The nation's being gaslit over business rates

It is a standard economic analysis that it is landlords who carry the burden of business rates, not tenants. There are libraries packed with proofs of this, Henry George is by no means the only person to have noted it.

Yet we have continued insistences from tenants that they must be freed from the burden of having to pay such business rates. Why?

In a letter to Rishi Sunak, the Chancellor, 21 business figures from companies including MossBros and The Entertainer said that action is vital to prevent a disaster.

Mr Sunak is expected to announce the delayed results of a review of the rates system in autumn, with speculation growing that it could be unveiled in his Budget later this month.

The property tax has long been derided as an outdated measure that penalises bricks and mortar stores at the expense of online rivals which have warehouses in cheaper out of town locations.

The letter said: “There are many views on precisely how the business rates system should be reformed, but on this we are all united: the current business rates system is broken and there must now be fundamental change.

“If there is no genuine reform of the business rates system, the occupation of commercial premises is going to become unaffordable to more businesses.

"There will be more bankruptcies of well-known retail brands, more retrenchment by retailers which do survive, more closures of hospitality venues, more boarded-up shops, fewer start-ups and whole shopping centres abandoned. Many communities are being hit hard, with thousands of jobs being lost each year.”

It’s certainly a stirring call. Despite the fact that it is entirely and wholly wrong. Any reduction in rates would flow through as higher rents to landlords. We even have empirical proof of this, from the changes in business rates in Enterprise Zones those decades back.

So, why are we all being gaslit in this manner?

Melanie Leech, of the British Property Federation, helped organise the letter

BPF, who are they?

The British Property Federation is the voice of the real estate industry in the UK. Our membership reflects the diverse nature of our industry – owners, developers, funders, agents and advisers.

Ah, the insistence upon the change now makes sense. Of course the landlords will be against a system of taxation that bites into their rents. Why the rest of us should take a blind bit of notice of this self-dealing is the question that needs answering now.

Spotting the invisible hand out there in the wild

Adam Smith’s actual use of “invisible hand” in Wealth of Nations was as follows:

Every individual... neither intends to promote the public interest, nor knows how much he is promoting it... he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

The background discussion is about the difference between the foreign and domestic trades. The argument being that the foreign trade produces more profit than the domestic, more more profit than the extra risk. Yet some do just prefer the domestic trade. Since domestic investment benefits the domestic economy this is the invisible hand. It’s an observation about a foible of humans, that their risk calculation is not necessarily entirely calculated.

One implication of this is about portfolio allocation:

British savers have been urged to expand their horizons and buy overseas stocks as their penchant for domestic companies has held back returns.

“Home bias” among Britons has been waning but the average investor still holds more than a quarter of their pension or Isa in UK companies. This is despite the global market’s total return of 78pc over the past five years, compared with just 22pc from London’s blue-chip FTSE 100 index.

The average investor’s exposure to the UK has almost halved over the past decade, from 42pc of their portfolio in 2010 to 26pc in 2020, according to the Investment Association, a trade body for the fund industry.

245 years and counting since first publication and we’re still catching up with the truths laid out for us. But then that’s true of so much of what’s in that book, isn’t it?

On the subject of the British sausage

The defining point of the British sausage is not quite as Jim Hacker put it:

Hacker: By the end of next year we shall be waving goodbye to the good old British sausage and we’ll be forced to accept some foreign muck like salami or bratwurst or something in its place

Sir Bernard Woolley: They can’t stop us eating the British sausage, can they?

Hacker: They can stop us calling it the sausage though. Apparently it’s going to be called the emulsified, high-fat offal tube.

Sir Bernard: And you swallowed it?

The grand distinction of the British sausage is not what the meat is. All sausages are made from whatever scrag ends come to hand. It is that we, being the pragmatic folk we are, note that the yumminess goes to hide in the fat of said scrag ends. We thus add up to 10% rusk, or breadcrumbs, to retain that yumminess through the cooking process.

Which brings us to current events:

The UK is on the cusp of victory in the Sausage War with the EU, after Brussels finally waved the white flag over allowing British bangers to be sold in Northern Ireland at the end of the grace period.

We’re willing to agree that there is a scale to regulation and politics. Some things are better handled at a higher level, for more people at a time, some things at a lower and more locally.

The current situation has the rulers of the remnant-European Union’s 450 million people arguing with the UK’s rulers of 65 million over what type of sausage the 1.8 million in Northern Ireland may have for their breakfast. The 1.8 million not even being a part of the 450 million.

