Friday, 22 March 2013

On the Budget Housing Stimulus

The Government is planning to loan people significant money in order to find the deposit on a new-build house. Now. I think the major problem with the UK economy in the long-term is Britons' habit of seeing a house as an investment, assuming "bricks and mortar" can beat inflation in the long run. Of course, if the supply is held below the growth in the number of households, as it is in the UK, this will be true. The result of this endless house-price inflation is no-one can afford a house big enough for their family, unless they quit work early enough to get on the Council house waiting list.

Thus house-price inflation keeps the existing rich, rich as wealth is transferred from non-home-owners to home owners. It also helps Labour's client state, as they can never hope to afford to be free of the welfare state, thanks to the cost of putting a roof over your head.

The young, and those in the middle income brackets are forced to spend enormous percentages of their income on housing themselves. In response, houses have got smaller, people are more likely to share. In short, house-price inflation, like all other forms of inflation makes people poorer.

If you're on the Right, you might point to the massive subsidy at the bottom distorting the market, housing benefit, which mainly transfers taxpayers' money to private sector landlords. You might see cutting HB as a solution. If you're on the left, you won't see beyond Social Housing - basically demanding the council build more estates and manage them as a letting agent.

The real solution is to build more houses, so many in fact that house prices rise by less than inflation and keep doing this for a couple of decades. Unfortunately the two metrics on which a UK government is judged are unemployment and house-prices. Home-owners are vastly more likely to vote than renters, and are enormously exposed to this one metric. For this reason, and others all home-owners always vote against all development, anywhere, ever. So any politician who espouses the policies which will result in enough houses being built, will get voted out.

I am not sure subsidising lending to people with marginal deposits is the right way to go. But at least it's only for new-build. And the fact that there's no restrictions - aspiring private-sector landlords CAN apply for this funding (at least until they U-Turn on this) it might actually work to encourage a few more developments at the margin.

Of course what is really needed is a big easing of planning regulations, and a removal of the need for such huge percentages of new developments to be earmarked for Labour's client state to be provided at cost (for this is what social housing is) which is holding back so much development. Without social housing, building would be more profitable, which means more would be done, without waiting for the land value to rise due to scarcity.

This is being SOLD as a means to "stimulate" the housing market and help buyers with a deposit. What it actually is, is a subsidy for developers and banks who'll be able to lend at lower risk. I will result in a few more houses being built at the margin. It wouldn't be my way of doing it. But it isn't totally insane.



Tuesday, 19 March 2013

Leveson & Niemöller

First they came for the Tabloids, and I said nothing because I read the Guardian on my iPad. Then they came for the Guardian, and I said nothing because I'd assumed it was going bust anyway. Then they came for the blogs, and I said nothing because bloggers are just hairy-handed self-abusers, aren't they? Then they came for Twitter, which I only use to post pictures of my food, (organic, nach...) so I'll probably be OK. Then I criticised the Government on Facebook, and there was no-one left to speak for me.

Peter Lilley yesterday said the new regulator has the potential to become an Orwellian ministry of truth, and the press should resist it. If you can't see how the regulator will have a chilling effect on investigative journalism of the sort that exposed the expenses scandal, you're a moron. Britain's chaotic, anarchic, brutal free press will either resist this regulator or be tamed to death. We will see fewer exposes of powerful people doing bad things, which often have dubious sources. Is this price worth it to prevent journalists listening to someone's voicemail.

It isn't the News of the World that killed Millie Dowler, and there's precious little evidence anyone from the paper even listened to her voicemail. The press is being regulated because of Labour's desire for revenge for this headline:



Because of cheap and chippy spite, we have sleepwalked into a regulated press. Blogs and websites with News-related content will be swept up in the legislation almost by accident, because when have judges ever left anyone out of regulation, even when it's parliament's clear intent (for now) to do so?

The victors of this: Politicians, who will face a less powerful press scrutinising their decisions. Celebrities will find their private lives a little more private. And because of this, fewer people will buy papers and the electorate will be less informed.. And the regulation of the Blogs, who have less resources than the once-mighty press-barons, will be easier, now the rubicon's already been crossed.

The left has long sought to tame the press. That they succeeded yesterday is not because the press were too powerful, but because they're now so weak. One of the Glories of our democracy was the savagery with which the press dealt with our lords and masters. Not any more.



Sunday, 17 March 2013

An Example of What's Wrong with the Welfare State.

In around 2004, or 2005, I found myself between jobs. This is what the welfare state is for. I applied for Job Seekers' Allowance and Housing Benefit, which I claimed for around 3 or 4 months, until I found another job.

