Motivations behind the California gas tax increase

This weekend, a 66% increase went into effect for the state gasoline (petrol) tax in California. The stated intention is to raise money for transportation projects:

Under Senate Bill No. 1, the gasoline tax will increase by 12 cents, from 18 cents to 30 cents per gallon, the Los Angeles Times reported after Gov. Jerry Brown signed the legislation in April.
[...]
As part of the legislation, motorists will also have to pay an annual vehicle fee, though that doesn't take effect until Jan. 1, 2018. The fees range from $25 for cars worth less than $5,000 to $175 for those valued at more than $60,000. Additionally, a $100 annual fee on electric vehicles will be imposed on owners in lieu of gas taxes beginning on July 1, 2020.
Most California drivers can expect the taxes and fees to cost them less than $10 each month, according to Brown.

The revenue increase

Well Jerry, let's look at the math. I'm ignoring the costs on diesel users here, just focusing on regular gasoline, so this will be an underestimate of revenue raised.

California population is approximately 39M. There are approximately as many registered vehicles as people. So the stated overall income delta to the state of California for the imminent change is $120/year x 39M vehicles, or $4.6 billion per year, based on Jerry's numbers.

How much gasoline did Californians buy in the past year? About 14.57 billion gallons. Add $0.12/gallon and that's $1.8 billion; the bulk of the increase will come from the per-vehicle fee. Looking at the scales, let's say $80 is average; that yields $3.12 billion.

Interestingly, electric vehicle users really get screwed by this. If I've read the spec correctly, they pay $100/year plus the value-of-the car tax. $100 looks to be at least 2x the average gas tax impact based on mileage.

So California shouldn't be exercised about the gas tax per se, they should be much more indignant about the per-vehicle charge. And electric vehicle owners should be marching on Sacramento to burn Jerry in effigy, if their vehicles can get them that far.

What gas costs, and why

The California tax situation is worse than it appears. In San Jose currently you'll expect to pay about $2.70/gallon; you'll pay $0.18/gallon federal gas tax, $0.12/gallon state gas tax, plus $0.06/gallon state sales tax. But there's also a secondary excise tax and an underground storage fee - yes, California taxes the right to store gasoline underground - which bumps the total California per-gallon tax to about $0.58; over 21% of your gas cost goes to the state of California.

Also note for completeness: in summer gas costs much more because California requires a special anti-pollution blend. This isn't crazy, especially if you live in a major conurbation like LA or the Bay, but you can easily find gas prices over $4/gallon. The extra $1/gallon or so yields another $0.02/gallon in sales tax for about half of the year.

Where it goes

Why is the California state government doing this? Well, because politicians will tax anything they can get away with. California already has more than enough money from gas taxes to address the issue of highway repair. Don't believe me? Check the math.

The stated need for highway repair in the California 2016-2017 budget was $3.6 billion annually, plus a $12 billion backlog:

Highway and Road Maintenance and Repair Needs. In order to assist the Legislature in its deliberations regarding increased funding for state highway and road repairs, we assess the costs to maintain and rehabilitate core aspects of the state highway system—pavement, bridges, and culverts—as well as local roads. We find that the state has ongoing highway repair needs of about $3.6 billion annually as well as an existing backlog of needed repairs totaling roughly $12 billion. This need is significantly higher than can be addressed through the existing funding of about $1.6 billion for these purposes.

Interesting. California is currently extracting $0.583 in tax per gallon of gasoline on 14.57 billion gallons of gas per year - $8.5 billion - and yet it's spending only 20% of that money on highway repair. What is it spending the rest on? You can bet that the excess is finding its way in disguise to be able to fund the usual payoffs: pensions and pet projects like the brain-meltingly dumb high speed SFO-LA rail.

We should ask: where does Governor Brown think this money will be spent?

“Safe and smooth roads make California a better place to live and strengthen our economy,” Brown said. “This legislation will put thousands of people to work.”

Oh, Jezza. Jobs are a cost, not a benefit. The minimum-wage Bay Area or LA commuter spending literally thousands of dollars per year on gas is not going to thank you for taxing him about $150/year extra to fund union workers doing fuck-all to fix potholes. (Believe me, I've had ample opportunity to watch them work while sitting in traffic jams. They could not move slower if they were quadriplegic.)

"But California is so big! It has the most roads!"
Nope. Texas has nearly 2x the road mileage of California. I've driven quite a lot in Texas, and their pothole situation feels better than California. Heck, you occasionally get actual freezes in Texas, which are practically unknown in California, and a classic source of potholes. The top 4 worst pothole cities are Californian. What the hell?

