Ed Mililband and The Parable Of The Talents

From Matthew 25:29 and 30:

For unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken away even that which he hath.

And cast ye the unprofitable servant into outer darkness: there shall be weeping and gnashing of teeth.

From the BBC:

Unemployed young people could be denied out-of-work benefits unless they agree to training, Ed Miliband is to say.

In a speech, he will say those aged 18-21 should get a means-tested "youth allowance" rather than Jobseeker's Allowance, if they train in key skills...

Mr Miliband will also propose an increase in Jobseeker's Allowance from £72 to £100 a week for those who had been in work for the previous five years - rather than the current two years.

Or as Frank Zappa put it "And the meek shall inherit nothing".

"Commute three hours a day or lose benefits"

They have gone completely mad, but rather sadly, a lot of people in this country go along with this divide and conquer nonsense:

Jobseekers must commute for up to three hours a day to work or risk losing their benefits. Tough new rules this spring will also force them to accept any job that pays the minimum wage. They will be expected to take jobs up to one-and-a-half hours away from home, and job offers will have to be taken up immediately, not deferred.

Do they really imagine that nobody will spot the fatal and quite sadistic logical flaw in all this?

If an employer has to choose between similarly qualified applications, by and large, he prefers the person who lives nearest the place of work. If somebody is ten minutes' walk, drive or bus journey away, then they are far more likely to turn up on time than somebody dozens of miles away who will constantly get stuck in traffic or will by held up by train delays etc. People who live nearby are also probably more willing to work late or to come in at the weekend when necessary; it's worth while commuting for half an hour there and back in order to get paid for two hours overtime; it's not worthwhile commuting for three hours to be paid for two hours overtime.

So to the extent that an employer can't find somebody on the open market (which usually means the the wages they are offering are not high enough), by all means, pass the vacancy on to the Job Centre. If the Job Centre people are acting rationally, the first people they will send for an interview are people who live nearby, if none of those want the job, then cast the net a bit wider and so on.

I suppose that what the government wants Job Centres to do is, if there's a low-paid job vacancy in Manchester, first to offer it to everybody claiming unemployment benefit who lives ninety minutes away (in Bradford or Blackpool, let's say) safe in the knowledge that they will all turn it down, giving the government a foul excuse to stop all benefits being paid to people in Bradford and Blackpool. Then the government offers the job to claimants in Burnley, Blackburn, Preston or Warrington (about sixty minutes away) and they all turn it down and get their benefits stopped as well etc.

Then if a there is a low-paid job vacancy in Bradford, the Job Centre first offers it to people in Manchester or Sheffield (90 minutes away), all of whom turn it down; then to people in Rochdale (75 minutes away) and so on until a couple of million people have had their benefits stopped. It's not like this is going to cause massive social unrest or anything.

I didn't realise that this is what "universal" means...

When IDS first announced the idea of rolling lots of different little benefits into a "Universal Credit" with a "Single Unified Taper", I thought that this sounded like an important first step towards a full Citizen's Income-type welfare system.

Either I've missed something important or somebody didn't read the memo properly, "universal" appears to include everybody except...

Pensioners with savings or other income.

Higher earners esp. those who would become step-parents.

People with large families.

People who work part-time.

People under 21.

People who are under 25 or who can't find work.

People who refuse to work for free.

People who drink or take drugs.

People with disabilities.

Anybody else to whom the computer says no.

The Work Programme

Thanks to Bob E and MBK for the various links.

The basic template for the Work Programme, also known as "back-to-work" or "work for dole", is as follows:

1. Two large political parties whose policies once in government are largely identical (it is merely the rhetoric which is different). This ensures continuity for all the people who are milking the taxpayer.

2. A "financial crisis" which is the inevitable outcome of a house price bubble, for which you need a good sold basis of Home-Owner-Ism.

3. This leads to more job insecurity and a climate of fear, which The Powers That Be use to...

4. Create a desperate desire among the populace that the government "do something" to sort all this out, they can get away with outrageous measures that would not be accepted in peacetime, such as massive bank bail outs, which is by and large outright theft, but they can easily sell this to the Home-Owner-Ists on the basis that the banks have to be bailed out and subsidised or else house prices will start falling...

5. To distract the electorate's attention from this massive 'bezzle, The Powers That Be have to play divide and conquer, which means pitting those who still have jobs against those who don't. The number of unemployed increases during a "financial crisis" so the cost of the welfare state also goes up, so it is not difficult to somehow convince people still in work that the recession is all the fault of people who have lost their jobs (or never had one). This is a bit like blaming the First World War on those who died in the trenches, but hey.

