Friday, 30 March 2012

Respect, Bradford West by-election

"Gorgeous" George Galloway has won a massive victory in the Bradford West by-election. The Respect party leader overturned a 5,000 Labour majority to take the seat with a 10,000 margin. This blog can only salute his indefatigability.

But what does this tell us about the state of mainstream politics?

Nothing, of course. Galloway's USP is sucking up to muslims. All this result tells us is that muslims now rule in Bradford West and have put their own man in parliament. In the future voting will be increasingly along ethnic lines and less about ideology as such.

Monday, 26 March 2012

Forget the Granny Tax

The Granny Tax is what they're calling the Chancellor's decision to freeze that extra lump of tax allowance people over 65 get (about £3,000 a year, a bit more for the over-75s.)

But you should forget that; it's not the big pension story. To start with it only affects "grannies" by the amount indexation would have increased the allowance; so negligible effect this year, a tad more next year, and so on.

No, the real story is the second state pension. This used to be called SERPS, was then called S2P, and in the future will be called No Such Pension! That's because Osborne is abolishing it. He's going to uprate the basic pension instead. So the deal goes something like this: instead of a basic pension of £120 per week plus a second state pension related to the amount you paid in over your working life, and could be as much as £100pw, you'll just get £140pw instead. Ouch! Of course if your earnings-related element is low you could actually be making a profit on the deal, but for most people the new combined pension is going to be less than the two pensions would have been separately.

Apart from one group of people that is! You see, it has for a long time been possible to opt out of the second state pension and have the government pay your contributions into a private fund. In fact at this exact moment in time, it is still possible. To clarify - there are people out there with funds as high as £100,000 entirely paid for by the government handing back some national insurance contributions. These people will get the new enhanced basic state pension PLUS they get to keep any pension derived from this private fund. So we could be approaching a situation where someone retiring is either in clover or screwed depending on whether they decided to trust the government or not on a particular day 40 years ago when they made their pension decisions. (Hint: the right answer was not to trust the government!)

However, we don't know the detail on the closing down of SERPS/S2P yet. It's possible they may keep some earnings-related element covering the transition period (that period being the last 40 years or so!) so people who have made some SERPS/S2P contributions will get some additional benefit for it. Consultation documents are expected in the next few months. This situation bears close watching and is the next big scandal coming down the line.

It must be noted that in his budget the Chancellor reiterated his intention of merging tax and NI. This would simplify the tax system considerably - it's the one big thing chancellors have been mooting but never quite doing for decades. However if you're going to do the merge you do need to remove the pension-related-to-NI-contributions structure of the tax system. So this change needed to happen. However it should be done fairly, and not be used as an excuse to claw extra money from pensioners - but since when could chancellors resist clawing extra money from anybody? (I'll answer that, it was the Tory government of the 1980s and early 90s.)

Wednesday, 21 March 2012

Budget 2012

George Osborne has just finished presenting his third budget. The gory details are in the Red Book. The basic numbers can be seen in the pie charts below:



Click on the images to see larger versions.

In summary he's going to be spending £683bn in 2012/13 of which £592bn will be raised in taxes, and £92bn borrowed. Last year he spent £710bn so at first glance this looks like a £27bn drop in spending! But no, the government is taking on the Post Office's pension fund preparatory to selling it off. This gives it £28bn of assets, which have been applied to the "Other" slice of the pie, so in the top chart above the £43bn Other should really read £71bn if they were being honest. (Unfortunately the government is also acquiring the PO's pension liabilities, which are larger than the assets.)

Osbourne forecast that GDP growth for this year would be +0.8%, this is quite a reduction from his +1.7% prediction in Budget 2011, but it still on the right side of zero.

For the record his future predictions (from the OBR) are:
           Year          GDP delta
           2011/12       +0.8%
           2012/13       +2.0%
           2013/14       +2.7%
           2014/15       +3.0%
           2015/16       +3.0%
The numbers for future are likely to be complete fiction of course.

The numbers for the deficit were given as:
          Year          Deficit
          2011/12       £126bn (including PO pension)
          2012/13       £120bn
          2013/14       £98bn
          2014/15       £75bn
          2015/16       £52bn
          2016/17       £21bn
The deficit is now planned to hit zero in 2017/18, after which we can start thinking about paying off the debt.

