Lib Dems are morons

Posted by Christie Malry on September 25, 2012 at 10:58 pm

Oh my days.

The Liberal Democrats are looking at curbing all age-related universal benefits for pensioners with assets of more than £1m.

The changes could affect payments including winter fuel allowances, free TV licences and bus passes.

This isn't just terrible politics, it's terrible welfare policy too. Because:

Lib Dem sources said the details of how they would calculate the £1m threshold above which benefits would not be paid were still being clarified.

They said the "net worth" of an elderly person could be the value of the house, or income or size of pension pot.

House prices go up and down. So you could have a situation where an elderly person qualifies for these age-related benefits one year but not the next because of swings in the housing market. Or if government decides not to revisit entitlements every year to save money, it could mean people missing out if house prices crash.

The proposal to link it to pension pots is even more idiotic. Someone with a defined contribution pot who uses it to buy an annuity has no asset. They have a future income stream instead. Whereas someone who is using drawdown does have an asset. Why should these two pensioners be treated differently? And do we want to treat someone with a £1m pension pot differently from someone who used to have a £2m pension pot but has drawn down £1.1m of it? It's an incoherent approach.

And "income" is not part of your net worth, you complete fucking imbeciles.

As an aside, will they be rifling through pensioners' jewellery collections in order to ensure that it doesn't tip them over the limit? 

Let's hope the Lib Dems' "clarification" turns out to be "Yeah, uh, it's a really really bad idea and we canned it. Sorry about that".

Democracy and the House of Lords

Posted by Christie Malry on July 9, 2012 at 10:27 am

House of Lords reform is back in the news, mostly because the Liberal Democrats are threatening yet another dog-in-the-manger hissy fit if they don't get their way.

I love democracy. Which is why I completely oppose any form of Lords reform that increases the power of the political parties. The purpose of the second chamber is exactly to prevent the House of Commons using its Parliamentary majority to railroad bad legislation onto the Statute books. We want a naturally (small C) conservative chamber that instinctively wants to prevent radical change,the implications of which may not have been properly considered. We simply don't want to jettison rights that are centuries old, such as habeas corpus, without so much as a "do you mind?" Equally, we want them to scrutinise major changes to our institutions, such as the NHS, welfare benefits and marriage, even if the proposals are deemed to be acceptable.

The old hereditary system was far from perfect. But it had one very important feature. Because it was so obviously undemocratic, it needed to behave responsibly or face annihilation. And, as a result, it did behave pretty well. It curbed Government's worst excesses, while recognising its mandate for change. An elected second chamber has no such qualms about responsibility. Its duty is only to the political parties which dominate it, not to tradition or "British values".

The Blair reforms to the House of Lords also weakened it, by kicking out a load of hereditary peers and stuffing the chamber with political patsies, mostly former (failed) MPs. As would be the case with an elected chamber, they answer to their political parties, not to us.

The tragedy is that these shabby, careerist politicians, rotten discredited people such as Baroness Uddin, will be used to support an irreversible move to a much worse system that will leave Britain totally undefended from bad, illiberal legislation that the Government of the day wants to stuff down our throats.

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Why pensions tax relief should be at the marginal rate

Posted by Christie Malry on March 8, 2012 at 10:30 pm

There has been much discussion recently about whether pensions tax relief should be changed. Currently, amounts paid into pensions are relieved from tax at the marginal rate. This is the right answer. This blog post aims to show why.

It's obvious that it's good public policy to encourage people to save for their own retirement. There are two main periods in your life when you can't support yourself: when you're very young and when you're very old. The young, by and large, have parents to look after them and pay for them. It's not so clear who should take responsibility for the old, as they may not have children in a position to help them. Also, we don't like the idea of people working until they drop. Yet, in order to avoid people gaming the system, it's better for people to save for themselves rather than forcing the taxpayer to cough up.

Therefore, in between your two periods of non-work you have (hopefully) a big period of work. The objective of pension saving is to defer some of the earnings from that period of work in order that they might be taken during retirement.

Because earnings are being creamed off the top, leaving less for consumption now, it's right that it's that lower amount that is assessed now for income tax purposes. And, because they're earnings, it's right that pensions should be taxable when taken in retirement.