6. The Powers That Be can't all be bankers of course, so we have another group of people who realise that they can cash in on the anti-welfare claimant mood by setting up back-to-work schemes. The idea is that by spending a few hundred quid up front, they can somehow get people back into work, thus saving thousands of pounds a year in future. Which would be fine if there were any jobs available, but there aren't, but let's gloss over that.

7. They in turn need cheerleaders in the fakecharity sector, for example the Social Market Foundation who recommended something along the lines of the Work Programme back in 2009. That little report was of course funded by yet another taxpayer funded body called Remploy.

8. None of these back-to-work schemes actually work of course, the number of people on the schemes who find work is only about 3%, which is lower than the natural rate which would happen anyway of about 5%.

9. Even some of the politicians realise that this is all a complete waste of money and that it cannot possibly work, and the Public Accounts Committee mumbles about there a) not being enough jobs for the back-to-work people to fill and b) the whole thing being riddled with fraud.

10. At which stage the fakecharity cheerleaders suggest that maybe the back to work providers aren't successful because... the bar was set too high. All it needs for them to be successful is for the pass mark to be lowered, which is referred to as "grade inflation" when the same technique is used with GSCEs and A Levels.

11. So people on the dole are averse to going on the schemes. At which stage the lovely river of taxpayers' cash dries up a bit. No problem - all these private firms need is to be able to impose criminal penalties on claimants who refuse to go along with the charade.

12. At this stage, the back-to-work providers have achieved the same glorious positive feedback loop as the bankers: the bail outs (and the Quantitative Easing and so on) are supposed to help the economy recover, but this doesn't work of course, so a few months later, the banks come back and ask for another, bigger bail out. This doesn't work either, so a few months later, etc.

This is again similar to the tactics used in the First Word War - sending ten thousand men over the top to be slaughtered didn't work, so next time let's send twenty thousand.

No sane person would keep doubling up each time if something isn't working, unless of course he is the beneficiary of the doubling up rather than the person paying for it. Which applies to the back-to-work scheme, it doesn't work, but instead of just shutting them down, what they recommend is lowering the bar, increasing the payments to the scheme providers and allowing them to impose criminal penalties on those who refuse to play along.

13. While we're in the mood for harsh measures, the old give them vouchers instead of cash idea has reared its ugly head again.

How much tax would you like to pay?

Our policy is to shift from taxing incomes and output to taxing the rental value of land. We all know that the Home-Owner-Ists always wail on about "Poor Widows In Mansion being forced to downsize", but who would be the winners under such a tax shift, and by how much?

If we wanted to replace all existing taxes (see footnote 1) with ad valorem National Domestic and Non-Domestic Rates, the tax would be seven per cent per annum on the current selling prices of UK land and buildings (see footnote 2) and the following charts show the break even points (see footnote 3).

To give an example:
- A single earner with no children who earns £16,740 a year and lives in a median value home worth (currently) of £150,000 currently pays £7,000 in tax. Some of this - the Employer's National Insurance and VAT - is stealth taxes which people aren't really conscious of, but they still reduce that person's income/spending power.
- The same single earner on the same wages in the same house would also pay £7,000 in tax (£150,000 x 7% = £10,500 NDR minus £3,500 Citizen's Income).
- So a single earner who owns a median value home who earns more than £16,740 would be better off.
- If he or she earns (say) £30,000, then the chart also gives a guide as to how much they would be better off. These calculations are tricky, but broadly speaking the gain would be between half and three-quarters of the difference between the current income and the break even point, so such a single earner would be at least £7,000 a year better off (half of £30,000 minus £16,740).




Footnote 1: Total revenues for 2012-13 according to the Public Sector Finances Database from income tax, National Insurance, VAT, corporation tax, Business Rates, Council Tax, TV licence, capital gains tax, inheritance tax, Insurance Premium Tax, Stamp Duty and Stamp Duty Land Tax, bank asset tax = £497 billion.

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Footnote 2: If we retained the extra rate of corporation tax on North Sea Oil and increased the bank asset tax to something sensible like 2%, National Domestic & Non-Domestic Rates would need to raise £447 billion. The total value of UK residential land and buildings is currently £5,600 billion, and commercial land buildings are a seventh as much again. £447 billion divided by £6,400 billion = 7 per cent*. So the tax on a home currently worth £200,000 would be +/- £14,000 a year (before deducting Citizen's Income); the tax on a supermarket currently worth £10 million would be £700,000 a year, and so on.

* Strictly speaking, Rates would apply to the "site only rental value assuming optimum permitted to use" which is more subtle concept, so the 7% figure is only a rough guide and an average. On some homes, the tax would be more than 7% and on others it would be less.

