Andy Burnham and the way to regional productivity

Andy Burnham  has mentioned land value tax as a specific policy. He is clearly thinking beyond  Mansion Tax which is already planned for 2028 but only applies to dwellings valued £2m value and above.  

This blog supports the idea of a land value tax on the value of all land and for a land tax on residential land it should be allowable against personal income tax paid. This will ease the transition of the  reform as it will take into account the ability of the owner to pay and for most will not be an extra tax burden.  Those unable to pay due to low income should be able to defer some of the tax until a sale. 

Fred Harrison the UK's leading advocate of land value tax has just released a YouTube video:  Why Andy Burnham Will Fail: Fred Harrison on Britain's Last Chance  on which he says that Burnham's idea of spreading prosperity from London and the south-east  will not work unless money goes out from London. Land value taxation of itself will not achieve regional prosperity.  Harrison explains that Ricardo showed that the spare  wealth of a country after the basic costs of survival gravitates towards the centre of highest  productivity and finds its way into land values (also known as economic rent). For the UK, London and the south-east is where it mostly ends up. Fairness dictates that London's wealth  should be spread out.

A very comprehensive way of achieving this is to start issuing  universal basic income (UBI) to every person in the UK  using the tax from the land value as a way of redirecting land wealth. This would channel the land wealth gains direct to individuals and households who would then have the choice of spending  it, rather than a council or a quango having that choice. The poor who rent would be quick gainers with new income but without land value tax to  pay. Regionally local businesses activity and investment would pick up and the prosperity of the regions would grow.  The UBI  would be the same for all and without means testing and its value would be greater away from London as costs and prices are often lower there.  Because UBI would be guaranteed into the future it would encourage people to spend and this would raise economic activity.  

Annie Miller in A Basic Income Pocketbook shows that it is likely that costs of the new UBI measure would exceed current welfare costs  so higher taxes on the wealthier would be needed. This would come from the higher value of the land  their larger and better located houses are built on. 

Increasingly taxing land and not buildings would mean that other taxes could be reduced.  Land values are a product of the whole community's success and it is equitable to share that gain for the common good. Taxes on work and on goods are  a disincentive to work and produce and they should be reduced.

Posted by Charles Bazlinton. Author: The Free Lunch - Fairness with Freedom 

Sunak vs Truss: Debt, Inflation and Levelling Up

The Conservative leadership contenders ask:  When does the Covid-induced public debt start to get paid off? What about inflation if we reduce taxes to ease household finances? How do you achieve levelling up?

A FT letter writer Mark Hofman in August 2020  said that in the example of Japan which has had huge public debt levels for a long time:

     'government bonds held on the balance sheet of the Bank of Japan are effectively the Japanese government owing the bond debt to itself...so why not put a line through those entries on each side of the balance sheet? The level of debt would be reduced without the        taxpayer having to pay anybody anything, and with nobody being poorer.' 

If there is a possibility of inflation due to this he says it can be resolved by raising the reserve requirements of commercial banks at the central bank (in the UK's case - the Bank of England). He asks: Why consider the conventional way of paying off this debt with taxes for generations, when there is a better way?

Beware of suggestions that governments are like households and must not spend beyond their income.  Householders are not like that as they cannot create their own money whereas sovereign govenments, with careful monetary control can do so safely, as Hofman describes. 

On levelling up:  Change how tax is raised by levying a small annual charge on the value of all land, including the value of the land footprint of all homes. At the same time any tax raised in this way would be allowed against a personal income tax liability. For many homeowers the total charge would not change. 

Benefits would accrue:

• House price rises - now with a land value levy - would slow or fall and homes become gradually more affordable since speculation would be damped down and a steadier market would encourage first time buyers. 
• Homes would become less attractive for pure investment rather than for living in personally. Recent governments just subsidise new buyers which raises the price of homes and brings developers more profit. The crazy price boom continues.
  
• More homes would be built as development would be encouraged - for example a house with a large plot would be built on to share the land value levy over new, extra homes. Or an extension to create a separate rentable flat. New homes would be built to low carbon standards. Countryside would be preserved.
• Renters would be helped as the land charge would be on the landlord. Landlords would be anxious to have their property occupied at lower rents rather than keep homes empty waiting for increased rent.
  

Levelling up at a stroke, for many. Those who are land rich and income poor, thus short of cash, would be allowed to defer payment until they sell the home. 

The young would be able to consider buying and homeownership would increase. Older people in large homes would be nudged into downsizing. The increasing wealth divide between homeowners and renters would ease.

For the common good we need such monetary and taxation policies. Which candiate, or party, will grasp these choice fruits?  

Posted by THE FREE LUNCH - FAIRNESS WITH FREEDOM Charles Bazlinton

             

Merryn Somserset Webb favours land value tax

In a philosophical article in Saturday's FT (4 December 2021) Merryn Somerset Webb writes that she 'favours land value tax'  as she explores aspects of ownership and capitalism.  She refers to land wealth as communal wealth.  The article is about  how selfish we allow our society to be.

Owners of land are gaining as 'house prices' keep booming everywhere. People and firms are putting their wealth increasingly into property and prices are responding - upwards. Just take note that every building deteriorates so the gain is in the underlying land value. Lloyds Bank's new chief Charlie Nunn is hoping to quadruple 'the budget for its private home rental market'  (FT 6 December 2021) which is great for landlord rents and the bank gains the security of the underlying land value gain but not the renters. 

Value in land is largely dependent on location, which is about the ease with which work can be found nearby, such as rail links, good roads, business employment, etc. These things are nothing to do with the land owner's skill - but rather utility providers' provision of good services and such things as planning permission. The land owner can make a desirable valuable house which takes cost and ingenuity but the land value is quite outside their ability to make any individual difference to, land value is a gift from society, the community around. It's just that owners get the gain but renters don't.

