Saturday, 19 April 2014

Car insurance - it really is that simple.

Hitherto, I have let Her Indoors deal with this because she enjoys paperwork and I don't.

This year we got our renewal quote slightly earlier than normal, about three weeks before renewal time, but otherwise it was as expected, a couple of hundred quid more than when we started with them two or three years ago, so Mrs W dutifully wasted several hours on moneysupermarket and so on, but was not able to commit herself to going somewhere else and saving a couple of hundred quid.

Plenty of people have told me that all this changing-your-insurance-each-year is a mugs' game, all you need to do is ring your current insurer, tell them you've got a much cheaper quote elsewhere and then they drop their premiums to just above whatever you say the competitor's quote was.

Her Indoors told me if it's that simple, then why don't I sort it out?

Which I did. The lady in the call centre was as nice as pie, and clearly had a script prepared for the occasion. She assumed incorrectly that I was low-balling but correctly that I didn't like paperwork so would not bother insuring elsewhere if her quote was only a bit higher than the competitor's quote.

So she dutifully hummed and hah'ed and waffled something about "Let me see if I can get that down a bit for you."

The upshot was, she knocked off exactly £150 from the original quote to a price slightly above what she believed the competitor's quote to be, we shook hands (metaphorically) on the deal and that was the end of that, it took all of five minutes.

Thomas Piketty's "global wealth tax" nonsense.

Whatever the merits or otherwise of a general "wealth tax", it fails for practicalities, Tim W outlines some of them here.

Unlike most people who waffle on about this, I have actually prepared wealth tax returns for people, back in the early 1990s when I worked in Germany and they still had Vermögensteuer. I've still got the Beck-Texte handbook, 1991 edition, it's over 400 pages, just as long as the Corporation Tax handbook and nearly as long as the Income Tax handbook.

There were so many exemptions and exceptions that what it boiled down to was a surcharge on income tax, it raised as little money as you would expect (about DM 9 billion in its last year of operation in 1996 = approx. £3 billion), so they then got rid of it.

There's a favourable write-up of Mr Picketty's book in the FT; putting practicalities to one side, the author is stumbling along the right lines BUT he (and the reviewer, and indeed Tim W):

- assume that increasing inequality is inherently A Bad Thing. It is not, whether it is A Bad Thing or not depends entirely on why it is happening. If some people or businesses work harder or smarter than others, they get richer than those who don't. Fair enough, that's capitalism and benefits everybody overall. But if the government introduces a taxpayer-backed Help To Buy scheme to pump up land prices and mortgages, this increases inequality and is clearly A Bad Thing.

- fall into the trap which the Neo Classical Economists (early Faux Lib's) set a century ago, which is to confuse the difference between a) real personal wealth or capital on the one hand (which is a very good thing) and b) monopoly privileges (primarily freehold land titles, with a few bits and pieces like patents, barriers to entry etc).

If you make these two cardinal errors and decide that an annual wealth tax would help, you would then set the tax at a flat percentage on both kinds of wealth (real wealth and monopoly wealth). Let's say 1% to get the ball rolling, the same as the German Vermögensteuer.

The effect of that 1% tax on real wealth, which perhaps has no annual return (like a painting or jewellery) would be that people just don't declare it or spend years arguing about the value; the effect of that 1% tax on shares or cash in the bank (not directly wealth, but claims on underlying wealth) in an age where dividend yield is only 4% or so and bank interest is maybe 2% would be like increasing income tax on dividends from 25% to 50%, and increasing the income tax rate on bank interest from 20% to 60%.

The effect of that 1% tax on business capital (cars, lorries, machinery, buildings) on which the annual return is (say) 10% would be like increasing corporation tax from 20% to 30%.

The effect of a 1% tax on monopoly wealth might help a bit, but as the total return to monopolies is far, far higher than the return to anything else, at least 10% per annum compound, this would merely slow the rise of inequality at the expense of damaging the real economy to everybody's detriment, including those who live off their wages alone and own little or no wealth of either type.

