Talk o' gin an' beer
London's pubs may soon be protected from demolition or conversion after Boris Johnson agreed to list them as 'community assets'. What this means is that any pub which is so listed becomes considerably more difficult to sell. A selling pub landlord will be required to:
- notify their local authority;
- wait for the local authority to notify any “interested parties;” and
- “if local groups are interested in buying the asset they (will) have 6 months to prepare a bid to buy it before the asset can be sold,”
…helped along by government-funded “pre-feasibility grants of up to £10,000 and feasibility grants of up to £100,000” drawn from a £30 million social slush fund.
The Daily Mail reports that “every week 25 pubs close,” with the attendant loss of thousands of jobs, “never to reopen, victims of... cheap supermarket booze, heavy duty on beer and the smoking ban.”
Supposedly, listing “helps to see off the property developers who are the main reason pubs go down.” But are they?
Industry publications further point out that taxation on alcohol is “eight times greater” than in France, which combined with increased input costs “of barley, malt, glass, aluminium and energy” squeezes margins such that “the major UK brewers have seen profits plummet by almost 80 per cent.” Changing tastes and squeezed budgets have contributed to beer sales falling to their lowest levels since the Great Depression.
Many pubs are now more valuable for the land on which they sit than the pints they pull, resulting in their being “demolished or converted to other uses such as residential and retail services which radically alter community spaces and change the tone of the high street.”
This is no bad thing. The father of Austrian economics, Carl Menger, wrote that “if, as a result of a change of tastes, the need for tobacco should disappear completely,” there would be no doubt that tobacco would lose its utility entirely and the services of tobacconists, importers, traders, pipe-makers, tobacco-farmers, and “the specialised labour services of so many people who are employed” in the trade would “cease to be goods.”
This should not mean permanent destitution for those involved. A free market can redeploy its resources towards more profitable purposes. “Many tools and machines used in the manufacture of tobacco products,” Menger wrote, can be “placed in causal connection with other human needs even after the disappearance of tobacco.”
As in many other occasions in life, where goes tobacco, so goes beer. Times, and tastes, have changed. [ ] Yesteryear's East End labourers are now hipsters and carb-conscious yuppies, and City types are more likely to hit the gym at lunchtime than ‘roll down the pub’.
The problem is exacerbated by the smoking ban, the high burden of business rates, VAT and excise taxes, and falling household incomes. Additionally, in the midst of a housing crisis, the human need for housing is considerably more pressing than the human need for drinking in connection with the land on which “our” pubs have been built. One should not therefore be surprised that pubs have become increasingly valuable as property, rather than business, assets.
This is not to say that the Austrian approach is entirely fatalistic on the issue. We can, and should, announce “last call” on government intervention in this sector of the economy – freeing pub business from regulation so it becomes more competitive and liberalising the housing market will reduce the cost to society of both entertainment and places to live, while not interfering one whit with the property rights of pub owners. Listing pubs as “community assets,” however, achieves virtually nothing.
Preventing town-dwellers owning second homes in the countryside
Sir Andrew Motion, head of the Campaign to Protect Rural England, has called for taxes that will put countryside second homes beyond the reach of all except the very rich. His motivation is very clearly expressed. These second homes are:
"… very often lived in by people who scoot down in their cars, see their smart friends, don't join in the life of the community and don't feed into it. They're townies in the countryside, they make sure they're back in London in time to catch the 10 o'clock news on Sunday night."
Clearly Sir Andrew does not like these people or their lifestyle choices, and does not want them in the countryside of rural England. The total number of people with 'weekend second homes' is put at over 165,000. Of the 25 million homes in Britain this represents less than 1 percent of the total. A somewhat larger number own a second home, but let it out for income instead of using it themselves.
Small though the number is, it clearly represents a problem for Sir Andrew, who does not like what these townies are doing. For the townies themselves this is not a problem, since they are making the choice to live in this way, and enjoying that choice. Sir Andrew and his CPRE think it quite legitimate to use the power of the law to prevent others making choices that they themselves disapprove of.
