Transforming National Insurance

The now-withdrawn proposal to raise National Insurance rates for self-employed people from 9% to first 10% and then 11% has achieved one positive thing.  It has drawn attention to the absurdity of the dual system of income tax and national insurance.  Dan Hannan’s piece in the International Business Times makes the point that the retention of National Insurance is done to conceal how much tax people are paying.  He says people would be very angry if they knew that in addition to their basic rate of income tax at 20%, their National Insurance payments took it to a very much higher level.

He is correct, but an honest government should let people know what tax they are paying, even if it changes their readiness to submit to tax increases.  The two taxes on income should be merged.  In the first instance the myth of insurance should be exposed by renaming it a National Insurance Tax, and having it at the same rates and thresholds as income tax.  Income Tax plus National Insurance Tax would together constitute a “Personal Tax’ that people paid on all earnings above the starting threshold.  A basic Income Tax of 20% plus the 12% employee contribution to National Insurance Tax would give a Personal Tax of 32%.

Government could thus merge the two without having the headline basic rate of Income tax leap through the roof.  It would, however, make clear to people what they were actually paying in Personal Tax, and would end the anomalies of having different thresholds and separate calculations.

There is more, though.  In addition to the employee contribution to NI, there is the so-called employer contribution of 13.8%, so-called because in reality it comes from the wages pool paid by the employer and would otherwise be available as wages.  Although it is called an employer contribution, in fact its incidence falls on the employee.  This could initially be renamed the employer contribution to National Insurance Tax.  Personal Tax would then consist of 32% paid by the employee, and 13.8% paid by the employer, for a total of 45.8%.

Once this change had bedded in and yielded savings in simplification, the employer contribution to National Insurance Tax might be given its real name, “Employment Tax.”  It would be seen for what it is: a disincentive to create employment.  It might also add to popular pressure for further simplification of the tax code and to heightened intolerance of government wastage.

The FT's odd suggestion about the EIB

As we all know the government is considering asking for the capital back from the European Investment Bank when Brexit occurs. There's perhaps € 10 billion in there and according to the rules shareholders in the EIB must be EU members. All of which seems pretty cut and dried to us.

Which brings us to this remarkable suggestion in the FT

:But the obvious point here is that a proportional slice of the EIB’s funds is far smaller than the cash the UK would receive over the years by remaining a member. A one off payment in return for losing billions of yearly funding.

Err, what?

I shouldn't sell my stock in Barclay's because of the loans I can get from Barclay's?  Loans which I do have to pay back note, so the loans aren't free money. While that return of capital is in fact free money, money that we're free to deploy in any manner we desire.

More than this it's not exactly as if the UK has a problem in borrowing money these days, is it? The Treasury can in fact borrow near unlimited amounts at present, almost certainly at lower interest rates than the EIB would offer too.

Whether or not Britain should stay in the EIB isn't something we have a collective view upon. But the argument that we should stay in just because they might lend us some money is ludicrous.

Failing to spot that the problem with Ethiopia is....

Things are not going well in Ethiopia, this we know. Riots and protests erupt. This is not a good sign for a society. It's also very much a pity - not just for the usual reasons that violence is a pity - because Ethiopia is one of those places discovering the joys of the early stages of a lift off into the Industrial Revolution. They're taking those first baby steps to getting rich, that thing that we've all done and which has escaped all too much of the world until very recently.

What's happening is that those living on a piece of land, working it perhaps, are being thrown off it in favour of those doing something else with it. But why?

The Guardian tells us what is happening but doesn't quite manage to grasp that cause, even though they mention it:

All land is theoretically owned by the government, merely leased by tenants, and when the government says go, you have to go.

This is the problem that private property solves. OK, sure, you can construct a very rickety indeed case that all land is still owned by the Crown (it isn't, but) and that compulsory purchase equates to this. But that's not so - compulsory purchase means that you get paid at the market rate for having to move and then only in favour of a project which contributes to the public, not private, good.

