Time to scrap the scrappage idea

The idea of a car scrappage scheme isn’t a good one to start with. Offering some vast sum in subsidies to bring forward by some months the replacement of the car fleet simply doesn’t make sense in the first place. We have evidence of this from the last couple of times this was tried.

Bad ideas do have a life of their own, obviously, so it’s being suggested again:

A scrappage scheme offering motorists up to £6,000 to trade in old petrol or diesel cars for a new electric vehicle would do little to bolster British carmakers, experts have warned.

The plan, which is being considered by Prime Minister Boris Johnson as he seeks to rev up the automotive industry following a lockdown sales collapse and a run of redundancies, would do little to help the UK's biggest carmaker Jaguar Land Rover.

JLR's only all-electric car, the I-Pace, is built in Austria by contract manufacturer Magna, meaning pumping UK state funds into the proposal would do little to save British jobs.

It is possible to advance the argument that it is necessary to stimulate demand from British factories by dunning British taxpayers. We don’t agree but it’s possible to advance the case.

It’s also possible to advance the case - again we don’t agree - that it’s worth dunning the taxpayer for some vast sum in order to bring forward the replacement of the fossil fuel powered car fleet by one electric by some few months at some vague benefit to the climate. It’ll be a trivial benefit and the resources can be deployed to better effect but the case can be - for it is being - made.

What isn’t possible to is try to use both excuses - sorry, justifications. If the desire is to boost production of British factories then it cannot be for electric cars as we don’t make any. If it is to be about the environment then it can’t be about British production.

Which is a bit of a problem really as the climate change justification on its own is far too trivial to support the subsidy. Of course, we think the boosting British production argument is too trivial too but everyone will agree that £6,000 and up as a subsidy to foreign car buying - however green - is ridiculous.

Scrappage schemes are a bad idea in themselves but this one is a real stinker. Don’t do it.

Government's not good at complicated things

This is one of those little problems with the very idea of government. For one of the things we use it for is to deal with those problems that are too complex for us simpler souls to either understand or deal with individually.

Well, OK, but for government to be that solution it is necessary that government be good - or at least better than we are - or even effective at doing those complex things. This not being something greatly in evidence:

The Government’s flagship passenger quarantine scheme risked descending into chaos after even a Home Office spokesman admitted it was “very hard to imagine how it would work in practice”.

Almost all travellers arriving in the UK from Monday are being threatened with fines if they fail to fill in an online form at ports of entry and then decline to self isolate for two weeks.

But according to a leaked Home Office document seen by the Telegraph, there is no method for Border Force officials to ensure if details submitted are ‘genuine’ and fines for inaccurate entries will only be issued if they are ‘manifestly false’ such as claiming you are called ‘Mickey Mouse’ and reside at ‘Buckingham Palace’.

All rather plans of mice and men.

Much else that has been recently done - say, masks didn’t work, do work, shouldn’t be used or should be but by medics only, are now compulsory and so on. It’s the ability to outwit a damp paper bag that is in doubt here. Meaning that sure, we humans do face complex problems and we do have to deal with them as best we can. It’s just that government isn’t often the way to do so.

We know we've said this before but they're still not grasping the point of trade

This is not a point specific to the shadow environment secretary, nor even to the Opposition. Far too many across the political spectrum manage to get this point wrong.

Luke Pollard, the shadow environment secretary, said: “It is unacceptable for the government to allow our high food standards to be compromised and our farmers undercut in any future trade deals.

The entire point of trade is to undercut the domestic producers. Just as the point of having market entry to to enable people to undercut extant producers. That’s all entirely the point of the activity.

What we call “trade” just being the extension of markets across national borders.

Imagine, just imagine, that there were one monopoly producer of some desired item. We’d all agree that it would be a good idea if other people were allowed to come in and start producing that item. Even where we wouldn’t - there are cases - we’d still agree that the consumer would benefit from such competition. The producers might not like it, they might even be worse off as a result, but consumers would gain.

This idea of trade is simply extending the same logic to what can be produced by foreigners. And the results are the same too. Domestic producers might not be very happy about it but consumers will benefit.

That is, the very point of the process concerning trade in food is to undercut those farmers.

Seemingly trivial but a useful warning on not believing The Guardian

As we all know believing Polly Toynbee on numbers, economics, tax, is unlikely to get us very far. She is a polemicist, a very good one, but polemics are’t quite the place to be trying to get facts or balanced worldviews.

