01 July 2014

National Insurance - It's Regressive Nature Explained

National Insurance is an earnings tax that is highly regressive - especially the employee contributions part. In fact if it wasn't so complex (and therefore confusing) and so little talked about in the media it would be a tax scandal.

The progressive nature (the more your income, the higher percentage you pay) of Income Tax is largely undone by regressive National Insurance (NI) which disproportionately hits low to middle earners.

NI is currently levied in the following way;

To simplify matters I am going to refer to annual thresholds (2013-14  to tie in with latest government tax revenue figures), but it is important to remember that NI is mostly levied on monthly and weekly income which has the added effect of taxing more those employees mainly in low paid insecure employment. (Note: Insecure low paid workers who move jobs frequently are also more likely to have errors or gaps in payments. Even a one week gap invalidates a whole years contributions and affects entitlement to benefits and state pension).

First lets deal with the employee contributions part of NI.

Earnings below £7,775 a year are zero rated as long as earnings are spread evenly across the year [see above note].

Note the NI free threshold is well below the Income tax free threshold of £10,000 a year.

From £7775 to £41,450 Employee NI is charged at 12%.

Then scandalously, for no justifiable reason the rate drops to 2% for earnings over £41,450.

So, the more you earn over £41,450, the less NI rate you pay!

Examples are;

Working 40 hours per week on the minimum wage brings gross yearly earnings of £13,125. Employee NI is £642 - a 5% flat tax (on all earnings).

The UK average (median - half of workers earn less, half earn more) full time wage is £26,000 a year. Employee NI is £2187 - an 8% flat tax.

Earning £41,450 a year (which is in top 15% of earners). Employee NI is £4041 - a 10% flat tax.

So far so progressive, but now watch what happens;

A salary of £100,000 a year (top 2% of earners). Employee NI is £5212,  a just over 5% flat tax.

A salary of £1,000,000 a year (top 0.01% of earners). Employee NI is £23,212, a just over 2% flat tax. So less than half the rate paid by someone on the minimum wage!

And in practise it gets worse, much worse.

National Insurance can be avoided on earnings paid into a pension fund. And guess what, the higher your earnings the more likely this is to happen and the higher the amounts of NI avoided.

This isn't surprising because the more you earn, your disposable income rises exponentially, so the more you can afford to lock away in long term investments like pension funds. Also the more you can afford the admin costs & fees to set yourself up as a company and receive pay as dividends which will reduce your NI contributions.

It is also worth remembering that unlike Income Tax, NI only taxes income from labour* and self employed profits** (actual work). Income from capital is largely untaxed. And the wealthier you are, the more income you are likely to receive from capital.

[*Those over state pension age are also exempt on labour income].

[**A flat rate stamp and lower NI rate of 9% apply (minus generous expenses claimed)].

Now, lets look at Employer NI contributions;

The zero threshold for Employer NI is lower than Employee NI set at earnings below £7696 a year.

The rate above this is a flat 13.8%. So Employer NI is not as regressive to anywhere near the extent of Employee NI.

But it is a "hidden" stealth tax that helps hide the truly huge amount of tax taken from low to middle earners. Also the combined Employee and Employer NI is still highly regressive.

For example;

Lets look again at our mimimum wage earner on £13,125 gross a year.

In a way the employee's true pay is £13,875 a year as this includes the "hidden" employers NI tax of £750 a year. Total NI for this employee is £1392 a year adding together Employee NI of £642 and Employer NI of £750. A flat rate of 11%. The Income Tax for this employee is by comparison a much lower 5% of total earnings at £625.

So total direct income taxes are £2017 a year. Or 16% of their gross wage. A huge amount of tax to be taken from someone on a wage £3,000 below what most believe is a basic livable wage. This doesn't happen in any other EU country where income (and other) taxes are far more progressive.

[Note: Council Tax, VAT and other indirect taxes hit low wage earners even harder than taxes on income].

Total NI (employee & employer contributions) worked out as a flat rate on all income increases incremently from 11% on earnings of £13,125 a year to 21% on £41,450. Then falls incremently towards 14% on earnings over that.

Compare that to the more progressive Income Tax worked out as a flat rate on all income, which works out as 5% on the minimum wage salary of £13,125, 12% on the average wage of £26,000, 15% on £41,450, 30% on £100,000, increasing incremently to 44% as we reach £1,000,000 incomes and beyond.

National Insurance is 21% of government tax revenue. £107bn for 2013-14. Which is not much less than Income Tax revenue which raises £155bn.

If we divide these figures by 30m, which is roughly the total number of taxpayers;

The average taxpayer should pay £3,600 in total NI and £5,200 in Income Tax.

In actual fact the average full time earner on £26,000 a year pays £4,700 in NI and £3,200 in income tax.

So £1,100 more than the average in National Insurance and £2,000 less than the average in Income Tax.

If National Insurance were set with as progressive rates as Income Tax;

Someone earning £13,125 would have total (employer & employee) NI contributions of £960 LESS per year.

On £26,000 earnings, £2504 LESS.

On £100,000 salary, £1560 MORE.

On £1m salary, £151,000 MORE.

This gives us a measure of how regressive NI is and how progressive Income Tax is.