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Footnote 3: A household's current tax bill takes into account income tax, National Insurance, Working & Child Tax Credits, an estimate of 7% of earned income for VAT and 1% of the value of the current home for other taxes such as Council Tax, Stamp Duty Land Tax and Insurance Premium Tax. A household's tax bill under the system proposed here assumes that the entire welfare system is replaced with a Citizen's Income of £3,500 per annum for each adult and £1,750 for each child, which would be deducted from the households NDR bill or paid out in cash if it exceeds it.

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Tax reform

Yesterday's post explained why it made sense to replace the overlapping systems of means-tested benefits, contributory benefits and subsidies to land ownership with a flat rate Citizen's Income. This of course raises the question of how this would be funded (the cost of the core functions of government - law and order, defence, refuse collection and road repairs is minimal - costing barely 5% of GDP).

1. Over the past century or two it has become majority opinion that taxes should be raised by taxing earned income and output:
2. The bulk of government revenues used to be raised from the rental value of land, to eliminate the inbuilt subsidies to land ownership. Nowadays, less than a tenth of government revenues are from the rental value of land, leaving land owners to collect the subsidies, i.e. the rent they can charge - or the benefits they can enjoy without paying for them - thanks to the efforts of everybody in the productive economy and the income tax revenues spent on improvements which then push up the rental value of land etc:
3. Somebody starting out in life therefore has to pay two layers of tax - direct tax on his income, which is used to pay for the core functions of the state and other things which push up rental values; and then the rent he has to pay privately in order to be able to live somewhere - if he moves to an area with higher wages to try and earn more, nearly all the extra wages are soaked up in income tax or the higher rents in high wage areas:
4. Taxes on earned income are not only morally questionable but have huge dead weight costs. The average rate of tax on incomes, taking income tax, VAT, National Insurance, corporation tax and Working Tax Credit withdrawal into account is about fifty per cent, and this depresses the size of the economy by something like ten or twenty per cent. Taxes on the rental value of land - to claw back the inbuilt subsidies - do not have dead weight costs, so replacing taxes on income with taxes on land would allow the economy to grow by ten or twenty per cent within a few years:
5. So instead of paying two layers of tax (one publicly collected, and one privately collected), workers and businesses would only pay one layer - being the rent (which would then be clawed back from the land owner as tax). For most owner-occupier households or businesses, the tax they would pay on the land they occupy would be much the same as the tax they currently pay on their earned income. After paying for the cost of the core functions of government, the rest of the tax revenues would be repaid to everybody as a flat rate Citizen's Income (or vouchers for merit goods such as education or health) and so the median household in a median home would be a net zero taxpayer: the Citizen's Income it receives would be equal and opposite to the land value tax it has to pay:
6. So who 'loses out'? Those people who currently derive the bulk of their income (whether in cash or non-cash) from the rental value of land. They will have to return to the productive economy or accept a more modest lifestyle. Further, the purchase price of land would be significantly reduced, and ultimately, there is no reason why the purchase price of any plot of land (after deducting the cost/value of improvements thereon for which the owner has paid) should be any more than its cost of production, which is of course more or less £nil:

Welfare Reform

1. People clearly have different levels of income and assets and the welfare system is an attempt to redistribute this somewhat, or to alleviate poverty:
2. For some reason, people like 'contributory benefits', where those who have earned most and paid most taxes are paid higher old age pensions or seen as more deserving recipients of unemployment benefit, despite this is just like a belated tax rebate and it would have been better to simply not collect the tax in the first place. Most pernicious of all are subsidies to certain assets, in particular land ownership (manifested with things like cash subsidies for buying a home; Housing Benefit payments which only benefit landlords in the long run and the fact that land ownership generally is nothing more than a state-sanctioned transfer of wealth, i.e. a subsidy):
3. Then there is a strange coalition of a) Socialists who think that people with low or no incomes deserve more than those who have (or have had) higher incomes and have built up some savings; and b) right wingers who like means-testing because they think it saves money (what they don't realise is that means testing is like a stealth tax on incomes and non-land assets which are taken into account for means testing):
4. So as things stand in the UK, we have a mish mash of subsidies to land ownership, means tested and contributory benefits, so the Socialists, right wingers, authoritarians, bureaucrats and land owners are all happy. The effect of having two overlapping and parallel systems means that people actually receive pretty much the same whatever their level of income or assets (ignoring the net subsidies to land ownership which are lightly taxed and not taken into account for most means-testing):
5. So why not merge the two systems with all the huge administration costs, fraud and error and traps and loopholes with a flat rate Citizen's Income, payable in cash. The cost of which can be largely funded by clawing back the subsidies to land ownership, i.e. by imposing a land value tax such as Domestic Rates, which would mean that the Citizen's Income received by a median household in a median home would be equal and opposite to the Domestic Rates due on that home?