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This is a spare 'blog in case my main 'blog at markwadsworth.blogspot.com isn't working
From City AM:
Borrowing was £1.5bn higher in April and May than at the same point last year, knocking the coalition’s plan to reduce the deficit by around £20bn. Spending in the first two months of this financial year was 4.1 per cent higher than the same time in 2010.(1)
Despite the over-spend, Labour last night blamed the UK’s anaemic growth on Osborne’s planned cuts. The deficit reduction “goes too far and too fast”, a party spokesperson said,(2) arguing for a reversal of the VAT hike.(3)
The Federation of Small Businesses this week called on the government to temporarily slash VAT for the construction and tourism sectors, in a bid to kick start the economy.(4)
Yet Osborne’s policy of raising VAT while scheduling reductions in business tax was supported by Berenberg Bank economist Holger Schmieding(5): “Cutting business taxes is the strongest signal to send to global firms (6), while other supply side reforms will help boost the economy in the medium-term.”
1) But both the big parties are doing plenty of Indian Bicycle Marketing. The Tories are allowing the deficit to increase while claiming that they are reducing it…
2) … a delusion which Labour are keen to foster.
3) In which, unusually, Labour would be absolutely correct*.
4) As backed up by the FSB, who actually represent small businesses on the ground in the real economy – these people have to fill in their own tax returns and write cheques from their own bank accounts, and know full well that VAT is a tax on business and that they pay five times as much in VAT as they do in corporation tax or income tax on their profits.
5) Banks love the idea of VAT being increased and corporation tax reduced because they are largely exempt, for every extra £1 input VAT they suffer, they save £10 in corporation tax.
6) Banks are global, they can redirect transactions to whichever jurisdiction they choose; a local building firm or pub landlord can’t just up sticks and relocate to a country where VAT on construction or catering is lower.
* Reducing VAT to 15% and curtailing exemptions for Business Rates were about the only two really good things they ever did. Along with exempting foreign dividends from UK corporation tax and the Substantial Shareholdings Exemption.
The BBC has been criticised by some for misleading reporting, but this is beyond the pale:
But overall, self-build saves money, supporters argue. The average new build home costs £189,940 compared to a self-build cost of £84,000 if you do the work yourself or £146,000 if you employ tradesmen to do it for you.
The difference between £189,940 and £84,000 is largely the cost of a plot of land with planning permission (minus a bit for builder’s profit margin and the value of your own labour). The difference between £189,940 and £146,000 is because a speculative builder takes risks and has to make a profit margin on top of his actual costs.
In any event, it’s not clear whether the £146,000 figure includes the land cost, as it seems wildly over-stated. My next-door neighbour had himself a massive semi-detached house built (in his side garden) with all mod cons. He told me it cost about £120,000 all-in; a basic house would have been about £80,000 but he got a bit carried away.
Lynda Williams was given a plot of land in mid Wales by her father. She didn’t have the money to hire a project manager so ended up building it herself from a timber frame. It took eight months and meant putting it together in the evening after work. The main motivation was getting value for money. Her mortgage was £110,000 but it is now valued at £260,000.
Let’s assume that the mortgage paid for the construction costs, the balancing figure of £150,000 is the (largely artificial) scarcity value of a plot of land with planning permission.
From an old Evening Standard I found again while tidying up my study.Yet another example from real life how the actions of “the community” create land values – something which the estate agents refer to as “Location, location, location”.
London (or any other town, for that matter) has to be there first, and London is only the sum total of people who live and work there, and all the amenities or opportunities they provide. The total number of people who can live and work somewhere in turn depends on how good transport infrastructure is (roads and cars are fine for smaller towns; but above a certain population density, only public transport will do).
Very few people are happy to commute more than ninety minutes each way, so if a house is more than ninety minutes away, it’s “time from London” value is £nil; sixty minutes away (i.e. thirty minutes closer) and £39,000 of its potential selling price is TfL value; half an hour away and it’s £78,000 and the very fact that a house (or flat) is in London itself is worth £117,000.
The last short list was: “Countries which have never devalued their currency; ‘restructured’ or defaulted on their national debt; taken a bridging loan from the IMF; accepted soft loans/grants under Lend/Lease, Marshall Plan, or from World Bank or EU; received overseas aid; nationalised foreign-owned assets etc.”
