Abolish stamp duty - transactions taxes are bad taxes

A certain head of steam is building up behind a good idea. The current alleviation of stamp duty on housing transactions should not just be extended, the tax itself should be abolished:

Better still would be to scrap the damn thing altogether, for the reasons above.

Or Tom Clougherty, formerly of this parish:

But there’s a bigger picture here, too. Stamp duty is without question the worst tax on the UK statute books, wreaking havoc on Britain’s already troubled housing market and imposing an unacceptable drag on welfare and productivity. Research suggests that its wider social and economic costs are equivalent to some three-quarters of the revenue raised – making stamp duty many times more damaging than income tax or VAT. Put simply, it’s just a bad way for any government to raise money.

Why is that? Well, by raising transaction costs, stamp duty makes buying or selling a property less appealing.

Or, as Tom quotes, a Nobel Laureate on the point:

There is no sound case for maintaining stamp duty and we believe it should be abolished.

We do actually know that it increases unemployment, just as one example. Making the housing market less liquid makes the labour market so, this being something that does increase unemployment.

Then there is the more general case made by Sir James Mirrlees, that NL mentioned above. Transactions taxes are a bad idea. Taxing land values, of consumption, or incomes, or even in extremis capital, all make more sense than transactions. For the deadweights, the losses from the existence of the tax, are all less with those other forms of taxation.

It’s also possible, obviously, for government to spray less of our money around but even without that a change in the tax system to one without stamp duty would be beneficial.

On the one off nature of a wealth tax

Jamie Hambro is sceptical of the insistence that a wealth tax will be a one off imposition:

I have some difficulty with thinking of a wealth tax as a one-off if it is repeated for five consecutive years. And I doubt it will end after five years. Income tax was introduced in 1799 as a one-off tax to help pay the costs of the Napoleonic Wars (this after a wealth tax on houses, horses and carriages and servants and another new tax – inheritance tax – failed to raise enough).

That seems a fair surmise to us. The standard economics of taxation tells us that wealth taxes are a bad idea. The little get out available being that a one off wealth tax, unannounced and impossible to dodge, isn’t so bad. But that isn’t so bad bit rests, entirely and wholly, on the one off nature of it. Which is why those who would tax wealth are telling us it will be a one off, so that it can be introduced and then made more permanent.

Yes, we can come across as a little cynical about the political process at times. But then we’ve got good reason to be. From one of the Advani and Summers papers about this wealth tax:

We do not include a measure of the expected individual value for future public pension payments. Clearly there is a relationship between the existence of public sector pensions and household saving decisions (Lachowska and Myck, 2018) but there is no contractual obligation for the government to maintain future pension payments at levels currently expected. In which case, a consistent alternative to our approach would be to include the effective value of an individual’s entitlement to the entire existing social security system.

We don’t include any part of the welfare state - not even the state pension - in our estimations of wealth because without a sound contractual relationship we can’t trust the government to actually pay such things.

But we can and must trust these same politicians when they say that a wealth tax will be a one off event. Without any of that pesky nonsense of a contract of course.

The insistence being therefore that politics is dodgy when considering paying money out but entirely reliable, keeping its word, when raking it in. We really don’t think it is cynical to suggest that electoral expediency might not work out that way.

More Tapes from MI5

Victoria Street 

January 2021 

“Humphrey.” 

“Yes, Minister?” 

“People are awfully pleased with my Energy White Paper.” 

“You may be referring to our White Paper, Minister.” 

“Yes, yes, of course.  I’m really very grateful for your contribution, Humphrey.  I believe you used to work for Priti Patel?” 

“An effulgent experience indeed, Minister. May I ask what aspects of our Paper have met with particular appreciation?” 

“There are so many: lower energy bills for consumers, massive private investment with more jobs, great British innovation and engineering strengthening the economy, and zero carbon saving the planet. It’s a fairy tale scenario.” 