The chancellor confirmed what had been widely leaked, that he will be looking at issuing very long term gilts, and perpetual gilts. He seems motivated by the fact that the UK is currently borrowing at a very cheap rate, cheaper than the UK has ever borrowed in fact, and he wants to "lock in" that rate, eg when a 30-year bond matures he would roll it over into a 100-year bond. This is a good idea for the government, it wouldn't be a good idea for anyone actually to buy one of these bonds (unless they're index-linked, which they won't be) since in 100 years the real value of the capital is likely to be zilch.

Osbourne announced various incentives for business to stay in, or come to, the UK - much focused on video gaming and the like. He also announced a corporation tax reduction from April 2013 to 24% - down from 28% when the collation came to power and significantly lower than most other Western countries.

He confirmed that all taxpayers in contact with HMRC would received a personal statement of the tax they paid, and how it was spent, from April next year. Also from April next year the personal allowance will rise to £9,205, the aim is to get it to £10,000 within the parliament.

Osbourne finally tried to do something about his disastrous Child Benefit proposal. Previously it was to be stopped when either parent earned more than £42,500 ish - that limit has been raised to £50K - and it will now taper off at 1% per £100 earned, so all gone at £60K.

This is still pretty dire. A couple earning jointly £99K keep their Child Benefit while a single parent earning £60K gets nothing. This issue is not going away any time soon.

The 50% top rate of income tax is being reduced to 45% from April next year. Supposedly the 50% rate earns the exchequer nothing anyway. (I'm not sure I believe this!) George is hitting the rich through their houses instead.

Stamp duty land tax (SDLT) for houses costing more than two million is going up to 7%. And to prevent that cunning dodge where a house is sold to a company and thereafter the company is sold not the house any house being sold to a "non-natural person" which attract a punitive SDLT of 15%! And George reserves the right to apply additional, even retrospective, charges on evil people who try this thing.

The current SDLT holiday for cheaper houses was not extended.

Those evil rich people are also going to have all the exotic income tax allowances they can claim capped at 25% of income as soon as they try to claim more than £50K in relief.

Osbourne repeated his intention to simplify income tax and national insurance into a single tax. He has been saying this for several years now, but so far no action.

Alcohol, no change; fuel duty, no change, ie will be going up by 3p in August, he didn't cancel the rise, some thought he would; cigarettes, an extra 37p on a packet of 20 from tomorrow.

Gambling taxation is to be changed, the aim being to get all those offshore firms back onshore, mainly by taxing them just as much offshore as onshore.

There will be seven Sundays of relaxed trading rules to cover the Olympics, starting on July 22nd - just so the nation of shopkeepers can gouge every last tourist dollar. (And why not?!)

The second state pension, SERPS, whatever, is being merged with the basic state pension. An earnings-related element will remain. This had been telegraphed to the pensions industry ahead of time so no surprise.

Planning permission is to be simplified, one thousand pages of regulations will become 50 pages. This is supposed to help inward investment.

The plan is make public sector wages "responsive" to local conditions, ie pay civil servants less out in the regions, was confirmed. This was already announced last year anyway.

Overall conclusions: a budget of little change, nothing surprising or inventive about it; most of it had been leaked ahead of time by the government anyway.

The big surprise of the afternoon happened after George Osbourne sat down. Ed Miliband got up to respond and was actually rather good. He aimed at the easy target of the reduction of the 50% tax rate and hammered away at it. He invited all the members of the cabinet sitting in front of him to indicate whether they would benefit personally from this but not one of them would so much as nod or shake their head. Transparency in government - none!

Monday, 19 March 2012

The case against gay marriage

The government has embarked on a twelve-week consultation on "gay" marriage ending on the 14th of June, with the clear intention of making marriage equally available to heterosexuals and homosexuals. Public opinion is polarised: the Pope has called the idea insidious and dangerous. Cardinal Keith O'Brien, the leader of the Roman Catholic Church in Scotland, said the "grotesque" plans would "shame the United Kingdom in the eyes of the world" if implemented. However some Quaker and Jewish leaders are in favour.

Same sex civil unions, giving all the benefits of marriage, were introduced into the UK in 2004, but it seems that is not enough - they must have actual marriage.