This quite unfair situation has another facet for end of life social care. The current plans (see Kings Fund) are for there to be an £86,000 cap on care charges. The scare is that homes may need to be sold to pay for care at some point.  Will a home be safeguarded?      

A much fairer method of paying for care is to tax land value. Almost every piece of land with or without a house or building on it has  value and a small percentage tax charged every year would go to providing end of life care for all. Those with the higher priced property would pay more which would be proportional to the gain in value that society has created on their land.  In the setting of land value tax a allowance below which no land value tax would be payable would be set, so that many poorer homeowners would be land tax exempt. Renters who will never have any prospect of land value gain and thus no land tax, would gain the universal state-provided care but not be charged at any time. Home owners would be paying over some of their lifetime property gains for their later life care as they pay the tax. 

These ideas should be seen in the context of wider tax reforms where income tax paid would be allowable against a liability for land value tax. A gradual tax shift from tax on wealth gained through work onto community inspireded wealth would happen. 

Fairness comes through using community inspired wealth to pay for community needs.

Charles Bazlinton. Author: The Free Lunch- Fairness with Freedom

After the long Brexit eve, a brighter post-Brexit dawn for citizen empowerment?

The eve of Brexit extends now to two years, but how long yet? Since the referendum we have  been in a state of flummox. The bewildering closeness of the pro-Brexit vote in 2016 is now no more decisive, as a perplexed House of Commons tries to decide on the merits of Mrs May's EU leaving deal. Admittedly such a complex thing as a divorce after 40 years between a largish nation and a larger conglomeration of 27 more is bound to be protracted, and any deal bringing a 'satisfactory' outcome for both sides will get brinkmanship added to the bewilderment. So not much hope for a smooth and speedy deal.

Meanwhile urgent matters outside the all-absorbing black hole that is Brexit are neglected. The Universal Credit rollout continues to falter, and volunteer food banks (e.g.The Trussell Trust) get busier relieving the poverty arising from government failure to think the UC project through. Deaths of street beggars have increased with the average age of death of people in their early forties. These are shocking facts. As Bishop David Walker stated on BBC Radio 4 today  (appx. 3 minutes in): The reason so many are increasingly on the streets is they are 'simply there because they are poor'. They are falling through the holes in the welfare safety net, and clearly UC is not helping. The long eve of Brexit is being characterised to ordinary people by such as a parliament fossilising into a prolonged talking shop on only one subject and steadily rising deaths of beggars on our streets - a symptom of a failing welfare system. If such things happen in a relatively benign economic scenario imagine the challenges when a downturn comes. If over 600 MPs and their staff cannot sort out such fundamentally vital human problems is not our democratic system under question? A government with a large majority can choose what it will do, our government has no majority so why can't MP's combine cross-party on non-Brexit essentials?  

The shelving by government of new drone regulations in early 2018 has brought us this last week to the closure of Gatwick airport apparently through one nuisance drone. This bizarre aggravation just adds another notch to the failure tally of a government refusing to, or incapable of, focus on anything outside Brexit. UK people are being extraordinarily patient.

David Walker: The reason so many are increasingly on the streets is they 
are 'simply there because they are poor' 

The Conservative government is running scared of Labour waiting in the wings to take over and tries to frighten everyone of the possibility. Mrs May, having declared her, albeit deferred, resignation as party leader is now a self-wounded warrior leaving no obvious candidate to lead into the next election whatever Brexit deal triumph she may be able to surprise us with.

It seems Labour is aligning with issues the public feel need sorting:

• affordable housing to bring a lost generation of renters into home ownership 
• re-nationalisation of railways and water to stop the gravy train of top management and shareholder rip-offs at the expense of consumers
• the scrapping of universal credit to set in place a fairer system 

Let's hope what they are planning are long-term solutions. Look no further than this blog for:

• monetary policy so as to buy up utilities with fiat money at no interest and debt (this blog Dec 15, 2017)
• the replacement of Universal Credit with non-means-tested Citizen's Income (this blog Jan 30, 2018)
• the funding of Citizen's Income through land value tax, matched with income tax reduction (this blog Jan 30, 2018). 

Will there be a brighter post-Brexit dawn? If Conservatives can't get the vision and leadership for citizen empowerment maybe Labour will. Something must be done. 

The Free Lunch - Fairness with Freedom  UK £3 (post free). 

What John Kay & Citizen's Income Trust agree on about basic income

Professor Kay thinks basic income for all (not means-tested / tax-free / regular) is unaffordable. His article  (Intereconomics 2017/2) carefully analyses several international proposals, but it does not take full account of the work of the UK's leading advocate for basic income the Citizen's Income Trust. CIT is confident that their revenue-neutral scheme would make a positive start on the road to a larger regular income than their initial scheme allows for. As they say in their critique of John Kay's investigation: 'What matters is the direction of travel'. CIT's scheme retains many existing welfare benefits - essential due the the low level of basic income needed to be revenue-neutral, but it is only a start. John Kay seems to assume a full 'living wage' basic income must be affordable immediately or he won't consider it relevant: 'basic income is a distraction from sensible, feasible and necessary reforms'. Both he and CIT acknowledge there could be sources of revenue yet untapped for a full basic income, but whereas Kay shies away from the political difficulties of that, CIT sees the start of an evolutionary reform away from the complexities of current welfare and its disincentives to work.           
One effect of a citizen's income is that some will use it to pay for better housing with rents and house prices likely to be pushed up. It is fairly clear that the incentives given out by recent governments to first-time buyers are a factor in rising house prices. A new source of income from a regular basic income would enable buyers to afford larger mortgages thus adding to the price hike. For every new £100 per month available at 2% interest another £20,000 of mortgage is freed up, driving straight through to rising prices and rents.

This blog has always advocated an holistic approach to citizens income to prevent bad side effects. After all if the housing market is encouraged to let rip even more through a basic income aimed to alleviate poverty, what help is that to the poor?

This is not the state planning for citizens
but citizens planning for themselves, 

empowered through a basic income.

