Occupy Balamory

Reports have reached me that the small Scottish island town of Balamory has become the latest venue for the global "Occupy" movement's protests. The harbour-side street was blocked for most of Monday by increasingly noisy and violent protests.

Town "inventor" Archie Forbes-Pilkington (35), holding the sign "Public funding for egg carton constructions NOW!" berated the local authority for its tight purse strings. "Surely we should be encouraging entrepreneurship and economic development to stimulate the local economy!" he exclaimed. "The bloody bank is charging 8% on small business loans, and the local authority has cut off all funding for the three quangos I sit on. How's an inventor supposed to eat?"

Ms. "Hooligan" Hoolie (27) of Balamory Nursery had bolstered the protester numbers with her nursery class, several of whom were spray-painting over the windows of local tea shop Pocket+Sweet. "It's outrageous!", she shrieked, "being forced to pay an extra thirty quid a month for my pension! Do they think I'm made of money?"

Their diatribes were interrupted by a stream of PAVA spray from town constable P.C. Plum, struggling to keep order in the street. He was assisted by Evangelina "Josie" Jump (22), pressed into service as a special constable and using her considerable kickboxing skills to force the protestors back from the police station.

Mrs. Edelyn MacReady (42) of Island Tours expressed her concern about the impact of these protests on the local economy. "What these people don't seem to realise is that this town depends on tourism; if people stop coming here because of the trouble, none of us will have jobs." Asked about her previously warm relationship with Hoolie, MacReady snapped "Hoolie can drive her own bloody school bus from now on."

Just a load of hot air

Hurrah! People are taking a stand against high gas prices! I take it they want to start drilling for shale gas all over the country?

Oh, maybe not quite:

Hannah Edler, a 27-year-old protester, said: "We could have a fairer system where our energy is owned by communities who decide how it is priced and produced."

Luckily we already have this arrangement. Gazprom's network of cronies could be one of those communities, for instance. Or, if you want somewhere closer to home, BP owns rights to more local gas fields..

What I think she's asking for is for the Government to parcel out electricity, gas and oil supplies from some set of magic pots (nuclear, windfarm, shale, oil sands, Saudi wells) to local communities, who will then decide what price to sell energy in each category depending on how bad for the environment or human rights each source might be.

What could possibly go wrong?

Complicated feelings about Stephen Hester

The furore about Stepher Hester's bonus as the head of RBS has stirred complicated feelings. On the one hand, RBS is only alive courtesy of the taxpayer, and every man jack on the RBS payroll should monthly thank the British taxpayer for his salary packet containing digits other than "0".

On the other hand, RBS is 80%+ owned by the taxpayer, which means that if it gains value we gain money. If it loses value, we lose money - from a £45 billion pound investment. With such amounts at stake, don't we want to be careful that RBS is managed by someone who is at least vaguely competent?

I'm getting increasingly worried that the paid-by-popular-vote approach is going to induce anyone competent at RBS to jump ship to Barclays / HSBC / JP Morgan / Goldman Sachs (forget Morgan Stanley, they're heading down the tubes) leaving us with the dregs who will be satisfied with a 5-digit salary and a shot at an unfair dismissal claim in a year or two. Good luck getting back any of that money.

In hindsight, HMG should have nailed down Hester's base salary, conditions of bonus and long-term share benefits when he was appointed, which would at least have let them say "it's contractual, we can't touch it" when the poorly-paid and semi-numerate yellow press started to bay. Hester and his cohorts should have had the bulk of their compensation tied to RBS's long-term health and the value of HMG's stake; I guess we couldn't expect Gordon Brown's epic financial management fail to improve when it came to negotiating terms of the bailout. Still, this is where we are now, and we have to make the best of it.

The masturbating MPs wanting to summon Hester and grand-stand over his pay packet should be forced to come up with an alternative, and wager their future salary and pension rights on the success of that alternative.

Update:

• (2012-01-29) Stephen Hester is forced to give up his bonus by grandstanding MPs
• (2012-01-30) RBS drops 3.5% and the taxpayer loses £580m as investors take fright at Government interference; Lloyds drops 4% and taxpayers lose another £300m.

Good job chaps!

Well, Nick, it's a start

The Clegg is cheerleading the approach to raise the income tax threshold to £10,000 which your humble correspondent can only applaud. Taxing anyone who receives a significant amount of benefits is demented.

But how to pay for this munificence? Sadly, Clegg is less innovative in this regard: "tax increases for the wealthy" seems to be the order of the day. I've got news for you, Nick; the wealthy (over £100,000/year gross income) are already being taxed pretty hard. They don't even get the benefit of the tax allowance, so all their income is taxable.