There are essentially two components to the case against homosexual marriage.

The first is that is weakens the institution of marriage. Marriage is a religious sacrament (one of the seven sacred sacraments; the others being: baptism, confirmation, communion, confession, holy orders and extreme unction.) Marriage is stated as a union between a man and a women for the purpose of producing children. And there was a time when a child produced out of wedlock had poor prospects - without a welfare state the mother and child would be dependent on charity at best and starve to death at worst. Marriage was a vital tool to bind a man to a woman and make sure he supported her ever after. Now, it's true that in the UK a lot of children are born out of wedlock and the taxpayer generally looks after them. But that doesn't mean it's a good idea. The taxpayer's generosity should be the last resort, not the first. Too many children are produced these days by unmarried mothers who have no means and no intention of paying their own baby's keep. The institution of marriage needs to be strengthened, not further weakened.

So marriage is an institution in trouble. Allowing homosexuals to marry diverts the institution further from its core purpose. It's quite true that some men and women marry knowing ahead of time that they will not or cannot have children. But at least they are following the intended template and a child is possible. Homosexuals marrying completely subverts the institution and renders it even weaker and more pointless.

The second argument against homosexual marriage is that it would tend to legitimise homosexuality. In the UK homosexuality was illegal until 1967. Since decriminalisation, homosexuals have been attempting to gain ever increasing acceptance of their deviant behaviour. Muscling in on the institution of marriage is just the most recent initiative aimed at embedding their perversion into society. It should be remembered that homosexuality is not normal; has no biological basis; and is generally harmful to health and well-being. Although one must accept that homosexuals did not ask to be born homosexual and we should be tolerant enough to allow them their abhorrent practices in private, that does not mean we have to accept the legitimacy of homosexuality generally. It is very much an "alternative" lifestyle and should be tolerated only on that basis.

Selling the roads

The government is mooting the possibility of selling the major highways, motorways and the like, to the private sector. The idea is that private companies would buy 100 year leases on roads, assume responsibility for maintaining them, and get to charge for using them. The bill for existing roads would go to the government but new roads could be toll roads paid for by drivers.

Already dubbed "PFI on wheels" this is the craziest idea the government has had since its previous crazy idea of selling off the national forests - which was shot down by outrage from all sides.

It seems the Tories are congenitally inclined to try to sell things which do not really belong to them.

Privatising natural monopolies has been tried before with water (drought orders in place) railways (state subsidies now being used to pay shareholder dividends) and buses (same as railways, but with a worse service).

Clearly any road which ends up privately owned (most likely foreign owned like our water companies and power stations) will be managed in such a way as to minimise costs and maximise return.

Ultimately this idea boils down to: we can get more money out of the motorists.

Well the motorists are pretty fed up of being bled for cash. Motorists already pay vastly more in taxes (80p of every litre is tax) than they get in value.

It's time the government stopped trying to hand off its responsibilities to others; usually French or Chinese companies, and just delivered the required services itself.

Wednesday, 14 March 2012

The British are free-thinking; Chinese are collectivist

Scientists have discovered that genetics underlies culture. Researchers at the department of psychology at Northwestern University in Illinois, have found that the individualism seen in western nations, and the higher levels of collectivism and family loyalty found in Asian cultures, are caused by differences in the prevalence of particular genes.

This is rather interesting because there has long been a nature versus nurture debate about apparently racial characteristics. Are the Chinese collectivist because they were taught to be collectivist by collectivist parents, or is it innate, in the genes? Now it seems we have the answer: it's programmed in.

Which does beg the question: how did those genes get there? The most obvious answer is that at some point the genes gave them a survival advantage, but perhaps not in the way one might imagine.

Oriental civilization has a history going back millennia, and through-out almost all that time it has been hierarchical and totalitarian. Such societies respond to dissent by killing the dissenter. Keeping your head down and not standing out from the crowd has been the best way to stay alive for enough generations to have been bred into the race. Before long you have a self-reinforcing loop: the dominant culture suppresses individualists who therefore breed less and make the dominant culture even less individualistic.

Although Orientals are at least as intelligent as Europeans and are generally credited with all sorts of inventions (gunpowder, printing, etc) it is rather obvious they have not led the world to any significant extent. They did not invent the car, the telephone, TV, the aeroplane, the internet or really anything of consequence. Their inventive reputation stems from compressing their achievements over the last five thousand years into a list of items that can be reeled off in five minutes. Their per-annum invention rate is negligible.