It also, perhaps explains why the rich and the media they own are always moaning about Income Tax but never mention National Insurance!

17 May 2014

My Predictions for the 2015 General Election

In the 2010 general election, a 7 point Tory lead in votes over Labour (36%-29%) led to a seat allocation of;

CON 306 (47% of seats)
LAB 258 (40%)
LD 57 (9%)
OTH 29 (4%)

For every 1 point swing to Lab from 2010, Lab gain around 10 seats from the Tories.

So a 2 point Tory lead is a 5 point swing to Lab.

The LDEM vote is likely to be halved from 2010. This will reduce LD seats by around half, possibly 30 seats, 25 going to CON, 5 to LAB.

A UKIP vote of below 15% doesn't affect this formula. UKIP are likely to win less than 3 seats, possibly none...

So my predictions for 2015 are as follows (rounded to nearest 5 seats). 323 seats are needed for a majority as Sinn Fein do not take up their 5 seats in Westminster.

Tory vote leads;
2pts= CON 285 LAB 305
4pts= CON 305 LAB 285
6pts= CON 325 LAB 265

TIE= CON 265 LAB 325

Lab vote leads;
2pts= CON 245 LAB 345
4pts= CON 225 LAB 365
6pts= CON 205 LAB 385

LDEMS 25, OTHERS 35 for all above predictions.

If you want to allow for the effects of Scottish Independence, just deduct 40 from the Lab total, 10 from LDems and 9 from Others. 294 would then be needed for a majority.

Without Scottish Independence a 2pt Labour lead will give them a comfortable 40 seat majority. Even with Scotland going independent, Labour would still have a 20 seat majority. Tories need a 6pt lead for a much smaller majority or 4pt lead if Scotland leaves.

I'm sure you must be thinking; why do Labour get more seats than the Tories with the same voteshare?

There are 2 real reasons for this and 1 fake. The only reason you are likely to hear in the media is the fake one.

The real reasons are called "geographical concentration" of more of their votes in marginal seats rather than super safe or 'no hope' seats and "differential turnout" - different turnout of voters between seats you win and seats your opponents win.

Any boundary based voting system will always have these 2 biases to varying degrees, no matter how carefully you draw boundaries....

Basically Labour votes are more concentrated in seats they need to win, whereas Tory votes are more in seats they either cannot win or concentrated in seats they already win easily anyway. This geographical bias generally hurts smaller parties more than the bigger parties, but it can also affect 1 of the big 2, as in this case.

The other reason is that turnout in poorer urban seats that Labour win is lower, so are won with lower vote totals than high turnout Tory seats.

The fake reason you will hear in the media is that seats are "not equal" in terms of numbers of electors.
While true that seats do vary in numbers of "registered" voters and Labour seats are fractionally smaller by this measure. This has only a negligible impact on the seat results. Also it has to be stated that by "voting age populations" i.e. including all those eligible to vote whether registered or not, Labour seats are actually bigger than Tory seats.

The drawing of boundaries in our system is extremely important. It can be the difference between a landslide or a defeat. Yes it can easily make that much difference! Both Thatcher and Blair landslides relied heavily on favourable boundaries. In the UK the drawing of boundaries is "notionally impartial" and the responsibility of national boundary commissions. However both that local process and government guidelines are heavily party politically influenced.

And I have to say, impartiality has gone out of the window in my opinion. With increasingly both main parties looking for technical changes that bring party political advantage both in the drawing of boundaries and the registration process. This is the most worrying aspect of our system. It makes a mockery of democracy. The USA tells us where this is heading and it is frightening. We need a system where our representatives in parliament actually reflect the votes cast for them. We need to move away from systems where the drawing of political boundaries has such a big impact on the result.

06 May 2014

This Mad, Irrational, Hatred Of Cyclists Must Stop If We Are Ever To Live In A Decent Society.

I find it infuriating, but also beyond comprehension. Every minor misdemenour or imagined misdemenour of cyclists is proclaimed loudly and widely. It has permeated all sectors of society. Cyclists are basically viewed as criminals in most people's minds.

Yet the pernicious real harm caused by motorists every single day is seemingly invisible. Parking in cycle lanes or on grass verges or anywhere for that matter is waved away as harmless, so too the majority of drivers who dangerously speed past vulnerable pedestrians and yes, even those horrible cyclists deserve not to be cut up by massive vans, 4x4s etc. with just one person inside doing a journey less than a few miles to pick up their fat children desperately in need of some exercise.

How our towns, cities, even villages are clogged with unsightly parked cars and fast moving, loud, droning, polluting, killing machines whistle past, frightening our children and elderly into restricted indoor lives and ruin any chance of a peaceful existence for any of us. We are slaves to motor vehicles. We are trapped in boring, lifeless estates built for cars not people (that includes me as I drive). Yet no one seems to notice. Why?

Who gets killed? Why are cyclists who kill no-one villains? Yet motorists who kill daily, killing and seriously injuring thousands of innocent children, pedestrians and cyclists every year, yet defended at every turn.

