Of all the completely ridiculous things to believe about offshore

Yes, agreed, we're very bullish about offshore and tax avoidance - it reduces the amount that can be shaken out of the rest of us. Similarly, agreed, there are those who don't agree with us. But then, far over on the other side, are people who believe entirely ridiculous things:

The argument that “if you tax it, we’ll leave” is fatuous when the money has already gone offshore. From the perspective of the British economy that money might as well have been taxed at a rate of 100% – it’s not paying wages or buying machinery, it’s just sat idly in Bermuda and other havens, with exactly the same effect on growth as if the government had taxed it into oblivion, and the profits that produced it not existed in the first place.

The ridiculous thing here is to believe that the offshore money just piles up in cash. No, really, Scrooge McDuck surfing down his pile is a cartoon. A joke for kids. That money is invested. Even if it's just piled up in bank accounts the banks then lend it out again (or, for purists, use the deposits to fund loans they've already made). There really isn't any pot of cash or gold sitting somewhere doing nothing.

But even better than this think about what would be true if here were that unused stash. That money is not, therefore, in the British economy. Thus there's no tax avoidance, is there? Because we Brits, the British government, do only get to tax the British economy. The money's not here, it's not invested here, it's not doing anything here, then there are no taxes being dodged, are there? 

The real complaint is that it is invested here, is paying wages, buying machinery, but not in the process paying the vig to Westminster for the privilege of doing so. That's the only way there can be that avoidance (or even evasion) isn't it? Something that's entirely inconsistent with the assertion that it's not here currently, isn't it? 

Then of course we can go off into economics and point out the basics of the taxation of capital. The more you do so then the less foreign capital you're going to attract to be taxed, the more domestic will leave to avoid it. But that would be complicated and subtle, something obviously beyond the ken of the Guardian here given the ridiculous things they seem to believe.  

Three cheers for hospital car parking charges!

Earlier this week, I appeared on BBC Essex to make the case against Robert Halfon MP’s Private Members’ Bill to introduce free parking at NHS hospitals in England. This has already been the case in Scotland and Wales since 2008, but I don’t think we should follow in their footsteps.

I think that there’s two main reasons to oppose free parking in NHS hospitals. The first is about opportunity cost: spending money on this means not spending that money elsewhere. In this case, the opportunity cost of free parking is (according to Rob’s recent article on the topic) around £200 million in foregone revenues. Rob argues that better procurement practices and a continued emphasis on generic drugs could pay for his measure, but even if we can find £200m that way it’s not clear why scrapping parking charges would be the best way of spending it. Local health trusts, not politicians, are best placed to decide their own budget priorities, and I’d be very surprised if they viewed free parking as a better use of £200 million than spending more on frontline care, mental health services, or any number of other options.

The second argument against free parking is that this is not just a poor use of money; it’s actively harmful. Parking spaces, like most things in life, are scarce. Prices act as a rationing device by allocating scarce resources (in this case parking spaces) to those who value them the most. Without some form of pricing, spaces are more likely to be taken by people who aren’t using hospital services or are most able to use alternatives such as public transport: penalizing those who need parking spaces most.

It's obviously a good thing to have a cheap parking space when you really need it, but the most important thing is being able to get that parking space in the first place! This has been an issue in Scotland and Wales, with Wrexham Maelor Hospital and Edinburgh's Western General being two such examples of how free parking can go wrong. Whilst many hospitals already provide free or discounted parking for certain groups (disabled people, long-term patients, and staff), mandating this for everyone is a step too far.

Proponents of free hospital car parking argue that the issue of overcrowding and abuse could be solved with a token system. This would not only mean that are hospitals no longer raising revenue to fund treatment from car parks, but also that they are also going to have to pay for the token systems: including the initial capital required, maintenance costs, and lost staff time. If, as Rob Halfon claims, parking charges operate as a “stealth tax” with no transparency, how are people going to deal with more complicated enforcement mechanisms that people will be even less informed about? The experience of visitors to St David’s Hospital in Cardiff after they were forced to install a complicated registration system is a warning of what might happen:

One employee said:

“This new parking scheme just doesn’t work.”

“People’s main concern when they enter the hospital is to make sure they know which ward to visit, not whether or not they’ve registered their car.