“Yes, indeed, Minister, what is not to savour? May I respectfully suggest, though, that you avoid the term ‘fairy tale’ – open to misinterpretation, you know. Perhaps something like “owing to a fortuitous concomitance of buildouts, the UK will be in a favourable energy space.” 

“Best of all, it puts the Great back in Britain. We may be only 1% of the pollutant problem but we have the vision and the leadership.  The exact words I used in my foreword, Humphrey, were ‘The UK is leading from the front in the transition to clean energy, while ensuring that we leave no one behind.’” 

“Did anyone mention that the numbers don’t add up?” 

“Humphrey, really!  No one expects our numbers to add up.  We are talking vision, aspiration, motivation, the big picture.” 

“Well, Minister, at least you can count on hydrogen to go with a bang! We mention it 133 times, twice as often as nuclear, and that used to go with a bang too.” 

“Humphrey, are you feeling all right? Isn’t hydrogen the gas dentists used to use to knock one out?” 

“Not quite, Minister, but the effect is much the same.” 

“Well, whatever it is, hydrogen is jolly good stuff.  It will power our vehicles, heat our homes, and provide industry with all the energy it needs. My friends in the oil business can make it from their existing sources of natural gas; otherwise all those pipelines and infrastructure would go to waste.” 

“Yes indeed, Minister. Unfortunately natural gas accounts for 80% of fossil fuel CO2 emissions which makes it public enemy #1. No wonder your oil company friends want us to take it off their hands. Natural gas is mostly methane CH4 so by removing the C - in the form of CO2 – you are left with pure hydrogen.  And you then have to bury the CO2, whether in tanks below Liverpool Bay or huge holes in the ground.” 

“Blimey! What is that going to cost? The White Paper has many expenditure commitments but no totals.  And who will pay for it? And what return do we get for our money? And I’m told it will double the cost of heating a home.” 

“Do I need to remind you that we are the visionaries?  Our White Paper says costs ‘will depend on the level of demand, and the cost and availability of other low-carbon technologies, particularly low-cost clean hydrogen.’”  

“I say, Humphrey, that’s excellent.  The costs will be what the costs will be.  Can’t say fairer than that. I know I flunked GCSE Chemistry but what ‘s the difference between clean hydrogen and any other sort?” 

“Well it isn’t the atomic hydrogen, H, but the hydrogen molecule, H2, and that comes in a range of colours: blue, green, grey, brown, black and turquoise. The blue is made from natural gas as I mentioned before, Minister, whereas green is made from water using electrolysis. As our White Paper says, ‘PEM (proton exchange membrane) electrolysers are capable of producing zero carbon hydrogen’. ‘Zero carbon’ means there’s no CO2 to capture and bury.” 

“Well global warming should ensure we don’t run out of water.  It’ll be slopping all over the place.” 

“I fear that’s the wrong sort of water. Electrolysis needs fresh drinking water and there’s a global shortage of that.  One way and another, green hydrogen is a lot more expensive than blue. The other colours arise from other raw materials, e.g. brown from brown coal, with various levels of carbon emission. One could blend green with one of the other colours to keep costs down but it would not be a zero carbon solution.” 

“You are blinding me with science.” 

“Our White Paper is more subtle: we will adopt today’s colour blind conventions by calling the blue green, or maybe turquoise because the Germans are very keen on turquoise.  After all, hydrogen is hydrogen.” 

“Good chemists, the Germans. No one is yet able to mass produce the green stuff anyway.” 

“If I may say so, Minister, you have discerned a profundity not unrelated to the reality of the situation.” 

“Well Humphrey, it may be our paper but I don’t understand it.  Our strategy is all about hydrogen yet our Figure 3.4 shows, by 2050, only 7% of our energy needs coming from hydrogen, of whatever colour, and 4% still coming from natural gas which has mysteriously become zero carbon by then. The action is all really with nuclear and renewables.” 

