What if we Switched Local and National Taxation?

You don't have to read many of my blog posts to discover that my ideal tax system is one where all public revenue is raised from taxes on land values and fees charged for using state provided services, with income and general sales being completely untaxed. I favour that approach for various reasons, one of the major ones being that if the government invests money heavily in infrastructure in one area, the corresponding increase in land values in that area will increase the tax levied in that area, effectively increasing the extent to which the beneficiary pays and reducing cross subsidy between regions.

I was involved in a discussion recently about how Business Rates create that effect to some extent already, by taxing rental values nationally and then distributing the funds to local authorities. That got me thinking - what would happen if we reversed the current tax system so that central government was funded by a national equivalent of Council Tax and local authorities were funded by a locally set Income Tax. Having weighed it up, I think it would be a major improvement.

Council Tax seems better suited to the national level for the same reason as Business Rates, it ensures the beneficiary shoulders more of the cost of investment. This effect already exists within local authorities to some extent; for example, if a local authority area has one particularly good school, the houses around it will tend to be more expensive (and therefore potentially in a higher Council Tax band) because of the benefit it is confering. Those kinds of geographical disparities tend to be even more pronounced when looked at nationwide, where central government investment in infrastructure, such as transport networks, tends to be quite heavily concentrated. Making the areas which benefit most from those projects pay a greater proportion of the cost would make a more even spread of investment more likely and could actually reduce the extent to which regions seek central government funds.

On the other hand Income Tax seems better suited to the local than national level. The main argument made in favour of income tax is that it reflects affordability, but the a major flaw in that argument is that, when applied on a national level, it doesn't allow for differences in the cost of living across the country; an income which allows a comfortable lifestyle in a cheap area might only allow a Spartan existence in a more expensive area. If set across a local authority area, income tax would more accurately reflect affordability, as the cost of living would be fairly level across the tax base.

This is part of the reason our tax system is such a mess. Not only do we have a poor set of taxes, but the taxes which seem best suited to the national level are being levied locally and vice versa.

Small ISPs Refuse to Censor

I was delighted to read in The Register that a number of small ISPs have refused to block websites which appear on the IWF's blocklist¹. I'm particularly pleased because they have gone beyond the issue of cost to attack the IWF's approach on the basis that it is ineffective and politically motivated, which has forced some of the scheme's strongest supporters to admit that the scheme will do nothing to stop those determined to obtain child porn. That should be obvious to anybody with a modicum of technical knowledge, as there are numerous ways around filtering, proxies being the most obvious.

The real danger with filtering is the very fact that it only prevents those who aren't particularly determined from accessing sites. In terms of blocking child porn, that makes the system pretty much useless, but as a system of political censorship, it makes it very effective, because debate, dissent, campaigning and whistle-blowing are seriously hampered if people aren’t able to share information freely and openly. This touches on issues I raised previously when a Wikipedia page was included in the IWF blocklist ².


1. http://www.theregister.co.uk/2009/02/25/iwf_small_isps/

2. http://plockett.blogspot.com/2008/12/iwf-and-wikipedia.html

Credit Where it's Due

I usually have very few positive comments to make about Polly Toynbee's work, even going back as far as my GCSE English coursework, when I had to review one of her articles and was told by the teacher I was "doing the author a disservice" by describing it as party political propaganda.

However, in her piece in Tuesday's Guardian, I'm in almost total agreement with her comments on the housing market and the serious under-taxing of land. I doubt she'd agree with me that, on the flip side, income is seriously over-taxed, but it's still a positive read.

Meaningless Soundbites of the Week

Given that it's only Tuesday, I realise I'm taking a bit of a chance with that headline, but I'm prepared to risk it, because it seems that right across the mainstream political spectrum, politicians are lining up to wade into the criticism of 100% mortgages. The big three parties have called for an end to them, the FSA have indicated that they are considering controls on them and the two main opposition parties have criticised the government for not doing something about them sooner.

At this moment in time it is completely irrelevant, because the chances of 100% mortgages being offered on a widespread basis is going to be nil for the foreseeable future. It's also a figure which looks important but is in effect completely arbitrary. In a completely static property market, the 100% level might be relevant, but our housing (or more correctly land) market isn't static, it bubbles and bursts. At the bottom of the market, a 125% mortgage might be reasonable, but at the top of the market, even a 70% mortgage might see the security value wiped out in the following slump.

The feeding frenzy also completely ignores the fact that mortgages aren't the only form of credit. Other secured and unsecured loans add to indebtedness; it's worth noting that Northern Rock's 125% mortgage was in fact a 95% mortgage and an unsecured loan for the remaining balance. Unless you limit all lending to secured loans capped at a certain level of the property value, there is no way you could guarantee people wouldn't become over-indebted through regulation.