"California has other transport costs! Like congestion reduction!"
California does f-all congestion reduction, believe me. The only congestion reduction it likes which works is higher gas taxes. Building additional roads is waaaaayy down their priorities list, only just above "donate to Donald Trump's reelection campaign".
There are also additional separate revenue streams from vehicles in California. Existing annual vehicle registration is proportionate to the vehicle's current estimated value, and for a $30K car will set you back $100-$200/year. "Use tax" applies to all vehicle purchases - even second hand! - and the state gets 7.5% of the purchase. So for a $30K car you'd pay $2250; assuming you keep the car for 6 years, that's $375/year income for the state.

California doesn't have an income problem for its transport costs. It has a "not spending that money on transport costs" problem.

Measuring success

Where I work, if I were to propose recurrent spending of a significant chunk of my company's annual income on a project, I'd rightly be asked to define a measurement of its impact, and "success" criteria by which we could judge if the spending had an acceptably high impact, or if it should be stopped and I should be fired.

Jerry Brown: what will be your measure of success in spending the $5 billion+/year raised from the additional gas tax and vehicle fee? Is it just in "sustained union support of Edmund Gerald Brown, Jr"? You mendacious over-taxing git.

The pain in Spain falls mainly on the sane

It seems that the Spanish are getting increasingly angry at their politicians's weasel tax-evading behaviour. The BBC reports that the mood among the Spanish has changed from "eh, it's the way things are" to "how dare they?":

For the last few months the corruption scandals have been so numerous that the television news began lumping them together in a swift round-up, rather than reporting on each one.

The latest is a claim that PM Rajoy bumped his pay by 30% even as government service providers are alleged to have given kickbacks to senior politicians in return for contracts.

Is this public anger healthy? Perhaps it is; at least some degree of accountability is being demanded from their politicians. I wonder though how well this anger is being transmitted in the Spanish media. In the end, newspapers and TV/radio have a love/hate relationship with politicians; they need access to the pols to get their scoops, and the pols need friendly journalists to hold back on stories if the timings are inconvenient. We should not pretend that most journalists are anything but self-interested; I hope that none of my readers are under any illusion that politicians are any better.

If everyone is cheating on their taxes, it seems a little rich to be particularly indignant about politicians. Why do you think Spain is running a spending deficit? Effective personal tax rates for 25K Euros per year should be comfortably north of 25% but Spanish personal income tax received in 2010 was €81bn and the VAT take was £74bn. With 21 million taxpayers (tax returns sent) out of a population of 50 million, that's under €4000 income tax per taxpayer and €1500 VAT per citizen. Spain's average salary is about $31K or €24K which implies that the income tax take is about 30% under what you'd expect (€6K or so).

Of course, the Spanish voted these politicians into power - did they have any reason to expect politicians to behave any better than their voters? Heck, expecting politicians to behave any better than the reference mendacious weasel standard shows an astounding level of optimism. Politicians will do whatever benefits them if they think they can get away with it, the law notwithstanding (see the travails of Chris Huhne as a prime example.)

What then should we expect Spanish voters to do differently as a result? Will they vote in politicians who promise to significantly cut spending and not take the piss in their tax payments? My arse, they will; most people - at least, 51% of people - want a free ride in state spending. They don't want to be told that the good times are over, even if they can feel that the bad times are here. Denial is a very powerful force.

Dodging taxes means that you don't feel the negative effects of spending - of course you're going to want the state to spend more. Perhaps this is positive for the UK, where at least tax evasion is a) difficult (PAYE) and b) usually rigorously chased, even if the Inland Revenue occasionally gets it wrong. UK tax payers have skin in the game of our politicians' spending - this is why the "tax the rich" game is popular; we don't want the politicians to spend less since we like our benefits, subsidies etc, but we don't want to pay for them so we realise that someone else has to make up for our omission.

The BBC quotes a Spanish voter on the subject of the guillotine:

One middle-aged, mild-looking woman, replied "you know the French Revolution, where they cut off their heads? Well something like that might do the trick".

This got me to wonder: why did they chop off the head of Marie Antoinette? Was it just envy? Reasonable sources indicate that it was driven by an attempt by the upper class to avoid additional taxation, so it's not such a bad precedent. It doesn't take much imagination to see the Spanish populace hanging politicians from lampposts, and indeed such an image would be a welcome reminder to politicians of other countries that their imagined immunity from the regular legal processes cuts both ways.

Whither universal benefits?

I agreed with more than the usual fraction of a John Harris article today: his argument that universal benefits should stay universal actually had something approaching good points in it. In the current climate of discussions about what benefits we should means-test or remove to save money, Harris points out the problems with that approach:

As the child benefit fiasco proves, means-testing and selectivity cost huge amounts of money and governmental effort. In stigmatising help and demanding engagement with a labyrinthine machine, selective benefits often fail to reach the people they are meant for (which is why over 25% of kids entitled to free school meals don't get them, and the means-testing of winter fuel payment would be dangerous).