To block that perverse effect of such a benign thing as basic income, what is needed is the levying of land value tax. This to be charged annually on the underlying land value of the building + land plot. It would have a braking effect on house prices as property owners who could not afford the levy would sell. Mortgage providers whilst assessing the added basic income would have to consider the expense of a regular land tax levy and this would reduce the potential of greater credit, which would lead to price restraint, and not, like the government help-to-buy schemes, a price bubble. 

The levying of LVT would raise a fresh source of government revenue concentrated at the higher property value end (see below). It would address the acknowledgement by both John Kay and the CIT that more revenue is needed to make a basic income more effective against poverty. The national pot to run a comprehensive welfare system founded mostly on basic income is currently limited. But the time is approaching when the the huge shift of younger people excluded from property ownership through unaffordability, will translate into a ballot box revolt in their favour. If we are to continue to believe in a fair society, the haves - the larger property owners - sitting on the accumulating nest-egg gains in their land values, will eventually have to release some of these sooner than at their demise through estate duties.

Land values, as clearly spelt out in The Free Lunch - Fairness with Freedom arise from the efforts of us all and are a common resource to be shared. A good start to implementing LVT would be to make a regular charge on a percentage (say 25% representing the land) of the property's value. For political acceptability the overall charge per household would need to be cost neutral for the bulk of hometypes: thus whatever was paid in LVT would be an allowance against a homeowner's income tax. Those in high priced properties having lower earnings would need to consider selling up which would bring a downward pressure on the market and help alleviate the housing shortage. The net LVT raised would go towards increasing the basic income for all. As well as estate duty, transaction taxes such as Stamp Duty could also be abolished and bring a new liquidity to the housing market to the benefit of those needing larger accommodation but prevented by the existence of many under-occupied homes. The Annual Tax on Enveloped Dwellings owned by companies is legislation that taxes total property value and would need modifying to catch land value only, to adapt it for LVT purposes.   

For the hard case of property-rich / income-poor homeowners with a liability for LVT greater than their income tax liability a deferment scheme should be allowed so that the accumulated  LVT would be a registered charge against the property, payable on the next sale.  

Whilst we must be grateful to John Kay for crunching the numbers, the philosophical and moral case should be addressed. The Free Lunch - Fairness with Freedom  makes the case for putting the citizen at the focus of politics. This implies the acknowledgement of particular rights for people and the expectation of particular responsibilities from them.  A basic income is essential if this concept of  a new 'citizen focus' is to have real meaning. This is not the state planning for citizens but citizens planning for themselves, empowered through a basic income. It is a combination of increased fairness and increased freedom for everyone.

Posted by Charles Bazlinton. Author: The Free Lunch - Fairness with Freedom  

A Citizen's Income for all would fairly address immigration too

The Occupy movement of 2011: ''we are the 99%'', fingered the top 1% in terms of income and wealth (25%/40%). Economist Joseph Stiglitz had published a paper in May saying these 1% are typical of the wealthy though history who whilst taking to themselves the best of education, doctors, houses and lifestyles, do not realise until too late that their fate is tied up with how the other 99% live.

Slow forward to 2017. Are lessons being learnt? Not if the Prospect magazine February 2017 article 'Voting out' by Tom Clark is a guide. Clark reviews a couple of books Against Elections (David Van Reybrouck) and Against Democracy (Jason Brennan). Apparently in the future we may need to be either a liberal or a democrat: 'The educated bourgeoise will put its own liberty ahead of other people votes'. Already in the US it seems that these trends have form, witness the deliberate disenfranchisement of black voters taking place. In late 2016 a court struck down laws having  'discriminatory intent'. Onerous regulations around voting can prevent or dissuade electors to enter their vote. Beware. Clark quotes a Daily Telegraph article by Ian Cowie who in 2011 proposed limiting the vote to those who pay tax. The recent Brexit and Trump votes may bring more such ideas aimed at those who didn't get the vote 'right'. The time is ripe for the issue of 'citizenisation' to be taken seriously - a central issue of the book The Free Lunch - Fairness with Freedom.

If the powerful really are so concerned about loss of their economic status quo that they will resist popular moves to level the playing field a little, what should we do? Justin Welby Archbishop of Canterbury  in The Times (11 Feb) when launching his book Dethroning Mammon, says that the trickle down effect of letting the rich make wealth in the hope that some gets to poor, has been shown not to work and thus the rich should pay more tax. Fair enough as far as it goes but how do you get permanent poverty alleviation?

One part of the solution is a Basic Income for all   (also known as Citizen's Income or Citizen's Royalty). This involves a regular, non-means-tested payment for everyone. The New Statesman quotes a scheme for the UK having an age-graded payment from £56 to £142 per week to all, even children, (leaving in place housing benefit and disability allowance). This payment would be instead of child benefit, income support, jobseeker's allowance, national insurance and state pensions.  It would be nearly revenue and cost neutral and would massivley cut bureaucracy. Most importantly it would remove the current disincentive to work for those on benefits currently who face swingeing losses through tax should they get a job. An additional benefit from this, with immigration being a worldwide issue, the payment of a basic income to all citizens - having a valid national identity - should allay fears of  'welfare immigration' at least.

However, whilst this is the obvious and simple solution to poverty, an adverse effect would be that in giving cash to all, some of those who receive it as an addition to an already sufficient income may use it in the housing market. A basic income for many such will enable them to do a property upgrade and thus fuel house price rises. Law of unintended consequences: those people who now rent and are just below the property buying level will find their hope of having their own roof over their heads rather than a rented one, pulled away from them.  And the irony would be this was caused by a measure that set out to help the poorest who are overwhelmingly renters of their homes!  We are increasingly a divided nation of home owners and home renters.    

