Another win

At times like this, I can really get behind this government. There are a few policy ideas I have been a supporter of since hearing about them or considering them, but never expected them to see the light of day. Scrapping NI is one: apparently, this could now happen.

Here is another radically liberal plan which could make it into the Budget, according to the FT Westminster blog:

There will be a pilot project announced for councils to oversee a system of “land auctions” whereby they would effectively sell planning permission to developers – freeing up more land and driving down the price.

The source of this brilliant policy (and it really is quite brilliant) is CentreForum's Dr Tim Leunig; you can read the report at this link (src).

It is a way for councils to capture a large proportion of the uplift in land values which takes place when they add planning permission. Currently, you may be aware, the landowner or developer applies for planning permission, and the council either accepts or rejects. The uplift in value is shared by the landowner and the developer in some combination; none of the uplift flows to the local community as expressed in the local council.

This scheme would allow landowners to offer the council an option on a parcel of their land: a price, and possibly some conditions, would be attached to the parcel. The council would then choose which options to buy — that is, which parcels to accept — and would slap on whatever planning permissions they thought appropriate. The council then auctions off the land, and thus earn the uplift from the landowner's price to the developer's.

This is sensible because it is only the council which adds anything new to the process between landowner and developer, and yet the council does not see any of the uplift. Consequently, there is no incentive on council or local residents to agree to new developments. By aligning the pay-off with the agent in this way, local communities will have a reason to agree as well as reasons to disagree. Hopefully, this will result in lower land prices, cheaper housing, more development, better public services and lower council tax, to name but a few of the benefits.

A quick recommendation

I don't have time to write much on this, but do read the blogpost which is the source for this quote. And, if you have the time and the inclination, the Hansard link as well. This is much in the same line as the Trafigura stuff; you may recall that then as well, I happily helped to throw stones at the walls of silence erected around the issue. But this time, it's lawyers and officials using threats to cow individuals into agreeing not even to talk to their MP about the problems they are facing.

Like I say, read the whole thing.

Mr John Hemming, MP for Yardley in Birmingham, rose to his feet and used parliamentary privilege to list some of the secret prisoners, the people who have lost their liberty in the UK behind closed doors; the court orders which … prevented the aggrieved citizen from appealing to their MP for help. (src)

It's another one of these stories that makes you unsure whether you live in the country you thought you did.

Words to ponder

The use of this word ['inappropriate'] is a hallmark of a particular character that thrived under New Labour. It’s someone who is enough of a moral relativist not to want to use the terms “right” and “wrong”, but not so much of a relativist that they are prepared to forego the power and wealth that comes from passing judgment upon others. Egalitarianism only goes so far. (src)

It's a great insight into the way that people can use their words to undermine someone else's position and build up their own. One of the foremost ironies of this phenomenon is that postmodernists, so adept at identifying precisely this underhand and sinister use of words, are also among the chief exponents of the method. They can sniff out a special-pleader in an instant; dare I suggest because it takes one to know one?

However, I wouldn't, believe it or not, want to make such a strong link between this and the previous government as does Chris Dillow. Perhaps that kind of character did thrive under New Labour, but I think he is falling into one of the traps about which he rightly warns the rest of us: that of ascribing too much influence to a single individual or small group of individuals.

Sin, for that is what Chris is identifying even though he would doubtless dislike the word, is not a problem of politics but of human nature. So don't blame it on Labour, Chris, blame it on us.

This 'ex nihilo' fiction

It's not a lie, if only because the people propagating it tend not to have the intellectual integrity to check their sources before trying it on. The claim is that the government's NHS plans are coming like a bolt out of the blue, without having been mentioned at all in any manifesto. Here, for example, is Michael Meacher, inhabiting his own little world where Labour is pure and the Tories come up with evil plans to ruin the NHS:

Leave aside there’s not an iota of mandate for [an “automatic right for private sector companies, charities and voluntary bodies to bid for public work”] from the Tory election manifesto last year. (src)

Reading manifestos is a pain, I know. I mean, I doubt Michael Meacher even got to the end of Labour's turgid effort in May 2010, never mind reading the manifestos of his opponents. But if he wants to claim that something does not appear in their manifesto, he had better try reading it first, or he might look a little silly.

