Largely because it's an insane idea

Perhaps we should have a list of companies that cannot be altered. As with our list of, umm, listed buildings:

His comments got me thinking. Why has the UK been able to introduce a listing system to protect buildings, but is so reluctant to use similar measures elsewhere in the economy?

Largely because it’s an insane idea.

It is indeed possible to say that certain physical things must be kept as they are. We might think that the current listed building system goes too far - Brutalism is something we’d be glad to see the back of for example, not something to preserve unless it’s as an example of what we never again let the authorities do to us - or even not far enough, but that is about physical things.

Trying to apply the same idea to businesses to be grossly guilty of reification. To treat something abstract as if it were concrete as in that Brutalist architecture.

A business isn’t though a real thing, it’s just a legal wrapper for those real things.

One example used here is Derby County, the football club. There are certain real things here. The skills of the players for example, the stadium. Properly quantifying the fans’ support would be like nailing jelly to the wall but there’s no doubt that it’s still a real thing. And yet “Derby County Football Club” isn’t a thing. It’s a wrapper, an arrangement, between those real things. As such it’s not something to be preserved, it’s something to allow to adapt to any changing relationships between those things.

This is true of Rolls Royce, Vodafone and the sweet shop on the corner. The real things are the real assets, whatever they are, and slapping a preservation order upon them may or may not be justified. To treat as rigid and worthy of preservation the relationship between these realities, the legal form of how they combine, is to entirely miss the point of what the business is.

Preserve pieces of reality by all means if that’s what floats boats, but the preservation of a particular set of contractual relationships is nonsense.

Nuclear Power: The Government’s Commitment Issues

Vicar: She’s a lovely girl but do you have commitment issues?

Groom to be: I can’t say I do.

Yes, I know it is an old joke but it captures Downing Street’s lack of commitment to nuclear power. Back in 2008, the government noticed that nuclear power was essential to a zero carbon future but all extant and planned nuclear power plants would reach the ends of their lives and need to be decommissioned before the lost capacity could be replaced. The current (January 2022, National Audit Office) estimate is that the seven advanced gas-cooled reactors (AGRs) and one pressurised water reactor (PWR) need to be decommissioned by 2028.  

By 2008, Sizewell was identified as one of the eight locations which had been given the “go-ahead” for construction. John Hutton, then Business Secretary, said he hoped the first one would be completed "well before 2020". Hinkley Point C (the first on account of being the only one of the eight to make it into actual construction) is now expected to be operational in 2025 (maybe). It will supply 3.2GW or 7% of UK current needs, and perhaps 3.5% of 2050 needs if carbon zero is achieved by then, i.e. current non-electric energy sources such as fossil fuels for transport and domestic heating are converted to electricity.

Moving still with the speed of a hobbled tortoise, November 2012 saw Sizewell confirmed as a possibility and proposals were received from EDF. By 2018, the government’s list of seven new nuclear power stations was down to two: Hinkley Point C and Wylfa, but that was promptly cancelled. Last October, it was resurrected but only as a possibility.  No commitment has been made. Two others had been cancelled and three, including Sizewell C, were only for discussion.

Four years on, we were assured the Sizewell C decision would finally be taken in April 2022.  Vain hope: an expert team has since asked for a six-week extension to prepare a report.

The Business Secretary, Kwasi Kwarteng, granted their request and push back their deadline to 25 February” with further time for departmental consideration. On 27th January, Mr  Kwarteng told the House of Commons that the government had acquired an option on the land and were giving EDF more money to help the project along: “However, I am clear that this agreement does not represent a Government decision that the Sizewell C project will progress.” A decision should be made before the end of this Parliament, i.e. 16 years after the government identified Sizewell C as an immediate replacement for the decommissioning reactors.  Sizewell C is similar to Hinkley Point C, i.e. same output and fewer construction problems. However, it uses the same design as the Chinese reactor at Taishan which has recently been shut down because of damage to the fuel rods. This should cause Mr Kwarteng a certain amount of soul-searching.