The answer to this to levy land value tax on all freeholds. This would cover the land value of the plot and not the building value - a tax on say 30% of the 'house price' seen on property websites. There could be a basic tax free 'homestead allowance' allowance before tax is due to cover houses below the average value. The next step is to set the land value tax liability against any income tax paid so that the net, after-tax, income of most individuals and households would be unaffected. For property rich / income poor people the payment could be deferred until eventual property sale. Inheritance tax might be reformed at the same time. It should be possible for the general mass of taxpayers to be relatively unaffected. Taxing land would also bring land forward for building homes which would solve another problem.

As the Archbishop says the richest should indeed cover the bulk of the cost. A problem in making a real difference to poverty and maintaining freedom for all is, of course, human selfishness. If I am to be stung with just a little extra tax because I am fortunate enough to own a freehold property, should I vote for that as one of the 99%? Archbishop - what would you advise?

For a discussion of basic income, land value tax, and general issues of citizenisation, see The Free Lunch - Fairness and  Freedom.  A basic income is currently being tested in Finland.

EU Referendum: Fairness & Freedom - that would really make a difference

George Osborne thinks house prices may drop from 10-18% in the two years after a referendum vote to Leave the EU on 23 June. Private Eye (16 May) had Cameron saying:
'There could be a World War'. Osborne: 'Or even worse, house prices might fall!' 

What is fascinating is the importance of soaring house prices to him. For his recent efforts in boosting them with the Help to Buy scheme, see this blog March 6 'The Idolatry of our House Prices' . If his views as to what strikes terror into the hearts of home-owners are politically accurate it says little of voters' feelings for aspiring buyers for whom dropping prices would help. Come on George aren't we 'all in this together'? Raise our sights and help us to think of other's needs!  But meanwhile let's nominate him as High Priest of the religion of house prices. No salvation for the renters - the good times and the 'free lunch' asset gains are not for you. 

Another person trying to scare us into voting Remain is the President of the European Commission Jean Claude Juncker. The Times reports  (May 21) that after a Brexit vote 'the UK...won't be handled gently'. At the same time he urged France to demand deeper EU integration. So in a double revelation he exposed his threatening attitude to Leavers in the UK and his aim for closer union in the EU, which David Cameron allegedly has had an 'opt out' from. Will Mr Juncker suddenly turn very accommodating on this if we vote Remain?

A word doing the rounds in the media describing a political trend is 'populism'. Philip Stephens in the FT 27 May 'The myth of Brussels (mis)rule'  writes a very reasonable account of how (thus far) the UK has run it own affairs in its own sweet way, so pay attention Leavers. And Remainers shouldn't exaggerate about 'war and pestilence' after Brexit. 

He blames demagogues like leading EU Leavers, Donald Trump and Marine Le Pen for using 'Take Back Control' as a 'marketing meme' because: 'it speaks to the populists' contempt for reason' . So Mr Stephens, anyone getting a little edgy that future closer union in the EU might lose UK sovereignty a little too much even with David Cameron's 'opt out', is guilty of 'contempt for reason'?  The extremism he accuses some Leavers of, is at least matched in this 'contempt'. I suppose even the best of us can show fleeting irrationality at times. 

The 'Fairness with Freedom' sought through this blog asks now of the EU debate : Will a vote for Leave or a vote for Remain, better bring fairness and freedom for the the individual, their family and their grouping? A Basic Income (aka: 'Citizen's Royalty') for every  citizen as of right is likely to be the best way to achieve this. The FT 27 May 'Money for nothing'  has a full page spread on the topic and nations looking seriously into it include Finland and Switzerland. Matthew Taylor of the UK's RSA is excited by the idea ('Universal Basic Income') see this report  by Anthony Painter and Chris Thoung. 

Let Leavers and Remainers become populists for Basic Income and maximise their causes for fairness and freedom which is at the heart of it all. Bring it on! 
Posted by Charles Bazlinton. Author THE FREE LUNCH - FAIRNESS WITH FREEDOM. 
.

The Idolatry of our House Prices

How long will the UK housing bubble last? Max Keiser and Stacy Herbert host a world-ranging video discussion of current housing bubbles and related economic news (particularly Australia and UK/London) with Prof Steve Keen and Ross Ashcroft [KR883] Keiser Report: Global Housing Bubbles .  

In London the Cameron/Osborne government has added credit fuel to the housing mortgage market. What started out as Help to Buy (2013) has just become London Help to Buy and 200,000 first-time buyers under the age of 40 will qualify for an initially interest-free loan (after 5 years you pay a 1.75% fee i.e. interest) for a newly built home. This is a government guarantee to the mortgage provider that the extra deposit money is safe, but not a guarantee for the buyer if they fail to pay back [NB. Beware a lifetime debt millstone and no house if you default]. Steve Keen says that this scheme to boost an obvious asset bubble is being launched by people 'who don't understand the system...they have power, not control' Max K. asked why, when the global macroeconomic tendency is deflationary would a government encourage investment which is based on inflation? Ross Ashcroft thinks they are 'terribly deluded'.  

So are we in the UK  due for a re-run of the Japanese housing boom/crash from the peak around 1989/90? With (27 years later) the Japanese index showing an 80% drop from peak prices. Steve Keen thinks the current UK government has some scope for 'dragging people into this market for a while' because the UK proportion of mortgage debt to GDP is 70% and falling, but Australia is more dangerous as the figure is 95% and rising. 

Another bubble detector by way of a contrarian indicator was suggested from Japan at the time of the 1989/90 peak. Then, 9 out of the world top 10 banks were Japanese; now, with Australia having 3 of the top banks OZ may be at a similar danger point, with the New Zealand financial and banking system also dangerously exposed. Prof Keen says the cause of the bubble is the banks creating credit which feeds the property price rise. He says it is a myth that government spending caused the 2007/8 credit crisis, the cause was a private credit bubble which burst. The current government has it that the previous Labour administration's need to raise government spending to compensate for the crisis was the cause of the crisis! So now the cut-back in government spending and the ensuing austerity makes the problem worse - as more people become unemployed with less spending power.  