Now think about it from the Lib Dems' perspective. If you take some of your income from this year and push it into your pension pot, you will still pay some tax on it. And, while it may earn dividends and generate capital gains free of tax up until retirement, it will be taxable again once taken as a pension. It's totally incoherent. Ritchie likes to talk about higher rate tax relief "costing" more than basic rate tax relief. But this is totally incoherent too. A person who gets pension tax relief at the basic rate can earn a maximum of £42,475 1 this year, on which they'll pay income tax of £7,000. Whereas a person who earns £100,000 will pay income tax of £30,010 2. If each of these people pays £10,000 from their pre-tax income into a pension plan, the basic rate taxpayer will get relief of £2,000 3, whereas the higher rate taxpayer will get relief of £4,000 4. Is this unfair? Of course it's not. The higher rate taxpayer may have got a bigger discount on his tax bill, but he's still paying tax of £26,010 5. The basic rate taxpayer, by contrast, is only paying tax of £5,000 6. It's idiotic to claim that the higher rate taxpayer gets a 'better deal' than the basic rate taxpayer, when s/he's still paying over five times as much tax as them, even after pensions tax relief has been accounted for.

We want people to save for their retirement. We need them to save for their retirement, in case we store up terrible problems for ourselves in the future. Pensions aren't a perfect structure, but it's essential that they bring with them a tax benefit that's conceptually coherent and is generous enough to reward the saver for locking their money away for decades. The Lib Dem proposal is stupid, it's unfair and it will cause untold damage to people's propensity to save in pensions because they will suspect - rightly - that government simply cannot be trusted not to meddle with the tax system again and again and again. Who in their right mind would lock up their savings for 30 years - 6 Parliaments! - when it's obvious that government can and will steal from them?

For these reasons, I hope Osborne decides on Budget day to tell the Lib Dems where they can stick their pensions tax reform proposals. 

Notes:

  1. Source: Income Tax Calculator
  2. Source: Income Tax Calculator
  3. 10,000 x 20%
  4. 10,000 x 40%
  5. £30,010 - £4,000
  6. £7,000 - £2,000

An amazing statistic on political party funding

Posted by Christie Malry on October 29, 2011 at 10:27 am

I didn't expect this:

Democratic Audit told the inquiry on the basis of the Electoral Commission's register of donations, from 1 January 2001-30 June 2010, donations of £50,001 or more accounted for 41% of Liberal Democrat income, 54% of Conservative and 76% of Labour party declared donation income.

Who would have thought that Labour, of all parties, relied so heavily upon big donations to keep it solvent?

The curious poverty of thought on the left over the 50p income tax rate

Posted by Christie Malry on September 7, 2011 at 11:04 pm

Today's FT carried a letter from 20 leading economists, in which they called for the 50p income tax rate to be scrapped in order to boost growth. Unlike the usual ragbag of retards who sign round robin letters like these, this was a high-powered group, including two former members of the Monetary Policy Committee (Julius and Wadhwani) and Bob Rowthorn 1 of Cambridge University (King's College too... normally a left wing hothouse). And, as you might expect, the left wing commenterati went into a tailspin as they responded to it.

Let's start with Owen Jones, who seems compelled to find the most dribbling position on any issue you care to mention. On this, he shrieks in Labour List that 50p simply isn't enough:

Let’s not simply defend the 50p tax band. Instead, let’s push for it either to be increased to 60p, or to take the threshold down from the current £150,000 to £100,000. In a country where if you earn £21,000, you are bang in the middle, decreasing the threshold would still only affect the very wealthiest – the top 2%, to be precise.

Either move would be popular with a public that wants to see the rich paying more. A poll last year revealed that 54% (against 29% who disagreed) wanted the top rate of tax increased to 60p in the pound.

Note that Jones doesn't even consider the economic impact of his proposals. Who cares if it raises less money than under the current income tax bands and could therefore lead to more savage, deeper spending cuts? We're stiffing it to the rich, and it's popular, innit! True, politicians have consistently demonstrated that they're not very good at economics and can't really be trusted with the economy, but that's hardly good cause to do simply what the public wants. They're even less informed and capable than politicians.

He continues:

At a time when working Britons, the unemployed and the poor face being hammered by cuts and – in the case of VAT, higher taxes – the case for the rich to pay more is unanswerable. It is popular and it makes economic sense.

Well, we don't know whether it makes economic sense yet, because the evidence isn't yet available. Would Jones be as sanguine if it were demonstrable that the 50p rate has reduced the overall income tax take or appeared to be harming future job creation?

Next up is Tim Farron, a Lib Dem. He said cutting the rate would be:

phenomenally immoral and send an appalling message to the overwhelming majority of hard-working people in this country.

'Immoral' to take any less than half of the earned income of those on, in international terms, modest high incomes? I've touched before on the topic of what is the 'right' amount of tax, and it's a question that has also troubled perennial thinker and blogger (and occasional Ritchie-worrier) Frances Coppola. But I simply don't believe Farron when he says that incomes over £150,000 must be taxed at 50% or more in order to be moral. He's just yet another Lib Dem tosser playing to the gallery. And he makes no reference to whether the 50% rate is revenue positive (like Jones, it's all about beating up the rich); if it loses revenue then his comments are even more bonkers.

