Why would anyone want a nationalised railway?

It's entirely true that the young of today don't recall the joys of British Rail as was. Just like they can't feel and understand the joys of an Austin Allegro given that they've all rusted into nothing already. But we would hope - against hope as it were - that they could look around the world at state owned railways and consider whether that's what they would really like:

Normally, Agarwal’s bitter experience would have remained a private story. News channels in India very rarely report on the daily hardships of the poor, or show interest in why the trains used by the wealthy run on time while those used by the masses routinely run late. Most news shows restrict themselves to broadcasting studio-based political slanging matches.

This being how government works of course, it listens to those with political voice and doesn't to those without.

Of course, everyone arguing for rail nationalisation is suffering from a variant of Kip Esquire's Law, that every central planner always imagines themselves doing the planning. Here, that it will be my interests that government will listen to. Instead of it being those people over there who might actually influence an election - the way to bet who does have political influence.

Sure, comparing British railways to Indian could be considered a little unfair - although we should remind ourselves that we did build them and gift them their management structure. But even so this is how government control of something works out. Things are pretty good for those who government wishes to favour, because that favours those running government. Everyone else is pretty much out of luck.

The advantage of it all being a profit making concern is that everyone's money spends the same way so gaining it by providing what the poor want, as well as those with political influence, still makes you rich. Therefore it happens, the poor do get catered to.

Happy Tax Freedom Day!

Hooray! It's that time of the year again where we've stopped working for the taxman and started working for ourselves! While Christmas always feels like it gets earlier each and every year, Tax Freedom Day is actually getting later and later.

Tax Freedom Day is our way of making Britain aware of the sheer volume of taxes we're all paying, some every single source. Britons love knowing this stuff and you may have seen it covered in the papers today. In addition to the reports you can read Dr Eamonn Butler's words in City AM, Matt Kilcoyne in the Daily Express, and Sam Dumitriu on CapX

In this week's #MadsenMoment, Dr Pirie explains just why we calculate Tax Freedom Day and why we should celebrate this moment of tax liberation!

The balance of old and young

There is much current comment about an alleged imbalance between addressing the problems faced by young people today and attending to those bearing more upon older people. Some analysts claim that too much emphasis has been placed on meeting the problems of the elderly, and not enough on those of the young. 

Older people have a triple-lock pension, rising with inflation or wages, or at 2.5%, whichever is the largest. They have free travel passes, a Christmas bonus, and a winter fuel allowance. Those over 75 have free TV licences, plus free or reduced admission to many attractions and services. Many are home-owners, free of mortgages, with private pensions to supplement the state’s provision.

Young people, by contrast, find it difficult to become home-owners with an inadequate housing stock, rising prices, fairly static incomes, and difficulty in saving enough for a deposit. Many graduates face tuition fee debts of nearly fifty thousand pounds. They face increased taxes and National Insurance, and many lack the comfort of an adequate private pension to support them in retirement.

This has created a political tension between young and old, a tension that comes out at the ballot box. Some of this showed in the 2017 UK general election, when the Labour Party offered to cancel tuition debt and help young people with social housing and a minimum wage increase. The Conservatives, by contrast, offered little to young people, and threatened the elderly with the confiscation of their homes to defray social care costs.  In that election Labour did better than expected or predicted.

The elderly are more numerous than the young, and historically more likely to vote, although this may have been less true than usual in the 2017 election. Some political observers see the prospect of a bidding war at general elections, with parties bidding for the votes of these two divergent constituencies. Should the young be taxed to fund benefits for the elderly, or should cuts in benefits for the old finance tax cuts for the young? Someone has to pay for the benefits.

There is a way to avoid having today’s young funding today’s old. It can be done by having yesterday’s young funding today’s old. This involves young people building up savings funds while they are earning, and using those funds to support themselves when old. It still involves the young funding the old, but removes the bidding war by having the elderly pay for their own benefits from savings when younger, accumulated over their working lives.

This personal fund, dubbed a “Fortune Account” by the ASI, would be the property of the individual, with any money remaining at death forming part of a person’s estate, to be inherited by heirs.