'There is free lunch in the housing market' said Stacy, and Max agreed: 'many, many free sandwiches in housing in the UK!'. Phrases chiming in step with the book The Free Lunch - Fairness with Freedom .  Brian Wakelin at Christ Church, Winchester on 21 Feb 2016 (Our Response to World Mission: Isaiah & Matthew) called the widespread attitude to the phenomenon 'the idolatry of our house prices' [audio: at min. 2m 00s.]. But young people are unable to buy or even to rent locally. 

As Stacy pointed out (agreeing with Brian Wakelin's sermon point without the theological terms), the general population is indeed complicit and likes the chance of a gain through government subsidy such as London Help to Buy, even though only a few get it - 1 in 10 among 2 million renters. 

So where are we in the bubble cycle? Fred Harrison for years has warned of the 18 year peak-to-peak property price index. He told the New Labour government when they took power in 1997 about a coming 2007 peak (which happened); that a financial crisis would be caused by the housing market breakdown (it was)  and that a recession would ensue (it did). The Max Keiser panel last week reminded us that Mark Carney now Governor of the Bank of England oversaw a house price boost when running banking in Canada and that the same is happening now in the UK. So with the power of the Bank of England behind Chancellor George Osborne's encouragement of property speculation it would be brave to say the price peak has already been reached and the bubble is about to burst. Albeit any temporary slowdowns which may happen to confuse. 

George Osborne is raising his tax take from high value property with new taxes which is suppressing those prices but not making the houses more affordable, because of the high tax charge. Offshore-owned homes are to be subject to an annual tax which is really the most sensible property tax, but it should be on the land value of all the real estate and apply whoever owns the underlying land. This would moderate the housing market making homes more affordable. 

We await a Chancellor and a Bank of England Governor who could extend home ownership by lowering prices through land value tax without crashing the system. Is anyone clever enough? Making an annual land value tax charge an allowable deduction against annual income tax would probably be an essential start.
Posted by Charles Bazlinton. Author The Free Lunch - Fairness with Freedom

QE: easy for the rich. Kaletsky's QE: easier for the poor. Corbynomics? Bank of England independence.

Last week's blog had Natalie Bennett at Making Money Work, asking: Could monetary policy do anything about inequality? Steve Keen said that dealing with private debt would address inequality and it was his suggestion that one-off payments to everyone could tackle this, on the condition that debts be repaid first. Lord Turner didn't think there is a 'magic...costless way' of addressing inequality - the way to do this is progressive taxation.

Philip Aldrick (The Times 19 Sept) QE spared Britain a recession...  is particularly clear that monetary policy increased inequality by creating asset price bubbles such as in gilts, bonds and house prices. Inflation is rocketing in these assets, leading, for example, to fading hopes for first-time homeowners.  Low interest rate funding and high demand from UK and non-UK owners buying to let inflates this bubble. [ Private Eye has a searchable map of such overseas owned properties using Land Registry data. Check your area! Whole streets in London are foreign owned].

Clearly monetary policy as carried out since QE in 2009 has increased inequality in housing. But Anatole Kaletsky in Prospect Magazine: How Corbynomics could work  has a neat solution. Instead of QE's £375bn spent to prop up financial markets ('making the rich richer') he proposes that this could have been spent by being given via a weekly £20 payment, to every 'man, woman and child in the UK' until UK growth returned to pre-crisis levels. He proposed this back in 2012. The Free Lunch Blog mentions it here.

So monetary policy could reduce inequality - since equal payments to all inevitably raises living standards proportionally more for the less well off. As long as conditions are strictly adhered to as to the eventual termination of the payment no harm would be done.

That would be a temporary remedy for a sluggish economy. (NB: temporary QE has lasted 6 years so far). But politicians would be wary of the dangers of launching such a citizen-based policy because it would be difficult to stop politically when the monetary need was over. What would be needed to take over would be a similar payment to all but funded by reform of the welfare/tax balanced budget. Such a Citizen's Dividend / Basic Income would need to be established by the end of the monetary booster to avoid the pressure on politicians to extend the  monetary policy dangerously beyond its period of monetary need. Basic Income UK and Citizen's Income Trust have the details of an unconditional non-withdrawable payment to all, as of right.and it is broadly affordable within current budgets. That is the policy that would establish a new citizen's right, like voting, education and a health service.

Another use of monetary policy to promote sustainable growth is suggested by Prof Richard Werner: that credit creating institutions could provide monetary incentives for education purposes '$100,000 for each child born...such a policy would not be inflationary: among all inputs into the production function, human resources are by far the most important.' (New Paradigm in Macroeconomics p340).
To ensure good education for all must be among the most effective ways of poverty reduction and thereby inequality.

Inequality reduction by monetary means would not be magic - merely an effective policy against poverty and as a means of growing the economy.

But QE is magic - for wealthy people. From early 2009 when QE started the UK FTSE 100 share index to date has gained over 60% & UK house prices have risen 67%.

Strange how central bankers and governments fail to take easy steps to help the poor but so easily open doors for the rich to garner greater riches. The Monetary Policy Committee at the Bank of England has met dozens of times since QE started and resolved every time to keep interest rates at 0.5%. Their learned deliberations have now blown up another asset price bubble. Is the BoE really so partisan that it cannot think beyond top layer wealth creation as the sole answer to the crisis? Is it really there for the good of all - as might expected in a democracy? Presumably our government in meekly acquiescing to a measure that has achieved so little for so long, wholly agrees with it.

Bank of England independence is strongly defended. The question to be put is: How dependent on central bank policies ought the government to be?        

Budget July 2015. Comfort for the comfortably off. Worries for the vulnerable.

After experiencing a very even-handed general election bringing a startling Tory win, our Chancellor George Osborne in his July budget has slammed Labour relentlessly against the ropes in his 'socialistory' budget. With eye-popping boldness he is interfering with the wage market and forcing firms to pay more than Labour's promised minimum wage and has trashed Gordon Brown's tax-credit machinations of many years - both at the same time and rather deceitfully naming the new minimum a 'living wage'. He is neatly using this second five year parliament to stretch (or excuse) his deficit reduction goal yet again, to 2019-20. Useful wriggle room there. 

