Saturday, March 30, 2013
Shouting in the bedroom, but too quiet about the house.
Scotland’s political debate has not been graced by much gravitas with the UK Welfare Secretary being denounced as a "ratbag" and the disabled suggesting that it would be better to shoot them than suffer a cut in their benefit.
At the same time, you have to have some respect for Tommy Sheridan and his verbal claymore howling outrage at the effect of benefit cuts on the most vulnerable. This is a blunt instrument measure which gained cracks early on as the complexities of the lives of those on welfare came to the fore. The disabled, the separated, carers, helpful grannies and many others make good use of the so-called “spare” room. The measure does not just ask them to move house, it asks them to change their lives. That’s a huge ask, and politically very brave or very stupid depending on which side of the debate you are on.
Such is the fate of managerialism in government – when management is practised on a system built on the wrong foundations. The Universal Credit changes will suffer the same howling from diverse interests wanting “their share”.
For Scotland, this noisy debate is crucial, because the Scottish Government has declared its commitment to “Scottish values” among which is a strong dose of re-distribution by the state. Unfortunately, the social support programmes involved would continue the existing Ponzi welfare schemes and use exactly the managerialist methods of helping the less well-off as today. It’s notable that the Scottish Government has only offered sticking plaster measures; “advice and support” and “no evictions” in response to these benefit constraints. They would say their hands are tied; we would say they have no new ideas to offer.
The key is the Ponzi approach because the victims of these are taxpayers. Where welfare is entirely paid by current account disbursements from a deficit-ridden public purse, taxpayers get milked as and when the money is needed. There is no buffer for bad times, either at an individual or a national level. That’s bad public policy and it has led to the oddest result – fully one third of households pay the same amount of money to the government in taxes as they then get back again (less a fee for bureaucratic services) in social support.
In addition, we get Ian Duncan Smith struggling to contain welfare - and even admitting that that is all he is doing, while recipients howl about “cuts” that, in the total budget at least, do not exist. The national debate, especially in Scotland, becomes a battle of machismo – and zero enlightenment.
Scotland could do much better. And it could start from a de-nationalisation of social welfare to allow individuals to build thrift funds; held on their own by individuals, or in industry or area based mutual trusts. Benefits could then be tailored to trust members’ needs; no blunt policy instruments necessary – social support would be de-politicised. Scotland could then also ring-fence its other Ponzi debts and agree to pay them off as a socialist legacy and base itself on truly sound finances.
A Scottish Government taken out of welfare management could then turn itself to the real requirement for helping the poor – easing the rules on house-building. We need a complete re-think of planning regulations and environmental rules on buildings; one that opens up opportunities to build tens of thousands of new homes and at economic cost. The need for so much housing benefit (a doubling of recipients in the past five years!) comes from high rents and high house prices.
There’s capital galore sitting on its hands – with much of it going overseas to Asia to build houses there – in the coffers of the middle classes and the fat cat capitalists. Scotland’s poor could benefit from that largesse; we have the space and by golly we have the demand. Planning is a devolved power, its time the Scottish Government offered us a new direction rather than trying to manage yesterday’s disasters.
POSTED BY EBEN WILSON - DIRECTOR, TAXPAYERSCOTLAND
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Sunday, March 24, 2013
A democratic outrage – it’s time to go backwards.
At the SNP spring conference this weekend, Nicola Sturgeon called constraints on welfare spending “a democratic outrage”. Four out of five MSP’s voted against benefits cuts, nine out of ten the "Bedroom Tax". Westminster’s Coalition is going ahead regardless (and even the Labour Party says it will not reverse things). Scotland, not yet independent, and with welfare not a devolved power, takes its lumps from London.
No one can doubt Ms Sturgeon’s zeal for social justice and Scots’ democracy. However, we are allowed to ask, are her ideas for welfare provision any good?
She said that an independent Scottish Government “will take housing benefit out of Universal Credit and restore it as a benefit that is paid direct to social landlords”.