The Treasury fears that some people would not save enough, but dump themselves onto a state unable to let them starve, people the Treasury calls “freeloaders.” This is a valid concern, and one reason why people would be required to pay into such funds. There would be no net gain in compulsion, since National Insurance is not voluntary either.

The transition itself presents a major problem. One generation has to save for their own retirement, while simultaneously funding the commitments made to today's elderly. It might involve some one-off source of finance to fund the changeover, perhaps by a sale of remaining state assets such as land and buildings.

People would choose between competing providers to handle their Fortune Accounts, as happened when Sweden privatized its state pension scheme. The state would provide funds on behalf of those unable to earn enough to finance their own savings.

The change would be disruptive, without doubt, but it would prove a massive source of future investment as the providers put the funds to good use, investment that would augment economic growth.

Above all, it would end the divisiveness caused by the political struggle between young and old as each group sought to benefit itself at the other’s expense. And it would end the imbalance between them.


David Gauke is responsible for teen violence and murders in inner cities, not middle class cocaine users

Not that we think this is unusual, a politician getting things the wrong way around, but David Gauke is displaying a particularly disturbing misunderstanding of cause and effect here

Middle class cocaine users who take the drug at dinner parties should feel responsible for rising levels of teen violence and murders in inner cities, the Justice Secretary has said.

David Gauke said the drugs trade was “strongly linked” to violent crime as he took aim at people who take the Class A drug in the safety of their own homes at suburban get togethers.  

We admit to being a little out of touch with what is fashionable at middle class dinner parties these days, car keys in a hat, cocaine, some triumph of a dessert with Carte d'Or, who knows? But responsibility here is easier to work out.

There being, we are sure, many things that the middle class enjoy consuming in the privacy of their own homes. We are also quite certain that the violence is indeed linked to the drug trade. 

But not to that middle class desire to consume said drugs. For the markets producing the steak, car keys, hats, ice cream and so on which are consumed at such gatherings do not produce violence nor dead teenagers. The market for drugs does.

There is therefore something specific to said market which causes the violence, middle class dinner parties not being it.

Ah, yes, that's the one, it's the illegality of supplying those goods to said tete a tetes, isn't it?  Just like when the booze which is consumed at them - in moderation these days of course - was illegal that provision led to that Prohibition caused violence.

Who is responsible for the illegality? Mr. Gauke, please go find a mirror.

Markets are voluntary cooperation, it's only when they're illegal that they produce violence. Over to you Mr. Justice Secretary.

Make the tax system simpler, sure, but don't make it worse

The Office for Tax Simplification is trying to make the UK tax system simpler. That's a great idea. But it's important to note that we shouldn't be making the tax system worse as we do so - that, sadly, being precisely what the OTS is doing here with its suggestion over the taxation of dividends.

The OTS says the allowance leads to complex calculations in some cases, and suggests one option is to tax any dividend income above the allowance at people's income tax rates of 20 per cent, 40 per cent and 45 per cent instead.

That is absolutely not the way to do it at all. Quite the contrary, we should be lowering those dividend taxation rates. Or alternatively changing the corporation tax regime.

The reason being something that is mentioned in the full report but not teased out. Before recent messing around with the system there was a clear system of imputation. Corporate profits are taxed, first, at the level of the company, through corporation tax. Dividends are - always - paid out of this post-corporation tax income.

So, when the dividends arrive in the hands of shareholders they have already paid some tax. Do not think that the company pays then the shareholders - this is one stream of income and it is the accumulation of taxes upon it which is the true tax rate. Thus that old system operated along the lines of "some tax has already been paid, pay only a little more now." More specifically, higher income in general taxpayers paid more tax, bringing that on their dividend income up to something like their marginal rate, lower income taxpayers perhaps nothing as corporation tax had already taxed it at their marginal rate of income tax.

The suggestion is to entirely do away with any vestige of this imputation, the current version of which is to have lower dividend tax rates.

This is wrong. For it is still true that the dividends are paying tax at the corporate level and then also at the individual.

Yet it's entirely standard that we want to tax capital incomes at lower rates - even nothing - as opposed to labour incomes. The reason being, obviously enough, that capital accumulation is what makes then society generally richer over time. We want people to be saving and investing therefore.