If you believe the left, I'd be 'hypocritical' for ever subsequently arguing in favour of welfare reform, after using it, as Iain Duncan-Smith once did. I'm not. I support a welfare state, just not one as currently structured. A welfare state is vital. Decent out of work benefits reduce the risk of temporary unemployment, and therefore increase an assortiveness labour market. It reduce the power of bosses to hold down wages or make unreasonable demands. It reduces the risk of quitting a job for a new, better one, and thereby lose protections for time served. A functioning welfare state is vital to reduce the risk of entrepreneurial activity.  A welfare state is vital therefore to a liquid, flexible labour market, which has been one of the successful things about the UK economy for the last 30 years.

Beveridge, the system's designer however saw that there must be an eye on the incentives, to ensure the evil of idleness be combated as well as the evil of want. The welfare state's cheerleaders in the Labour party appear to have forgotten this. Either that or they benefit from a large, permanent caste of welfare recipients who will never escape the trap. No-one wants to live on JSA. But no-one ever does. The problem is once you're on Incapacity benefit, income support, Housing Benefit and so forth, you'll never have to survive on JSA alone. This doesn't stop Left-wing apologists for the current welfare state arguing that it isn't over-generous, by citing the paltry amount of the most temporary of benefits.

Had I remained out of work for 6 months, I would have qualified for 6 month's "run on benefits" worth at the time, several thousand pounds. I was actually advised to delay starting a job for weeks, in order to qualify. I told the Advisor in robust Anglo-Saxon to go forth and multiply. But the trap, the temptation to take the easy money must be great, especially for those for whom employment does not represent significantly more money than the welfare payments they're turning down.

If you house people at public expense, in properties they could never afford by working, you trap them on benefits forever. Furthermore, housing benefit distorts behaviour in its recipients, who never have to plan to pay the rent. Landlords too, find themselves dealing with a stupid customer in the state, and make sure rents are the maximum the state will pay. This distorts the market all the way up from there, raising the cost of housing for all.

It is for this reason I find the Labour campaign about the "bedroom tax" abhorrent. Housing benefit needs reform. So too does every other benefit.

The hyperbole surrounding incapacity benefits from labour is likewise grotesque. Chris Mullins, Labour MP reported "scams" of people who are perfectly fit yet claiming disability benefits. John Hutton, another Labour MP, apparently told him of
"an ameteur football team, currently topping a local league, in which eight of the 11 players recently fielded were on Incapacity Benefit". 
Yet when Iain Duncan Smith or anyone else broadly identified as "on the right", who has made extensive research into the subject, makes the same point, the left make an appalling din about the demonsisation of the poor.

The fact is, it is quite possible to claim extensive benefits, which ensure your bills are paid, and keep a roof over your head, and work cash-in-hand thereby enjoying an acceptable lifestyle in perpetuity. Everyone knows of someone like this. Go down your local pub, and you will find one. But the left seem wilfully blind to the phenomenon. For this reason, few countries allow long-term benefits. From the vicious Americans to the cuddly Swedes, almost everywhere has found if you aggressively time-limit benefits, people suddenly become more resourceful as minds get concentrated. Long-term unemployment falls.

IDS's plans revolve around simplifying and limiting benefits, to ensure no-one receives more than the median wage from the welfare state. This means some people in reciept of generous beneftits will get paid less. It means "the poorest" will suddenly find they have to move to a grottier part of town. You won't find much sympathy from the tax-payers who already live there. It means Housing Benefit will be paid to the tenant, not the landlord. This means some people with chaotic lives may find themselves evicted if they cannot manage their budget. You will find little sympathy amongst tax-payers living on value spaghetti and ketchup when the money runs out at the end of the month. It means disabled people have to prove they are disabled in order to continue to receive benefits. Some people will be judged fit to work, when they'd got used to the idea they'd got it made on the "sick". There will be little sympathy for shirkers who're found out. The coalition's plans would still leave the UK with one of the world's most generous welfare states, and which asks the fewest questions of its clients. Ideological and evil it is not.

The Labour party in parliament has been parading the sob-stories of the halt and lame, some of whom are genuine victims of bureaucratic bungling by ATOS or others. All bureaucracies make mistakes, and there will be teething troubles with any new system. But many of whom are simply people who've become entitled to a big house provided at public expense, even though they no longer need it, and who are complaining to a Labour MP, who finds their complaint politically appealing. Labour don't see, despite clear polling evidence, how the working public feel about their neighbours whom they're supporting. The left needs to stop shroud waving. Labour had 13 years in power, yet sidelined the one man, Frank Field, who seemed to want to get to grips with the thicket of benefits. The conclusion that the client state it created was simply too useful is difficult to ignore. IDS's plans aren't demonising the poor. Some people (not all, or even most but SOME) benefits recipients are "shirkers", which is in any case a word rarely if ever used by him.