But in a system where the government really does own all the land, and can allocate usage without reference to current occupiers, the end result is what we see in Ethiopia. Who gets to use the land depends upon access to the political system and those excluded riot as a result.

It might even be true that no one made the land so there's no reason why anyone should own it exclusively. Except that, as with democracy, all other systems are worse.

Absolutely not, no, no way ever

This is one of the more vile suggestions for public policy that we have seen in recent years. And the correct answer to the idea being put forward is absolutely not, no, no way ever.

Police forces raised more than £5 million last year by selling off a treasure chest of criminals' loot, including flash cars, luxury yachts, light aircraft – and even guns.

But now the windfall is at the centre of a political row as demands grow to allow forces keep more of the cash they get from such sales to fund frontline policing.

Currently, half of the proceeds are handed to the Home Office, with more money going to the courts and the prosecution service. But Thames Valley's police and crime commissioner Anthony Stansfeld said: 'I think we should have it all.'

We object to the basic idea, that property can ever, let alone should be, confiscated without conviction in a court of law of an actual crime other than having some property whose financing cannot be proven.

But we also do actually have a good example in front of us of what happens when incentives are aligned, as they are in the US. There police forces do indeed keep most to all of property taken. And the effect is that the population is subject to legalised plunder. As the ACLU, the IfJ, Cato and others continually point out.

Policing for profit is not something which has a place in anything approximating to a liberal polity. Those who do the confiscating must never be those who gain from the confiscation having been done.

Absolutely not, no, no way ever.

It's not obvious that the Mail has understood Corporation Tax

We're not quite sure whether to be amused here at the lack of knowledge or to beat our heads on the keyboard at the, err, lack of knowledge. For the Daily Mail has decided to give us a listing of companies not paying what they think is the correct amount of corporation tax.

They start by getting one thing right

All retailers are supposed to pay corporation tax — a levy on company profits, currently at a rate of 20 per cent but falling to 19 per cent next month. 

It is, as they say, a levy upon profits. We might want to add the tiny detail that it's upon cumulative profits but it is still a tax upon profits. At which point they have a go at Vodafone and EE:


Corporation tax: Nil

It’s because Vodafone handed over exorbitant sums to the Blair government for 3G licences, and set aside those costs and other investments against its earnings here.


Corporation tax: Nil

But even though it registered big sales and profits in 2015, it wasn’t liable for corporation tax because, like Vodafone, it has carried forward costs from the £8 billion it invested in 3G back in 2000.

That is, neither firm has been paying corporation tax because they haven't been making any profits. The reason they've not been making profits is because they've already given all of the money to the government anyway.

In these days when we're all being told that we must be vigilant against the threat of fake news we can't help but feel that the legacy media might up their game a bit.

If women disproportionately suffer from austerity then they must have disproportionately benefited from the previous system

This is not something which we insist is right or wrong, something that should be or not, it's just a logical truth which we think is worth pointing out:

Labour has urged the Conservatives to carry out a gender audit of its tax and spending policies, as the shadow equalities minister, Sarah Champion, published analysis showing that 86% of the burden of austerity since 2010 has fallen on women.

Champion said research carried out by the House of Commons library revealed that women were paying a “disproportionate” price for balancing the government’s books.

Leave aside even whether there has been any austerity (spending seems to keep on going up after all) and whether, if there has been, there should have been. Concentrate instead just upon the logical implications of this:

In total, the analysis estimates that the cuts will have cost women a total of £79bn since 2010, against £13bn for men.

It shows that, by 2020, men will have borne just 14% of the total burden of welfare cuts, compared with 86% for women.

If cutting that welfare state means that women are getting less out now then that obviously means that before the cuts to the welfare state then women were getting more out.

No, we don't know either what is the correct split between taxing everyone to benefit women and taxing everyone to benefit men is. We might even point out that as men make the higher wages they get taxed more to boot. But that is still the correct question to be pondering. Not how much has that distribution to male and female changed but what is the righteous and just structure of that distribution in the first place?