He's spot on. The child benefits change was particularly demented; the oft-quoted case where two parents both earning £X,000 keep their child benefit, but the stay-at-home mother and her partner who earns £(X+10),0000 get nothing, makes absolutely no sense. The reason it was proposed was a consequence of existing bureaucracy; the tax system has no real concept of a "household" and thus making any benefits change relating to household income would either rely on people's innate honesty - stop sniggering at the back - or require a massive, expensive and likely terribly unpopular re-engineering of the taxation system. Thus we are landed with another government-sourced taxation distortion (very high marginal tax for earners with children between £50K and £60K), and now there's precedent for it I expect other benefits to be means-tested in the same way.

Of course, Harris doesn't really address the flip side of universal benefits - they're rather expensive. The Guardian's excellent visual guide to Government spending points at £12bn in child benefit and £30bn in personal tax credits per year. If you want to reduce child benefit / tax credit spending, limit it to two children. No distortions, as easy to administer as the current system. Job done. Of course, this won't go down well with families of 3+ children. But let's remember there's no money left. We can't afford our current spending. We're about at the peak of what we can tax without being Laffered. Spending on state pensions (£74bn) is only going to go up.

Something Harris skips lightly over is the NHS, a great example of universal benefit. It costs £100bn annually (plus £7bn if you include its pension scheme). So every taxpayer, say 30m of them, has to find £3,300 to cover themselves. But they also have to cover non-taxpayers - the elderly, children and the non-working - so that's nearly £7K in taxes just to cover the running costs of the NHS. With the increasing fraction of elderly patients requiring expensive residential care for degenerative diseases and conditions, that too is only going to go up, and sharply. The Dilnot Commission report on residential care proposed capping care costs at £35K, though the Government is now talking about nearly double that limit as life expectancies and the costs of caring continue to rise.

Universal benefits are simple to administer and not generally distorting, far superior to means tested benefits, but that's not why they are threatened. They are threatened because:

• the pay-as-you-go pensions model is far too close to a pyramid/Ponzi scheme, so that promised payments that seemed affordable 40 years ago are anything but;
• improvements in nutrition and healthcare mean that people are living longer and thus living long enough to suffer from expensive-to-treat diseases and afflictions; and
• public jealousy at high earners is putting pressure on politicians to make choices that make little economic sense (e.g. means testing for child benefit, winter fuel allowance etc.).

And yet, if we measure a society by anything it should be by the way it treats those who cannot look after themselves - the impoverished elderly, the seriously mentally ill, those crippled by disease or injury who simply cannot work. How are we going to afford the care these people need, if we have to provide the same care to everyone else?

This is not to say that Harris's article is all on solid ground. Case in point:

Funny, too, that such high-ups as George Osborne bemoans "taxing people on low incomes to pay for the child benefit of those earning so much more" when, as he must know, a progressive taxation system ensures that this has never actually happened.

If you could actually save £2bn in child benefit this way, you could direct that tax saving to increasing the threshold at which people start paying income tax. Thus, since we are currently paying child benefit to high earners, we are losing the opportunity to tax less people on low incomes. George Osborne is - in this case - right.

Bribery as the oil for the wheels of government

In this case, the US Congress:

Without the persuasive powers of the political 'carrot' [earmarks], congressional leaders and the President no longer have the 'stick' required to move Congress to get anything of significance accomplished.
The moratorium on earmarks went into existence in February 2011. Since that time we have seen some of the greatest legislative fails in the history of the nation, highlighted by the debt ceiling fiasco of 2011, the inability to pass a jobs bill, an ever-increasing vacancy rate in the federal judiciary as one nominee after another is shelved and, of course, the current fiscal cliff clunker that might be the most embarrassing and damaging display of congressional incompetence of all.

Author Rick Ungar, who is by no means a hard-core right-wing minimum-government type, makes a persuasive case that in order to get Congress to do anything, you've got to let them bribe each other with earmarks (spending items attached to major bills which bring federal dollars to particular members' districts). He estimates earmarks costing $16bn annually, which is not chump change to be sure, but from his point of view it's very cheap; a fraction of a percent of the federal budget, allowing the business of government to proceed as normal. To be clear, he regards this as an awful state of affairs, but maybe allowing Congress to bribe itself is the least evil way forward.

Of course, the real hard-core right-wing minimum-government types - the Tea Party, who have 61 congressional representatives in their caucus - might suggest that if Congress can't pass laws without bribing each other, then maybe those laws aren't of sufficient benefit to the nation. Government has paralysed itself.