The following countries appear to qualify:
Mike W and Steve_L, who’ve actually read a book about it, seemed to think that there is no such country.
This week’s Short List: “Female Jewish pop stars who are very cute”. I can only think of two (not Dana International or Amy Winehouse!), but there may be a few more.
From Business Recorder:
The euro zone may be starting to get to grips with the Greek crisis. The idea of bond buybacks by the European bailout fund is back on the table. The European Financial Stability Facility could lend to Greece to buy its own debt back… The idea isn’t entirely new: it was mooted last year before being shouted down by Germany, which saw the plan as a backdoor way of making other countries take on Greek debt…
A buyback could genuinely bring down Greece’s debt. It could be done in conjunction with lower interest rates on Greece’s bailout loans, and some form of extension of bond maturities. This three-way formula could pave the way for compromise between the ECB and euro governments.
Greek debt is trading, on average, at about 55 cents on the euro. A buyback of all the country’s debt at that price would cut the country’s debt load to 87 percent of GDP, lower than Portugal or Ireland.
I have been told that it is considered very ungentlemanly for a country to buy back its own debt at a discount to face value, but needs must.
To do it properly would require a lot of connivance and cloak and dagger stuff and saying one thing and doing another (in which Greece are past masters). Ideally what Greece would do is openly go out an borrow another €175 billion from the ECB or IMF (or whomever), pushing its nominal debt-to-GDP to something silly like 250% of annual GDP. While ostensibly pissing this money up the wall, as per usual, they would actually squirrel it away somewhere safe.
Let’s assume the market value of the old outstanding debts falls even further to half its nominal value of €350 billion. Greece would then, very carefully and using lots of nominees, buy up all the outstanding debt which comes on the market, taking care not to push up the price again. It can easily keep the market value down by publishing horrendously bad figures for unemployment, deficits, fall in GDP, allowing a couple of its banks to go bankrupt and so on.
Once it has bought back most of its old bonds, it can merrily shred and burn them, hey presto, old debts exitinguished and it now only owes the €175 billion figure mentioned above.
The growth in demand for rented property was also seen last week in the findings of the English Housing Survey, published by the Department of Communities and Local Government (DCLG). It revealed that between 2005 and 2009-10 the number of people renting homes privately in England had risen by 1 million to 3.4 million – a rise of 40% in that time.
The Council of Mortgage Lenders (CML) said: “Private renting had grown to account for 16% of households, while 17% rented from social landlords.”
The insane Home-Owner-ist belief that house prices can only go up – and that rising house prices makes us wealthier – runs counter to the claim that Home-Owner-Ism is about ‘encouraging owner-occupation’ (which I think we are broadly agreed is A Good Thing).
Home-Owner-Ism is really about increasing the amount of mortgage debt sloshing around (if you have a big mortgage, you don’t really own it, you’re just renting from the bank) and when all else fails, it’s about increasing the number of tenants, i.e. reducing the number of owner-occupiers.
More than one in eight Yorkshire homeowners have not reported crimes since online crime maps were introduced for fear of putting off prospective buyers or tenants, a survey suggests today… Ministers have hailed the scheme as a way of holding police to account, but some residents fear it will sully their local area’s reputation and devalue their homes.
Thirteen per cent of Yorkshire residents surveyed by insurer Direct Line said they had witnessed a crime since February but had decided not to report it. The survey’s nationwide results indicate an even more worrying trend. Of those respondents who had not reported a crime, 11 per cent had either been the victim of, or witnessed, a violent assault. Three-quarters of respondents said they would use an online crime map to research a new home and would be deterred by a high number of offences.
I suppose the Lib-Cons’ real reason for putting the crime map online was exactly this – to discourage people from reporting crimes, as a result of which reported crime goes down, which they can hail as a success of their law’n’order policies.
What sort of a f-ed up world do we live in, where people worry more about keeping housing as expensive as possible than they worry about crime?
Spotted by dill at HPC.
The ONS published a fine survey today, which confirmed what we all knew – that the cost of living in London is higher than elsewhere, even if you exclude rents.