Our public service reform programme will enable social enterprises, charities and voluntary groups to play a leading role in delivering public services and tackling deep-rooted social problems. (p. 37)

We will give every patient the power to choose any healthcare provider that meets NHS standards, within NHS prices. This includes independent, voluntary and community sector providers. (p. 45)

We will strengthen the power of GPs as patients' expert guides through the health system by giving them the power to hold patients' budgets and commission care on their behalf; … and putting them in charge of commissioning local health services. (p. 46)

(pdf)

Nope, the government's current plans for the NHS — plans, I would point out, which are intended to stop government from having Plans for the NHS — have come from absolutely nowhere and bear no relation to anything in either of the election manifestos of the governing parties; and the wider social policies of which they are a vanguard have no precedent on page 37 of the Conservative manifesto at all. GP commissioning is a complete surprise, opening up to private provision is something the Tories had given no thought to, and involving non-governmental organisations in delivering public sector work was seen by no-one. Specially me, because I don't clearly remember almost giving the Tory manifesto a standing ovation when I read the line on p. 45 which I quoted above.

I know it's fashionable to claim that the NHS plans are some sort of weird apparition which was not foreseeable in any sense, and that the idea of opening up the public services to non-state organisations is a magical arrival from another plane. Back in the real world, however, it is clearly also baldly, factually inaccurate. Do I expect Labour politicians to stop making this inaccurate claim?

Go on, guess.

Oh, how we laughed

This time, it isn't the Australian subs who are causing problems at the Telegraph.

Clegg tells Cameron he's 'talking complete bilge' over AV

Nick Clegg told David Cameron that he was "talking complete bilge" over the proposal to introduce the Alternative Vote system in a comment that indicates the tension over the issue at the top of the Coalition. (src)

Oh noes! Politicians in government disagree with each other! It's the end of the monarchy and all that is right with Britain!

Except, um…

[Clegg] said: "We were very good humoured about it. We mutter to each other. We were just joking. We disagree on this one."

Yep, politicians at the top of government are able to smile and laugh about their disagreements. This isn't tension, it's actually very healthy.

Still, we learn that "a phalanx of some of Britain's leading historians warned a move to AV … could destroy the principle of “one man or woman, one vote”." Yes, the Telegraph names some of the historians:

The historians included Professor Niall Ferguson, Simon Sebag Montefiore, Dr David Starkey, Professor Antony Beevor and Dr Andrew Roberts.

It would be fair to say that the list includes some of the most right-wing historians currently operating in the United Kingdom. They're entitled to their opinions, as are we all, and I'm not criticising either the holding or the expressing of those opinions. But really, this is hardly an impartially-selected group of scholars expressing a nuanced, scientific opinion on a matter of bald fact.

Nevertheless, as cheerfully as the Telegraph named the historians, so strangely coy is it about the source for their quote: "In a joint letter to a newspaper, they wrote…" Not naming the newspaper, in the Telegraph, is as good as naming it: for to which other paper can they therefore have written than the old nemesis, the Times?

No, Andy Bloxham isn't a Journalidiot. He hasn't been trying hard enough for that coveted accolade. But I needed a good giggle. Thanks, mate.

You read it here first

Well, okay, at the ippr, and it's been Ukip policy for a while, and Tim Worstall probably wrote about it too, and some other people have had the same idea. But (drumroll please):

National insurance and income tax should be merged, says chancellor's tax thinktank.

Office for Tax Simplification recommends radical structural change as distinction between national insurance and other levies becomes blurred (src)

Ooh, yes please. I did wonder about bunging a short position piece into the OTS asking them to consider scrapping NI, mostly for the reasons I gave a few days ago. Turns out I haven't had to bother!