As times change, so do lifestyles. Affluence and mobility have given some people the option to enjoy the countryside at weekends or during holidays, and Sir Andrew and his friends want this stopped. They think it reasonable to use the law to make the world the way they would prefer it to be, rather than the way others prefer it to be. He doesn't want second homes to be illegal, just "very expensive."
This calls to mind the CPRE's ongoing campaign to prevent more housing in the countryside, keeping its pleasures confined to those who already enjoy living there. Sir Andrew and the CPRE should investigate whether it might be a lot cheaper simply to use barbed wire to keep townies out of the countryside. After all, similar measures have been used before in other countries.
Allemannsrett in Britain?
Allemannsrett (literally 'All Man's Law') is an ancient custom, most clearly found in Norway, Sweden (Allemansrätten) and Finland (Jokamiehenoikeus), where it has been formally enshrined in law.
Currently, in Britain I am largely restricted in my freedom of movement, despite thousands of miles of footpaths, bridleways and other rights of access,. Furthermore, in England and Wales, I cannot camp in the 'wild' – instead I must pay to use a campsite.
Implementing Allemannsrett in Britain would change this: it allows everyone to use rural, uncultivated land for walking, camping, foraging and other outdoor activities, regardless of who owns it.
An objection might be that this infringes on the right to personal property, but I believe Allemannsrett is in accordance with J.S. Mill's harm principle. The laws of the Nordic countries clearly demand that those taking advantage of the Allemannsrett are respectful to the land they are using: there are rules concerning littering, the lighting of fires and so on. The saying 'take only pictures, leave only footprints' sums it up well. Therefore, those who use Allemannsrett properly are acting within the basic libertarian principle. The rules on foraging, and other more controversial aspects could be adapted as desired.
Another issue is that of privacy: landowners would not want hikers peering in through their windows. The Nordic laws cover this as well: any 'trespassers' must maintain a respectful distance from houses or cabins at all times (at least 150 metres in Norway).
A final objection is the claim that it would be pointless to introduce the Allemannsrett in Britain as it is in Scandinavia, since here we have a much higher population density. But the vast majority of the British population lives in urban areas, and the country has many places of natural beauty and sparse population where greater rights of access could allow much greater appreciation of them.
Allemannsrett in Britain would allow each individual to enjoy the countryside to its full extent. It would out us back in touch with our ancestors, by allowing us to camp 'wild', away from the mod-cons of everyday life. All this could be achieved without infringing on the basic principle of liberty, as clear rules would ensure respect for the land and its owner.
Do you think we could surcharge John Prescott for this?
This is something I don't actually know. Is it possible to surcharge a Cabinet Minister for the losses to the taxpayer caused by their own gargantuan stupidity? Or is it only local councillors we can go after in that manner? I rather assume that we can't go after Ministers because I note that there's at least some of them who are not bankrupt at present: but it would be interesting to know.
The reason for this musing is this story from Liverpool:
UP TO 400 people have already shown interest in buying homes in Liverpool for just £1. And with only 20 homes so far earmarked for the rock bottom price deal there will be stiff competition between the competing buyers. Liverpool city bosses have yet to confirm what the criteria for deciding who will be sold the houses will be, but it is understood they are keen to prioritise people who have links to the area and will commit to living there for five years. Many of the houses in Kensington and the “Granby Triangle” have been boarded up and empty for years because successive regeneration schemes have fallen through.
OK, so we've empty and derelict properties owned by the council. A council which cannot actually manage to renovate them itself. So, yes, why the heck not? Flog 'em off for anything at all and allow the little platoons to do them up and then live in them. Or rent, them, sell, them, do absolutely anything they want to with them really.
But why would I want to surcharge John Prescott over this? Well, for this reason:
Many of the Liverpool homes bought up under the failed Housing Market Renewal scheme cost the council around £70,000 each to compulsory purchase.