We can’t help but think that there’s something wrong with the scale at which government and regulation is attempting to work here. We do rather lean to the idea that the folks of Northern Ireland are capable of deciding which sausage, if any, they’d like to have for their breakfast. This doesn’t even need to be done collectively, that voluntary cooperation between butcher and consumer would seem to be all that is required.

They have been doing this for some time, after all, there is a reason that the full plate in all its emulsified, fatty, offaly tubular yumminess is called an Ulster Fry.

It was never sensible to implement the worst part of California's deregulation

Other peoples’ mistakes are opportunities to learn. Opportunities to learn what not to do of course. Every “Hold my beer and watch this” is a teaching moment.

The big mistake made in California’s deregulation of the electricity market was to insist that wholesale prices could and would vary with the more general market but that retail prices could and would not. This baked into the system the risk that price volatility would bankrupt all of the retail suppliers and that’s what duly happened.

We now have UK retail suppliers toppling like ninepins and why is that?

Ofgem has opened the door to a major relaxation of energy price cap rules which would expose millions of households to the risk of sudden price increases.

The regulator signalled it was considering a review of how the energy price cap works after turmoil in the industry triggered by a surge in wholesale prices.

The cap prevents energy companies from immediately passing on higher costs to their customers, forcing many suppliers to the brink of bankruptcy.

Several companies have pushed for a review of the cap, arguing they cannot survive a six-fold rise in wholesale gas prices and four-fold rise in wholesale power prices without being able to pass on more to their customers.

The cap's level is only reviewed twice a year. However, Ofgem is understood to have ruled nothing out in a review of the cap, including how it is calculated and how frequently it can be adjusted.

The obvious answer is that the price cap should be recalculated more often. In fact, it should operate in real time - that is, not actually have a price cap at all.

The background point here being that prices are information. If that wholesale price is rising then we do desire that retail consumers use less power. That’s what the price rise is telling us should and needs to happen. So, insulating consumers from that information is the wrong thing to be doing.

Price setting is a bad idea in itself. But setting retail prices while leaving wholesale free will - and it is will, eventually - bankrupt those who buy wholesale and then sell retail. As is happening.

Leaving us with only the one mystery, why did people decide to copy that worst part of the earlier disaster?

We're wondering how this argument can be made

A strange thought:

Amazon is the enemy of literature – but one writer is taking a stand

Selling books by the shipload seems a strange way of being an enemy of literature. One explanation for the story being that one novelist has decided to run his PR campaign by claiming to be David against the Goliath. Well, it’s work for someone, once, as this very article shows. As an actual thing, rather than a form of chutzpah inspired shilling, it’s a little more difficult to recognise.

The main problem is that Amazon has devalued the book, altering the collective sense among the public of how much books are worth. It sells paperbacks and (in particular) hardbacks at a heavy discount; and it reduces the demand for these by selling e-books at an even lower price. Anyone who goes into a bookshop and sees a new hardback novel retailing at £20 will know that even brand-new novels hardly ever cost more than £9.99 if you get the Kindle version. Amazon would still undercut the opposition if it made new novels available at, say, £15 for an e-book, but it prefers instead to condition its customers into thinking that hardbacks are grotesquely expensive.

Once a book has been out for a while, the Amazon e-book versions tend to become cheaper and cheaper. Some books are marketed as part of a special deal for 99p or less. One author tells me that a novel of his sold half a million copies after Amazon chose it to be included in one such deal – and although the terms of the contract were favourable to Amazon, that book made him and his publisher more money than any of his other books have done.

That really is the complaint. Amazon makes books cheap and that’s bad. Even though readers get more, publishers get more, authors get more, it’s still bad. Because, well, something.

Books really are not Veblen Goods and they’re most certainly not Giffen Goods. The normal supply and demand stuff does work. But, something, apparently.

The arts world does always seem to have this problem with basic economics, doesn’t it?

Another new era of public health

39 Victoria Street

“Humphrey. It’s good to have you back.”

“Thank you, Minister.”

“I spent some of last weekend mulling through the press release we issued last Friday. Apparently our new Office for Health Improvement and Disparities (OHID) will give us all ‘live longer, healthier and happier lives’.”

“It is the dawn of a new era, Minister.”

“According to the press release, as Public Health England is no more, ‘the new UK Health Security Agency will have a laser-like focus on health protection, while OHID will improve health and tackle disparities in health outcomes across the country.’ If OHID has levelled us all up to full health, what will be left for the new Agency to be training its laser-like focus on? It sounds like the Bond movie ‘No time to die’.”