So, this is not all that much of a surprise:

And the phenomenal share option taken by Ocado’s top executives amounts to £88m – while the pay ratio from boardroom to average staff wage is a staggering 2,605%, says the High Pay Centre.

Hardly staggering. As the High Pay Centre itself says:

An annual assessment of FTSE 100 pay packages shows that median pay for chief executives fell by 13% between 2017 and 2018. However, the average (median) CEO salary of £3.46 million a year is still more than 117 times that of the average (median) UK full-time worker earning £29,574.

That is, Polly’s claim is that that staggering pay gap at Ocado is less than a quarter of the FTSE100 average. Entirely true that this isn’t what she thinks she’s saying and we don’t expect better anyway. But it is a useful guide to how seriously we should take The Guardian on matters of tax, economics, even arithmetic. For they do have layers of editors, copy is checked before it is printed and none of them grasped the simple error here.

2,605% is 25 or 26 times (depending upon how you want to do it, more or of) which is indeed less than the 117 times that is normal. Yes, of course it’s an error but it’s the sort of error which is revealing of the knowledge of those making it. That then leading to us worrying whether they all understand this point they make:

Public sentiment has always strongly favoured clamping down on tax cheats and making the richest pay their fair share. Any companies profiteering from coronavirus will get short shrift: no better time for the Treasury to abolish avoidance and take in all the money that is due.

Abolish tax avoidance? Meaning, abolish people obeying the tax law, as it is written, as Parliament presumably meant it to be and as HMRC and the courts agree said law should be used? Why would we want to do that?

Or perhaps Polly and The Guardian don’t understand tax or the law just as they have problems with that arithmetic?

We wouldn't call this a radical idea exactly

Concerning Pablo Iglesias in The Guardian:

Spain rekindles a radical idea: a Europe-wide minimum income

As ever with the Podemos leader it’s less radical than it sounds. The idea is that each country sets a minimum income - probably 60% of median income - and if any income falls below that then it gets topped up. This is really just another name for Milton Friedman’s negative income tax and given that that is well over half a century old it’s not new nor radical. It also fails for the same reason Friedman himself realised his scheme would do so. It’s too expensive.

Things like universal basic income, minimum incomes and all that, they’re entirely possible. Even within the size of the current welfare state bill. It’s just that they’ve got to be basic, really, really, basic, for them to be affordable. Something like 60% of median isn’t affordable.

There’s also that point that a minimum income, as opposed to a universal one, plays merry havoc with incentives as the taper will produce fierce tax and benefit withdrawal rates as people approach that minimum income.

There is also this:

“But the fundamentals are similar,” said Iglesias, envisioning a system where each country would set out a minimum income based on its standard of living, with EU funds deployed to prop up the scheme.

While such a proposal would be likely to see a larger proportion of EU funds flow to countries such as Spain, Iglesias brushed off suggestions that the proposal could exacerbate existing north-south faultlines.

“I don’t agree that these kinds of measures are only beneficial to the south and not the north,” he said, arguing that all member states would benefit from protecting their most vulnerable and the resulting boost in consumer demand.

He’s asking that Germany - a shorthand for the richer Northern European countries - pay for this. Which really isn’t all that new nor radical at all, is it? It’s also, how shall we put this, unlikely to happen.

No, really, you don't get to do that. Tsk, tsk.

The current economic slowdown is going to increase poverty we are told:

Million more Britons pushed in to poverty by Christmas, warn charities

That rather depends upon how you’re measuring poverty. By the usual standard, relative poverty as being in a household on less than 60% of median income, it’s highly likely that poverty will fall. For median income is certainly going to fall while the incomes of those at the bottom - being largely based upon benefits that aren’t going to fall - won’t. We’d not insist that this relative poverty will fall this year, not insist, but it is possible and we’d argue that highly likely.

So, what other measure are they using here at the IPPR?

200,000 more children are among those expected to be below pre-virus poverty line, as job losses hit family incomes

Ahh, no, you don’t get to do that, that’s a bad faith argument, one tantamount to casuistry. For that is a switch from a relative measure of poverty to an absolute one. Poverty of under 60% of household income now is a relative measure. The use of what was under 60% of household income at some point in the past is an absolute measure. That’s actually what the official and current definition of absolute poverty is, under what 60% of household income in 2010/11 was.

