Immigration: Some is good, More isn’t Necessarily Better

The reason the UK is attracting migrants from all over the world is, thanks to our Empires, our Language is the word language. Migrants are more likely to speak English than French (which is why Algerians and Senegalese tend to stay in France). There are a huge number of people from all over the world already living here, so migrants can plug into existing communities.

Thanks to the invention of free-market, liberal democracy in the 19th and 20th centuries, and especially since the rejection of Socialism in 1979, the UK has a vibrant and diverse economy, that can absorb near-enough everyone who wants to come and play. The UK is richer than Poland, and despite Labour’s best efforts, remains a better place to live than Eritrea. We have secure property rights, which means foreign oligarchs can stow their looted wealth in the form of London property, where the likes of Putin cannot confiscate it.

The UK is a prosperous country, with an open economy, secure property rights and a relatively liberal society. British people are tolerant of immigrants and the UK enjoys good community relations.

We do not have ID cards, and the police cannot stop you on a whim. Thus “illegal” immigrants find it easy to find work in the grey economy. Because we have a relatively generous welfare state, there are a lot of jobs – fruit picking, cleaning, domestic labour, care etc out of which the UK-born have priced themselves. The prize – indefinite leave to remain – is within reach of almost anyone who can get here, and work undetected for long enough.

That is why people cling to the axles of lorries to leave France, and it is mostly something of which we can be proud.

People, self organising in Calais, for the right to cling to the axle of a Britain-bound Lorry.

Immigration is good. It does not follow that more is better. That tolerant and open society requires that the majority in it are born, and steeped in it from birth. The main fear the native population has from immigration is communities – the Bradford Pakistanis for example who come to dominate an area, and then cease to integrate. Integration into mainstream British life is vital, if that open society is to be maintained. The Ugandan asians and the Afro-Caribbeans who came over in the 50s and 60s have integrated. Sikhs and Hindus do. Arabs and Eastern Europeans do. Nigerians do.

Despite our success in integration, we cannot take the millions waiting to cross the mediterranean, though in practice we do end up taking most of those camped at Calais. In making it hard to come (sales of wetsuits, and the discovery of corpses in Holland and Norway are indicative of the risks people are willing to take) we limit the number prepared to try.

We cannot allow too many people brutalised by war, ignorant of how to survive in a liberal society to come, lest they are tempted create their own ghettos like Bradford. Too many people, and the incentive to learn English properly, and the imperative to integrate that comes with it, is lost. And it is the Ghettos that people object to, not immigration. It’s not race, it’s the compatibility of culture and the rate of change of a society; a rate of change that many of the people neither asked for, nor want. When a majority of children in the local school are not British, people question the change: Is this for the best?

So. Net migration to the UK is running at 1-200,000 a year. We add two million people every decade or so. This is why the UK is climbing the charts of National GDP, not falling. We’ve even got Germany in our sights. UK to be the 4th Largest economy (US$ Nominal terms) on earth in the not too distant future. Immigration is at such a level that the UK has halted its relative decline. Whatever the economic benefits, there are limits to immigration consistent with a liberal, tolerant and free society, especially from countries without a tolerant, liberal and free culture.

Labour, in office openly sought to “rub the right’s nose in diversity”, hoping immigrants would vote labour in perpetuity. The risk comes when the electorate never bought into the plan. When it was suggested there were limits to migration, people were told they were “racist”. The idiot poujadism of UKIP was the result: leading to the return of openly Nativist politics to the mainstream of British politics. The contempt Labour have shown for the electorate on this issue, is one of the main reasons they are facing oblivion now. The mixing up of Migrants with refugees and asylum seekers to suggest “we” have a moral duty to take people, is just continuing this ignoble tradition of contempt.

People want to stem migration of illiterate spouses from Pakistan, but these people are coming to join relatives already here. People want to limit Lithuanian bricklayers, or Polish plumbers but these people are covered by EU free movement of people (and in any case are vital to dealing with the shortage of housing…). We and the EU need to do much more to stem the flow, humanely, of very poor people from Africa, Afghanistan and Syria, and this includes aid and intervention to put their countries back together. So this leaves skilled migrants from outside the EU such as Nigerian doctors, Malawian nurses or Chinese people coming here to study, all of whom are particularly helpful to the UK economy, if there is to be any reduction in the number of Net Migrants.

It’s all counter-productive. Cameron deserves blame for setting a silly target on a whim, and Labour deserves blame for encouraging the boil to fester for a decade and creating the problem of legitimacy immigration now faces. Any attempts to control immigration mean putting bureaucrats in control of whom a Bradford Pakistani can marry, or whether a Somali can work as a Taxi driver. It’s going to throw up hard cases and inhumanity, as any bureaucratic system inevitably must. This sticks in my libertarian craw. There are going to be Canadians and Australians not granted leave to remain despite holding down decent jobs and living with British people. And all this because of silly targets, and the failure of some communities to integrate. We cannot stem the immigration people do have a problem with, so we’re abusing immigrants who’re going to accept our norms and be accepted.

We cannot take them all. The right-on left should stop the sanctimonious moral preening of pretending we can. We cannot stop them all coming. The idiot right should stop demonising people who’re mostly just trying desperately for a better life for themselves and their families.

We are lucky to have been born here. Part of our duty is to protect the legacy of good governance and social harmony we’re bequeathed. This legacy needs protecting from immigrants who won’t ever share our values, if too many come at once as well as from idiotic populists on the right, dog-whistling to racists and from left-wing extremists who hate our society and way of life, and who wish to see it swamped to spite an falsely concious electorate which repeatedly failed to vote socialism. Net migration is running at 1-200,000 a year. We can cope with that, just. Especially if they come from a variety of places, both terrible and less terrible. But not much more than that, really.