It's too easy for the Labour to malign the intentions of their opponents. It has the effect, psychologically of preventing them examining their record in office. I, like IDS used the welfare state for its intended purpose. A bit of support between jobs. He's not a hypocrite, nor a monster. And nor am I.



Tuesday, 5 March 2013

Labour Plans for Capital Gains Tax

One idiot, Ed Balls, has asked another idiot, Sir George Cox, for ideas to tackle "short-term" thinking in British business. Or maybe I'm being harsh to Sir George. Perhaps he's just realised there's good money in telling lefties what they want to hear, and in doing so removing corporate oversight by shareholders. The state, big banks and corporate "business leaders" in a massive conspiracy against the rest of us.

"Short-term thinking" is one of those problems which exists more in the fevered minds of left-wing politicians looking for something to justify state planning, than in reality. And how did that work out every time it's been tried? Even though state intervention in industrial planning is an idiotic idea, it has been successfully placed into the mouths of "almost three fifths" of "business leaders". Wow! Just over half of "business leaders" think we should think "longer term". I am frankly underwhelmed at the support of "business leaders".

There are problems in some businesses that are too focussed on the next half-yearly report. This is better than the US system where quarterly earnings are the norm. To my mind, 6-months gives shareholders the right level of detail to make decisions. Any company that feels their share price is too low can buy-back shares. Any company that thinks it's too high, can issue shares. And in practice this is what happens. And in any-case  keeping your shareholders informed of expectations through trading updates and so forth means shareholders are likely to be pretty tolerant of short-term trading problems. The outlook statement is often a more significant driver of the shareprice than the numbers.

Some businesses fail. These problems are not problems caused by "speculation". Speculative share-buying is an issue looking for a problem. Lefties, like Ed Balls don't like the idea that someone can buy shares and sell them at a profit. Companies sometimes don't like the fact that shareholders can run from a company on a profits warning. Chief executives hate the fact they are overseen by thousands of unaccountable people. But good companies, with good products and high barriers to entry get bid up and trade on high multiples (which means their cost of capital is low) and bad companies who're likely to ask their owners (the shareholders) for more money, or who are likely to go bust trade on low multiples. This means the system is working. Speculators drive this process. They don't kill companies, they're the canary in the mine.

Speculators also create liquidity in the market. Liquid shares trade on higher multiples, meaning lower cost of capital, meaning more business investment. If you limit the speculative money, you make markets more illiquid, reduce the price of shares, and increase the cost of equity capital.

Debt interest comes out of profits BEFORE tax and shareholders' dividends AFTER tax, so built into the tax treatment of companies is a big tax advantage to debt finance. The beauty of  equity finance is that the shares can go down, but the company can go on regardless. Debt can rapidly spiral out of control. Both sorts of finance have their place - I like to see an appropriate level of gearing - but capital gains have, in effect already been taxed at the corporation tax line. If a company has no immediate need for capital, it can ignore shareholders and the share-price. This is not true of debt finance.

So by increasing CGT, you will increase the level of debt carried by companies. You will make companies MORE focussed on short term results, because you can bet your bottom dollar your bank is NOT thinking long-term (and especially the state-owned ones). They are at the moment absolutely focussed on their bad-debt numbers and they will pull the plug on viable businesses long before the end. This is why debt-financed businesses are riskier than equity financed businesses and equity finance better than debt for speculative, risky or long-term projects. One miss of a target, the bank pulls your loan in. Shareholders cannot do this.

Lets look at some examples: Is RBS, a government owned and operated business, whose remuneration policies and semi-annual results are the stuff of breathless news reporting more likely to be thinking for the next headline than, say ITM power, who have spent a decade on primary science and innovation around the fuel cell and electrolyser, but who only started making commercial sales recently?

The proposal to tax capital gains between 50% and 10% depending upon how long they're held is just stupid, and will reduce the ability of ordinary people to buy into the likes of ITM power. The idea that long-term shareholders are somehow better than short-term shareholders is risible, and bears no scrutiny. Long term shareholders tied in by CGT rules will not be able to influence the company at all. Short-term shareholders vote on the company by buying and selling the stock. Liquid stocks are less volatile.

All this stupid, facile, imbecilic proposal will do is further increase debt finance over equity finance. Any influence small shareholders have will be lessened. This is just the state regulating for the benefit of big corporate bosses who prefer to deal with large institutional shareholders. This is just mindless corporatism that will worsen corporate governance, increase costs and decrease liquidity and therefore increase volatility of stock.

An aggressively tapered CGT regime will at a stroke make worse the problems it is meant to solve, and anyone thinking it's a good idea should be sedated and kept away from sharp objects. Of all the ideas to come out of the Labour party, this is the most obviously stupid for some time.



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