Can we at least get the basics about business rates right?

This is something of a forlorn hope for clearly we cannot manage to get the basics about business rates correct. A pity, for there's quite clearly something between a groundswell and a deliberate campaign going on concerning the subject. 

Yes, it's entirely true that expensive retail properties pay more business rates than sheds around the back. But everything else that is being said is wrong:

The popular villain of the UK piece is business rates, the property-based tax that raises £29bn a year for the Treasury, of which retailers cough up £8bn. It isn’t the only culprit, but the complaint from bricks-and-mortar shopkeepers is essentially correct: business rates were invented in a pre-internet age and the system is archaic. A useful tax system would help to reverse the damage done to high streets from the 1980s by sprawling out-of-town retail parks. Instead business rates, as currently structured, add to the problem.

The thing wrong here is that the taxes aren't actually paid by the retailers or tenants. Sure, they hand over the cheque but everyone is up to date with the idea of tax incidence. Certainly, the government and those writing newspaper business editorials must be otherwise we'd be having the ignorant in those important positions, wouldn't we?

The price people are willing to pay to have that shopfront gaining that footfall traffic is that price. It's set by the willingness to cough up for the limited supply of it. How that is divided into rent to the landlord and tax to the government makes no difference to that demand for it nor the price willingly offered by tenants and potential such. The landlord is deeply interested of course - reduce the tax burden and their portion of that total price, their rent, rises. We have an empirical test of this, when business rates were reduced or abolished in enterprise zones rents rose in tandem. 

A reduction in business rates will lead to - ceteris paribus - rent rises. Or perhaps, given the excess of retail property at present, smaller falls in rent than would otherwise occur. A reduction in rates thus would benefit landlords and a reasonable assumption would be that the groundswell, or deliberate campaign, is being driven by such and their interests.

There is a further point:

The most startling statistic was provided by the New West End Company, an alliance of central London retailers, hoteliers and property owners. It calculated that Marks & Spencer, a company with a turnover of £9.6bn last year, paid £184m in business rates, whereas Amazon, with slightly smaller revenues in the UK of £7.3bn, paid substantially less in rates – just £14m. Amazon, of course, operates from more lightly taxed warehouses and requires fewer properties. New West End calculated that a 1% sales tax on online businesses could raise more than £5bn, which could go some way to levelling the retail playing field.

Rates are a tax upon the use of a scarce resource, that expensive property. If someone has worked out a way to economise on the use of an expensive input then why would we want to tax them to confiscate their greater efficiency? It's as if we decide to tax the cyclist because they're not using enough petrol.

Rates are incident upon the landlord, not the tenant, and we don't want to tax people using less property to supply desires anyway. Once we do all agree upon those two facts then, and only then, can we start to have a reasonable and informative conversation upon what, if anything, we're going to do about business rates. Roll on the day we get informed politics, eh?

Some people really are easily confused

We're treated, again - and aren't we the lucky ones - to a rant about the evils of ticket touting. We're told that the very idea entirely turns the basics of economics on its head:

The phenomenon of secondary ticketing – a less pejorative term than “touting”, reportedly invented by Viagogo founder Eric Baker – turns the economics of supply and demand on their head, and enables a hardcore of dedicated and professionalised sellers to distort the market.

That something in short supply relative to the demand for it rises in price is not what we'd call overturning those basics. Nor the thought that supply apparently in excess of demand - as with Morissey's recent tour so we hear - leads to a fall in price to zero.

We would assume that this is a vindication of those basics ourselves, a proof.

Still, it's entirely true that many people don't like this. Equally, that many do, as it does have to be the punters, the consumers, coughing up the money to the touts. And we not only do but must believe that people freely handing over their own money for something believe what they gain to be worth the amount they're paying.

But many don't like it. So, what could or should be done?

In a bid to disrupt the secondary sites, entrants to Sheeran’s recent stadium shows were required to bring ID and booking confirmation from an authorised primary ticket agent. Resale was authorised only through an official face-value service, Twickets. Thousands of tickets purchased by known touts were cancelled, and fans who inadvertently purchased through Viagogo (the only secondary site to list tickets) had their tickets invalidated – but were given an opportunity to buy face-value replacements and provided with assistance to claim a refund under Viagogo’s guarantee. In this way, fans have clawed back hundreds of pounds, and in some instances thousands. And all saw the show at the price intended by the artist. 

Others are trying alternative methods. At their recent series of Northwich shows, the Charlatans successfully sold tickets exclusively through 100% mobile service DICE. Iron Maiden have also used so-called paperless tickets, in their case working with Ticketmaster – and primary ticket companies including See, Eventim, Resident Advisor, Skiddle, The Ticket Factory, Gigantic, Eventbrite and Music Glue are either offering or promoting consumer-friendly resale. Last week, it was announced that the O2 and the SSE Arena (Wembley) would be introducing a new fan-friendly ticketing system this autumn.

I suspect this is the kind of true secondary market that most music fans would like to see, as well as the majority of artists – which is why we need more of them to follow suit.