The truth is that recent governments, other than the Scottish one, have proclaimed commitment to nuclear but vacillated and procrastinated, basically because successive short-sighted Chancellors have refused, unlike the French, to provide the moolah. The Nuclear Energy (Financing) Bill (2021-22) went through its Commons stages during the past month.  It is not easy to understand and few MPs probably did. The Treasury likes it because it relieves them of paying for nuclear power stations such as Sizewell C. Instead, users will have to reimburse the City investors by paying far higher prices, i.e. fat margins, than should have been available from government utility financing. It is like the Private Finance Initiative, only worse. Transferring public capital expenditure in this way rips off the taxpayer/end user. The Treasury dresses it up in all kinds of clever language (read the Bill) and calls it the Resource Allocation Model or RAB.  RAB actually stands for Robbing the Average Bloke.

The government’s dilly dallying over nuclear power and its financing scam are only two of the problems.  The third is its complete failure to estimate how much nuclear sourced electricity we will need and how that should be generated. 24th January 2022 may not be a typical day but it is not that untypical either.  According to the National Grid, 60% of our electricity then came from fossil fuels, 11.6% from nuclear, 9% from imports and 5% from renewable (wind and hydro). Dropping from the current nuclear output, to Hinkley plus Sizewell C, halves nuclear provision and if fossil fuels are taken out, renewables and imports would have to supply a steady 95% which is never going to happen. And it gets worse: these figures exclude fossil fuels not used to generate electricity, e.g. transport fuel and gas heating. And Nicola Sturgeon, the First Minister of Never Never Land, insists that they can achieve zero carbon with no nuclear electricity at all.  As a purist, she presumably rules out importing electricity from countries, like England and France, which use nuclear to produce their exports. Carbon capture and storage can fill some of the gaps but certainly not all of it, or not at affordable prices.

In short, a sane nuclear power policy needs careful calculation of our future needs and a commitment to following the example of the USA, Canada and China and embracing modern, cheap Generation IV advanced nuclear reactors (including but not confined to molten salt reactors) since they are the only way the British taxpayers will get the electricity they need at prices they can afford. Saying “I do” would not then be that difficult. 

Never forget, markets can be changed by altering demand, not just supply

Matthew Syed suggests that Anglo Saxon capitalism is corrupt:

Twenty-five ministers from the coalition government took up jobs in sectors they had regulated, including Ed Davey and Chris Huhne at energy companies, and Nick Clegg at Facebook.

As to why this is so:

Most economists now accept that this labyrinthine web of retrospective inducement has had a chilling effect on capitalism. By dangling the carrot of future employment, giant corporations influence ministers in the here and now. This happens in myriad ways, but the most pernicious relates to the companies’ desire to protect themselves from the challenge of new ideas and competitors. They work with compliant politicians to introduce regulations, subsidies and bailouts that act as barriers to entry, stifling the free market.

We leave the truth or not of the specific assertion to the individual as we agree that the revolving door does have its problems. So, how do we solve this?

The Syed solution is to ban ministers from such future employment for 7 years - well beyond the time period where their Rolodex and contacts would have any influence. In return, ministerial salaries should jump by perhaps fourfold.

We would propose something different - for yes, markets like this can be altered by changing the possible supply of people willing to do governance for future economic gain. But they can also be changed by altering the demand for people willing to consider future employment options while governing now.

Which is to have governance not worth influencing in this manner in the first place. If government does not take to itself the power to “introduce regulations, subsidies and bailouts that act as barriers to entry, stifling the free market” then why would a company try to buy it? If political experience, previous political power, were worth nothing then perhaps the employment prospects of Ed Davey, Chris Huhne and Nick Clegg would be rather different - difficult for them and possibly highly amusing for the rest of us. One of them would seem suited to the job of pitchman for speed limiters for example.

That is, return to that classically liberal heyday of little interference in markets other than the most general rule setting - don’t poison the customers, that sort of thing - and we’ve solved the problem. No one would demand the services of retired politicians - nor trail rewards to those in office - because such influence and attentions would be worth nothing.

It’s possible to be more blunt about it. If government is able to influence who makes a profit then those desirous of profit will buy government. The solution is not to change the supply of those who can sell profit making opportunities, it is to change the demand for the services by abolishing the ability.

A free market economy doesn’t have room for corruption in it. So, if we desire to end corruption let us free the economy.

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.