Why do we want to reduce the tax on landlords and increase it on consumers?

We’ve been watching this campaign to change business rates with horror:

An online sales tax would push up prices for consumers, the British retail industry lobby group has warned, after it emerged that Rishi Sunak is exploring plans for a levy to protect high street shops from mounting competition.

Against a backdrop of rising retail job losses and store closures triggered by the coronavirus crisis, the chancellor is looking at taxing internet shopping for England as a potential replacement for business rates, the levy on companies based on the premises they occupy.

The horror stemming from the fact that the entire debate is based upon an assumption which is wrong. Known to be wrong too. It isn’t the retailers, the occupants, who pay the business rates, it’s the landlords.

Sure, the financial incidence is upon the tenant. But the economic incidence - whose wallet really gets lighter - rapidly switches to it being the landlords. There is the IFS paper on this:

These results suggest that much of the burden of business rates is shifted on to property owners in the long run.

And the Regeneris report which was actually prepared for - and presumably read by - the British Property Federation:

The evidence suggests that over period a period of two to three years approximately 75% of the value of business rate change is capitalised into rents.

That last rather understates the effect as the average rent review is only every three years and clearly, when rents are already set changes in rates won’t affect them.

This is something we know. Rates are paid ultimately by landlords, not tenants. Therefore a change in business rates is a change in the taxation of landlords, not tenants.

A sales tax is of course a tax upon consumers.

So, the proposal is that we should tax landlords less and consumers more. Why would we want to do that?

Sure, we grasp this from the landlord’s point of view. They’re a concentrated interest and so are more interested - and thus work harder at it - than the dispersed one of all of us consumers out here. But other than that what’s the point of this change?

Or rather, by what logic should we desire this change? Given that we can’t see any wider benefit we’re against the change. What horrifies us though is that everyone in the debate either does or should know where the incidence lies. So why isn’t there more opposition. why are we the only - as far as we can see at least - voices crying in this wilderness? Perhaps more to the point why hasn’t someone pointed this out to the Chancellor?

We welcome the conversion even if it's a little late

Will Hutton tells us how things must change in this life after coronavirus:

The irrationality of all the institutional and intellectual failures of the last 40 years – excessive administrative and political centralisation,...(...)...We celebrate the NHS but know...(...)...Suddenly, it is obvious to all that a resilient, decentralised public health system, supported by a vibrant network of suppliers, is the cornerstone of a functioning economy and society. Witness Germany....(...)...the measures lack coherence, consistency and, above all, scale.

We have indeed picked and chosen there. But to a purpose, obviously.

The example of Germany is that a thriving ecosystem of private, public, for and not for profit providers of a good or service is the way to have a robust and efficient system.

We agree.

We have been arguing that this is more generally true of the NHS and near everything else done by the state in the provision of goods and services for many decades now. Nice to see Hutton coming around to our point of view.

Except, of course, if we asked directly, well, shall we have more contracting out and devolution down of the decision making level - effectively, the NHS becoming a financing method for health care, not a provider of it - we would be told to stop being ridiculous. For the NHS as is is the Glory of Our Isles, as any fule kno.

It’s a bit of a problem when reasonable analysis gets canned as a result of bumping into a shibboleth, isn’t it?

Jobs are still a cost, jobs are still a cost

We are not mariners but would claim sufficient maturity in years to stoppeth one in three to insist that jobs are a cost, not a benefit, of doing something:

Joe Biden’s $2tn plan to eliminate all greenhouse gas emissions from the US electricity grid within 15 years has been applauded by climate campaigners, but the enormous overhaul will have to pick its way through a minefield of community as well as lobbyist opposition.

The presumptive Democratic presidential nominee has touted millions of new jobs in a clean energy economy where electric vehicles, retrofitted buildings and renewable power generation help phase out emissions from fossil fuels.

It’s those millions of jobs that are to be created. These are costs of the plan, not benefits of it.

Yes, agreed, there are costs to the use of fossil fuels. Even for those not all that worried about plant food the other noxious emissions are indeed a cost. But their benefit is that we get the energy to power a civilisation through the use of less human labour. That’s exactly why we’ve a problem about either the noxious or the plant food parts. Because the use of that less human effort is a benefit to us as a society, even as it has its own costs, those emissions.

Do note that we’re not, here at least, arguing about whether we all should or shouldn’t move to renewables or not. We just want to insist that we balance the credits and debits the correct way around as we consider the decision.

Needing more human sweat and grunt work is a cost to a plan, not a benefit of it. Thus claims that millions of jobs will be created by this or that path are righteously costs of that idea, not benefits of it.

It’s worth noting that the more important we - or you - think climate change is then the more vital it becomes to consider the matter clearly. The more the insistence is that this is a civilisation threatening event the more we do have to make sure that we’ve our costs and benefits the right way around. To do otherwise would to be of sense forlorn, would it not?

