Posts tagged 'Rant'

Joined up thinking

On February 18, 2019 / Tagged: , , ,

Via a very odd suggestion on Facebook, I came across this video of a historian saying silly things.

“I hear people talking the language of participation, justice, equality and transparency but almost no one raises the real issue of tax avoidance, right? And of the rich just not paying their fair share.”

My problem with this isn’t just that I disagree – although I do. My problem stems from the fact that the comment is completely divorced from the economics of the situation, and contains exactly zero strategic thought about how to alleviate the issue that’s been raised.

Tax avoidance is when you legally structure your activities in order to reduce the amount of tax you pay. The idea of a person’s (or organisation’s) “fair share” of tax is defined by the law that states how much tax they should pay. If they’re paying tax in accordance with the law, then by definition they’re paying their fair share. If lawmakers want them to pay more, change the laws.

It could be argued that if you try to use the law to reduce your tax liability then this is “not paying your fair share”. But that’s a load of crap. As well as being a way to raise revenue, taxes are used by governments to incentivise certain behaviours. It’s an invalid argument to state that someone doing the things that governments incentivise means they’re “not paying a fair share”1. One could argue that some taxes are meant to incentivise and that others are just meant to raise revenue, and that it’s immoral to try and avoid the latter category. But tax is stipulated in law, and we follow laws based on what they say, not based on an interpretation of what we think they mean.

The issue being discussed here is inequality, and how to help people who are less well off. I think that’s a very good problem to try and solve, but the solutions have to start with those people you’re trying to help. What’s caused the problem? Where is the issue? What sort of things can you do to help people who are struggling? Tackling questions like that is much more likely to solve the problem.

Imagine the counterfactual, that the government stopped tax avoidance by rich people. Great. What next? What do you do with the money? Is there enough money to implement your solution? How do you know if it’s solved the problem? Are there any downsides to eradicating tax avoidance? Just raising more tax from rich people doesn’t actually do anything to help poorer people; it just makes rich people less wealthy. If that’s your aim then fine – although, why? – but at least be honest about it.

My problem with this isn’t that people say silly things. That happens all the time, and you can’t stop it. My problem is that things like the excerpt above are often viewed as intelligent commentary, and passed around as pieces of wisdom. But they’re not. They’re unsophisticated observations made by unserious people that fail to grasp all the facets of the issue they’ve decided to talk about. I’m not saying that I know the answer to the problem – I definitely don’t – but then I don’t go around making grand statements and pretending I have all the answers.

A lot of commentary from a lot of otherwise intelligent people falls into this category. It drives me mad.

  1. There’s also a lack of internal consistency here. The same people who care about tax avoidance are also – often – vociferously in favour of the EU because trade. The EU is explicitly set up to encourage this sort of tax competition between states, because of the frictionless trading. It’s not logical to argue in favour of the EU because of frictionless trade, whilst denouncing anyone who engages in that trade. 

How to make renting worse

On April 18, 2018 / Tagged: , , ,

The BBC is currently running an article called “Four ways to fix the rental market“. These are four ideas designed to “make renting more secure and more affordable while maintaining a good supply of homes for rent”. The ideas are a mixed bag, to say the least.

Idea #1: Make renting more secure by extending the length of contract:

In England, about half of renters are on Assured Shorthold Tenancy agreements. This allows landlords to evict them without reason. […] The housing charity Shelter would like tenancies to last for a five-year period – with landlords only having the power to evict their tenants if they break their agreements or don’t pay the rent.

At the last election, Labour campaigned for three-year tenancies.

They don’t point out that this also allows tenants to leave without reason, usually on a month’s notice. For a lot of tenants this flexibility is good, because you can move on a whim. It also ignores the fact that tenants are free to negotiate a longer term lease with their landlord, if this is what they want. They may also be able to secure a lower monthly rent, because for a lot of landlords the knowledge that their tenant is staying put for 3/5/however many years is valuable. It’s expensive to find another tenant.

Idea #2: Limit rent increases. Sigh. The price of a thing is a signal about the relative supply and demand of that thing. High prices mean there is high demand relative to the supply. If you limit the price, then there’s no incentive for people to introduce more supply. You end up with a shortage of the thing you’ve price-limited. It would also cause landlords to skimp even more on maintenance and investment, so over time would reduce the quality of available housing.

Idea #3: Make things easier for landlords. Faster evictions, exemptions from stamp duty, etc. This actually isn’t a terrible idea, but it seems somewhat contradictory to the first two. If you acknowledge that these things would help, then you’re acknowledging that the problem is restricted supply. So why restrict the supply further by making the market less liquid and introducing a price cap?

Idea #4: Built to rent. This isn’t an idea, more an observation that large companies are buying property to let it to people. The article asserts that “the huge advantage from a tenant’s point of view is that the duration of rental agreements is much longer”, but this is only an advantage if you want a long tenancy. A lot of people don’t.

This is all dancing around the issue that in parts of the UK, the supply of housing is constrained relative to the demand for it. There are some ways around this, namely to reduce the centralisation of the economy (and government) around London and to loosen the planning regs so that it’s less expensive for people to build new houses. But although those things have half a chance of solving the problem (along with many more), they won’t get implemented. For one thing, the majority of homeowners see their homes as investments; if the supply of housing increased and property values decreased, then the government responsible for that would be out on their ear sharpish. For another, I suspect that a lot of Londoners and people in government actually quite like centralisation; Londoners because they get more money spent on them, and the government because it means they keep more power in Westminster. Which is fine, but don’t come moaning to the rest of us that you’re paying £1000 a month to live in a room in a shared flat.