We're afraid that we find this very amusing indeed

Others might be more disturbed than we are but we rather expect this sort of thing to be happening and thus the amusement at seeing the numbers so proudly displayed upon the web.

In the rumpus over the Port Talbot plant an organisation called UK Steel has been vocal and vociferent in their insistence that something must be done. That something, or those somethings, being that the taxpayer should pick up some considerable bill at the same time as all consumers are made poorer by forcing up the price of steel. A typical piece of their output:

Sanjeev Gupta’s plan to rescue the Port Talbot steelworks in south Wales by ripping out and replacing its blast furnaces would leave it twice as exposed to Britain’s high electricity prices, according to UK Steel, the trade association.

It found that while the arc furnaces are more modern and efficient, they are twice as dependent on electricity as blast furnaces.

The paper, published on Monday, increases the pressure on the government to offer more energy subsidies to potential buyers of Tata Steel’s UK business.

Subsidies: your and our money going to those producers. What amuses us though is a look at the UK Steel membership page. Where there are some 60 companies and locations mentioned. Fully 33 of which are Tata Steel, the owners of that Port Talbot plant.

Now of course producers can band together like this: freedom of association is an important right whether it be the workers or the bosses doing it. But this does show that we're rather a long way down the road to UK Steel really being Tata itself insisting that we've all got to chip in so that they can lose a little less money. 

We're not sure that this is really what we want to be doing you know but we are amused at the chutzpah on show.

We don't like to say we told you so but we told you so

Actually, that headline is a lie. We just love to say "We told you so". 
And so it is with our repeated insistence that the vastly high price of British housing is caused by the idiot planning system currently in place:

New causal evidence on the impact of supply constraints on house prices shows land use regulation to be a major culprit of England’s current housing affordability crisis. Absent regulation, house prices would be lower by over a third and considerably less volatile. Young households are the obvious losers, yet macroeconomic stability is also impaired and productivity may suffer from constrained labour supply to the thriving cities where demand is highest.

Knocking 30% off house prices would obviously cause short term pain. But equally obviously would be of major benefit.

Figure 1 summarises our empirical findings. It illustrates the impact on house prices of removing, one by one, each of the three supply constraints in an average English local planning authority (LPA). What the figure shows is that house prices would have risen by about 100% less, in real terms, from 1974 to 2008 (from £79,000 to £147,000 instead of to £226,000) if, hypothetically, all regulatory constraints were removed.

As we have been telling you the solution to British house prices lies in simply blowing up the Town and Country Planning Act of 1947 and all subsequent revisions of it. Markets do indeed work and bureaucratic regulation of them does not.

And, yes, we have indeed told you this but then we just love being able to point out that we have told you so.

Nostalgia Must Not Distort British Industrial Policy

The collapse of the British steel industry is not an easy process. The job losses from the closure of Port Talbot could cause serious social and economic problems for the local community, much as the loss of manufacturing industries around the UK has. 

There is an important debate to be had about how to compensate the losers from trade. Perhaps deregulation and other market promoting policies will stimulate growth of new businesses and jobs. Perhaps the government should do more to fund and promote retraining programmes. Perhaps a basic income is the answer for easing transitional periods of structural unemployment that can result from creative destruction. 

However, the notion that the government should step in and subsidise a private buyer or even nationalise Tata steel is absurd. The Port Talbot plant is out-dated and not profitable. Even without the present supply glut, British steel faces an uphill battle to be competitive. The money required to sustain the industry would astronomical. Imposing tariffs can and will cause a trade war and will harm industries that use steel. And, in the long run, the industry will collapse and the jobs will be lost anyway.

So why is there widespread enthusiasm for terrible industrial policy? At root, I suspect, it comes down to nostalgia. There’s an odd romanticism that surrounds heavy industry, which comes from several, equally ill-conceived, notions.

There’s the nationalist sentiment that bemoans the loss of Britain’s former glory as a manufacturing powerhouse. There’s the fetishisation of industries dominated by organised labour. And then there’s the eternal pull of strategic trade policy hubris and the vanity of thinking that economic policy can be strategised and directed.

Most of all, though, I think that manufacturing nostalgia stems from the belief that manual labour is inherently morally superior to the service industry and, especially, finance. This may represent a hangover from the labour theory of value, and an emotive mistrust of capital and exchange. ‘Real work’ is obviously more important, more honest, and more inherently valuable, than facilitating, administrating, and furthering networks of production and exchange. The idea that prices are determined by supply and demand, and that value cannot be measured by effort and exertion alone, is either an alien concept or offensive. 

People losing their jobs and communities being faced with turbulence cannot be waved away. However, mythologizing manufacturing and propping up unviable plants is not only economically nonsensical but it creates and perpetuates a false and dangerous cultural narrative.