One tonne or more of metal given priority over flesh and bones. Are we all mad? Britain is the worst place in Europe to cycle. Motorists crowd and harass cyclists off our dangerous roads. Britons who are culturally respectful of space in other circumstances become monsters behind the wheel.
Cyclists go through red lights and ride on pavements. Are motorists less prone? Try walking through busy town centres in the morning. Pavements are awash with parked delivery vans and lorries swinging onto pavements papping their horns for people to move out their way. A far bigger obstacle than cyclists. The statistics bear this out - dozens of pedestrians are killed by motor vehicles ON THE PAVEMENT every year. Disrespectful cyclists are generally just an annoyance. Vehicles will seriously injure and kill.

And we have all heard of the term "amber gambler". Motorists have far less excuse to go through red lights than cyclists and of course are far more likely to be caught. Yet they still do so in great numbers.

In some circumstances it makes perfect sense for cyclists to go through red lights or onto pavements because it is safer to get around a carelessly parked motorist. Also careful cyclists will not endanger pedestrians anywhere near as much as motorists endanger cyclists. Sometimes the cyclist's choice is between risking their own death in the road or a negligible risk of slight injury to a pedestrian on the pavement. Ditto red lights, sometimes it is safer to get ahead of the traffic, and in some countries this is recognised.

Of course, cyclists could dismount every time an obstacle is carelessly placed in their way. Yes, as if cycling is not hard enough as it is. The easier option is to just not bother cycling at all. Which is what a lot of motorists really want deep down - "get out of my bloody way".

My view is that motorists can't bear cyclists because it highlights how fundamentally lazy they are sitting on their fat arses in cocooned cars. Motorists know deep down who is the real villain as they sit in polluted traffic jams envying fit skinny cyclists whizz past in the cyclepath.

Stephen Twigg MP Gets The Problems Of Electoral Registration.

Shadow Constitutional Affairs Minister Stephen Twigg has a brief he believes in. He gets the importance of electoral registration. Not likely to ever get news coverage, but 10m to 15m eligible potential voters left off the register has more importance to our democracy than most issues mentioned on a daily basis.

The new Individual Electoral Registration (IER) according to pilots by this government, could remove 9m from the register, on top of the 6m already estimated to be missing.

In an ERS event today, Stephen lists the problems; 50% of young unregistered, turnout gaps of 40% between the 18-24 age group and over 65s, turnout differences over 30% and rising between rich and poor. And that is among those who actually register.

The Tories and Lib Dems, by their actions show they're quite content to have more of this. Why bother about poor, young and urban voters who are unlikely to vote for them anyway?

Finally, Labour have woken up to this - If IER leads to big drops in registration, they will scrap it! They will try reforms first, but this is too big an issue to let lie, even if big interests would like it buried.

My question to Stephen was; why not experiment with a few randomly selected councillors to bypass the grinding tedium of party political selection processes and big money donors that always favour a middle or upper class candidate? Not surprisingly a party spokesman was not in favour of non party methods to widen representation.

And other questions were left hanging; Proportional local elections? Technology and direct democracy? Party funding?

But he seemed adamant on the Lobbying Bill, much to the glee of the 38 degrees rep. The Gagging Bill will be scrapped and charities and organisations encouraged to campaign in elections.

A long time advocate of proportional voting, Stephen was sadly quiet about a future Labour commitment on this. Also, I'm not sure he fully grasps why turnout is falling. Yes, a system where 53% of votes elect no-one (and most of the rest elect a foregone conclusion) is going to discourage registration and voting. But falling turnout is a global phenomenon whatever the electoral system.

Complex situations need to be addressed; big money (from around the globe) sets agendas, buys political influence and narrows debate. But more importantly there are costs to turning out to vote and more and more people are realising the small odds that their vote changes the result i.e about zero. People vote through habit, passion for a party or cause or because they like to support a winner. All of these incentives are disappearing fast. New incentives are needed and that is currently too radical for most politicians, even reforming ones.

If it is just a case of getting people to turn out and put a cross by a candidate or party at each election, I could fix this tomorrow. It is not some difficult issue to fix. Why go to the effort to vote when the impact of your vote is zero. Obviously no electoral system will much change that. The answer lies in other incentives. Lets reimburse those costs. Turnout to vote then get a tax rebate, paid holiday, days extra benefit payment. Compensate generously the financial loss and time used and I guarantee turnout of near 100%. Sounds too mercenary but we don't expect high turnout for other voluntary duties. And duty and habit are the main reasons people vote. We have lost the habit and turnout will continue to decline towards a minority pursuit if we don't think radically.

Ok. This doesn't get people engaged with their decision of who to vote for. But we have to start somewhere and getting high turnout is a good start.

08 April 2014

Independence For Scotland, Britain To Stay In EU. Where's The Consistency?

I believe that not only is Holyrood better than Westminster, Brussels is too. Quite simply I would rather be ruled by Brussels bureaucrats than London bankers (Although I do admit this doesn't sound the most attractive choice).

That is why my position is consistent and logical and different from the unionist Eurosceptics whose arguments are full of contradictions.

If you believe the * British * press, Brussels is the root of all evil. The truth is, the flaws in the EU are much exagerated and the pernicious power and destructive activities of bankers much understated. And bankers fund our political parties.