Give the taxpayers what they ask for

Karl at the US political site Hot Air has a proposal so simple that it's genius. Cutting through the Democrat-Republican cat fight about what mix of tax raising and spending cuts should address the deficit, he proposes that noted Republican "shock jock" Rush Limbaugh should back raising taxes to fund current and planned spending with no cutbacks:

If the Democrats want to increase taxes and leave entitlements unreformed, why not propose that the federal government raise the taxes necessary to fund these purportedly essential programs?

It sounds like it might just work - but what levels of tax raising would be required?

The four year plan he proposes would be popular for at least the first couple of years: households with over $250K annual income get nailed in the first year, and those with over $100K in the second year. However, by year 3 all the "rich" have been squeezed as hard as possible, and the spending deficit is still 3% of GDP. So it's time for every other taxpayer to pay up:

In 2019, increase all tax rates on ordinary income 5 additional percentage points, phased in over 10 years. Increase both tax rates on capital gains 10 percentage points (to 20% and 33.8%), phased in over 5 years.

But that still doesn't keep spending under control, so the only thing left is year 4:

Impose a 10% national value-added tax, phased in over 5 years.

This will actually give a balanced budget, finally. Obviously the US still has $20tn or so of debt, but at least it's not adding to it. Everyone who pays taxes is then bearing the spending burden of the state. And in 2016 it's election time once more...

This, I think, expresses the essential dishonesty of people clamouring "tax the rich" as a solution to the current deficit crisis - and this is true in the UK quite possibly as much as in the USA. You can't fix the deficit and keep spending at the present level without hitting everyone who pays taxes, hard. Now perhaps that's what people want, but it would be interesting to make the decision very real for them. "Do I as an average taxpayer want a 60% hike in what I pay in taxes, or should I start demanding that the government stop pissing away so much money?"

The Civil Service: how do you spell "accountability"?

It's beyond satire. How did the Department of Transport come up with the figures that gifted the multi-£billion West Coast main line franchise to First Great Western? Nobody knows, because they lost the spreadsheet. After all, it's not like there would have been any formal review process on that spreadsheet; with a mere few £bn at stake, who would care?

I'm honestly not sure which of these is the more depressing:

The PwC report shows revenue forecasts were not correlated with how many passengers could actually fit on the trains.
A DfT spokesman said: "We are not going to give a running commentary on what went wrong."

I imagine not, Mr. DfT spokesman, or you'd never get anything else done. Mind you, if this is representative of your general quality of business, perhaps that would be a good thing.

Honestly, if the Government wants to make a slam dunk against a potential claim for unlawful dismissal by the hapless Ms. Mingay, all they have to do is ask her to produce the revision of the spreadsheet which her team reviewed. I mean, frikkin' heck, does anyone at the DfT understand the concept of "accountability"?

A modest proposal - the Chump Change law

Occasioned by a discussion of pointless spending changes at Mr. Wadsworth's, I present for public discussion "The Chump Change Law of Parliament":

No Member of Parliament may propose a spending- or taxation-related Bill which does not change spending or tax by less than £1 billion.

In the 20 months since January 2011, there have been approximately 320 Bills before Parliament which works out at 192 per year. A lot of these are not related to spending or taxation. Let's be generous and say that we allow time for 100 taxation/spending bills. The current UK deficit is well over £100 billion. If any Bill is intended to address the deficit, and fails to change things by less than £1 billion then it is just pissing in the wind.

I'm tempted to make a variant of this rule for the Budget: the Chancellor has 1 hour to deliver a budget raising £600bn and spending £700bn, therefore every minute talking needs to relate to a minimum of £10bn of taxation or spending.

Gloucestershire engineering

Chas Fellows from Gloucestershire County Council is an economic illiterate. He's going to put solar panels on the roofs of county council buildings and make money! It could save up to £6.5mm over the next four years! What's not to like?

Hang on, isn't the break-even for solar in the UK, with the current subsidy, 10-12 years? It couldn't possibly be that the esteemed Cllr. Fellows is completely ignoring the capital cost of installing the panels, can it?

So what does Chas (Conservative, Environment and Economy) say?

"Times are tough at the moment."
"We're doing everything we can to save money and find funds to protect services for the most vulnerable."
"This scheme has the added benefit of producing green electricity and creating some local jobs."

Yeeeees, Chas, are you familiar with the concept that jobs are a cost, not a benefit? How, exactly, are you saving money when you have to pony up for all the capital costs for the panels and their installation? And what, exactly, does "green electricity" look like?

One of the costs which I bet they haven't anticipated is going to be the need to employ people to go clean all the pigeon crap off the solar panels every week. And this is Gloucestershire, which is not exactly famed for sunshine... Chas Fellows, you do seem to be a pillock of the first order. I guess it's not your money, though, so you don't care?

