A useful example of why we'd prefer a land value tax to business rates

The essence of a land value tax - this is without getting all Georgist about it, making it the single tax, or taxing away the entire rental value - is that it is the value added to the land by the activities of other people which is taxed. Mayfair land is worth more because 10 million other people have built London around it. Tax is going to come from somewhere, why not from that value created by the 10 million? 

Our current system of land taxation, rates, doesn't work this way at all. Rather, it tries to tax the value added by the owner of the land, entirely a different concept:

Supermarkets could be owed as much as £300m because of an ongoing legal wrangle about the business rates paid for cash machines, which threatens to heap additional financial pressure on the struggling industry.

The Valuation Office Agency (VOA), which is responsible for administering business rates, issues an initial bill which retailers then check against the size of their shops, often resulting in a refund.

But these claims have been put on hold while a case about whether ATMs are part of supermarkets or not is fought through the courts. The Court of Appeal will hear the latest stage of the case later this month.

The VOA is arguing that ATMs located both outside and within a shop should be assessed separately for additional business rates, and that retailers should pay the business rates taxes on them in addition to their normal store rates.

ATMs are generally of value to the people passing by. They're also value that the holders of the land add to the environment about them. Not things which the society around adds to hte value of that plot.

It's an entirely different concept of taxation therefore. We want people to improve their own land to the benefit of the rest of us - why tax it therefore?

Land value taxation is the much better concept.

The capitalist who transformed a conservative United Kingdom into a more egalitarian society

Harry Selfridge’s founding of Selfridge’s in 1908, brought with it one of the
largest and most profound shifts in British culture seen since the inception of
our nation. Not only did it change consumer culture, not only did it innovate in
areas where previously people were restricted in shopping habits, it also
brought with it a groundbreaking wave of liberalization, which helped lead to the
emancipation of women and the breakdown of class barriers.

The department store, Selfridge’s, was one of the first spaces to contain
separate male and female toilets in the UK. We take it for granted today, but
prior to the 20th Century, women were not commonly seen outside the house.
The barriers to their emancipation were extreme. Imagine a society in which
there were no places to go to the bathroom; where the limiting factor for travel
was the distance from your own home. Selfridge’s, by utilizing gendered toilets
for the first time, by locating near public transport links, became a place in
which women felt safe to frequent alone, or with other women. It was a place
they could be individually empowered. And this was revolutionary to the
emancipation of women.

Selfridge himself was also a supporter of the Suffragettes, and the wider
campaign in favour of women’s rights in the UK. Whether this was a gesture
utilized to enhance profits, or whether there was a genuine streak of early
American freedom and liberalism behind this decision is moot, the support of
the Suffragettes meant that when militant feminism came to the streets of the
UK, one of the few shops which weren’t targeted and vandalized was
Selfridge’s. A smart business decision, but also a noble cause to support.

Selfridge was also unique in the way he advertised his new department store,
spending millions on mass advertisement prior to even finishing the
construction of his store. In his advertisement, he emphasized a simple fact; his
store was open to everyone, no matter which creed or class. Selfridge’s was
one of the first places in the UK where the doors were open to all regardless of
class, and the aristocracy, middle classes and working classes all shopped and
perused alongside one another. This egalitarianism was also helped by the
removal of what previously was common in stores.

Previously in shops, there would be staff members employed to ensure that
customers were served as speedily and efficiently as possible. The emphasis,
from the business point of view, was that the more time workers spent with
actual buying customers, the more profit that would be made, and ultimately
anyone seen to be loitering or spending unnecessary time would be moved on
by members of staff on the shop floor. Selfridge removed these staff. He
allowed people to spend time in his store, taking in every element of every
display stall. For those with little money, this opened the door to a vast space,
filled with artwork, flowers and grand architecture.