Well, yes, this is a significant part of the point

A lament over the easing of planning permission:

“The new legislation fundamentally undermines the notion of a democratic, professional and accountable planning system,” says Dr Ben Clifford, professor at UCL’s Bartlett School of Planning, who co-led the research. “Not only will it continue to produce more tiny flats with poor living conditions, but it also means the developers are not required to provide any affordable housing or make any contributions to local infrastructure, like parks and playgrounds. It’s placing a huge burden on local communities, while at the same time making more profit for developers.”

That democratic, professional and accountable planning system is incapable - as the number of houses not being built shows - of producing the dwellings the nation desires in either number or type. Thus the idea that perhaps we should change it.

For example, if we desire housing to be built then perhaps we shouldn’t make permission to do so subject to having to bribe for the issuance of the permission. Sorry, we mean promises to build affordable housing and build local infrastructure.

One of the joys of the experiment being conducted at present being that house building numbers are going up as we dismantle that professional planning system. Of course, this will disgruntle those whose position relies upon the continued existence of the restrictive and counterproductive system - say, those who are professors in teaching people how to constipate the economy through planning - but the rest of us might rather like having more housing, at better prices, in the form people desire to live in in places people would like to live.

Why is the US getting so tetchy about Big Tech taxes?

The general and public view of the taxation of the Big Tech giants is that upon their profits made here in Europe they pay no tax at all. Therefore lots of people are in favour of their being taxed by us here in Europe. Thus such things as digital services taxes and so on.

There is also some surprise when the US demurs and starts shouting:

America’s quest for technological supremacy has been mainly focused on punitive actions against China. But European attempts to boost tax revenues from the most successful Silicon Valley companies means this battle is now spreading to its allies.

Many Western countries believe they can overcome Washington’s resistance to taxing tech giants such as Google, Apple and Microsoft because it seems fair and just. But this underestimates the importance of Silicon Valley to Washington’s geopolitical ambitions. The US will not back down and tariffs on European goods are looking more likely by the day.

Silicon Valley behemoths are the front line in America’s battle for technological supremacy in the 21st century. China has already developed equipment for 5G systems that is superior to that produced in the US – and it appears to be getting ahead of Western nations on smart cities and other ways to exploit the “Internet of Things”. America has a fight on its hands.

The US Senate finance committee warned Britain this week that its digital service tax on American technology companies could put a post-Brexit trade deal at risk. However, the toughest action is likely to be taken against the European Union.

This is less than perceptive. For the American taxation system changed back in autumn 2017. Those European profits which pile up in tax havens are now not untaxed inside the United States. Instead they are taxed when earned. At special rates to be sure but they are still taxed.

The importance of this being that for a US corporation its American tax bill is whatever is the righteous amount to be paid minus foreign taxes already paid. So, if the EU, or European countries, or the UK, levies another tax upon the Big Tech companies this then just gets knocked off (not exactly but this is the net effect in the end) that US bill due.

The only purpose of going into politics is to get to decide how to spend great gobs of other peoples’ money. Thus American politicians are more than a little miffed that cash they think they should righteously spend is going to get spent by some bunch of foreigners.

We have no comment - here at least - upon the justice of either the practice or the general complaint. Rather, we just want to point out why the shouting is so intense. This isn’t about, any more, whether those profits should be taxed at all. It’s about who gets to spend the revenue from having done so.

However anyone dresses up their arguments that’s all it is about too. Uncle Sam is threatening a trade war and Tante Europa might well join in over which group of baby kissers gets to spend 0.05% of the economy. We can’t help thinking that there are more useful, let alone important, things for us all to be doing.

As we've mentioned before there's no good argument for public sector pay rises

There are plenty of bad current arguments for there to be public sector pay rises at present. One being used is that public sector workers have been able to keep their jobs during these difficult times and therefore should have more money. We don’t find that all that convincing an argument to be honest.

There’s also an extremely good argument against public sector pay rises at present. It’s actually used, to be merely dismissed, in a piece advocating such wage increases:

Here it warned that “we must exercise restraint in future public sector pay awards” to ensure “fairness” and “parity” with the private sector, where, the Treasury helpfully points out, wages have fallen 1.2% in the year to May 2020.

If everyone else’s pay has been falling - we are in something of a recession you know - then it seems fair to us that everyone’s pay falls.

Yes, we’re aware of the Keynesian argument that government should spend more in such times and while we don’t hold that much truck with it this isn’t what we’re talking about. A permanent addition to the incomes of state workers is not the same, in any manner, as a time limited boost to demand in the economy to deal with a recession.

Right now the economy is some 10 to 15% smaller than it was in January. Why should those employed by the government now claim a larger share of that smaller amount?

