The last gasp for plain packaging

It's entirely possible to take a number of different views on the merits or not of the plain packaging proposal for cigarettes. An entirely unwarranted intrusion into commercial freedom by the usual prodnoses perhaps, a vital public health policy as some profess to believe. That we tend toward the former view while the prodnoses the latter isn't the point at issue here though. The interesting question is why is there such pressure for the law to be passed immediately?

The government is under fire from politicians on all sides amid fears that legislation forcing tobacco companies to sell cigarettes in plain packs will not be introduced before the general election.

MPs from all three main parties, including the Tory chair of the health select committee, have warned time is running out to introduce a law that would see cigarettes sold in unbranded packs, a measure experts claim would deter young people from smoking. .... In a letter to the health minister Jane Ellison, the Tory chair of the health select committee, Sarah Wollaston, warns “unless the government makes a final decision soon, time will run out for a debate and vote before the election”.

A failure to implement the legislation to introduce what Wollaston describes as “one of the most important public health reforms of the last 20 years” would, she argues, “be an unnecessary and serious setback for public health policy, if the clearly expressed will of parliament were now to be frustrated”.

A failure to introduce the measure would cause tension in the coalition. Lib Dem health minister Norman Lamb said: “This is a landmark public health issue. I want the government to act while we have time before the election. From a Lib Dem perspective, we want this legislation to go through and that’s what we will fight for.”

In April, Ellison confirmed the government’s intention to “proceed as swiftly as possible” on plain packaging, noting evidence that it would “very likely have a positive impact on public health”.In a letter to Ellison, Labour’s shadow health minister, Luciana Berger, called for guarantees that the legislation would get enough parliamentary time to become law. Berger said that if the measure was not voted on before the election “it would be seen as a major victory for the tobacco industry”.

Why the rush? After all, whoever actually wins the next election there will still be a Parliament, one that can and will pass any number of laws.

The answer is contained in this from Chris Snowdon:

Two years on, we now have enough data on tobacco sales and smoking prevalence to say with confidence that plain packaging has had no positive impact.

The reason they're leaping up and down and screaming now, Now! NOW! is that the evidence of the effectiveness of the idea is now coming in. And it simply doesn't work: it does not do what it is claimed it should do. Regardless of what you think about the desirability of curtailing commercial freedom in the cause of reducing smoking rates, plain packaging simply doesn't reduce smoking rates. But there's people emotionally and politically invested in the idea so they insist that this must be imposed before anyone has a chance to actually consider this evidence.

Aren't we all just so ecstatically happy at the way we are governed?

How are your taxes spent

HM Revenue & Customs recently sent me an annual tax summary for 2013-2014.  This is an interesting document as it shows how my income tax and national insurance contributions were calculated, and how my money was spent by the government. We know that the only certainties in life are death and taxes, but we often treat taxes in abstract and do not think about them in absolute and concrete terms.  This new document provides a detailed monetary breakdown of how my taxes were spent excluding indirect taxes such as VAT and other duties.

A quick calculation of my contribution produced the following percentage breakdown:

Welfare	25%
Health	19%
Education	13%
State pensions	12%
National debt interest	7%
Defence	5%
Criminal justice	4%

85% of my taxes were eaten up by the above categories.  The balance was spent on transport, business and industry, government administration, culture etc. all less than 4% of the total.

I was stunned that welfare payments accounted for 25% of my total tax burden and that national debt interest accounted for 7%, higher than spending on defence at 5%.  It should also be noted that state pensions accounted for over a tenth of my personal contribution.

We all have to individually decide if we are happy with the way our hard earned cash is spent.  As Thomas Sowell said we all need to think what is the fair share of the money that I have earned that you are entitled to.   But what the tax document maeks clear is that if the government is going to successfully reduce the national tax burden on the hard working people and families, then tinkering around the margins is not going to make one iota of a difference.  Besides reducing the level of national debt, the only way forward is to tackle the top four categories that accounted for 69% of my taxes.  This requires political will that may or may not be there.

But Minister, we don't do this sort of central planning around here

Ed Davey seems to be a little confused as to his correct role in the matters of the world:

Investing in fossil fuels is becoming increasingly risky because global action to tackle climate change will curb demand, forcing companies to leave unprofitable reserves in the ground, Ed Davey, the energy secretary, has warned.

Financial authorities must examine the risks posed by coal, oil and gas companies to prevent pension funds investing in what could become “the sub-prime assets of the future”, Mr Davey said.

The comments are Mr Davey’s first intervention into the debate over the “carbon bubble”, the theory that the world’s existing fossil fuel reserves are overvalued because the majority must be left unburned in the ground if extremes of global warming are to be avoided.