* The British press is mostly foreign owned  and the owners located in tax havens which might explain their paper's focus on welfare rather than bankers and other wealthy tax avoiders *

If UKIP and the Tories stated clearly that they wanted Scotland for its resources they would at least have some intellectual honesty to their argument. But instead they simultaneously claim Scots are a burden on English taxpayers while crowing about us all being "better together". While using the exact opposite arguments about sovereignty to decry the EU. They are all over the place and only get away with it because Labour and the media are complicit.

Labour party careerists put their party before the interests of the people (both Scottish and rest of the UK). But even in this they are misguided. Ignoring the interests of the people will only damage Labour in the long run.

Scottish independence is fundamentally about restoring democracy. Not only will it set free Scotland, it will help regional England, Wales and Northern Ireland loosen the grip of destructive London dominance. And that is why, as an Englishman I am all for it.

03 April 2014

10 policies to reinvigorate the Left

John Harris is right to say the Left are stuck in the past. They rarely set the agenda. In particular he refers to a Labour party, which feels compelled to dance to the right wing corporate media. I have sympathy with the overwhelming challenge Labour face from a distorting 24 hour media, but continually conceding ground will get the left nowhere. Rightwingers control the media and so control the future. The Right popularise policies from delinking pensions from annuities to a punitive welfare "cap", that look fair but push an individualist agenda favouring the well off. The Left need to find popular collectivist policies to reset the balance. Here's how.

1. Corporations and rich individuals donate  over £30m every year to political parties. Obviously, they do this to influence policy (mainly towards a rightwing agenda). This distortion has to be addressed if we care about democracy. In future all political donations (including trade union donations) will need to go into a general political fund. This will be allocated to political parties in proportion to their percentages of the vote. In addition, a political levy will apply each year equivalent to the yearly average of the previous 5 years of political donations from each company or individual. No longer should wealth determine political influence.

2. Corporations spend hundreds of millions on political PR. This must be balanced with an equivalent political levy that is distributed to parties according to votes. The more a corporation or wealthy individual seeks to influence policy, the more they have to donate into the general fund to allow others a response.

3. Just as broadcastors provide free space for party broadcasts. So too must newspapers, websites and magazines that carry political content. A few pages would suffice to allow some redress to newspapers's slavish following of the agenda of the big corporate advertisers that fund them.

4. The rightwing are using local government to circumvent democracy. Devolving the most difficult cuts down to councils controlled by opposition parties is a disgraceful way of avoiding blame. Local councils are now little more than central government lackeys dictated to from above on everything from their spending priorities to how they raise their revenue . This has to change. Councils need the power to decide how they raise their revenue and by how much. As a first step give them complete control over council tax, to revalue, reband or even replace with a land value tax.

5. Our constitution should not be easily changed by parties with only a temporary mandate. Most governments are now elected with less than 40% of the vote, let alone 50%. Yet they have the power to completely rewrite everyone's basic rights. This has to stop. We need to construct a proper written constitution decided by a two thirds majority that protects not just local democracy but also basic democratic ideals on the media, elections and other rights. For instance, it is a disgrace our second chamber is chosen by PMs and the landed gentry.

6. Link MPs pay (and expenses) to median earnings. Populist, but also a leftist point. There should be no need to pay MPs more than twice average earnings. Public sector pay generally should be limited to a 4:1 ratio from top to bottom (with a generous floor above the living wage) to set a good example for the private sector.

7. Link tax to inequality. There is growing evidence that inequality damages the economy as well as society. Ever greater rewards for those at the top has not increased the economic pie. Indeed the debt crisis can be linked to "fast buck" economics that is now an entrenched vested interest defending the unproductive financial industry & "rip off" economy. Corporation tax should be proportional to a company's pay inequality. Of course the global movement of capital to avoid tax will be a problem but can we afford to keep giving in to this threat? We could even link the welfare budget to the level of inequality.

8. We cannot continue to ignore environmental and social damage just to get short term economic gain. We need to build support for policies to address pollution and obesity. We need to control vehicle use.  We need to build housing for good health and efficiency. Only when there is wide public support can we implement "sin taxes" on sugar or plastic packaging etc. As a first step, we could follow Finland's example of a 70's style deposit on packaging and bottles to encourage their return to the shop. Only by putting the environmental costs on retailers/producers will we discourage over use of packaging (and reduce costs of litter, recycling and refuse collection). A tax on land would discourage free carparks. We could give companies significant tax breaks for the number of their employees who travel to work by means other than the car. Households that go car free could get council tax rebates or even free bus passes.

9. We need to build some more homes. But there is no point building surburban sprawl or building for property "investors" or worse, yet more second (or even third or more) homes. We need to address housing inequality. Real garden cities would be high speed rail connected, compact and car free with comprehensive metro systems and high density quality housing, yet with walkable large green spaces. A land tax would cap housing costs and speculative profiteering.

10. Finally we need competition between political ideas. A stale party system where constituency boundaries and voter registration rules are fought over for party advantage is no good. A bias towards the bigger two parties perpetuates the status quo and stifles competition of political ideas. Labour needs to embrace more proportional elections, but also more radical ideas on direct democracy. Each street could have  an elected rep, with a small budget they could pool with other streets if they desired. Some councillors could be randomly selected in the same way as juries, to widen representation. Elections could be held yearly. Above all, the Left should not fear more democracy. The masses are their biggest ally.