But on this issue, like so many, pole position shall forever belong to wor Ritchie.

Nor is the virtue of growth per se outlined. There is even no evidence given that the government has put growth at the top of its agenda since its actions strongly suggest otherwise, but let’s move on. 

No, let's not. This is classic Ritchie. He blogs incessantly about what the government should do in order to promote growth (eg here, here, here) and criticises Osborne for pursuing policies which he believes won't deliver growth. He even does so in this sentence, by saying that the government's actions suggest they don't really want growth. So how can he legitimately call for these esteemed economists to prove that growth is the right course of action? He's bonkers.

This is a) a marginal tax rate not applied to all income b) not applied to much income derived by ‘talented’ foreign individuals coming to the UK for less than seven years because of the domicile rule and c) I’m told highly avoidable because the same group say almost no one is actually paying this sum. So where’s the ‘punishment?’ Is it so hard if you’re in the top 1% of income earners to make a contribution to the society that gave you that opportunity to profit, enormously?

 

And where is the squeal of protest from the same group of economists about the poorest 10% in the UK having higher overall tax rates than the group with which they are concerned here?

Well, they do say it's a marginal rate, so it seems a bit churlish to criticise them for it being a marginal rate. The 50p tax rate applies to all income earned here by talented foreign individuals coming to the UK, no matter how long they stay here. The domicile rule has no effect whatsoever on income earned in this country, no matter what left wing commentators would have you believe.

And what's this? Almost no one is actually paying this sum? Doesn't that concede the point that the tax isn't very effective? So why is it so critical to retain it?

The top 1% of income earners already do make a huge contribution to this society. The top 1% of earners pay 27.7% 2 of all income tax, and income tax is the single most significant source of tax revenue. How much more would they be paying in an ideal world - all of it?

The poorest 10% don't have higher overall tax rates than the top 1%. The Office for National Statistics publishes an excellent publication entitled The effects of taxes and benefits on household income, which provides handy tables on incomes and tax payments by decile and quintile. It shows that the poorest quintile pays direct taxes at a rate of 10.2%, the richest quintile at  24.4% 3. Perhaps he means all taxes? OK, the poorest decile pays £1,113 of direct taxes and £2,906 of indirect taxes on a gross income of  £9,275 4, equivalent to a (very steep) effective overall rate of 43%. The equivalent figures for the richest decile are £25,719 and £8,442 on gross income of £101,808, equivalent to an effective overall rate of 25%. However, the poorest decile's income includes cash benefits of £5,388, while the richest decile's income includes cash benefits of just £1,653 (mostly statutory maternity pay, child benefit and the state pension). This means that the poorest decile are actually net tax spenders, not tax payers. It's nonsense to say that their tax rate is higher than the rich, given that so much of their income is due to benefits which are, in the main, paid for by the rich.

In among all this garbage, there is a sole commentator on the left who can hold his head high. Chris Dillow's piece at Stumbling and Mumbling is thoughtful and well-argued (even if he ends up agreeing with Ritchie, which must mean he's got something wrong). 

But I'll accept the implicit challenge in the final paragraph:

Which brings me to my biggest complaint against those economists. To worry so much about the 50p tax rate at a time when real incomes are being squeezed, unemployment is rising and some benefit claimants face real hardship is to display a rather warped set of priorities. 

I disagree. One could use the same argument to criticise any bit of government policy - why waste valuable Parliamentary time on fox hunting bans or smoking restrictions while there are people sleeping on the streets, for example? And there are two serious questions which do rather need to be answered:

  1. Will the 50% rate actually raise revenue?
  2. Is it moral for the government to take 50% of an individual's marginal effort?

This isn't sophistry. If the 50% rate won't raise additional revenue, then as far as I'm concerned it's a left wing conceit that needs to be binned at the earliest opportunity. While we have a significant budget deficit, we must do whatever we can to maximise tax revenues. If that means cutting the top rate of tax, we must do it.

However, we must only do so if we do so morally. For instance, we could cut the welfare bill by killing all the poor. It would be an appalling atrocity that may well trigger invasion by foreign powers and cause riots, but it would work. I don't advocate such a policy as it would be completely immoral. By the same token, we mustn't countenance tax rates that are immoral. My personal view is that it is immoral to take as much as 50% of an individual's marginal effort (I even struggle with 40%).