“As parking is free, people get confused as to why they need to do it. I’ve heard countless examples of people being fined because they didn’t understand.

“There’s only so many times people on reception can ask people if they’ve registered their car. I’ve seen visitors reduced to tears because of it.”

In his ConservativeHome article, Halfon makes the point that car parking charges clash with the principles behind the NHS:

Hospital car parking affects everyone who uses the NHS. We cannot say, in good faith, that the NHS is free at the point of access if people face extortionate and unfair car parking fees to get to their hospital appointments, go to work in our vital public services or visit sick relatives.

If you carry this logic to its conclusion, you’d need the NHS to cover everyone’s public transport costs to hospitals, pay for motorists’ fuel, and perhaps subsidize their MOTs if they’ve used their car to travel to a hospital. As Reform’s Andrew Haldenby pointed out when this was brought up a few years ago, most Brits (begrudgingly) accept that there are a small number of things (like prescription charges) that aren’t free on the NHS for common-sense, practical reasons. Hospital car park charges firmly belong in this category.

Minimum alcohol pricing is policy-based evidence-making

The Scottish government can now legally bring in minimum alcohol pricing, which will require alcoholic drinks to be sold for at least 50p per unit of alcohol. For reference, a can of 5% strength beer has 2.5 units and a 750ml bottle of 13.5% strength wine has 10 units, so their minimum prices will be £1.25 per can and £5 per bottle respectively. It’s only likely to affect drinks sold in shops.

The SNP and other supportive groups say that this will be good for people’s health – the biggest boost since the indoor smoking ban, in fact. Their basis for this is that alcohol consumption tends to fall when the price rises, and people with the worst dependencies on alcohol usually drink the cheapest stuff. 

But there’s a leap here. Do heavy drinkers cut consumption when the price of booze rises? Intuitively, you’d think not. As one Scottish Twitter user pointed out yesterday, “People with problems will get what the need even meaning cutting out necessities to do so.” 

The empirical evidence supports this. This 1995 paper found that the heaviest drinkers’ responsiveness to price changes was statistically indistinguishable from zero, though it was based on very old data from the 1980s. This more recent one found that hazardous and harmful drinkers (people who consume more than 17.5 units per week) had a very low response to price changes. And this 2013 review of 19 studies found only two that found a significant and substantial reduction in drinking rates in response to alcohol price rises – “and even these two showed mixed results”. 

This 2016 PhD thesis, by Dr Robert Pryce, found that heavy drinkers’ price elasticity of demand was only barely distinguishable from zero, and concluded that:

the quantity results show that price-based measures will have little effect in reducing heavy consumption because of their small absolute price elasticity, whilst simultaneously having a large negative effect on consumer surplus for the light drinking majority, because of their large absolute price elasticity

Not only do the advocates of minimum pricing ignore this, their most-used model (the ‘Sheffield Alcohol Policy Model’) assumes that heavy drinkers have the highest responsiveness to price changes of all types of drinkers. 

This was pointed out by John C. Duffy, a leading health statistician, in a 2012 report for the ASI that he coauthored with Christopher Snowdon. Duffy is scathing about this model in general, describing it as “resorting to numerology” when desired data was not available. He shows that the assumption about heavy drinkers’ elasticity is extremely shaky, and crucial to the health claims about the policy.

It comes from the fact that heavy drinkers are the most price sensitive to price rises for a single brand or type of drink – ie, heavy drinkers are the most likely group to switch from drinking wine if the price of wine rises, or Fosters if the price of Fosters rises. 

But this does not show that their overall alcohol consumption falls, just their consumption of that type of drink. And does not imply that a general rise in alcohol prices will cause heavy drinkers to cut their alcohol consumption down – the evidence above suggests otherwise. That evidence shows that heavy drinkers are the least sensitive to price rises of alcohol overall. They are just the most willing to switch between types of alcohol when relative prices change. It’s extremely weird that the Sheffield Alcohol Policy Model interprets the data in this counterintuitive and contrarian way.

This assumption is the basis for minimum pricing advocates’ claims about health benefits from their policy, along with poorly identified and statistically sloppy studies of the effects of minimum pricing in British Columbia, Canada. 