22 February 2014

If We Want To Increase Turnout We Have To Remember Why People Vote

The chances that any one individual vote will make a difference to an election result is almost non existent.

At the last general election, every majority was greater than one. Hardly a surprise. So why should any one individual make the effort? And there is an effort involved. However small you may consider the effort in voting, the effort is much larger than the chances that individual vote will actually "make a difference" to the result.

Obviously there is the rationale "well, if enough people thought like that it would make a difference, a big difference". Indeed. And that thought alone can act as a big incentive to turn out.

When talking about low turnout, usually a lot is made of "apathy", the so called apathetic masses. This of course shifts the blame from those in charge. It lets them off the hook. It's those lazy plebs at fault, not us. In fact the only lazy ones are those using apathy as an excuse.

Think back to the opening paragraph and you can see it is not apathy that makes a person consider their vote worthless, it is rational consideration of the facts.

And this is why any barrier put in the way of registering to vote or the actual process of voting, however small, is going to have a significant effect. And why Individual Electoral Registration could have a massive effect. There are millions registering and turning out who can hardly be bothered at the moment.

So if individual votes are worthless, why do so many individuals actually turnout? Turnout of 50,60,70% or more seems unbelievable for a worthless act.

Of course voting from an individual viewpoint may be worthless, but from a collective point of view it can be far from it.

These are the main reasons why people vote and it may surprise you.

HABIT

If people vote when they are young they are likely to continue voting. And the more they vote, the more likely they are to vote. And vice versa.

Me and my friends are of an age group that had to wait till we were nearly 23 before we got to vote in our first general election in 1992. Which was a 5 year gap from 1987. The difference this makes is really noticeable in the turnout demographics - something like a 10% drop from those a few months older who got to vote at 18 in 1987. Most of my friends didn't get into the habit of voting when young and so never will.

We must remember the corporate strategy. McDonalds was one of the first companies to target children with its advertising and promotion because they worked out that if you want repeat frequent customers you need to get them into the habit. Get them young. Tobacco companies also know this.

Once people hit their early twenties they have made their mind up about most things. Rarely will people much change their political ideology and that includes whether they bother voting or not.

That is why changes that impact on turnout are so important, because that impact can last generations. It is going to be incredibly hard to break the non voting habit of the younger generations.

CONTENTMENT

Some commentators argue that content people are likely not to vote because they are happy with the status quo. In fact the opposite is the case, content people vote more. And the more society treats you well, whether in status, income, wealth etc, the more fearful you will be that your good life will be taken away. So you vote to keep what you've got. Unhappy people with little to show from society turn out less.

PEER PRESSURE

We all know family and close friends influence how you vote but they also influence whether you vote at all. The longer you know someone and the earlier their influence, the more chance you will copy them.

CULTURE: IT'S COOL

Difficult to imagine how voting can be cool, but when the franchise is first extended, turnout is usually at a high point.

LACK OF DISTRACTIONS

Modern life is full of activities, stuff. Things to do. We have moved on from Harold Wilson asking the BBC to move Steptoe & Son (they refused), but distractions do make a difference. How do we find time to vote?

RACE, CLASS, GENDER of candidates

People are racist, "class"ist and genderist (men more so than women it seems). They vote for people in their own image. Sad but true. See no-one like you and enthusiasm for voting wanes. The under-represented in parliament, turn out less. Which in turn means they are even more under-represented, which leads them to turn out less...and so on. A vicious circle.

IDEOLOGICAL or EMOTIONAL CONNECTION of candidates/party with voter

Politics, charm and good looks. Policies do make a difference, but in a world where trust is in decline generally and particularly of politicians, charm and good looks are getting more important. Charm and good looks however are not enough to restore lost turnout from a disengaged electorate caused by disillusionment at disappointing policies and broken promises.

NEGATIVITY

If you were going to buy a certain item and every advert you saw just slagged off a competitor producing that item. You might decide not to buy at all.

Negative political campaigns reduce turnout. And the longer the negativity goes on, the bigger the impact on turnout.

There is something about politics thats makes negative campaigning so successful.

Unlike in a healthy competitive marketplace, where increased sales drive profit. Politicians can profit just as much by driving down the votes of an opponent as winning votes themselves.

PERCEIVED IMPORTANCE of the ELECTION

Obviously General elections are more important than local and Euro elections because that is where the power is. Also close elections can drive turnout. We all know the difference between a marginal and safe seat.

PROPORTIONAL or FAIRER ELECTIONS

Proportional voting can reduce negative campaigning, under-representation of certain groups, devalued votes in safe seats and disillusionment at distorted national results. But it doesn't stop the general decline of turnout completely.

AND FINALLY, EASE OF REGISTERING & VOTING

Anything that increases security and accuracy of an election usually comes with a cost.

As I explained at the start, even small barriers to voting can be enough to put people off. The benefits of combating fraud do have to be weighed against the numbers put off voting altogether.

CONCLUSION/SOLUTIONS

Wherever there is a cost to voting, it needs to be countered with an incentive.