The Treasury and the self-employed

The Adam Smith Institute has had many a run-in with the Treasury over the issue of self-employment. Fundamentally we like self-employment and they don't. They deny that, of course, but their actions over the years evince their attitude. They try to have as many as possible classified as employed rather than self-employed, and have moved whole categories of workers from the latter camp into the former.

It is easy to see why they take this position. Tax is easier for them to collect if the employer sends it off under PAYE.  It takes longer for a self-employed person to assess what they owe and to send it off.  Furthermore, the self-employed have legitimate deductions if they, for example, use part of their home as an office.  The Treasury prefers to get its money the easy way, without taking into account the effect it might have on individual lives or on the economy as a whole.

One group of Treasury officials actually suggested that all wages should be paid by employers direct to HMRC, who would then graciously remit to employees the sums they were due to be paid after tax.  It is illustrative of a mindset that sees all money in the UK as belonging to the Treasury except that which they generously hand out to its citizens. They actually refer to not taxing the wealth in our bank accounts as a "tax cost."

We like self-employment because it provides space for independence and for scope for entrepreneurship. It is an engine of growth and it creates jobs. Self-employment has helped prevent our jobless totals from ballooning after the 2007-2008 Financial Crisis. It is, for many, a step on the way to realizing the dream of owning and running their own business.

The Budget of March 2017 was a political miscalculation of the highest order. It broke a clear manifesto commitment and will be thrown at every future promise the Conservatives make. No less importantly, it hits the very people we should be trying to encourage. The self-employed are the aspirational, the upwardly mobile, the people who will create tomorrow's jobs and tomorrow's wealth. For them to face higher National Insurance sends the wrong signal. 

The reduction in tax-free dividend income is a further blow to people setting up and managing their own businesses. These two measures look like Treasury spreadsheet thinking that likes neat rows and columns. The self-employed pay less National Insurance than their employed counterparts, true, but they receive far fewer social benefits in return. 

MPs with political intuition have understood what a political disaster these twin measures would be, and implementation has been delayed pending consultation. It is not too late for the government to listen to objections and abandon the measures. It has happened before.

As Shell sells its oil sands it calls for a carbon price

As regulars around here will know we've rather annoyed everyone over this past decade. The point being that there's such a head of steam about climate change that the science doesn't particularly matter, something is going to be done. We've thus been insisting that if something is to be done then it should be the sensible thing, a carbon tax to provide a price for emissions.

At which point we get the news that shell is selling its oil sands operations:

Royal Dutch Shell has agreed to sell most of its carbon-heavy Canadian oil sands assets for $8.5bn (£7bn) as the chief executive warned that the industry risked losing public support without progress towards cleaner energy.

We would happily wager that that's little to nothing to do with emissions and all about money - we're really very sure that it is the folding stuff which motivates. As something much more akin to a manufacturing process shale is still getting ever cheaper and that changes the economics of high fixed costs production like sands, or even the larger deep sea or Arctic projects. The oil world has changed.

However, this part hasn't:

Van Beurden said that the transition to a low carbon energy system would take decades and government policies including putting a price on carbon emissions would be essential to phase out the most polluting sources of energy such as coal and oil.

Quite so, if we want to - and note at the top, we're saying that something will be done, not that necessarily something need be done - change behaviour in this manner then the method to use is putting a price on that externality. A carbon price, a carbon tax. As Nordhaus, Stern,. Quiggin, Tol, Weizman, Mankiw and every other economist on the issue insists.

If anyone actually wants to implement a solution then we know what the correct solution is.

Yes, we know there's a problem now let's get on and solve it

There is, to our mind, much too much attention paid to, reporting of, symptoms rather than the root cause. And it's only when the root cause is correctly identified that it is possible to come up with a solution:

Vulnerable tenants are being pushed out of the housing market as cuts to benefits and rising costs mean rents are “increasingly out of step” with household incomes, a leading industry body has warned.