Clausing, Saez and Zucman on corporation tax

There’s a new paper out from Kimberley Clausing, Emmanuel Saez and Gabriel Zucman on the corporation tax. It’s a quite lovely example of entirely missing the point.

Ending Corporate Tax Avoidance and Tax Competition: A Plan to Collect the Tax Deficit of Multinationals

A tax deficit is some amount of tax payment less than the trio think should be squeezed out of a company. The plan is that each country tax the profits of companies based in their jurisdiction. If business done elsewhere by that company charges less then the HQ company should be charged the difference. The difference between that home tax rate and that other, lower taxing, one.

This is akin to the British tax system up to just a few years ago. As and when profits were brought back to pay to investors as a dividend and the like UK corporate income tax was charged upon said profits minus whatever foreign tax had already been paid. The same was true of the American system. So it’s not entirely a radical suggestion.

However, what it is as a suggestion is remarkable in its ability to miss the point. They complain that the modern world has increased tax competition. This has lowered the rate of tax that corporations are forced to pay. They wish to reverse this while missing that this is rather the point.

Economically speaking corporate taxation - except that of resource rents - is a bad idea. It’s a tax upon investment and we like investment because it makes the future world richer. As we know we get less of what we tax so taxing corporations makes that future poorer - less investment.

Taxing corporations is politically most convenient. For everyone thinks yep, the company is paying. Yet we know this isn’t so - each and every tax empties the pockets of some live individual. Finding which one is known as the study of tax incidence. Corporate taxation could hit either the investors or perhaps the workers in that taxing jurisdiction. As is turns out, the smaller and poorer the economy the more it hits the workers and the less the capitalists.

Their demand is therefore that taxation should rise upon the poorer workers in the developing countries. This is not a good idea and thus the joy with which the sensible - or perhaps just aware - among us have regarded tax competition and the lowering of corporate taxation rates.

Recent years have seen corporate taxation rates fall which is a good thing. This paper debates who to raise those rates again - which is rather missing the point, isn’t it? That the competition and the lower rates are a good thing in themselves.

Do not believe that the polar bears are about to disappear

A new report tells us that the polar bears are all about to disappear as a result of climate change. Do not believe this report.

There is the usual point that we’ve been told about the decreasing numbers for decades as populations out there in reality explode. But we can go further with this new research. It is wrong, undoubtedly so.

Most polar bears to disappear by 2100, study predicts

No, that’s not what the study does say. Rather, if, then. If emissions run at some particular level then this is one of the possible - if you prefer, likely - outcomes. That does depend upon what the emissions level is of course.

Scientists have predicted for the first time when, where and how polar bears are likely to disappear, warning that if greenhouse gas emissions stay on their current trajectory all but a few polar bear populations in the Arctic will probably be gone by 2100.

No, it does not say “current trajectory”. It says if emissions are very much, hugely, greater than the current path then it might happen.

The researchers found that under a business-as-usual emissions scenario, polar bears will likely probably only remain in the Queen Elizabeth Islands – the northernmost cluster in Canada’s Arctic archipelago – at the end of the century.

This is not true. The error is in the definition of “business-as-usual”. From the paper itself:

Intersecting these thresholds with projected annual fasting periods under business-as-usual (Representative Concentration Pathway to 8.5 Wm−2 (RCP8.5)) or mitigated (RCP4.5) scenarios

RCP 8.5 is not business as usual. The one specific thing that it was necessary to do to avoid this scenario was to have fracking. For it depends upon the idea that we will run out of conventional oil and gas and thus turn back to coal. Vast amounts of coal, not just more than we used to use but for a larger portion of the very much greater future energy use. This is actually pointed out in the original models back in the SRES from the 1990s. If unconventional (ie, fracked) oil and gas come into use then RCP 8.5 simply isn’t going to happen. This is before we start to talk about solar power getting cheaper by 20% a year, windmills and all the rest.

RCP 8.5 is not BAU, it’s is hugely, vastly, worse than the path we know that we’re on.

We’re all in favour of the science of climate change. But we do rather insist that it be science. Incorrect, incorrect to the point of already having been disproved, assumptions are not science. Nor are the outputs of models starting from those known to be incorrect assumptions.

What puzzles here is that we do agree with the underlying thought, that climate change could indeed be a very large problem. It’s therefore necessary to use that scientific method to explore it. Why is it, therefore, that so many claiming to do so aren’t?

Book Review — How Innovation Works

“You voted so that you wouldn’t have to obey these EU laws that you can’t name?”, James O’Brien wheezes down the line at some hapless Brexiteer who forgot to do his homework. Fortunately for the hapless Brexiteer, a sufficient retort has now arrived in Matt Ridley’s new book, “How Innovation Works.”