There you have it: An unsatisfying fudge, like so much of the democratic politics that have created the society immigrants are prepared to risk so much to join. Much more fun to read a moral absolute – a Guardian editorial telling you how brave and noble the immigrants are, or the Daily Mail’s dehumanising sub-fascist rhetoric. But the extreme position is almost always wrong, and the unsatisfying fudge of democracy works, despite appearances.

Supporting Labour as Virtue Signalling.

Imagine you’re not very politically engaged. You’re reading this blog, which probably means you can name the whole cabinet. Most people could probably recognise the PM, Chancellor and Home Secretary, but only name two of the three confidently. This isn’t stupidity, it’s rational ignorance. The reading necessary to keep up with the day-to-day doings of politicians chases out other, potentially more worthwhile activities. Sport for example. Or spending time with the kids. Being knowledgeable about politics simply isn’t much use. We political animals find it very difficult to put ourselves in the minds of people who don’t immerse themselves in issues.



So imagine now the issue in question is “benefits”, specifically cuts to them. Do you wish to signal that you are a nice person? Then you loudly opine that “how could you increase poverty?” You’re against the benefit cuts because you care about people less well off than yourself. Therefore anyone who does support benefit cuts is a bad person. Stands to reason.

“But”, you might say, “there are incentive effects: look at the increase in low-waged unemployment. That is, in the long-run a much better route out of poverty than generous benefits which merely trap people into state dependency. Much better to give people the habit of work and the hope of long-term advancement it brings”.

Your non-engaged audience lost you at “incentive effects”, and their take home is you want to take money out of the pockets of poor people because “blah blah blah”. It is much easier and safer in an online world to say the easy, left wing thing. We live in an online world where your every utterance can be dug back up, taken out of context, extrapolated to the point of ridiculousness, more or less forever. Saying “benefit cuts are evil” isn’t going to lose you supporters. Saying “The Tories have a point, actually, perhaps tax-credits should be cut” will. Liberal economics is harder to express in a tweet than socialist economics. Liberty’s benefits are distributed and harder to point to. Socialism offers solutions that are easy, simple to understand, and wrong.

However out in the real world, people see benefits recipients, and resent paying for them. And down the pub, where conversations, rather than tweets happen, you don’t need to signal virtue by trite political opinion. You can do it by standing a round. People aren’t morons. They know how people work and with a bit of thought, the Tories make sense. Down the pub, cuts to benefits are popular.

Labour’s mistake is to take the lazy virtue-signalling on social media as what people actually think.

On bad Left-Wing Arguments

Elections are won by the side that can reach out beyond their core supporters and persuade a plurality of voters that theirs are the best policies. What is striking at the moment, is how completely the left have failed to understand their opponents’ beliefs and motivations. For this, I blame the echo-chamber of social media, and I think lefties are far, far more prone to this running down idealogical rabbit-holes than their opponents. Anyone debating lefties on Twitter will very quickly find utter incomprehension that anyone could think like that, and then get blocked. Labour is using social media to talk to itself, and therefore gets stuck with some really, really bad ideas.