There are two things about that: it’s very conservative, restoring a failed status quo, and it’s also a centralist approach to welfare provision where the state makes payments for wards of state direct to other council or corporate entities. Is that democratic? It’s certainly not very liberal.
TaxpayerScotland would dearly like Scotland, independent or not, to have responsibility for its welfare budget – and the taxes that pay for it. Our politicians could then be accountable for any hash up they make of welfare provision. On present announcements, including Ms Sturgeon’s, they would do so, being apparently without any ideas other than the existing, failed, bureaucratic managerialist methods. There is a pressing need for the SNP to explain how the one third of the Scottish budget (around £22 billion) extracted from taxpayers for income transfers to welfare recipients can be controlled, constrained and – one hopes – reduced. We assume that if “there is no country in Europe that should be more confident about its economic future than an independent Scotland”, as Ms Sturgeon claims, then reduction in welfare transfers will be part of our success.
The labyrinthine managerialism of the welfare system is not well known to those who are not within it, (although often only too well known to recipients struggling to benefit from it). One of our researchers has pulled together a plain English guide to how Housing Benefit is calculated.
We doubt that many readers will be able fully to get to grips with it. Can you imagine then, what the overheads are to taxpayers of the management of this tangled mess for one third of all households? And remember, this is only one benefit among many, all of which are equally complicated. The new Universal Benefit only reduces 51 benefits to – er – 29, or is it 27, or perhaps 21? The count seems to differ depending on who you ask. (You can see the Child Poverty Action Group’s moan about the continuing complexity here in a 27 page guide.) The “Bedroom Tax” may be a lousy way of reducing welfare, but it’s the inevitable outcome of political managerialism being used to deal with such complexity.
Scottish taxpayers should expect something else from Ms Sturgeon. She claimed in her speech that we should have “confidence that we can build that better country we all desire”. To do that taxpayers need a lot more confidence about the Scottish Government’s ability to adopt new ideas that make sense. We need to know that she understands the perverse incentives of welfare distributions, the marginal tax rates we apply to those striving to get off welfare, the intrinsic tendency for centralised welfare to be captured by middle-class rent-seekers and free riders, and the leverage effect of a high welfare bill on macro-economic choices in times of recession.
None of these ideas appear to be part of the lexicon of Scottish governance. No numbers are offered of how an autonomous welfare system might work. Yet these issues desperately need tackling with a complete overhaul of cradle-to-grave welfare that puts individuals first, a truly democratic system based on personalised Treasury accounts offering the security people desire, but with built-in incentives to both thrift and hard work. The central state has failed; let’s not go backwards in any newly free Scotland.
Instead we get moaning and emotional blackballing of any attempts to even hold welfare spending where it is, at around £115 billion annually in the UK, with remarks such as “£4.5 billion taken from the purses and wallets of ordinary, hard-working people right across Scotland who can least afford it. £1 billion of these cuts are to benefits that directly support children.”
That’s taxpayers’ money, Ms Sturgeon, taken from other households trying to hold down jobs and not make claims on the welfare system – although all too often part of a money-go-round through your administration and back to themselves; less your “agency” fee. Please stop looking at the problem with one eye, looking backwards.
POSTED BY EBEN WILSON - DIRECTOR, TAXPAYERSCOTLAND
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Wednesday, March 20, 2013
The supply side matters
At last we see a glimmer of understanding from George Osborne that the supply side matters. How we wish that there could be a similar recognition by the Scottish Government.
Sadly, the Scottish Government’s news feed today has little to say about the UK budget – instead there is lamentation about Common Agricultural Policy payments to Scottish farmers, self-plaudits for payments made to help youth unemployment, a complaint about payments of £107 million that will no longer be available from Westminster, news of a centralised strategic plan on littering, and of course a repeat of the usual mantra favouring capital investment and infrastructure spending.
It seems that Scotland is another planet. And yet …
The beer duty escalator has been abolished, a major victory for the MashBeerTax campaign organised by The TaxPayers Alliance (TPA), working with other campaigners for lower beer duty.
The freeze in fuel duty is extended, following the freeze last year after the TPA FreezeFuelTax campaign.