Mr Davey told the Telegraph: “One has got to worry about the investments for pensioners.

"If pension funds are investing in companies or banks have on their balance sheets huge amounts of assets in fossil fuels, and those assets don’t give the return that people expect – because of changes in technology where low-carbon becomes cheaper or because of the world having to take action against carbon emissions – one has got to protect those pensioners and those investments.”

It's obviously entirely correct that the minister in charge of worrying about climate change should worry about climate change. Even, where and if action is necessary on the subject, suggest what action is necessary. However, in a market society that's as far as it goes. How people react to those plans and suggestions is entirely up to them and that includes where and how they invest their money.

Go away Mr. Davey, it's just none of your damn business.

As to the basic notion that fossil fuel reserves are going to be worth nothing in 50 years' time that's not particularly a problem. Anyone familiar with any part of the climate change debate should know about the controversy over discount rates: what interest rate should we use to consider the value of things that happen in the far future? Similarly, all should know that Stern and others have had to use a very much lower than market interest rate to reach the conclusions that they do. But note that these assets, the future values of fossil fuel reserves, are discounted at a market interest rate. Meaning that the value of reserves in 50 years' time is, in net present value encapsulated in share price4s, pretty much nothing. For that's exactly what discounting over long periods of time does: thus the problem that Stern had and the need to *not* use market rates in order to bolster the case to do something. This works both ways, of course it does. Just as the use of market rates would lead to future damage from climate change being so trivial in present values that we'd do nothing about it, the use of market rates to value reserves in the far future means that value is so trivial we do not much about them.

And yes, amazingly, markets do value reserves using market interest and discount rates.

Oh: and there's another thing. The big oil companies already include in their evaluations of those future values the effects of a substantial carbon price. They're already valuing everything after the effects of the policies that you're pursuing Mr. Davey.

Government loans for master's students is a risky business

The chancellor announced a student loan system for postgraduate master's degrees in the Autumn Statement. Although many have praised the move, it risks doing more harm than good. There are the obvious unintended consequence of encouraging students to undertake courses that aren't in their (or taxpayers') best interest, but here I'll focus on risks to the nascent funding market for postgraduate loans.

It's certainly a popular policy. As the FT reports: "Universities, unions and business groups have reached rare agreement in welcoming new £10,000 loans intended to ‘revolutionise’ the support available for students taking postgraduate degrees." But the devil will be in the detail. Just consider the Student Loans Company, which MPs recently requested face an inquiry following the ‘persistent miscalculation’ of money paid out in loans that will not be repaid. But more important than the wasted money, the government’s intervention in the postgraduate student loan market risks crowding out private sector solutions.

The failure of the Professional and Career Development Loans (PCDL), which are already subsidised by the government through the Skills Funding Agency, is principally due to banks being ill-suited to lending to students (and one the main reasons for this is because of excessive banking regulation). The analogy with SME business lending is the right one – students, like SMEs, are risky and banks are no longer best placed to lend to them.

Smaller and leaner companies can fill the gap where banks fear to tread. As we have seen with Santander’s partnership with Funding Circle in SME finance, the banks know that nimble companies have the skills to plug gaps in the market. In fact, entrepreneurial companies like Future Finance, StudentFunder and Prodigy Finance are already responding to the demand for loans for postgraduate studies.

Whether the bulk of the money comes from peer-to-peer (P2P) investors, alumni or universities themselves, the plurality of the private sector would trump the one-size-fits all approach that the government could take. We are on the verge of the equivalent of the funding revolution we are seeing in SME finance but this intervention risks stymieing it.

All is not lost. The government will consult on how to put the policy into practice and here they have the opportunity to do less harm than copying the PCDL model. As with SME finance, the government could funnel the loans through providers already in the marketplace. And, most importantly, government needs an exit strategy so that we don’t see mission creep and the destruction of a private sector solution.

Philip Salter is director of The Entrepreneurs Network.

The latest argument for paid kidney donation

Apparently people receiving kidney transplants sometimes have to put up with pretty much any old dog end:

Almost 300 patients have been given kidneys previously turned down by other hospitals, with the majority not having been informed.

One in 11 kidneys transplanted from dead donors recently were used after at least three other units rejected them, official figures showed.

Doctors said a shortage of donors meant there was a need to use lower-quality “second-hand organs”. Critically ill patients are being forced to choose whether to hold out for a better organ that might never come.

Recipients were, however, not told that the organs had been turned down elsewhere. Patient leaders are calling for improvements to be made to enable patients to make informed choices. Patients are told what is wrong with the organs, but surgeons said it was irrelevant how many others had rejected them.