Chinese debt - a molehill concealing a mountain?

Compelling reading in "The Diplomat" on the twin problems threatening to shake the very foundations of the Chinese banking system - if they ever become too large to be hidden any more. Go read the whole thing. When reading the following excerpts, note that there's about 10 yuan to the pound sterling:

[...] If the share of dud loans should reach 20 percent, a far more likely scenario, Chinese banks would have to write down 2 to 2.8 trillion yuan, a move sure to destroy their balance sheets.
The Chinese government, to its credit, was also aware of the danger of this ticking debt bomb. Unfortunately, it used a solution that merely delayed the inevitable. In the first half of this year, Beijing announced a policy of mandating banks to extend by one more year the deadline for local governments to repay their bank loans that were about to mature. This move was taken, in all likelihood, to conceal the festering problem in the financial sector during the year of leadership transition. But it did nothing to defuse the debt bomb.

So the banks themselves may have got sheaves of bad loans and are desperately collaborating to conceal them, in the knowledge that once one brick in the dam goes, the others follow shortly after. But what about the consumers and individual investors?

Because of very low-yield for savings by Chinese banks (since deposit rates are regulated) and competition among banks for deposits and new fee-generating businesses, a complex, unregulated shadow banking system has emerged [...] To evade regulatory oversight, these [short-term investment] products do not appear on a bank's balance sheet. [...] China had about 10.4 trillion yuan in wealth management products, about 11.5 percent of the total bank deposits, at the end of June this year.

Chinese citizens can't get squat in interest for their money, so the only way to even approach a return matching inflation is to invest in increasingly risky vehicles, property and development projects, with very little effective regulation and risk management by whatever the Chinese equivalent of the FSA / SEC is - if it has one.

This second point squares with several articles from John Hempton's hedge fund blog at Bronte Capital where he's been discussion the outright frauds and other extremely suspicious behaviour in the Chinese banking, equities and investments. In his Chinese kleptocracy post he notes:

Most Chinese savings however are not invested in see-through apartment buildings. Bank deposits still dominate. The Chinese banks are the finest deposit franchises in human history. They can borrow huge amounts at ex-ante negative real returns.
And those deposits are mostly lent to State Owned enterprises.

All this seems to be coming together to create a near-perfect storm of fraud, abuse, property and asset bubbles, massive stock market fraud and inflated earnings, looting by connected people and a shafting of the Chinese middle- and lower-class that is likely to make the Western mis-selling and mortgage fraud of 1998-2008 look like the epitome of good financial practice.

I think we're going to see a steady and increasing stream of hard assets and hard currency sneak out of China, as those with sufficient connections to move their wealth and families abroad do so. Eventually there is going to come a point where the insolvent banks can no longer be concealed even if a dictatorial Government is willing to try, and the unrest that results is going to have quite the butcher's bill.

Can it be fixed? I don't think anyone who is in a position to even try to fix it is going to be willing to try; you're much more likely to put yourself in the firing line when things inevitably do go bad. And "the firing line" in Chinese politics is no euphemism.

So about these Golden Dawn chaps...

doesn't their flag remind you of something? Reading their list of "interests" it seems like a group that would cause the BNP to step back and say "hang on, that's going a bit far isn't it?"

According to Greek election exit polls they look like getting a 7% share of the national vote. I don't know what this signifies for Greek politics and the Eurozone, but suspect it's not pretty. Nearly 25% of the vote went to the far left (Syrizia) or far right (Golden Dawn), and over 60% to anti-bailout parties. What with Hollande winning in France, it's looking a bit "interesting" for the Eurozone.

When the markets open this week, it's going to be an entertaining ride.

[Hat tip: Zero Hedge]

The canonical Daily Mail food article

The story of Sara Agintas and her weight gain is truly wonderous to behold.

• Unemployed layabout: check
• Parent of many children by several fathers: check
• Overweight: check, check, check
• Drinking to excess: check ("it's fine to drink 50 units per week while pregnant, I just dilute it with ice")
• Housed at taxpayer expense: check
• Bonus marks for falling through the stairs of her house and requiring the council to reinforce them
• Spending huge amounts of benefit money on food: check
• Teenaged mom: check (first pregnant at 17)
• Demands large amounts of taxpayer money for medical treatment: check

'I can’t afford a personal trainer or weight-loss surgery – I need help from the taxpayer. I know it's my fault I'm fat, but my pregnancy cravings meant I couldn’t stop eating,' she told Closer.
Read the full interview in this week's Closer magazine on sale now

News article trailing a magazine feature: check.