As Chris Snowdon points out the most commonly cited study did not include any control group, allowing it to attribute a fall in crime in British Columbia to minimum pricing even though the rest of the country, which had no minimum pricing, and indeed most of the developed world also saw reductions in these things. The UK, so far free of minimum pricing, saw a greater fall in crime over the same period. 

As well as that, it extrapolates wildly from tiny, noisy changes in alcohol-attributable death rates to make big claims that simply do not make sense. A 1% rise in the price of alcohol taking place alongside a 3% fall in alcohol-attributable deaths is not established to be causal, and even worse, is multiplied by ten to produce a Daily Mail-friendly headline that a 10% rise in price would cut alcohol deaths by 30%. It’s 'evidence' in name only.

My opposition to minimum pricing isn’t just that there is little to no evidence in favour of it. It is that it causes harm to many people. Many non-problem drinkers like cheap beer and wine from Aldi and Lidl – I’m a big fan of Aldi’s 75p/can Reinbacher pilsner and Lidl’s £4.29 Cotes du Rhone, for instance.

All of those people, many of whom will be on tight budgets already, will either be made poorer, if they keep drinking, or unhappier, if they have to cut down or stop. Problem drinkers, since their elasticity is low, will be much poorer and may cut down on things like heating, and street drinkers may resort to bootleg alcohol or worse. Remember, too, that tax revenues go to the government, but minimum pricing ‘revenues’ go to supermarkets.

Once implemented, the policy will probably ratchet upwards too. 50p/unit is on the lower end of minimum pricing advocates’ target – most would prefer to start at 70p/unit and work upwards from there. And the traditional objective of policies like this, pricing in the negative externalities caused by drinking, is much better achieved through tax, since people who drink expensive alcohol to excess are just as likely to be problems to others as people who drink cheaper alcohol to excess. 

Worst of all, I doubt that the Scottish experience, assuming it does fail, will end up giving us evidence to put English politicians off minimum pricing. Minimum pricing advocates have shown a willingness to distort and misrepresent the evidence to further their goals, and will probably hold up Scotland as a success no matter what happens there. ‘Policy-based evidence-making’ has got them this far – why stop now?

Things not to do: Reintroducing rent controls

Some policy proposals are being advocated as if they were pure theory, untested, and capable of being implemented as suggested. In fact many of them have been tested and found to produce adverse, sometimes disastrous, results in practice. Those proposing them seem to have no sense of history or any understanding of economics and the way the world works. Some of the most absurd have shown, sometimes repeatedly, that they fail in practice; others have produced in practice the very opposite result of what they were intended to achieve. The real world has already passed its verdict on many of these fanciful and dangerous proposals.

Rent controls

Wherever they have been introduced rent controls have led to a shortage of rental accommodation and a deterioration in its quality.  When Britain had rent controls there was a chronic shortage pf private rented accommodation. Those who became landlords could easily transfer their funds to other investment classes instead. If there is insufficient return from property, they will choose other things to gain greater returns.

Rent controls involve having rents limited by law to below what would prevail in an open market by the ratio of demand to supply.  Given below market returns, landlords have tended to withdraw from the rental market, to sell their properties, and to invest elsewhere.  The supply of rental properties diminishes in consequence.

Furthermore, with less money coming in from their investment, landlords tend to scrimp on maintenance and renovation. They choose to cut their investment because it now brings inadequate returns. General maintenance slips back on things such as damp and rot treatment and repainting and refurbishing. Rewiring and re-plumbing are postponed, and the physical condition of the property declines.

The Swedish economist, Assar Lindbeck, made a study of rent control in many cities and found a similar pattern emerged.  He famously remarked that, "next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities." In fact rent controls only take out supply of housing, leaving demand unaffected, whereas bombing kills people as well as destroying houses.  It could be argued that it is worse than bombing.

Rent controls are politically attractive because they promise to peg rents for those already in rental accommodation.  They do so at the expense of the people who do not have, but wish to have, rentals themselves.  The present renters vote, the future ones do not, so the politician promising rent controls gains the votes of the former without losing votes from the latter.

As the EU obviously knows, one should never let a crisis go to waste

The method of not wasting a crisis is well known. Declare that something must be done, that something quite possibly unrelated but something you wanted to do anyway. Thus it is with tax laws and the Paradise Papers:

Pierre Moscovici, the European commissioner for economic and financial affairs, blamed the inability of countries to agree on a common set of corporate rules for the “aggressive” tax planning policies of some companies.

