What, exactly, is wrong with charity?

This could be seen as an objectionable question, possibly even a deliberately puckish one. But it is meant seriously - what is wrong with charity?

Research for the Guardian by GoFundMe found a 28% rise in the number of appeals mentioning universal credit appearing on the platform between July 2021 and January 2022 compared with the pre-pandemic period of July 2019 to January 2020……

….He adds: “It will be a tough winter for many people and as such we would expect more fundraisers for basic household needs. Some of the stories are heartbreaking but the power it gives people when communities rally around to help is truly inspiring.

“There are some incredible stories of kindness playing out every single day all over the world and that, in turn, makes people more confident to ask for the help they need.”

Some desire a higher standard of living than the world is currently offering them. We see nothing unusual or harmful in that. That course of going out and getting it for themselves seems to be barred for some reason. So, in order to gain that higher standard of living there must be a transfer from other people.

Fair enough, but which type of transfer? Through taxation, through compulsion? Or voluntarily through charity? The Guardian’s clear and obvious view here is that the steel fist of the state must be employed, ordnung must be imposed and folk forced to hand the cash over.

We’re willing to agree that at times that does indeed need to be done. There are things the state must do and which also need to be done - things that only the state can do and which must be done. So, tax revenue is indeed a necessity.

The part we don’t get is this implied insistence that the existence of charity is proof that something is wrong. People do get helped, that living standard does improve, funded by those who specifically desire to increase those living standards. What, in short, is wrong with voluntary action which solves the problem?

It’s even possible to insist that the charitable route increases general wellbeing. Those who desire to so give do so and this increases their utility. That is, the charitable route is better overall.

So why is the simple existence of charitable donations being used as the proof that there’s something wrong?

Clearly road pricing is going to happen

Just as we spent decades arguing in favour of the congestion charge we’ve for a long time been insisting that road pricing is something whose time will come. Simply on the grounds that while road tax and fuel duty are useful enough proxies for what we actually want to tax - to recover the costs of road provision but also that peak usage - advancing technology enables us to actually tax the thing we want to tax - that peak usage and the congestion that results.

So, yes, obviously:

Road pricing may promise a fairer, sustainable way to make polluting drivers pay, ease congestion and fund better transport, but few politicians in power have ever wanted to take the flak that would come with introducing it.

The Treasury has stressed the move from petrol and diesel to electric cars as part of Britain’s net zero strategy will require new sources of revenue to replace billions in lost fuel and vehicle excise duty.

It’s the second part we disagree with though. Replacing lost revenue isn’t the aim. We significantly prefer the option of government simply spending less, interfering in national life less, as a result of having less revenue.

True, this means that there’s always a tension here. There are some things that should be taxed - those third party effects of actions. For by so taxing one makes the economy itself more efficient through the correction of the price system for those externalities. The tension comes when politics meets a cashflow, they never can seem to wean themselves off it once it exists.

As so often there is no answer to this, no solution, only a series of trade offs. Sadly, that’s just what life is, that series of trade offs.

One thing we will insist upon here though. Currently the argument is that, when we include those climate change costs, electric cars will be or even are cheaper than fossil fuel driven. This is something that will not be true once electric vehicles are taxed using road pricing - they’ll go back to being vastly more expensive than petrol or diesel.

As we say, it’s obvious that road pricing will come at some point. But that very insistence is the evidence that EVs aren’t going to be cheaper, isn’t it?

There are costs and benefits to absolutely everything

It’s entirely true that the costs of some things - say, socialism - can be vastly higher than the benefits, equally the benefits - say of a free market economy - can wildly outweigh the costs. But it is still true that there are costs, as well as benefits, to everything:

More than 800 lives may have been saved across Europe thanks to better air quality in the first phase of Covid lockdowns, research suggests.

Measures brought in to stem the rise in infections resulted in far fewer cars and lorries on roads, which had the biggest impact on reducing deaths, according to the study led by experts from the London School of Hygiene and Tropical Medicine (LSHTM).