And then crucially, there are tax reduction measures that allow ordinary Scots to get on with making their own way, without the state interfering:
The increase in the Personal Allowance.
The cut – at last! - in Employers National Insurance – a tax on jobs.
A cut in Corporation Tax to 20 per cent, which will be passed on to workers in higher wages.
Targeting specific industries, rather than simplifying the overall tax structure is sadly still part of the UK policy agenda, echoing Scotland’s endless pay-out approach to economic policy choices – and in Scotland’s case always using someone else’s money and threatening more debt and higher deficits. In Scotland we desperately need some better ideas.
Simple, low rate, easily understood taxes are the key to a sustainable long-term high growth economy. The supply-side really matters. Scotland’s politicians still appear to have a lot to learn.
POSTED BY TAXPAYERSCOTLAND CAMPAIGN TEAM
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Tuesday, March 19, 2013
Empty room subsidies versus the Bedroom Tax
The cost of housing benefit is about £20bn per year in the UK. In a country with just over thirty million income-tax payers, that’s around £650 each. On top of that there is the cost of social housing and rent subsidies.
So this is no free lunch. And how we wish it were; feeling insecure about your own living space is a horrible, anxiety wracked existence. Even the middle-classes who have had the luck to be able to earn their own homes and pay their mortgage will have gone through some early days of flat-hunting, sharing and multiple movings. No wonder, as Scotland’s Housing Benefits minister Margaret Burgess says, “This will undoubtedly be leaving tenants, some of whom could lose a quarter of their housing benefit in April, seriously worried.”
But how we wish Mrs Burgess would grasp that if Scotland is to gain its cohesive values, she will get nowhere fast with the one-sided carping negativity – no doubt driven by the need to castigate all things British as part of the independence “debate” – that offers zero insight into the dilemma.
Her message to landlords, local councils and the world in general, is a litany of managerial obviousness packaged with the inevitable millions here and there (four and a half alone on “advice and support” for goodness sake) to succour her clients.
Is she saying there is no room for making a choice between the need for self-supporting taxpayers to keep their houses and financial security, the gigantic deficit funded to a great extent by a runaway welfare system, and decades of intervention via housing cash entitlements that have achieved nothing but yet more recipients? Is she prepared to engage in that debate in any way? Or only moan for more subsidy for any who need it?
The solution to housing benefit is to accept that it has increased far beyond what is sustainable and supportable, and then to find a way of increasing the supply of housing. The figures are staring her in the face in her own advice letter. She says:
78,000 out of 105,000 would need to move to one bedroom accommodation in order to avoid the penalty.
23,000 homeless applications would require one bedroom accommodation under DWP’s criteria.
So we need about 100,000 houses. But then says she has “given £2.5 million to social landlords to ensure people affected by housing benefits changes have the advice and support they need. That is on top of the £5.4 million we have already provided to advice services to help those affected by benefit reforms.”
If Mrs Burgess took our nearly £8 million and offered it to each local council planning and building control department to tear up their planning controls, allocate new land for housing, and then go home for a rest, she’d do a lot more for the poor in need of decent housing than through hand-wringing negativity via “advice”.
I drove through Kilbirnie and Lochwinnoch on Monday. Classic West coast towns struggling to provide jobs, but within twenty miles of a great internationally trading metropolis. Given a chance, these towns could expand and re-build themselves; generating wealth and, yes, new tax revenues for public purposes. But once again, the Scottish Government wants to control everything, dispensing taxpayers’ money to show how its caring re-distributive values make a difference.
They don’t, they de-incentivise the enterprising, and further impoverish the less well off. Let’s build the houses, Mrs Burgess. At the right costs, freed from state interventions, there’s plenty of private capital desperate to build new homes. It’s time to grow as our Finance Minister keeps pointing out.
POSTED BY EBEN WILSON - DIRECTOR, TAXPAYERSCOTLAND
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Sunday, March 17, 2013
Regulation for the Dark Ages
We have been reading a document about how regulation might be “streamlined and reinvigorated” within the Scottish Government’s vision for an independent Scotland.
