Current Affairs Comment

The Tax Wedge

Friday, 18 September 2009 07:27

Our resident accountant has just been analysing the effect of the current tax rates. Their most significant impact is of course at the margin. An unemployed single person receives about £200 a week in Jobseekers’ Allowance, housing benefit, &c. Of that, about £20 a week is paid back to the government in tax, a nice example of churning, so the real purchasing power of the £200 is £180. If the unemployed individual starts working, the gross labour cost to the employer must be not less than £315 a week if the net pay is to be more than the amount received in benefit. In other words there is an employment tax surcharge of 57% on marginal labour. This figure used to be known as the Tax Wedge, but because economics has fashions, it is not a phrase that is heard these days. In terms of real purchasing power, the employer's burden is 71%.

Which helps to explain why some people are trapped in idleness and welfare dependency, while jobs are exported to places like China, India and Thailand - or don't get done at all.

Land doesn't matter in an advanced economy

Monday, 07 September 2009 13:30

A response on Richard Murphy's Tax Research web site...

£15.26 for two hours' busking

Saturday, 22 August 2009 11:42

A while ago we posted Sounds from the Deep, an article about busking on the London Underground as an illustration of Ricardo's Law of Rent and the effects of taxation. A Financial Times journalist actually tried it recently and earned just £15.26 for two hours' busking at the foot of the escalators at Leicester Square

According to the article, musicians can busk free of charge once they have passed an audition for a licence. Unsurprisingly, there is a waiting list, which suggest that there is economic rent waiting to be collected. Link to article

LVT best for hard-working families

Sunday, 16 August 2009 05:03

The Sunday Express last week came out with an article condemning what was referred to as a "land levy".

'A PLAN to scrap council tax in favour of a land levy was condemned last night as penalising hard-working middle-class families. The Land Value Tax was proposed by Compass, a Left-wing think tank close to Gordon Brown’s inner circle. It would raise even more than the £25.6billion a year currently taken by local authorities through council tax and would hit hardest those who have worked their way up the property ladder. Owners of family homes on decent-size plots with a garden, a drive or a garage would be hit harder than those who live in smaller properties. And if the house is near good schools or public transport links, the land would be taxed even more. Tory housing spokesman Grant Shapps described the idea as thoroughly unappealing. “The Prime Minister’s favourite think-tank has come up with an idea which will disproportionately hit hard-pressed families who are aspirational and doing their best to get on,” he said.'

Is this true? Who exactly will be hit?

Government to promote land dereliction

Friday, 19 June 2009 18:06

The Communities and Local Government's website has this piece of news on changes to the planning system.

"Developers will be given more time to start building and further flexibility to adapt plans, under a package of new measures announced by Housing Minister John Healey yesterday to support the industry during these tough economic times. Mr Healey also announced changes for developers to build to greener standards, making homes cheaper to heat and run.

"There has been a sharp drop-off in the number of permissions which are being taken up, so for a temporary period, a simpler and cheaper way of extending the life of planning consent is being introduced. Currently, permissions that are not used expire automatically - usually after three years. If developments can't be built because of economic conditions it could delay economic recovery, as those schemes would have to be reapplied for when conditions pick up."

Read the official announcement on the government’s website here

This gives the lie to the old argument that development is constrained by planning restrictions. The site above, for instance, in the centre of Brighton, has been vacant, with planning consent, for nearly 25 years. What is really going on?

Proposed phone tax

Friday, 19 June 2009 17:39

The government is proposing to levy a tax of £6 a year on all telephone lines, to pay for the expansion of high-speed broadband services to give nation-wide coverage. This is an excellent example of the government’s lack of understanding of economic principles.

High speed broadband is a good thing, but not everyone wants it, needs it, or is even capable of using it. If people want it they will pay for it. There are many alternative methods of delivering the service, through wireless, copper cable or fibre optic systems, or combinations of all three. There are many national providers of utility networks who could achieve this in various ways, although it has to be said that they have failed to take the opportunity to do so as part of the general renewal of infrastructure that has turned so many of Britain’s city streets into building sites in recent years.

Bank regulation will not stop another boom and bust

Friday, 19 June 2009 17:36

Both in the US and Europe, there is much talk of bank regulation to stop another boom and bust. It will not work. The time will come, perhaps fifteen years from now, when economies will seem to be on a path of steady growth. People will say, yet again, that this time the growth is sustainable. There will be pressure to remove the regulations, which will be seen as unduly restrictive. Politicians will concede. In any case, regulations can always be worked-around, through the invention of ingenious schemes not envisaged when the regulations were devised. Like all its predecessors, growth will turn insidiously to boom followed by bust.