“You cannot have too much of a good thing, Minister. We have an ever-increasing population to care for.”

“It’s certainly inspiring reading though I’m not sure why we are for disparities. I never knew we had such powers. The key seems to be stopping people from smoking, drinking, partying and eating the sort of food they enjoy.”

“That is basically the plan, Minister. It appears that people, especially deprived people, cannot take care of themselves; they need our help.”

“I get that, Humphrey, but we also claim it will make them happier. How does depriving people of all that they enjoy make them happier? Indeed, you could say it makes them even more deprived.”

“A neat play on words, if I may say so, Minister. We are removing inequalities. The deprived members of our society eat, drink and smoke more than the more affluent. If we can reduce their consumption of things which we disapprove of, they will be more like us and better off too.”

“Do they want to be more like us?”

“Possibly not, but they will live longer.”

“Or it will just seem longer.”

”Rather an old joke, Minister.”

“Sorry about that but my point remains: is depriving the deprived of the things they enjoy, a recipe for their happiness?”

“What will make them happy is recognising that they have a government that knows what is best for them.”

“That is not helped, Humphrey, by our claiming more than we can deliver. Only last Saturday, we put out a press release saying that part of the extra £70bn we have just given to the NHS will be used for 40 community diagnostic centres which will all be closer to where people live than the 223 hospital trusts to which they would otherwise go. That is patently nonsense.”

“True but it is an important part of our plan to stop sick people visiting GPs or hospitals. That is what the new OHID is all about. The best way of keeping the costs of the NHS down is to stop people bothering them.”

“That’s all very well, Humphrey, but I am looking for just a bit of integrity in what we say. The two biggest reasons for shorter life expectancy are gender, women live longer on average, and ethnicity. In England, the Chinese live longest, followed by white British, with African and Asian ethnicities trailing some way behind. The non-white population has doubled so longevity has declined. QED.”

“We take a pragmatic view of the problem and assess disparity by where people live. It is quite clear that people in more deprived areas suffer worse health than those in less deprived areas.”

“So why don’t we just move people from the former to the latter. No problem.”

“Well, we are trying to build many homes in the more affluent areas but, unfortunately, they all have MPs from your party, Minister, and they object vehemently. You may not have read the paper on levelling up health and reducing disparities that Public Health England put four years ago. To summarise the action we were then initiating, we would:

‘A. Give every child the best start in life

B. Enable all children, young people and adults to maximise their capabilities and have control over their lives

C. Create fair employment and good work for all

D. Ensure healthy standard of living for all

E. Create and develop healthy and sustainable places and communities

F. Strengthen the role and impact of ill health prevention.’”

“And how much of that did we achieve, Humphrey?”

“Absolutely none, Minister. It has probably got worse but we can blame COVID for that.”

“Humphrey, that is what I am grumbling about. The claims were wholly unrealistic. The public would like to see achievable, measurable goals and regular quantified reporting on progress toward those goals, not some ludicrous aspirations that cannot be delivered. The idea that some quango of the Department of Health and Social Care is going to achieve ‘fair employment and good work for all’ is simply absurd.”

“Minister, may I remind you that it is our job to create policy – not to do anything about it? Are you against fair employment and good work for all?”

“Well, no.”

“There you are. But I do agree we need measurement to have some idea of whether we are making progress or not and we need objectives for which we are plausibly responsible. Are we talking about total life expectancy or healthy life expectancy, i.e. not needing care, or disabilities-free life expectancy?”

“You tell me, Humphrey. What people obviously want are happy, healthy care-free lives but if we target that, people will say we don’t give a damn about people needing care or with disabilities.”

“At the end of the day, Minister, it is all a question of money: the poor are deprived health-wise and the affluent are not. Poor health therefore is a matter for the Treasury, not for us.”

“So we can close OHID down and save the taxpayer some money?”

“Oh no, Minister, we have to look as though we are doing something. In reality, our efforts will change nothing and that will allow us to announce a new era of public health in five years’ time.”

“Humphrey, may I have a couple of those tablets you have in your top right-hand drawer?”

The Laffer Curve applies to the poor as well as the rich

The point being made here is that at some rate of marginal taxation folks don’t bother going to work:

Buried in a government-commissioned report published this year is a clue to the reason some employers are finding it so difficult to attract British workers to lower-paid jobs.

Universal Credit (UC), the author said, “can act as a disincentive” to those in the jobs market because working age people “do not believe there is sufficient reward” if they try to stand on their own two feet.