It’s called ”Economic and Competition Regulation in an Independent Scotland” and appears to be an offshoot position paper hooked into the work of the Fiscal Commission Working Group which is looking at monetary and fiscal policy and financial stability with industrial policy and regulatory policy as subtexts to that macroeconomic framework.
TaxpayerScotland has no corporate view on an independent Scotland. We just want our country to thrive. So does our government; they want to “reflect Scottish values of fairness, prosperity and social cohesion”. We’re not sure that “prosperity” can be a value, (we are surely unlikely to aspire to impoverishment), but your taxes are being spent on such claims as part of the Scottish Government's explanation of its vision of independence.
The document is important to Scottish taxpayers because it gives us an insight as to how our bureaucrats think – or are told to think by their political masters. As such, it is really rather worrying with respect to our wallets.
The general thrust is the idea that an independent Scotland might integrate its regulators for Fair Trading, Competition Policy, Civil Aviation, Communications, Gas, Electricity and Rail into one, or perhaps two super-regulator(s). So far so good, it’s been done in other countries and appears to be possible with the prospect of some saving on administrative overheads.
We doubt anyone knows whether the standard gold-plated civil service approach to IT, premises and processes in the UK would release the productivity gains envisaged in back room savings and corporate governance. The document succumbs to some Pythonesque double-think when it admits we would need more staff than currently employed in economic regulation in Scotland. There is also an admission that any integrated regulator would need to maintain “sector specific focus within the combined body” and technical expertise across its plural remit to allow “decision making mechanisms adequately reflecting the range of its responsibilities”. Such are the ways in which economies of UK scale might be lost with Scotland alone.
But it is in the examples of what the regulators might do with their “power to deliver an effective, simplified and stable regulatory framework” (their words) that is concerning. What do they think might be useful to use this power for?
In energy, gas and oil price rises are “pushing more households into fuel poverty”. Their answer; introduce a regulatory approach tailored towards supporting renewable and low carbon technologies.
Golly. Haven’t they read their papers on the cost of wind turbines being from seven to seventeen times as expensive as fossil fuels? The price of oil and gas has been dropping, and it's the renewables obligation that is making our bills higher.
Again in energy, they propose that households without mains gas should be allowed access to dual-fuel tariff discounts.
So the purpose of the regulator is to manipulate price structures, distorting supplier markets? What pricing will then be offered to consumers who already have dual fuel arrangements? There's a "free" lunch proposed here.
In telecoms, broadband coverage in rural areas is still a problem. They want to discard “cost effective deployment” for “maximising access”.
So, the regulations would mandate subsidies for the rural. At whose expense would this non-cost-effective deployment be? Using what technology? Preventing what innovation that would solve the problem anyway without regulation?
In the postal sector, there is a “current absence of a UK regulatory approach”. Charges to remote regions are high and not good for business and consumers.
Their new regulator is not yet in place, but they are already thinking up new things to regulate!
The aim is described as being to “reinvigorate the regulation of these critical infrastructure industries”. Taxpayers beware, what this means is price controls, supply mandates, and producer restraints all aimed in grand doublespeak as providing “a far greater focus on the specific requirements of customers in Scotland”.
That is outrageous balderdash. The only focus here is on political vote-buying through manipulation of markets to provide financial advantage to specific voter groups. There is no understanding here of tendencies to rent-seeking by consumers, of the lock-in of non-innovating favoured suppliers to subsidised markets, of the destruction of innovation through regulatory sclerosis, of the value of competition and consumer choice to new ways of delivering services.
The mind boggles as to how these economic regulators with such bad ideas might find themselves in the same room as the competition regulators who would, one hopes, have some notion of how competitive markets work to create change, progress and consumer sovereignty. Maybe they would invent a new sport, throwing bricks at each other across their Chinese wall.
Please Scotland, if we are going to be independent, let’s not go back to 1975.
POSTED BY TAXPAYERSCOTLAND CAMPAIGN TEAM
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Thursday, March 14, 2013
Short and Long - Up and Down
Oil and gas investment booming, manufacturing gloom, stock markets soar, lending scheme stuck, shop sales up, house prices down. The yammer could make your head explode.