We really are seeing the gargantuan stupidity of government planning here, aren't we? These are Victorian two ups two downs in Liverpool. And they managed to pay £70,000 for each of them? I mean, what? If something is worth £70k in Liverpool then it's not actually derelict or in need of regeneration is it? And then we find that even having done that they cannot manage the regeneration so thus have to, to all intents and purposes, give them away. This isn't government's most shining hour.
And as to John Prescott: this was part of his "Pathfinder" scheme. The basis of which was that to increase the amount of low cost housing in the country we should buy up 400,000 low cost houses and destroy them. And there in Liverpool we're seeing the scrag end of exactly that plan. At which point my call for being able to surcharge Prescott himself. It was clearly and obviously an entirely lunatic plan in the first place and much taxpayers' money has been wasted in the process. i think we should be able to claw back the losses from those who initiated such a monstrosity.
There's only one real problem here (leaving aside whether we can in fact surcharge a Minister) and that's well, why should it only be Prescott? We've this thing called collective ministerial culpability and at least some of the last lot were nominally adults so why should they get off scott free for allowing this plan to go through?
Bankrupt the lot of 'em pour encourager les autres. But only bankrupt them mind: the Royal Navy no longer has enough quarterdecks to take more traditional measures on.
The quiet nationalization of Stansted Airport
When David Cameron became leader of the Conservative Party, it is unlikely that many Conservative members expected him to preside over the nationalisation of an airport. But, with the £1.5bn sale of Stansted to Manchester Airports Group (MAG), that is, in an odd way, what has happened. For although MAG (which already owns and operates Manchester, East Midlands and Bournemouth airports) is privately managed, its principal shareholders are a group of ten local authorities. Manchester City Council owns 55%, and Bolton, Bury, Oldham, Rochdale, Salford, Stockport, Tameside, Trafford and Wigan own 5% each.
True, MAG is doing the deal with the Australian investment group Industry Funds Management, which will take a 35.5% stake in the newly-enlarged enterprise. But that still leaves the local authorities as the main owners.
The privatisation of the UK's airports was not done well. The 1984 Adam Smith Institute paper Airports for Sale, by the distinguished Dublin transport economist (and now Irish Senator) Sean D Barrett, raised the idea of privatising the then British Airports Authority (BAA), but insisted that its airports – three in Scotland (Aberdeen, Glasgow and Edinburgh) and three around London (Stansted, Gatwick and Heathrow) should be sold individually or in packages in order to promote competition. Sadly, Margaret Thatcher's government, while taking on the wisdom of privatising the badly-run BAA airports, chose to take the easy option (and perhaps the most lucrative one) of selling all six together. We knew this was a mistake, but consoled ourselves in the thought that such a monopoly could not last for ever and (like that other privatised monopoly, British Gas) it would be broken up one day, once it had acquired a more commercial way of working.
And it is right that the airport monopoly inherited by BAA plc should be opened up to competition. Glasgow and Edinburgh are what economists would call 'near substitutes', as are the three London airpots (or they would be, had BAA and British Airways not striven to segment them). And though both groups face competitors (Prestwick, Luton, Cit), these are small. It is just a shame that the competition has to come from a publicly-owned body. Rather like Britain's electricity sector, a large chunk of which is now owned by nationalised French firms. If we really believe in competition, should we really be handing companies back to state enterprises here or abroad?
Is it possible to have a rational debate about housing?
Various financial pundits in Britain's newspapers have been warning that house prices won't be rising any time soon. This is seen as bad news for the British economy, which has been quite largely driven by the wealth that people have in their homes, encouraging them to spend, spend, spend.
UK average house prices are well below their pre-2007 peak and have been flat for the last two years. Indeed, average prices actually fell 1% in 2011. So UK householders aren't feeling as well off as they used to. They are hanging onto their cash instead of spending it, prompting general economic gloom.
In the boom years, people put money into property. Now, in the bust phase of the cycle, people have more pressing needs than buying grand houses. And mortgages are tighter: the banks are being more choosy, having had their fingers burnt earlier. Lenders they are asking for higher deposits which – at today's low interest rates – first-time buyers are finding it hard to save. How different from when the banks were offering 110% mortgages. And no wonder the housing market is down, with home ownership its lowest in a quarter century.