It is the latest version of the so-called “benefits trap”, in which potential employees choose to stay at home, living off generous welfare payments, because working for a living would make them only marginally better off.

It is also part of the reason for the Government’s current spat with business leaders, who see cheap foreign immigrants as the answer to all labour shortages, rather than paying higher wages to attract British workers, as Boris Johnson wants them to do.

While UC ensured that people were always better off if they work, the intricacies of the system mean that many workers are only £3.29 better off for every hour they work if they decide to enter the labour market.

Assuming an average wage of £10 that’s a marginal tax rate of 67%. £10 sounds about right for people entering work really.

This links in with the Laffer Curve of course, it is that substitution effect - effectively, it’s not worth working for that, I’m off fishing - which causes the peak tax collection as a result of the tax rate.

This telling us something important and generally not thought about much. That peak of the Laffer Curve applies to the poor going to work as well as the rich. The answer to our becoming a richer nation is therefore to lower that tax rate. Or, in the intersection of benefits and tax, the combined tax and taper rate.

This is why 15 years ago we started to say that the personal allowance should be whatever the minimum wage is - full year, full time that is. We even managed to get there except a decade late. The personal allowance today is what that full year, full time, minimum wage was in 2010 - £12,500 a year - when the point was first accepted as being valid.

Time to make that point again. The very reason there is a minimum wage, not that we agree with there being one, is that this is the minimum that someone should righteously be paid for their labour. That means that government get to keep their fingers out of that wallet just as much as anyone else. If that means the personal allowance must be raised to £18,000 a year or whatever Boris is about to announce the minimum wage is to be then so be it.

We’ll just have to have a little less government in order to pay for it, won’t we?

When the lights go out, blame the Treasury

In zero carbon 2050, the UK energy requirements will be almost entirely supplied by three categories of electricity generation: renewables, nuclear and “counter-renewables”, by which I mean power plants that can be switched on, or otherwise varied, at short notice when the wind and sun are not delivering. In 2020, wind produced less than 4GW, i.e. one sixth of capacity, on a few occasions across 207 days. Demand averages around 30GW but is often 40GW in winter and can peak at 49GW or more. Nuclear should be, by 2050, the main steady-state producer, i.e. responsible for the “baseload”, i.e. the minimum non-varying requirement, although gas with carbon capture and storage (CCS) is a contender for that role. The main counter-renewable will remain gas + CCS, Bio-mass can be regarded similarly. Imports, currently 10.7% of the electricity market, will be a key element. Hydro is too small to be included in these notes and hydrogen is not a source but a storage mechanism which itself requires more electricity for its production than it replaces. It is, however, an ideal use for excess production from renewables.

The UK imports 35% of its total energy needs. It is difficult to determine electricity’s share of the total UK energy market as the figures for fossil fuels include usage for electricity generation which needs to be subtracted. In the absence of a better number, we should assume that electricity is 50% of the total.

“Nuclear installed capacity peaked at 12.7GW in 1995, with the opening of Sizewell B – the last nuclear reactor to be opened in the UK. In this year, nuclear accounted for more than a quarter of total electricity supply.” By 2018, that had shrunk to 18.7%. Generation peaked in 1995 at 12GW, but no current plants will be operational by 2035. Those under construction and planned (in 2018) should be producing 9GW. That estimate is not changed by the just announced Wylfa, Anglesey, as it replaces Bradwell which is no longer planned (but might be reinstated!). Using the 50% assumption, nuclear supplies about 10% of the current energy requirement.

Looking forward to 2050, when virtually all energy will be electricity and the population, and perhaps therefore total energy need, has grown by 15%, the current 9GW planned nuclear production would only supply 8.7%. A number of commentators have claimed the UK will need another 40GW of baseload capacity by 2050. If that should all be nuclear it means more than quadrupling the UK’s nuclear electricity generation capacity by then. Even with the Treasury’s new-found enthusiasm for nuclear power, that seems a little unlikely. The projected purchase of 16 Rolls Royce Small Modular Reactors would only be the equivalent of two more Hinkley Points, i.e. 4.6GW. But that is still speculative. The first working model is hoped to be operational in the 2030s. Meanwhile, other small nuclear reactors, e.g. those using molten salt and operational in the 2020s, are being ignored by the UK Government.