Selfridge’s prided itself on technological innovation, being one of the first stores
to demonstrate the television in action, it sold revolutionary wireless radios, and
even, as a publicity stunt, was host to the plane which first flew across the
English Channel. People from working class backgrounds could come into Selfridge’s as if it were a museum, a showcase of what was happening in the
world, and a taste of what could be achieved. Harry Selfridge was a self-made
man, he battled adversity and hardship to climb to where he perched. He grew
up in rural Wisconsin, to a single mother, worked up the ranks in Chicago
before noticing a break in the market for American style department stores in
the UK. This drive, and the fact he was a self-made man, underpinned his
classless emphasis within his store. He wanted people to be inspired by what
was within, so that they too could reach for the stars and become all that they
might be. Many members of the public saw technology previously seen only by
the upper middle classes and aristocracy inside his store. Selfridge installed
plentiful lift shafts, at a time when the thought of moving straight up was
unlikely, inspiring thousands. In the first week of opening, Selfridge’s bought in
1 million customers, when the population of London itself was only 4 million.

The staff members in previous stores were treated much like the servants in
aristocratic homes. Many of them would live on site in accommodation above
the stores, in rather squalor conditions, with minimal pay. Selfridge did not
follow this pattern. He wanted his staff to enjoy working, and to pass that
enjoyment on to his customers, emphasizing customer service over efficiency; a
model that turned out to be more profitable. He paid his staff a higher amount,
so they could afford to live outside of work and commute themselves,
liberalizing the workers, setting an example to other stores, and changing the
way that people, who otherwise would have had very few rights, could live.

Other department stores saw the success Selfridge’s achieved and emulated it.
They precipitated an environment which encouraged female emancipation and
liberalization, and broke down class barriers. As Harry Selfridge himself said,
“the customer is always right”, regardless of class or gender. His take on
capitalism, his fight to succeed and profit above other stores lead to a greater
delicacy in customer service, a greater emphasis on care, and better treatment
for workers.

Selfridge understood that capitalism is not a race to the bottom, because for
companies to succeed they need to please customers, and the greatest
weapon for change possessed by the masses is the power of the purse. We live
in a world today of immense wealth and technology that otherwise would have
been out of reach to the vast majority at the bottom of the ladder. Looking at
where society was in the past, and how far it has come to the present, should
lead to a great optimism about where it will go, and to its future state.
Capitalism and liberalism go hand in hand to bring about better living
conditions, higher pay, and opportunities and freedom for all. Every customer is
capable of creating profit, regardless of individual attributes, and can thus
command better treatment.

The Keynesian problem that ails the UK commercial property market

As JM Keynes noted, we humans just hate having our nominal incomes reduced. We're a lot less worried about falling real incomes through inflation and the like a long as nominals don't fall. This is something of a problem in a recession for that's exactly when real incomes should fall and also when we've not got much inflation.

The answer is to do as we have done, create a flexible labour market. Thus, in recessionary times we get falling incomes, not massively rising unemployment. This is exactly what did just happen in fact and is a great victory for that idea of the flexible market. Sure there was recessionary pain. But it was generally shared, not just dumped on the 10 or 15% who lost their jobs an thus everything. The rise in unemployment we did have was very much lower than we would usually have expected from such a fall in GDP.

Places such as Greece have had to have very much higher unemployment, very much more economic pain, in order to get those reductions in real wages.

At which point

The fashion retailer Next is preparing to take a stand against landlords who grant rent cuts and store closures to rivals using a controversial insolvency process.

Company voluntary arrangements (CVAs), which allow struggling businesses to walk away from their liabilities, are sweeping through the retail industry as traditional operators reel from a downturn in consumer spending and the ongoing shift to online shopping.

Retail and restaurant chains including Byron, Jamie’s Italian, Prezzo, New Look and Carpetright have used CVAs to close hundreds of sites and cut rents on hundreds more since the start of the year. House of Fraser and Mothercare are among those ready to follow.

Like many healthy retailers, Next, run by Lord (Simon) Wolfson, believes that CVAs give an unfair advantage to competitors by allowing them to sever leases while better-run companies are forced to honour expensive commitments. New Look slashed rents by up to 55% on some of its stores.

Next has started demanding a “CVA clause” when it renegotiates leases. The clause says Next’s rent should fall by a similar degree if one of its neighbours in a shopping centre or retail parade achieves a rent reduction through a CVA. The move could have huge implications for the commercial property market if other healthy retailers start asking for similar clauses, leading to mass drops in rents.

One of the things which ails that UK commercial property market is that rent reviews within a lease are upwards only. Thus directly analagous to our nominal wages problem. There has to be considerable and sustained pressure for rents to fall. Meaning that the economy as a whole is less flexible than perhaps it should be.