That’s a pretty small benefit for having closed down the economy. Also, for having however many tens of thousands die for lack of cancer and other medical treatments available in normal times. But it is still a benefit, no doubt about that.

It is though the net of the costs and benefits that should drive decision making. Any particular summation of the figures to arrive at that balance can be read either way. Clearly, closing down Europe to save 800 lives wasn’t worth it. Quite apart from anything else the nett figure wasn’t to save lives anyway.

But we can and should also read this the other way around. OK, so it’s possible to save 800 lives by cleaning up the city air. Should we? Well, look at the effort - which is also another way of saying the other costs - needed to do so. Umm, no, it isn’t, is it? For we kill more by closing everything down than are saved by closing everything down.

For there are indeed costs and benefits to everything.

The regulatory state is killing property ownership

The only really useful definition of property ownership is that you can sell it. Pass it on to someone else for some price that you consider acceptable. This being something that the regulatory state is rather extinguishing:

The US chipmaker Nvidia is losing hope of completing the $40bn (£30bn) takeover of Britain’s Arm as its regulatory woes mount, leaving it facing a significant break fee.

Nvidia executives are understood to have become increasingly gloomy about the prospects of the takeover, which is yet to be cleared by a single regulator 16 months after the deal was announced.

Watchdogs in China have only recently started to formally review the deal, while a US government legal challenge seeking to block the sale is not due to begin until August – a month before the two-year deadline on the deal expires.

We’ve no opinion on the specifics here. Whether ARM should be owned by the American Nvidia, the Japanese Softbank or should have remained, as some would insist, as a British stock market quoted company. That’s not our point.

It is that with up to 200 countries willing and able to stick their oar in it’s not obvious that Softbank does in fact own ARM. It’s certainly not able to dispose of what is called its property in a manner it finds acceptable at a price that it clearly is happy with.

Of course there are those who think that bureaucrats second guessing the market will lead to a better world. But we would like to remind of something really rather important. The one big - and really, the only important - question in economics is what the heck happened in 1750? A useful if not entirely complete answer being that that was when property rights started to be taken seriously as an individual decision rather than one determined by that societal equivalent of bureaucrats in offices.

Another way to put this is that economic growth is change. Changing what is done, how, by whom. Sticking years long reviews by the world’s assembled clipboard wielders into the process slows that economic growth. By definition it does, for slower change is that definition of slower growth.

Theswe reviews of who may sell what to whom are making us all poorer. We should stop doing this for who does want to be poorer?

Hounding the self-employed

There used to be an assumption that an employee would work for the same outfit in the same building – Monday to Friday, 9 to 5 – often for decades. But with mobile phones, personal computers and flexible working, that had already become rather old-fashioned long before the message in 2020 to work from home, if at all possible, as a moral imperative.

By contrast, it might be that someone who is self-employed might have only one client and be working for them full time – at least for a few months.

According to the Office of National Statistics, there are 27.8 million employees in the UK, compared to 4.3 million are self-employed. The number of self-employed had been rising steadily – from 3.2 million in 2000, 4 million in 2010 and then 5 million in 2019. But just recently it has slipped back. ‘Ah, the pandemic,’ you might say. But the number of employees has actually slightly risen over the same period.

What has been happening is that HMRC has been mounting an undeclared war on those with the pluck to go it alone, be their own boss and take risks – foregoing the safety of holiday pay, sick pay, regular house and a regular income – in the hope that it will bring rewards.

The favoured method of bringing them to heel is called IR35. This was legislation introduced by Gordon Brown when he was Chancellor to tackle ‘disguised employees’. It did so by reclassifying contractors who worked with a single client as ‘deemed employees’, with a higher tax bill as a result.

In opposition the Conservatives were indignant about this onerous impediment to enterprise. In their 2001 manifesto they promised ‘to repeal the tax on IT consultants, the notorious IR35, which has driven away from Britain some of our most productive workers’.