Looks good to us. Market competition to provide those fans with what they desire is leading to, well, it's leading to competition in providing those fans with what they are thought to desire. Those who sate those desires better will end up dominating the market. Which is what we want to happen anyway, consumers get to express their preferences and in doing so train suppliers into producing what it is that they do desire.

What we cannot see is any necessity to change things at the system, or legal, level. That market, pure and unadorned, seems to have it all under control already.

In fact, we see good arguments against system or legal changes. For quite obviously - see above about people paying touts in the first place - some do desire to be able to pay more to jump queues, happily paying speculators to gain what they desire. Others would prefer not to, varied artists taking different positions on the same point.

It's only the market solution which allows the granularity of all being able to sate those varied desires. Thus it is only the market solution which is appropriate, isn't it? 

We're never going to get anywhere thinking like this - or not thinking to be accurate

The basic sentiment here we entirely agree with of course. Innovation, raising productivity, automation - they're the very things which make society richer over time. There's no reason whatsoever why such in health care won't do the same - thus we'd like to have innovation, rising productivity, automation in health care, yea even in the NHS.

Great, now, how do we get them?

From vaccines and antibiotics to memory metal stents that widen narrowed arteries and algorithms that process radiological images and let us see the earliest signs of disease, innovation has been saving lives since the inception of the National Health Service 70 years ago. It is this blend of new molecules, materials science and biomedical engineering, in partnership with digital systems, that will continue to transform our expectations of life and survival in the 21st century.

The problem with the piece, with the discussion, is that it ignores the two things we do know about such health care innovation. The first being that we've already tried that top down, planned, method. At this distance quite how much money was sprayed against the wall we're not sure. £13 billion was it on patient records? It certainly wasn't £1.3 billion and even Blair's NHS didn't waste £130 billion. Those interested in a more accurate number can look it up but the important point is that the output was zero. We gained precisely nothing at all usable from the expenditure of that much national wealth.

This is not the way to promote innovation. Which leads to the other thing which we do know about innovation, derived from the work of William Baumol - yes, he of the Cost Disease point.

Planned systems can invent but they don't innovate. Market based systems are about as good at invention and vastly, hugely, better at innovation. The distinction here being between creating some new thing and putting it to use. It is precisely the competition from other suppliers of goods or services which drives the application of new technologies. The fear of losing out as others do innovate to lower costs, higher productivity.

So, we'd like to have the NHS innovate, would we? That means having markets in the NHS, not a centrally planned system. Something that really needs to be mentioned in any discussion of how to get more innovation into the NHS, no? For yes, even the government still paying all the bills but with multiple suppliers will mean more innovation.

Freedom's Fighters 2 – Daniel Hannan MEP

The second in the ASI’s monthly series honouring “Freedoms Fighters” featured Dan Hannan MEP for Southeast England since 1999. He answered questions from Dr Madsen Pirie as to what motivates him, and how he survived in the European Parliament without going native.

Before an invited audience of 24, he held forth about his love of Shakespeare and his views on the food of his native Peru, as well as on the shenanigans of the European Union. You can watch it below 👇

Mancur Olson was right you know

A basic contention of Mancur Olson was that democratic politics becomes just an almighty catfight among special interests to get snouts in pots. Hmm, perhaps dedicated public servants arguing that it is they and their specialty which is the solution to our ills.

Same difference.

As with this listing of what needs to be done about the NHS. Taking them in order, the bloke who thinks that society must be upturned to reduce inequality thinks that society must be upturned, inequality reduced, in order to save the NHS. The lady from the professional union for general practitioners thinks more should be spent upon general practitioners. The GP who actually works in community care thinks more should be spent upon community care. The bloke from the professional union for local government authorities thinks local government authorities should have more money.

My, perhaps Our, isn't there are lot of thinking outside the box there? 

Or, you know, Mancur was right?

Freedom’s Fighters 1 – Mark Littlewood

The ASI has pioneered a new event format.

In a monthly series honouring “Freedom's Fighters,” the ASI hosts interviews with some of those who have campaigned for free enterprise, free trade and individual liberty.

The format features a 20-minute interview before an invited audience of 24, as Dr Madsen Pirie asks questions that try to bring out some of the personality of the subject, as well as their beliefs and values. There are no questions from the floor, just drinks afterwards and the chance to question the subject in person.

First off was Mark Littlewood, defending freedom, free enterprise, and Southampton Football Club...

That idea of a national investment fund then

A highly fashionable idea these days is that there should be a national investment fund. Financed by borrowing perhaps, by just printing money maybe, even that taxes should be higher so as to allow the government to direct more investment into the economy.

This does rather fail the usual economic test of efficiency - we've really no evidence at all to suggest that government is better at identifying nor investing in projects than the private sector. Other than the most obvious public goods that is - and do note what a public good is. Not goods for the public but things which, by definition, the private sector isn't going to be good at investing in. The absence of infectious disease from that combination of treated drinking water, drains and vaccines is a public good, but it's the absence which is. Clean water, sewers and injections are not themselves public goods. 