Kidneys have been offered on a “fast track” scheme after they had been rejected by five hospitals if the donor was brain dead, or three if the donor died after cardiac arrest since 2012.

This is not, to put it mildly, optimal. However, it is a useful illustration of the basic point about kidney transplantation. Which is that, very simply, not enough people die healthy enough to provide the kidneys needed for those who will die without a transplant. This is true whether we use an opt in system, an opt out one, even if we nationalised the cadavers of everyone in the country. We have to supplement that cadaveric supply with live donations.

At which point we'll make our now ritual point. There's only one country in the world with no shortage of kidneys for transplant. There's also only one country that allows direct compensation of live donors (under quite strict government and ethical control, of course). Iran is the only place that manages both. given that this does in fact work, does save lives, it's really something we ought to be doing ourselves. And, given that a transplant is vastly cheaper over time than continued dialysis it would save the NHS substantial sums if we did just bung a live donor £25k or so.

There really are some things that are just too important not to have markets in them.

Dollarisation in Ecuador

Over at the free banking blog, Larry White has a very interesting post on dollarization in Ecuador. He outlines the history of the dollar in Ecuador and rehearses some of the key arguments in favour of free banking, and against its critics.

The dollarization of Ecuador was not chosen by policy-makers. It was chosen by the people. It grew from free choices people made between dollars and sucres. The people preferred a relatively sound money to a clearly unsound money. By their actions to dollarize themselves, they dislodged the rapidly depreciating sucre and spontaneously established a de facto US dollar standard.

Finally, in January 2000, Ecuador’s government stopped fighting their choice. Until that point the state tried to use legal penalties or subsidies to slow currency switching. Today the state threatens an attempt to reverse the people’s choice through legal compulsion.

He points out that the dollar was consistent with rapid economic growth and general success: between 2000 and 2013 the Ecuadorean economy grew a cumulative 75%, or an average of 4.4% annually, compared to just 36% in the previous 13 years (equivalent to 2.4% annually). And dollarisation has not just been good for output and living standards, but also the stability of banks:

Dollarization has also brought improvement to Ecuador’s banking system, according to two analysts at the Federal Reserve Bank of Atlanta. Mynam Quispe-Agnoli and Elena Whisler, in a 2006 article, noted correctly that dollarization, by ruling out an official lender of last resort able to create dollar bank reserves with the push of a button, eliminates an important source of moral hazard.

In this way dollarization has the potential to reduce risky bank behavior, and thus so “make banks runs less likely because consumers and businesses may have greater confidence in the domestic banking system.” Lacking the expectation that “the monetary authority would come to the rescue of troubled banks” whether solvent or insolvent, banks in a dollarized system “have to manage their own solvency and liquidity risks better, taking the respective precautionary measures.”

He ends by giving strong warning that a return to state compulsion in the use of currency will worsen the country's prospects. The state seems, White suggests, to be trying to bring back state currency control on the sly, through unifying all mobile payments under one system, something he argues is completely unnecessary.

In sum, there is no plausibly efficient or honorable reason for the Ecuadoran government to go into the business of providing an exclusive medium for mobile payments. Consequently it is hard to make any sense of the project other than as fiscal maneuver that paves the way toward official de-dollarization. I gather that President Correa does not like the way that dollarization limits his government’s power to manage the economy. He has compared the limitation to “boxing with one arm.” But as I have already emphasized, retiring the government from boxing against the economy by means of money-printing is precisely dollarization’s great virtue.

Rated R for Repression

On Monday, a new law governing the type of pornography that can be produced in the UK came into force. From hereon in, online, video-on-demand content made or sold in the UK must conform to the same guidelines binding DVDs sold in sex shops, with content more 'extreme' than the British Board of Film Censor (BBFC)'s R18 classification will permit prohibited.

Such services already had to adhere to the Crown Prosecution Service’s guidance on the Obscene Publications Act, which lists a number of activities it is illegal to broadcast. However, the BBFC’s R18 classification is far more restrictive and outlaws the portrayal of a far greater number of sexual acts. There's a very educational list of what's prohibited on obscenity lawyer Myles Jackman's blog should you wish to be exactly sure, but it includes anything other than ‘gentle’ spanking, whipping and caning, activities that can be classified as ‘life endangering’, such as strangulation, the portrayal of non-consensual sex and female ejaculation. The R18 rating also dictates what objects can be inserted into a consensual adult’s body and how, whilst outlawing instances of verbal and physical abuse, even if consensual.

The UK now has some of the most draconian laws on the production of porn in Europe. Mary Whitehouse might smile approvingly from beyond the grave, but for today's warm-blooded Brits this is a real kick in the nuts.