“Dear me, Minister, I should not have to explain this. The Prime Minister sent us his 10 Point Plan which highlights hydrogen and demanded we inculcate verisimilitude to substantiate our world leadership of zero carbon energy. We must burnish what he has furnished. Nuclear and renewables are old hat; the White Paper had to show inspiration and innovation. The game is the thing and hydrogen is the game.” 

“Thank you, Humphrey.  Kindly close the door on your way out.”

Reasons for optimism - Gene-editing

Genetic modification has penetrated popular thinking by receiving much publicity, even though some of that has verged on hysteria. Meanwhile, a scientific breakthrough has been achieved that gives equal, if not greater, grounds for optimism. It is the discovery and manipulation of what are called clustered regularly interspaced short palindromic repeats, otherwise known as CRISPR. This differs from GM because it involves editing the genes within an organism, rather than introducing those from an alien species.

What makes CRISPR gene editing so effective is its precision. Scientists can use it to locate a chosen sequence within the organism’s DNA, and then delete it or modify it by replacing unwanted sequences with desired ones. When fully developed, the technique will enable us to delete the defective genes that lead to genetic diseases, and to replace them by non-defective ones. This opens the prospect of eliminating such conditions as Huntington’s disease, haemophilia, or spina bifida.

It has been used to treat inherited deafness and sickle cell anaemia in mice, and it has the potential to create powerful new antibiotics and antivirals. In theory, though not yet in practice, it could be used to make mosquitoes impervious to malaria, and raise the chances of the altered gene being passed on to 100 percent. As with genetic modification, it could be used to create more nutritious crops, or ones better able to cope with drought.

Concern has been raised about the prospect of “designer babies,” with parents screening our undesirable genetic traits in their offspring, and inserting genes that would lead to better looks or more intellectual potential in the child, even before it was born. These would be subject to ethical controls, but the technique could be used to give every child born the chance to lead a life free from suffering or life-limiting conditions.

The technique is fast, effective and cheap. What might have taken weeks at enormous cost can now be done within hours for perhaps $75. It gives huge cause for optimism that humankind will be less susceptible to the damage and distress that nature might inflict, and better able to take control in order to give people the chance of healthier and better lives.

Seriously Mr. Drakeford, seriously?

There seems to be a certain misunderstanding of how vaccination works here from Mark Drakeford, First Minister of Wales:

We will be using all the Oxford vaccine that we get as we get it, the Pfizer vaccine has to last us until into the first week of February.

So we have to provide it on a week-by-week basis. What you can’t do is to try and stand up a system which uses all the vaccine you’ve got in week one and then have nothing to offer for the next four weeks.

We won’t get another delivery of the Pfizer vaccine until the very end of January or maybe the beginning of February, so that 250,000 doses has got to last us six weeks.

That’s why you haven’t seen it all used in week one, because we’ve got to space it out over the weeks that it’s got to cover.

Vaccine delivered into arms protects. Vaccine sitting in the fridge does not. There is absolutely no point at all in having vaccine in fridges rather than arms. A vaccine is not like a bandage, or an antibiotic, where it is useful to have some on hand. Rather, with a vaccine, get it into arms and if there’s a gap to the next batch so, there’s a gap the the next batch. More people are protected for longer the faster the move from fridge to arm.

This all rather illustrates a most unkind anonymous comment about the problems of devolution in a general sense. There aren’t all that many bright people who actually desire to enter the cesspit of politics. Thus whatever the political unit is it has to be large enough that those competing to run it are competent to do so. In very small units the selection available of those willing might not include enough of those able.

Of course, no, no, of course, this does not apply to a nation like Wales but it is something we worry about concerning local authorities, regional assemblies and the like. Our solution being to devolve power not to the smaller political unit but to the people not involved in politics - a much larger group than those willing to enter the cesspit. That is, restrict government to only those things that must be done and which can only be done by government and leave the rest to whatever structures people wish to use as and when. You know, markets.

Betteridge's Law

Betteridge’s Law has two different meanings. The first is as stated:

Any headline that ends in a question mark can be answered by the word no.

