THE LOCAL CINEMA (2)
Readers of this blog will know that I am a fan of our local cinema, which I visit regularly with my daughter.
At last night's AGM of the association that runs it, I was very chuffed to be elected to the Board. The hope is that I will bring energy and enthusiasm to the cinema, so that it can survive against the evils of piracy, downloading, video rentals and general couch potato'ism. I will certainly try; but what we really need is a large dollop of cash in order to digitalise the projector, and thereby keep up with technology. All contributions gratefully received ...
Walter Blotscher
Thursday, 31 March 2011
Wednesday, 30 March 2011
TAX REFORM IN THE U.K.
Last week's Budget in the U.K. was a bit of a damp squib. Normally one of the set-piece events of Parliament, setting out the tax changes to the new fiscal year starting on 6 April, everything was constrained by the Coalition's emergency Budget of last summer, which set out the medium-term plan of tax rises and spending cuts designed to sort out the country's finances, and the pre-Budget report of last autumn, which detailed where those spending cuts would fall. Having made the strategic decision to stick to the plan, despite a poor economic performance in the fourth quarter of 2010, Chancellor Goerge Osborne was reduced to announcing a series of "lollipops", as they are known in the trade, eye-catching initatives that don't cost much and so can't do much harm.
However, tucked away in the bowels of the Budget speech was one potentially major reform. The Chancellor will consult widely about the possibility of integrating the regimes for income tax and national insurance contributions (NICs). First introduced in 1911, NICs were originally, as their name suggests, insurance premiums designed to protect workers against illness and unemployment; they were then extended to cover pensions. This insurance aspect remains in one respect, since the right to a state pension and other benefits depends on one's having contributed (i.e. paid) NICs for a certain number of years; so, although I have not lived in the U.K. since 1992, I still have the right to a full basic state pension when I retire, since I have paid voluntary contributions each year from wherever I have been living. However, since pensions are paid by the Government on a pay-as-you-go basis, and since other welfare benefits have emerged to take account of illness and unemployment, NICs have gradually come to seem from a fiscal point of view more and more like any other tax. Calls to merge them with the general tax system have, therefore, been around for many years.
All of which seems both sensible and straightforward. There is however a big "but", which makes the whole thing fiendishly difficult; the bases for the two systems are different. As one famous House of Lords tax case put it, income tax is a tax on income, meaning all income; NICs, on the other hand, are a tax on the earnings of employees and the self-employed, but are not levied on other forms of income. For many people, earnings from employment are the whole or main source of their total income, so the distinction is not material. But for some groups, they are. When you look at those groups, you quickly realise that merging tax and NICs is not easy.
Who pays tax, but no NICs? One group of people here are those with no job, but lots of non-employment income such as dividends and interest; rich landowners and their ilk. Subjecting them to NICs would probably go down well in these straightened times. But there is another, much larger, group in this category, and that is pensioners. Not only are pensions not subject to NICs, but neither are pensioners' employment earnings, even though they would be NIC'able for anyone else. Tinkering with pensioners' rights is generally considered to be the third rail of Western politics; touch them and you die. This assumption is currently being reviewed (eg in Greece), as rich societies come to the realisation that the benefits they have promised pensioners are simply not sustainable in the long-run. Nevertheless, it remains the case both that pensioners represent a formidably united lobbying group and that they are the part of the electorate who are most likely to vote. For these reasons tax-reforming politicians tend to treat them with kid gloves.
Who pays NICs, but no tax? This consists mainly of low-paid workers. The personal tax allowance (the amount of income that is tax-free) is £7,475 from 6 April 2011, or £143,75 per week. The lower limit for NICs, on the other hand, will be £102 per week. In a previous move to combat this discrepancy, earnings up to £139 a week are NIC-able, thereby giving the working poor access to other benefits, but are not in fact paid (I told you this was not easy). However, £139 is still not the same as £143,75. Moroever, NICs are payable per job, so someone doing two part-time jobs paying £100 a week pays no NICs, whereas someone doing one job paying £200 a week does. Aligning the tax and NIC systems at the bottom end, and smoothing out all the wrinkles and interactions with the rest of the benefit system would undoubtedly make life easier all round. The problem with any changes at the bottom end is that they benefit everybody above it, and so are hugely expensive; every pound of change costs a lot. That is not easy in the current climate.