Nine years later the Conservatives had finally returned to power. Their Coalition Programme for Government, with the Lib Dems stated:

‘We will review IR35, as part of a wholesale review of all small business taxation, and seek to replace it with simpler measures that prevent tax avoidance but do not place undue administrative burdens or uncertainty on the self-employed, or restrict labour market flexibility.’

Since then, however, matters have actually got worse. HMRC have made the ‘compliance’ requirements more draconian, the complexity more impenetrable, the paperwork more oppressive. The main problem with IR35 is that it unfairly affects the smallest companies: freelancers. Numerous sole traders who legitimately use a limited company model to supply services have been falsely accused of ‘disguised employment’.

It also mixes up the reason people choose to become self-employed. As the Association of Independent Professionals and the Self-Employed notes:

‘Contractors enjoy the variation and flexibility of assignments, they enjoy the choice of the tasks they take on, they enjoy being able to dip in and out of contract. They often cite office politics and a dislike of hierarchical structures as the reason they want to stay as contractors. They rarely refer to taxation as a reason for being a contractor, but they do recognize that there is, as there rightly should be, a reward for being in business and taking on all the risks that entails.’

Then there’s the burden of IR35 investigations, which the Association says can be ‘long, intrusive and extremely costly’, with the added risk of reputational damage for contractors.

As time has passed, more and more self-employed workers have been caught in the IR35 web. First they came for the IT nerds. Then the Government had a clampdown on NHS contractors – a restriction which has proved disruptive and costly.

More recently it has been lorry drivers bearing the brunt. In April last year, new rules came into force for medium and large private sector employers. It means that hauliers who turn over more than £10m per annum or have more than 50 employees can no longer hire drivers who are working as a limited company. Though some want to pin everything on Brexit, a survey by the Road Haulage Association found large hauliers saying IR35 was ‘the main reason for the current driver shortage crisis’.

This is not just a problem of ministerial short-sightedness, but of a failure to hold arms-length government bodies to account for damaging policies. HMRC styles itself ‘a non-ministerial department of the UK Government’ – which seems wholly unsatisfactory, given the power it wields. Indeed, far too much of what the state does lacks proper accountability, with agencies and quangos given free rein to set their own policies without serious democratic scrutiny.

I used to think that the attack on the self-employed was a political project by the Labour Government. One can see the problems a growing self-employed sector offers for traditional socialists. How many will be interested in joining a trade union? It doesn’t really fit in with the ‘them and us’ rhetoric of the class war if boss and worker are embodied in a single person. But now it seems that the administrators are the real problem. Whether the Chancellor happens to be Gordon Brown, Philip Hammond or Rishi Sunak makes little odds.

Perhaps the current supply chain logistics problems will prompt ministers to sit up and take notice. And rather than just scrapping IR35, they should introduce a new right to be self-employed. Anyone should be able to agree with his or her employer that he or she is henceforth to be treated as self-employed and HMRC should not have the power to disrupt such arrangements.

That clear declaration would help to ease the supply chain pressures and it would also send a clear signal to the beleaguered and bewildered entrepreneurial contingent in this country that the Conservatives really were on their side.

In which we agree with Polly Toynbee

Pearls will be clutched, inbreath gasps heard, as we finally agree with Polly Toynbee on something:

So it shouldn’t be a surprise that a shocking report on a Conservative flagship housing policy fell below the news radar. The Lords-built environment committee has revealed that all of the £29bn spent on the help-to-buy scheme has been wasted. The scheme gives subsidies for homeownership, but all they do is “inflate prices by more than their subsidy value”. They “do not provide good value for money”, which would be “better spent on increasing housing supply.”

Note that we don’t agree on “Right to Buy” but we do on help to. As we said back at the time actually:

The Adam Smith Institute (ASI) says the measures will increase demand for houses but not supply, and will only exaggerate existing competition.

The Institute warned of the consequences if the Government does not shake up planning laws to improve the supply and affordability of housing.

Well, quite, the correct action to a shortage of supply is not subsidy to demand. That’s somewhere between perverse and stupid.

Research director Sam Bowman said: "It is crazy for the Government to stoke demand even more without addressing supply and claim that this will help the housing market.