He said a tax avoidance scandal exposed in the Paradise Papers last week could have been avoided had member states adopted the commission’s proposals, including a common consolidated corporate tax base (CCCTB) which Ireland strongly opposes. Yesterday, Mr Moscovici set out a new timeframe which called for agreement to be reached by the end of next year — two years early.

We are all terribly surprised, aren't we? As is being pointed out, this isn't really about offshore at all:

“Commissioner Moscovici’s comments regarding the causal link between a lack of common corporate tax practices across the EU and the recently exposed tax optimisation schemes as outlined in the Paradise Papers don’t stack up. None of the jurisdictions referenced in the Paradise Papers are members of the EU, and are not subject to the rules governing the union.”

What this is really about is the distaste, hatred even, of the tax collectors for tax competition. All of the rest of us, of course, should be in favour of the competition. For we do all agree that monopolies are a bad thing for us out here, don't we? So it is if all governments shake the same amount out of our wallets - that denies us the right of exit. Leaving and paying nothing being one of the most obvious methods of reducing the demands being made.

We actively desire tax competition therefore, not these attempts to abolish it.

A major problem with Keynesian economics is political - in fact, politicians

Steve Horowitz has a good piece detailing one of the basic problems with Keynesian economics. In a formal sense we can say that this is the addition of public choice economics which makes it not work in the real world. For the incentives faced by politicians are that they're only likely to do half of the idea, not all of it.

Keynesian economics changed all this by constructing an intellectual justification for viewing the federal budget as a tool for managing the economy rather than a constraint under which politicians operate.  Keynesianism argued that in recessions budget deficits could stimulate aggregate demand and lead to recovery, while in good times surpluses would both prevent excessive growth and pay back the debt.

This idea, known as “functional finance,” looks good on the blackboard but has a fatal flaw.

...

We must ask: Under the incentives built into our political institutions, is functional finance in the politicians’ self-interest?

Buchanan and Wagner say no.  Politicians love deficits because spending on their constituents gets them votes but raising taxes costs them votes.  Politicians are always vote-seekers, so those incentives and disincentives hold whether the economy is in a recession or a period of high growth.  Surpluses in growth periods are incompatible with those incentives.

That fixing the roof while the sun is shining that Keynes talked of never really does seem to happen.

Our own favourite example of this comes from Polly Toynbee. Certainly, that's not where we're going to go look for economic advice but as a measure of the political wind she's pretty good. It's instructive to read her pieces from the 2005 to 2007 period at the Guardian's archive. She notes the flood of money coming in from the taxation of a booming economy And uses that flood as the justification for setting up vast new redistributive programmes to beat child poverty (really, inequality) and so on.

Without noting that a budget surplus at the peak of this country's longest and largest peace time boom in modern history really might be a very idea indeed. A time to be paying down that national debt, not increasing it as G. Brown continued to do.

As Horowitz says, whatever else we might think about Keynesian economics the exigencies of politics mean that we don't actually follow those rules anyway - thus, sadly, it doesn't work over the long term.

No more cash for the NHS now, please Mr Hammond

We all know that the NHS will need more of our money but maybe not yet.  It should eliminate the huge sums it wastes first.  NHS England makes bold claims that it will improve productivity but is a bit short on the specifics. “Productivity” is usually defined as the ratio of output to the means of producing that output. There are two problems in using that measure for the NHS.  In the first place, there is no aggregate single number for NHS output.   Would using the operating theatre for two hip replacements rather than one tumour removal be more or less productive? 

Secondly, its does not distinguish “good costs” (directly increasing patient welfare) from “bad” (waste). The £20bn. 2010 productivity target[1] was largely to be delivered by restraining nurses’ wages.  We all know the negative consequences of that. The 2015 King’s Fund Report adds: “focusing on the monetary value of the [productivity] challenge risks missing the real essence of the task facing the NHS, which is about getting better value from the NHS budget. This means maximising the outcomes produced by the activities the NHS carries out, while minimising their costs. Framing the debate in terms of efficiency and costs also risks losing the opportunity to engage clinical staff in the challenge of changing the way in which care is delivered.”