The importance of this? Britain was less unequal in the 1970s, there were fewer people under that 60% threshold then. But there’s near no one at all today under what was 60% of median household income in the 1970s. By that absolute measure of poverty it has been entirely vanquished. Even the use of an absolute measure from only a few months ago is still to be using an absolute, not relative, measure.

Switching between the two measures just because it’s convenient for your argument is that tantamount to casuistry. For the IPPR does more normally use that relative measure, not an absolute. Tsk, it’s really not something anyone even pretending to be serious should do.

Nick Dearden's at it again

Nick Dearden is the director of Global Justice Now and, as ever, he’s calling for the radical overthrow of international capitalism and all that. Also as ever he’s missing the actual point of how the system works today.

Yet if his government’s actions are anything to go by, it seems more interested in siding with big pharmaceutical corporations than turning vaccine research into a genuinely collective endeavour......The last straw came on Friday, when the government refused to support a World Health Organization initiative to encourage countries to share research on coronavirus treatments and produce any final medicines patent-free. This would mean they could be distributed fairly according to need......Two weeks ago, British officials attempted to water down a resolution at the World Health Assembly to create a global “patent pool”, which would have encouraged the production of patent-free coronavirus drugs. Then, on Friday, they declined to support the new WHO initiative for pooling research......

And so on. Patents are horrible things, capitalists profiting from the poor and, and, abolish capitalism!

Entirely and wholly missing the point of what is going on. Knowledge, like what formulation of vaccine actually works, is a public good. This being a technical terms meaning terribly difficult for a private economic actor to profit from having made it. As profit cannot be made therefore private economic actors motivated by profit will not produce public goods.

So, we invent patents - in other areas copyright does the same job - so that profit is possible and thus private economic actors, motivated by profit, do produce them.

It’s entirely possible to think of other ways this might be done. Government could employ all the drug researchers and thus we get what government makes. Good luck with that if we’re to be appropriately cynical - PHE, given the track record on track and trace, might have something available in 2031. Being more idealistic, OK, perhaps charity, government, acting together, might produce something and then give that knowledge away for free.

Dearden though isn’t saying that. Instead he’s trying to insist that those private sector actors, motivated by profit, should be devoting their assets to this battle for free. Gilead, Moderna, anyone else with anything that might work, should take the hundreds of millions, billions, from their shareholders and make a gift of it to an adoring world.

Well, why would they? That being the bit that Dearden is missing - deliberately perhaps, through ignorance possibly. The entire idea of patents is that we get all that expertise and effort from all those people in those drug companies. Because we’ve already agreed - in our definition of a public good - that without some such action we’ll not get all that effort and expertise addressing the problem we face, the desire for a vaccine.

Dearden is vituperating against the very solution. He wants to abolish the system that produces the cure. Which really doesn’t sound like a good way of gaining justice, now or in the future, global or not.

Note that it’s even possible to do what is being demanded here, confiscate all those patents and declare them free to all. The problem there being that no one will work on the next problem we might face….

You say ‘veggie sausages’, I say ‘Quorn tubes’. Let’s call the whole thing off!

For over a year now, hungry snackers have been tucking into Britain’s (second) favourite sausage roll. With 96 layers of crumbling puff pastry, Greggs’ vegan sausage roll has stirred up a media firestorm. With help from odious adversaries like Piers Morgan, plant-based meat substitutes have caught the gaze of the public eye. So far, it hasn’t blinked.

Much of this surge in meat alternatives is a result of an explosion in consumer awareness about the environment. Britons are increasingly mindful that livestock production degrades the planet. The evidence wholeheartedly agrees.

Inevitably, the methane-belching meat industry feels threatened by the unfamiliar competition. And, as always when bloated political institutions can pontificate limitless regulations, cronyism ensues.

Among the most pernicious examples of this are the regulatory squabbles over whether the substitutes should be allowed to don the labels of steak, sausage, escalope, burger or hamburger. Proponents argue that these labels cause customer “confusion”. This semantic policing has already engulfed France and is creeping into the EU and the United States too.