People can have a "moral" problem with voting being anything other than a voluntary duty that people should be willing to perform no matter what the costs and barriers to themselves. As I have already explained, from an individual point of view the incentive to vote is non existent. Yet we all know that it is of huge benefit collectively to us all.

The only way I can see this circle squared is to recognise that people incur costs in voting and recompense them for the good they are doing society by turning out.

A financial allowance set at just enough to compensate for the expense of voting (in time, effort & financial) has the advantage of appealing to those groups who turn out least - the poor. It would be simple and overcome the deterrent barriers of having much more secure election procedures and finally it would work. Turnout would soar if you paid people to turn out.

19 February 2014

A Scottish Pound?

An Assessment of the UK Treasury's Assessment of a Sterling Currency Union.

Every negative that could be accentuated about an independent Scotland has been accentuated. This is an unremittingly negative document.

That is not to say that there are not risks involved in Scotland going independent. But the chances that EVERY risk associated with independence actually occurs is, I would suggest, very unlikely. Let's take some examples from this 78 page document.

First off, lets start with one point I can agree with. I can accept that legally the pound sterling is not an asset that the "continuing" UK has to share.

As the document states "there is no rule or principle in international law that would require the continuing UK to share sterling".

Equally "there is no rule or principle in international law" that says Scotland can't negotiate a lower share of liabilities as a result.

In physical terms I can agree that a sterling zone is not an asset in the sense of the £1.2 trillion of physical and cash assets the UK possesses. The UK will also have £1.6 trillion of national debt by 2016. Scotland's share of this debt (on a population or repayment share calculation) is between £100bn and £130bn which can be offset against UK assets held outside Scotland. This will leave an independent Scotland with a much lower debt/gdp ratio (55%-75%) than the continuing UK (85%) (more on this later).

Legally it has already been established, by the UK treasury itself, that the national debt is the responsibility of the "continuing" UK. An independent Scotland has no "legal" responsibility to take on a share of this debt. So Scotland cannot "default" on this debt, since it is not legally theirs.

However the Scottish government has said they want to take on a fair share of liabilities (which includes debt), as long as they get a fair share of assets. Legally a sterling zone is not an asset. But in practical terms it would be of "benefit" and anything of benefit is usually deemed an asset.

But, says the report, a sterling zone would not be of worth to the continuing UK because an independent Scotland would be too "risky" to be a part of it. Therefore, despite the lower transaction/barrier costs etc for both countries of continuing a currency union, this is not in the "continuing" UK interest.

This is based on three broad claims.

1) As a "new" country money markets wouldn't trust Scotland.

2) As a "small" country it would be more reliant on trade and have less economies of scale.

3) An independent Scotland is too dependent on oil, gas and financial services, which would make revenues vulnerable and volatile.

All of this it claims would bring an interest rate premium that would push up Scottish deficit repayments.

This conveniently ignores the fact that whatever way it is negotiated, Scotland will start with a much lower debt/gdp ratio than the continuing UK (see above point). This usually brings a reduction in interest rates.

In the EU single market and as an English speaking nation, point 2 is pretty negligible, even irrelevant. And it is surreal to think rump UK would dare veto EU membership for their third biggest trading partner or Spain would cause chaos to European business just to get one over on the Catalonians. Even if they did, Scotland would no doubt end up still in the single market like Norway or Switzerland are. Some would argue that is an even better position to be in.

Finally, even without oil & gas, Scotland has output per head 99% of the UK average. With oil & gas it is 120%.

A lot is made of the volatility of oil & gas prices in the document with a constant focus on prices falling. But how likely is that? At over $100 a barrel, the profit margin is huge. Prices do fluctuate but big drops are usually temporary and followed by huge increases. In an energy hungry world the general trend is clear, prices are going up and likely to continue going up.

Nor is oil & gas the only large energy resource that Scotland has. Renewables will grow in value and Scotland has some of the largest potential in Europe.

Scotland is future proofed, exactly the type of country investors want to lend to. If anything, the rest of the UK can only benefit from sharing a currency with such a nation.

Which leaves one final claim why a currency union is not in the continuing UK's interest:-

"Scotland could leave a currency union for its own benefit at any moment and leave the rest of the UK counting the cost".

But the alternative is to chuck Scotland out on day one. So if the only difference is timing, what is the benefit in not allowing a union to continue longer? Surely better to delay costs, if any?

The Scottish government have stated they have no plans to leave sterling, say, for the Euro. And if they ever did decide to join there would be a lengthy transition process spreading out transition costs. Why would the rump UK decide to take these costs immediately in one hit? It makes no sense and I imagine the UK would decide this too when the time actually arrives. And of course all the main UK parties have in principle an aim for the UK to join the Euro itself, so there is no permanent guarantee for either side of the continuance of the pound.

Overall, I can only assume the conclusion of this treasury document was decided before they even started to research and write it. It is not a credible document in my opinion.

17 February 2014

Labour needs a policy on boundary changes that stops the march towards gerrymandering

In the US, the incumbent party in each state gets a once in a decade chance to draw the congressional boundaries. Sophisticated computer programs are designed that manipulate boundaries to maximise seats for the party in control. Boundaries are drawn that can significantly skew results. Keeping parties in power even with less votes than their opponents.

