I have recently criticised Brownian economics in two different posts. They involve government subsidising particular services for particular ‘target’ groups, normally politically identified. One of the main criticisms that I had was that the level of waste and increasing bureaucracy. Instead of entering “shared ownership” schemes with first time buyers, reduce red tape and taxes on house builders. Instead of taxing energy companies to subsidise energy bills for families, simply lower taxes on gas companies or the families themselves.  

So let’s get this straight. If you are a pensioner, then you can claim some fuel payments:

If you are aged 60 to 79 and you are entitled to receive a Winter Fuel Payment, this year you will get either £125 or £250, depending on your circumstances in the qualifying week (15 to 21 September 2008).

If you are aged 80 or over and you are entitled to a Winter Fuel Payment, this year you will either £200 or £400, depending on your circumstances in the qualifying week.

In 2006, that corresponded to 9.5 million people getting the allowance. That’s a cost of £2bn per year.

Only last week, there could be a further £150 for families taking the credit, but thank goodness it seems this this is wrong. Instead, the government now proposing that the payment should only be £100 for 6 million families - so just another £600m, making the grand total £2.6bn.

It seems that in 2006-7 the DWP spent £120bn on benefits and £6bn administering those benefits. Assuming the same ratio of benefit to administration, we have a grand total of £2.75bn. 

Wouldn’t it just be much simpler to give the pensioners an extra lump of pension that they could spend on what they choose? Would it not be simpler to give the ‘poor’ families a tax cut, so that they can spend the money on what they choose? The total comes to £175 per person per year, whatever their situation. 

Why does the government insist on taxing people to give the money back to them, via a complicated vouchers system? Would it not be simpler to not tax people in the first place?

The same can be said for tax credits. We hear that they cost £1.5bn per year just in fraud and incompetence! The actual benefit that was paid out is £15bn. Leaving pensioners aside (lots do not pay tax, although some do), we could increase the personal tax band (currently £5,435) by £3000! Just think about it. That’s £600 in every working person’s pocket - every working person. And you might just take a few 10’s of thousand people out of tax all together.

Apparently, Labour is about helping poor people. My arse. It’s about building a client state and interfering in people’s lives.

There has been a lot of banter over the last few years about the housing market and affordability. Yet now that it is falling at a shocking rate, why do we still have articles about how to build “affordable” housing? I have never understood this “affordable” term - affordable for whom? But I digress.

The article in question raises some serious points:

The government has run out of good ideas and is fiddling about with bad ones like the eco-towns and now the suspension of stamp duty. 

Indeed they are bad ideas - ecotowns that are not really economic or ecological. In fact, by all accounts, not particularly practical or fun places to live, either. Would you buy a house in a town that banned personal vehicles from entering (i.e you would not be able to park your car at your house), and instead levied a £1000 yearly tax to subsidise local transport? So that would be taxing you £1000 for the privilege of not owning a car.

Or would you happily own a house with a custom built computer embedded into your wall designed to monitor local bus services (thus allowing you to plan when to leave), in the full knowledge that in 5 years time the system will stop working and will need replacing at an exorbitant cost? Or would just a simple website suffice? How about a java applet to run on your home PC?

All of this in the name of the environment, which incidentally is a misnomer because the houses themselves are not significantly more environmentally friendly than a normal one. And what about the environment in which one lives?

But as normal with these types of article, it also contains some some rather poor points:

So how can we restore confidence in the housing market and bring it back on track?  

You see, if an article argues that we need more “affordable” housing, then why would you want to try and reverse the current trend that makes said housing more affordable? It is the very nature of a market to fluctuate, and over the last few years that fluctuation has been in only one direction. But one of the great things about a market is that when prices get too high, they start to come down again. 

So how does the author of this article want to increase affordability? The author suggests that he knows how to “restore confidence in the housing market and kick-start house building” by, yep you guessed it, increasing bureaucracy and red tape for house builders. Apparently, 35% of housing in new developments should be “affordable” and “underwritten” by the government, so that the government can enter a “shared ownership” contract with those that cannot afford a house on purchase on their own. 

