Stop the facade, it's time to come clean about national insurance contributions

Tax Freedom Day, which measures the total tax burden compared to Brits' total incomes, falls on June 3rd this year. Everything we earn from every source for 153 days goes to the government and its programs; everything from today to the end of the year we spend ourselves. This is the latest it has been for fifteen years, and the evidence suggests a big government is an unwieldy one, and one that reduces growth. One way we could reduce it in a way that the average person will really feel is by raising the threshold you have to earn before you pay national insurance.

Britain used to have a contributory welfare system, driven by the recommendations in the Beveridge report, a surprise best-seller in 1942. People paid in, through national insurance, and gained eligibility for various social insurance and welfare benefits: pensions, the dole, sickness benefits, and so on. 

We still pay national insurance contributions, fooling many into believing that there is still a pot in which these pile up, ready to pay for our needs when we age, or lose our jobs. This is a façade; the pot no longer exists. The contributory system has effectively withered away, and we should cut some of the complexity out of our tax system by making that official.

People pay national insurance if they earn above £155 a week (equivalent to £8,060 a year). The fact that eligibility is determined by weekly pay, rather than annual salary, hearkens back to the system's 1940s origin. But these contributions have become tied only nominally to the receipt of benefits.

The last government did away with most of the complexities in the state pension to do with different levels of payment. That means it is all-but universally given at the same level now: £155.65 per week, and will in principle be given only to those with 35 years of national insurance contributions. But the current system gives national insurance credits not only to those earning above £155.65, but also those claiming jobseeker's allowance, employment and support allowance, child benefit for kids under 12, or carer's allowance, as well as those earning above £112, and so not paying.

The government, thankfully, is no longer trying to do the job of pension providers. It is trying to guarantee that no pensioners need to live in poverty. In so doing the contributory link has been broken on both payments; you don't need to pay to generate eligibility and the amount you pay does not affect the size of the payments you're eligible to. But because people are told they're contributing, some still believe they are saving up for their retirement, or for difficult spells, when they hand over NICs to the government.

We should acknowledge this disconnect by rolling national insurance contributions into the income tax, and starting them at the same threshold, so people know exactly how much they're paying. What's more, this should be our main strategy for tackling low pay, rather than the national living wage. The Adam Smith Institute’s recent paper 'Abolish the Poor' showed how simply lifting those working full time on the minimum wage out of income tax and NICs would bring them to the living wage income, without the risks of unemployment or an early shift to automation that come with wage price fixing.

The government has already made impressive steps on income tax, taking many low paid workers out of the levy entirely, but NICs have been left by the wayside. An NIC cut would boost work incentives and return money to the badly off at the same time, without risking unemployment.

The link between contributions and benefit receipt is gone in all but name. It was a system built for a time when a single earner was expected to support a family, and where the biggest problem was unemployment, not low wages. In practice, the welfare system has adjusted to the new reality, but the language and framework remain. We should recognise the situation as it is and cut away the final remnants of the old contributory link, rolling NICs into income tax and raising the NIC threshold so that we are taking less tax from the lowest earners. Doing so could give minimum wage workers a living wage, without the unemployment that risks. Beveridge's ideas may have been good for 1942, but they are not a good fit in 2016.

We rather disagree with this estimation of Bitcoin

We're rather techno-optimists around here: largely because we know a bit of economic history. 250 years back the average human was able to consume some $3 a day of current value. Today that's more like $30 and we in the rich countries are doing very much better than that too. All driven by technological advance: sure, that itself incentivised by markets, economic freedom, the price system and getting the institutions right. But it is technological advance which is the direct cause of our current wealth.

However, we're rather less optimistic about the prospects for Bitcoin. We're sure that the blockchain will be used to do some interesting things, although pretty certain that it will be a less clunky version of it which is. Bitcoin itself we don't think is going that far. And we're really pretty sure that it's not about to eviscerate banking:  

New technology such as artificial intelligence and blockchainwill utterly shake up the fundamental principles of banking, challenging the entire industry according to former Barclays chief Antony Jenkins.

He believes the innovation in finance could eliminate the need for maturity transformation – the process by which short-term deposits, such as current accounts and instant access savings, fund long-term loans including mortgages.