As things stand, the gap would have to be filled by gas + CCS. The risk is that, whilst we do have the technology for small and large nuclear, CCS is still at the developmental stage. The Department for Business, Energy and Industrial Strategy (BEIS) published comparative costs for the main alternative sources in August 2020. They ranged from £44 per kilowatt hour to £85 for gas + CCS. Nuclear was omitted on the ground that it was commercially sensitive. The report did, however, say “The Government’s ambition is for the nuclear sector to deliver a 30 per cent reduction in the cost of new build nuclear projects by 2030, as set out in the Nuclear Sector Deal published in 2018.” Of course, ambition and results do not always match.

In the previous (2016) report, Chart 6 shows that nuclear is 50% more expensive than solar or onshore wind, due to its high commissioning costs, but cheaper than the alternatives, even with these costs. Thanks to its negligible fuel costs (high for gas) it is far cheaper than any alternative candidate for the role of baseload supplier.

Four things are clear at this point: BEIS is so besotted with renewables and hydrogen that planning for a secure, least-cost baseload is woeful, if it exists at all. Secondly, HM Treasury’s 20 year refusal to even consider adequate nuclear provision has got us into this mess. And they are not alone. The National Grid update on trends dated March 2021 does not mention “nuclear” at all. Thirdly, imports and consumer prices are likely to go through the roof. Nuclear is by far the strongest candidate for the provision of the baseload but unless BEIS accelerates nuclear development very rapidly, either the lights will go out or the UK will be stuck with gas + CCS with massive costs to the consumer. The current indifference to 4th generation small reactors is perverse.

A little history is a useful thing

Apparently it’s something or other that there are so few black figures (we use that description because that is what the source is using) commemorated by those blue plaques stating that someone famous lived here.

Blue plaques commemorating notable black figures still make up just 2.1% of the individuals honoured across London, according to a Guardian analysis.

The scheme, run by English Heritage, was started in 1866 with the purpose of commemorating figures who have lived, worked or stayed in buildings across the capital.

More than 1,160 notable people are name-checked on the scheme’s 978 plaques.

A little history would be useful here. The enrichment through diversity of Britain - and it is indeed enrichment - is a very recent phenomenon. According to the usual Census figures about 1.5% of the population is currently of Afro Caribbean background, another 1.5% of Black African (using the Census definitions and names) for a total of 3%.

In 1939 the total black population of Britain was about 10,000 souls, perhaps a little under - 0.02%. The arrival of the still segregated American army in those war years boosted this by some 1,500%, near all of whom left again in 1945. Then came Windrush and so on but the significant growth is in recent decades.

So, what percentage would we expect in a scheme that has been running since 1866? Further, one where consideration for a plaque cannot be done until the individual has already been dead 20 years?

We’re not arguing that the past was a perfection of equal treatment and we’d not even strongly insist that today is. But a complaint that the capital has too few commemorations of people who, to a great extent, were not actually there doesn’t strike us as anything other than evidence of an ignorance about that past.

But then, you know, Guardian investigations and all that.

The thing is, Chris Loder MP does actually have a point

Or perhaps, it’s possible to divine a useful and important point in what Loder is saying even if it’s not quite the one he thinks he’s making:

Mr Loder said: “It is in our mid and long-term interest that these logistics chains do break.

“It will mean the farmer down the street will be able to sell their milk in the village shop like they did decades ago. It is because these commercial predators – the supermarkets – have wiped that out and I’d like to see that come back.”

Any rational examination of what a supermarket is will conclude that it is, in fact, that logistics chain. The shop itself is just the box at the end. The economic entity is that chain that fills it - the logistics.

We insist that said logistics is one of the grand achievements of the modern age as well. We’d not want to see them break any more than we’d like to be in the age before penicillin.

However, we do insist that we believe in markets, markets untrammelled by unnecessary interventions. Which means that we’re entirely happy with, even insist upon, competition among models as well as specific participants within the one model. So, why is it that the local farmer cannot sell in the village shop?

Actually, it’s because we have specific regulations against it. At least, it’s illegal to sell raw milk other than directly, selling it through a shop is verboeten. In Scotland, even direct sale is illegal. This means that the farmer must pasteurise the milk at the farm. Or, must sell direct at the farm gate, deliver directly to households - or must sell to a wholesale operation that does the pasteurisation.

At which stage there is actually a point in what Loder says. We don’t want to break the supermarket logistics chains, not in the slightest. But we’d be entirely on side with reducing regulation, freeing up the supply side of the economy, so that alternatives can compete on a level footing. For the benefits of competition come not just from battles between different people being more or less efficient at doing the same thing but also - and more importantly too - from different methods of doing different things.