finally, the implementation of a basic guaranteed income policy could reduce administrative costs and roll back the state, at least a little, which on its own would be a worthy outcome.

Further reading:

Story, M. (2015) Free Market Welfare: The case for a negative income tax. ASI (Research) Ltd., London

The Freedom of Information Act is supposed to be a burden

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We have the usual delightful sight of a bureaucracy complaining about the very point and purpose of something. For this is what is happening here, local authorities complaining about the manner in which the Freedom of Information Act is a burden upon them. Yes, it's supposed to be, that's what it is for, the purpose, point and design of the entire thing.

Councils, leading universities and dozens of other public bodies have demanded that Britain's freedom of information laws should be significantly weakened to make it easier for them to refuse requests. Local authorities said that requests should be subject to fees and that the limit on the amount of time they have to spend responding to them should be lowered from just 18 hours to eight. The Local Government Association described freedom of information laws as a "burden" and even suggested that the cost of censoring material that they release to members of the public should be accounted for when they respond.

That burden being that the various levels of government currently swallow some 40% of everything that we all produce in any one year. And we thus get to know what the hell you're all doing with that loot.

Yes, we get to know, in detail, how you've spent the cash, who you've talked to about how to spend it, what evidence you've used to reach your spending decisions, we get to demand management reports from our employees. And we also get to ask pointed questions about specific pieces and parts of the process: thus our right to make such information requests.

And is this a burden to those who must respond? Sure it is, just like having any manager breathing over your shoulder is a burden. But then that's the point of it, that it should be a burden. No, fees should not be charged: why should we have to pay in order to find out how you're spending our money?

If anything, the law should be further liberalised to as to increase that burden, not restricted.

Housing benefit is broken—abolish it

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I argue that housing benefit is a terrible part of the welfare system and that it ought to be scrapped on CapX.

Now the government has U-turned on plans to abolish tax credits, it should look at housing benefit for welfare savings—most housing benefit is a transfer to landlords and the remainder is an inefficient and distortionary intervention. It should abolish the £26bn system and use the money to fund tax cuts for low earners and a shallower Universal Credit withdrawal curve. Paradoxically, housing benefit is one of the causes of our housing crisis, rather than a solution.

There are numerous ways of compensating low earners in better ways: for example it would cost about £14bn to raise the threshold at which workers start paying National Insurance Contributions to the full-time minimum wage level (£251.25 a week or around £13,000 a year). We could also make the rate at which Universal Credit is withdrawn less steep, or beef up tax credits. Any of these would strengthen work incentives and efficiency, and enhance the progressivity of the overall tax and benefits system, relative to the current regime.

Read the whole thing.

Would a basic income reinvigorate civil society?

I've long made the case for a basic income (aka a Negative Income Tax) on the basis that it would simplify the welfare system and make sure people always have an incentive to work. My fear is that in-work poverty will be the challenge of our time, just as unemployment was in the 1930s and inflation was in the 1970s, because things that are raising living standards overall like globalisation and automation may be leaving behind people at the bottom of rich societies. Consider what options the former steel workers at Redcar now have. But Charles Murray's argument for a basic income is different:

My real goal with all of this is to revive civil society. Here’s what I mean by that: You have a guy who gets a check every month, alright. He is dissolute; he drinks it up and he’s got 10 days to go before the next check comes in and he’s destitute. He now has to go to friends, relatives, neighbors or the Salvation Army, and say, “I really need to survive.” He will get help.

But under a guaranteed basic income, he can no longer portray himself as a victim who’s helpless to do anything about it. And you’ve got to set up feedback loops where people say, “Okay, we’re not going to let you starve on the streets, but it’s time for you to get your act together. And don’t tell us that you can’t do it because we know you’ve got another check coming in in a couple of days.”

A guaranteed basic income has the potential for making civic organizations, families and neighborhoods much more vital, helpful and responsive than they have been in decades. ...

Right now, people can say, “What am I going to do? There’s no job out there. There’s this or that.” If you’re getting a check every month, you are not without resources, and that opens up a whole new dialogue between you and the other people around you.

America’s always been very good at providing help to people in need. It hasn’t been perfect, but they’ve been very good at it. Those relationships have been undercut in recent years by a welfare state that has, in my view, denuded the civic culture.

That's an interesting thought. "Primary poverty" is usually thought of as just not having enough to get by, no matter how hard you try. I think that probably describes the situations of most poor people in the world today. "Secondary poverty", though, is the poverty that comes from wasting the resources or skills you have through low conscientiousness, addition, laziness or something else.

I've always thought of a basic income as being a very good solution to "primary poverty", while perhaps risking exacerbating "secondary poverty". But if Murray is right that the state crowds out civil society, then perhaps there is a very conservative case for rolling it back, and just giving people the cash instead.

Trade body head doesn't like new rules which deprive trade body members of income

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Now this is a surprise, isn't it?

