Good luck with that Jeremy, good luck with that

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It's not unusual to find people arguing that the State should be given near fascist (in some cases, actually fascist) powers over the economy: but only if the right people are in charge. The right people being defined as those who would use those oppressive powers in only the manner that those proposing the powers desire. The usual answer to this is that that's not quite how democracy works. If you don't want your enemies (ideological or actual) to have such powers as the electoral cycle turns then you're really no business arguing that your folks would do just fine with them. Shuffling all the Social Justice Warriors off into the Bedlam they need to recover is admittedly appealing. Yet we do not recommend such precisely because such powers might be used against us, those who froth at the mouth over the joys of free markets and voluntary cooperation, in the fullness of that time and variance of who the public elects. Better that none have such powers, eh?

At which point we have this rather plaintive cry from Jeremy Warner (or perhaps the subeditor who wrote his headline), someone we usually rather agree with:

If the state must meddle, it should do it better

Given the pedigree of those who do go into politics and other forms of "public service" that meddling never will get better. The answer is therefore as we have long suggested. Yes, there really are things which need to be done and which only the State can do. Said State should limit itself to only those things covered by that intersection and refrain from doing things which can be done by the State but do not have to be done, and also avoiding those things which do need to be done but which will not be well done by the State.

Limiting government to what it must do seems suitable given the limited skills and talents of those who govern us.

Marianna Mazzucato, wrong again as so often

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Marianna Mazzucato is the right sort of writer for The Guardian: as the Daily Mash puts it, that newspaper is wrong about everything, always. So, here she is telling us that it's very important indeed that government spend lots of lovely money on the area that Professor Mazzucato thinks important:

Growth is determined by strategic spending on areas that increase productivity, which in the UK is still below the OECD average. This includes investing in training, education, research and development, and state-of-the-art infrastructure. So while there has been a boost to some infrastructure spending, the lack of vision on what kind of economy we need for sustainable long-term growth means there has been little discussion about the direction of growth.

Growth is most certainly produced by investment spending, this is entirely correct. But as Matt Ridley has pointed out, it does rather depend upon who does that spending:

In 2003, the Organization for Economic Cooperation and Development published a paper on the “sources of economic growth in OECD countries” between 1971 and 1998 and found, to its surprise, that whereas privately funded research and development stimulated economic growth, publicly funded research had no economic impact whatsoever. None. This earthshaking result has never been challenged or debunked. It is so inconvenient to the argument that science needs public funding that it is ignored.

There's not much of a case left for government spending on such things after that, is there? Which leaves Professor Mazzucato's argument where it always has been, a justification for the EU to determine what is researched via research money funneled through the EU. Which is why, in our opinion, the EU funded her research in the first place.

The terror of the tampon tax

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Following the Autumn Statement on Wednesday, women all over Britain have been in uproar. Why? Because George Osborne has decided to direct the £15 million pounds the treasury receives from the tampon tax into women’s charities and services. As an article in The Guardian says here:

Women will now fund services that protect them from violence perpetrated almost entirely by men. Hey, men, not only do you not have to pay for violence that you inflict on women, but when we get raped, abused or brutalised, we won’t cost the state anything either! What message is that sending other than violence against women is some kind of “women’s issue”? It’s not. It’s largely a male issue.

And The Independent has chimed in, too:

Since the Tory government has failed women in so many ways, it makes undeniable sense for it to help us to help ourselves. Give a woman a tampon and she’ll use it for free; teach a woman to pay tampon tax and she won’t even cost anything extra to the state when she gets raped, attacked or laid off at work.

So if you’re a woman escaping from an abusive relationship in the Chancellor’s Britain, you can now pay for your own counselling through the redistribution of an unfair tax on your sanitary products. Isn’t that just perfect? It has a beautiful circularity, kind of like the menstrual cycle itself.

However, this view is misguided. The government cannot get rid of the tax completely due to EU laws, so they’re going to receive an income from it, no matter how much various women dislike that fact. Isn’t it therefore a good thing Osborne is at least diverting it into something that the women who pay the tax will directly benefit from? Would these groups rather the government used the money to bomb Syria? Reduce the bank levy? Cut taxes on top earners? Probably not.

From 2010-2015 the Tories spent £40 million on support services and charities aiming to help women who have suffered from domestic violence or abuse. This clearly shows that yesterday’s policy announcement is nothing new: taxpayer’s money has always been going towards helping women's organisations. The difference is, women can now be safe in the knowledge that their £1.50 of tampon tax money per year is at least being spent on a cause they agree with.

Stop complaining about this decision, there’s no bloody point.