We're suspicious of the likely success therefore. But we also have an interestingly different problem from Malaysia:

1Malaysia Development Berhad (1MDB) is a Malaysian strategic development company, wholly owned by the Minister of Finance (Incorporated). 1MDB was established to drive strategic initiatives for long-term economic development for the country by forging global partnerships and promoting foreign direct investment. 1MDB focuses on strategic development projects in the areas of energy, real estate, tourism and agribusiness.

Strategic investment in essential areas of the economy. Sound familiar? 

The former Malaysian prime minister Najib Razak has appeared in court in Kuala Lumpur where he was charged with corruption-related offences over his alleged involvement in the multibillion-dollar 1MBD corruption scandal.

In a stunning fall from grace, the former prime minister was charged with three counts of criminal breach of trust and one count of corruption in a prosecution led by the attorney general, Tommy Thomas. He has pleaded not guilty to all charges.

Some billions are said to have gone missing and into the pockets of the political class. Sure, we could say that such would never happen here but then we did have T Dan Smith and other such, didn't we?

PJ O'Rourke's point that we should never let the people with all the guns and the people with all the money be the same people comes to mind.

Or to be a little less apocalyptic about it, let's not think about outright theft. Instead, politically directed investment will go to those with the right political connections, won't it? It'll still be a slush fund for the friends of the politicians in power. Which isn't, when we come to think of it, quite the way to make the rest of us richer, is it?  

Happy Birthday America!

In this week's Madsen Moment, Dr Pirie sends his love to the land of the free and the home of the brave. Well, it is the 4th July after all!

Don't tread on memes

I'm in City AM today blasting a new EU law that will ban memes. 

"The law effectively bans memes, as even the best filtering systems will struggle to distinguish between the unauthorised use of a stock photo and a great meme. Rather than protect creators, this law will stifle them.

And it doesn’t just apply to big tech – any site that lets users post content is threatened too. Mumsnet, JustGiving, and City A.M. will all have to install new filter systems. The tech giants may have the budget to develop new filters, but smaller firms don’t."

Article 13 of the EU's proposed Copyright Directive will require online platforms to automatically filter out any copyrighted material uploaded. It's a shockingly badly drafted piece of legislation and has been criticised by academics, think tanks, and businesses.

The filtering systems that online platforms will be required to develop or purchase will be far from perfect. While it's straightforward enough to takedown video or audio content without accidentally harming fair-use in the process, it's much harder to do the same with images and gifs. As a result,  a filter designed to protect stock photo libraries will end up catching distracted boyfriend memes in the process. 

Of course, while Google and Facebook will be able to develop monitoring and filtering systems, smaller firms will struggle. By the EU's definition, online platforms will include forums like Mumsnet, JustGiving (where fundraisers upload videos), and even the Guardian comment section. The EU's simultaneously attacks Facebook and Google as monopolies and also passes laws that give them a leg-up over the competition.

I hope when the European Parliament votes tomorrow that they respond to the recent public outcry and scraps this provision.

Family life costs £40,000 a year in the UK apparently

It appears to be time for the annual moan from the Joseph Rowntree Foundation about the cost of living in the UK:

Families need to earn £40,000 a year to have decent standard of living amid rising cost of childcare, transport and energy, a study has revealed. 

Figures from the Joseph Rowntree Foundation show that each parent in a working couple with two children needs to earn £20,000 in order to fund a reasonable lifestyle, up from £13,900 in 2008. 

A single person needs to earn £18,400, an increase from £13,400 a decade ago. 

We've been making regular fun of this regular calculation for well over a decade now. These numbers are pre-tax and they're calculated on the basis of Adam Smith's linen shirt. This is what people think that people ought to be able to do in a rich country like today's Britain. The bit they never do quite get right is, well, what do we do about it?

That household requiring £40,000 a year - only 30% or so of households do earn more than that. No, they don't have enough money that we can take the excess, redistribute it to the other 70% and bring them up to said income standard. Redistribution isn't a solution to this identified problem.

Which leaves, well, what is? Childcare, we can reduce the cost of that by relaxing the regulation around it which makes it so expensive. But try insisting upon that. Housing can be made cheaper by again relaxing the regulation around housebuilding but try suggesting that.

Which really only leaves two things. If this is the righteous amount that people should have for the good life then we must stop taxing people who earn less than this amount. Put the personal allowance  (for both types of NI and income tax) up to £18,400 and we're there. We do have the economic emancipation of women so couples are taxed separately and we'd pretty much deal with that £40k number as well.

Yes, this would mean rather less government all round but then we've not got a problem with that.

The only other thing we could note here is that the country just isn't rich enough - redistribution won't work, recall - to support some 70% of the population in the manner we feel they should be supported. Excellent, that means the country needs to be much richer to achieve this goal. So, hell for leather on that economic growth front then and damn the torpedoes.

Less government, much lower taxation and more economic growth. You know, we're warming to this JRF analysis.