What should replace the “confusing” labels? “Veggie discs”, ”Quorn tubes”, ”soya slices” and “seitan slabs” are at the top of the EU’s list. One might reasonably ask why, if the EU’s decision was uninfluenced by nervous meat companies, the suggested labels sound so unappealing. The EU has nothing to hide in this regard. In one decision regarding plant-based milks” (Verband Sozialer Wettbewerb eV v. TofuTown.com GmbH), the EU created new regulations built to inhibit “competing substitute products”.

Of course, courts in the EU and U.S. provided no evidence of any customer confusion. “In all of these battles”, writes law professor Steph Tai, “what we see is a fight not for consumer certainty over particular terms, but for access to certain commonly understood places in our diets”. Humans have used non-literal analogies to describe food for as long as we’ve been eating it. “[i]n Mandarin, mianjin, or wheat gluten, means literally ‘wheat meat’”, writes Tai. “Similarly, the Bengali word for jackfruit translates as ‘tree mutton.’”

If Britain’s EU negotiations wind up with our supermarket shelves stocked up with “soya slices”, it would be a tremendous shame. In any case, Britain should learn from the EU, U.S. and France that handing unfettered regulatory jurisdiction to the nanny state breeds nothing but illiberal cronyism. By reducing state regulatory power, we thereby take back control from big business, and give it back to the consumers.

Amos Wollen is the winner of the under-18 category in our Young Writer on Liberty 2020 competition.

We can't help but think this is rather missing the point

A piece in The Guardian extolling those who stepped up to aid during the recent unpleasantness. People who volunteered to call the lonely, deliver prescriptions, check on neighbours, provide food to those without incomes and all manner of those little platoon actions.

You know, that reminder that by and large we’re generally just plain good folk. Things that need to be done get done motivated by no more than the milk of human kindness and the knowledge that we are all in this together.

However, the second part begins to disturb, for it’s a list of the “support” that is to be given by government to these activities. Only begins to disturb for we’re quite willing to believe that some of the things done by volunteers or private economic actors are ripe to be put on a more organised, even governmental, basis. This has, after all, been historically true - we’ve no problem with the idea that the occasional street sluicing by the well meaning was replaced with municipal drains. So, to examine what is being voluntarily done to see what can be done better is just fine.

But by the end it all rather seems to go off the rails.

Lady Barran is the minister for civil society

The entire point of the very concept of civil society is that this is what we do without government, ministers or central direction. Meaning that we can just about imagine a member of the Lords whose job is to police the government’s, or the bureaucracy’s, interference with civil society - yelling “Don’t touch that you fool!” at anyone who offers “support” from the centre - but we find it very difficult to understand that we’re collectively employing someone whose job is to kill civil society by assimilating it into its opposite, the government.

To note that civil society is managing to take care of things is to recognise that we don’t need to change things in order for them to be taken care of. Why do we need a minister - unless this is their job, to keep repeating that hands off mantra - for that?

Quangos to bring UK economic recovery

A tango is a passionate dance for two, leading to procreation. A quango is an unelected body of people who tell everyone else what to do and/or spend our money. Past form indicates no aptitude for business, still less revitalising it. Yet Whitehall plans leaving it to quangos to boost the economy.

Key to recovery is our SMEs and start-ups. Large companies can take care of themselves although both large and small would be helped by low taxes, tax incentives and cutting regulation – easier post-Brexit. Two main initiatives have been indicated: increasing public sector funding of R&D from 0.55 percent of GDP to at least 0.75 percent and a new “London Transition Board”.

The government’s funding of R&D, i.e. potential economic drivers, is through “UK Research and Innovation” (UKRI), a quango formed to supervise ten others in 2018.  In 2018/19 UKRI distributed £6.4bn of our money on research and innovation through ten subsidiary quangos, £403M on staff and £484M on other overheads. Seven of the quangos are academic but the one most relevant to business (GDP) is Innovate UK.  The process for applying for business grants is dauntingly complex and, being “state aid”, governed by Brussels for another four years after the end of this year if transition is completed then. There are also 12 competitions to encourage particular sectors and a maze of other “funding opportunities”. The nub of it, if one perseveres that far, is that each application is scored, arbitrary box by irrelevant box, by three assessors and the highest scores get the money.  There should be only one test of a new SME; is it going to grow into a success?  Experts may be able to spot reasons why it will fail but almost certainly not why it will prosper.  Dragons’ Den provides a much better model: 15 minutes with the entrepreneur(s) will give more insight than any amount of boxes and paper.