As the Inland Revenue itself notes:

From the 2010-11 tax year the Personal Allowance reduces where the income is above £100, 000 - by £1 for every £2 of income above the £100,000 limit. This reduction applies irrespective of age.

So start with a salary of £100,000 p.a. Gain an extra £15,000 and how much of it do you see? You're taxed at 40% plus 1% employee NI (let's ignore employer NI for now) so that's £6,150. You lose all your £7475 allowance, so suddenly you have £7475 income liable for taxation at your rate of 40%, so that's £2,990. You lose £9140 of that £15,000, or a little short of 61%. Surely that could be regarded as a sufficient tax rate; do you really want to lower the 50% tax band entry point? The 50% rate itself is starting to tip over the top of the Laffer curve and you'll be pushed to sustain its revenue increase as it is, let alone what would happen if you upped it to 60%.

No, I have a better idea. The higher rate (40%) applies from £35,000 of taxable income. Let's phase in a reduction that results in applying it from the median income of £26,000, which is £18,500 with the current tax allowance. That should (finger in the air) more than compensate for the loss of tax income from the lower band. You can't argue that the poor are being hit; by definition, it's the top 50% who pay. What's not to like?

Of course, the effect of this might be to make the taxpayers look much harder at where their money is going...

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.

When even the Guardian commentators lose sympathy

Argentinian and Amsterdam-dwelling hip chick Flavia Dzodan decides to write a comment piece in the Grauniad on how colonialist David Cameron appears to be about the Falklands:

With this comment Cameron did a bit of historical "re-arranging the furniture". He conveniently forgot to mention that the inhabitants of the Falkland Islands were expelled by an act of force in 1833, and the current population descends from the people brought by the British to replace the Argentinian inhabitants. By definition, this is an act of colonialism.

The CiF commentators aren't as sympathetic to her point as she might have hoped. It turns out that other people such as bangorstu can use Wikipedia too, and read out the bits she left out:

The original inhabitants WERE NOT evicted in 1833.
The original inhabitants were French colonists in 1764.
A year later the British arrived in the islands and established another colony, in ignorance of the French presence.
Note all of this happened six decades before Argentine independence...
The French agreed to leave in 1766, and there was a diplomatic tiff with Spain which nearly led to war.
The British left around the time of the American War of Independence - but left a plaque noting that they had not given up sovreignty.
The Spanish ruled part of the islands from Buenos Aries until 1811 whereupon they left - again, leaving a plaque.
On independence the Argentinians attempted to annex the islands - leading to the 1833 incident. They had no right to do so, and the colonsits were evicted.
But this Argentine whinng about their 'orignal inhabitants' ignores three separate colonies from three different nations which had existed before they were even independent.

Quote of the month from commentator slimpanatella:

Galtieri waved his cock and got it bitten off. Deal with it.

The comments are a treasure trove of colonialism, in the unlikeliest of venues:

Im not very patriotic (being of immigrant stock) but a few years ago whilst staying at a backpackers hostel in Buenos Aires I was so incenced to see on a big wall map "Islas Malvinas (Ar.) I took my biro and crossed out the (Ar.) and wrote (G.B.).

Poor Flavia must be thinking she posted to the Daily Mail by accident. A word to the wise, darling: don't fuck with the Falklands. Argentina had its chance, and blew it.

Zoe Williams can't do thinking

Zoe's contentious thesis in the Grauniad today is that we (the taxpayers) pay the £6mm salary of Tesco's CEO by funding in-work benefits (housing benefit, working tax credits etc.) out of State coffers; this allows Tesco to pay its workers less.

Ahem.

While I realise that Oxford historians don't have to be strong on maths, I thought their tutors would at least encourage them to do some research and challenge unfounded assertions. It appears that Zoe has forgotten, or at least repressed the memory of, those tutorials.

So let's take a Tesco worker who works 35 hours at £5.50/hour (say), and let's say that Zoe's idea of a living wage where this worker lives is £8.50/hour. During one week the worker is short £105 which the Government makes up in working tax credits, or in the region of £5000 a year (the worker's gross pay is £10k, made up to £15 by subsidy). Tesco certainly employs way over 1200 workers at this payscale, so that's certainly £6mm and more that the Government is "subsidising" Tesco. So far so good.

But how do we fix this situation?

No more subsidies; remove the tax credits. Great! Now Tesco has to spend the extra £3 / hour itself to pay the worker a living wage. Except that it won't. The salary for the worker is determined by productivity. If the worker can't do more than £5.50/hour of work, it's not worth Tesco hiring him or her; that work will go un-done, or Tesco might spend £7/hour equivalent of capital and running costs of machinery to replace the worker. If the worker's work was worth £8.50/hour, Tesco would pay it; it already does so for its more skilled employees who are harder to find and worth more. Oops. Plenty of people willing to work at £5.50/hour even without those tax credits.