Precisely what he means by all of these bureauspeak words is beyond me. But let’s read between the lines and try to translate it - saddle house builders to build a large proportion of houses with little margin in them, effectively depriving them of 35% of their profit. Oh, and while we are at it, saddle them with a huge administrative burden so that they can cope with the additional red tape that government bureaucrats always bring with them. Just what the housing market needs to stimulate it - a new 35% tax on profits. And whether this “stimulation” package will increase or decrease affordability remains to be seen - indeed it could easily reduce the number of houses being built, thereby “stimulating” the market to increase prices.

But nonetheless, this scheme will apparently work because it will require no new funding…. um this sounds awfully like Brownian Economics, that ill-fated school of thinking that believes that money can be magically produced from, well, hot air.

If you want to fix* the housing market, don’t get involved in shared ownership schemes. Instead, reduce red-tape and regulations surrounding building new homes. By reducing planning restrictions, more houses can be built and the house prices automagically will go down (and this magic is definitely not Brownian). If you must have “affordable” housing, then offer incentives to house builders, such as tax breaks and/or make planning permission easier to obtain for houses smaller than a certain floor area. Another idea would be to keep the different bands of stamp duty in line with house price inflation and possibly increase the lowest band. One should also abandon the useless HIPS - let the prospective buyers decide what survey they want.

* And I use this term quite loosely

We find ourselves in a society where spending on education does not actually educate and achievement in education does not necessarily result in reward. One must ask oneself, if not to educate the country’s best and brightest, what is the point of our universities?

The Labour administration’s worst legacy to our great nation is the wasted opportunity that can only happen once in a generation. An opportunity so great, that if competence prevailed, would leave an entire generation of youngsters with a lifetime of fulfilment and success. Only once in a generation can a government increase spending on education in the way that Labour have done in the last ten years. And only once in our generation can this money be wasted on bureaucrats, social engineering, targets and pointless schemes.

With a legacy like this, can the Labour Party ever be trusted to govern again?

How can taxing a company more reduce the cost of its services? Of course, things are more complicated than this, because in fact Brown is not suggesting that he should “encourage” businesses to lower their profits in order to avoid a windfall tax - the policy that Brown has just “announced” might be a replacement for one a few weeks ago, that on the most part, received public condemnation. 

What Brown proposes to do is give families* £150 extra this winter to help pay for their energy bills. All well and good, one might say. Money from the government is always good. Until you realise the cost - this money might be borrowed, resulting in higher taxes for future generations. And of course what happens to money that goes into the government’s coffers? Well half of it stays there, or be magically turned into smoke. Of course, the real cost - when interest and government waste and whatnot - is much higher. So it’s caution to the wind, let’s mortgage our children’s future - that is the current way of thinking. Effectively Brown is taxing companies and the workforce more to pay for the give away, even if it is not direct.

But maybe this policy is not a replacement for the “windfall” tax policy. Maybe the two will be combined and there will be no increase in borrowing. Maybe it would be a direct tax for a direct subsidy. Would this be any better? Would a windfall tax on the energy companies, with half of the money disappearing into thin air and the other half distributed to the target group that Brown thinks he needs on side to win the next election (e.g parents, especially the middle class ones), be any better?

Of course not. But is it more likely than funding this give away through borrowing? Probably.

So what effect would a windfall tax have on energy bills? Of course, it will push them up. Companies have a mandate to make a profit. If they don’t, then shareholders oust the board - or worse - the companies become a take over target. And of course, profit margins matter when it comes to stock market prices. In effect, company directors will do all in their power to ensure the company has a good profit margin, as they want to maximise their bonus and retain their position. 

It appears that Brown thinks he can get away with increasing the whole country’s energy bills in order to pay for a give away to whatever particular group in society that he needs votes from. Perhaps the title of this post should have been “Brown fails to understand politics, again”.

* I am surprised that hard working ones were not mentioned, but I guess this was because the policy announcement was a mistake

Some of you may or may not be aware that today is the opening ceremony of the Chinese Olympics. It is therefore apt for me to write my final article about my recent trip to China.