All this talk of regulation and loan-to-value capping is just ignoring the simple fact that the only way you can ensure that poor credit decisions don't create wider economic damage is to ensure that all losses are borne by the lender's shareholders, investors and savers, rather than being externalised. The prospect of losing their savings would make people looking for an interest paying account pay more attention to the prudence of the institution they are considering investing with, rather than just chasing the highest interest rate irrespective of the risk.

And, of course, introducing a Land Value Tax and reducing other taxes by a corresponding amount would reduce the incentive for property speculation, resulting in a smaller bubble to burst in the first place.

Temporary Silence

Apologies for the recent lack of postings. I've had a domain name (paul-lockett.co.uk) for a while and I've not done anything with it recently, so I've been doing some work to resurrect it.

I've reposted my blog there using Feedburner's BuzzBoost, so the posts, feeds and comments are an exact mirror of this blog.

I'll get posting again soon.

Could Surveillance Cameras be Used to Protect Civil Liberties?

The use of surveillance cameras by the state is something I tend to oppose almost instinctively, so in order to challenge my assumptions, I started to think if there might be any new uses for surveillance cameras which could keep the state in check rather than extending it's power. This story got me thinking that there might be.

If we have police officers wearing head cameras some of the time, why not go the whole hog and make them wear them all of the time? If we required every officer to wear a camera from the moment they go on duty until the moment they go off duty, there would be a complete record of every shift worked. It would serve, not only to record the actions of the people the police interact with, but also the police themselves. Any attempt by an officer to interfere with the recording of his camera could be made an offence. The end result would be that any wrongdoing by the police whilst on duty would be recorded.

In order to protect privacy, the recordings could be encrypted using a public key system and fed into a server, with the private keys controlled by the courts and the recordings only made accessible with a court order.

I'm aware of a scheme that goes part of the way along this route in New Zealand, where cameras are fitted to Tasers so that every deployment is caught on camera.

So, if the police have special privileges when they are performing their job, why not make them conditional on their actions being recorded when they are in a position to exploit those privileges?

Local Income Tax Halted in Scotland

I was delighted to see that the introduction of local income tax in Scotland has been dropped.

In contrast to the David Nutt ecstasy debacle, the big two of Labour and Tory backed the rational choice of rejecting local income tax, while the smaller parties tended to back the knee-jerk option of local income tax. Only the Greens appear to have backed the rational choice on both counts by opposing local income tax and backing David Nutt.

Removing the charge on holding domestic real estate and replacing it with a tax on income would have been a double whammy.

Abolishing council tax would have prompted a corresponding increase in property prices, due to housing immediately becoming cheaper to hold, meaning that first time buyers and renters would have seen little or no benefit, while giving a windfall gain to those who already have a decent level of property wealth. Adding an income tax on top of that would increase the burden on those with who are working their way up, while having less impact on those who have already accumulated wealth. Overall, the shift would have benefited those who gain wealth through speculation while penalising those who gain wealth through productive activity, which would have resulted in those who live in rented accommodation and work losing out most and those who own real estate and live off previously acquired wealth gaining most. I don't see how that is either fair (however you define fair) or economically sound.

Council tax is massively flawed and I believe it needs to be either drastically reformed or ideally replaced by a land value tax, but given a choice between council tax or local income tax, I'll back council tax every time.

Monbiot's Demolition of Blears

I found George Monbiot's demolition of Hazel Blears to be immensly satisfying reading. I disagree with a number of Monbiot's principles, but his illustration of the utter pointlessness of politicians like Blears is both detailed and eloquent.

The sentence comparing Blears with Robin Cook is one I find especially relevant, as it is this shift in the executive which appears to have facilitated the worst excesses of the New Labour government. The leadership appeared just as megalomaniac at the start as it does now, but at least in the early years, it was partially restrained by the presence of principle politicians such as Robin Cook and Clare Short in senior positions. I may have disagreed with the bulk of their beliefs, but at least they believed in something and were prepared to put their beliefs first. One by one, those politicians have been replaced by vacuous non-entities like Hazel Blears whose beliefs, if they have any, are totally subordinate to their desire to cling on to a seat at the top table.

Blears' response to Monbiot in the Guardian was predictably weak.

Hat-tip to Mark's Any Musings

More on Building a Police State by Threat

I was pleased to see that Henry Porter at the Guardian picked up on the letter I commented on yesterday, written by a pub owner who had been pressurised by the police to install a CCTV camera and give them unrestricted access, in return for them not objecting to his licence application.

It certainly appears, looking at the comments from the local police and the local MP, that the situation is as the letter writer presented it.

I think Henry Porter gets it spot on, especially in highlighting the embarrassing way the pub owner's local Labour MP uses the writers legitimate concerns about creeping surveillance as an opportunity to criticise the Lib Dem council for not installing enough CCTV cameras, while completely ignoring his concerns about the erosion of his liberties.