We're aware that politics means that the rentiers are not going to be allowed to have tax free incomes, even though that's what optimal tax theory and standard economic theory insist. The Mirrlees Review shaded this, by arguing that normal profits should indeed be tax free, only excess such - economic rents if you prefer that terminology - being taxed.

Yet it is still true that we want to have lower, not higher, capital income tax rates than labour income. Raising the dividend tax rate to that of standard incomes goes the wrong way with this. That the profits are already taxed at the corporate level means we'd have higher accumulated taxes upon capital income. Entirely the wrong direction of travel for the tax system and economy as a whole.

We could avoid this mistake and still simplify the system by stating that dividends be paid out of profits untaxed at the corporate level, without corporation tax applied. But that won't fly either, given the large revenue gained by taxing foreign shareholders in this manner.  

By not considering the economics of the matter, by mentioning but not examining that point of imputation, the OTS has recommended moving the taxation system in entirely the wrong direction. Capital incomes should be taxed less than labour incomes, doing the opposite is a terrible suggestion.

A confusion about how people sell this internet data

An interesting little case of how a subject is framed swaying public opinion and action upon that very subject. The new GDPR regulations, those about who has what digital data about us and what they may do with it.

The public cry is that "they're selling our data" - even that data is the new oil and it should all be taxed most heavily. When that's not really what is in fact happening at Facebook, Google and the like. What they are doing is much more akin to the standard media pack of the legacy media.

If you decide that you might like to advertise in, say, the Telegraph, or Mirror, then you'll ask to see the demographics of their audience. You can then decide whether you'd prefer to advertise to broadsheet readers or tabloid, those leaning right or left, the different age cohorts that read each and so on. You are given as much data as they have on who their audience is.

Facebook, Google and so on do much the same thing. Instead of saying here's our audience though they ask, well, which portion of our audience would you like to advertise to? The data on offer is how would you like to slice and dice that audience we've got available?

The sale is of the advertising, the sale is not of the data itself. The data is to inform the sale of the advertising in much the same manner as that standard media pack. It's just a more fine grained set of distinctions.

To our mind this makes the basic cry, that they're selling our data, incorrect. Incorrect to such an extent that it's deliberately misleading - you know, a propagandistic lie?

But then that's politics isn't it? Finding a justification for what you'd like to do anyway rather than trying to solve any real world problem.

Even Jeremy Hunt doesn't believe what he's just said about the NHS and taxes

We can prove that this is wrong very easily:

People want to pay more in tax to fund hospitals, Jeremy Hunt said on Thursday night in a direct challenge to Philip Hammond, the Chancellor.

The Health Secretary said people “recognise that through the tax system we will end up having to contribute more” to support the National Health Service.

He added that “there is a willingness to do that, providing they can see the money going to the NHS, providing they can see that it's not being wasted”.

If people wish to pay more taxes to fund the NHS then where are those more taxes funding the NHS? 

As one of us pointed out over a decade ago, after burrowing into the Treasury to get the information, a reasonable guide to the number of people who voluntarily pay more tax each year is a handful. Most of whom are dead. Subsequent checks on the same cheques have shown the situation doesn't change much over time.

We can be more expansive in our definition of course and look at those who donate to, or volunteer in, the NHS itself or a specific hospital. Which is great, we're all in favour. All of us should indeed be deploying our resources in the manner which gains us the greatest utility.

But it is still true that there is no pent up desire to pay more tax in order to fund the NHS. Those who wish to do so are already doing exactly that and we can measure, accurately, how much they are doing so.

Now, there's a very much larger number of people who want other people to pay more tax to fund the NHS. But that's a rather different statement, isn't it Mr. Hunt?

As George Monbiot fails to note, we already do this and he complains about it

George Monbiot tells us that it's just appalling the manner in which executives at companies get to walk away, protected by limited liability, when things go wrong. George has also been known to complain about how much executives at companies get paid. Which is a pity as the two are intimately connected. Here's his suggestion:

As for the executives, I have a tentative proposal of my own. Any managers earning more than a certain amount – say £200,000 – would have half their total remuneration placed in an escrow account, which is controlled not by the company but by an external agency. The deferred half of their income would not become payable until the agency judged that the company had met the targets it set on pension provision, workers’ pay, the treatment of suppliers and contractors, and wider social and environmental performance. This judgment should draw on mandatory social and environmental reporting, assessed by independent auditors.