Ten initiatives to help young people: 6. A youth mental help body

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A significant number of young people face mental health problems.  It might be bullying at school or at work, or sometimes difficulties encountered by discrimination.  Often it is depression, depression they find it difficult to cope with on their own.  Many face problems with their physical appearance, finding it difficult or impossible to conform to idealized notions of what they think they ought to look like.  This leaves them feeling inadequate and unhappy, which in turn can lead to mental problems. The NHS does not do well with the mental problems faced by young people.  Sometimes and in some places it does well, but on average it fails to meet an adequate standard of care in this area.  Too many young people feel they are facing their problems alone and cannot cope.  Some attempt suicide, some tragically succeed.  

It is perhaps time to recognize that young people have special mental health needs, and that these are different in some ways than those faced by the general adult population.  Young people have little experience of life, are only just coming to terms with who they are, and can feel isolated, helpless and confused.  This suggests the need for an independent body to which they can turn for specialist help.  Some youngsters find the NHS remote and intimidating, unable to offer the intimate and personal help that is often needed.  This is perhaps because the NHS tries to use its limited resources to best effect, trying to save lives where it can.  Some critics say it is under-resourced on mental health in general, never mind young people's mental health.  What the NHS spends on one thing cannot also be spent on another.

To prevent youth mental health losing out to more strident claims on resources, a separate body is needed, independent of the NHS, but with its services available free at the point of need.  Financed partly by the taxpayer, and party from the sponsorship of businesses and private benefactors, the body would be the natural one to turn to when young people needed help.  Advertising would help make its services widely known just as happens with the Samaritans.  With a name such as "Support," it could readily establish a brand identity such that young people would know whom to turn to when they found their problems more than they could face alone. It could provide expertly trained staff with experience of youth problems, people who would listen sympathetically and at a personal level.  It would not solve all the mental health problems faced by young people, but it could contribute to a significant improvement in the lives of many of them.

What a strange way to tax corporations

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We've found over the years that Sir Simon Jenkins is generally sound on the subject of civil liberties. But he's a great deal less assured when it comes to the subject of economics. A pity, because he has decided to tell us all how corporations should be taxed: clearly within the purview of the economic way of thinking. He tells us that:

The answer is clear. Companies should pay corporation tax on the basis not of their headquarters or research base or place of origin.

They should pay on the proportionate spread of their sales. Likewise, individuals should pay tax to the country where they live or whose citizenship they enjoy – as is the case with most Americans.

That companies should pay on the basis of their sales is one of those Chesterton's Fence problems. Why doesn't the system work that way already? Because it has been considered and rejected, that's why. Such a system would mean that the company that made on single overseas sale would then need to file a full corporate tax return according to the rules of that country. This is not something that is likely to increase trade among small companies. And that's why the system is as it is.

It's entirely possible that it's not quite right in detail, but the current system operates on the basis that if you've a permanent establishment in a tax jurisdiction then you do indeed file a local return. And a permanent establishment, while it's not perfect, is used as a proxy for the corporation being a large enough actor in that local economy that it should be filing a tax return in it.

A business that one of us was once involved in once made a single sale of $6,500 gross value into India. The only sale into that country in a decade of operation. No sensible tax system is going to demand an Indian tax return on that basis, is it?

Sir Simon's suggestion also flies into the very face of the basic underlying rules of the European Union's Single Market. All companies are equal, from whichever jurisdiction, and may sell from any one EU country into any and all others.

Finally, look at the underlying idea. People buy things because they make them better off, by their own lights. The point and purpose of having an economy at all is to maximise this, to maximise peoples' opportunity to maximise their utility. We thus say, well, you, Mr. Johnny Foreigner, you have just made some of the residents of our country better off. Hmm, we'll have to fine you some tax for having done that you know.

Just not a sensible logical basis for taxation, is it?

Why Osborne should be applauded for his business rate devolution proposal

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One of the biggest surprise announcements from today’s Autumn Statement – aside from the Chancellor’s spectacular U-turn on tax credits – was the decision to hand local councils full control of business rates. But it was a welcome one, too: devolving rates should deter excessive spending and stimulate competition between councils, while encouraging local government to be more responsive to business needs. When the Chancellor first mentioned devolution during his Conference speech in October, over 60 per cent of IoD members came out in favour of the policy. The devil is in the detail of course, but at face value it’s hard to see a downside to the policy. Some have pointed to the potential for geographic disparities, but those rural communities likely to have the smallest rates receipts are predominantly run by fiscally responsible Tory councils.

Others suggest that local mayors will succumb to the temptation to hike rates (currently, the uniform business rate is set at 49.3 per cent of a non-domestic property’s free-market rental in England and 48.2 per cent in Wales) to raise revenues without the consent of the local landowners. The assumption – or hope – is that accountability to their local electorate will help them resist.