He is to attempt to bind future governments to his idea of prudence in a new Fiscal Charter, which sounds good as a cross-party consensus builder but there are differences about what makes for wise economics. If it means that future Chancellors will not be able to use the economy as a political plaything like he has done for five years, so be it, but it would be disastrous if a dead orthodoxy inhibited creative policy. See: How did the Tories do that?    
  
Overall, George Osborne has dealt out comfort for the comfortably-off and worries for the financially vulnerable. To propose an exemption for homeowners with £1m value homes from inheritance tax, whilst reducing housing benefit for renters is as divisive as you can get, and bizarre supposing that fairness is inherent in the 'One Nation' soundbites in his speech . 
He said:
'The wish to pass something on to your children is about the most basic human and natural aspiration there is'
This is very, very true but even families who only rent a home and never own one still have such hopes, George! To use such a desire to justify an inheritance tax give-away benefiting only the better-off is an outrageous statement to hear spoken in the House of Commons in 2015. Callously insenstive to boot. Talk about 'grinding the faces of the poor' (Isaiah 3.15).

His tax credit / minimum wage  / benefit cap measures  /social housing renting at market prices, will, according to the media summaries, probably mean the loss of 60,000 jobs, and the reduction in income of over £1000 p.a. - maybe as much as £5000 - for the poorest. Poor students will no longer be given grants but loans and will lose housing benefit.

On a positive note for lower house prices, buy-to-let landlords are to have their profits trimmed by taxation and reduced allowances. This might mean a more plentiful supply on the market bringing more affordable house prices, but landlords may raise rents to recoup the losses.

Maybe Mr Osborne has a cunning tax reform plan, and inheritance tax elimination is one step to that goal? Next step being the taxation of land values  each year to steal what might have been a trump card from Labour? The transaction cost of stamp duty land tax at 10% on a £1m house sale must make the market sticky and keep buyers off.   Why not charge 1% every year on the land value portion of every house, allowing a deduction of £1 off income tax for each £1 of land value tax paid? Free up the housing market, lower house prices and cut income tax for all whilst retaining overall tax revenue,  all in another Osborneian sweep we are going to expect from now on. Hey!
[Note: See Financial Times Magazine 7 Mar 2015. In 2012 Osborne wanted to have a mansion tax and cut income tax. Cameron overruled.]  
  
What a policy for a reforming Chancellor of the Exchequer, go on George, pinch another Labour policy - you're bold enough!  All would then be forgiven - or at least some of it.           

Election emergency. Why? Russell Brand's view.

Russell Brand [Twitter @the trews] has decided to vote in the general election after all. He wants the Conservatives out of office and thinks that Labour's Ed Miliband will listen to the voters after gaining power, even though he isn't wholly smitten with EM.  His conversion to voting can be seen here.  Caption: Emergency: Vote to start revolution.  

Talking emergencies - a few days ago two pre-teen children were stuck in a lift.  They didn't use the alarm button or emergency phone because: 'We didn't think it was an emergency'. Instead, a bit like Russell Brand pre-conversion, they tired to raise the alarm by calling and shouting for help - for about an hour and a half. Eventually someone heard and the local Fire and Rescue services released them safely.  

Owen Jones of The Big Issue (Apr 27-May 3) - full article buy a Big Election edition - asks Russel B 'Are you basically a big megaphone for people and causes that are otherwise ignored?' Brand says his gifts are to make complicated information accessible and showing off. He wants his understanding of compassion and connection to communities see: Focus E15 (preventing housing evictions) to be leading and not his egotistical nature. It sounds promising - at least.

Better a late conversion to voting than no voting at all. A pity he didn't change his view a few weeks ago when there was time for unregistered voters to take notice. Consequences follow for failing to act - the children trapped in the lift suffered longer by not taking action in the manner expected. 

So for those who are registered to vote and will only vote if they can be convinced we are in an emergency - an emergency for fairness - consider these:

1. Is it an emergency for fairness that 8 years after the banking crisis and a taxpayer bailout of the banks, huge salaries and bonuses are still paid to bankers? Find a party that wants to reform the banking and money supply system, that promises regional or local banks. And Vote. 

2. Is it an emergency for fairness that in many parts of the country, young people will become old people before they can save enough for a deposit to start to buy a house? Find a party that aims to introduce land value tax in place of income tax and other taxes so that fairness for new home owners and renters is considered. Mansion tax is a start.  And Vote.   

3. Is it an emergency for fairness that whilst low income housing tenants are penalised  for having a spare bedroom and thereby suffer a housing benefit cut, that the Conservatives are considering raising the nil inheritance tax threshold to houses worth £1m ?  Find a party that is not so blatantly partisan in favour of wealthy property owners. And Vote.    

Russell B, says vote Miliband to evict the Conservatives but vote Green in Brighton. Few say it like Brand says it, but many of us do it - vote to achieve the least worst option. Maybe there is a need to look at a proportional voting system again?

By the way, if you are in a lift that won't move, your are in an emergency. Press the red button and/or  use the phone - they are usually down near the floor. Instruct your children. And never, never, try to climb out of a stuck lift if the doors are open between floors. 

And when you get out: Vote. 
Posted by Charles Bazlinton.  Author The Free Lunch - Fairness with Freedom 

Property development: working out the sums

[Original title: Bureaucratic alchemy in a field near you - Wealth multiplied  x 250 times]
Try this exercise for land for new housing in your area and see what treasure lies in green fields. Wealth is magicked into existence by the Local Authority's word: 'Permitted' after someone submits a planning application for new housing. Your local Planning Development Committee is regularly able to make private individuals rich through bureaucratic alchemy.  In many towns and villages, cases similar to the one below are arising and fabulous wealth creation performed for one section of society only. This case is based on a proposed development on the edge of a market town in Hampshire.