Box ticking seems very reasonable, at least to the Whitehall mind, but it is not how the free market works. In the first of two personal experiences, we submitted a neuroscience research application to the relevant quango.  Two years later, it was refused on the grounds that the research was cutting edge (why was that a negative?) and would almost certainly fail.  By then we had achieved funding from elsewhere and a successful outcome.

The second example is Baileys Irish Cream, now world brand leader in its category. The CEO of our Irish company knew the Irish Treasury Minister who was desperately seeking increased exports.  Over a glass or two, he agreed that the export profits on an agricultural product would be free of tax for ten years if we could create a new one.  Baileys was conceived and judged by all and sundry, i.e. consumer research and the board of the parent company, to be a no hoper.  We had learnt by then that these were encouraging signals and success soon followed.  Baileys would not have survived the Innovate UK assessment process.

UKRI is not business oriented even when dealing with businesses. Dragons’ Den do not judge innovation until it has had some evidence of commercial success however small. They want to understand if and how the start-up will make money. “Return on investment” is mentioned just seven times in the 144 page UKRI 2019 Annual Report but only to do with pensions and financial technicalities on leases.  To a business person, investment and innovation are simply means to future profits – clearly an alien concept to UKRI.  There seems to be no tracking of the outcomes of grants made.  How many made money and survived?  How many failed? It would be interesting to know how the subsequent performance of successful applicants compared with those who were rejected but persevered nonetheless.  My money is on the latter. UKRI sees itself as Father Christmas handing out presents to the children who write the nicest Dear Santa letters.

Nor do the accounts distinguish grants given to purely academic from private sector commercial applicants, apart from noting that awards went to 2,647 SMEs in 2018/9 (p.137). The vast preponderance of UKRI “performance indicators” report support for academia and measures relevant to that such as the number of PhDs and journal articles. Of course some academics claim that building the country’s knowledge base subtly leads to greater wealth but UKRI makes no effort to justify that.  Within business, cash flow arises essentially from marketing, i.e. from the user/consumer. In my 20 years at London Business School, not a single marketing PhD student came from a British university.

It is tempting to suggest that the best contribution that UKRI could make to reviving the economy would be to close itself down. That will not happen but the private sector grant money could be divided between the 38 Local Enterprise Partnerships (LEPs, see below) and public sector funded by the universities that, in essence, it supports.

The other major quango-led boost to the economy is the London Transition Board (LTB). This follows the London Economic Action Partnership (LEAP) which was set up in 2017 and “spent £44m of public money in 2017-18, aiming to ‘identify strategic actions to support and lead economic growth and job creation in the capital’. By end 2018/19, £445M had been committed but it is difficult to distinguish economy-boosting expenditure from social improvement. The range of items supported and quango relationships is mind-boggling.

The LTB provides another, same-again, layer to that and will also operate in parallel with the London Recovery Board which “will plan and oversee the capital’s wider economic and social long-term recovery, developing a strategy and plan of action to reshape London to be fairer, more equal, greener and more resilient than it was before the crisis.” Enough already! 

One of the reasons governments foist these quangos on the economy is the lack of business experience in the Cabinet.  The last two Cabinet ministers with substantial business experience were Geoffrey Robinson, outed for lending money to Peter Mandelson in 1998, and Michael Heseltine who fell out with Margaret Thatcher in 1986.

Whilst this blog does dismiss quangos as a useful way for government to stimulate the private sector, there are other valid means beyond tax incentives and de-regulation, namely infrastructure.  The big banks could be arm-twisted to being more responsible and responsible to SMEs. As discussed in a previous blog, helping small business investors (angels) interact with new and small businesses has to be positive and so are tech hubs.  From early days in Italy to Silicon Valley, bringing expertise geographically together can spark surprising growth. 

Start-ups and SMEs are small and therefore local. In addition to the value of the grants, they carry a huge cost burden for those preparing applications and the quangos dealing with them. Each LEP could use the money it receives from UKRI and elsewhere to negatively tax funding by business angels, i.e. their investments topped up by 20 – 30% up to a maximum. LEPs are themselves quangos but their involvement would be limited to acting as conduits and central government could direct the funds to the LEPs most in need and who make the best use of the funding.  The angel receiving top-ups would be required to report by each SME after five years. There are lessons here for revitalising the north.  So, infrastructure yes, quangos no.