These are just a sprinkling of the problems that need to be ironed out. Which is why previous Governments have looked at this issue and backed away. When I worked in the Treasury at the end of the 1980's, a possible merger of the two systems was a hot topic, but it was "kicked into the long grass", along with reform of the residence rules, as simply too difficult. Since then, the system has become even more complicated and tangled, partly because of the deemed contribution change outlined above and partly because of Gordon Brown's new system of tax credits. And we haven't even begun to discuss the tax treatment of couples.
So, my prediction is that Mr. Osborne will consult widely, over a long period of time, and then not do very much.
Walter Blotscher
Last week's Budget in the U.K. was a bit of a damp squib. Normally one of the set-piece events of Parliament, setting out the tax changes to the new fiscal year starting on 6 April, everything was constrained by the Coalition's emergency Budget of last summer, which set out the medium-term plan of tax rises and spending cuts designed to sort out the country's finances, and the pre-Budget report of last autumn, which detailed where those spending cuts would fall. Having made the strategic decision to stick to the plan, despite a poor economic performance in the fourth quarter of 2010, Chancellor Goerge Osborne was reduced to announcing a series of "lollipops", as they are known in the trade, eye-catching initatives that don't cost much and so can't do much harm.
However, tucked away in the bowels of the Budget speech was one potentially major reform. The Chancellor will consult widely about the possibility of integrating the regimes for income tax and national insurance contributions (NICs). First introduced in 1911, NICs were originally, as their name suggests, insurance premiums designed to protect workers against illness and unemployment; they were then extended to cover pensions. This insurance aspect remains in one respect, since the right to a state pension and other benefits depends on one's having contributed (i.e. paid) NICs for a certain number of years; so, although I have not lived in the U.K. since 1992, I still have the right to a full basic state pension when I retire, since I have paid voluntary contributions each year from wherever I have been living. However, since pensions are paid by the Government on a pay-as-you-go basis, and since other welfare benefits have emerged to take account of illness and unemployment, NICs have gradually come to seem from a fiscal point of view more and more like any other tax. Calls to merge them with the general tax system have, therefore, been around for many years.
All of which seems both sensible and straightforward. There is however a big "but", which makes the whole thing fiendishly difficult; the bases for the two systems are different. As one famous House of Lords tax case put it, income tax is a tax on income, meaning all income; NICs, on the other hand, are a tax on the earnings of employees and the self-employed, but are not levied on other forms of income. For many people, earnings from employment are the whole or main source of their total income, so the distinction is not material. But for some groups, they are. When you look at those groups, you quickly realise that merging tax and NICs is not easy.
Who pays tax, but no NICs? One group of people here are those with no job, but lots of non-employment income such as dividends and interest; rich landowners and their ilk. Subjecting them to NICs would probably go down well in these straightened times. But there is another, much larger, group in this category, and that is pensioners. Not only are pensions not subject to NICs, but neither are pensioners' employment earnings, even though they would be NIC'able for anyone else. Tinkering with pensioners' rights is generally considered to be the third rail of Western politics; touch them and you die. This assumption is currently being reviewed (eg in Greece), as rich societies come to the realisation that the benefits they have promised pensioners are simply not sustainable in the long-run. Nevertheless, it remains the case both that pensioners represent a formidably united lobbying group and that they are the part of the electorate who are most likely to vote. For these reasons tax-reforming politicians tend to treat them with kid gloves.
Who pays NICs, but no tax? This consists mainly of low-paid workers. The personal tax allowance (the amount of income that is tax-free) is £7,475 from 6 April 2011, or £143,75 per week. The lower limit for NICs, on the other hand, will be £102 per week. In a previous move to combat this discrepancy, earnings up to £139 a week are NIC-able, thereby giving the working poor access to other benefits, but are not in fact paid (I told you this was not easy). However, £139 is still not the same as £143,75. Moroever, NICs are payable per job, so someone doing two part-time jobs paying £100 a week pays no NICs, whereas someone doing one job paying £200 a week does. Aligning the tax and NIC systems at the bottom end, and smoothing out all the wrinkles and interactions with the rest of the benefit system would undoubtedly make life easier all round. The problem with any changes at the bottom end is that they benefit everybody above it, and so are hugely expensive; every pound of change costs a lot. That is not easy in the current climate.