A dud giveaway

Various news outlets (1, 2, 3) have been running reporting of a CentreForum paper, under the name of Stephen Williams and with what might be euphemistically termed 'assistance' from Portman Capital [1], of a suggestion to give the taxpayer's stake in the part-nationalised banks to each taxpayer. Well, each voter, which is nearly the same right? Except for the taxpayers who can't vote and the voters who don't pay taxes; oh, and the voters who don't vote.

It has to be said that capitalism does work best when we all play. Getting more people to own shares or units in funds and trusts, to be using their laid-aside capital to involve themselves in the economy, is a good thing. But this is rather like convincing people to learn to swim by shoving — or should it be nudging? — them into the deep end of the pool; and the odds are that this pool may have the occasional shark lurking in it. Better to publicise the benefits of learning to swim rather than force people to do it.

And indeed, this plan would be a bureaucrat's dream, and a citizen's nightmare. How do you keep track of partial and full disposals, disposals below the floor followed by re-acquisitions above the floor, disposals by existing shareholders distinct from disposals of allocated shares…? This is, in the words of the FT's Bryce Elder, 'an unworkable proposal' (src).

But ignoring all those issues, the report contains a blinding error of fact which blows most of its democratising contentions out of the water and is recognisable by anyone who owns shares. It says,

At the time of distribution, the shares’ legal ownership will transfer to recipients, and their shares will be held in their name in a nominee account, in line with standard industry practice. As owners, recipients will receive dividends and have the right to vote at Annual General Meetings, giving them a direct role in the running of the banks.

The problem is that standard industry practice for nominee accounts is that the shares are aggregated in a single large account, and apart from in special circumstances the beneficial owners of the shares agree that they won't try to use their shareholder rights. This makes it cheaper to administer the shareholdings, which is arguably of more benefit to a small shareholder in such a very large company than being able to vote would be.

So if 80% of the shareholdings in RBS, or 40% of Lloyds, ended up behind such a wall, then the bank would become completely ungovernable. The Board would be answerable to next to no-one. It is possible that the bank could manage such a situation, but suppose it led to the share price stagnating. Since Williams/Portman propose that the Treasury would claw back some of the proceeds up to a certain price, if the share price never hit the floor then RBS would be effectively stuck: the lack of strong shareholders causing the company to flounder, the floundering dissuading small shareholders from selling their shares, larger shareholders unable to increase their shareholdings to increase their ability to give some direction to the bank.

Little wonder, then, that the Treasury described Williams'/Portman's proposal in a delightfully Sir-Humphreyesque tone as 'a welcome contribution to the debate'. Let's hope that's all it remains.

[1] Lesser mortals might suspect that Portman had a brainwave for getting their name into the media, and caught themselves a live one in a Lib Dem backbencher and CentreForum. But far be it from me to suggest such.

Disclaimer: I directly hold shares, through two nominee accounts, in Lloyds Banking Group.

Why put extra on income tax?

In my last post (link), I proposed scrapping National Insurance contributions altogether, and replacing them with a budget-neutral increase in the rates of income tax. What benefits would this have? Let me detail some.