Yes, we know this. We also know that student loans are a problem as their existence means that yuppies cannot buy a house because houses are so expensive. And unemployed people cannot move to London where the jobs are because housing is so expensive. And we can't keep key workers in expensive areas of the country because housing is so expensive. And there's a wealth generation gap opening up of those who can afford expensive housing through inheritance as against those who cannot because housing is so expensive.

And variously people have told us that we should have a higher inheritance tax to close that wealth gap, that key workers should have a special scheme for cheaper housing, that something must be done to aid the unemployed in moving and student loans must be changed so that yuppies can buy and then here, that something must be done about housing support for those on benefits.

All of which are to try to treat symptoms. It's as if a doctor were to note a severe rash, fever, headache, neck stiffness and intolerance to light and set out to treat each. Skin cream for the rash, aspirin for the fever, ibuprofen for the headache, a neck brace, a darkened room and so on. Instead of getting to the root cause and starting to treat the meningitis.

Not treating that root cause is entirely ineffective as well as likely leading to the death of the patient.

And so it is with housing. The common point here is that housing is too expensive. We do not want to construct some rickety apparatus to deal with each, nor even any, of the symptoms. We want to excise the original problem ,the expense of housing. And we know how to do that. Restricted supply means high prices, that's one page one of each and every textbook. The answer is thus to build more housing.

We have no shortage of land we only have a shortage of land that can be built upon. May be built upon is perhaps better. Mischa Balen sorted that out for us over a decade ago. Just let people build houses on the land they'd like to build houses upon.

Or as we tend to put it these days, blow up the Town and Country Planning Act and successors.

Response to Aidan Byrne on British Academia

Aidan Byrne of the Plashing Vole blog has written an article criticising the report I wrote for the Adam Smith Institute about the political views of British academics. 

Most of the first half of his article concerns the figures I cited from the THE poll and A.H. Halsey’s book. Since I have already responded to a separate critique of that aspect of my report, I will not repeat myself here. Suffice it to say that, even if the figures from the THE poll are off, they are unlikely to be off by enough to alter the conclusion that the British academy has a sizable left-liberal skew. In this regard, it is noteworthy that Byrne purports to speak for the entire academy in censuring my report:

A new report from the Adam Smith Institute on so-called left-wing bias in academia has been making waves over the past week. It has already largely been written off in the sector as lazy, unevidenced, ideological puff [emphasis added]

That “the sector” could already have “written off” my report as “ideological puff” would be rather surprising if there were a substantial number of conservative or right-wing academics. Here, Byrne implicitly admits that the British academy has a left-liberal skew.

Before getting to Byrne’s other substantive criticisms, it is necessary to make a few corrections. First, I am not affiliated to the Adam Smith Institute, other than via having written this report for them. Pace Byrne, the ASI’s funding sources are therefore completely irrelevant. I was simply asked by my friend Ben Southwood, the ASI’s head of research, to write a paper on a germane topic that interested me. Second, Byrne claims, “It’s bad enough that Noah Carl was paid to produce this stuff”. This is completely false; I was not paid anything to write the report. Third, Bryne describes me as a “white male author from a country governed by a white male billionaire”. Technically, this is true, since I am half-American. But I do live in the UK, which is currently governed by a white female non-billionaire.