And we'd still get all the bleating about Poor Widows In Mansions.

The total yield would be small (going by the German example), administratively it would be a nightmare, there would be mass evasion/arguments and it would harm the economy in much the same way as higher income tax and corporation tax rates.

However, a tax on monopoly wealth alone, primarily the rental value of land, would raise significant amounts of revenue because it can levied at up to 100% of the income/benefit arising. There would be no need to define all the stuff that wouldn't be taxed and think up all sorts of exemptions for them. There would be no scope for evasion and no damaging economic effects (as well as a lot of positive economic effects). It's the very opposite of Help To Buy.

In the UK, for example, such a tax would/could approximate to a flat 3% charge on the current selling price of land and buildings and would be enough to get rid of council tax, business rates, stamp duty, inheritance tax and capital gains tax just for starters; the remaining bulk of it would be enough to get VAT down to the EU-dictated minimum of 15% and eliminate National Insurance (super-tax on employment) and higher rate/additional rate income tax entirely.

So it wouldn't be downwards redistribution of cash, it would be a sideways redistribution of the cost of government from rent generators to rent collectors. Workers and businesses (and shareholders) would end up better off, not because they are being given money that the government took away from somebody else, but because less money is being taken away from them.

This also deals with the KLN that "Land Value Tax is a step towards a Wealth Tax". Clearly it's not, as you can raise more money from LVT alone than from a general wealth tax. If you started with full-on LVT and tried to extend it to all wealth (however defined, and that's impossible), the annual % rate would have to fall so steeply that total revenues would be lower (even ignoring the damaging economic impact).

Sorted.

UPDATE: Tim W refers us to an article by Matt Yglesias at vox.com who comes to much the same conclusion as I did. It's a longer article but nice and clear and step by step.

Friday, 18 April 2014

Georgism without Land Value Tax (2 or possibly 3)

Two commonly used KLNs are that "there will be too many losers in the short term" and "LVT will never raise enough money to replace all other taxes."

I'm not sure that the second one is true and it's certainly not relevant to anything, even our 'biggest' tax, income tax, barely raises a fifth of what the government spends each year; tobacco duty (which lots of people think is great) only raises one or two percent.

But hey.

So here's a thought experiment at least:

We work out how much each household or business is currently paying in total tax, things like VAT will have to be apportioned somehow between suppliers and consumers; occasional taxes like Inheritance Tax can be annualised etc.

Then we abolish all these other taxes, and the tax bill for each home, plot of land, farm, shop, office etc is simply set at whatever the occupant's current total tax bill is.

So in the short term, there are no winners or losers at all, everybody's disposable income is worth exactly the same as before and there is no disincentive to getting a (better) job, making higher profits, increasing your turnover or realising capital gains etc.

For sure, people's incomes and business' profits change. If it goes up, households will move somewhere nicer, and businesses will move into larger/better premises; if it goes down, the reverse applies.

By and large, movers will be competing against people with similar gross incomes, so whoever has the highest gross income out of that small group of similar bidders will be the new owner or tenant of each particular building/plot. The tax on that plot is then simply re-set at whatever the business' or household's total tax bill would have been under the old rules (however estimated). That might be lower or higher than the previous occupant's, that doesn't matter. By and large people will be swapping places, trading up and trading down.

Over time it will all level out, and some bright spark will point out that the total tax bill on similar homes in the same street, or shops on the same High Street is pretty much the same etc, at which stage you simply average out all the tax bills for similar premises in the same area.

Sorted.

"London's first-time buyers caught in ... trap, research shows"

The Evening Standard is at its Homey best again. They publish a handy contour map showing how minimum selling prices rise from the outer suburbs to form a peak in the City, which would be of no surprise to anybody who takes an interest in land values*... and then they wail on about the "stamp duty trap":

Yes, Stamp Duty Land Tax, like all taxes on transactions (such as VAT, PAYE etc) is an awful tax, but what costs you more? The SDLT or the home?