First of all, it’s bad for the UK porn business and its customers. In the grand scheme of things the impact on the fetish porn purveyor may not be huge, because UK citizens can still access content produced from around the world online. A number of UK performers and businesses will be affected, though, and forced to close shop or start lengthy proceedings to attempt to exempt themselves from the purview of the regulations.

These regulations apply to all video-on-demand services, which are regulated by the quango ATVOD (Authority for Television on Demand). ATVOD's authority stems from EU regulations surrounding 'TV-like' services. However, ATVOD takes a very liberal interpretation of what these 'TV-like’ services are, with both the BBC and the Sun newspaper appealing to Ofcom to have themselves removed from such classification. This large regulatory scope means that adult, video-on-demand websites in the UK are considered 'Tv-like’ and regulated as such, whereas in most other European jurisdictions the majority of sites are not.

However, these changes aren’t just bad for the UK’s comparative advantage in pornography - they’re a chilling act of censorship. The EU Directive empowering ATVOD states that content which ‘might seriously impair minors’ should be restricted to protect those under-18. However, completely prohibiting the production and sale of pornography beyond R18 classification is not ‘protecting children’ so much as seeking to prevent all adult’s access to it.

The law change was pushed by DCMS, who argued that the laws surrounding DVDs and online video were inconsistent. Maybe so, but to expand the remit of a censorship board which decides what is acceptable pornography and what is unclassifiably taboo is regressive and a significant restriction on freedom of expression. As Jerry Barnett, founder of the Sex and Censorship campaign claims, the R18 rating is "a set of weird and arbitrary censorship rules", for which "there appear[s] to be no rational explanation…they are simply a set of moral judgements designed by people who have struggled endlessly to stop the British people from watching pornography".

As has been noted, many of the acts prohibited for distribution under the new laws are those which offer an alternative to the mainstream porn offerings, are often performed and enjoyed by women, and considered empowering by those who engage in them. None of the acts are illegal to perform or enjoy, and some are simply bodily functions. We should be expanding the scope of the R18 classification to encompass all legal adult behaviour engaged in for pleasure, not busy censoring. To suggest that adults should be shielded by law from legal, but apparently 'unacceptable' acts of enjoyment is to return to the mentality towards homosexuality in 1967, when it was considered a 'shameful disability' and tolerated only 'behind locked doors and windows and with no other person present on the premises'.

Given that the new law only applies to UK porn producers and will not significantly reduce the amount or type of porn available in the UK, this seems a particularly ill-thought out piece of moralism.  However, one possible concern is that this will be followed by calls for foreign adult sites to register with ATVOD and be censored, or for ISPs to block the sites. And, as Myles Jackman warns, "pornography is the canary in the coal mine of free speech: it is the first freedom to die. If this assault on liberty is allowed to go unchallenged, other freedoms will fall as a consequence". Now that really is obscene.

Is this a fiddle in the Autumn Statement?

As we all know, knowledge is local and dispersed. A corollary of this is that you, the readers collectively, will always know more on any specific subject than one single writer on this side of the software. At which point to ask you a question. We've got the BBC telling us that public spending is going to fall to levels not seen since the 1930s. This does seem unlikely: although if we could get government back to the sort of levels of interference in our lives of the 1930s that would be both nice and an achievement.

The Office for Budget Responsibility (OBR) says spending on public services is heading for an 80-year low.

In its report accompanying the Autumn Statement, it projected that spending by central government on public services was going to fall from 21.2% of gross domestic product (GDP) in 2009-10 to 12.6% in 2019-20.

As a proportion of GDP, that would probably take spending on public services to its lowest since the 1930s.

That report is here.

Note that this isn't public spending as a whole: this is nothing to do with pensions or the welfare state or other transfer payments. This is solely what is spent upon public services, not money shuffled from one citizen to another.

And the question is, how important is that word "central" in that calculation?

For example, just imagine we moved NHS funding from its current system to the Swedish or Danish one? There it is, respectively, the counties and the communes that raise and spend the taxation that pays for the health care systems. That money simply doesn't flow through the national treasury nor the central government (which is why Denmark's standard national income tax rate is 3.76% and the top one 15%). We can all think of reasons why this might be better (local accountability, greater efficiency) and possibly some that it might be worse (postcode lottery!). But it's not obvious that there's either less or more government spending on public services in either system: but there's obviously a huge difference (as much as 10% of GDP) in central government spending.

So, of this reduction in central government spending on public services how much is a reduction in government spending on public services and how much is just the movement from central to some other level of government spending?