THE COMMUNITY DEAL
On a 10 hectare site (about 25 acres) it is proposed to build at a density of 32 dwellings per hectare. Under planning regulations using a Section 106 Agreement (Town and Country Planning Act) which brings benefits to local people, the proportion of 'affordable' dwellings for rent and shared equity is suggested at 40%. This will mean that the land for 40% of the 320 homes (128) will be given free by the landowner/developer to a housing association (Residential Social Landlord) and the developer will arrange to build the 128 houses and flats on it and then sell them to the RSL for an amount set by a national formula. This means a straightforward good deal for builder and community - a guaranteed sale at a reasonable price. These 'affordable homes' are let at rents set lower than market rents and will include some shared-equity homes.

Because the affordable element of the development is a zero-cost exercise (builder's costs and profits are covered by the RSL's payment for the finished homes) and given the relatively low value 'gift' of agricultural land at £25,000 per ha, these are ignored below.  But an extra 5% as a developer's cost for managing the affordable scheme has been included. This will hopefully be covered within the RSL deal, but if not take a look at the final figures below and see if the developer ought to be able to afford such costs anyway.    

The land is currently for agricultural use and its value is about £25,000 per hectare. This means that at 32 per hectare, if you bought enough for one house, 1/32 ha of land (includes a bit for roads), it is currently valued at £781. On that part of the site reserved for market price homes, 192 of them can be built and this part of the development is the one which generates the wealth.

COSTS
On the Homebuilding and Renovating webpage are figures for the cost of building houses which are based on RICS data. They date from mid-2013, so adding 5% (ref: BIS Construction +2.5% pa cost figures) to project the figures forward to 2015 (the very earliest building could start due to planning processes) and, just to be on the safe side, adding another 20%, we arrive at £1890 /m2 cost per house with an area of 120m2. Adding 5% for infrastructure and utilities costs (roads, drains, etc) is £11,340 per house (£1985 m2).
Summary of building costs:
House £226,800 + infrastructure £11,340 = £238,140.
Add finance costs:
Assuming a house takes 4 months to build, with bank interest and fees at say 9% on £238,140 borrowed to finance the building operation, this is around £7,200.  So total costs are £245,340.

SALES
Next, to find expected selling prices look on Zoopla . Choose your postcode etc, click on 'Sold prices' and on the drop down menu click on 'UK area stats'. Scroll down the page to the chart and click on 'Home values' to bring up the historical record.  The webpage header for the town gave around  £484,800 for the current average Zoopla value for all houses in the area. But a developer cannot rely safely on this figure for sales in more than a year's time, so I used the lowest price since 2010, which was £450,000.

PROFIT
So with a sale price of £450,000, less costs of £245,340 the profit is £204,660 per house which is hidden within the estate agents' price as a raised land price. This is something over £39 million profit from the 192 market price houses to be built over about 10 years - say £4m per year . The original agricultural land value of £781 will be multiplied more than 250 times to £204,660, so the 'gift' of the original land for the affordable homes is seen in proportion.

Another way to look at this gain is that the planning-inspired land value of £204,660 is about 45 % of the total 'average property price'. This is a high figure compared with earlier decades when the land value might be between 20% - 35% of the total.  Are we seeing a price bubble? With data such as high house prices cf average income figures, maybe. See The Telegraph 8 Feb 2014 (Richard Dyson). But maybe houses are becoming permanently more expensive - Chancellor George Osborne is anticipating another 10 years of house price rises see The Telegraph 7 Feb 2014 (Matthew Holehouse), so prices might just keep climbing, especially as he is not intending to throttle back one of his monetary rockets that is powering it.

Our society is again becoming more divided by housing status. To counter this, freeholders should pay a levy proportional to the value of their land. Land value tax should be a major alternative to other taxation, payable every year and not only when a developer digs up green fields. Developers obviously gain when they use their land but they do contribute benefits such as free land for affordable housing and they may pay some tax on their profits. Meanwhile ordinary residential freeholders are favoured with tax-free land value gains and young people who thought they might buy their own home sometime are being left behind, adding to the the growing group of renters.      
 
For more on developer's secrets read The Free Lunch - Fairness with Freedom. The facts above prove yet again one of the book's main messages: that the benefit arising from land use is a 'Free Lunch' which derives from democratic decision making and that by obvious principles of fairness these should fund public expenditure.
posted by Charles Bazlinton author The Free Lunch - Fairness with Freedom

Homeowning - A Brilliant Wheeze

The democratic struggle moves towards respect for the rights of all. Reform follows when the rights of some are seen to blatantly burden others involving a denial of their rights. In the UK a new regulation is coming into force that will criminalise the squatting of someone else's home. Up until now it was usually a civil offence if someone moved in uninvited. Now it will go like this: You are out. Squatters are in. Police are in. Squatters are out (cops leading). You are in. Quickly.

Squatting usually happens after buildings have been left empty and the hard cases such as someone having a long hospital stay and finding squatters in when they get back home are quite rare. Besides there are apparently criminal remedies for such squatting already before this new law . 

Squatting is one symptom of our divided nation. We inordinately favour home owners to the detriment of the propertyless. See this YouTube video where Fred Harrison uses researches from his book  Richardo's Law, House Prices and The Great Tax Clawback Scam . He shows that the nest egg that accrues to many homeowners in the equity stake over a lifetime, effectively refunds a huge amount of income and other taxes that the homeowner has paid over the years. This, whilst being a brilliant wheeze for homeowners, blights the lives and social opportunities of renters and tenants. Poverty. A huge imbalance is perpetuated in our society through our failure to face up to this unfairness. We unfairly burden renters with the tax for the services we all use and unfairly allow a protected nest egg (i.e. tax refund) to homeowners. Horrendous for any democrat worthy of the name. We don't even have adequate rent controls - see this UK/Germany.   

