Thursday, 23 February 2017

Economic Myths: "We all hate wasting food"

Quite clearly we don't, or we wouldn't do it, but people keep bringing up the topic, so here goes...

For example, they have posters up at my local Tesco saying Love Food Hate Waste. They had a segment on a recent Food Unwrapped programme (which are very interesting programmes on the whole) where one of them was interviewing a farmer who employs people to sort carrots for the supermarkets. About a third of them are not 'supermarket quality' i.e. long, straight and easy to peel and these are chucked on a huge pile and sold for animal feed etc.

The presenter then got on his Righteous Horse, bagged up some of the odd-shaped ones and got permission to sell them in a supermarket for half the price of the long, straight ones. "They taste just as good as the long straight ones", he explained breathlessly to a few Righteous Shoppers who bought them.

1. Well of course they taste the same, that's not the issue here - they just aren't as easy to peel and chop. Peeling and chopping carrots is a chore and you want to get it done as quick as poss, so people who value their own time are quite happy to pay double for fairly uniform, long, straight ones.

2. It's like pre-washed lettuce. If we were given bags of unsorted carrots, assuming that people value their own time, it would make economic sense to buy more than you need, peel and chop the easy ones and chuck the rest in the compost. There is simply no point faffing about for ten minutes rescuing ten pence worth of carrots.

3. Farmers are businesses like anybody else, and of course there are unwanted by-products. They are quite happy to throw away all the carrot leaves, the odd-shaped carrots are just a by-product, the same as the leaves.

4. In theory, farmers could reduce their carrot production by one-third, see a corresponding fall in income and use the spare land for growing something else. We have to assume that markets have sorted that out and that growing more carrots (even if a third end up being sold for pennies) gives them the most extra income compared to growing more of something else. So in economic terms, this is not waste - they are maximising the value of their output.

None so blind as those who think we can't see the wood for the trees etc.

The director of a London landlord writes in City AM:

Ultimately, business rates are a property tax rather than a corporate one, and for some companies this means that there is a relatively straightforward solution: move location. Businesses currently located in areas from Victoria to King’s Cross will be considering their options. Most worryingly for the locations worst hit by rates rises, the most desirable and influential businesses are also often the most mobile.

East London has undergone fundamental change over the last 10 years. In 2008 the Crossrail Bill received Royal Assent and construction started on Europe’s largest infrastructure project that would shift London’s economy East. That same year, the first iPhone was launched, a watershed moment in the fourth industrial revolution which would firmly take hold in East London with the “launch” of Tech City in 2010. All this before the Olympic Games put East London at the centre of the world for a month in 2012.

Shoreditch, Old Street and Clerkenwell are unrecognisable from 2008. Tech and creative businesses arrived in the area due to its affordability and stayed because of the community of businesses, cafés, shops and the nightlife that sprung up around them. Rents increased incrementally, but a tech and creative cluster endured as businesses recognised the value of collaboration with their peers.

However, from 1 April 2017, rates will increase overnight to reflect seven years of economic development in East London. When added to the associated rental increases, this will be too much for many businesses to bear. Smaller, entrepreneurial firms in particular may decide their growth prospects are better in a cheaper location...

Successful regeneration projects such as King’s Cross and Victoria take years to deliver, and the painstaking process of creating new spaces, attracting businesses and growing rental values will be undermined by the sudden sharp increase in business rates.

Tuesday, 21 February 2017

Mr Carney to start with Airfix Spitfire and work his way up to Modelling the Economy (if James May helps him)

Shock News from the Bank of England.

They admit that 'We are unlikely to spot next financial crisis'.

Dear Mr Carney,

Can I make three small suggestions that may help you with regards to your inability to understand and model the economy and society around you.

1. Hire Steve Keen

2. For a tiny fraction of your salary, hire his team at Kingston and have 'Minsky' up and running by next year (just in time for event above).

3. Read the bit in Minsky that says that an economics that cannot explain recurrent boom and bust is junk science, and/or jusk ask Keen to explain your 'barter illusion' to you.

Yours sincerely,


Monday, 20 February 2017

Air Passenger Duty bleating LOLZ

More rent seeking in the City AM:

In one part of Whitehall, the Department for Transport, ministers and civil servants recognise the importance of developing policies over the next decade to help UK aviation to grow sustainably...

But their efforts will be largely in vain if the Treasury cannot be persuaded to abandon hopelessly uncompetitive APD rates that are a major obstacle to UK businesses seeking to follow the Prime Minister’s lead by going into the world and building new trading relationships...

Of course, it is good news that the government has given the green light to the construction of a new runway, but the fact is that we will massively reduce the impact of expanding aviation capacity if we don’t have a competitive tax regime that will enable us to take advantage of it...

The government should also ensure that aviation-related negotiations and decisions are prioritised during the EU withdrawal process – but unless the UK tax environment is competitive, all the air services agreements in the world won’t make it viable for airlines to open new routes to and from the UK.

A few facts:

Gatwick and Heathrow are running at close to 100% capacity, so by definition, APD cannot be reducing the number of flights there. APD might have a marginal impact on the number of flights at less popular/regional airports, but the rentiers don't care about 'the regions'.

The bulk of the value/price of an airline ticket is where you are flying to and from and at what time of the day etc, the actual cost of doing it is surprisingly small. Compare the price of a ticket from Stansted to Riga with the price of a ticket from Heathrow to Berlin, or the price of a very early/late flight with one in the daytime! The difference in price is rent/location value.

Admittedly, APD is a dreadfully clunky way of collecting part of the rental value, but compared to VAT-liable businesses, airlines are still getting a fairly good deal overall:

Air transport is VAT zero-rated. That means that they can reclaim all input VAT but do not have to charge VAT, a best-of-both worlds status also enjoyed by 'home builders' and proper exporters.