If they miss their targets, the executives would lose part or all of the deferred sum. In other words, they would pay for any disasters they impose on others. To ensure it isn’t captured by corporate interests, the agency would be funded by the income it confiscates.

The thing is, we largely - imperfectly of course we're human after all - do this right now. And we've been doing increasing amounts of it over recent decades too. It's the explanation for why executive pay has been rising so much. For we do indeed insist that they don't get all their pay as just pay. They get substantial parts of it - the vast majority of any of the large numbers too - in the form of shares. Maybe options, more likely these days restricted stock and good practice these days is that sales can only take part some years after retirement.

The reason for this being that we'd like to make sure that in return for that bounty being paid those executives are in fact hitting those real world targets. That a substantial portion of their pay is at risk is also why the pay is larger. We all do insist upon more money for shouldering more risk.

All of which leads to an interesting point. That if we were to do as George suggests then executive pay would rise even higher, wouldn't it? The more of it is at risk then the more will be demanded simply because we humans do demand higher incomes for shouldering more risk.

Grammar schools make no difference - great, let's have more grammar schools

The standard argument against grammar schools is that they confer privilege. Presumably the complaint is that if the academic are given an academic education then this is somehow unfair. At which point we've the news that grammars do not in fact confer such privilege. Great, so, let's have more grammars then:

Grammar schools do not help children achieve academic success, a UCL study has claimed.

Researchers also said attending a grammar school had no positive impact on a teenager's self-esteem or their aspirations for the future.

The study, by the UCL Institute of Education, comes weeks after the Government announced plans to pump £50 million into creating more places at grammar schools.

"Against the conventional wisdom, we find little evidence that gaining entry into a grammar school has a positive impact upon most aspects of young people’s lives," the study concludes. 

"This leads us to an important conclusion: gaining entry into a grammar school may actually not be as important as many assume."

Professor John Jerrim, lead author of the study, said: "Our findings suggest that the money the Government is planning to spend on grammar school expansion is unlikely to bring benefits for young people.

"Even those children who are likely to fill these new places are unlikely to be happier, more engaged at school or have higher levels of academic achievement by the end of Year 9."

Co-author Sam Sims added: "Schools across the country are already hard-pressed financially. Our research suggests that the Government would be better off directing their money towards areas of existing need, rather than expanding grammar schools."

That is, of course, entirely the wrong conclusion to be reaching from the evidence presented.

The basic democratic deal is that we, the taxpayers and voters, get what we want. The restriction upon this is when what we so desire limits or impacts the rights of others among us. It's always, or at least should be, a negative restriction.

Spending money into order to inculcate privilege among the few would therefore be something that - potentially at least - shouldn't be one. But if that privilege isn't being created then the question becomes much simpler.

Do the people who pay the taxes, the voters, desire grammar schools? Yes, most certainly they, we, do. Given that there is no unfair privilege being created, as this research insists isn't, there's no reason to deny us all our wish, is there? 

 The finding that grammars do no harm means we should have more grammars.


British property taxation is already very high by international standards

It's astonishing quite how long people can believe things which just aren't so. Polly Toynbee is, rightly enough, casting around for some method of paying for the social care which an increasingly elderly population requires. In doing so she alights upon property - there's a stash of economic value which can be taxed!

The thing is though she's wrong:

Property is undertaxed in Britain so there’s symmetry and fairness in reaching into home values to pay for care. 

Undertaxed compared to what? For as we've pointed out before Britain gains more of its tax revenue from property than any other OECD country. Vastly so in fact. The OECD average is under 2% of GDP, we're at over 4% of it. We gain 12.5% of our total revenue from it, the average is 5.7%.

Any comparison with that reality around us isn't going to leave the impression that we undertax property, is it? 

It's not actually the being wrong which bugs so much. We have in fact told Polly this, directly, a number of times over the past decade. And yet still she insists upon what just ain't so.