That is a fundamental principle of the industry as banks can offer a low interest rate to savers while charging more to borrowers, profiting from the gap between the two rates. Yet in 10 to 20 years’ time, he believes the need for banks to perform the function might no longer exist – already some investors are sidestepping banks by using websites to match borrowers and savers directly.

That there will be peer to peer lending we have no doubt about. But look at what the prediction really is: Bitcoin, or alt-currencies, or the blockchain, will wipe out fractional reserve banking. We will end up with a system instead of only 100% reserve banking. That's what no maturity transformation means. And we really do not think that is going to happen.

Simply because that maturity transformation is too damn useful. The desired maturity and liquidity of savings is rather lower than the desired such of borrowers. Thus, somewhere in the system we need maturity transformation. And as Brad Delong likes to point out if you borrow short and lend long then you are a bank: that being the definition of what banking is. Further, if you're not, you're not doing banking.

The blockchain might have all sorts of fun uses but it's not going to replace that basic desire we have for maturity transformation. Thus it's not going to replace banking.

It's official, Uber saves lives

Tomorrow, the European Commission is set release its findings from a year long investigation into the Sharing Economy. Interestingly they're expected to go against many European cities who are increasingly trying to regulate ridesharing out of existence.

Last week, I argued that attempts to protect consumers by regulating supposedly unsafe products often backfired, because those products are often substitutes for even riskier products and behaviours. In particular, I pointed to Austin's fingerprint background check requirement that made Uber and Lyft prohibitively expensive to run in the city, and led to consumers taking even riskier journeys. But, if anything the harms of driving Uber and Lyft out of town are even greater than I made out.

At least that's according to a new Working Paper from Angela Dills and Sean Mulholland, which investigated the impact of Uber's entry to a city on vehicle accidents and crime. They looked at data across 150 cities and counties on a range of metrics, from vehicle accidents and DUI arrests, to drunk and disorderly conduct and aggravated assault. 

Dills and Mulholland point out that there's a range of ways that Uber might affect crime and accident rates. Maybe it'll increase accidents because Uber drivers are more likely to be distracted both by smart phones and passengers. Maybe it'll increase driver-on-passenger assaults as unsafe drivers sneak through lax background checks. Maybe it'll increase assault widely, as more folks get their drink on, safe in the knowledge they don't have to be the designated driver.

But the data doesn't bear out any of these fears. Dills and Mulholland came away with two major findings.

First, the rate of vehicular accidents falls quite dramatically when Uber enters a city, with traffic fatalities declining by 16.6 per cent over a year. This can be explained by both a reduction in the number of people driving under the influence, as well as the fact that the people most likely to use Uber (i.e. millennials) are terrible drivers and anything that keeps them off the road is a good thing.

Second, they find declines in arrests for both assaults and disorderly conduct. This may be because Uber reduces passenger wait times, lowering the risk of someone being attacked while waiting for a cab. This finding is especially important as governments have attempted to impose minimum wait times on ridesharing services with varying success (thankfully, TFL's proposals were roundly rejected).

As city governments increasingly move to crack down upon ride-sharing services like Uber on the grounds of public safety, legislators should take these findings very seriously. Bans on Uber aren't just bad economics, they can kill.

The BBC’s output, management, and quality are irrelevant, the license fee should be scrapped regardless

Arguments about the BBC seem to invariably focus on whether it is biased or genuinely neutral. Zionists think it is anti-semitic. Anti-Zionists think it supports Palestinian genocide. The right thinks it disseminates Cultural Marxism and Europhilia. The left thinks it is little more than a cheerleader for the Tories, an establishment mouthpiece, and/or part of the Blairite-media conspiracy to undermine Comrade Corbyn.

Maybe all of this true; probably it is all paranoid nonsense. No news can be perfectly objective, and no network can please everyone. In fact, the BBC probably does comparably well compared to the likes of MSNBC and Fox News.

However, this is not a good argument for making everyone who owns a TV pay for a license fee. Neither is the popularity or quality of the BBC’s programming. The fact that some (even the majority of) people enjoy and benefit from what a network produces does not mean that other (even a minority of) people should have to subsidise it. If someone only wants to watch ITV, Channel 4, and Sky, then they should not have to pay to fund a network for others.

The solution from a policy perspective is simple: make payment voluntary. How to handle this should be left to the BBC itself. Introducing advertising may prove unpopular. Instead, it could be turned into a subscription only service. Perhaps people could choose to purchase TV and online subscriptions either separately or as a single package. 