The government's first solution is to keep interest rates rock-bottom – so when you do borrow it is cheap to do so. But that just keeps people in houses that in normal times they couldn't afford. As and when interest rates do edge up, so will defaults. The second plan is to subsidise mortgage risk. But there has been scant take-up, as uncertainty is still preventing people to stake their fortune on buying a new house. And it is the people who can afford to borrow anyway that have been helped, not first-timers.
However, a good Austrian economist would look below the averages and observe some profound diversities in the UK housing market, which blanket policies are not going to change. While most of the country reports falling house prices, London prices are edging up. That is surely not surprising when only 18,000 new houses were built in London a year ago, despite a population increase of 100,000. Londoners are being squashed into smaller and smaller homes when they actually need new ones.
Planning policy is restricting supply, while demand is soaring. Not just natural population rise, but immigration, and plenty of rich foreigners looking for somewhere safe to invest their money rather than trusting to put it in their local banks. (Think Greece, Italy, Portugal...) That is why, in the swanker parts of central London, prices are not just rising but booming.
And yet my housing-minister friend Nick Boles MP got roundly beaten up for suggesting even a small amount of new development in the 'green belt', though in the age of factory-agriculture, the 'green belt' is more like inaccessible prairie than bucolic haven. There are so many vested interests, built up as a result of decades of housing and planning policy, that I fear this is yet another issue on which rational debate is nigh impossible.
Michael Heseltine's report: the good, the bad and the unlikely
In his report today, former UK Deputy Prime Minister Lord Heseltine makes 89 recommendations aimed at stimulating growth in the regions. Some of them are good. Most of them are bad. And some of them will never happen.
Some are even a mixture of all three. One of Heseltine's key aims, for example, is to move £49bn from central government to the regions to help local leaders and businesses. Well, yes, there should be more devolution of decision-making and spending to grassroots levels. Local people know better what is needed than do distant civil servants. Will it happen? I cannot see the big Whitehall departments parting with that sort of cash without a long fight that eventually wears out the other side. And would transferring that money do any good anyway? Probably not: it would just go on the sort of top-down grandiose projects and boards and committees that Heseltine is demanding.
Lord Heseltine says that 'growth funds' should be allocated through the new £1bn Local Enterprise Partnerships that are being set up in England. Growth funds? You tax businesses, then give them the money back and call it a growth fund? Is it not better to leave the money in the pockets of businesses and their customers, so that they can decide how to spend and invest it? Their judgement is likely to be far more tailored to the local circumstances than any official's – or even any committee made up of local officials and local businesspeople who happen to have time on their hands.
Lord Heseltine wants to see greater priority given to infrastructure projects like airports, rail and motorways. Well quite, we need more airport capacity: but the decisions are always political, and it can take decades to get such projects through the planning process, never mind build them. It's our planning system that's at fault, and which needs to be opened up to business-creating development, not just the priorities of the politicians. Even then, are politicians' priorities the right ones? Look at the billions we are wasting on HS2. Governments, and Lord Heseltine, like grandiose projects, even if their benefits do not cover their costs.
Another plan is to increase investment funds by, basically, telling pension funds how to allocate their investment funds. If you want to get people saving, a much surer way is to raise interest rates and make it worth people's while. Of course we do not do that because it would cause problems for overstretched homeowners and overstretched businesses. Some economists would argue that neither have really felt the pain that is needed to get out of our present problems. The capital misallocations of the boom years need to be liquidated and put to better use, but that won't happen as long as it is possible to keep going because of artificially low interest rates. First things first, Lord H.
The proposed public interest test for foreign companies wanting to buy UK businesses is hugely dangerous. One could see politicians blocking takeovers just because they might play badly in the media, especially if jobs or domestic businesses were threatened. One of the UK's assets as a place to do business is precisely that it is so open and so international. We need to preserve that, not open ourselves up to nationalist protectionism.