There's no direct link to rising house prices, to be fair, so I think it's still just possible for another Daily Mail article to top this; however, it will be hard to beat.

Looking at the photo in the article, I can't help but feel sorry for that sofa.

Bill Quango MP for PM

A robust defence of capitalism. Read the whole thing.

Requirements engineering and the Bill

Courtesy of the inimitable Inspector Gadget, a wonderful example of failure to consult stakeholders in procurement. Someone decided to buy a fleet of new national procurement standard police vehicles without adequately consulting the poor schmucks who were going to use them. So what happened? Read the whole thing...

My favourite "feature":

5. The new red and blue strobes on the roof of the vehicles are so bright that they disorientate drivers on the motorway who are trying to pass an accident scene at night, and create a second accident right on top of the original one. A fire fighter jumps out of a fire appliance and runs over to the police crew shouting ‘get those bloody lights off, we can’t see anything ahead’.

Oopsie!

You'd think that the basics of requirements engineering ("consult the bloody stakeholders!") would be observed by anyone in charge of such an expensive purchase, and that they'd realise that response officers would be the most likely stakeholders to push the new vehicles to their performance limits. But nooooo... I suspect that actual testing simply involved senior officers driving the vehicles at speed, verifying they didn't blow up or drink too much fuel, checking that the doors locked and then patting themselves on the back saying "job done!". You can imagine that they wouldn't be keen on waiting around until night-time to try out the vehicle and its lighting systems in typical response scenarios; they might not be home until after dinner time and that would never do.

Congratulations to whatever car manufacturer managed to palm off these vehicles on the UK police force. Your salesweasels deserve a big bonus. Of course, if your salesweasel's car is TWOC'd and set on fire, and you discover that the thief in question escaped from police custody by winding down the car window and jumping out, that would be ironic.

I've got a theory - it could be bunnies

Via Timmy, the Grauniad yesterday carried what I can only describe as an extended propaganda piece in favour of housing benefit cuts. Based around the travails of families in Westminster, it headlined with the quote:

As primary schools struggle to cope with the disruption caused to children, a council officer declares: 'To live in Westminster is a privilege, not a right'

The more naive among you might think this is obviously true, but apparently not according to the author. So my friends living in a crappy house in Stoke-on-Trent have the right to live in Westminster (and have someone else pay for their quadrupled rent); I shall have to give them a call to let them know.

Looking at one of the victims:

Until November, Amira, 39, was renting a flat near Edgware Road for £812 a week, with her four children. She is not currently working because her youngest child, aged one, is unwell and receiving treatment at Great Ormond Street hospital, and her rent was met in full by housing benefit payments.

£812 per week; £3200+ per month. I try not to swear but... bloody hell!

When her landlady realised that the family would no longer be able to afford the flat when the £340 weekly cap was introduced for three-bedroom properties, she decided not renew the tenancy.
"I went to Westminster council and they said everyone will get this letter. They said you must look for a property where the rent is lower. They gave me a website to look at," she said. She was unable to find any flat for less than the cap near enough to the school.

(My emphasis) And here we find another common thread in the stories quoted. They don't want to move their children out of the local school because it's disruptive to the children, and (though this is unsaid) they clearly don't think they'll get access to a school anything like as good when they are moved to Enfield or Dagenham.

It's clearly going to be a massive disruption for the families concerned, and one has to feel some sympathy; that sympathy is tempered with the knowledge that each of them has received £30k-40k per year in housing benefit alone for goodness knows how many years.

I believe that I have rumbled the motivations of the author, Guardian social affairs writer Amelia Gentleman: she is in league with Danny Alexander and George Osborne, using the pages of the Grauniad to propagandise the least sympathetic housing benefit cut losers in order to drum up support for the cuts.

Read the comments on Tim's article, they're quite the hoot. JuliaM, chronicler of the UK underclass, nails another issue in her first comment:

Also, I note that no father is mentioned in any of those three cases...

The ex-Archbish gets it

After the benefits cap got torpedoed by the House of Lords including a number of bishops, we actually get the Archbishop of Canterbury taking a moral lead. OK, it's the ex-Archbishop, Lord/Dr. Carey, but any port in a storm.

He hits the nail on the head noting that IDS is trying to reform a welfare system which is "fuelling vices and impoverishing us all".

He even laid into the bishops specifically, warning them about the danger of poverty of aspiration, which is not a theme I've heard in many sermons but is still very Biblical. Nice to see him laying out the downside of leaving things as they are, instead of just focusing on the downside of change. Guardian columnists take note (Polly Toynbee, I'm looking at you, and it's not a pleasant sight).

Props to you, George. Now light a fire under Rowan's beard and get him moving outside his comfort zone.

