Monday, 31 October 2011

Royal landowners still calling the political shots

Interesting little story in the Guardian suggesting that the Prince of Wales has been exercising a constitutionally enshrined political veto over any government policy that could be seen to affect the Duchy of Cornwall. Through the Duchy, the Prince is one of the largest landowners in the UK and as such, gains much of his income from land rents. To hear that he has been vetting government bills over economic development, planning, housing and other land related issues, raises questions over whether those bills are being shaped in the best interests of the general public.

Saturday, 22 October 2011

The Queen slides towards poverty

As reported in the FT, with the recent hikes in electricity and gas costs, the Queen is now approaching "fuel poverty", defined as spending 10% or more of your income on energy supply. For the coming financial year the royal household is forecast to spend 8.2% of it's income from the government on energy bills and this assumes no further price rises.

This inevitably leads to a debate of whether poverty should be defined in relative terms or absolute terms. I think that everyone would agree that the Queen is not 'poor' by any sensible definition. Indeed recently, the current definition of 'fuel poverty' has been under review. The report in question offers a number proposals that involve switching from the straight 10% proportion of income to a measures that look at incomes after fuel costs in relation to the 'poverty line' (60% of median income) but also considers the proportion of income spent on energy and the quality of housing. I think it's worth noting that the warm homes and energy conservation act 2000 set out to "eradicate fuel poverty as far as reasonable practical" by 2016, this is going to be extremely difficult with a relative measure linked to median income. Whether such a target can be achieved is likely to be more down to changes in income distribution rather than considerations of fuel expenditure.

The current measure of fuel poverty effectively picks out people, like the Queen, who have large amounts of (typically old) housing relative to their income. I think this is interesting in itself particularly in the light of the report from intergenerational foundation on the distribution of housing across UK society, which has been received with a lot of hostility. The fuel poverty review only considers income in its calculation of poverty and not assets. I think this is an important factor when you consider that the bulk of the measures to alleviate fuel poverty have involved giving income related grants to improve the energy efficiency of a house. Should a person with a low income but in possession of large old house worth a significant amount of money get a state hand-out to do it up, but a person with a moderate income paying a large mortgage on a small house get nothing? On the face of it, those households in older houses that are bigger than they need would do well to exchange house with people with enough income to afford the modernisation and improvements in energy efficiency. At the same time those leaving old larger houses would improve their income by freeing up capital and reducing their outgoings on property heating and maintenance.

Sunday, 16 October 2011

The Folly of the Parliamentarium

Friday saw the opening of the European Parliament's new visitor centre in Brussels, the "Parliamentarium"

At a cost of 21 million Euro,  reportedly 30% over budget and 3 years late. It consists of a number of interactive 3D audio-visual installations "reflecting the desire of the Parliament to reach out to citizens and become more transparent to the outside world".

It appears rather ironic that the "brains" behind the project is a Greek MEP. Given the austerity measures now currently enforced in his home country, I wonder how many Greeks might feel it a little 'Mickey Mouse'...

Thursday, 6 October 2011

Cameron's doublethink on debt

From David Cameron's speech to the consevative party conference 2011:

"The answer is straightforward, but uncomfortable. This was no normal recession; we’re in a debt crisis. It was caused by too much borrowing, by individuals, businesses, banks, and most of all, governments. When you’re in a debt crisis, some of the normal things that government can do, to deal with a normal recession, like borrowing to cut taxes or increase spending - these things won’t work because they lead to more debt, which would make the crisis worse. "

The message is pretty clear: Debt is bad. Even if we want do productive things like cutting taxes with big dead-weight costs or building infrastructure to reduce barriers to private investment, more debt will make things worse.

But wait, what's this bit further on:

"The failure of the housing market is bound up in the debt crisis. Because lenders won’t lend, builders won’t build and buyers can’t buy. "

So the problem is that there isn't enough debt being taken on by homebuyers.  Debt to fund a house purchase clearly effects the younger end of the productive element of society most, since they typically don't start out with a stake in property. So it appears that debt is bad unless it is taken on by young people to buy what is an unproductive asset but, as a shelter, a fundamental human need. In this case, more debt is supposedly part of the solution to the "debt crisis".

Sunday, 2 October 2011

Eric Pickles confirms that council tax does not pay for local services

How are my local services funded? Surely by my council tax?


This is a common misconception but Eric Pickles, Secretary of State for Local Government and Communities,  demonstrates that it is simply not the case, with his announcement of an extra £250 million from central government to fund the most important of local services (in his opinion), weekly rubbish collections. Looking at the numbers from my local council, Oxford, you can see the breakdown of where funding for the council's expenditure comes from.

Council tax accounts for only 43% of council spending. The bulk of the council's income comes via central government through a redistribution of business rates (levied locally but pooled nationally) and a straight grant.  It should be noted however that the government is mandating that business rates, via the localism bill, should in future stay in the locality in which they were collected. This could act as an incentive for local communities to accept new business development in their area. 

Additionally it is important to define what 'local services' actually include. Rubbish collection and street lights are obviously local. However, despite the fact that they are funded nationally, I think that many people would regard their local schools and hospitals as 'local services' since they typically expect to find education and medical services within their community and they are not prepared to travel across the country for alternatives. In this respect the amount of money raised by council tax pales into insignificance when you compare it to spending on other 'local services'.

Oxford council tax revenues are £12.5 million (2011), Oxford hospitals expenditure (2011) is £625 million and the plot above displays these numbers as areas. Obviously including spending on local schools would make the council tax receipt look even smaller. So, given that there are: excellent public transport options, two highly regarded primary schools, two world-class hospitals, all within walking distance from my home. I would say the 'local' taxes I pay, with respect to the public services on my doorstep, look pretty good value. For other people this may not be the case(!) and I will return to elaborate this point in later posts.

Data from and