Tax credits for R&D? Research and Development sound like good things, but many firms just do not need them. No one-size-fits-all policy like that can steer resources to where they are best used. Business people can make their own decisions about whether to invest in these things or not.
So how do we stimulate growth in the regions?
Planning: yes, that has to be reformed, particularly so that major infrastructure projects become viable again. Education: it is already being reformed, and I think a much less monopolistic education system will contribute massively to future growth. But these things are long-term.
I would start by lower, simpler taxes. Particularly on business. If every small business took on one extra person, there would be no unemployment in this country (except maybe for the Business Department, who could all be sent home). It is not just the cost but the complexity of things like National Insurance and PAYE, not to mention VAT and the rest, that discourages people from hiring. I would also have a real assault on workplace regulation. The idea of workers getting a stake in their business by giving up certain protections seems promising. But why don't we just exempt all small businesses from many of the rules? The huge boost to employment that this would generate is real worker protection.
In praise of sprawl
Since the formation of the Coalition Government in 2010, the British populace has been given the unusual, if often dubious, privilege of hearing significant public discourse on the subject of land use planning policy. Even more unusually, the planning system has been subject to changes that may well prove to be more than semantic; the Localism Act 2011 and the revised National Planning Policy Framework (NPPF) of April 2012 have both resulted in material changes, albeit with the caveat that the full effects, especially of the former, will probably take some time to become apparent.
In the meantime, the Government’s interest in planning policy has clearly not waned. The Treasury and the Department for Communities and Local Government (DCLG) have both issued a stream of announcements and comments on the subject, with a particular emphasis on the effects of planning policy on economic performance. In addition, it is worth noting that the Prime Minister commented on the subject in his speech at the 2012 Conservative Party conference, referring to the need to construct additional homes, and to ameliorate the planning impediments encountered by businesses.
Land underlies everything
The use and ownership of land has been perhaps the most important question facing societies going right back into antiquity. Arguably the biggest story in human history is the settlement of particularly fertile regions by previously nomadic people, and their attempt to protect the land they cultivate from still-itinerant tribes and those who want to settle the same patch. It lies at the heart of many armed conflicts: even today, conflicts such as Dafur are, at heart, battles between the pastoral and agricultural peoples of that region.
The private ownership of land is hugely beneficial, as it has been conclusively shown that private ownership is the only way of guaranteeing either resilience, sustainability and efficient land-use. This was the core of Garrett Hardin's seminal article The Tragedy of the Commons, published in Science in 1968 (interestingly, in a peer-reviewed natural science journal rather than an economics journal). It is also the subject of the work of the late Nobel laureate Elinor Ostrum, whose Hayek Lecture (delivered shortly before her death) will be published by the IEA in the autumn. Basically, if "everybody" owns something (e.g. fisheries), nobody husbands the resource and it is not used optimally; if we look to government to regulate this (e.g. again with fisheries) the results are invariably driven by political objectives, which rarely if ever align with sustainability.
On the specifics of land - and indeed all questions of "sustainability" - there is too often considered to be a trade-off between the present and future generations, with the future always presented as the victims of current greed. In fact, future generations are invariably better off than past generations, so to sacrifice the current for the future is doubly unjust. It is the temporal equivalent of denying improved living standards to the Third World because it might hurt citizens in the First World (in chronological terms, the 2010s are the Third World of the C21st).
The other advantage with a proper market in land is that it ensures that the choice of land for development is optimal - which means that it incorporates the desires of all concerned parties. To take the example of converting farms into housing, it is extremely unlikely that in a free market, an efficient and productive farm would be closed and converted into housing. Rather, it would be the marginal farms - those barely getting by, making a loss or surviving only on subsidies - that would be converted. This would not affect food security (which anyway is better addressed in the UK by opening up international trade and looking to improve yields) – it might even free up capital which an enthusiastic farmer could invest in a new, more productive farm elsewhere. It would improve biodiversity, however, because farms are extremely bad environmentally – what I describe elsewhere as a " man-made monoculture of dubious environmental merit, that is for the most part closed to the public". The average back garden has more diverse plant and animal life than the average farmer's field.