These are just a sprinkling of the problems that need to be ironed out. Which is why previous Governments have looked at this issue and backed away. When I worked in the Treasury at the end of the 1980's, a possible merger of the two systems was a hot topic, but it was "kicked into the long grass", along with reform of the residence rules, as simply too difficult. Since then, the system has become even more complicated and tangled, partly because of the deemed contribution change outlined above and partly because of Gordon Brown's new system of tax credits. And we haven't even begun to discuss the tax treatment of couples.
So, my prediction is that Mr. Osborne will consult widely, over a long period of time, and then not do very much.
Walter Blotscher
Tuesday, 29 March 2011
THE PILLARS OF THE EARTH
Some 30 years ago, I watched a film in a London cinema called Eye of the Needle, starring the ever watchable Donald Sutherland and a rather sexy Kate Nelligan. The story of a German spy operating in wartime England, it was the most successful of a series of thrillers written by Ken Follett. But I never read the book.
In 1989, Mr. Follett published a different kind of novel. The Pillars of the Earth is about the building of a cathedral in mid-12th century England, against a background of anarchy and civil war, as Maud, the daughter of King Henry I (who had died without a legitimate male heir) fought against Henry's nephew Stephen, who had taken over the throne and been crowned after his uncle's death. This book has been a phenomenal success. Published in 30 languages, by the end of 2010 it had sold almost 19 million copies worldwide. It was the most widely read book in Spain in 2010. In the BBC's Big Read in 2003, it was voted by readers as one of the 100 best books. In 2006, it was voted the third best book ever in Germany, after The Lord of the Rings and the Bible. A TV mini-series that came out last summer was reputedly one of the most expensive ever made.
In Denmark, where it is known as Jordens Søjler, it is the same story. I know a fair number of people, who don't read many books, yet who have read this one. My 16-year old daughter told me last night that many of her classmates have read it, and that some think it is the best book they have ever read. When I heard that it had been written by Ken Follett, I was rather sceptical; why on earth was it so popular?
And so I decided to read it myself, all 1,076 pages in paperback form. The first thing to say about it is that it is not great literature. The story bowls along fairly easily, the fictional characters are woven into the historical facts, and there is a lot of period detail. But I got much of that a couple of years back from a similar book called When Christ And His Saints Slept, which is much better written. The 1,000 pages got swallowed up without too much difficulty, but at the end I was still left wondering why it had sold so many copies. Perhaps people just don't want anything more demanding in their literature?
Walter Blotscher
Some 30 years ago, I watched a film in a London cinema called Eye of the Needle, starring the ever watchable Donald Sutherland and a rather sexy Kate Nelligan. The story of a German spy operating in wartime England, it was the most successful of a series of thrillers written by Ken Follett. But I never read the book.
In 1989, Mr. Follett published a different kind of novel. The Pillars of the Earth is about the building of a cathedral in mid-12th century England, against a background of anarchy and civil war, as Maud, the daughter of King Henry I (who had died without a legitimate male heir) fought against Henry's nephew Stephen, who had taken over the throne and been crowned after his uncle's death. This book has been a phenomenal success. Published in 30 languages, by the end of 2010 it had sold almost 19 million copies worldwide. It was the most widely read book in Spain in 2010. In the BBC's Big Read in 2003, it was voted by readers as one of the 100 best books. In 2006, it was voted the third best book ever in Germany, after The Lord of the Rings and the Bible. A TV mini-series that came out last summer was reputedly one of the most expensive ever made.
In Denmark, where it is known as Jordens Søjler, it is the same story. I know a fair number of people, who don't read many books, yet who have read this one. My 16-year old daughter told me last night that many of her classmates have read it, and that some think it is the best book they have ever read. When I heard that it had been written by Ken Follett, I was rather sceptical; why on earth was it so popular?
And so I decided to read it myself, all 1,076 pages in paperback form. The first thing to say about it is that it is not great literature. The story bowls along fairly easily, the fictional characters are woven into the historical facts, and there is a lot of period detail. But I got much of that a couple of years back from a similar book called When Christ And His Saints Slept, which is much better written. The 1,000 pages got swallowed up without too much difficulty, but at the end I was still left wondering why it had sold so many copies. Perhaps people just don't want anything more demanding in their literature?
Walter Blotscher
Monday, 28 March 2011
BADEN-WÜRTTEMBERG
It is hard to overestimate the scale of the defeat for Chancellor Angela Merkel in this weekend's regional election in Baden-Württemberg, a Land which her party, the CDU, have run since 1953. Populous and wealthy, the state is in many ways the CDU's heartland. Although its share of the vote, at 39%, was still the largest of any party, support for its coalition partner, the FDP, collapsed. The big winners were the Greens, who polled just over 24% and who will now govern in coalition with the Social Democrats, who got a little less.