So China is in awkward position. They are in a trap of their own devising. They do not produce the innovators a modern country needs to progress. Noticeably China copies; it does not create from scratch. Producing fake copies of western goods is a national occupation. Nor has there been any social progress hand-in-hand with their industrialization. They lack social innovators as much as technological ones. There have been no Chinese suffragettes; no missionaries to foreign lands; no great declarations of the Rights of Man or other visionary activity on the social front.

So the Chinese are going to be attached to our coattails for quite a time to come; despite the prevalent mindset that they are taking over and will dominate the 21st century.

Tuesday, 13 March 2012

Marine le Pen has her five hundred

Marine le Pen, standard bearer of French nationalism has the 500 signatures she needs to run for President of the 5th Republic.

Le Pen: Oui x 500

Under the bizarre French system in order to be eligible to run for leader you have to be approved by 500 existing leaders - mayors, senators and the like. But Marine has her numbers and is all set for the presidential campaign with the first round of voting on the 22nd of April, and a head-to-head run-off of the top two on May 6th, if necessary.

Marine is currently lying in third position behind the front runner, socialist, Fran├žois Hollande, and incumbent Sarkozy. She will have to overtake one of them to get into the run-off. Sarky is the easier pickings here - latest opinion polls have her on 17% and him on 26% - so easier, but still a tough nut to crack.

Friday, 9 March 2012

ISDA DC meets in solumn conclave

Yes folks, the Default Committee of the International Swaps and Derivatives Association is meeting at this instant to decide whether the Greek republic is in default of its debt obligations.

Yesterday holders of 85.8% of debt subject to Greek law and 69% of its international debt holders agreed a debt swap. They needed to get a 75% buy-in, and after weighting, they have.

So is it a default or is it not?

If it is a default the CDSes will pay out and the issuers will be in the hole for about €70 billion. If it is not then some say (Robert Peston to be precise) that CDSes are no longer worth the paper they are printed on so the whole three trillion (at this point currency doesn't really matter) market will collapse.

This blog reckons the verdict will be: Let's postpone this decision until some time in the future.

Thursday, 8 March 2012

D-Day in Greece

It's crunchy time in Greece. The long-awaited debt default will happen today, or it won't. Today holders of Greek bonds are voting on whether to accept a short-back-and-sides and allow the value of their holding to be reduced by about half.

The aim of the whole "rescue Greece" operation is to protect the big, mainly French, German and American, investment banks. It's not actually to rescue Greece or protect the Greek people from penury.

The key issues here are: will enough bond-holders vote for the haircut for it to be deemed voluntary? And if not will enough bond-holders vote in favour for it to be possible to use CACs [collective action clauses] to allow the Greek government to force the deal through in an involuntary manner. Or will so few bond-holders agree, that Greece simply goes bust and everyone loses everything.

The distinction between voluntary and involuntary is important because many bond-holders also have CDSes [Credit Default Swap agreements, effectively insurance policies] to cover themselves against an involuntary haircut.

Mainly it's the independent bond-holders who have CDSes, not the big banks or Greek pension funds. And there are a load of CDS-holders who don't even have any Greek bonds - they are just hoping to profit from a Greek default by insuring something they don't even own.

Now here's the rub. The big banks are holding Greek bonds and could go bust if Greece defaults. But they can take a certain amount of pain. And they are either owned by various national governments or are completely dependent on them for cheap money to stay afloat, so they have to do what the governments want. However the exact same banks have also issued a load of CDS paper - so the banks are being forced to accept a voluntary haircut, because if it isn't voluntary then the CDS insurance will trigger and there will be a whole other (and much larger) banking crisis.

The "turkeys voting for Christmas" include the banks under French or German thumbs, plus the funds controlled by the Greek government itself, like the public sector pension schemes. This adds up to about 60% of the bonds.

However the minimum required to force through the haircut would be 66%. And some argue that should be 75%. If 95% agree it becomes deemed-voluntary for everyone and the CDS holders get stuffed.

Voting ends at 8PM tonight, and we should know the outcome tomorrow.