Panama, ethics and the law

Discussing the Panama Papers with the BBC's Moneybox presenter Paul Lewis, I said I thought it odious that politicians were deliberately conflating (illegal) tax evasion with (legal) tax avoidance – such that innocent people who simply park their money offshore because it would be taxed to death at home are lumped in with Russian mafia bosses and scumbag dictators concealing the proceeds of their thefts. Lewis was having none of it: there is a big difference, he claimed, between simple folk putting a few bob in an ISA, as Parliament fully intended they should, and smart advisers setting up short-lived paper companies in Panama just to get round the tax rules.

For some years, UK Chancellor George Osborne have been on the same bandwagon, criticising "aggressive tax avoidance" – such as companies shifting cash round subsidiaries in other jurisdictions in order to get the best tax treatment, celebrities billing the BBC from purpose-made companies so that they don't pay 40% income tax, people paying themselves in ways that are not liable to national insurance contributions, wheezes to avoid capital gains tax – and all that sort of thing. And Prime Minister David Cameron has fully signed up to that line.

Now he is being hoist by his own petard. As his father, a financial adviser, put clients' funds in Panama, people naturally wondered whether the Prime Minister benefited from Panamanian tax avoidance. He yielded to pressure to publish his tax returns. These showed that (among other things that will be pored over by the papers) he stood to save £80,000 in inheritance tax by using the 'lifetime gift' mechanism. 

Millions of middle-class families do the same, of course. But when you have been so strident in denouncing 'tax avoidance', it looks – and is – hypocritical. The Prime Minister could, of course, do the Paul Lewis thing and say that 'lifetime gift' tax-avoidance is allowed by Parliament and is OK, but 'aggressive' tax-avoidance is shady and unpatriotic. But the distinction is lost on most people – who don't know what a 'lifetime gift' is and certainly would not have enough money to benefit from it.

The pressure is now on all politicians to reveal their tax affairs. The claim, by critics such as the Shadow Chancellor John McDonnell, is that this will expose tax-avoidance, self-interest and corruption. Some chance: smart accountants would have no problem concealing the affairs of their career-politician clients. What it would do, however, is to discourage talented people, such as those who have had a successful career in some other sector, from going into politics in the first place. You might be a model citizen, but would you want your finances, and those of your family, exposed in the national newspapers?

As the journalist Janet Daley says, this is the sort of mess you get into when politicians wander away from legislating and start moralising instead. The trouble with morals is that everyone has a different view on them. If you break the law, it is a matter of fact; whether your actions are moral or not is a matter of debate. Moralisers open themselves up to constant criticism.

The solution to this mess is quite obvious. Taxes on businesses and individuals should be so low that it is not worth evading (or even avoiding) them. And much simpler – the more complicated your tax code is, the more places there are to hide in it: and the UK tax code is one of the most complicated in the world. Indeed, George Osborne has made it even more complicated with all kinds of new reliefs, subsidies, schemes, limits and whatever else. If you are worried about money drifting off to Panama, you really need to start at home. 

There's some recycling which just shouldn't be done

This is not how people generally think of it these days but it is nonetheless true. Not all recycling that can be done should be done. As the closure of a recycling centre is showing us:

But industry leaders warn that other recycling plants across the UK could suffer the same fate or not be replaced at the end of their natural life because of financial pressures on local authorities.

When the 25-year PFI Lancashire deal was agreed in 2007, Global Renewables – the Australian-owned company behind the project – said it would treat 300,000 tons of domestic rubbish each year by extracting plastic, metal and glass, and turning garden waste into high-quality compost for land restoration and the planting of 2.5 million trees.The company claimed it would handle enough rubbish to fill Manchester United’s Old Trafford ground nearly 100 times over, and even consulted environmental pressure group Friends of the Earth during the planning stage.

But two years ago, Lancashire County Council was forced to cancel the PFI initiative and take control of the business because it was losing so much money.

The final blow came last week when it was confirmed the plant is to be mothballed this summer and turned into what one leading critic calls ‘the most expensive waste transfer station in Europe’.

Instead of material being treated on site, it will be taken by road to other locations for recycling or dumped in holes in the ground, contravening Government and EU rules aimed at reducing the quantity of rubbish that ends up as landfill.

As we've mentioned before there are three classes of possible recycling. One is where something is recycled and a profit is made by doing so. Profit is the proof that value has been added, the output is worth more than the alternative uses of the inputs. Thus it makes us all richer: this form of recycling should obviously be done.

Then there's recycling which simply should not be done. Something that loses gargantuan amounts of money for example: it's not just that this makes us poorer it's that the insistence on spending money that way detracts from our ability to do other things which might benefit us or the environment more.