During my travels in China, I noticed several things about the way that the Chinese do business. Of course, I may end up making sweeping generalisations based on selective evidence during my short stay, but nonetheless I will write my opinion of the Chinese business practices that I saw.

I was lucky enough to stay in an extremely expensive 4* hotel, even by European standards. It should have cost me £250 per night, although since I was attending a conference organised by some very well connected people in the Party, I paid considerably less. The 5* hotel next door, where all of the important people stayed, cost a whopping £500 per night. You can guess the quality of the hotel simply by looking at the photograph below.

As can be seen, the quality of the materials used is second to none. The hotel owners have spared no expense when it comes to the materials used to build the entire hotel - marble floors throughout, expensive piano’s in the entrance hall, granite topped bars…. But it was all so badly put together! For example, there were cable guides underneath the carpet directly in front of the top of a flight of stairs (perfectly placed to trip someone down the stairs), the extremely expensive marble floors were badly put down (they didn’t meet at the corner with the wall, for example), the lifts made from a perfectly cylindrical section of glass were gammed together with silicon bathroom sealant. The list is endless, but it doesn’t just contain itself within the hotel - the brand spanking new motorways were already crumbling at the joins (this could be seen at motorway junctions, where flyovers were cracked and crumbling underneath).

And the main reason, as far as I can tell, is the people that are employed and their relationship with the people that make the decisions. For example, when holding a conference in a 5* hotel with a name “International Conference Hotel” - one that cost £500 per night to stay in - one would expect there to be at least one person on the reception out of the seven that were working there to speak English. One would expect there to be seven guests being checked in by seven receptionists, and not one guest being checked in by all seven receptionists. One would expect that, having being told to pay for the conference fees in US dollars by the conference organisers, there would be facilities to accept these dollars when it was time to pay the fees. And this list of problems lead to it taking more than two hours to check in, even though I was only second in the queue when I arrived!

But the incompetence does not stop there. It was an “International Conference Hotel”, yet no one bothered to think about the possibility that two small screens at floor level, rather than one large screen at head-height, was not such a good idea. When faced with a room half the size of a football pitch, if you sat anywhere beyond the third row, nothing could be seen. But it’s ok, if you sat anywhere further back than the second row, the diesel engine sounding air conditioning and the lack of any form of microphone (for the first day) ensured nothing could be heard either. And just in case you could see or hear what was being presented, the organisers conspired to provide unlimited green tea - every fifteen minutes, whether there was a presentation on or not, a hoard of waitresses would come and clinkety clink their way through the hall, serving tea to everyone. And the reason that this “International Conference Hotel” cannot run a conference to save its life is that the people who organise it - the people who actually make the decisions - are sat right at the front, directly in front of the presenter, completely oblivious to the rest of the hall, with a hoard of people telling them at every break just how wonderful everything is.

Throughout my stay in China, I saw this time and time again. Important people having different treatment to everyone else, not being part of or even aware of the effects that their decisions have on everyone else. A two-tier society, with decision makers absent from their organisations day-to-day running, oblivious to any problems that arise, with those on the ground unable to make decisions for themselves. And in the absence of a sheppard, the sheep follow each other into oblivion.

And there is nothing quite so thought provoking as the shanty town, full of the hotel’s workers, directly outside my very plush room. Below you will see a double story row of shacks, made from what looks to be corrugated iron or plastic. Each family (two adults plus children) have a single room to themselves, which is a kitchen, bedroom and living room all at once. There is no running water - this is located at the standing pipe at the end of the row.

It seems the secret to success in China is to employ half-whit’s, give them a hovel to live in and expect them to be able to do their job.

But there is something more sinister about the really big bosses - those that are working at an international level, rather than the ones at a national level, as above. The way they seemed to have manipulated buying the only assets worth anything from Rover, and when the crunch came, walk away taking all of those assets back to China, makes me extremely nervous for the future. This cannot be more clear, from the massive marketing campaign of the Rover 75 that I saw all over China.