As stated it is not actually true - “The correct amount of QE is?” can only be answered with “No” in a - not very - humorous attempt to deny the utility of the concept itself. The deeper truth is as a warning to journalists (or, in the older style, the subeditors who used to write headlines) not to write headlines that can be so answered. Or, in another tradition, only when it is known that the answer is no but everyone would prefer not to say so.

At which point, The Times:

Can Joe Biden restore the soul of a divided nation?

Well, no, clearly not. Nations don’t have souls, even the most collectivist of religions insists that only human beings do. Further, division is something rather to be desired in a nation - we after, after all, all different bundles of desires and wants and one single national purpose is going to run roughshod over that idea.

But rather more important than that, and what makes this something for us to comment upon, is that talk of souls and nations is not the subject of politics. That last is about organising the rubbish collections. To start talking of politics and eternal verities is to reify what is meant to be a very workaday process. As is well known we tend to favour minarchy around here and this is one of the reasons why. Any expansive political system of management is going to end up sending tendrils into areas where that system simply doesn’t work at all, let alone badly.

Government should do only those things that must be done and which can only be done by government - a small set of actions.

Another way of putting this, which recent or even future holder of the office of President (or even, which politician in any office) would you entrust your soul, individual or collective? So, no…….

Marcus Rashford has indeed made the case for decent welfare

It does happen occasionally, we find ourselves agreeing with a Guardian headline:

What Tories fear about Marcus Rashford: he's made the case for decent welfare

We’re not sure about the fear there, we think that should be striking into different hearts, those of the Guardian reading classes:

The footballer and food poverty campaigner Marcus Rashford is among those calling for the April cut to be reversed, a recognition that food parcels are merely sticking plasters over the deeper and more enduring problem

For what we’re seeing is what government provision is actually like. The government, the state, decides to go out and provide food. What turns up is boxes of such wizened paucity as to shame a Soviet ration shop. Further, we all see this as we can all see what we ourselves can go and buy in the free market at the same cost. £30 doesn’t provide a cornucopian bounty - even if by historical standards it does - but £30 is half the usual weekly food bill for a household. It’s clear and obvious to all that we can spend money better than the government does - because for £30 we can get more than a slice of cheese and a handful of apples.

That is, decent welfare provides the wherewithal, the resources, to be able to access the extant supply system provided out there in the market.

That is, housing benefit not council or “affordable” housing. Health care insurance not government provision through the NHS - and no, not the American system but some flavour of German, French, Singapore, and so on. School vouchers not state schools. Welfare being a manner of financing access to goods and services, not the provision of goods and services directly.

Of course, such decent welfare would strike the fear of God into the Guardian reading classes as they all make their living from the opposite. It’s entirely true that the government food parcels are a ghastly waste of money, an expensive delivery of not enough to choke a cockroach. It’s that very insight that gives us the clue to how to provide that decent welfare.

By, you know, firing the entirety of the Guardian reading classes and delivering that welfare simply by financial transfers, not the government delivery of goods and services.

Those post-Brexit food supply problems

What this should be taken as - and isn’t being - is a lesson in the merits of free trade:

Problems importing and exporting food “will get worse”, MPs have been warned.

Industry leaders giving evidence to the select committee on Britain’s future relationship with the EU issued the stark warning as the impact of Brexit on supply chains becomes evident.

Ian Wright, chief executive of the Food and Drink Federation, said that new customs controls and extra paperwork have the potential to seize up import and export systems.

If we put barriers in the way of trade then we shall have less trade. This doesn’t seem to us to be a controversial point.

Supermarkets are already suffering shortages of some goods and Andrew Opie of the British Retail Consortium said the new system was “not set up for supermarket just-in-time supply chains”.

He gave the example of a load going from a depot in Wales to a supermarket in the Republic of Ireland needing to give 24 hours notice of its contents.

“This could mean 100-plus pieces of certification for all the products,” Mr Opie said. “But stores send information about their orders daily, if not hourly. It’s an unworkable system for supermarkets.”