I was arguing with a left-wing activist last night and I was put in mind of this great post from Fifty Shades of Dave. For her it was simply inconceivable that anyone could object to high marginal tax-rates on “the rich”, as soon as they had “enough”. “Enough” in this context was enough for a small flat. Taking more and objecting to paying eye-watering taxes in this world view was immoral, and utterly, incomprehensibly greedy. I tried to explain that someone on the higher rate tax was by no-means “rich”, that a 40% income paid at some point by nearly half of the population, and that going higher, on the additional rate tax-payers, didn’t raise much money. There was no acceptance that perhaps, if you’re going to levy a tax, the opinions of those who might actually have to pay it, are relevant. But to no avail. This moral view of taxation, and the view that the high-paid are simply immoral is deeply entrenched on the left.
The problem for the left create for themselves with this world-view is this: Poor people do not desire, or even expect to remain poor. For most “young families” “poverty” as defined in relative terms by the left is a phase. You’re poor when you’re setting up home and building a career. Poverty for me was a phase. It was for my parents, and indeed my Grandparents. Money was a struggle. And then for most, it ceases to be as debts are paid off, and income rises. By your middle age, you’re no-longer struggling for money. You’ve worked hard, and you can enjoy the fruits of your labours. If that’s a nice car, a bigger house or simply not worrying about having another pina colada on holiday, it’s no matter. Most people who’ve worked hard and paid their taxes, see these comforts as the just deserts of ‘knuckling down’.
Labour’s rhetoric during the election campaign instead thought of poverty as a Caste. Poor people who’re totally dependent upon the state for their very survival, who lack any agency to better their condition. And this world-view can only come from the Milibands of the world, who’re born into money, and for whom concern for the (abstract concept of) the poor is a form of value signalling. The only poor they’ve met are wheeled in by party activists for photo-ops. They are completely out of touch. in this they’re supported by professional farmers of the poor, whose interests are best served by keeping their flock servile and dependent.
But the poor, by and large, do not resent the successful middle aged plumber/businessman in a nice car. Especially if that person is a neighbour who represents a route by which the apprentice plumber can get to the comforts of a decent income, and the self-respect that comes from hard work. Labour was telling these people that they were too stupid to make it. That they were without hope without state help. And that if they did “make it” they were selfish and wicked, and would have it taxed off them. David Cameron is no less out of Touch of the poor than Miliband, but unlike Miliband Cameron is not pretending to be something he’s not, and much as Miliband would like it to be otherwise, the people don’t really hate and fear the Toffs as much as Labour think they ought. Indeed people often would quite like to BE a toff one day.
The left assume the poor will always remain poor and so would always support punitive taxation on “the rich” because only 20% of the population pay higher rate tax. But nearly 50% do AT SOME POINT IN THEIR LIVES” and even more aspire to. Fewer will get to the £100,000 62% marginal rate, but a good many would like to. Very, very few Tories utter the word “scrounger”, the Newspaper which uses that word most, is the Guardian, whose columnists put the word into Tories’ mouths, a comforting straw man, the right-wing ogre who hates poor people and wants to hurt them. And because they’re arguing, to applause from social media, against a figment of their own fevered imaginations, they’re ignored.
High marginal rates of taxation simply don’t raise much money. Yet this is now the moral shibboleth of the left, but this signals the hostility to “aspiration” that is crippling the labour party. No-one aspires to a better life on benefits, yet this appears to be the left’s offer to the poor. Tony Blair was relaxed about people getting filthy rich. Life on benefits is supposed to be a bit crap and limiting. If it wasn’t, there’d be little incentive to work. Now it is the Tories who’re saying “here’s the route out of poverty, we’ll smooth the road, and get out of your way”. Millions of new jobs, admittedly some crap, means millions of people, some of whom formerly existed on benefits, now have a wage. And that some of these wages are topped up by in-work benefits is a feature, not a bug of “making work pay” through the Universal Credit. There are no longer any people facing marginal tax/benefit withdrawal rates over 100%. There were in 2010. And wages rise through people’s lifetimes. People know this, it seems the Labour party don’t.
People didn’t vote Tories because they hated poor people, or the NHS, or were stupidly voting against their interests, as the great wail of pain and confusion from the left on Social media would have it, but because the Labour offer to people was utterly ghastly. Labour’s offer consisted of rich, Oxbridge people saying “Have some more benefits, you worthless pleb, you’ll never make it. And if you don’t like it, you’re evil, and we’ll tax you.” Is it any wonder Labour lost? David Cameron may not have successfully reached far beyond his base, but at least he’s trying. 
Just as Tony Blair had to smash it into Labour’s thick skull that nationalisation of the means of production was a bad idea to win an election, the next Labour Prime Minister will not come into office threatening anyone with a 50p tax. 

An Election Result

Few expected a Tory majority until the Exit poll. I didn’t dare hope until about 2am.

In Eastern England, a Region with a bigger population than Scotland, The Tories’ hegemony is greater than that of the SNP’s in Scotland, yet no-one is going to give these voters the indulgence which will be afforded to the SNP. Here, The Tories secured 50% of the vote, and all but one MP. The one non Tory MP was a Tory until less than a year ago. The Labour party lost ground everywhere, except London.

15% of Scots voted Tory, equivalent to the national UKIP share. No-one is talking about their “disenfranchisement”. There are now as many Tory MPs in Scotland as there are Labour or Liberal Democrats. The Tories advanced in Wales and devastated the Liberal Democrats in the South-West.
Looking at a map, Labour is reduced to inner London, Birmingham, Newcastle, Cardiff, Liverpool and Leeds. Scotland is monochrome SNP, and the rest of Great Britain is Tory Blue. The Tories’ closest allies, the Ulster Unionists did twice as well as expected in Northern Ireland. 
So. What happens next?
First of all, elections are won by parties with the positive vision for the country. The SNP has a vision of Scotland that resonates with Scots, if not with reality. That 8% deficit limits how “full” their fiscal autonomy can be. I can take Sturgeon at her word, that independence remains off the cards for the time being.
Labour on the other hand, spent the election campaign telling the country it was broke, divided, poor, unequal and some vision of victorian workhouse hell, lorded over by a “rich” elite. Given that inequality fell and “the rich” are paying more tax than ever before over the past 5 years, this clearly didn’t ring true. The Tory message: let us finish the job, resonated with England outside the big cities.
The economy is largely sorted. The coalition undid much of the glue Labour poured into the labour market. The self-employed who paid tax on earnings in 2013/14 paid more than expected. Their earnings will accelerate, and the deficit will close faster than expected. I expect there will be more money for Cameron’s second term. 
Cameron’s biggest challenge will therefore be constitutional. What to do with Scotland, giving the SNP as much of their demands as possible, without alienating England. His job is to come up with a lasting constitutional settlement. Constitutional settlements tend to be more lasting and stable when done under Tory governments, as unlike labour’s devolution in the 90’s there’s less short-term gerrymandering for party advantage. This will involve house of Lords reform, though I would regret this. The mountain of cant spoken about English Votes for English Laws comes from people who’ve got used to imposing the will of the Celts on the English, who’ve long voted solidly Tory. It’s likely there will be a more Federal UK. The community of the Isles is being tested more strenuously than at any point since Irish independence.
There will be a lot of nonsense spoken about the upcoming EU referendum, set for 2015. UKIPpers will not believe Cameron will deliver it. They can be ignored. The fact is, the UK will vote by 2:1 to stay in. Cameron will walk tall having secured an unexpected majority. The Eurocrats will have to give something for Cameron to take back, and Merkel has already said what’s on offer. 
Whatever the offer is, it will be derided by UKIP because free movement of people is a red line that will not be on offer. And quite rightly so. The crucial reaction will be the Tory right. Will they ‘rebel’ and make Cameron’s life a misery like the post 1992 “bastards”. My guess however is that Cameron has answered his Tory critic’s main charge: that he couldn’t win an election. This will mean this election has more in common with 1979 – the first majority after a period of unstable minority, than 1992, an unexpected victory by the fag-end of an administration. 
Labour, for its part, must find a narrative after a period of re-building. They must work out what they are for. If they can make peace with business, and more importantly, markets, then they can come back. Social democracy has a future in the UK, but not Socialism red in tooth and claw. Miliband was in this regard, a last hold-out in the jungle, still fighting after the total victory of Thatcher. Whatever happens, such is the scale of their defeat, especially in Scotland, the next labour PM will probably be beholden to the SNP for any majority.
This is the Second or third time the Tories have destroyed the Liberal party, and absorbed its supporters into the broad Conservative church. Perhaps the Tories should make an offer: Fight elections as the Conservative, Liberal and Unionist party? The liberal democrats had the naive belief that somehow being right, for example on Land taxation by council tax revaluation and extending the number of bands, will somehow translate into votes. There is a place for such a party, and I hope they come back. But this will be a generational project. 
Each of these issues will be the subject of a post in the future. We live in interesting times. Cameron has an enormous, difficult and delicate job. He can be the man who either presides over the destruction of the UK, or go down in history as the man who built the lasting constitutional settlement. He’s been underestimated by most. He has an enormous responsibility. But I am optimistic he’s up to the job. After all, he’s been quietly right, calmly ignoring his critics, and content to let his record speak for itself despite the hysteria of lesser characters. He’s steady under fire, to the point of insouciance. I like that in a leader.
Cameron is now proven winner. Holding the coalition together was a remarkable political feat, for which Nick Clegg deserves enormous credit too. And like Napoleon’s generals, Cameron’s lucky. So Far.