The MP says of the pub: "we will definitely be coming back when it reopens." I hope the landlord bars her.

Building a Police State by Threat

There's always plenty in the news that gets me riled, but this nearly had me grinding my teeth down to the roots.

The idea of the police threatening to block a pub licence application if the owner refuses to install CCTV and give them unfettered access to the recordings is an appalling abuse of power.

The idea of the police being able to comment on a licence application makes sense if it's restricted to giving details of any previous problems in the venue, but not if can be used as a bargaining tool to put pressure on the applicant to allow police surveillance on private property.

If the letter is a true reflection of the situation (and I've no reason to believe it isn't) it's a new low.

The Mother of All Nanny-Statists and the Seat-Belt Dilemma

This vigorous piece of authoritarian propaganda almost made me start smoking in retaliation.

I could spend a huge amount of time fisking the arguments that the author makes in favour of limiting our freedom in order to protect our health from our own choices, but to be honest, I think most of the flaws are fairly obvious anyway.

There is one sentence I would like to focus on, however. In attempting to justify the idea that we need more legislation to save us from ourselves, the author says:

"We accept the laws on seat-belts, crash helmets and drink-driving because we know they reduce road injuries and deaths."

I think it's important to look at these three sets of laws separately, as they serve different purposes.

I am comfortable with the idea of drink-driving laws, as their primary intention is to protect people from the actions of others and I don't think it is unreasonable to require anybody operating a piece of dangerous machinery in a public place to be in a fit state to do it.

I am opposed to crash helmet laws, as their intention is to protect motorcyclists from their own actions and as far as I am concerned, if somebody understands the personal risk which is presented by a particular activity and decides to accept it, it shouldn't be anybody else's business. The purpose of the law should be to protect people from the harmful actions of others, not their own actions. Otherwise, you get nonsense like this.

Seatbelts are in a similar category to crash helmets. There is an argument that back seat passengers pose a risk to front seat passengers if they jerk forward in an accident, but for a driver in a car on his own, I can see no justification for making the wearing of a seat-belt mandatory.

Putting the freedom of choice argument to one side for a moment, I'm also deeply unconvinced by the idea that we know seat-belts reduce road injuries and deaths. It's something which seems to be treated as self-evident, in spite of evidence which indicates that when seat-belts are made compulsory, it can actually increase casualties, by making drivers feel safer and therefore make them sub-consciously more likely to take risks. There is some detailed comment about this effect here and here. If you find this counter-intuitive, try thinking about a reversal of the situation. Imagine if, instead of making seat-belts mandatory for drivers, it was made illegal for drivers to wear a seat-belt. Imagine if it was also made mandatory for every car to be fitted with a long sharp spike in the middle of the steering wheel. Do you think that would result in drivers taking more care? I would expect it to result in an increase in driver deaths, but a reduction in the deaths of other road users.

This raises an interesting moral dilemma.

Even if mandatory seat-belts do end up reducing road deaths, it would seem reasonable to expect that there would be a reduction in drivers dying because of their own poor driving, but an increase in the number of death among other roads users. Is it right to take an action which will reduce the overall number of deaths, but increase the number of bystander deaths in the process? I would say no, because of my belief that the law should protect people from the actions of others, not from themselves.

This is why I hate authoritarianism; it isn't just illiberal, it's irrational. It's relies on the belief that the government is capable of knowing exactly what the right lifestyle choice for every person is, when in reality, it never can; there are always unintended consequences and unforeseen circumstances.

Building Societies Turn Against the FSCS

Building Societies seem to be increasingly unhappy about the functioning of the Financial Services Compensation Scheme.

This is one of the reasons, amongst others I've given in recent posts, that I think depositor guarantees are a bad idea. If you make everybody in a market share the risks created by the other participants' decisions, you encourage reckless risk taking. Depositors see guaranteed safety and head for the highest interest rate, irrespective of how risky the lending which generates that interest is. The more cautious institutions end up finding it hard to compete and also lose the longer term advantage they should have when their profits are eaten away by the losses of failed higher risk institutions.

The building societies seem to favour a move to a system where payments into the scheme are determined by risk, rather than based on the total value of deposits. I think that would be excessively vague and difficult to calculate and in any case, I don't think anything other than the total abolition of the scheme will resolve all the problems it creates.

In the absence of the FSCS, the building societies, if they wished, could set up their own arrangement to guarantee each other's deposits, which would enable them to avoid the risks taken by banks. It would also allow the customer to choose from a building society within the scheme, where the risks would be shared, but greater risk taking is likely to result, or a building society outside the scheme.

Brown and Mandelson Call for Help

Given that flying a flag upside down was historically a signal that you were in distress, perhaps this wasn't really a mistake.