The conclusion being reached by many is that we should therefore go back to being in the Single Market and regain that free trade. Which is, from a certain point of view, the wrong answer. Because all these complaints about the barriers to trade are exactly what the 450 million people inside that Single Market put up against trade with the 6.5 billion people outside it.

Trade with foreigners is of benefit to us. That’s the entire point of trade after all, to gain access to those things which foreigners do better, cheaper, faster, than we do. Why, therefore, would we want to be in a system that denies us - through these very rules and processes that people are complaining about - the benefits of trading with the vast majority of our fellow humans?

Yes, being outside the Single Market involves hundredweights of paperwork to gain access to imports. That the very proof that said Single Market isn’t in fact free trade nor something we wish to do, isn’t it, given that the majority of the world economy, thus of production of things we’d like to have, is outside that Single Market.

All of the current complaints are simply more evidence of the costs of trade restriction. So, let’s not restrict trade then.

Well, yes, we suppose so

The Joseph Rowntree folks tell us that it’s the poor who have suffered recently:

People who were trapped in poverty before the pandemic have suffered the most financial damage during the crisis, according to a report warning the government that more support is needed to help hard-pressed families.

The Joseph Rowntree Foundation (JRF) said those who had been struggling to make ends meet before March last year were more likely to work in precarious jobs or sectors of the economy that had been hardest hit by lockdowns.

Well, yes, we suppose so. Being poor, being lowly paid. is equivalent to being marginally attached to the workforce. That is where job losses are going to be concentrated for that very reason. The complaint is like insisting that tall people are more affected by low ceiling beams, or radically shortened stature makes the high jump an unlikely sport to succeed at.

The correct reaction therefore being, well, and?

Once this is correctly pointed out of course we can answer that and? Which is that if this recession harms the poor, as it does, the answer is to end the recession. Get the vaccinations done, return to that full employment economy we had and things will be vastly better. You know, the things that are already being done, or at least attempted?

Reasons for optimism - Genetic Modification

One of the leaders in our ability to make the future world a brighter and better one for humanity is the ability to engage in genetic modification. By introducing genes from one organism into another, we can create new organisms that serve our purposes. Humans have done genetic modification for centuries. Our distant, and in some cases, recent, ancestors turned Brassica oleracea into cabbage, cauliflower, broccoli, kale and the others. They turned wild wolves into domestic dogs. We have modified animals, vegetables and fruits to do what we want them to do.

It used to be done, and still is, by selective breeding, but now we have a new option, that of selecting the qualities we want that one species has, and giving it to another by one of several scientific techniques that move genes across the species barrier. We have modified crops to give higher yields, to be saline tolerant or drought resistant. In some cases we have made them self-fertilizing, in others insect repellant. Too large a proportion of the world’s food, especially that grown in poorer countries, is subject to the depredation of pests and parasites, and GM crops give us the ability to cut those losses dramatically. These advances have enabled us to grow food on less land, on otherwise infertile land, and to put less fertilizer and insecticide into the environment.

These developments all advance human utility and enable us to reduce our footprint on the planet, but potentially the uses of genetic modification in medicine could be amongst the most significant. Already there is “golden” rice modified to incorporate vitamin A so that children in poor counties can be more protected from malnutrition and blindness. The use of plants as drug factories is well established, with even GM tobacco plants used to produce antibodies against Ebola, but the prospects are literally limitless. A generation of crops can be grown that will not merely produce drugs for us to use in medicine, but will incorporate life-protecting drugs into the food we eat.

There are voices raised in caution against genetic modification, claiming that we cannot be certain that its products are risk free. The answer is that nothing is risk free, and that we should proceed as we do in other areas, assessing the known benefits against the known risks, and going ahead where the one significantly outweighs the other. All we can do with unknown risks is to test what they might be, and experiment cautiously to evaluate if they do pose problems. Thus far with genetic modification they have not, which is a further reason for regarding genetic modification with optimism for what it offers.