Election Prediction

I think the bottles of port, beers and cases of wine I’ve bet with twitter correspondents, friends and colleagues are going to bankrupt me if Labour win, and give me alcoholic liver disease if the Tories do. So, hot on the heels of my correctly predicting the outcome of the Scottish Referendum, AND the EU elections; I, the UK’s own Nate Silver using little more than reading, wishful thinking and guesswork am going to tell you what’s going to happen over the next 36 hours.

David Cameron will still be Prime minister, probably with help from DUP, and the remaining Liberal Democrats. The alternative, Prime Minister Miliband is too grotesque to contemplate. Tories will probably be quite comfortably the largest party; here’s why:

  1. Miliband is obviously a helpless, flailing git. In the privacy of the polling booth, this will matter, leading to
  2. The usual Tory out-performance of their polling, and labour underperformance of theirs.
  3. The polls are currently showing a small Tory lead.
  4. The polls may well be wrong, on a scale not seen since 1992, because the polling methodology hasn’t been tested with the rise of UKIP, the collapse of the Lib-Dems and the rise of the SNP.
  5. Labour will do a bit better than polling suggests in Scotland, as will Tories (but to little avail in seats)
  6. Liberal Democrats will retain 25 seats
  7. UKIP will have 3: Clacton, Thurrock and one other. Neither Mark Reckless in Rochester, nor Farage in South Thannet will be MPs on May 8th.
That is my prediction with my sensible trousers on. But I think a small Tory majority is possible. That this is wishful thinking cannot be discounted, but the polls have so many moving parts in this election, methodologies are likely to be strained. In particular, spiral of silence adjustments to take into account the ‘Shy Tory’ effect have been getting larger. Yet Tories ALWAYS seem to outperform. In addition, the late swing seen in 92 may just be even later this time.
I would like the Coalition to continue. But I’ll settle for a Tory majority and consider emigration should the emetic Mr. Miliband be Prime Minister.

Gordon Brown’s Legacy is Perpetual Austerity. Good.

“Why are you so ANGRY?”, I am often asked. I don’t mind people who disagree. But what I cannot stand are people for whom the managerialist, high-spending government IS THE ONLY WAY. These are the people who will, with graphs and “facts” confidently tell you that because investment fell while Brown was spending all the money, then Brown had to spend all the money BECAUSE THERE WAS NO CHOICE. The other option, that there was no investment, because Brown was hoovering up all the money and people which might have been used to invest, doesn’t occur at all to them. They are dangerous because they are plausible. They sound reasonable. They are confident of their analysis. Many of them are extremely well respected, and they often have the weight of academia behind them.

They all tell you the deficit doesn’t matter, that “austerity” is not necessary or self-defeating and we should instead be spending more.  And like Maggie’s 364 economists, they are wholly, ridiculously wrong. They may be right in every detail. But they were still wrong – the German Army of WW2 can plausibly claim to have lost no tactical engagements. They too were right in detail. They still lost. The 364 economists’ descendants defending the Blairite, last hurrah of the post-war welfare state are wrong because they’re extensively trained in the status-quo, and can see no alternative.

The state is too big. It spends 50% of GDP, and takes 45% or so in Taxes. Before WW2, this was around 25%. The state now seriously considers the contents of school lunch boxes, how much middle-class people drink of an evening or the font on a packet of fags a reasonable part of its remit. We are over-governed.

It’s trivially true, as the managerialists claim that Austerity’s ideological, that deficit fetishism is silly, but that does not make the coalition’s spending cuts insane. What was insane is testing the proposition that public services improvement was simply a matter of fire-hosing money. Most of the money spent went on wages – headcounts went up, and pay (especially if you include pensions) outstripped the private sector. “Austerity” is merely the bleating of a well-paid client state being forced to live within the country’s means once more.