Ultimately, land underlies everything, and not just literally. In the next couple of weeks, the IEA will publish a monograph on road privatisation, but (the authors frankly admit) road markets require entrepreneurs to be able to build new roads. Present planning laws make this very difficult. All parties agree that more homes need to be built in Britain, but planning laws are the major impediment to this. Food prices are too high in Britain because we have substantially less retail space than our continental neighbours, again as a result of planning laws. New school capacity, new hospitals, new airports… land, land, land.
Until we repeal our planning laws and free land owners and local communities to make informed choices about land-use, with the costs and benefits accruing to the owners and decision-makers, present and future prosperity will be a hostage of an ill-conceived nationalisation of land use that took place 65 years ago.
Are the railway franchises on the right track?
If C P Snow was with us now, he would recognise civil servants and business people as two cultures divided by a common language, namely money. Awarding franchises to whomever forecasts, or pretends to forecast, the highest growth in passenger traffic has finally been shown to be as daft as it is. How the then Transport Secretary, Justine Greening, a chartered accountant who holds an MBA from one of the world’s most prestigious business schools, failed to recognise the fallacy is beyond words.
The taxpayer cost of this fiasco is reckoned to be £40M and that is before all the consultants involved in the two consequential investigations climb aboard the gravy train (sorry).
No other country uses this system. No surprise there. It makes it most likely that the winners will go bust. Recognising that much brings on consequential guesswork to establish the size of the bond that would then be called in. The franchise system also ensures that UK rail travel will remain more expensive than elsewhere in Europe.
The fiasco is re-igniting the debate between those who think the railways should be re-nationalised and those who want a return to the pre-nationalisation structure where large rail companies were responsible for their own track. Clearly the advocates of the former policy have forgotten how dreadful British Rail was. The mini-monopolies of the earlier system were not much better. John Major’s government envisaged that competition between different train operators using the same tracks would increase quality and reduce cost. The former has worked to some extent. Rush hours and Network Rail failures apart, the travel experience is better but it certainly has not reduced the price. The franchise process ensures that prices cannot be reduced because the train companies are desperate to service the cost of the franchise.
All these systems use Discounted Cash Flow whereby one forecasts the profits from the immediate years as well as one can, based on a good appreciation of what the near future holds in store. The “out years” are all rolled into a single number called “Residual Value” and placed far away in a box on the extreme right of the Excel sheet where the calculations are done. In theory, forecasts are made of passenger numbers, inflation etc and discounted to a single Residual Value. It is all quite complex and naïve recipients of the results tend to look at the immediate years and not worry about the number beyond as being too complex and too far off.
Using this inattention, the scam is to put the balancing number needed to secure the contract into the Residual Value box and derive the forecasts from that. It is hard to imagine Atkins, the transport consultant involved, being party to anything this trivial but the essence of the scam is making the out year forecasts fit the Residual Value required as distinct from deriving the values from the forecasts. An outsider, even one as illustrious at Atkins, would have difficulty in distinguishing the two processes, especially when, as seems to have been the case, inflation has not been properly accounted for.
But the issue is not what went wrong so much as what should be done in future. In essence a train operator should only bid for what they can control and leave the unknowns to government. Franchising should therefore not be based on a single number but on a table showing year by year tolls for the use of the infrastructure as a function of passengers carried. This should not be by train, as road tolls operate, because that would encourage over-crowding but by passenger mile which would encourage more trains. Where more than one operator uses the same track, some control would also be required to ensure capacity exists. The passenger mile fees should be on a diminishing curve so that additional passengers are more profitable for the operator and/or more price discountable. And the bids should be at present values leaving the actual future year payments to be adjusted by inflation, defined as the inflation then relevant to train operating costs.
None of that is complex although compressing it to a single paragraph may make it seem so. The underlying principles here are that the operator should only pay for what it can control and has an incentive both to improve the travel experience and to reduce costs to passengers.