The third class is that which will lose money directly in being recycled but which will have other benefits, perhaps not directly accountable. One of us has been involved in recycling some radioactive waste for example: that most certainly lost money but cleaning up the radioactivity had a value too.

When considering any recycling we need to think about which class whatever it is comes into. And the recycling of domestic waste is not profitable, so it's not class 1. It loses, as above, large amounts of money, so it's in either class 2 or 3. The current insistence is that it is in that third class: but our contention is that this is not so.

There is no valuable resource there being recycled for if there were there would be value, and profit, from recycling it. There are not even and scarce resources in there because things that are scarce are valuable and thus there would be profit. The only thing we are short of is landfill: we're not short of holes in the ground into which we can put it, we're only short of licenced holes in the ground and that's something that can be solved at the stroke of a bureaucrat's pen.

That we lose money by doing this form of recycling is an indication that we shouldn't be doing it. That there's no other pressing reason at all means we definitely shouldn't be doing it.

Finally, do note that "saving resources" simply is not a valid justification. That we lose money on the process tells us that we are using more resources than we gain. That is, the reason not to recycle domestic waste is because we don't want to waste resources.

 

Brexit and Britain reborn

Among the pro-EU misconceptions is the idea that Europe somehow represents "the wider world." The reverse is true. The EU is a self-seeking regional block of diminishing significance in the world.  It is inward looking and self-regarding, often seeking to exclude, or at least delay, modern developments. By leaving the EU, the UK could step into that global movement and face its own future with confidence as it has done before.  

I wrote some thoughts on this for CapX:  

I have witnessed occasions on which the UK has undergone a break with the past and moved with confidence into an uncharted future determined to do things differently and to become better in consequence.

One was in the early 1950s.  Exhausted by war and the privations of the post-war government with its continued shortages and rationing, the future seemed drab and bleak.  In a short space of time three things happened to renew the nation’s faith in itself and its confidence for the future.

The 1951 Festival of Britain showcased the nation’s technical expertise in a reprise of the 1851 Great Exhibition a century earlier.  It captured the imagination and boosted the country’s self-esteem.  Winton Churchill was returned to office, and his government began the deregulation and the end of rationing that closed the chapter on World War II.  King George VI, beloved and esteemed for inspiring Britain through the dark days of war, died and was succeeded by a young Queen Elizabeth, aged 25, who represented the passing of a torch to a new generation.  These three events renewed the nation and lifted its spirits.

You can find the full blog post here.

Polly Toynbee's half a good idea

We're not generally known for praising Polly Toynbee around here but when she gets something right it's worth mentioning it. Actually, it's especially worth mentioning when Polly gets something right given its rarity. So, we agree, this is half a good idea: 

Take a deep breath – now is the time for Labour to declare it will abolish inheritance tax altogether. The argument is lost, the public’s ears are blocked. Although people overwhelmingly say the country is too unequal, Ipsos Mori finds 70% hate IHT, calling it “unfair”. They like high income taxes for the rich – the 50p rate was popular – but not IHT. Sad, but true.

Jean-Baptiste Colbert, Louis XIV’s finance minister, famously warned that the art of taxation is to “pluck the goose to obtain the largest amount of feathers with the least possible amount of hissing”. IHT gets one big hiss. So the Fabian Society has come up with a far better solution. Instead of taxing an estate, tax whatever gifts and bequests people receive as part of their ordinary taxed income.

This is not an idea new nor unique to the Fabian Society. And we would indeed generally support it. In fact, we've proposed it in passing more than once ourselves. Tax not the estate but recipients of incomes and or capital.

We also agree with the reasoning: inheritance tax might well be, as many insist, logical, possibly even righteous. But people hate it, hate, hate, hate it. And it's really not the point of public policy to insist upon things which the populace in general despise.

But it is only half a good idea. Because we would insist that the general principle extends much further than inheritance tax. In this case we are stating that incomes and or capital should be taxed when they hit the wallets of some live human being. Very well, that's a good principle. We should thus abolish corporate taxation (of profits that is, not resource extraction excises) in its entirety. Simply tax incomes and or capital when they hit the wallets of some live human being, the dividends or the capital gains. Thus making our tax system simpler, more just and righteous and even more efficient.

What tax dodging?

It's somewhat unlike us to come to the aid of any politician at all but we do think that this David and Ian Cameron story has got just a tad out of hand. As far as anyone can tell from the information we've got the allegation seems to be that Ian Cameron checked with lawyers to see that he was obeying the law. And David Cameron has, as his father did, obeyed every jot and tittle of said law.

That we live in a country where the powerful do indeed obey the law is something that we should all be rather happy about we feel.