Ridley’s book is not really about Brexit, mercifully. But he does, in the space of just a few pages, reveal the extent to which the EU suffocates the innovative process through its application of the precautionary principle, essentially a reversal of the principle of innocence until proven guilty. Through the precautionary principle, the European Union assumes an innovation or invention is dangerous until proven otherwise. And the result is damning: “Of Europe’s 100 most valuable companies, none was formed in the past forty years.”

Why is this important? Well, as Ridley explains, “innovation is the most important fact about the modern world, but one of the least well understood.” Innovation happens when people are “free to think, experiment and speculate” and prospers in an environment with investment, free trade, and relatively prosperous citizens. Innovation is unpredictable and gradual, based on a trial-and-error process with serendipity and luck usually playing a key role. And innovation is the “mother of science as often as it is the daughter”, with Ridley noting that “none of the pioneers of vaccination had the foggiest idea of how or why it worked.” 

Critically, innovation is different to mere invention in that it refers to the development of an invention “to the point where it catches on because it is sufficiently practical, affordable, reliable and ubiquitous to be worth using.”

Ridley covers a huge amount of ground in the book: from innovation in public health, food and transport, to low-technology and pre-historic innovation and even the fakes, frauds, fads and failures in innovation. There are inevitably examples missing, and glaring omissions will vary by the reader. 

How, for example, did Pret a Manger – based on the hardly novel idea of a sandwich and coffee shop for office workers – transform the “very grim” eating options which co-founder Julian Metcalfe confronted in 1980s London? Or why have we thus far failed to turn the enormous medical promise of stem cells into reality (hint: government regulation plays a leading role here)?

Ever the optimist, Ridley’s tale is an at times exhilarating depiction of the enormous strides the world has taken over the centuries. But he is no Dr Pangloss, for whom this is the best of all possible worlds. The best of all possible worlds is a long way off in Ridley’s estimation, yet eminently reachable if we cultivate and nurture the innovative process.

His clarity about our potential is matched, however, by the depth of his concern. Because while the ability of Western economies to generate innovation has become weaker, due to excessive red tape, entrenched interests, stagnating investment and even overzealous property rights, in China innovation is blossoming. 

As has become ever more manifest in recent months, “if the world is to rely on China to do its innovation, it will become an uncomfortable place.” The world will become increasingly dominated by an authoritarian country with a blatant disregard of human rights, and a country in which innovation will eventually be stifled to retain the monopoly power of the communist party.

If you’re a techno-optimist, this brilliant book will give you the ammunition needed to argue the case for innovation. If you’re a techno-pessimist, it will surely make you think again. Because if there was ever a time for unshackling from the bureaucratic strangulation which Ridley so cogently describes, that time is now.

We spend £4 billion and change a year on Public Health England

One of the tasks that we charge to Public Health England is to concern itself with, well, public health. Things like pandemics say. Or testing of the population for diseases. Public health. It being worth pondering what we get for our £4 billion and change:

Britain turns to Portugal for Covid tests that could prevent disease spread and deaths despite ban on travel to country

Outbreaks in the population and asymptomatic carriers could be detected far earlier for a fraction of the price if the UK adopted the test

Well, yes, that’s very nice. The tactic is simple enough, it’s pooled testing. Mix up the samples from 10 or 50 people, test and if negative then you know that all 10 or 50 are disease free. If positive then retest with smaller groups within that 10 or 50 until the infected are personally identified.

This is not to sneer at the University of the Algarve who have been doing this. The target of ire is in the UK:

Officials and scientists from the UK Science and Innovation Network met with Mr Marques and his team last month.

Note that that’s not anyone from Public Health England. But rather more than just this, the idea of pooled testing has been around for some time now. March at least. For £4 billion a year we might expect that one or another person within PHE might read the occasional blog on the subject but apparently not.

There’s also that contact tracing app. Ireland managed to get it right apparently:

Cheap, popular and it works: Ireland's contact-tracing app success

Irish-made app has more than 1.3m downloads, in stark contrast to the UK’s efforts

So that’s good news. How did they do it?

NearForm employs 150 people and builds software mostly for private clients.

They contracted it out to people who know how to build software.

Then Apple and Google came together and offered an app that would support public health apps and let Android and iOS phones connect even while locked. Their decentralised version held no data in a single official database, alleviating privacy concerns.

The Irish were among the first to grasp Silicon Valley’s offer in late April.

They used the only underlying structure - that from Apple and Google - which could possibly allow such an app to work. Rather than trying to cobble together something that couldn’t possibly work but would have the merit of being home grown. Oh, and cost £11 million or so rather than the £800,000 Ireland spent.

So, what do we gain for our £4 billion spent on PHE? If not the actual public health and pandemic stuff that we think we should be getting? Well, it’s now not possible to advertise bacon or butter on the Tube, supermarkets are about to be banned from selling us two pizzas for the price of one and the choccie biccies will be hidden around the back.

Aren’t we the lucky ones to have such an active and efficient bureaucracy at our beck and call?