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 

ECOBATE 2016 Plamen Ivanov & David Ricardo's banking wisdom for the 21st century

Plamen Ivanov's Ecobate 2016 paper (University of Southampton) David Ricardo and Modern Monetary Reform Propositions: A critical Analysis reveals what one of the founders of modern economics thought about banking and banking sytems. Ricardo writing in 1824 understood that banks create the money supply, but until very recently this has not been at all widely acknowledged in academia. Imagine that such a fact, fundamental to all things economic has been hidden in plain sight for nearly 200 years! In the UK it was only in 2015 that the Bank of England acknowledged this openly in its May 2015 Working Paper No. 529: Banks are not intermediaries of loanablefunds — and why this matters  Authors:  Zoltan Jakab and Michael Kumhof .

Up to that point the function of banks has been overwhelming assumed by the ordinary person (and by many who should have been financially more knowledgeable?) that bank lending was merely the passing on of previously deposited money. The function of the creation of money by ordinary banks has not been given its due recognition in economics textbooks. Ivanov cited Werner (Dec 2014): Can banks individually create money out of nothing? - The theories and the empirical evidence, who set out to show in real time how a bank branch created a loan of  €200,000 for him in 2013 which, to prove it was real money, he deposited in another bank  He also proved that a fractional reserve amount representing  his loan at the central bank, was not involved (thus showing fractional reserve banking is obsolete, or at least only a half-truth) and that no already existing money at the bank was involved in making up the loan amount.  

Ricardo wanted a National Bank to be set up by the government to be run by 5 salaried Commissioners. The then existing Bank of England charter would expire and its premises might be purchased and staff transferred to the Commissioners. The Commissioners were to be independent of the government; they should create the money needed to redeem government debt to the Bank of England; they would create the money needed by the national financial system but should not create it for the government to borrow. Government needs were to be met by taxation or borrowing from privately owned banks. Ricardo wanted a full reserve system of banking, as championed by Positive Money . See also Martin Wolf.  

Ivanov thinks we have moved beyond the safeguards which Ricardo expected of full reserve banking. People would find ways to game the system and perform money creation outside the official constraints, and how do you handle new phenomenon such as digital currency e.g. bitcoins? Full reserve banking is likely to be costly and impractical, and it might cause the economy to contract. But we do need a safeguard to keep the economic system safe and Ivanov adopts Ricardo's idea of a nation's banking system divided into districts, where stability arises from many small independent parts rather than a few large players.  With many small banks the failure of one or two, through unwise money creation for their lending, will not wreck the whole system as was the danger in the 2007/8 crisis in the UK, when a very few large banks dominated. But our economic system is still in thrall to its top-heavy banks. However local independent banks of the German Sparkassen type with distinct areas of operation are a practical and realistic safeguard. Plamen Ivanov is involved in the establishment of a local community bank of that type. His paper was a ready made answer to Prof David Llewellyn's Ecobate keynote speech 'Are banks over-regulated today?' with its theme that more types of banking model are needed for safety. 

From the Ecobate 2016 Conference and with additional information.  Posted by Charles Bazlinton Director of Local First CIC which is promoting local banks.    

It’s really as simple as this…

If you thought that the rich always pay more tax than the poor, then watch a short video on Youtube which explains what really happens. Fred Harrison in just 8 minutes highlights the financial unfairness that is rife in all countries, why it is like it is and what can be done to reverse it. It is a simple message but a rare insight and may disturb preconceived ideas.

The link is: http://www.youtube.com/watch?v=6ZkfmY1PMng

See also this Blog for 5 & 11 Nov 2006 and 9 July 07.

The UK’s North-South divide

In The Times today (9 July) Gary Duncan in his Economic View quotes an Ove Arup study which covered 1971-2004. Over the period, in the North of England 10,100 net jobs were created, whilst in the South the figure was 2.73million. The article is worth reading for its details into the appalling disparity in wealth between the two areas. He points out that some counter measures such as planting government jobs in the north are counterproductive as they drive wages up faster than regional productivity growth and undermine the area economically. He has three suggestions for reform, and the third is of particular interest. He says that corporate tax incentives must be introduced to make the overheated south less attractive.

The full answer can be found in Fred Harrison’s Ricardo’s Law. Taxation is indeed the answer but it is not just corporate tax that needs reform. Harrison clearly and thoroughly argues that the way we allow land value gains to accumulate privately without taxation is a scandal and is the root cause of the comparative poverty of the North. The solution was clearly spelt out by the economist Adam Smith in the late 1700’s. If you want to see the solutions to this problem in a very different way to almost every commentator in the popular media you must read Ricardo’s Law (www.shepheard-walwyn.co.uk ). See also more about it on this BLOG for 5 Nov and 11 Nov 2006.

Poverty related to location is world-wide. Every nation is polarized into rich and poor areas and in the interests of fairness they would all respond to the solutions suggested by Harrison. For more on these themes see: www.the-free-lunch.com