So a future of questionable business practices appears to be on the agenda for China. Either by the complete lack of regard for how to do business or by the complete lack of regard for those that you do business with. Perhaps the two are not unrelated.

I propose a simple but effective way to ensure the destruction of the Labour Party - not just in the short term, but lasting for decades. Personally, I believe what the Labour Party has done to our country, both in the last 11 years and previously in the tax’n’spend unionised claptrap of the mid to late 20th century, is unforgivable.

It starts with encouraging, or hoping for, a leadership challenge in the next couple of months. Just when the country needs to be guided through tough economic times, in the event of a leadership challenge, the Labour Party will turn inwards. It will begin a bitter battle with itself, with factions briefing against factions, each with the belief that they are the only ones capable of carrying forward the torch of victory; they are the only ones that can lead the country out of its current (self-made) state. Whilst we are all hypocritically assured on numerous occasions that the current economic woes are of global nature - for example, the Labour defence of the housing market is because we live “in a world where British families can’t buy or sell a home because US bankers lent money to impoverished Americans.” - this does not wash with the population. Facing economic troubles, the last thing the population wants is a government unable to govern, especially when this inability could make matters much worse. The impression the population will have is that with strong leadership of this country there could be light at the end of the tunnel, but with a factionised and paralised government, we are all doomed to a recession that was ultimately avoidable. So any serious leadership challenge, whether successful or not, would almost guarantee a loss of power for Labour.

The next fatal blow to Labour’s electoral success is the leadership successors. Faced with Milliband, who is obviously too immature and naive for high office given his performance in the last few days (how he became Foreign Secretary is beyond me), with Harman whose political ineptitude is unsurpassed, or with a Union puppet, it seems clear that even if the disaster known as Gordon Brown was replaced, it wouldn’t get any better.

Whilst it would be easy to accuse me of wishing troubles on the country for purely party political gain, one must remember that a 3rd Prime Minister in 15 months could not govern without a mandate of his or her own. So in the event of a leadership challenge, an early election - maybe as early as May 2009, or even October 2008 - would be almost certain. But wouldn’t it be more damaging for the country if we were faced with another 2 years of Brown, followed by the possibility of that 4th term?

Further nails in the coffin of Labour winning an early election would be that almost certainly cost a fortune, giving the hard-left unions who currently hold the purse strings the ultimate over the manifesto. We can already hear the cries of “increase taxes on the rich”, which is code for increase taxes on everyone, resonating with the electorate.

Just think about it, an early election brought about by a leadership contest would leave Labour (even more) millions in the red, a heavily factionised party hell-bent on briefing against each other, a critical loss of the Scottish heartlands (the resurgent SNP would severely cripple Scottish Labour), a hemorrhage of support in England, probably another leadership contest and deliver a landslide to the Conservatives.

In such an environment - with a disfuntional opposition probably worse than the 1997 Conservatives under Hague - then the new Conservative government could set in place a series of reforms that would transform the political and electoral spectrum of the United Kingdom for decades. By working with the resurgant SNP, the Conservatives could set in motion a true devolution of power. By splitting up the union of Wales, Scotland and England, the ‘West Lothian’ question would be answer once-and-for-all. It would remove Labour’s power base from the English parliament - of the 350 Labour MPs in parliament, 67 of them are from Wales and Scotland. Whilst in the first two terms under Tony Blair there would have been a Labour majority, there would not have been that historic third term.

Another reform should be the increasing the fairness of electoral wards. Currently, Labour wards have an advantage of a smaller electorate - in 1997 5200 fewer per constituency, in 2001 6400 fewer per constituency and in 2005 6200 fewer per constituency. Indeed, in 2005, the Conservatives would have needed a lead of 11.7% votes to gain a majority.

Faced with a factional and bankrupt Party, and a significant electoral disadvantage, would Labour survive in the long-term? The final blow of removing two of the four Labour heartlands from the equation (the others being the North East and the areas surrounding Liverpool/Manchester) could easily lead to a Party split in two, resulting in four major political parties and the dominance of the Conservatives for decades to come.

The question is, would it be morally correct to do such a thing?