1. Decreased bureaucracy in employment. National Insurance creates bureaucratic costs for employers and employees, as well as diverting time and resources from more productive activities to accountants and financial advisors. Replacing NI with a far simpler system will result in better resource allocation. This is the chief benefit.
2. Simple honesty. NI has not been about funding the NHS or pensions since about two years after the National Insurance Fund was founded. General taxation has always been needed to make up a deficit. All we would be doing is making it quite clear that this is the case, and that the welfare state is another part of the government's programme just like the police or international aid. The NHS is enough of a national religion already, without having a nominally hypothecated tax behind it as well.
3. Increased public awareness. By uncovering the rates of tax that the State is actually levying, public debate around taxation will be far better-informed of the costs as well as the benefits of taxpayer-funded services. Even lefties must agree that a public better-informed about both the costs and the benefits is a good thing.
4. Lower effective headline rates. A side benefit of scrapping NI and replacing it with income tax is that income derived from financial capital is liable for income tax but not NI. Consequently, scrapping NI and replacing it with income tax will catch savings and (some) dividends as well. The effect is that a budget-neutral replacement would not need the headline rate to rise so high. Frankly, with interest rates so low currently, now is the time to do this since in all likelihood, most savers won't see an immediate difference.
5. Tilting taxation towards capital. As the preceding point suggests, the taxation of returns would have shifted a little away from labour and a little towards capital. Now, I really don't want to emphasise this point, because it is such a double-edged sword; indeed, the importance of this point is inversely related to the length of the paragraph. After all, enhancing labour with added capital is, in the long run, a very good thing for all of us and we don't want to discourage it. But there can be a couple of reasons for wanting capital and labour to face more evenly-balanced taxation. One is that since markets do not adjust immediately, the speed at which innovations are applied matters: slowing them down without killing them may, in certain circumstances, be justified. But I think that the big one is that in the very technical, taxation-related sense of the word, it is a progressive change: the poorest taxpayers would keep more of their money relative to the richest. That's good for the process of putting more money, and thus power, into the hands of the poorest and thus least powerful, without needing to engage in redistribution sensu stricto. One doesn't have to buy into the thesis that equality is good for everyone to believe that better enabling, or rather not so badly disabling, the poorest and least powerful to bat for themselves and their families is a good thing.

Scrap NI

An odd employment situation has put me in the position of having to consider the most efficient way to arrange my affairs with regard to National Insurance. But while I was considering this, I had the misfortune to read the tables which are used to calculate NI liabilities. You can see the horror here (link), and I strongly encourage you to look at them. This is not simple, straightforward, easily-calculated taxation. Here are some reasons why I think NI should be scrapped.

1. The NI provisions come from quite literally another age. In the Forties and Fifties, many people especially on lower income were paid weekly. Nowadays, payment schedules are very different: for many people, they are monthly, while there are also far more irregularly-paid workers than there used to be. Having a weekly limit, rather than annual limits, catches out people whose pay is not regular and is a hangover from a bygone era.
2. The provisions are horrifically complicated. Four different classes, numerous different thresholds and rates: how can you work out what you should have paid? I think I can just about make my way through, and I am (thought I say so myself) very numerate. What about people who aren't so well-equipped to handle numbers? Often people with thin personal margins are in that position, one way or another, because they are not so good with numbers. Computers can work out our NI liabilities, but how does someone with less numerical nous tell if there's been a mistake?
3. The marginal rates are bonkers. Suppose that someone earns about £200 a week, but one week gets a bonus of £1000. It looks to me — and I am having to seek professional advice on this — that rather than averaging the bonus over a period of time, you pay NI on the £1200 as though you got paid £1200 every week, in effect. The curious thing is that because the marginal rate drops again, it looks like this is a more efficient way to get paid than getting the £1000 spread over a number of weeks. The marginal rates are mad (if I've got this right).
4. The incidences are misaligned. It is well-accepted by anyone who takes an interest in these matters that the burden of employers' NI is, in fact, borne by the employee. (If you don't believe this, consider that employers' NI is a cost of employing someone and the employer doesn't really care whose bank account gets the money: if not the Treasury, it can just as well be the employee.) By charging a separate employers' NI, a part of the burden that the State places on all our incomes is hidden.

I don't propose scrapping NI without replacement. I would suggest that a far simpler and more transparent system is the income tax system. I can't quite work out what the numbers would look like, but estimate that an extra twenty pence on the basic rate and an extra fifteen on the upper tiers would roughly replicate the effect of the NI, without its complications. I shall cover some of the benefits in the next post.