Some spending makes sense: Road and infrastructure building for example – borrow at low rates to build things which generate real economic return. It’s a no-brainer to turn the A1 into a motorway or upgrade the A303 by Stonehenge. Deficit fetishists whinge. But there is no equivalent need to have public sector workers paid more than private sector workers. They enjoy better pensions and greater job security, so pay them less! Freeze their pay till they get the same as their equivalents in the private sector, whose wages are set by productivity, informed by markets.

There needs to be fewer public sector workers, doing less, and paid about the same as those whose salaries are not guaranteed by the tax-payer. No tax-funded salary should be more than the Prime-ministers’. The problem is the state is trying to do too much, and only a slow, continued squeeze on it will bring the public finances back on track. It is only when you come across the public sector at work – four hour meetings with eight people paid over £30,000 a year, in which no-one goes away with any actions, that you realise how much fat there is to cut. It’s not a trim that’s needed. A saw needs to be taken to whole arms of the state, giving PEOPLE back control of their own lives, for good or ill.

If you blew up every Sure-Start centre and fired their staff tomorrow, is there anyone who wouldn’t be able to cope? How many people would be immediately worse off without the attentions of social workers? Of course some would miss it. But many would be better off – think of happy families ripped apart by over-zealous enforcement of state-employees’ decisions. Victoria Climbe and Peter Connelly’s murders happened despite the tender ministrations of the state in these families’ lives. Ministrations which may encourage others in society to ‘look the other way’ in the face of horror, as someone’s paid to think about that sort of thing. Too many people have persuaded themselves “vital” services are vital, when in fact they’re part of the infantilisation of a population which is losing the ability to look after or make decisions for, itself.

On the day after Gordon Brown announced he’s to step down, his legacy is a British public carrying a burden of a state he built, which achieved little, and at enormous cost. The private sector is getting on with doing what it does, creating wealth, and coming up with new ideas, but it is shackled to a imbecile obsessed with box-ticking, and getting in the way. Oh, and the lumbering imbecile is very, very powerful, armed to the teeth, and can pick the private-sector’s pocket at will. Worse, the imbecile actually believes it runs things.

We need to find ways to reduce inequality which don’t involve hundreds of thousands of civil servants. Luckily, there are good solutions: a Citizen’s basic income (or similar ideas like a negative income tax) achieve redistribution, but don’t need a huge bureaucracy to administer. The Coalition’s universal credit is a baby step in the right direction, and very popular with the people to whom it so far applies. Do not be thinking this shrinking of the state will leave poor people out in the cold: on the contrary, it will FREE the poor FROM the social workers and benefits officers who blight their lives with forms and stress, just as the private sector needs to be freed from onerous regulation, which do little but create a vulnerable oligopoly where a chaotic but resilient market once existed.

The only thing we can thank Gordon Brown for is that no Future Chancellor will ever think they’ve abolished “Boom and Bust”; and he tested to destruction the idea that all that was wrong with public services is they had insufficient money or staff. That’s it. Done. The high-point of the post-war welfare state was reached under Brown and Obama. Bless him, Hollande in France is right now demonstrating what happens if you continue dancing when the music stops. The next revolution is that radical idea that the state should be leaving people alone. “Austerity”, in reality the self-interested bleating of people whose jobs to interfere in other people’s lives, has only just begun.

Thanks to Gordon Brown’ complete and total failure as Chancellor, as Prime-Minister, and as a man, “Austerity” is permanent. Good.

Gary Barlow, Pfizer & some Increasingly Common, but Stupid & Illiberal Ideas

Gary Barlow, formerly of take that invested in a scheme which has subsequently been ruled offside by HMRC. As did Jimmy Carr. Neither of these individuals is a finance professional. They were advised that these schemes were legal, followed advice which subsequently turned out to be wrong.

Upon losing the case with HMRC, the investors in these schemes will get presented with a bill for the tax they avoided. If they pay up, with interest, that is that. No criminal proceedings. Tax is complicated, and there are a lot of grey areas, especially when you have multiple streams of income from royalties, employment, investments and so-forth. This is why people employ accountants to ensure you pay the taxes you owe, and not a penny more.

Calls to strip Barlow by Labour MPs (including from Lady Margaret “the Dodge” Hodge, whose own tax affairs have been called into question) of his OBE are therefore grotesque and vindictive. I am sure this is entirely unrelated to the fact Barlow is a Tory supporter. Tax is not a moral issue. You pay what you owe, and if HMRC and your accountant disagree how much you owe, then the dispute is settled in court. This is what courts are for. Tax should always be seen as a strictly legal issue. Morality doesn’t come into it, however much lefties wish to invoke morality to ensure that more tax is paid (by other people).

Almost no-one pays extra tax voluntarily. But you can lefites; put your money where your mouth is or shut up.

Pfizer is attempting to buy Anglo-Swedish pharmaceutical company AstraZeneca, and they intend to move their Brass plaque to the UK too. Labour are worried about asset-stripping, amid high-minded waffle about something called “the UK science base”. AztraZeneca has about 15% of its people in the UK, and has itself been closing labs, due to the fact it faces a patent cliff. If you don’t know what a “patent cliff” is, then you shouldn’t be having an opinion on the takeover at all.

It is unlikely anyone buying AstraZeneca would close good, productive labs, especially ones close to a large and internationally respected university like Cambridge, at the hub of a Pharmaceutical and Biotech cluster called “silicon fen”. Indeed that lab, in which AstraZeneca has recently invested is one of the things that would be worth keeping. And if Pfizer don’t want it, if it’s that valuable, it can be sold to someone who does.