Instead of feigning outrage, left wing commentators should seek to prove both these points. They must demonstrate that the 50p rate makes an additional contribution to our tax revenues, taking account of actions taken by people to avoid it (e.g. working less hard, never moving to the UK in the first place, leaving the UK for another country, retiring early, etc). And they must argue from first principles why they consider it moral to take half of an individual's marginal effort. Until then, they are merely preachifying to their own flock.

Free schools and profits

Posted by Christie Malry on September 4, 2011 at 10:00 am

Nick Clegg calls upon his vast reserves of fuckwittery and, according to the Guardian, puts a stop to the idea that free schools might be able to make a profit:

Nick Clegg has thwarted plans by the education secretary, Michael Gove, to allow the new generation of "free schools" to make profits in the state sector after a massive ideological battle over the coalition's education policy.

The deputy prime minister will on Monday trumpet his success as one of three key victories achieved over Gove, which he says will ensure that free schools have to operate for the "whole community" and not just for "the privileged few" or for profit.

This is totally idiotic. As Tim Worstall points out, and indeed as the comments to the Guardian article make clear, it's easy to not make a profit. You just over pay for your expenses and undercharge your revenues. You will very quickly make no profits. This reveals Clegg's intervention to be Liberal Democrat shallow thinking at its dismal worst.

But, sadly, it's worse even than that. Implicit in lefty thinking is the presumption that, if only we allowed them to, free schools could educate vast numbers of posh middle class kids, obtaining far better results than existing state schools, while managing to cream off massive fees for their 'directors', pay their staff handsomely, charge enormous management charges for brands and other intangibles, but still - miraculously - turn a profit. It doesn't make any sense.

And, even if it did make sense, who could object to such a formula? If there were a button that could turn existing state schools into newfangled 'free schools' that operated along those lines, who could justify not pressing that button? "I'm not pressing it, I want students to languish in lower standard comprehensive schools!", perhaps?

The pursuit of profit has a long and noble history, as people have strived to find easier and more efficient ways of doing things. And, because the new way is cheaper than the original way, we thank the original inventor by paying him/her for dreaming up a new simpler method - be it dishwashing or transport, or any of the countless other simplifications throughout history. What can possibly be the ideological objection to profit-making in schools? Do people really believe that there are huge resources sloshing around state schools, ripe to be skimmed off by merciless capitalists? Existing private schools get better results, for sure, but they do so on the back of far greater resources. Surely private school results on state school resources must be the Holy Grail of teaching.

So who - other than teaching unions, perhaps (who have much to lose from greater efficiency in teaching - can possibly object to all this?

Labour and Liberal Democrat errors over the impact of the VAT rise

Posted by Christie Malry on January 3, 2011 at 10:35 am

Labour is making bold claims about the impact of VAT on families' budgets ahead of the by-election at Oldham East and Saddleworth:

Labour will put up posters the Liberal Democrats themselves ran on before the general election warning of the "Tory VAT bombshell" and said a Conservative government would make the average British family pay £389 extra in VAT a year was a reason to vote Lib Dem.

In a speech tomorrow, Miliband will say that families will pay £7.50 a week because of the Lib Dems' "broken promise"

Fear ye not, gentle readers. Because this figure is clearly bollocks. £389 a year, or £7.50 a week, is claimed as the increase that results from raising VAT from 17.5% to 20.0%.  So we can reverse engineer the calculations to work out that the Lib Dems, and Labour which has accepted the Lib Dem calculations wholesale, believe that families spend £18,283 on VATable goods every year[£389 x 117.5% / 2.5%]. Or, if you prefer, £351 a week. Given that a large part of a family budget will be mortgage payments/rent (not VATable), energy (VATable at a different rate), food (much of which is not VATable), public transport (not VATable), this simply can't be right.

And the Office for National Statistics backs me up.  Their excellent publication Effects of taxes and benefits on household income (link to Excel file of the data) provides all sorts of nuggets about what taxes families pay.  Even if you cherry pick the table that you select (try Table 21 for non-retired households with children), you can't get an average VAT spend sufficient to support the Lib Dems' calculations (an increase of £389 a year is equivalent to VAT paid currently of £2,723 annually [£389 x 17.5% / 2.5%].

So why did the Lib Dems make such a batty claim and why is Labour parroting it without checking their sums?

(And, yes, this isn't the first time I've complained about VAT statistical abuse).

The imaginary distinction between labour and capital

Posted by Christie Malry on September 24, 2010 at 9:25 am

Vince Cable's speech at the Liberal Democrats' annual conference went down a storm with the party faithful, but like a dose of the clap with the City. At the heart of his speech was the idea that capitalism kills competition and must therefore be tightly regulated. However, this rather presumes that we all know what capital is.