The UK’s accountant-in-chief has issued a stark warning that new rules designed to cut red tape for small businesses could increase the risk of crimes going undetected and reduce public trust in British business. From next year, businesses that turn over less than £10.2m a year will no longer have to get their accounts independently signed off by an auditor, raising the limit from £6.5m. The change – part of Business Secretary Sajid Javid’s push to slash regulation for UK companies of all shapes and sizes – will lift an estimated 11,000 businesses out of audit requirements, and means that 98pc of Britain’s businesses will not have to carry out a full audit.

So, how should we evaluate this?

However, the Institute of Chartered Accountants in England and Wales (ICAEW) last night cautioned that the decision would leave companies vulnerable to fraud, money-laundering and inaccurate tax bills. Michael Izza, chief executive of the ICAEW, said the body, which represents almost 130,000 accountants across the UK, is holding talks with the Department for Business, Innovation and Skills about its fears.

Hmm.

“We understand their concern is to reduce the regulatory burden on business, and this is an aim we fully support. We just believe the savings would be better made in less potentially damaging areas,” said Mr Izza, who has in the past chaired a number of Treasury working groups. Bodies such as the Association of Chartered Certified Accountants have said raising the threshold to £10.2m would risk the livelihoods of many small and sole-practitioner auditors.

Well, you are free to think what you wish of course but we would evaluate this in the following manner.

These trade bodies are no more and no less than the trade union for the profession involved. Their point and purpose is to make sure that their members get as much as possible out of the hides of the rest of us. Just because they are professionals rather than horny handed sons of toil does not change this in the slightest whit.

The accountant's body shouting that more accountants must be employed is no more of a surprise than PCS, the taxmens' union, paying people to write reports shouting that more taxmen must be employed, should shock as little as the teachers' unions arguing that teacher pay should be higher, is as much news to society as freelance writers bemoaning their rate of pay is.

They're out for themselves, all of them, and as long as we remember this we can value their contributions to debate properly. That is, we should ignore them. They are arguing that more of your money should be in their pockets. And?

Higher tax rates mean less social mobility

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Don't believe me, believe the empirical academic research! When economists finish their PhDs and are looking for a job they produce a job market paper. Given the incentives here, these tend to be particular impressive pieces of work, whether in method, data, estimation or topic, and this from Mario Alloza at UCL (his website)  is no exception.

The paper (pdf) looks at changes in tax policy in the US and a representative sample of households between 1967 and 1996 and finds that a 1¢ in the $ rise in marginal tax rates leads to a 0.5%-1.3% decline in the probability of someone's changing income decile. For example, moving from being in the bottom 10% to being in the 10% who earn more than the bottom tenth, but less than everyone else.

According to Alloza's data, this effect is particularly significant at the bottom of the distribution—i.e. for the poorest people—and comes because taxes affect work incentives. When taxes are higher, that reduces the benefits to badly-off people from working harder and more and changing their prospects.

He says that we his result should make us more cautious of raising taxes to reduce inequality, because it will reduce opportunity and social mobility:

These empirical results have important implications for the design of fiscal policy. Tax reforms that reduce marginal rates are more likely to increase equality of opportunity (as measured by the degree of income mobility). This is because an attenuation of the distortionary effects of taxes in the labour market would make households more likely to take advantage of economic opportunities and move up in the income distribution. Therefore, fiscal policies that aim to reduce inequality should weight the trade-off in households’ welfare induced by the effect on income mobility.

Indeed, given all the costs of caring about inequality, and the very meagre benefits we gain from ameliorating it, perhaps we shouldn't care about it at all.

Ten initiatives to help young people: 9. No National Insurance for under 25s on minimum wage

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Government has committed itself to raising the income tax threshold to the level of the minimum wage and indexing it there so that it will automatically rise to match any increases in the minimum wage.  The Adam Smith Institute has urged this for many years, largely on the grounds that if people are on wages that are reckoned to be the minimum, the state should not be taking money from them in taxation. There is one further thing that the government could do in this respect, however.  People on minimum wage are still liable to pay National Insurance, which has a threshold lower than that for income tax.  Since young people feature prominently among those on minimum wages, this hits them hard, taking money from those already struggling to get by on minimum wage.

It would help those young people if it were government policy to make the two thresholds the same for the under 25s.  That is, the NI threshold for them would rise to the minimum wage level, so that when government achieves its aim to equate the tax threshold with the minimum wage, those under 25 on minimum wage will pay neither income tax or National Insurance.

In large measure the whole system of National Insurance is an anachronistic anomaly.  Although originally conceived as an actual social insurance, it has long since ceased to be so.  There is no fund, and it operates like income tax on a pay-as-you-go system, with today's payments being used to meet the needs of today's beneficiaries.  The case for integrating NI into income tax is strong, but before then there is as a stronger case for calculating liabilities on the same basis as for income tax, with the same thresholds and exemptions.  If government feared how people would react when they saw how much tax they were paying in reality, they could run it as an "employment tax" running alongside income tax.

As a first step in that preferred direction, they should now have the NI threshold equated with income tax for the under 25s.  The further alignment of the two can be done later in systematic stages.  But the help given to low-paid young people would be immediate and effective.