* The increase in land values towards the centre is far steeper than the map suggests, because the centre is much more densely built up than the suburbs. It's easily a ratio of a hundred-to-one between the centre and the outer fringe.

Thursday, 17 April 2014

Movie Review: Frozen

For many years, Disney animation was in a bit of a bleak place, producing lots of not-too-great movies, while hiring Pixar to make terrific movies that appealed to both kids and adults. Then Disney bought Pixar from Steve Jobs and Disney put John Lasseter, the chief creative in charge of creative decisions at Disney. And since, then, we've seen a revitalisation of Disney's animation with films like Princess and the Frog and Wreck-It Ralph and now Frozen.

Despite Lasseter taking over at Disney, Frozen is much more of what I consider a Disney movie than a Pixar movie. It's a fairy tale with princesses and castles and magic and songs. It follows the line of films like Cinderella, Beauty and the Beast and Enchanted.

So, this review probably isn't so much for you as for your daughters or nieces, who will absolutely love this movie. It's beautifully made, has a good story, good characters, and has an infectious set of songs that you can't get our of your head.

It's currently out on DVD and Blu-Ray and I suggest that if you're buying it for your kids because they won't watch it once.

Interesting Article About San Francisco, Tech Startups and Rampant NIMBYism

The interesting thing that affects all cities in this piece is about how people are getting married later, which means they stay in cities longer, which hadn't occurred to me before.

But reading this, I can't help but think that tech companies will start finding somewhere else to base themselves soon.

How Burrowing Owls Lead To Vomiting Anarchists (Or SF’s Housing Crisis Explained)

[Heathrow expansion] Yes, but that's not really a "cost", is it?

From This Is Money:

Failing to build a third runway at Heathrow will add £300 to the cost of an average return fare from the airport by 2030, according to a new study.

The report by consultancy Frontier Economics, commissioned by Heathrow, said there was no doubt the South East needed new airports.

And it warned costs would soar at Heathrow if no new runway was built, with demand for flights significantly outweighing supply...

The study also estimates that passengers are paying an extra £95 at present at Heathrow than they would if it had another runway.


Yes, let's assume that because demand has increased but supply is constrained, the amount which airlines can charge for tickets is £95 higher than it would be if there were more supply (more runways).

That's clearly a "cost" from the passenger's point of view.

But the total real "costs" to the airlines and airports are entirely unaffected by demand, their fixed overheads are unaffected and the per-plane cost (fuel, staffing) is also entirely unaffected.

So what this means is that airlines are making a £95 per passenger super-profit (also known as "rent").

It's the same when demand suddenly falls (post 9/11, for example) or when flights are halted because of bad weather or Icelandic volcanoes. The air travel industry's costs were largely unaffected but income fell, so they made losses.

The bitter irony here is that the NIMBYs and anti-expansion campaigners are doing whoever owns the scarce landing slots a huge favour.

Multiply that £95 by 95,000 passengers per day (half of arrivals+departures) times 363 days a year, that's a cool £3 billion extra rental-monopoly-artificial scarcity income.

Further irony is that Air Passenger Duty raises about £3 billion a year, so all the government is doing is clawing back the rental income (in a very crude and inefficient fashion). This duty is, from the point of view of the airlines a real cash "cost", but does not add much to ticket prices.

Movie Review: The Raid and The Raid 2

Martial arts films generally don't interest me, but I heard so much buzz about The Raid that I gave it a go. And for £4 to own on Blinkbox, it seemed worth a punt.

The story is about a team of police going into a tower block that is owned by a criminal kingpin that also houses all his criminals (mostly drugs). The job of the team of police is to get to the top of the building and get the kingpin. Along the way, they have to fight all his mooks that are there to protect him. There is some story and revelations along the way and it holds together, but fundamentally, it's a martial arts movie. What sets it apart from many other movies is that it's faster, more highly choreographed than most of these movies, and also full of imaginative scenes.