What’s nice is that they give a breakdown of the relative price differences in various categories. As I’ve always said (having observed it in real life but never seen detailed numbers), goods which are harvested or manufactured thousands of miles away and which can be easily transported round the country cost much the same wherever you are – but goods and services which have to be consumed at or near point of purchase include ’embedded rents’. So an item of clothing in Primark costs the same in Oxford Street as in High Street, Anytown (see here or here); but a pint of beer in Oxford street costs £1 more than the UK average.
I reworked the figures in Table 2 to show how much more expensive things are in London (the highest rent area, having the highest concentration of people and transport infrastructure – the two main drivers of rental values or land values) and ranked them from lowest to highest:
Communication – 0.0% (1)
Alcohol & tobacco – 1.6% (2)
Transport – 3.5% (3)
Food & non-alcoholic beverages – 7.2%
Clothing and footwear – 7.2% (4)
Household and housing services – 9.4%
Furniture & household goods – 11.6% (5)
Recreation & culture – 14.1%
Miscellaneous goods & services – 14.4%
Restaurants & hotels – 16.5%
(1) BT and Sky charge the same wherever you are in the country, and in any event it’s much cheaper per person doing cabling, setting up mobile phone masts etc in densely populated areas
2) This is off-licence and supermarket stuff; a pint in the pub goes in the category “restaurants and hotels”. Further, most of the cost of these is duty and VAT, which are the same all over the country. Strip these out and the underlying difference will be higher.
3) A red herring. Public transport is heavily subsidised wherever you are, how much it costs depends on how heavily subsidised it is, and not on usual market forces.
4) “Clothing and footwear” is the only category with “and” instead of “&” in the original press release (screen shot below). I sent them an email about this.
5) The joker in the pack – maybe people in London just buy fancier furniture?
The ONS themselves summarise thusly:
At the division level, there is little price dispersion from the UK average for Alcohol & tobacco, with the price level for all regions close to the UK average (ranging from 98.3 for Wales to 101.3 for London). A high proportion of items within this division were affected by the dominance of large retailers who displayed consistency in their pricing across regions…
Greater price dispersion exists in the divisions that include services, including Restaurants & hotels, Recreation & culture and
Miscellaneous goods & services. This reflects the variance in labour expenses in the regions which make up a large proportion of the total costs in the service industry and also the variability in the cost of renting/leasing outlets across the regions… (6)
6) I love the ONS to bits and everything, but they make a silly mistake here. Higher rents do not ‘push up’ the price of these services – it’s the higher price which people are willing and able to pay for these services which ‘pull up’ rents. Much the same applies to labour costs – where there are more people, there is more specialisation, so everybody is that little bit better at doing a smaller piece of the jigsaw, so everybody earns a bit more so everybody can pay a bit more (relative to more sparsely populated areas).
Thanks to everybody who took part in last week’s Fun Online Poll, results as follows:
Who ought to pay for the long-term care of ‘asset-rich’ pensioners?
They themselves and their likely heirs – 74%
The taxpayer generally – 20%
Other, please specify – 5%
Crikey it seems like a long time ago since that was the hot topic. Anyway, it’s nice to see that I’m with the majority on this one.
This week, let’s do a Trial By Internet. To save time, let’s put them all in the dock in one go.
Vote here or use the widget in the sidebar.
The Daily Mail compares and contrasts two similar families, both with a gross income of £50,000 in three-bed houses, the only difference being that one family lives Up North in a house ‘worth’ £200,000 and the other lives Down South in one ‘worth’ £600,000.
We aren’t told how long ago they bought their houses or how much their outstanding mortgages are – the only clue is that the family Up North only spends ten per cent of their income on mortgage repayments and the family Down South spends forty per cent, so the family Up North lives in the lap of luxury and the one Down South has had to cut back on essentials (like gym membership and Jocasta’s pony).
But isn’t this story played out on every single street in the whole country? Older Baby Boomers have no mortgage at all (unless they were suckered into ‘equity withdrawal’); the average bloke in his mid-to-late forties who bought ten or fifteen years ago will have paid his mortgage down to (say) £40,000 but the recent purchaser next door is saddled with a mortgage of (say) £160,000?
So even if all three earn similar wages, and even though all three live in more or less identical houses, the former groups will be living in relative comfort and the young guy will be struggling.