But within these ups and downs, there is a hidden truth. Time and taxes tell a story. Politicians and press demand “a fix” – presuming that it is possible to have one.
The oil and gas investment cycle tells us about time. Investments now are based on decisions at least two years old and nearer to five. Actual spending is highly dependent on oil or gas prices and the margins to be made from their exploitation.
A clear explanation of what has been happening can be seen in the Oil and Gas Industry 2012 Report. The Supplementary Charge on Corporation Tax introduced in 2002, was increased in 2006 to 20 percent, and a further increase to 32 percent was imposed in 2011. These impositions combined with several other factors to reduce investment and output in the middle part of the first decade of the 2000’s. The downturn was so severe that the government (twice) had to introduce new allowances which have led to fifteen additional fields being developed.
So any “fix” is highly sensitive to future oil and gas prices, the tax regime and, crucially, time which can be longer than the electoral cycle.
Manufacturing and the lending scheme also tell us about time and taxes. A view of the future in business is taken on the basis of uncertainties and again with a timescale longer then the electoral cycle. Most business investment loans are at least six and more often ten year arrangements. Politicians live in a world where what is called investment is not investment at all; but merely a series of cash deliveries. This week, on one day the Scottish Government boasted about £40 million for housing, £1 million in health technology funding, £4 million for the Theatre Royal in Glasgow, and £56 million in Less Favoured Area payments to rural farmers.
These figures are meaningless without associated costs, the potential for associated capital deepening, the future revenue streams against those costs, and a risk assessment about the potential for margins. The Oil and Gas survey is replete with such calculations. The announcements of the government are not; and most use up wealth that might create gains elsewhere.
Business is not borrowing because the numbers do not yet add up. Rather, they are moderating their activities and risks, and securing present margins; why borrow if you are only going to lose money in the longer term? And what’s the fix for this? Make it cheaper to be successful over time – by cutting taxes.
Mind you, cutting taxes does take time to have an effect. It is not a quick fix. The numbers still have to be calculated and the uncertainties assessed for the years ahead. Importantly, investors have to believe the tax cuts will be permanent, or at least in place for the long term. This, for Scotland, is a serious problem, every utterance of the Scottish Government, backed by the fumblings of the UK Treasury, raises further suspicions that more tax and more cash transfers are the sine qua non of our leading politicians; they are even embedding such notions in catchy phrases such as “Scottish values” and constitutional provisions. That’s no way to create a successful country.
POSTED BY EBEN WILSON - DIRECTOR, TAXPAYERSCOTLAND
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Friday, March 08, 2013
Not certain about being a GERS supporter …
A lay observer could be forgiven for feeling more than a little punch drunk this week. The GERS report, the latest commentary from the Fraser of Allander Institute, and Mr Cameron’s speech pounded our brains with economic analysis. And then on top we are told that the Scottish Government might be having a big wobble about how to afford its vision of an independent Scotland.
We’re wondering how much this tells us. So much of this has been macro-economic analysis, the distemper brush approach to economics that too often offers as much smokescreen as bright light. Crucially, all these commentaries declare (honestly) uncertainties about their own figures and estimations. Such is the lot of Keynesian economists, particularly those who believe you can “run an economy”.
This is important, because the reality is that in the overall swing of things not much is happening. Growth is hovering around zero, and other indicators on spending by households, productivity, investment, and saving stay alarmingly in the mischievous “nought point X” area that are oft-quoted in the media but are in general statistically suspect.
Looked at from the other end of the telescope, however, that nothing is happening is outrageous. Despite all the talk of “massive cuts”, the total cash taken in tax has gone up, and spending in cash terms has not been cut – it’s stuck around £58 billion with £22 billion of that on social support. The public sector spending ratio is stuck above fifty percent and we still have a large deficit if Barnett transfers are balanced against oil revenues. Inflation is now skewing these figures rapidly. Big Government pressures abound in Scotland's finances, the ratings agencies would have a field day with our future prospects.