The UK listing is another. The US charges tax is a perverse way – money earned overseas, on which tax has already been paid may face further taxes should the company wish to bring profits onshore. Broadly speaking No other countries do this. The US has been able to get away with this for now, because the US is so important. But companies like Pfizer, and Apple whose “problems” with their enormous pile of useless overseas profits will only grow may choose to move their head office to a friendlier regime in order to sidestep this problem.

This means US business will still get taxes charged in the USA. But all other profits will be charged and taxed in the non-US jurisdiction (in Pfizers case, the UK) and the movement of profits for investment will not face US taxes that no other jurisdiction would think to charge. Yes Pfizer is “tax-dodging” but the beneficiary of this is HMRC who’re simply less vindictive and stupid than the IRS.

Despite this vast inward investment (£26bn or so) that Pfizer is making in the UK, Ed Miliband invokes fears of “Asset Stripping”. Indeed all asset-stripping is, if done profitably, is selling assets to people who value them more. Being against this process is just left-wing flat-earthism. Much like the cant about Gary Barlow’s tax affairs.

There’s a kind of Hysteria in which anyone who gets into a dispute with the tax-man, or who seeks to quite legitimately reduce their tax bill is seen as a “tax-dodger” and so beyond the pale. It’s stupid, it’s illiberal and it harms business and prevents investment. A Miliband-led UK will be a great deal poorer as a result.

The Post Office IPO

Most of the objections raised in the media concerning the sale of the Royal Mail are spurious. Most IPOs get away at a discount. Investors are taking on significant risk in buying a share for which there is no established market, and therefore price. Get it wrong, and your investors lose a great deal of money. No further money can be raised by the business in future except at high costs of capital.

A lot is being made of the advice as to the price range:

At the time of the flotation, and more specifically the book-building process, there were significant threats of industrial action. This faded as the floatation day approached. At 330p, the top end of the range, the shares yielded 6% or so, which appears about right for a floatation of a regulated utility the sale of which was driving the trades union movement nuts. SSE at the time yielded significantly more than that and 5% or so is about normal. 290p was cheap but 330 looked about right to me at the time.

Setting the price too high would ensure much less demand. And there are big magnifying effects at work.

There are known problems with the book-build process. The main one is that it is inflexible should demand prove higher than expected. And it was massively over-subscribed. Politicians running round telling everyone it’s undervalued might have something to do with this. There was an immediate buzz, as everyone tried to get as much as they can. This flattered the figures for demand. Once it is clear the demand is greater than supply, this creates more demand and so on in a virtuous circle. It became clear, as I endured my busiest week ever that everyone would get substantially less than they put in for. This in turn encouraged retail customers to bid for £20,000 in the hope of getting £3000 worth, further flattering demand.

So was the demand really 24 times over-subscribed by institutions as reported by the National Audit Office? No.

If the issue was priced at £5, just over 10% below the trading range it established following the flotation, it’s unlikely, at a yield of around 4% that I’d have been recommending it to clients. There would have been no politicians running round telling everyone how under-valued it was, and in the absence of the excitement, there wouldn’t have been people putting in for significantly more than they actually wanted. The issue may have been a flop, and been pulled. The Government would have been left with egg on its face, and the price it could achieve in future may well be worse than the 330p it actually achieved for the 60% of the company it sold, if it could get it away at all. This is of course the real objection from Labour and the Unions, who simply object to any and all privatisations.

Could the Government have got more than 330p? Yes, but not much more, and at significant risk to a successful flotation.

People are objecting that institutions which took part in the flotation have sold some or all of their holding. Well why shouldn’t they if they think as I do that at 560p, at a yield of 3.7%, Royal Mail is over-priced? I simply don’t understand this fetish for long-term holders. Royal Mail is a successful flotation with a deep and liquid market in its stock and so as a result, can if needs-be raise money at a low cost of capital. Those institutions which put in for the flotation early did so at some risk. They have been paid for this risk handsomely and early, as have the 600,000 or so retail investors, many of whose holdings of 227 for which they paid £750 are worth well over £1200. I don’t regard this as a bad thing. If you think the shares were sold off cheap, you could have bought some (unless, of course you were overseas, or an MP).

Should more have been made available to retail investors? Yes. But at the cost of securing the IPO, when it was not at all clear what demand for the shares was out there. Could a different flotation mechanism be used in future – an auction perhaps? Yes but these are a great deal harder for retail clients to understand and access. And if there are to be privatisations in future, we want to allow retail clients – individual British people to take part.

These quibbles aside, the IPO was a great success, and most of the objections to it are mere left-wing cant. The risk of owning Royal Mail to the tax-payer has been reduced. You can still post a first class letter from the Scilly isles to Shetland. Private money now underpins the business, and thanks to a hugely successful flotation, the Government can, at a time of its choosing, sell some of the remaining stake for which it will get a better price. The National Audit Office made an estimate of the value to the taxpayer of keeping the company in public ownership of £1. Labour is not making much of this figure. It has been sold to people who value it significantly higher. This is why capitalist, free-market economies are richer than the kind of economy Labour MPs want: everyone is better off now the Royal Mail is privatised and no-one is worse off.

Isn’t capitalism marvellous?

Academics are Left Wing because…

Chris Bertram is professor of Social and Political Philosophy at Bristol, he tweets as @crookedfootball and blogs at Crooked Timber. In Today’s post he argues that “Squeezing the rich is good, even when it raises no money“. Essentially his argument boils down to the left’s new theory of everything – that inequality is bad.

This may, or may not be the case. But the argument that punishing the wealthy ends up hurting the poor, by shrinking the pie, is not even considered as valid. There are so many near lies, distortions and pure hate for people who do things an academic political philosopher doesn’t understand, that the article is worth looking at in more detail.

