Blog RSS

The Pin Factory Blog

"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice" - Adam Smith

Yes, it's still tax poverty, not a Living Wage

Written by Tim Worstall | Tuesday 05 November 2013

So we've had the announcement of the new Living Wage rate: that level of income which allows a full year, full time, worker to earn and not be in poverty in the UK. That definition being, rightly, what people think people should be able to do and not be in poverty: as with Adam Smith's linen shirt.

That number that has been announced? 7.65 an hour.

But as I have been shouting for years that is a pre-tax number: that's the earnings before the State gets its grubby mitts on these paltry earnings of the working poor.

If you do work full time full year at that Living Wage rate you'll get 14,917.50 over the course of the year. I don't think that's a large amount and I'm sure that you don't either. Which is why it is so appalling that at this low level of income said Living Wage worker will be charged 1,095.50 in income tax and 1,110.00 in employees' national insurance. For a net income of 12,712.00

Compare and contrast this with the 12,304.50 that someone would earn on the national minimum wage of 6.31 an hour, if no tax were charged on it, and we can see that what we have here is not wages which are too low, it is taxes which are too high.

And of course there is also employers' NI of a further 1,100 or so: opinions differ as to how much of that is really carried by the employee, most to possibly all being the general view.

The reason that the national minimum wage is not a living wage is because government taxes the working poor too much. We do not have a low wage problem at all, we have instead tax poverty.

And, as is ritual now on this point, if you want the working poor to have more money just stop taxing them so damn much.

View comments

Yes, I'm sorry, I was wrong, I apologise

Written by Tim Worstall | Saturday 05 March 2011

As mother always said, if you make a mistake you should apologise, attempt to make amends and then try very hard not to do that again. And mother, Mrs. Worstall (or as she is known around the ancestral seat, Mrs. Worstall), did manage to make that little piece of wisdom stick.

So I'd like to apologise, for when that ruling came down from the European Court of Justice that gender could not be used, whatever the actuarial evidence, to vary insurance premiums or annuity payouts, I fulminated about the idiocy, the stupidity, of courts and lawyers. And I was wrong to do so, as has been explained to me.

You see, it wasn't actually that court, nor the judges in it nor lawyers arguing before it, that generated a decision of such purblind ignorance. All they were asked to do was to confirm that this is actually what politicians meant to happen. And it is indeed what politicians meant to happen, this is part of a Directive passed (meaning that each individual EU government signed up to it, the European Parliament said "rightie ho!" and the Commission itself proposed it) all the way back in 2004.

Yes, those who rule us really did think that women should have to pay more for car insurance and that men, even though they die younger, should not get better annuity rates. Yes, the entire European political class decided that reality should be ignored and their fantasies imposed upon the populace.

So as I say, I apologise to the judges for getting this wrong. Amends are made by said apology and as to trying very hard not to do it again....

Yes, I do pledge not to cast aspertions, to blame others for what is not their fault. To, as manfully as I can, not blame the poor bloody infantry for what is best explained by the fantastical dreams, downright stupidity and gross ignorance of the politicians who rule us.


View comments

Yes! Let's close the libraries!

Written by Tim Worstall | Saturday 04 August 2012

I'm not going to do my reputation as a b'stard neoliberal here any good (hmm, well, it might increase it perhaps) but CityUnslicker makes an interesting point: why shouldn't we be closing the libraries?

We can happily wander back to Adam Smith and point out that general literacy is a public good, that such a public good can be usefully bolstered by some tax funding, sure. But we also need to consider technology: most specifically whether the tax funded provision of dead tree printed books is the best way of advancing that public good.

And there's a strong argument, one gaining strength every passing month let alone year, that it isn't. For the written word is going digital.

The whole concept of a library (and before that, of public lectures at a university) is based upon the concept that books are an expensive thing. That they are too expensive for the average person to purchase and own and thus that there should be some method of borrowing them for a short time. It is rapidly becoming true that this is no longer so. Certainly the canon of western literature is now available for free online: and there's any number of very cheap newer books available as well.

At which point the concept of a library as a physical space in any one town rather loses its function. It's possible to think of all sorts of alternatives: from simply saying the entire idea is past it to some form of online library where government does the (much lower of course) funding of maintaining a stock of titles for lending to the impecunious.

And this highlights one of the problems with government provision of things. We've seen over recent years how public libraries have added all sorts of things to become more "relevant", CDs, videos, internet access and so on. All as the book part of it falls away. Out in that red in tooth and claw market part of the economy suppliers who become technologically irrelevant go bust and disappear. As computer games are increasingly downloaded then expensive retail stores supplying the physical box go bust. Indeed, some 10% of retail space in the country is empty as some 10% of retail sales take place over the internet: something of a clue there really.