The big issue of the election was nuclear power, in the wake of the problems in Japan. Mrs. Merkel tried to defuse it by suspending for three months the Government's earlier decision to extend the life of the country's ageing nuclear reactors, four of which are based in Baden-Württemberg. However, as I said earlier this week, the problems in Japan have unleashed such great fears that one gesture was always unlikely to be enough. That was brutally confirmed this weekend.
Walter Blotscher
It is hard to overestimate the scale of the defeat for Chancellor Angela Merkel in this weekend's regional election in Baden-Württemberg, a Land which her party, the CDU, have run since 1953. Populous and wealthy, the state is in many ways the CDU's heartland. Although its share of the vote, at 39%, was still the largest of any party, support for its coalition partner, the FDP, collapsed. The big winners were the Greens, who polled just over 24% and who will now govern in coalition with the Social Democrats, who got a little less.
The big issue of the election was nuclear power, in the wake of the problems in Japan. Mrs. Merkel tried to defuse it by suspending for three months the Government's earlier decision to extend the life of the country's ageing nuclear reactors, four of which are based in Baden-Württemberg. However, as I said earlier this week, the problems in Japan have unleashed such great fears that one gesture was always unlikely to be enough. That was brutally confirmed this weekend.
Walter Blotscher
Sunday, 27 March 2011
COMPUTER KEYBOARDS
I cleaned my computer keyboard this morning. Yep, that's right.
Let's be honest, how often do we do that? For me, I think that that was the first time ever. Yet we should try to keep them clean. Research by the University of Arizona has found that the average office desk has more than 400 times more bacteria than the average toilet seat. And one of the biggest repositories of desk germs is the computer keyboard, often caused by crumbs generated by people eating while they work.
Since I am pretty well the only person who uses my computer at home, the health risk is probably not too great. But in places like hospitals, dirty computers (and other things, like water cooler handles) can be deadly. One more reason why I am glad I am not a medic.
Walter Blotscher
I cleaned my computer keyboard this morning. Yep, that's right.
Let's be honest, how often do we do that? For me, I think that that was the first time ever. Yet we should try to keep them clean. Research by the University of Arizona has found that the average office desk has more than 400 times more bacteria than the average toilet seat. And one of the biggest repositories of desk germs is the computer keyboard, often caused by crumbs generated by people eating while they work.
Since I am pretty well the only person who uses my computer at home, the health risk is probably not too great. But in places like hospitals, dirty computers (and other things, like water cooler handles) can be deadly. One more reason why I am glad I am not a medic.
Walter Blotscher
Saturday, 26 March 2011
POLISH BEER
My wife has just been on an exchange trip to Poland with her school, and very kindly brought me back some Polish beer, some of which I am drinking as I write this.
I like Polish beer, piwo. I like its fundamental premises, which are big bottles and strength. The beer I am currently drinking is 500ml size (none of this namby pamby 333ml) and almost 6%. Other brands can be even stronger. A couple of these with my dinner while watching the football, and I will sleep soundly thereafter.
Walter Blotscher
My wife has just been on an exchange trip to Poland with her school, and very kindly brought me back some Polish beer, some of which I am drinking as I write this.
I like Polish beer, piwo. I like its fundamental premises, which are big bottles and strength. The beer I am currently drinking is 500ml size (none of this namby pamby 333ml) and almost 6%. Other brands can be even stronger. A couple of these with my dinner while watching the football, and I will sleep soundly thereafter.
Walter Blotscher
Friday, 25 March 2011
GOODS AND SERVICES
One of the problems of living in a rich country in an increasingly globalised world is that although many goods are getting ever cheaper, many services are getting outrageously expensive. Take haircuts, the archetypal domestic service. My daughter had her hair cut yesterday in a small, rural town - just cut, not washed or styled or anything else - and it cost kr.340, or about £40. Since I can't afford these prices, I either have to wait until I get to the U.K. and have it done for under £10 in one of those walk-in-off-the-street places in London, or get my sister-in-law to do it for free (well, for the price of sharing a bottle of wine).