However, the feature of the discussion I want to write about is the assumption, generally taken as decisive by the commentariat, TV interviews and the like, that if such a tax would raise little or no money then that should count against it decisively. On this view taxes are an unfortunate necessity, required to finance state expenditure and to be minimized whereever possible: a tax that raises no money is therefore pointless, imposing needless pain for no benefit.

The art of taxation wrote Jean Baptiste Colbert, is “maximum pluck for minimum hiss”. The top rate of income tax has been set at 40% for a generation. The rich are willing to pay 40% in a way they’re not willing to pay 50%. Thus rich people who might have settled in England to do business, settle instead in Spain where the weather’s better, or Geneva, or Monaco. At a stroke you’ve deprived the exchequer of £100,000 because you’ve asked for another £12k. For very little extra pluck, a 50p rate probably does in the long run, see the economy smaller than it might have been, and causes a great deal of hiss. No-one is better off.

But this view is just plain wrong, for several reasons. First, in a complex society structured by all kinds of institutional rules, the idea that people have full liberal property rights in their pre-tax income is unwarranted. They participate in a co-operative venture with others in society subject to certain conditions, and those conditions include one that part of “their income” already belongs to the wider society, via the state. This point, hated by libertarians, defeats the widespread view that people are having “their money” take off them: it wasn’t theirs to start with. Though I think such an argument, with some caveats, is correct, it is a second and third consideration that I’d want to rely on here.

This view seems dangerously close to the totalitarian view that all your money is the state’s except that which they let you keep. This man is a professor of Political philosophy. Be afraid. Be very afraid.

The second consideration is that inequality is deadly for democracy, and for the equal political status of citizens. Because the power and influence high earners derive from their income threatens such status equality, there is a strong public interest in constraining it, even if doing so raises no money at all. It isn’t just that the rich come to own media outlets or that politicians are swayed by their donations to parties, it is also that the prominence their cash gives them gets them listened to and taken seriously by opinion formers. Their experience matters and shapes public policy, that of an unemployed teenager in the North East doesn’t: we need to shift the balance of voice in favour of the unemployed teenager and against the City trader.

Inequality is sometimes “deadly for democracy”, because it’s often a symptom of extractive political institutions – much of Africa for EG. However that is not the case in the UK. Most people who get rich enough to pay the 45p band are not politically connected. They’re just business people. Where there is a problem, it lies in the quangocrats and state apparatchiks walking through revolving doors on huge salaries with apparently no oversight. Even worse, many of these are superannuated, (mostly labour) politicians, conducting a gramscian march through the institutions. I agree here, in the crony capitalist, and quango state, we could do with some pay restraint.

In any case, the UK is not particularly unequal. Remove London, and it’s international mega-rich, the UK is a pretty bog standard north-European welfare state whose inequality is relieved by direct transfers at least as much as it is in Germany. I fail to see how chasing the International Mega rich who choose to pay a lot of tax here, makes anyone better off.

Third, income inequality makes life worse for the rest of us in real terms. Economists are supposed to believe that utility (whatever that is) matters intrinsically and money only matters instrumentally. But right-wing economists often seem to forget this as soon as they are asked to comment on tax policy and inequality, arguing as if their theorems apply to cash and not to utility. If we’re dealing in cash terms, then a tax that makes some people worse off and nobody better off looks bad, and looks Pareto inferior. But it isn’t necessarily Pareto inferior if we focus on well-being: making some cash poorer may make some others better off, a Pareto incomparable outcome. Here’s one way how: if those on high incomes have too much, they can outbid the rest of us for goods that are intrinsically in limited supply or where supply can’t be quickly increased.

I see, he wants stuff that a political philospher would once have been able to afford, but can’t now. He seems ignorant of the fact that, in general, markets are better at relieving scarcity than making the rich poorer.

If I’m further away from being able to buy a house near to where I work, because house prices are raised in an auction I can’t compete in, then I’m worse off even if my income stays flat. Reducing the purchasing power of the wealthy is therefore good for me (unless I got hold of a house early and can earn windfall gains from the auction). And similarly for many other goods. 

I see. It’s the nice big house he can’t afford that he’s envious of, the poor dear. But house builders cannot respond to demand, because the permits to build are not being issued to cope with population growth. So prices rise. Contrast with Germany, where building is encouraged – house prices haven’t risen relative to incomes. This is a market failure which can be laid directly at the door of the state, and particularly, the left’s beloved councils. The answer is not to drag down the rich, but to ensure greater supply. And markets do this better than any other mechanism.

Unrestrained income for the wealthy also means that they can commit more of their resources to ensuring that their offspring make it to the top in the next generation, thereby harming the opportunities for the rest of society.

State education is rubbish. That is not the fault of those who can afford to escape it. But the education establishment of which Professor Bertram is part, opposes any market mechanisms which may drive up standards in state education.

I could go on and enumerate more mechanisms whereby squeezing high earners is good, even if it raises no money, but the general point should be clear. It should give Labour reasons to go on the offensive (“class war”); it certainly gives the commentariat reason to stop making their stupid talking point. They won’t, of course.

The real reason for this attitude is that the incomes of political science professors haven’t kept up with people like business owners, bankers, corporate lawyers and the like. This is pure envy by members of a profession which feels undervalued.

And it demonstrates a profound misunderstanding of who the payers of the top rate of tax are: there are a number of city traders in there, sure, but the majority are business owners, many of whom will have financed their company with a mortgage, risking their house on their business. As business owners, they often have options to pay themselves in a number of ways – dividends, capital returns, income etc… prudent tax-planning is not avoidance, but this is why the 50p doesn’t raise as much as left-wing academics, who comprehend nothing but PAYE wages, think it should.