Howard Davies, a one-time deputy governor of the Bank of  England in a article in the Financial Times A wealth tax may work once but don't make it a habit   advocates taxing all land values rather than the wealth taxes mentioned by Lib-Dem Nick Clegg. A levy on the location value of all land would address the land utilisation problem that is one root of the squatting problem. If you had a property that you were keeping empty but had to pay a levy on its land value every year you would soon let the building out and the rent payments would cover the new levy. Hey! With every landlord having to rethink about their empty properties, rents might drop so that even poor potential squatters could pay them.

Trouble is there are more homeowner-voters than renter-voters. Homeowners-voters must be given a promise of  a drop in income tax to match a new land value tax. It is called a tax shift. It will be the only way.

The St Paul's debates?

The Rev Paul Nicolson in a 6 minute video speech on Saturday 30 Oct addressed the Bishop of London and  the Dean of St Paul's Cathedral with a succinct message as to the reasons of economics, finance and the need for just plain ordinary fairness behind the 'Occupy London' protest.  LINK HERE.

A couple of hundred tents were erected outside a cathedral a couple of weeks ago. Did Canon Giles Fraser and Dean Graeme Knowles think on October 1st that they would both be out of a job on November 1st? The Church of England is tripping up over its inept handling of the tent village and getting a hammering in the media for not getting it. 


A thousand cities worldwide now have protest camps following the first one in Zucchini Park, in the first Occupy Wall Street camp. This is all quite extraordinary according to the ways things usually happen. The movement is overwhelmingly peaceful. These are ordinary people helping each other to make an effective protest. But one centre of power has been found wanting in its handling of what they had assumed to be an easily deflectable disruption. A mere buzzing midge that would disappear with a quick squirt of 'health and safety' legislation sprayed into the annoying situation. 


A most disappointing thing seems to be that they did not invite the outside protestors to come inside to debate matters which they seemed to have a common cause about with the Cathedral. What a chance missed not to established modern day Putney Debates of 2011.  


Perhaps the Church can regain its poise and display a new momentum for justice and fairness? The Revd Paul Nicolson's speech must be a good place to start. He points out: ' the enormity, the magnitude of the economic injustice that has happened and is happening now' as he says to 'Dear Bishop and Dear Dean'... 'you have lost your sense of proportion'.


Read The Free Lunch - Fairness with Freedom for a reasoned way of solving what many of the protesters are camping out about.


Jonathon Porritt on The Free Lunch: ‘I have indeed enjoyed this book…it makes a really important contribution to a much neglected area of debate within the broader sustainable development terrain...contains very fresh thinking.’


Posted by Charles Bazlinton.

Tory policy on housing and planning

This is what the Conservative party says (click here for the whole story): 'We need more homes – but they must be built in a way that protects the environment and provides the infrastructure to support local communities. That’s why local people need to decide where new homes should go, instead of Whitehall bureaucrats'.

In Winchester the Tory controlled City Council has just approved the Barton Farm greenfield development as a reserve site for 2000+ houses over the next 20 years, despite over 5000 signatures against it. I think the feeling is that if the site is not put forward it may be imposed by ‘Whitehall bureaucrats’. But would a new Tory government change anything? Would they really allow Winchester City Council to have the final say and refuse to allow any Whitehall appeal by the developers?

The problem is (above) ‘We need more homes’ . But what if the Tories really allow local feeling to stop large developments like Barton Farm? The lack of supply could stoke up an even greater price bubble than the last one. Sorry, you first time buyers…

Here’s the magic ingredient for the Tories: If every bit of land with existing planning permission was charged an annual levy on its land value this would bring more land forward to be developed as people starting finding ways to provide more accommodation for homes, offices etc, so that they had more income to pay the levy. Green fields would be saved as existing underused housing land was built on. Local democracy would be tempered with economic realism and the need for more homes. For household finance reasons the land value levy would have to replace most of Council Tax and Business Rates. Most people would thus see no income loss but for a transition period there could be a delay for those with extra payments due, until they sold up and moved. Renters who would not be charged the levy would still have to pay something for their dustbins and schools but there could be a drastic reduction in Council Tax down to a fairer basic charge.

A Tory hat trick…plus! 1. Local decisions 2. More homes AND save green fields 3. Help to prevent house price bubbles in the future 4. Fairer taxing of renters.

Divided Nation

Will house-price falls in Europe bring economic misery to the UK in the next few years? So wonders Anatole Kaletsky in The Times (UK) today. But if we all suffer because a recession has been brought on by a property price crash, at least most home-owners will still keep a large part of their house-price gains of the past 14 years. Pity the home-renters who may also be lumbered with unemployment but not have the comfort of their own home with its substantial value to fall back on if they need it.

Being poor can mean that you have difficulties in obtaining a basic bank account says Caroline Merrell, also today in The Times. She says this can affect the ability to get a job or start a business. Of eight banks, profits have risen from 9% to 37 % for seven, with only one having a fall. For the top earning bank, profits for 6 months were £6.5bn. In The Free Lunch - Fairness with Freedom there is an explanation of how banking works, how this banking profit arises and for suggestions as to how we could move to a fairer society by funding a Citizen's Income from banking profit (see Blog: 20 Oct).

The rich/poor divide has not improved during New Labour's first 10 booming years. A report in the paper from Paul Donovan of UBS the investment bank, prompts Gary Duncan to suggest that due to globalisation the poor in the industrial nations will get poorer still in future. The poorest 10% of households have lower disposable incomes than 10 years ago, have to pay the increased prices for food and fuel and are likely to suffer high crime rates in their neighbourhoods.

We are a shockingly divided nation. The Free Lunch - Fairness with Freedom exposes the way our society's economic system skews future wealth gains in favour of those some wealth already. It suggests how reform could give back to the economically downtrodden of our society the resources and human dignity that is their due. The book is for anyone who hopes that 'Love your neighbour as yourself' might be more than a religious platitude. (http//:www.the-free-lunch.com)