As to the details of the arrangements Jerry Hayes tells us this:

Today I can tell you the truth about Blairmore Holdings. Not from any contact in Number 10 nor any friend of Cameron, but an old friend who is one of the leading tax specialists in London. This is not his opinion, it is a set of facts. This is what he texted me. I put it in direct quotes to show that I am not putting a personal spin on it.

“Blairmore Holdings was a perfectly legitimate offshore investment fund. It’s underlying investments were very largely if not exclusively non UK. The fund was registered with the UK revenue as a ‘distributer fund’ which meant that it had to pay out to investors at least 85% of its income each year. The investors would be liable to UK income tax on those payments if UK resident. Equally, if they sold their investment they would be liable to capital gains tax”

So we know that the fund was legitimate. Question one. Was Ian Cameron a UK resident? Yes. Was David Cameron a UK resident? Yes. This really is a no brainer. Their can be nor could have been any possible tax be benefit under this fund for the Camerons. End of story.

That "men pay taxes due" becomes a film at 10 story makes us concerned for the metal health of society as a whole. 

It's necessary to understand the details when discussing the steel industry

Of course, it's necessary to understand the details when discussing anything at all as well. Which is precisely what Gareth Stace does not do here. Stace being the head of UK Steel, the industry association.

In recent weeks we have seen further losses and we are now in a position where a substantial section of what’s left of the steel industry is up for sale. The big question now is how we ensure that everything that can be done is being done by all parties -  the Government, businesses and the unions – to support the future of steel-making in Britain, and the successful sale of Tata steel’s assets.

Politicians of all persuasions have spoken of the importance of the steel industry as a national asset, and a strategically important part of our manufacturing capability. Ministers are right to say the steel industry is strategically important and the foundation of many of the UK’s most important manufacturing supply chains, including aerospace, automotive, defence and construction. Steel is used in every part of modern day life, from the building you are sitting in to the car you drive.

It carries on like that for the rest of the piece: steel's great, wonderful, save our steel. And at no point at all is the important underlying issue mentioned here. The British steel industry is indeed going through some tough times. But there's both a cyclical element here and also a structural one. That structural one being the one that both has to be considered and which Stace is glossing over.

This is: should we "save" the Port Talbot blast furnaces when blast furnaces are, to a great extent, a 19th century technology now surpassed by the 20th century one of arc furnaces?  

This is the issue under discussion: for we've people lining up to purchase (at current rock bottom prices of course) rolling mills and the other downstream accoutrements of the industry. And absolutely everyone who has expressed an interest in doing so has said that the blast furnaces have got to go.

What does slightly irritate is that one of us has been on the radio with Stace a couple of times now and made exactly this point to him. We would therefore hope that it would be one that he might address: but of course as a lobbyist that's not quite what he's going to do, mention something not quite helpful to the case he is lobbying for.

FCA in Wonderland

The Financial Conduct Authority’s latest attempt to justify its own existence should be datelined 1st, not 5th, April. Their 2016/17 Business Plan is primarily addressed to risk. For example, the Chancellor’s decision to allow pensioners to spend their own money carries the risk that they will not do so as the FCA would like them to do. This is clearly intolerable. Fortunately “Our intelligence-led [sic] approach allows us to bring together information both externally derived and from across the FCA to develop a cohesive view of the risks, issues, challenges and opportunities in a particular sector, viewed through a number of different lenses.” (p.12) Not a lot of pensioners can do that.

These lenses do not seem to include the problem the FCA itself has created by driving so many Independent Financial Advisers out of business and thereby depriving future pensioners of the advice they need. They do, however, recognise that their hounding of banks and others, e.g. for mis-selling, has led to larger financial institutions “de-risking” their products, thereby reducing consumer choice and competition.

“We know that de-risking by banks is causing problems for some groups of consumers. While we do not control this process, we are undertaking work to help address the issue. We will complete our de-risking impact assessment in Q1 2016, giving us a clearer picture of the nature, scale and drivers of de-risking. We will work with Government, firms and others to create a proportionate strategic response.” (p.27).

The word “strategic” in that does not accord with the FCA’s continuing efforts to micro-manage the sector. The strategy we need is to return the sector to being a normal competitive market with brands, variety, innovation and consumer choice. By all means let us have a Which?-type organisation to critique and compare offerings and of course the financial sector should be included within the remit of the Competition and Markets Authority (CMA) to ensure fair trade. What we do not need is non-stop fiddling with detailed rules no one understands.

The risk-averse FCA 2016/17 plan contrasts with the speech of 6th April by Alex Chisholm, CEO of the CMA. The latter is broad in concept, technologically up to date and welcoming of innovation.

UK financial services are less at risk from Brexit, or remaining in the EU, than from the FCA’s preoccupation with risk, much of it created by the FCA itself. The only strategy it needs is self-immolation.