Not something we need to do something about for as we can see something is already happening under simple market forces. But it is something we should be aware of.

National insurance really is insurance, not just another tax

The zeigeit is gearing up for an increase in the taxation of the self-employed and it's worth noting the mistake at the heart of the basic claim. Which is that those who are employed through personal service companies pay less tax. This is both true and not true and the form of the truth makes a difference to what is being suggested:

More than 100,000 self-employed workers who are paid through companies could be hit by a new tax crackdown by the Government.

The Treasury has launched a consultation which aims to target people who are paid through a personal service company (PSC) instead of being on their employer’s payroll.

“This is unfair: two people doing the same job, in the same way, can end up paying very different levels of tax, depending on how they are engaged," its consultation document said.

The usual claim is that people only pay the corporation tax on the incomes they draw from such companies, not income tax which would generally be a greater amount. That is not actually how it works. Taxes on dividend incomes and those on employment ones are roughly the same, by design, once we piece all the bits of the system together. For high dividend incomes then pay more income tax again, over and above that corporation tax already paid. The total bite out of the income is, as we say, roughly the same.

Sure, maybe there's some bits to do at the margin but it's not a major difference.

Where there is a significant difference is with national insurance. Dividend income doesn't pay either - employers' or employees' - and that will be a saving. Given that there's a cap then a minimal rate above it of 2% on the employee's side, it's the employers' of 13.8% which is "dodged."

It's also true that when counting the revenue NI really is just another tax. The national insurance fund has been a fiction for generations now, the money just all goes into the general revenue pot. 

However, from the point of view of the individual it isn't just another tax. For, with the payment of NI comes certain forms of social insurance. If you don't pay it you don't get certain things. We also have different classes of NI, each of which give access to different parts of the social insurance system. You'll not get unemployment pay if you're paying a light stamp for example. 

Reform of the system might well be due - we've argued for many a year to simply abolish NI altogether and just have the one taxation system upon incomes. But it is still necessary to point out that much of this about personal service companies isn't really about tax dodging, it's about not purchasing state proffered services. Which does rather change the conversation, doesn't it? 

We already use paid for plasma - why not pay ourselves for it?

As we've noted more than once around here the only country that doesn't have people dying while waiting for a kidney is the only country that pays live donors for a kidney - Iran. But, as we're also continually told, we should never sully matters concerning body parts with mere money.

Thus gamete donors are not compensated and we import sperm from Denmark, people do die waiting for a kidney or liver and blood, well, blood's interesting. For the system of voluntary donation does largely cover British needs. But plasma doesn't

The global demand for plasma is growing, and cannot be met through altruistic donations alone. Global plasma exports were worth $126bn in 2016—more than exports of aeroplanes.

…Only countries that pay for plasma are self-sufficient in it. 

The UK is one of those places which imports plasma. And we're importing it from paid donors in the US. The moral point has already, therefore, been trumped. We are paying donors for their plasma. But still there is the insistence that we must not ever pay for anybody part - even when we already do.

Our own view is that efficiency trumps the ethical concerns of some. After all, those who object to the financialisation of such medicine can always register their protest by dying without it.

Fixed odds betting terminals - Mancur Olson was right

The government has announced that the stakes on fixed odds betting terminals will be reduced to £2. This is proof that governance does in fact work as Mancur Olson insisted it does. It's a fight among special interests for who gets to extract from us.

The news:

The maximum stake on addictive betting machines will be cut from £100 to £2, ministers announced today after reaching a compromise to limit damage to the public purse.

New rules on fixed-odds betting terminals (FOBTs) — described as the “crack cocaine” of gambling — will come with tax rises on bookmakers.

There's been a sustained campaign to get this to happen:

It’s nearly 20 years since I was put in charge of fixed-odds betting terminals (FOBTs) for one of the major bookmakers, rolling out some of the first ones, and it’s six years since I put the boot into them by turning whistleblower on Panorama.

Why did I turn whistleblower? To highlight the absurdity of £100 spins, in what was then a relatively lax regulatory environment around FOBTs. I wanted to expose the failure of the industry to recognise the impact of £100 stakes and the roulette game itself on the daily life of betting shops – customers and staff.