The Raid 2 is more ambitious. It still has the martial arts, although it pumps it up even more, throws in an insane car chase and a few offbeat characters that are more like something out of a comic book or video game (particularly Hammer Girl). But its story is fundamentally one about rival crime families that strays into the territory of Godfather 1 and 2, and work well. It's a little saggy in the middle, but the last hour is pretty full-on action. And while you have to suspend disbelief a little, it's also highly enjoyable.

Both films are subtitled from the original Indonesian, but they aren't dialogue heavy.

I do reiterate the BBFC's warning with regards to the second film (that also applies to the first) that they "contain bloody violence and gore". They don't delight in the violence, but try and make it as real as possible.

Wednesday, 16 April 2014

"Your home probably earns more than you"

Nothing really new, but a good headline nonetheless in The Metro:

The average property in Britain now costs £253,000, rising to £458,000 in the capital, the Office for National Statistics said.

A would-be buyer would need to be on a salary of at least £96,308 – which would put them in the top ten per cent of earners in the country – to take home £63,000 after tax each year... [to be able to buy in London]

Oliver Atkinson, from online estate agents Urbansalesandlettings.co.uk, said: "Forget talk of house bubbles. In London, the market is well beyond that – what we’re witnessing in the capital is a super-bubble."


Heck knows if the Lib-Cons will manage to keep this going long enough to get them through the next election.

I hesitate to use the over-used and hence nigh meaningless adjective "sustainable", but whatever that means, this isn't it.

Tuesday, 15 April 2014

Killer Arguments Against LVT, Not (324)

A rich harvest of rather half-baked KLNs in City AM Forum:

[The Mansion Tax] would also be fundamentally unfair. Why should people who purchased properties that have appreciated in value be subject to an arbitrary annual penalty?

Perhaps those in all three parties who still support a classic mansion tax are also in favour of a windfall tax on owners of Apple shares, which have increased in value by 4,000 per cent in the past ten years?

And new plans for higher bands of council tax would retain many of the ugliest features of a mansion tax. Their introduction would almost certainly require a costly, full revaluation of all residential property in England.

Without substantial reform at the same time, this would push even modest properties in less desirable areas of London into higher bands and higher bills. Many of those hit by bigger tax bills would be renters.


OK, we can answer most of these questions by looking at something less contentious like beach huts.

Let's imagine the local council granted leases decades ago for £50 a year and never got round to increasing this, so hardly anybody has ever surrendered a lease, you either keep it for yourself, even if you only use it once or twice a year it's still good value, and if you don't need it, it is very profitable to sub-let.

The council maintains a waiting list with five times as many people on it as there are huts, and happens to pick up on the fact that they are being sub-let for up to £5,000 a year.

So the council finally mans up and increases the annual rent to £4,000. That doesn't require a "costly revaluation" of every plot of land in the whole town. It does not tax people on capital gains, the benefit (the rent saved/sub-letting income) is in the past and cannot be touched.

It makes no difference how long you have been a tenant, the £4,000 is demanded from those who have had a beach hut since the year dot and those who finally got to the top of the waiting list last year.

Those people on the waiting list don't mind about the charge, it is entirely their choice whether to pay £4,000 or not (which is better than having to languish on the waiting list for ever), and sub-tenants who are currently paying up to £5,000 aren't bothered either - a sub-tenant who was paying £5,000 cash in hand is not going to start paying £9,000 so that the actual tenant continues to keep the profit, because the hut is not worth more than £5,000.

The new improved beach hut charge is clearly not a "wealth tax". The local council doesn't care if the new tenants own Apple shares or not; the council is delighted that there are some people prepared to pay the new rent. If the council then levies a surcharge on tenants who own Apple shares then those tenants will disappear again (or simply not declare their Apple shares, hence and why "wealth taxes" are pointless at best.

This also illustrates the stupidity of the "disappearing homes conundrum" so beloved of the Homeys; while the Poor Widows In Beach Huts disappear off the scene, the beach huts are still there, and the chances are that anybody keen enough to pay £4,000 to rent one will visit it more regularly; keep in it good condition and have enough money to spend a bit in the local shops as well.