So I present the idea, perhaps we actually should be closing the libraries? Not just as some austerity measure but as part of that culling which we have to do as technology changes. In a digital world why would we want to subsidise the distribution of physical books? And given that the public sector does not have that market driven bankruptcy to do the winnowing of old technologies, perhaps this is something that we have to do more aggressively through direct action in that public sector?

View comments

Yes Virginia, there really is a Laffer Curve

Written by Tim Worstall | Sunday 23 May 2010

You've no doubt done this yourself: made some passing reference to the existence of the Laffer Curve only to have some lefty splutter that such a thing is just a creation of the neo-liberal objectively pro-fascist anti-taxation league and no doubt you eat babies too, don't you, don't you!

Sadly for that end of the political spectrum which did not attend their university's "reality is not optional" lecture there really is something called the Laffer Curve. For each and every tax, in each and every society, there is a tax rate which will maximise revenues collected from that tax. Go over this rate and tax collected will fall. As this little example from the US shows us:

A random sample of littered cigarette packs reveals that 75 percent of the cigarettes used in Chicago bring no tax revenue to the city, according to researchers at the University of Illinois at Chicago. The lost potential revenue totals about $10 million per month, said David Merriman,......Chicago's state and local taxes totaled $4.05 per pack, compared to $1.37 outside Cook County, in July 2007, when the teams collected the packs. The $2.68 difference reduced the likelihood that a pack was purchased in Chicago by almost 60 percent......."This research suggests that an increase of $1 per pack in Illinois, as recently proposed, would drive more Chicago residents to buy their cigarettes in Indiana," Merriman said.

Note that this research does not, in and of itself, show that current Chicago baccy taxes are beyond the peak of the curve. Only that we can see that people are changing their behaviour to avoid the tax and thus diminishing the amount collected from said tax. And if enough do that then we get indeed a decline in the revenues collected.

Now it might well be true that the people buying their fags outside Chicago and smoking them inside are breaking the law, which makes them very naughty boys and girls indeed. But that doesn't change the fact that there is this Laffer Curve thing going on. Raise tax levels too high and revenue collected from said taxes will fall. It might be that people simply change their behaviour (smoke less, work less in the case of incomes taxe, take fewer risks with new business adventures with capital gains taxes, not bother squeezing the last drops of efficiency out of a company with corporation taxes) and it might be that they lie, cheat and smuggle (all taxes) but it really is true that raising tax rates and levels does not always raise the amount of tax collected.

View comments

Yes Polly, training the untrained is indeed expensive

Written by Tim Worstall | Sunday 09 March 2014

Polly Toynbee tells of us of a marvellous scheme by which the young and untrained get trained and thus gain decent employment. However, the real message of this story is not quite what Polly thinks it is I fear:

The shadow work and pensions secretary, Rachel Reeves, and Stephen Timms, the shadow employment minister, were in Cardiff this week to study it, as they plan their own similar job guarantee scheme. They visited Sapiens, an international software company that has taken on 12 trainees from Jobs Growth Wales. All these young IT graduates were lost temping in part-time, low-level jobs. One had been stuck working part-time in a bingo hall for a year, others in shops and pubs, each applying for hundreds of jobs without getting interviews: "Everyone wanted people with experience. If you haven't any, you've no hope," said one. The company said it would never have hired these 12 without the programme, because training raw recruits costs so much more than taking on experienced staff. But with Jobs Growth Wales covering six months of intensive training, Sapiens ended up keeping 11 of them permanently.

You can indeed read it the way that Polly does, the Glorious State taking over and making things better where the market simply bumbles ineffectually.

Or one could try to look a little deeper. For example, all of these "young IT graduates" had been in compulsory education for 11 years of their lives, presumably an additional two to get into university and then three once there. So what the hell is our State run education system managing to do over those 16 years if it cannot prepare them for an entry level job opportunity?

The second and more major point is that yes indeed, it does cost money to train people. And the cost of that training can indeed mean that people would prefer to hire the already trained. Which is why it is so stupid to put a minimum price on untrained labour. For that pushes the total costs of untrained labour, wages and training costs, above the costs of hiring someone who already has their act together.

That is, a minimum wage will, if it is high enough to actually matter at all, will by definition be crippling to the employment prospects of the young and untrained.

As Britmouse so graphically points out here.

Perhaps instead of adding another layer of State interference we sould undo the cause of the original problem?

View comments

Yes it was Maggie

Written by Tim Worstall | Sunday 12 June 2011

Many stories are told about the post war British economy. There are those who still claim that 1976 was the peak year, the gloriousness of all gloriousnesses because that was when we had the least inequality. Those who lived through it as adults are, to put it politely, less than sure that was the case.

Here's another idea though. The problems actually started in the 1930s nd it was only the 1980s that got us out of them.

The retreat from competition in the British economy was triggered by the 1930s crisis but was not fully reversed until the 1980s. Early postwar Britain was notable for cartelisation, nationalisation, weak competition policy, and protectionism.