Here I haven't found the literature very helpful.  "What is capital?" is clearly such a bone-headed question that even the simplest economics textbooks don't feel the need to answer it. So... what is capital?

My conclusion, having thought about it for some time, is that it can be nothing other than banked labour.  Imagine a group of cavemen, who must hunt to survive.  Anyone who doesn't hunt is worthless to the tribe and will be cast out.  They quite literally eat what they kill.  Then one day, one of the caveman thinks 'Sod this, I can find a better way to hunt' and invents a machine gun.  Now, he can do all his hunting in 2 minutes and sit around on his arse for the rest of the day.  He is able to deliver an entire day's work in a fraction of a minute.  That's worth something.  And it is worth something to other people too, allowing him to trade his invention to other people in his old age when he no longer wants to hunt at all.

That 'worth something' is the ability to forego work.  It's the amount by which the inventor has done tomorrow's work today and can therefore not work in the future.  Conversely, borrowing of capital represents a promise to work in the future.

Left wingers tend to hate capitalists as being 'against the workers'.  I disagree.  Capitalists are good workers; those who have produced more than they can consume and are living off this deferred gratification.  Conversely, people without capital have consumed more than they produce.  This is a problem where all people are supposed to contribute to society.  It's to society's credit that we look after these people instead of slinging them out of the cave.

On regulating charity and voluntary services

Posted by Christie Malry on September 20, 2010 at 10:49 am

Last week, Dr Evan Harris, the darling of middle class liberals everywhere, was on Newsnight in a slot about the Coalition announcement that they did "do God", whatever that might mean.  Harris's basic argument was that it was prima facie a bad idea to allow the church into the provision of services because they tend to hold all sorts of discriminatory views about such things as gay people.

I didn't find his argument coherent and tweeted as much, leading to a brief discussion on Twitter between the two of us, inasmuch as that's possible in 140 characters a time:

And, indeed, the more I think about it, the less I agree with his position.

Charity is about helping people.  Clearly in many situations, the state will substitute for things that would otherwise be done by charities.  And in those situations, it's right for the state to set itself certain standards.  I think it entirely appropriate for the state to say that it will not discriminate in the services it offers to people.

Yet I don't agree with Harris's point of view that the state should be able to demand how charitable and voluntary services are undertaken.  They're not an exchange transaction, so the state has no right to dictate how they are done; if the state wants them done another way, then it can do them itself.

Where resources are scarce, anything that boosts the overall capacity of services offered should be encouraged.  If there were a whites-only soup kitchen I wouldn't want to donate to it or work in it.  But its very existence would free up places in the other soup kitchens that don't discriminate.

And people do discriminate anyway, whether we like it or not.  If I want to give money away to people, the state is unable to intervene in my decision, even if my motives and methods are discriminatory.  Similarly, if I decide to give food away to the poor, it should be none of the state's business how I choose to do that.

Harris's final point - that people who are turned away might be humiliated - is pathetic.  People are humiliated all the time.  We have selected some arbitrary lines in law and decided to outlaw discrimination on those grounds.  But other divisions are not prohibited; indeed some are encouraged by the state.  How else can different entitlement ages for men and women for the state pension be supported (even if they are being eliminated... slowly)?  We allow night clubs to let 'beautiful' people in but to keep the fuglies out. 

I suppose, being fair, that politically you get more credit for banning something 'bad' even if it ultimately causes more overall harm than you do for tolerating those bad things continuing.  It's a pity that a thinker such as Harris has allowed himself to be sucked into the line of thinking that the state must be allowed to interfere in virtually all walks of life.  And that's why I found - and continue to find - his argument on Newsnight thoroughly unconvincing.

The art of political decision making

Posted by Christie Malry on April 19, 2010 at 9:44 am

So, who won the leaders debate last Thursday?

Many of you might have thought Nick Clegg. But who really won it? Objectively speaking. The answer is less clear; it probably depends on what you mean by 'won'.

I didn't find Clegg very convincing. But I don't subscribe to the Vince Cable fan club either; he's too slippery on policy detail for my liking. Supposing just for a second that I'm not unique, how come Clegg is seen by many, backed up by opinion polls, as the runaway winner?

I think there's a simple explanation. In a fairly closely balanced debate, the media said he won, so we believe he won. This is reminiscent of Ray Bradbury's story The Crowd, in which the same crowd seems to materialise quickly following accidents and their actions determine whether the victim lives or dies. The media gave us the steer in Clegg's direction, which has created a feedback loop in his favour.

The Clegg story has made for some interest during the election. It'll be interesting to see what happens at this Thursday's debate. He's now got it all to lose.