The benefits cap

I have to say, I was taken aback by the organised rage against the proposed £26,000 cap in benefits payable to one family in a year. As others have pointed out, you'd have to be earning about £35,000 gross to see that much net income. Surely anyone sane would have realised that paying that much taxpayer money to one family, let alone tens of thousands is basically indefensible and would have picked a different battle to fight.

Apparently not.

The opponents have done their best to sidestep the essence of the cut by addressing instead its effects: "you'll force families to move out of their houses", "children will suffer most", and in the less temperate opinion pieces "it's just ethnic cleansing". I have not seen a piece to date where someone actually addressed the issue of why it was right to pay that much money to a single family. Play the man, not the ball, seems to be the order of the day.

Tim Leunig's piece in CiF is a great example. He actually has a couple of nuggets of rational argument:

It takes no account of your employment history or family size. So a central London couple who have never worked are unaffected, because they currently receive less than £26,000 in benefits. But a large family – even in a cheap house – will be hit. That is not sensible.

I'd take issue with this, because the whole point about the cap is that it addresses the total benefits, not just the size and cost of house that the family lives in; the large family in a cheap house is receiving much more in child benefit than in housing benefit. Since money is fungible, it doesn't matter if they receive 1% in housing benefit and 99% in child benefit, or vice-verse

But then Tim ventures out further into the quicksand:

...a four bedroom house [in Tolworth, London] will give you little change from £400 a week. Cutting housing benefit to £100 a week – which is broadly what the cap means if you have four children – makes life impossible. After rent, council tax and utilities, a family with four children would have 62p per person per day to live on. That is physically impossible.

This is where he crosses the line to outright misleading. This family, even after the cap, is receiving £500 per week in benefits - housing plus child. That's over £2000/month, net income. You could argue that it's hard for a working family with £35,000 gross income to live in London, and you're probably right; but those families don't have anyone picking up the tab for their decisions, and have to do the best they can with what's available. Why should a non-working family benefit to the working family's detriment (i.e., more taxes paid)?

I did like EvaWilt's suggestion in the comments that the Government should introduce rent controls. What could possibly go wrong?

Update: and the Lords have decided to think of the children and turned it down 252-237. I guess the Government's next moves are to a) remove child benefit from the cap calculation and b) reduce the cap by, say, 2 x annual value of benefit for an additional child (£13.40 * 52 * 2 == £1400 per annum) to represent the typical 2 adult + 2 child family. Get this bill through, then mount a separate ongoing devaluation of child benefit for child number 3 and upwards.

Uncomplicated feelings about mortgage subsidies

I doff my cap to Quantitative Politics who ably skewers the demented Government plans to subsidise the risk of first-time buyers' mortgages. Let's remember that the UK housing market is in the doldrums because of a) potential buyers facing an income squeeze from the current depression, b) limited supply of capital for mortgages, ensuring the available capital is concentrated in low-risk LTV ratio mortgages, c) house prices being sticky-downwards such that vendors are very reluctant to lower their prices and d) ultra-low interest rates ensuring that house vendors aren't pressed to sell with any urgency, while at the same time savers' deposits accumulate interest at a miserable rate.

What is the Government analysis of the situation? Given that first time buyers are risky loans, let's remove that risk from the banks by subsidising it with taxpayer money.

Pardon my language, but what the hell? Have the Government not heard of the notion that what you subsidise increases? If the Government wants to un-stick the housing market (and it's by no means obvious that it should even get involved) it could reduce transaction costs by slashing stamp duty, or maybe fire Mervyn "inflation will come down soon, honest" King and tell the MPC committee to stick to its 2% inflation mandate, or else.

QP puts their finger on what is probably behind this all:

So all in all a thorough package to boost the finances of existing homeowners. And we all know who are the biggest homeowners, currently holding the most property title deeds, the banks of course!

Bailing out the mortgage-holding banks in some way or another might even be defensible. But I wish, I really wish that the Government would have the stones to do it explicitly rather than hiding behind a smokescreen of concern for the welfare of first time buyers.

The Guardian article has the usual clamour of rent seeking:

Marc Vlessing, co-founder of Pocket, one of London's affordable homes agencies, said: "This helping hand for mortgage deposits is not a panacea, but will be welcomed by frustrated first-time buyers as well as those of us concerned about the destabilising prospect of an entire generation locked out of home ownership."

If you want affordable houses, speed up the streamlining of the planning process you silly arse. Tell the NIMBYs to sod off and build a lot more houses.

Complicated feelings about pension tax breaks

The Telegraph is heavily hinting that Osborne will be axing higher-rate relief on pensions in his Autumn Statement. Leaving aside the observation that it's pretty frickin' late in autumn, indeed one might almost term it a Winter Statement if not for the associated negative press, what does this mean?