Aside from this the Republican party in particular have become experts in voter suppression - finding more & more ways to remove targeted groups from electoral rolls.

All in all. Not a healthy situation for a so called democracy to be in.

Thankfully the UK is in a better position, but, we are moving in the US direction.

Like in the US, the UK uses a system for electing its national parliament where the drawing of constituency boundaries can have a bigger impact on the result than the actual votes cast.

For example, it is estimated that about half of Tony Blair's majorities in his three election wins were down to the favourable boundary review in the 1990s done under John Major's Conservative government.

This Coalition government have introduced measures that are going to impact significantly on the democratic process.

The most important will come in June this year - Individual Electoral Registration (IER). It is predicted that the move from household to individual registration could reduce UK rolls by 10%, removing 4.5m people across the UK. A 10% reduction is the experience from N.Ireland where it is already in place.

Initially around 10m people will be removed from the electoral roll. Those with incorrect address details with the DWP will not be automatically added to the register. These geographically mobile people - mainly young, urban and poor will (for the first time) have to provide proof of ID to re-register.

I am assured that the main impact of these changes will not affect the register until after the 2015 general election. So the impact will be most felt at the 2020 general election. So there is time for a Labour government to find a better way.

IER will not only remove millions of potential voters from the rolls, the new boundaries due to come in by 2018 will be drawn using these incomplete rolls. These boundary reviews are where the real impact will be felt because ignoring unregistered electors will make urban constituencies bigger than they should be devaluing all urban votes.

By drawing boundaries that ignore the unregistered, the current unregistered who vote in future, along with regular voters, will find their votes are devalued even before they get to the polling booth.

Which brings me on to the second significant change made by this government.

The coverage of the boundary vote in parliament by the UK media will have implanted the idea in most people's minds that the only unfairness in our current boundary based system are unequal sizes of electorates between constituencies. In fact this is probably the least significant factor in causing bias in our system.

David Cameron and a lot of other Tories have spoken of "equalising constituency electorates". And have made hay on the fact that this "fairness" has been blocked by the Lib Dems and Labour.

The current situation is that the vast majority of seats (over 90%) vary between 65,000 and 79,000 constituents. A handful of exceptional cases vary by far more e.g Western Isles 22,000, Isle of Wight 110,000.

Labour win seats with an average of around 68,000 registered electors in them, the Tories around 72,000. It is this "bias" the Tories are complaining about.

The Tories' proposal is to "equalise" to a variation of 2.5% around the mean of new bigger constituencies (73,000-77,000). Reducing the number of constituencies makes urban & suburban seats bigger & more rural. There will still be a handful of exceptional sized constituencies mentioned earlier which are exempted under the legislation. So the huge differences between these mainly rural constituencies will remain.

Drawing constituency boundaries is a difficult enough task even with a 10% variation. With 2.5% it becomes impossible to avoid breaking up communities, taking a bit of one town and a bit of another, crossing rivers and valleys, islands and mainland, slicing across council boundaries and having more frequent changes to counteract population movement, mainly "suburban drift".

These changes make accountability a joke as large numbers of voters find their MP has changed even before they get to vote, and there is little cohesion between local and national elections and the communities they serve.

Unlike in the US, an attempt is made in the UK to draw boundaries fairly with regard to all the conflicting considerations mentioned above.

The task falls to the four boundary commisions, one for each country of the UK. Of course they are heavily influenced by the main political parties - Labour and Conservative, in their decisions. And legislative guidelines can also heavily restrict their ability to be impartial.

One of the reasons the current boundaries are seen to favour Labour is that the last time a review was done in England in the mid 1990s, the incumbent Conservatives shored up their safe seats at the expense of their marginals. Labour were more than happy to accept these boundaries. which "concentrated" more of their vote in marginal seats and less votes in seats they couldn't win or in seats they win easily. The Tories did the opposite, moving more of their voters into seats they win comfortably anyway.

In the knowledge that they were heading for a heavy defeat, the highest ranking Conservative MPs, holed up in safe to fairly safe seats valued their own re-election above maximising the number of MPs for their party.

After 17 years without a majority and the prospect of many more lean years, the Tories have learnt the lesson of this individualist approach and have now adopted (ironically) a collectivist strategy to boundary reviews.

But even if the boundaries are drawn completely impartially, it is impossible to draw them without bias, especially bias against smaller or non geographically concentrated parties. Which brings me to why the current constituency electorate variations are a red herring.

Geographical concentration of votes (just enough votes in winnable seats and few in others) and what is called "differential turnout' (61% turnout in Labour seats, 68% Tory) are far more important. In fact an LSE study suggests over 80% of the "bias" is accounted for in these ways. So, at best the Tory "equalisation" will only address 20% of their "problem".

Another point to mention is that boundaries are drawn by numbers of REGISTERED voters in a seat, not by the actual "voting age population" which should be the real guideline.

Low turnout seats also have disproportionately high numbers of eligible but unregistered electors. So to compare just the number of registered voters in each constituency underplays the numbers of eligible voters in Labour constituencies.

By voting age population, the differences in constituency numbers actually FAVOURS the Conservatives the most. Urban constituencies average 102,000 population, rural 94,000. Tory seats are more rural, so their MPs already represent smaller populations than Labour.