Setting aside that it is entirely subjective whether ‘Strictly’ is better than ‘X-Factor’, or if ‘Doctor Who’ is better than ‘Game of Thrones’, there is no reason that the quality of programming would fall. Netflix has proven extremely successful from charging a fraction of the license fee. There is no reason to think that many people who currently pay the fee would cease to do so. And, if they did, that would be because what the BBC was not offering a service worth paying for.

Some on the left would object that the purpose of having a state controlled network is to provide ‘higher class’ services to those who could not afford it otherwise. Regardless of the merits of this view, it does not support the license fee. There are no concessions for being poor. In fact, many of those convicted for non-payment are people who cannot afford to pay. Concessions for the over-75s are one of the many benefits offered to a proportionately well-off section of society. Concessions for the blind and care homes could be maintained, if the network or government saw fit.

Equally, cultural conservatives may trumpet the virtues of having a network that unites the nation and creates a sense of belonging and unity. This vision is woefully out-dated. The fracturing and pluralisation of the market means that the 1950s picture of families around the country crowding around their TV sets to watch the same thing is long dead. This is a positive development. People have always had a diversity of tastes and preferences, and yearning for more ‘community’ at the expense of the freedom of choice is a miserable ideal.

Unfortunately, when critics of the license fee attack the BBC for being too competitive or for falling short on impartiality, they are arguing on their opponents’ terms. They will lose these arguments. The proposals in the government’s White Paper to abolish the BBC Trust and replace it with a largely government appointed unitary board will only be unpopular. It does not matter whether the BBC is successful, popular, impartial, independent, or innovative. The license fee still needs to go. 

We are deeply, deeply, confused here

We simply do not understand why people are so dead set against the TTIP, TPP and in this latest example, CETA. Those jumbles of acronyms being the various free trade treaties that are under negotiation. The usual bands of hippies and Teenage Trots seem dead set against them. Greenpeace has been climbing towers and the Trots writing in The Guardian.

Sure, these deals are not very good: the only logical trade stance is unilateral free trade of course. But making trade a little bit easier in the absence of that sensible policy doesn't sound like a bad idea. So what is it with these people?

For example:

Like the US deal, Ceta contains a new legal system, open only to foreign corporations and investors. Should the British government make a decision, say, to outlaw dangerous chemicals, improve food safety or put cigarettes in plain packaging, a Canadian company can sue the British government for “unfairness”. And by unfairness this simply means they can’t make as much profit as they expected. The “trial” would be held as a special tribunal, overseen by corporate lawyers.

We're not really sure what to call this. A mistake? Oversight? Lie? For in the treaty itself:

1. For the purpose of this Chapter, the Parties reaffirm their right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity.

2. For greater certainty, the mere fact that a Party regulates, including through a modification to its laws, in a manner which negatively affects an investment or interferes with an investor’s expectations, including its expectations of profits, does not amount to a breach of an obligation under this Section. 

There's a specific clause in the treaty itself that flat out states that the allegation is not true. so why are these people continually repeating something that just is not true?

What is it that some innocent trade treaty has done to them that it should be misrepresented so grievously?

 Finally, through something called a “ratchet clause”, current levels of privatisation would be “locked in” on any services not specifically exempted. If Canadian or EU governments want to bring certain services back into public ownership, they could be breaking the terms of the agreement.

Not true in the slightest:

A Party shall not nationalise or expropriate a covered investment either directly, or indirectly through measures having an effect equivalent to nationalisation or expropriation (“expropriation”), except: (a) for a public purpose; (b) under due process of law; (c) in a non-discriminatory manner; and (d) on payment of prompt, adequate and effective compensation. For greater certainty, this paragraph shall be interpreted in accordance with Annex 8- A. 2. The compensation referred to in paragraph 1 shall amount to the fair market value of the investment at the time immediately before the expropriation or the impending expropriation became known, whichever is earlier. Valuation criteria shall include going concern value, asset value including the declared tax value of tangible property, and other criteria, as appropriate, to determine fair market value. 

As today a government can nationalise anything it likes. It must simply pay for it, that's all. The government's allowed to force you to sell your house in order to drive a train line through. But they must pay for it.

And thus our confusion. We know that what is being said is not true. What we cannot work out is why people are propounding such untruths. Anyone got any ideas?