"Making taxpayer-subsidised handouts to homebuyers will only drive further house prices up, risking a bubble, improving access for a select few but making housing even more unaffordable for most people.

"On the other hand, radical liberalisation of the planning system has the potential to drive massive economic growth, drastically reduce housing costs for the badly-off, and give millions more a chance to own property of their own. "

Quite so, the correct answer today is as it was back then. Blow up the Town and Country Planning Act 1947 and successors. Properly blow up. Bang. Kablooie.

While we doubt that Polly will agree upon the solution still, prepare the Fatted Calf and all that. Even if it does take 9 years to catch up with us Polly’s agreement on the - to put it only politely - insanity of the subsidy plan is welcome. Hopefully we can reach agreement on the solution in less than a decade.

Evaluating HS2

Fortunately, we don’t in fact need to go far in order to evaluate HS2. From one of the gents in charge of trying to build the thing out:

Demetriou’s tone changes as the conversation shifts to HS2 and whether he understands the frustration among critics. “Of course we do,” he says sheepishly. “[But] it takes investment to get there.”

He says the project is about much more than the economic benefits, a key piece of the argument that critics are missing.

“When we ask the question about investment, it’s not just the typical economic investment of: ‘we’re gonna invest billions of dollars here, what's the return?’,” he says.

“It’s also what's the social value? Is it driving equality? Is it driving the needs of the people to connect and to a well being and health and well being and the communities.”

It’s not necessary to answer the questions in that last paragraph. For the mere fact that they are being proffered as an explanation is proof that the answer to the question in the penultimate paragraph - “Is this a good investment ?“ - is “No”.

After all, why would anyone at all offer the excuse about equality if the new train set made sense on its own terms as a new train set?

There are plenty of projects that could be done which do make sense on purely fiscal grounds. That they will produce more output than the costs of their inputs. Given that we’re in a world of scarce resources those are the ones we should do therefore. That is also the proof we require to know that we shouldn't be doing this one.

It may not be the most rigorous of investment analysis techniques but it is one that gives us a true and valid answer - by their excuses shall we know them.

Funding services

The funding situation of two services, university education and social care, is plainly not currently in good shape.

A few decades ago, when 5 percent of the age cohort attended university, it was funded out of taxation and was free to the student. Not only that, but maintenance grants, usually paid through local authorities, were available to most students to defray their living expenses, or at least to assist them. Even when the proportion edged up to 10 percent, central funding could just about cope.

It was when the decision was made by successive governments to expand university education towards its current level of 50 percent of the age cohort that people realized that total taxpayer funding was no longer viable. Not only would the burden be more than taxpayers might be willing to shoulder, but there were moral questions raised. Should those not able to benefit from a university education pay higher taxes so that others, who would earn much more over the course of their lifetimes in consequence, be given a free ride to those higher incomes at the expense of those less fortunate?

The obvious system of funding would be to have those who would gain the most from university education pay for it later out of their expected higher incomes. The system of student loans operated on the system that those who gained that future advantage would fund themselves from their future earnings.

Most students, of course, want it to be “free,” meaning that someone other than themselves would pay it. Most people would probably prefer to live at someone else’s expense if they could. Indeed, many students do end up doing that, since the default rate on student loans is roughly 50 percent. This is not surprising in that many leave university with indebtedness of about £48,000, a sum that rises each year with interest rates for average earners at the inflation rate plus 3 percent.

The Australian system seems to operate better in practice. A student entering into university education incurs an obligation to repay the cost of it when they start earning enough money. A sliding scale determines the rate of repayment, dependent on income, and the interest is the rate of inflation, meaning zero in real terms. This perhaps helps to explain why the Australian default rate on repayment is about 15 percent, very much lower than in the UK, and why Australians on average pay off their indebtedness much earlier. If the UK made its loans interest free in real terms, it could probably finance that out of a lower default rate.

For social care it is the other way round. On average 10 percent will need social care for an average of 2 years. Most would like this to be “free” on the NHS, meaning that someone other than themselves would pay, but in practice the best person to pay is themselves when younger, just as students pay for themselves when older. Many do this by paying out of the assets they built up when younger, including their homes.