In short “productivity” in the NHS context is a bogus word used to show good intent and justify demands for more expenditure.  The layers of supervisory hierarchies form one example.  Legal costs and the time nurses and junior doctors spend on their (outmoded) computer terminals rather than attend to patients are others. Eliminating waste immediately provides time and money for better patient outcomes.  Eliminating waste should be the target, not productivity.  Waste not, want not.

The King’s Fund uses a number of indicators of performance, as distinct from productivity, and this month’s Quarterly Monitoring Report makes grim reading.  Performance is down and going to get worse. Naturally this will stoke public, media and political outcry. Simon Stevens, CEO of NHS England, is wringing his hands and citing decreasing performance to justify more funding.

The Chancellor should call it like it is: if the NHS does not eliminate the waste when it really needs the money, it will certainly not do so if HM Treasury removes the need to do so.  He should tell Mr Stevens to focus on eliminating waste first and only when that is done, will funding follow.  Physicians heal yourselves.

Just as importantly, the public must be brought on board.  At present, the government is seen as the villain withholding the resources the NHS deserves.  The Tory government’s austerity programme is cruel, uncaring and unbalanced.  The public needs to be told just how much the NHS is wasting, not the dribs and drabs that are reported but the whole picture.  It could easily be 10% of the total and that would transform NHS funding but we do not know.  The NHS will not publish the total as to do so would undermine its demands.

By saying “no” the Chancellor can shift the focus.  He can insist on a fully quantified list of areas of waste in the NHS and Department of Health, drawing from the claims made in recent years by academics, practitioners and the Care Quality Commission. Performance and cost data by treatment category for the best and worst Trust outcomes should be analysed.  Some Trusts will be better at some things and worse at others.  Most of this data already exists within the Department of Health.  The NAO should audit the conclusions.

It would be wrong to leave a wholly negative impression.  Some substantive reductions in waste have been achieved.  For example, the 2015 Kings Fund Report noted some successes:

A different and more positive picture emerges when changes in how specific areas of care are provided are analysed:

  • Increases in generic prescribing rates – up from 20 per cent in 1976 to 84 per cent in 2013 – have saved the NHS around £7.1 billion and allowed more than 490 million more items to be prescribed to patients.
  • Reductions between 1998/9 and 2013/14 in the time patients spend in hospital have enabled more patients to be treated and avoided the need to provide 10,000 extra hospital beds.
  • Increases in day surgery rates over the same period have generated savings of around £2 billion and enabled 1.3 million more elective patients to be treated.

Once most of the waste has been dealt with, then the Chancellor should indeed be more generous but we need to see a complete shift of focus first.

[1] QIPP 1 Quality, Innovation Productivity, Prevention initiative to generate productivity gains to the value of £20bn from 2010/11 to 2014/15 but “productivity gains” here means cost savings.

Fancy that - drug addicts have worse health than the general population

It's quite amazing what modern science can tell us these days. The Lancet has just surprised with the news that drug addicts have worse general health outcomes than society in general:

Britain’s most socially excluded groups are 10 times more likely to die early than the general population, according to analysis showing inequality is more pronounced than is documented. Its lead author said the disparity exposed “something toxic in our society”.

The findings, published in the Lancet and described as the most comprehensive assessment conducted into levels of mortality inequality, reveal women in socially excluded groups are 12 times more likely to die than other women of the same age, while men are eight times more likely.

Well, that's how it is being presented. That this is all about inequality, social exclusion and if we just equalised cash incomes some (or perhaps a lot) more then such social evils would disappear. Except this is to make the Michael Marmot mistake, to note economic inequality and some set of ills and assume that it's the inequality causing said ills.

The actual paper tells us a little more:

 Inclusion health focuses on people in extremely poor health due to poverty, marginalisation, and multimorbidity. We aimed to review morbidity and mortality data on four overlapping populations who experience considerable social exclusion: homeless populations, individuals with substance use disorders, sex workers, and imprisoned individuals.

Mortality here is when people die, morbidity is why. That proper definition of homelessness, rough sleeping, finds that near all are either highly transient or suffering from one or more substance disorders or mental health problems. The low end of prostitution is rather well known for being engaged in to feed a drug habit. The prisons are full of those there for (and still engaging in) drug habits. We're not really studying four discrete populations here at all.