Another factor is double registration of people in second homes and of students. These double registrations are largely in more wealthy rural Conservative seats so overestimate the numbers in these seats giving an impression these seats are bigger than they actually are.

Nationally the Tories got 47% of the seats from a 36% voteshare in 2010 but deem this unfair because Labour would do even better with such a voteshare.

The real solution to the manifold injustices of a boundary based voting system is to move to a proportional system where national voteshare is more important than drawing boundaries on a map. But that is not a solution favoured by either of the "big two" parties for obvious reasons.

They both do very well out of the present system, the only disagreement is over the share of these unjust spoils. Both parties receive a higher percentage of seats than their percentage of votes would manage under a proportional system and this is at the expense of the other parties.

Defenders of the present system defend geographical boundaries because each MP is directly accountable to electors in their constituency. Yet every Tory boundary reform proposed will reduce this accountable "constituency link" from bigger unwieldy constituencies to frequent boundary changes, reduced registration to unfathomable boundaries based on strict numbers.

Failing a more proportional system, Labour need to offer fairer boundaries. Stable boundaries sized by voting age population eligibility & complimentary with local council boundaries etc. Tory proposals will diminish democracy.

06 February 2014

IFS says tax base is too dependent on rich few, but real problem is inequality

In Thomas Piketty's new book "Capitalism in the 21st century", he argues that the rise in inequality is inescapable and will reach double the present levels.

In 30 years the top 1% have gone from owning 13% of total wealth to 30%. In the next 30 years this could reach 60%.

A new IFS report says the UK income tax base is unstable because it depends too much on just 300,000 people - the richest 1% contributing 30% of revenue.

But tax rates on the rich have actually fallen and rates on the poor have risen. Without reducing the total tax take overall, rising inequality means this concentration of revenue collection on the rich few is inevitable and cutting tax and spending which by nature tends to be redistributive will only accelerate inequality. We are stuck in a self fulfilling catch 22 that is very convenient for the Right.

The IFS also criticise the government for reducing the overall tax base by pushing up the income tax threshold to £10,000.

Yet this has been the one piece of good news for below living wage earners. Yes I know it is a poorly targeted way of helping low earners, but at least it was a pro "make work pay" policy and continuing to heavily tax subsistence level incomes makes no social sense.

So what is the solution and can we be more optimistic about inequality than Piketty argues?

The free movement of capital around the globe is increasingly defeating tax collection at national level and favourable tax policies and other "big corp" legislation are bought cheaply from our weak political systems. This is the main thrust of Piketty's pessimistic view - (although two world wars depleting the wealthy's assets temporarily turned the tide).

Piketty argues that nation states can only hold back the rising tide of inequality in the short term because the wealthy can move capital around the globe and continually play one nation off against another. So the only hope to combat this are supranational organisations like the EU.

It is ironic that those wealthy few who control the financial markets argue against the EU's single currency on the basis that social justice & economic efficiency in the Eurozone require significant fiscal cooperation between nations. Yet this equally applies to free movement of global capital or free trade agreements, yet the EU is the only organisation with a significant supranational structure to tackle this problem (inadequate though those structures may be).

On the tax base issue, the IFS argues correctly that increasing the National Insurance threshold is a better way of helping low earners than the Income Tax threshold (though this doesn't expand the tax base).

It seems to me that if we are hamstrung and unable to use taxes to reduce inequality, then Miliband's idea of "predistribution" is even more pertinant. Politically useful in an era of austerity ideology where tax and spend are anathema, Miliband could smash monopolies and regulate prices and wages to redistribute wealth. The wealthy will of course spend heavily to vilify this approach.

Personally, I still think a radical overhaul of tax & benefits are required to make a real difference - the government currently spend £720bn a year. I would scrap all spending bar the £130bn on health, £30bn on social care, £90bn on education, £30bn on justice, £30bn transport & £50bn debt interest. I would allow £50bn more for infrastructure and miscellaneous. This leaves £310bn to pay every worker, pensioner, disabled & unemployed person cash of £6,900pa each. Extra revenue could be raised by scrapping all tax allowances (raises £90bn) which would increase payment to £8,900pa (£740 per month).

This would extend the tax base to all workers, as all earnings would be subject to tax and NI. It would provide a subsistence amount to every adult to live and because there is no means testing remove all admin costs and it would encourage work as there would be no benefit loss to taking work. Very few would not want to supplement a subsistence amount by working. Those people generally are on benefits already anyway. The incentives would now be clear, every pound you earn would make you better off.

I would also look to build housing for profit to pay down the national debt by buying cheap agricultural land (£8k an acre), then grant planning permission thus turning it into £1m per acre overnight. Then build houses & infrastructure with the revenue and sell for big profit. Just 0.5m acres (0.4% of UK's 60m acres) would provide ample space for 4m new homes. Land profit from granting planning permission could generate £400bn in revenue for infrastructure, house building and paying down national debt. I think thats a better option than trying to pay off a £1.2trn national debt by hitting the poorest 10% of people who only have assets of £8bn. The assets of the richest 10% are £4000bn.

Time we had a proper debate on this rather than the poor excuse for a debate we get in our corporate owned (& government bullied publicly owned) media.