So what, you may ask? The division of an economy between goods and services is irrelevant, what matters is the total level of output. Countries generally go through a development process, whereby manaufactured goods begin to take over from subsistence agriculture. At a certain point the share of manufacturing in the economy starts to decline again (even though it is still growing in absolute terms) as services become more and more important. More than 60% of modern, rich economies' output comes from services.
However, although the above is true, the relative cheapness of goods pushes us in directions which are not necessarily healthy. I give an example. I can buy a Bosch washing machine on the internet and have it delivered to my door within 3 days for kr.1.965, roughly £230 (I know, since I have just checked). Because of E.U. consumer protection laws, the machine comes with a 2-year warranty; so if anything happens, the manufacturer has to come and replace or repair it. At the end of that 2-year period, the machine ought to be still usable for a number of years. But, like a car, it is still a machine, and so can go wrong from time to time. The problem is that if it did go wrong, it would not be worth trying to have it repaired. It costs a minimum of kr.1.000 for a serviceman just to come and have a look at it; and that's before he starts sourcing spare parts and/or repairing the thing. It makes much more sense to take the old machine to the dump and buy a new one. Judging from our local rubbish collection centre, plenty of people do just that, it is full of newish-looking fridges and washing machines and dishwashers. A perfectly rational decision for the individual, but a huge waste of resources for society as a whole.
Nowhere is this more true than in my building project. Cement costs kr.50 for 25kg, and mortar about the same. Gravel from the local pit is kr.60 for half a tonne, almost - literally - nothing. The bricks themselves are free, since I am using old ones from other parts of the barn. What costs in building is labour. If I had to get someone else to do it, then I would have to pay them kr.500 an hour including VAT; and to generate that under the Danish tax system, I would have to go out and earn closer to kr.1.000. If I didn't build myself, I couldn't afford it.
In the old days, people used to make, mend, and maintain virtually everything they used. I am not suggesting going back to those times. But I am not at all sure that the current differences in the prices between goods and services are sustainable. Something will have to give.
Walter Blotscher
One of the problems of living in a rich country in an increasingly globalised world is that although many goods are getting ever cheaper, many services are getting outrageously expensive. Take haircuts, the archetypal domestic service. My daughter had her hair cut yesterday in a small, rural town - just cut, not washed or styled or anything else - and it cost kr.340, or about £40. Since I can't afford these prices, I either have to wait until I get to the U.K. and have it done for under £10 in one of those walk-in-off-the-street places in London, or get my sister-in-law to do it for free (well, for the price of sharing a bottle of wine).
So what, you may ask? The division of an economy between goods and services is irrelevant, what matters is the total level of output. Countries generally go through a development process, whereby manaufactured goods begin to take over from subsistence agriculture. At a certain point the share of manufacturing in the economy starts to decline again (even though it is still growing in absolute terms) as services become more and more important. More than 60% of modern, rich economies' output comes from services.
However, although the above is true, the relative cheapness of goods pushes us in directions which are not necessarily healthy. I give an example. I can buy a Bosch washing machine on the internet and have it delivered to my door within 3 days for kr.1.965, roughly £230 (I know, since I have just checked). Because of E.U. consumer protection laws, the machine comes with a 2-year warranty; so if anything happens, the manufacturer has to come and replace or repair it. At the end of that 2-year period, the machine ought to be still usable for a number of years. But, like a car, it is still a machine, and so can go wrong from time to time. The problem is that if it did go wrong, it would not be worth trying to have it repaired. It costs a minimum of kr.1.000 for a serviceman just to come and have a look at it; and that's before he starts sourcing spare parts and/or repairing the thing. It makes much more sense to take the old machine to the dump and buy a new one. Judging from our local rubbish collection centre, plenty of people do just that, it is full of newish-looking fridges and washing machines and dishwashers. A perfectly rational decision for the individual, but a huge waste of resources for society as a whole.
Nowhere is this more true than in my building project. Cement costs kr.50 for 25kg, and mortar about the same. Gravel from the local pit is kr.60 for half a tonne, almost - literally - nothing. The bricks themselves are free, since I am using old ones from other parts of the barn. What costs in building is labour. If I had to get someone else to do it, then I would have to pay them kr.500 an hour including VAT; and to generate that under the Danish tax system, I would have to go out and earn closer to kr.1.000. If I didn't build myself, I couldn't afford it.
In the old days, people used to make, mend, and maintain virtually everything they used. I am not suggesting going back to those times. But I am not at all sure that the current differences in the prices between goods and services are sustainable. Something will have to give.
Walter Blotscher
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