Rising resentment at this has led government to put a cap on the assets a person might have to draw upon to fund their care, and now the general taxpayer is going to be burdened with a 1.25 percent increase in National Insurance as a Social Care levy. This will have adverse economic effects, as well as involving the relatively low paid being required to pay to protect the assets of the comparatively rich.

The statistics suggest that the risk of requiring social care is eminently insurable. What deters the insurance companies is the prospect that some cases might require decades of funding, but government could step in with a limit after which it would step in to cover any remaining years. Given this, compulsory insurance, such as we require for motorists, becomes a viable option.

Monies paid in taxes to the government or in premiums to insurance companies are lost to those who never need to draw on social care. Some countries practice an alternative. They require people to pay into funds to cover this possibility, with the difference that the fund is the property of its contributor, and if not used can be passed on to heirs and successors. Forced saving of this kind is more attractive to the citizen than taxation or insurance because it remains their property and does not die with them. Moreover, the funds would be invested by fund managers and would constitute an added investment pool to boost the economy.

The funding of higher education and social care could be put on a firmer basis if we abolished interest on student loans, funding this from a much-reduced default rate, and if we also required people to build up funds that could cover the costs of any social care they might need later in life.

It would mean that those receiving these services and benefitting from them would themselves be paying for them when able to do so. It would also end the notion that these should be ‘free’ for the recipient, meaning paid for by somebody else.

Time for a Bold Initiative

Cabinet Room 

“I’m reminded, Humphrey, of Gulliver’s travels where the great man was dragged down by the Lilliputians. They were preoccupied by trivia, the cost of living and eleven thousand died because they refused to open their breakfast eggs at the bigger end. Look at us now, Putin may be creating WWIII and yet Parliament is besotted by drinks in my back garden and bullying MPs. At least Cabinet Ministers were practising their shooting as WWI emerged, albeit at grouse.” 

“Are you suggesting, Prime Minister, that you should re-focus public attention on bigger issues, perhaps it is time for a bold initiative?” 

“It certainly is, Humphrey. We have a lot to learn from Comrade Vladimir Vladimirovitch Putin. Whenever he is in trouble at home, he rattles his sabres.” 

“Unfortunately, Prime Minister our sabres are not what they were. Not many countries are impressed by them. The French think our gunboats are a joke, the Russians think our submarines are there to help them find their way around the Atlantic and the Chinese think our new aircraft carrier is just the thing for target practice as they cannot be sure of hitting anything smaller.” 

“All true, Humphrey, but it’s a matter of scale. Comrade Putin reduced the size of the Ukraine by picking off the Crimea and neutralising the eastern bit. It’s now bite sized and he can credibly absorb it. Greater Russia, that’s the game and NATO has provided a rationale for any action he may choose to take. He’s provided the blueprint: We’ve done Brexit, for a Greater UK.” 

“You would need better justification than Mr Putin’s. The Ukraine only said they might join NATO. It’s hypothetical.” 

“In geo-politics, that’s excuse enough. I’m thinking that adding Norway would make Great Britain an even Greater Britain.” 

“Norway?” 

“Russia has a 196 kilometre border with Norway, not counting the 23 kilometre marine border. He may well, after he’s knocked off Ukraine, regard Norway as a serious threat. It is the only NATO country that borders Russia so it must be on his list. I think we should take it over now ourselves. He might invade Norway as it is but once it becomes part of Greater Britain, he wouldn’t dream of it.” 

“Prime Minister, I’m sorry to nit-pick but Estonia and Latvia border Russia proper. Lithuania  and Poland only border Russia’s exclave of Kaliningrad Oblast which is nowhere near the rest of Russia – an issue that will not have escaped Mr Putin, Anyway, doesn’t the NATO treaty prohibit attacking other NATO members.” 