But while business rates have long been criticised by businesses (and any cut welcomed), it is important to note that it’s not occupiers that end up shouldering the financial burden but landowners. So the notion than business rates cuts, as a result of devolution, could bring business into an area is a misconception: business rates cuts lead to rent rises in almost exact proportion.

And business leaders will need to be better engaged with local government to ensure councils are fiscally responsible. For example, city-wide mayors will be given the power to levy a business rates premium for local infrastructure projects, and as such businesses will need to make sure their views are properly voiced through their Local Enterprise Partnership.

From now on, it looks like businesses are going to get the local government they deserve.

 

The Sun told a porky pie, and here's why it doesn't matter

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One of the points Owen Jones makes in The Establishment is that our country’s media is scandalously bent in favour of the free-market ideologues that monopolise newspaper ownership:

Whereas just 36 per cent of voters opted for the Tories at the 2010 general election, 71 per cent of newspapers by circulation backed David Cameron’s party.

Jones’s argument is that this lack of democratic accountability allows Rupert Murdoch and co. to wreak havoc on public opinion, leading astray the gullible and politically illiterate general populace.

The Sun’s recent attempt to convince us that 20% of British Muslims possess jihadist sympathies has forced fresh life into this debate, with questions raised as to the extent to which such flagrantly spurious material is any longer ‘acceptable’.

And yet, Jones’s argument is self-defeating – his statistic demonstrates that newspapers are not a primary determinant of the political climate in Britain. Those who call for regulation in response to this recent debacle fall prey to the same assumption: that people blindly believe what they read in the tabloids.

Jones’s position falls further apart when you look into extent of media bias in the first place – interestingly, 20th Century Fox movies appear to receive no special treatment in reviews from News Corporation outlets.

On the other hand, however, there is evidence to suggest that newspapers have some purchase at least. This 2007 study reports that those who received a free subscription to the Washington Post were 8 points more likely to vote Democrat. This does indeed seem a sizeable increase, and thus to demonstrate the important role of newspapers in determining how we think. But this figure surely shrinks to insignificance when you consider, firstly, that it’s a lot easier to decide whether Muslims are all evil ISIS-apologists than it is to decide between the two fairly similar political parties in the US, and secondly, that the Washington Post is a lot more respected than The Sun is.

Even if we were to concede that newspapers pose an almighty threat to the freedom and diversity of thought, it seems unlikely that in this particular case many people believed the half-truth they were being fed – the backlash from the rest of the media was a lot noisier than the original article.

The outrage in response to The Sun’s laughable figure-manipulation is misplaced and patronising. Just as we should afford a platform to the expression of racist or sexist ideas, we should allow newspapers freedom to present their own angle on things: the truth will out.

So they've worked out how to do the propaganda then

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This is not quite what people seem to think it is. The report seems to show that people are happy with restrictions and taxes if they are for the common good. Thus we should go and tax meat. But that's really not quite what is actually being said:

Taxing meat to simultaneously tackle climate change and improve global health would be far less unpalatable than governments think, according to new research.

Meat production produces 15% of all greenhouse gases – more than all cars, trains, planes and ships combined – and halting global warming appears near impossible unless the world’s fast growing appetite for meat is addressed.

The new analysis says this could be done through taxes, increasing vegetarian food in schools, hospitals and the armed forces and cutting subsidies to livestock farmers, all supported by public information campaigns.

The research, from the international affairs thinktank Chatham House and Glasgow University, involved surveys and focus groups in 12 countries and found that even measures restricting peoples’ behaviour could be accepted if seen as in the public interest, as was seen with smoking bans.

“Governments are ignoring what should be a hugely appealing, win-win policy,” said lead author Laura Wellesley, at Chatham House.

“The idea that interventions like this are too politically sensitive and too difficult to implement is unjustified. Our focus groups show people expect governments to lead action on issues that are for the global good. Our research indicates any backlash to unpopular policies would likely be short-lived as long as the rationale for action was strong.”

What they have actually found is that if they dress up the policy that they already desire as being something that is for the common good then people will complain less. Something which is obviously true, every orator and politician has known for ever that the more you appeal to peoples' extant prejudices the more ridiculous the policy you can get them to swallow.

What Chatham House has just done is discover how to produce the propaganda for meat taxes, nothing else. And well done them of course, although quite when Chatham House got into the propaganda business we're not quite sure.

So, that DECC's renewables plans entirely up in smoke then

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One of the little fables, falsities really, of the DECC's approach to climate change rests upon just the one number. And that's what is the price of natural gas per therm going to be off into the future. We could assume that the price will be roughly the same as today. Or it might fall as a result of fracking, or it might rise as a result of supplies running out. But we obviously do need to make a forecast because that's the only way we can work out whether those damn windmills and so on are ever going to be economic. So what DECC did was assume that gas prices would roughly double from their current level. In that manner they could then say that those windmills would in fact be cheaper. Not because the windmills are cheaper now, nor because they're going to become cheaper in the future, but because the gas price is going to double.