Removing the subsidy also makes work less attractive for the worker; now instead of £8.50/hour he or she only gets £5.50/hour. Combined with the high marginal losses of tax, NI and loss of benefits they will be no better off than not working, except now they have no free time and are tired. Nice job!

Let's raise the minimum wage to £8.50 instead, so we make work more attractive; sure enough, it's more attractive than not working now even allowing for the high marginal tax rates. Erm, except that a large number of jobs are going to vanish; as noted above, if workers can't produce £8.50 / hour of work, they're not going to be employed. Tesco and the other private sector employees are not charities. If you make it uneconomic to employ people they're not going to build stores.

Here's an idea instead: let's allow the worker to keep his money in the first place. Let's ensure that he keeps all that £5.50 / hour, with none of it going in tax and NI. For NI for 2011-2012:

if you earn more than £139 a week, you pay 12 per cent of the amount you earn between £139 and £817

so the employee is paying £6/week, and his employer similarly: that's £12 of his gross. Weekly tax allowance is £143.75 so he pays 20% of the £50 or another £10. So he and his employer are paying £22/week for the privilege of him working at minimum wage, with a 44% marginal tax on every additional £1 he earns. How is this sane?

Let's taper off benefits more gradually. Raise the bloody income tax threshold over £12000 and NI threshold similarly, and cut at least one of employer or employee NI before about £15k of income. That means less income tax collected, which means that the Government has to spend less, but at this point I view this as a feature, not a bug (Chris "Windmills" Huhne, I'm looking at you).

If you actually want people to earn a "living wage", you have to make their labour more efficient and therefore worth more to the employer. But this involves better education and practical training, and that seems to be out of fashion at the moment. Alternatively you could introduce full employment (so employers have to compete to attract workers); I think we all remember how well this worked in the former Soviet bloc countries. Zoe's old enough to have travelled to East Germany before the fall of the Berlin Wall so she has no excuse for peddling tripe like this article.

BRICing it

For those unfamiliar with the acronym BRICs, it was coined by Jim O'Neill of Goldman Sachs to reflect his perception of the economic potential of Brazil, Russia, India and China; four very populous nations (nearly 3bn people in total; did you know that Brazil's population is a good 30% larger than Russia's now?) with apparently huge potential for growth in the coming years.

Last November, O'Neill reflected on the BRICs 10 years after coining the phrase and concluded that they had grown massively and there was still about the same growth amount to come in the next decade. His BRICs letter emphasised the strength of the BRICs economies against the (unarguable) poor performance of the Eurozone, and concluded that it would be full steam ahead for 2012-2021.

What I find remarkable about the article is how completely it ignores the elephant in the room, which is the political environment in Russia and China (and, to some extent, India) which seems to this humble correspondent a huge landmine underneath their economic growth. For Russia in particular, one has only to read the Streetwise Professor to see the horrific political landscape of Russia which acts as a huge disincentive to external and internal investment: why risk money in Russia when any upside will be devoured by politically connected "partners" and any downside owned by yourself? China may have embraced limited capitalism, but there's no mistaking the political totalitarianism behind it; witness Google's tussles with China and the impossibility of referring to the Tianamen Square Massacre via the Net in China.

Russia as an oil and gas source used to have Western Europe over a barrel: now that shale gas is going big in the UK, this isn't going to last. China thirsts for minerals and oil to feed its boom, but that boom is now a bubble and the longer you keep a bubble blowing, the louder the 'pop'. Who's going to bale out the Chinese local banks with huge but worthless retail and residential property portfolios? The USA is conducting a very successful stealth default-by-devaluation, and China is on the losing end.

I had high hopes for India, but it appears that the temptations of power are too great for the government and it wants to censor information to save the blushes of the powerful. There is no way this ends well for the Indian populace: once the precedent has been set, more and more censorship will be made to hide fraud, abuse of power and huge waste of public money. How can external investors have confidence that the sunlight of publicity will be allowed to shine if backroom deals are arranged to bilk them of their profits?

Of Brazil I know little; I'm naively hopeful that they can drive an economic revival and political liberty in South America, but it's early days.

DSK and his working girls

Dominic Strauss-Kahn, fondler of the help and occasional IMF chief, seems to be in a spot of bother vis à vis his participation in swingers' parties, with his lawyer claiming that DSK may not have been aware that the 10 women sharing his bed were prostitutes:

"At these parties, people were not necessarily dressed, and I defy you to tell the difference between a naked prostitute and any other naked woman," he said.

Well, DSK, with a face and body like yours it should be easy to tell. If you find a woman voluntarily sharing your bed, someone's paying her to be there.