The point being not that the individual realised how damaging they were. But that other gambling interests were able to coopt those feelings:

Reducing the stake has always been a red herring. As opponents of FOBTs now admit, a £2 stake will make the machines 'unplayable'. The campaign isn't called Stop The FOBTs for nothing. And if FOBTs are removed from the high street, punters will move online, thousands of jobs will be lost and horse-racing will lose millions of pounds.

Gambling is going to continue, problem gamblers will still be problem gamblers. Who makes the money out of them will change, that's all.

As Mancur Olson did point out. Democratic governance does become the fight of the special interest groups over who is able to farm us. By altering the law in their favour and against their competitors.

Polly's just found out that most of us don't care

Polly Toynbee is outraged by her latest discovery - the British people aren't up to having her guidance. We're just not good enough for her - no doubt the calls for another people will be along soon enough.

 The more precise complaints are about big business. Pay for CEOs is too high, according to Our Poll,  tax dodging too high and all that. Labour has excellent policies on these matters, so she says, the Tories don't. And yet, and yet, we don't vote for Labour and their policies? 

The answer being, as she says:

Good, say I! Class war! riposted the Mail. But when Trickett averred, “People have had enough of the elite pinching wealth from the pockets of working people,” the trouble is that they haven’t really, or not enough of them. 

Truly we are not worthy of such a visionary.

For what is happening here is that we are in fact a democracy. Not a system where what happens is determined by the enlightened in the elite. Instead, we hoi polloi have our say about what is important to us. And the basic point is that we just don't care about these things. Or don't care enough to live up to Polly's vision of the Good Society.

But then that is the point of our being a democracy, isn't it? That we don't have visions of the Good Society imposed upon us but get to choose for ourselves? 

No wonder she's disappointed in us.

 

The proof that millennials should love the market

It's not obvious that millennials - the young and unwise of our society - like or even understand markets. Yet here we've a little story which shows that they should love them.

That story being a little listicle of things which have fallen out of fashion as the portion of purchasing power deployed by those millennials rises.

It’s not just frozen food that millennials have helped bring back. Millennials get a bad rap for killing things, but they’re also helping saving a number of industries. But are they reviving as many industries as they’re killing? I’ve conducted an investigative analysis to find out.

In are diamonds, golf, and vinyl records apparently, out go bar soap, chewing gum, focus groups, napkins, thongs and the Olympics.

Now let us think of an economic system which accommodates such changes.in desires. There's nothing particularly rational about some of them, they're just changes in taste. Rational in the sense of being calculable that is. Thus a planner could not possibly forsee them nor, well, plan for them. 

Who, after all, knows why the desired shape of knickers changes? 

We thus need some sort of system which indicates to producers that tastes are changing, preferably with a vicious feedback system to clear out those who don't take note. That being exactly what the market does provide for us. Those who fail to rise those changing tastes go bust an vanish from our economy.  And precisely because changes in taste aren't predictable they cannot be planned for at the system level - only by individual market actors who may or may not strike it lucky.

Millennials, whatever their thoughts about markets, really should love them. For they're precisely what caters to their tastes.

A remarkable example of missing the point entirely

Even to seasoned readers of the newspaper like ourselves there are still gobsmackers to be found in the pages of The Guardian:

Back when local councils directly funded nurseries, there was at least some democratic accountability for how public money was being spent. But now that subsidies are channelled via individual parents, there is too little oversight for how £6bn of taxpayer money is being used to help give children the best possible start in life. Instead, the care of young children has increasingly become a commodity to be bought and sold.

The claim being made is that bureaucrats, overseen by politicians to some extent, care more about the quality of goods and services being delivered than private sector economic actors do.

Well, to be honest, that might even be true. It's the next stage which is so important though. The only way we will get decent supply from the bureaucrats is if they do care. Those private sector actors have to care for if they don't then they lose business, go bust, get fired.  

Which is why that move to commoditisation, the insistence that care for children is something to be bought and sold. The decision makers being the very people to whom the welfare of the children is most important, their parents. Because, as hard won experience has taught us, it's the pressure from buyers that makes suppliers deliver the goods.

That, after we surveyed the rubble heading east from the Brandenburg Gate in 1989, anyone can seriously argue otherwise really is a gobsmacker.