Back to Byrne’s substantive criticisms. First, he completely misrepresents scholarly opinion on the subject of IQ, writing:

Point 2 depends on Intelligence Quotient scores, as though IQ isn’t thoroughly discredited as anything other than a measure of how people perform on IQ tests

And later in the article, he writes:

IQ is a load of cobblers often promoted by rather unpleasant people who have a habit of moving from IQ scores to theories of racial difference, by which they almost always mean superiority

Contra Byrne, IQ is one of the most valid, reliable and predictive variables in all of social science. It has not been thoroughly discredited. Rather, it has been continuously excoriated by scholars who view it as a threat to left-wing objectives. As Steven Pinker notes in his book The Blank Slate, these scholars are guilty of what’s known as the moralistic fallacy: “It would be bad if human intelligence could be quantified using a single number; therefore it cannot”. Three excellent overviews of intelligence research are: Arthur Jensen’s The g Factor, Ian Deary’s Intelligence: A Very Short Introduction, and Stuart Ritchie’s Intelligence: All that Matters. Indeed, Byrne cites Richard Nisbett’s Intelligence and How to Get It as if this were the final word on the subject. Yet that book has itself been subject to sustained criticism: by Rushton & Jensen in the Open Psychology Journal, as well as by James Lee in Personality and Individual Differences.

Second, Byrne accuses me of attacking a straw man by “by wondering out loud whether academics are left-wing because they’re more intelligent”. Yet I cited several previous studies that have entertained precisely this hypothesis (please see pp. 6–7 of my report).

Third, Byrne erects his own straw man, suggesting that––by discussing the so-called status inconsistency hypothesis––I was accusing left-wing academics of being “bitter purveyors” of the “politics of envy”. To quote myself:

the left-liberal leanings of academics may derive from a peculiarity of their social-class positions, namely that they receive low incomes relative to their advanced educational attainment and rich cultural capital

I should note that I did not originate this hypothesis. Rather, it goes back to the work of Erving Goffman, Alwin Gouldner and Pierre Bourdieu. Byrne goes on to claim, “There’s no evidence, but Carl’s just going to leave it there for you to think about.” Once again––contra Byrne––I cited the work of Neil Gross, who found that a measure of status inconsistency made a modest contribution to explaining the liberal views of American professors.

Fourth, Byrne subtly accuses me of racism a number of times. In fact, he mentions “the Nazis”, “Jim Crow” or “racial superiority” an impressive seven times during the course of his ~2,800 word article. Then, about two thirds of the way down, he rather bluntly states:

The true purpose of Lacakademia becomes clear. It isn’t really about the sociological curiosity of imbalanced political views amongst academics. It is about academic rejection of theories of racial superiority.

I would assure Byrne that I am not a racist, but I very much doubt that such an assurance would convince him, given his evident talent for reading racist motives into scholarship. However, in order to assuage any concern the reader might have that I am a fulminating, hood-wearing, cross-burning member of the KKK, I will note that the only sentence of my report in which race differences were mentioned simply stated:

When Charles Murray published his book the ‘The Bell Curve’, which, in one chapter discussed studies of race differences in intelligence, he was roundly excoriated for allegedly trying to demonstrate that blacks were genetically inferior to whites, an accusation that is 15 still levelled at him 20 years later [link added]

Fifth, Byrne includes the former Harvard president Lawrence Summers in his line-up of “racial superiority theorists”. I should point out to Byrne that he has the wrong ‘ism’ here: Summers was accused of sexism not racism, as I note on p. 14 of the report.

Sixth, Byrne claims that I failed to provide “any contextual analysis”. Indeed, he asks “What of the shift in the UK to student fees, to managerial over-reach, to the employability agenda?” Once again––contra Byrne––I explicitly discussed the issue of student fees, writing:

Because they now have to pay hefty fees upfront, students are increasingly treated like consumers, rather than prospective scholars, so that when they demand restrictions on free speech, universities supply those restrictions accordingly

In summary, I was not paid by the Adam Smith Institute to write the report, and fail to see the relevance of their funding sources to any discussion of my report’s veracity. I reject the accusation that I am a “racial superiority theorist”. And, finally, I would point out that one does not have to be conservative or right-wing to be concerned about the extreme left-liberal skew seen in some academic disciplines. Heterodox Academy, an American organisation set up to promote intellectual diversity within the academy, boasts many progressives and centrists, as well as conservatives and libertarians, among its membership.