We could argue that the Scottish and Welsh NHSs, for example, are covered by the Parliament and the Assembly, therefore aren't any longer central government. There's a change coming in the allocation of business rates. As was these were all collected centrally and then apportioned. The new system will see some being retained locally and spent locally: if that a reduction in central spending but not in public spending? As things become devolved do they fall out of central spending but still remain public spending?

In other words, how much of this reduction is not really a reduction, just changes in the budgets that the spending is coming from?

Over to you: and let there be more light than heat.

It’s time the government let adults - even the smokers - grow up

While the under-12s and orchestras hit the jackpot in yesterday's Autumn Statement, tobacco companies were subtly thrown under the bus, as the Chancellor quietly committed to a consultation to determine how much more money tobacco companies should be contributing to public services; a pledge Labour has already signed on to as well. Specifically, the consultation will look at the “introduction of a levy on tobacco manufactures and importers,” which could raise taxes on tobacco companies by millions of pounds a year.

From the Independent:

The tobacco industry should pay for the costs it imposes on British society, the Chancellor has said, signalling that the Government will back a levy on tobacco manufacturers and importers.

In a low-key Autumn Statement announcement, George Osborne committed the Government to a consultation on how tobacco companies could make bigger contributions to the public purse.

Specifically he said:

Smoking imposes costs on society, and the Government believes it is therefore fair to ask the tobacco industry to make a greater contribution.

The Government will shortly launch a consultation on introducing a levy on tobacco manufacturers and importers.

My colleague Ben has just recently addressed these ‘costs on society’ the Chancellor references, and debunked a fair few of them. He also pointed out the known, positive effects of nicotine, and reminded us that, despite all the lies perpetuated around smoking and NHS spending, smokers, on average, take up less health expenditure over their lifetime than non-smokers do.

My two-cents goes something like this: What cost on society? Sure, there’s a cost on the smoker, who will deal with the consequences that come from inhaling all sorts of questionable stuff – but adults get to make those personal decisions and take those risks. All choices have a cost, but in the case of cigarettes, the individual bears the brunt of the consequences; not the public at large.

But more powerful than the adults trying to make decisions about their personal lifestyles is the government, which is treating cigarettes the same way children tend to treat stuffed animals – labelling them with human-characteristics; acting as if objects are inherently bound to be good or bad.

And when it comes to cigarettes, the government has deemed them inherently evil. And it’s the tobacco companies, of course, that are proliferating them (remember, public demand matters very little to paternalists), so naturally, they must be taxed to the death.

But you know who’s really going to suffer when push comes to shove and levies are imposed? Low earners – who probably will, but can't afford to, see cigarette prices rise when the levy comes into play. Because, at the end of the day, these levies aren't coming in to save public health; they're there to save vulnerable public budgets. It's time the government came clean on that—childish, indeed.

Things really are getting better

What are we to make of the UK Autumn Statement? The recovery is stronger than predicted, unemployment has fallen faster than anyone can remember, inflation is lower, interest rates are falling... the government is going into an election with the best economic figures in memory. All of that, the strong pound, growth in the 2-3% range, earnings up, inflation down - all of that should help the Conservatives, come the general election on May 8th.

The deficit is still a problem...bigger than forecast. But interest rates have been kept low, so borrowing has not been a strain: the bond markets have not been spooked.

As for the next election – and the Autumn Statement is very much a political thing – it looks like a large number of MPS, maybe 80 or more,, will be neither Conservative nor Labour, a big change on previous governments. The worst prospect is for a government with several coalition partners. One coalition partner is manageable – two or three, not so.

An unstable coalition partnership of several parties would be a disaster. The markets would just go into a tailspin. Ho hum. Right now, the government is benefiting from ultra-low interest rates. Again, if that does not last - and how can it - things might look much messier. The Conservatives want to cut public spending to more like 35% of GDP, the lowest it has been in decades. But if there is a complicated coalition arrangement, that is a no-hoper.

The eurozone remains the biggest trhreat to the UK. It is flatlining, going nowhere. That is one reason why the Office for Budget Responsibility has downgraded its growth forecast.

The bad news is that those on low income have seen almost no rise in their earnings since the financial crash. Those on top incomes have seen wages rise 20%. This is not a very even recovery.

Meanwhile, people have been lured off benefits and into jobs, thanks to the rise in tax thresholds that the Adam Smith Institute was promoting long before the Liberal Democrats thought about it – isn't it crazy that folk on the minimum wage should pay tax at all?

Ho hum, indeed. It's the economy, stupid. The Tories should have done a lot more to balance the books. But they may have done enough to convince us that things really are getting better.