This hostility to wealth creators (whoever they are) is simply a lack of understanding, and worse, the sneering of a profession whose people were once able to afford the houses now snapped up by people involved in mere trade.

This left-wing politics of envy, so common amongst academics is pure bitterness from a profession which no longer commands the respect (and money) they think they’re due.

It doesn’t help the poor to tax the rich so much they seek means to pay less tax. For the means by which the rich pay less tax shrink the pie for everyone.

The reason Marxism is doomed to end up murderously totalitarian is that everyone imagines themselves as the planner, not the man condemned to the salt mines to fulfil the plan. The professor of Political Philosophy at Bristol university has not grasped this simple point.

Why the 50p Tax Rate is a bad idea.

The purpose of progressive taxation is to put the greatest burden on those with the means pay more. This makes economic sense due to the theory of the marginal utility of money: a further pound to someone on £100k is worth less than a further pound to someone who earns the median wage of £26,000 or so. means you pay a greater proportion of the 100,000th pound than you do of the first. And for a quarter of a century, the British income tax rates were more or less fixed, apart from an abortive experiment with the 10p starting rate. The rich paid at a marginal 40% and everyone else paid at a reasonable 20%.

And then the Labour party looked like losing the election. And in casting about for land-mines to leave behind (something Tory administrations don’t do, incidentally…) Labour, in their last budget raised the top rate to 50p on income over £150,000 and, in a nasty, spiteful little measure, cut the tax-free allowance progressively on people earning over £100,000. The top marginal rate of tax therefore, on incomes between £100,000 and £116,000 was 60%. And simply so that Labour could have an attack line on “Tory tax-cuts for the rich while they cut services”.  They did the same trick with 90-day detention. The sheer, naked, abusive, corrupt and transparent timing of this measure takes my breath away and how they’re not excoriated in the media for it is beyond me.
Labour, however were overjoyed. They finally got their wish that a Labour government would soak the rich “until the pips squeaked”.
The trouble is, it didn’t work. The rich, you see aren’t very often on Pay As You Earn, so changing tax rates isn’t a simple matter of altering a number in a spreadsheet. The highly paid are very often in control of the exact mechanism of payment. Either as contractors, self-employed in some way, or business owners. They often have multiple income streams. There are many ways to choose the tax-year in which you declare your earnings or whether to take it as capital gain or income, or as many people I know, simply take less pay “so the buggers don’t get it”. They can increase pension contributions or invest in another business. 
All people paying the higher rate have to submit a tax-return and therefore probably have an accountant who will advise them on their options. None of this is illegal, or even contrary to the spirit of legislation, and certainly not “tax avoidance”. All you have done is taken a situation where it didn’t really pay to make a great deal of effort about the tax affairs, to one in which it did because one form of tax is so far out of whack with the rest. And so the 50p tax raised a great deal less than the £3bn expected.
I’m making no great claims about the money raised or not by this measure. The 50p rate probably raised a bit more money than had it not been introduced, at least in the short run, but not much (less than the £3bn promised). And Dropping the rate to 45% almost certainly reduced the amount raised compared to the status quo ante, but again, in the short-run, and by negligible amounts. 
In the longer run though the evidence appears clear. The revenue maximising rate is somewhere between 40% and 50%. A 50p rate is probably nudging into the downward-sloping end of the curve and this is mainly due to investment and incentive effects. It simply becomes less worthwhile, at the margin, to make the effort to get beyond £150k when the Government takes over half. And so fewer people do, many that do will shift earnings over time to less punitive jurisdictions. UK subsidiaries will be shut, or not started in the first place and the economy suffers. Business might still get done, it just won’t be done by people taxed here. It suffers not because an extra 10% of earnings over £150k is a lot of money, but because you’re attacking the people who make the decisions.

Ultimately the mechanism by which the right-hand side of the Laffer curve works is by shrinking the pie, not just for the rich who pay the taxes, but for everyone.

It boils down to this simple statement: a higher rate of 40% is accepted by those who pay it. One of 50% is not. And the people who pay it have options. But it is economically damaging beyond the simple effect on the Exchequer’s bottom line, because those who are going to be forced to pay it feel it’s vindictive. They are really, really angry about it. And for this reason, the economic and social rationale needs to be a bit better than the “Because crisis. Bankers. FUCK YOU, That’s why” that seems to underpin the Labour thinking. 
Not having any sympathy for someone on £250k a year means not having any sympathy for someone who writes a cheque for £92,627 (39%) to pay for nurses teachers and doctors. You think they should pay £102,367 (41%) instead. And if a number of them walk, to Monaco, Geneva, New York, Spain or wherever, instead of “driving them to the airport“, consider where the £92,627 they’d have paid willingly will now come from. That’s before you consider the VAT, CGT, NICs and so forth that “wanker” you’re wishing would just “fuck off” would have contributed.
This is a transparently chippy little bit of class war bullshit that will risk more damage than is worth the paltry sums it might optimistically raise. In supporting it, you’re revealing yourself to be a spiteful, economically ignorant Jack Spart, who is motivated by envy, not a desire to get the deficit down. 
Ultimately the chorus of business leaders making this point will damage Labour’s economic credibility even further, even as a grumpy electorate tells the pollsters they like the policy. The economic recovery is happening. People will not want to risk this over the next 15 months. This is set to become Labour’s new clause IV. It will not form part of the manifesto of the next Labour government.