One Nation Tories and socialists were in power thoughout that time period.

The results of the “Thatcher Experiment” in the 1980s make the case and paved the way for reversing relative economic decline. Competition was much strengthened by ongoing trade liberalisation, deregulation, and discontinuing 1970s’ industrial policy. As competition strengthened, there were major changes in industrial relations which were associated with organisational change, together with divestment and restructuring in large firms.

Despite Maggie being in the Conservative Party the best description of her economics views is "liberal". And these were liberal reforms she brought in and which had the desired effect: increased productivity.

So yes, it is Maggie wot done it.


View comments

Yes indeedy, tax cuts do grow the economy

Written by Tim Worstall | Saturday 15 June 2013

An interesting new paper looks at the effects of tax cuts on the UK economy. The finding won't surprise you and me but it's interesting to wave at others:

This paper estimates the effects of tax changes on the U.K. economy. Identification is achieved by isolating the ‘exogenous’ tax policy shocks in the post-war U.K. economy using a narrative strategy as in Romer and Romer (2010). The resulting tax changes are shown to be unforecastable on the basis of past macroeconomic data. I find that a 1 per cent cut in taxes stimulates GDP by 0.6 per cent on impact and by 2.5 per cent over three years. These findings are remarkably similar to the corresponding estimates for the United States.

This is another piece of evidence to illuminate our basic problem over the size of government and the taxation necessary to pay for it.

We know very well that some government spending is just great: both in what it achieves for us and also in the economic growth it produces. I'd certainly argue that a decent court and legal system is worth the money spent on it.

However, we also know very well that all and every taxation has deadweight effects: there's some economic activity that simply doesn't happen as a result of the imposition of the tax. Thus, if we want to maximise GDP we should be spending money only up to the level where the growth produced is greater than the growth not happening as a result of the taxation.

As it happens, of course, maximisation of GDP is not our goal. Maximising the utility of the population is meaning that all those things like leisure which detract from GDP are just fine. Indeed, those things like leisure are very much part of the point of the whole game: we want everyone to be as happy as it is possible to be without bursting from the joy of it all rather than everyone to be as rich in material goods as possible. That happiness to be determined by the lights of the individual concerned of course.

But even if we restrict ourselves to talking only of that small part of political economy which is indeed about GDP growth this paper does provide us with an interesting metric.

There is some part of the government's spending that is, nominally at least, about increasing GDP. The sort of stuff that Vince Cable's department does for example, all those various investment funds, the Green Investment Bank and so on. What this paper gives us is an interesting metric to use in measuring their performance. Say, just imagine, that all of this aid to business costs £15 billion a year. I use this number just to make the maths easy for that's 1% of GDP near enough. We now know that raising this much in tax costs us 0.6% of GDP in the short term and 2.5% in the medium term. We'd therefore very much like not to be raising this amount in tax: unless, that is, the spending of it produces a greater than 2.5% rise in GDP.

OK, hands up everyone who thinks that government "support" for business and development increases GDP by 2.5%?

Quite, time to close it all down and get the growth without bothering to do the taxing and spending, isn't it?

View comments

YBF training conference

Written by Tom Bowman | Thursday 21 August 2008

YBF - Young Britons' Foundation – has announced details of its fifth and largest YBF activist training conference. YBF5 as it's called, will be held at Wellington College, Berkshire, from Friday 24 October to Sunday 26 October. Confirmed speakers include Tory Local Government spokesman Eric Pickles MP, ace Cameroonie Ed Vaizey MP, libertarian Douglas Carswell MP, Eurosceptic MEP Daniel Hannan, taxpayers' friend Matthew Elliott, newshound Jonathan Isaby, blogger Iain Dale, and the Adam Smith Institute's own Eamonn Butler. 

Places are limited and it's first come, first served. Cost for the three days and two nights residential course - including meals, tuition, materials and accommodation is £95 per person, or £75 for students in full-time education. Details on facebook here – email to reserve a place.

View comments

Yaron Brook speech now online

Written by Anonymous | Sunday 10 May 2009

Earlier this year, Dr Yaron Brook, the president of the Ayn Rand Institute, spoke at the Adam Smith Institute (write-up here). His excellent speech, on Capitalism without Guilt - the Moral Case for Freedom, is now available to watch online. If you weren't able to join us back in February, these videos are well worth watching:

You can also watch the Q & A session in parts five, six, seven and eight. And as if that wasn't enough, you can also see Andrew Medworth (of the Ayn Rand Forum) interviewing Dr Brook before his speech: part one, part two, part three and part four.

View comments

Written by Junksmith | Monday 12 October 2009

Finally politicians talking sense.

View comments


About the Institute

The Adam Smith Institute is the UK’s leading libertarian think tank...

Read more