Total revenues of UK airlines £22 billion per annum.

Total UK APD revenues £3 billion per annum.

Ignoring the fact that UK airlines also have non-UK revenues and some APD is payable on flights with non-UK airlines, passengers are paying £25 billion all in.

If air travel were VAT-able, the VAT due would be one-sixth of that = £4.2 billion, a lot more than the £3 billion they are actually paying.

Under the circumstances, it would probably be better to get rid of APD and impose VAT instead; that would bear more heavily on flights to and from Heathrow and Gatwick and would reduce the tax paid on flight to and from less popular/regional airports, as well as collecting a larger share of the rental income. The problem then would be collecting VAT from non-UK airlines, I'm not sure how you'd enforce that.

So as ever, the best kind of tax on air travel is a charge on the value of the landing slots, whether the airlines pay it directly or it is included in the Business Rates assessment of the airports is by the by. Airports themselves are probably in the best position to negotiate this and they can just add it to their landing fees.

Heathrow wants a new runway? Fine, they can haggle with HM Treasury over what the extra Business Rates will be; they are in the best position to work out how much extra pure profit they can make. HM Treasury can run a parallel auction with Gatwick, and whoever bids the most is allowed to build a new runway.


Sunday, 19 February 2017

Scrubs up nicely

I spent two hours today cleaning the alloys and washing/polishing it to get the winter muck off. Two hours well spent:

"Not just the Daily Mail…"

… says Mark C, who spotted this corker in The Evening Standard:

A murder investigation has been launched after a young man was killed during a mass fight on a suburban street in north London.

Police rushed to Heathfield Gardens, where houses cost around £1 million, at around 7.15pm on Friday following reports of a number of males fighting.

Thursday, 16 February 2017

Fun Online Polls: Means-testing & in-car entertainment

The results to last week's Fun Online Poll were as follows:

Which taxpayer-funded services or subsidies should be means tested?

State school places - 2%
NHS - 5%
Police and fire brigade - 2%
Child Benefit - 30%
Public libraries - 4%
None of the above - 54%
Other, please - 2%

With the benefit of hindsight, I should have set up the poll to allow multiple answers.

I am relieved that 54% agree "none" (in which case the argument is - how should the government spend or redistribute taxpayer's money) but why means-testing of Child Benefit is so popular is a mystery to me.

For lefties, fair enough, they like means-testing because it is taxation by stealth and means a larger state apparatus to administer. Fine, but why piddle about with shaving £1 bn off welfare spending when you could go for broke and means-test much more expensive things like 'free' state education?

Why so many Conservative or right/libertarian leaning people support it is a mystery to me. I am genuinely baffled.
This week's Fun Online Poll is just out of personal interest.

"What do you usually listen to when you're driving your car?"

Vote here or use the widget in the sidebar.

More Bureaucratic Failure

One of my people is currently working through the pensions claims for a client of ours.  It's quite a lot of work as there quite a few plans, polices and investments and we are trying to get him a good deal and get it all nicely organised and set up, etc.
One of the plans is an old personal pension from a well known insurer with a guaranteed annuity rate (GAR).  The GAR is very good - 8% I think.  My colleague has 'advised' him to take this deal.
Now, if  we DO NOT 'advise' him and get him to declare that he has NOT received 'advice' on taking the GAR, the insurer pays us a commission of £1,500
On the other hand if we DO advise him and he DOES declare that he has received 'advice', then no commission will be paid, but the annuity rate will not be increased.  That is the insurer will trouser the £1,500.  (This commission cost is built into the contract at outset).
Yes, you read that right.  If we DO advise him we don't get the commission.  If we DON'T advise him we do get it.
This is the consequence of the rules set out in the Retail Distribution Review. (RDR).  You might not be surprised to learn that the RDR is viewed throughout the thinking part of my trade as a catastrophic failure. (See here).
Of course, the client is paying for all this failure. The incidence of regulatory imprests and deadweight costs falls on the client, not us. (FYI that cost varies between about 18% of revenue to 30% of revenue depending where your business sits in the financial services landscape).
(So what we will do here, what we are forced to do, is to game it.  The client will declare that he not received advice and we will take the commission.  And we'll offset it in full against our final invoice). 
Kafka would be proud.

Wednesday, 15 February 2017

"Monopolies Are Worse Than We Thought"

Good article on Bloomberg, via Steve S.

No point me summarising, go and have a read.

Tuesday, 14 February 2017

Lies, damn lies and... City AM.

City AM finally jumps the shark (bottom of front page):

High property taxes put British businesses at a competitive disadvantage, despite the UK’s low corporation tax rate, said Jim Hubbard, policy advisor at the [British Retail Consortium].*

For every £1 a business pays in corporation tax, it must pay £2.30 in business rates.

That is a humungous lie, even by City AM's standards.

According to the UK government:

Total UK corporation tax liabilities 2015-16, £43.7 billion.

Total English Business Rates liabilities, 2015-16 £23.1 billion, round up to £26 billion for whole of UK.

If we also include about £10 billion in income tax paid by owners of unincorporated businesses, on average, UK businesses pay about 50p in business rates for every £1 of tax on net profits (corporation tax and income tax), less than a quarter of City AM's figure.

* The first part is clearly hokum as well. Ignoring the tax incidence point, UK retailers are not competing in any realistic way with non-UK retailers. The only reason some UK people go on shopping trips to France etc is because of lower alcohol and tobacco duties over there; business rates have absolutely no effect on the price paid by the end consumer.

Business Rates do make a marginal difference to the viability of heavy industry in low-value areas, but that's all part of the general Home-Owner-Ist plan.