As a private sector higher rate taxpayer myself (boo hiss, oppressor of the poor etc.) I certainly appreciated the existing tax break: £1000 of gross income, with an employer-matched-up-to-5% deal, taxed at 40%, means I spend £600 of net income -- let's ignore the 1% employee NI for simplicity and the marginal effect on my employer of employer NI -- to achieve £2000 in my pension. This will be subject to tax when I finally take it, after a 25% tax-free lump sum, but at current annuity rates I'd be lucky to see a few hundred £/year in current money in my pension from this. Still, assuming retirement at 66 as the standard and if I plan to live past 80, that's not a bad deal.

If George gives me only 22% tax relief, I'm spending £780 (30% more) to achieve the same effect. That's less attractive. The killer issue is the return I expect from my pension investments and the price of annuities. If low interest rates are going to persist for the next 30-odd years (and, let's face it, they might) then my expected payoff will be lower anyway.

Suppose I say that my pension payments aren't worth the candle, and I'd rather spend now. Then George gets £400 of that £1000 in tax right now, and I get £600 in disposable income. That stimulates the economy and boosts tax receipts right now, at the expense of my pension's value at retirement. And since I'm a higher rate taxpayer, George can calculate that he won't have to cover any of my pension shortfall -- oh, wait, it's in 30 years, so who cares?

From where I'm sitting, this is a total no-brainer for the Government - money now, popularity now, and diffused downside in decades' time. After all, who cares if people don't have adequate personal pensions? Perhaps they can tax anyone on a public sector pension at 50% for any income over the median pension....

I can't blame George, a politician, for creating a politician's solution; to misquote the repulsive Freddie Lee Cobb from A Time To Kill:

You can't blame a politician for being a politician, no more than you can blame a dog for being a dog

but it behooves the rest of us to contemplate the effect on society in twenty to thirty years from reducing individuals' personal savings towards their retirement. It's not going to be pretty.

My indulgences

Reading The Daily Mail is probably my least healthy indulgence. I know it's bad for me, but just can't help it. Like browsing at a cream bun buffet, the sugar rush of some of the stories (e.g. perjuring student immigrant goes to jail but can't be deported!) is near-irresistable, and feels shamefully good while you're doing it, but it soon turns into a sickly stickiness and you just know there's a sugar crash coming further down the line.

Contrast that to Comment is Free in the Guardian, and in particular the musings of one of my favourite columnists Polly (wanna cracker) which has the opposite problem; you read it because you feel it's good for you to do so, like a slice of Ryvita, but it leaves a scratchy dry feeling in the back of one's throat and feels deeply unsatisfying.

Chief CiF irritant today is Pete Sommer, an academic at the LSE who believes that the UN-backed Internet Governance Forum is going to be the go-to place for tackling cybercrime. I hate to break it to you, Pete, you're well-meaning but the unfortunate reality is that the government-backed Chinese hackers and hardcore Russian spam artists who are currently leading the cybercrime wave really don't give a monkey's left testicle for the IGF.

In particular, I liked his points about the London Conference on Cyberspace:

It could have aimed for something more immediately achievable – perhaps an agreement on identifying medical and humanitarian resources on the internet and protecting them. Or that the essential fabric of the internet, its cables, exchanges and technical protocols, should never be attacked.

when it's painfully obvious that if the Chinese military saw a tactical or strategic advantage in e.g. cutting the undersea fibre into Taiwan, they'd have minisubs and boltcutters down on the seabed in the blink of an eye; the UN be damned. I'm also curious what he expects the UN to do about the Iranian-backed Diginotar hack that compromised the SSL connections to major sites like Gmail for Iranian citizens. You'll note that the only effective action here in reality was taken by the major browser vendors, removing Diginotar's CA cert from the browser. I don't see the UN requesting that traffic engineer Ahmadinejad account for his government's actions here.

Accountability - are you really sure?

Seems like that nice Mr. Barroso wants to make individual criminal responsibility for financial players recognised in European law. I think that this is a fantastic idea, but suspect that Barroso has not fully thought this through.

I'd start off with anyone involved in accepting Greece's national accounts for the purpose of approving their entry to the Euro. I'd add in the French, German, Italian and Spanish governments for repeated and aggravated crimes of kicking-the-can-down-the-road, blaming-the-messenger and failure-to-do-basic-arithmetic. Olli Rehn gets a special mention here. Within the UK I'd happily indict Adam Applegarth of Northern Rock and Andy Hornby of HBOS in addition to the infamous Fred the Shred; but let's not forget the senior staff members of the FSA who did such a sterling job in supervising these institutions.

Any more suggestions?