In summary, our managers are failing – and their leaked report shows us that they haven’t a clue what to do about it. The trouble is, it appears that their advisers do not know either. They offer only more of the same, the Fraser of Allander’s “massive infrastructure programme” being a crazy case in point. As our recent paper on this explained, that would only create inflation, massive imports and a huge tax bill stretching into the future for all Scots.
There is another band of economists and commentators who are asking, what on Earth has happened to confidence in the supply side? If there is one place where people have to have self-belief, confidence and a long-term viewpoint it is in the private sector among artisans, self-employed traders and business. Their business is dealing with uncertainty and learning to defeat risk.
They only need one thing: the taxman off their backs. Cut national insurance, cut income tax, cut property taxes and, yes, cut Corporate Taxes – but more than that, our confused economic managers need to tell those who are not uncertain and who take a long term view about risk that they will not reverse those cuts in tax. Only that will create real growth. The real problem is uncertainty – both among the tax imposers and the tax imposed.
POSTED BY EBEN WILSON - DIRECTOR,TAXPAYERSCOTLAND
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Saturday, March 02, 2013
Make real jobs not fake jobs
The dissonance between the utterances of the Scottish Government and the real world continue. The latest report by Scottish Engineering, the trade body for the industry, is fascinating.
Described as “a mixed bag” by Bryan Buchan, its Chief Executive, it reports a range of ups and downs characteristic of such a diverse sector. You can almost feel the pain as these hard-working firms have apparently seen the first quarterly decline in output volumes since 2010.
This is the real world. Hard-working folk running small and large companies, struggling to get the skills they need, the sales they need and the ideas they need that will add a bit of value here, a breakthrough sale there, and rustle up the efficiencies that will make them better than other companies from Tillicoultry to Tokyo. Human and physical capital at its daily grind.
Contrast this with the crowing exaltations of the Scottish Government press machine about their shovel ready infrastructure projects. Each time one of these “ideas” begins, the word “success” is splattered yet again across press releases; about spending plans for cycle routes, roundabouts, forest visitor centres and so on. Yet all these projects are in reality transfers of tax – much of it raised by the companies struggling above collecting the NIC, PAYE, VAT and then Corporate Tax that the government eats up.
Now the numbers:
Basic and fabricated metal, machinery, motor vehicles and other transport equipment – a reasonable proportion of the “engineering” sector - provided 22 percent of all Scottish value added in 2010. (SG’s own figures). That’s £2.7 billion each year.
That’s nearly ten times the £305 million being spent on shovel ready projects over at least three years. So, thirty times the annual rate.
Engineering provides around 9 percent of jobs in Scotland, that’s about 250,000 pay packets. (The I Mech E suggests that is around 315,000 jobs, but their engineering is a wide church.)
Shovel ready infrastructure projects in fact probably do not create any net jobs, they just shift work from one place to the other – the Scottish Government describe the effect as “every £100 million supporting around 1,400 jobs”. Let’s allow them 4,500 to be generous.
If we could release the creativity of the engineering industry to increase business such that it created another 2 percent of jobs, it would create another 5000 jobs.
If the proportion of jobs to value added remained the same, the engineering industry would have to increase its value-adding turnover by £54 million - a sixth of the cost of Mr Swinney’s plans.
Of course, the last thing that engineering needs is a Swinney cash subsidy. But Scottish Engineering quite rightly say that cuts in Corporation Tax should be continued. We would add in cuts in Employers National Insurance and VAT too.
Which would you choose? Somewhere around three hundred thousand hard-working and creative individuals competing with each other to do good work globally, building new turnover that will be sustainable, or a few hundred civil servants with ideas for infrastructure feeding tax money at captive construction companies who, once done with this lot of tarmac will be back for more hand-outs to “support” non-sustainable jobs.
The supply side matters; Salmond, Swinney and Sturgeon should not be knocking on 10 Downing Street’s door for centralised Keynesian stimulus, but for tax freedom to take the burden off the real people who make real jobs.
POSTED BY EBEN WILSON - DIRECTOR, TAXPAYERSCOTLAND.
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