“In the first place, Humphrey, we would not be attacking Norway, just providing protection. Secondly, the treaty requires members to support each other if attacked by non-NATO-members but says nothing about one NATO member coming under the protection of another. We would simply be acting to ‘maintain the security of the North Atlantic area.’ (Article 5)”

“That would certainly be a bold initiative, Prime Minister, and without question you would recapture the media headlines. The Russians, we are told, have Mr Yevhen Murayev lined up to be Ukraine’s President when they take over. Do you have anyone in mind?” 

“Yes. Jacob Rees-Mogg and his extensive family should fit Norway well and I’d consider Oslo an acceptable distance for him.” 

“Do I detect a commercial interest here too?”  

“You certainly do, Humphrey. Previous governments cocked up our supplies of oil and gas. We used to be self-sufficient. Back in 2003, we supplied ourselves with nearly four times as much gas as we do now. Then governments got all excited about global warming, carbon neutrality and all that and discouraged digging for the stuff. Guess what happened? Global shortage, prices rocket up and our poor benighted citizens have to choose between heating and eating. Nothing to do with us, of course, it’s global markets.” 

“I can see where you are going, Prime Minister. Norway has masses of energy, notably oil and natural gas, and not many people. It is our main supplier now at horrendous cost to our economy, not to mention widening the poverty gap.” 

“You’ve got it, Humphrey. We used to be all one country, more or less: Vikings all over the north and the Orkneys and Shetlands were part of Norway. And we are not just talking energy. The North Sea fishing would virtually become all ours. The EU wouldn’t want to take us both on. The Republic of Ireland might even want to join and that would take care of the Northern Ireland Protocol problem.” 

“That’s brilliant, Prime Minister. One bold initiative and the next election is all yours.” 

This inability to understand markets is remarkable

So, remark we will.

Welcome to the fast-growing world of “build to rent”, an asset class that is shaking up the housing market, luring renters with the promise of more professional management than individual private landlords, and sucking in a flood of money, from banks, pension funds and even retailer John Lewis. Tempted by the prospect of stable returns, these blocks are developed, owned and operated by large companies with deep pockets.

Yet there is growing unease over the boom in this new class of rental property, with concern that the poorest in society will be priced out.

Sigh, every new dwelling created lowers the price that can be charged for every other dwelling in the country. This is how supply and demand works.

Assume, for a moment, that there are 25 million households looking for somewhere to be a household in. A reasonable assumption as that is about the right number. If we have 24 million dwellings inside which it is possible to be a household then prices will rise until 1 million decide to remain in their mother’s basement. If we have 26 million places then prices will fall as there will be empty dwellings and so prices are competitively cut by landlords who wish to fill theirs and damn every other landlord trying to do the same.

This is just how these markets things work. Yea, even with housing. Putting up some £10 million a flat development in Hyde Park still increases the number of potential dwellings in the country by 1 or more. So, the price chargeable on every other dwelling in the country falls by that infinitesimal amount.

If the desire is to reduce the cost of dwellings then the answer is, as the Americans say, to flood the zone. Just build more of absolutely anything, under any terms of tenure or in any price range. More dwellings to be a household in will reduce the cost of a dwelling in which to be a household.

This isn’t difficult, it’s explained on the first two pages of every economics 101 textbook in the world. Want housing to be cheaper? Increase the supply.

As to how to do that as we’ve suggested before the most obvious act would be to blow up the Town and Country Planning Act 1947 and successors. Proper boom, kablooie, blow up. Leave people to build whatever, wherever, and housing prices will fall.

Very serious people do indeed say that it’s just not that easy. But then that’s because they’re not being serious about reducing the price of housing. They’ve other issues at the forefront of their thoughts, other things they’re being serious about. Silly issues like “concreting over the country” when housing is only 2% of it at present. “Protecting the green belt” which is code for we’ve got our country views and you can’t have yours. "Even “planning” itself which is the insistence that the haute bourgeoisie know where the proles should live, in what and how.

Making housing cheaper is simple. It’s just that none of the people currently in control of the housing system actually want to make housing cheaper. Remove the restrictions on building housing and it will, inevitably and provably, become cheaper.