But leave that aside and think of what they're really saying. Those who inject anything from brick dust through rat poison to synthetic opioids along with their heroin have worse health outcomes than the general population? Sex work is a dangerous occupation? OK, we'll accept those contentions.  But this is caused by economic inequality, social exclusion? Rather, than, perhaps the injection of rat poison mixed with brick dust? 

Note also that very economic inequality being complained of. At least two of our four groups are poor because of their behaviour - both prison and junkies' wages are notoriously low. That is, both the ill health and the inequality are being caused by the activities, not inequality itself producing either the actions nor the health outcomes.

But then this is modern science of a kind, isn't it? Deliberately and specifically ignoring a most important part of the scientific method, which is that we're actually trying to work out causality, it isn't enough to note correlation and then blame all on the fashionable phlogiston of the day.   

You know, The Lancet?

Amazingly, government often isn't very good at doing things

We're quite onside with the idea that there really are things which must be done by government. We're also entirely happy with the thought that there are things which government should encourage, incentivise, aid markets in doing and so on. We do though think that it's important to distinguish here. Between those things which must be directly done and those things which need to be encouraged, could be done better with a bit of intervention and so on.

For example, a decent vaccination campaign will produce "herd immunity." Those who cannot be vaccinated will still be protected as the diseases have no corner of the population in which to hide. Thus we're all in favour of government having a role in making sure that vaccination takes place, that herd immunity is achieved. We could, as the NHS does, simply get government to pay for vaccinating all children. We could also, as in much of the US, simply provide an incentive. Children can only go into the public school system, that one that has already been charged for through taxes, if they are vaccinated. Either works and so we're fine with either.

However, there is that set of things - a rather larger set than most suspect - where government might direct, encourage, foster, but should not be doing. Say, space rockets:

A new research paper by Edgar Zapata, who works at Kennedy Space Center, looks closely at the finances of SpaceX and NASA.

...

Zapata estimates that SpaceX launches cost NASA around $89,000 per kilogram of cargo delivered to the space station. There's no telling what precisely would have come from a cargo spacecraft developed by NASA, but Zapata estimates that it would be $272,000 per kg.

For future commercial crew missions sending astronauts into space, Zapata estimates that it will cost $405 million for a SpaceX Dragon crew deployment of 4 and $654 million for a Boeing Starliner, which is scheduled for its first flight in 2019. That sounds like a lot, and it is, but Zapata estimates that its only 37 to 39 percent of what it would have cost the government.

This is not something limited to rockets of course. We've no doubt at all that there is a government role in both health care and education. But perhaps it should be limited to making sure that it exists, providing a financing method for it, rather than actually being the producer of the services? Or train sets or generating plants or water pipes or....well you get the idea.

A currently fashionable and most pernicious idea is that if there should, righteously, be a role for government then that should be that government is the actual provider and manager of production. Something which we're sure is indeed true at times and mostly not given the areas to which people try to apply this argument.

 

Vox Populi is in the comments sections not the newspaper articles

We had a little go at the Fawcett Society over their gender pay gap calculation yesterday. What we think is rather fun about this issue is the extreme difference between what the two major left wing broadsheets (not that one of them appears on paper any more) say about the issue and what their readers insist upon telling them about it.

In The Guardian and The Independent there are pieces decrying how dreadfully the patriarchy oppresses women through the gender pay gap. In the comment sections below each there is near no one who is willing to accept even the basic diagnosis. Instead we've, from near all of those readers who could be bothered to give their view, repeated statements of the basic truths here.

There is no pay gap even if there is an earnings gap. To pay men and women unequally for the same job is illegal, the differences in earnings coming from different decisions about how to live life, what to do for an income and how much devotion to attend to that career. That is, the readers have got the point here, even if the newspapers themselves have not.

Yes, we will take some of the credit here for we have been banging on about this for a decade now. And Kate Andrews (who was with us) is indeed mentioned as being mentioned as a source to counter the misinformation.

That the people aren't being taken in by the agitprop we find cheering.

We might also extend this principle a little bit. Near none of the reporting The Guardian has done on the Paradise Papers even has a comments section for people to correct the articles themselves. We assume this is because even the editors know that such sections would just fill up with questions about why it's so appalling that others use offshore but just fine and dandy that the Guardian Media Group and Scott Trust Ltd do themselves.