They were very insistent about supporting this too. We recall one of their pronouncements being that fracking wouldn't reduce the price at all. Because it would all be exported we think was the mantra. Then they said, well, maybe, a few percent reduction: look, here's a report about Cuadrilla's find which says 3 or 4% reduction in price!

Yes, well, that report was actually about the price impact of just he extra gas find that Cuadrilla had announced as the result of just the one borehole: and that price reduction applied to the entirety of the connected European gas market. Obviously the entirety of the Bowland Shale was going to have a larger impact than that.

But everything, the whole shooting match, the entire strategy of solar, windmills, nuclear and everything, has been based upon that one single number: the price of natural gas is going to double.

DECC's latest projections assume average gas prices for this year of 47 pence per therm, down from the 62p it projected last year. It estimates the price will barely rise over the next four years, remaining at just 49p/therm in 2019, and only ticking up slightly to 52p/therm in 2020. A year ago it had expected prices of 60.3p/therm in 2020, while two years ago it was forecasting they could hit 73.8p/therm.

Ooops! And of course the decline in price is being driven by that fracking that would never affect the UK price. Tight oil fracking in the US has driven down the oil price, to which many gas contracts are linked, and gas fracking has increased the amount of LNG sloshing around the world markets. These price decreases being before anyone's even considered whatever may be fracked right here at home.

The entire strategy thus needs to be re-examined. Starting with those numbers for what the future price of gas might be.

And of course, this is also why planning centrally of anything doesn't work. Here it's obvious that, to put it at its most kindly, people became wedded to a particular analysis and simply did not want to hear of changes to it (less kindly they manufactured that analysis to order). But even when that does not happen, we still end up with a plan which depends upon the assumptions which go into it. Rather than leaving things to market forces, which means that we get a multiplicity of plans, with a multiplicity of such assumptions.

Yes, it's true, climate change isn't a problem that entirely pure markets are likely to solve, involving as it does externalities. But that's why the correct answer is to intervene in the market price, add in that externality, and then still have the markets with their mulitple answers and assumptions. Rather than the monolithic central plan reminiscent of Stalinism. Which has just failed as did that Stalinism, reality having to intrude.

The Overseas Development Institute is as stupid as the IMF

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Or maybe they're being deliberately misleading. Back in May, Sam wrote a barnstormer in The Telegraph refuting an IMF report that called it a 'subsidy' when the government didn't tax oil and gas as much as the IMF would have liked it to. This report was important because the IMF is taken seriously, especially by those who don't usually find themselves on its side, when it says stuff they like ('even the IMF' etc). Sam made the obvious point that a subsidy is a subsidy and not taxing something is never a subsidy, even if you think we should—even if your model says that it should—tax that thing more to increase social welfare. If it were a subsidy to tax something (like fossil fuels) below the optimal amount, then it would also be a tax not to subsidise something (like basic research) the optimal amount. But it's not; it's patently, blatantly, ridiculous and obfuscatory use of language.

We might have thought the issue was put to bed. But here we go again, this time with the Overseas Development Institute's new report, which tells us:

While other nations have responded to the drop in energy prices by reducing fossil fuel consumer subsidies, the UK has reduced taxes on fossil fuel production, increasing subsidies to fossil fuel producers.

The industry pays £30.1bn in total taxes, including downstream levies like fuel duties, but since this is not £35bn or £40bn, it's being 'subsidised' according to the IMF and ODI.

It gets onto actual things we might call 'subsidies' later, and they are as piffling as you might expect, given how they are buried:

The International Energy Agency (IEA) estimates for budgetary support for R&D to all fossil fuels in the UK were $76 million in 2013

Note the units.

In addition, the UK government has committed to providing significant direct support for the development of CCS. The largest commitment is for the $1.6 billion for the Commercialisation Programme, although this has not yet been disbursed.

OK, this is a real subsidy, and of a significant size (but nothing compared to oil and gas tax contributions!), but you might note that (a) it's not been paid yet; and (b) it's specifically tied to abating emissions!

So this is a non-story. The real story is 'the energy industry pays a large amount in tax, slightly lower this year, but probably still enough to cover its externalities, and even if it wasn't it's certainly not a "subsidy"'.

And the ODI are as stupid as the IMF.

UPDATE: Turns out the WTO uses the 'tax break = subsidy' definition too; it's still not clear this is a useful or meaningful definition—it requires an idea of the relevant baseline.