Theory unsupported by fact

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The familiar old nonsense about an increase in income tax leading to outward migration or deterring people from moving in made another of its regular appearances in the Western Mail yesterday.  (I can’t find it on Wales Online, but it’s available here).  This time, the warning comes from the Chartered Institute of Taxation (CIOT), and asserts that whilst the Welsh Government can make minor variations, any variation of more than 5-10% over the long term would probably start to have a significant effect on people’s choice of residence, so the Welsh Government should think very carefully before making such changes.

The basis for this assertion is unclear; it looks to me like one of those 85% of all statistics quoted by politicians which, according to the old joke, are simply made up at the time of being required.  We do know, of course, that some extremely wealthy types go to a lot of trouble to reside in jurisdictions where they can avoid paying large sums in tax, but this is more about greed and an unhealthy and anti-social aversion to paying any tax at all than a response to a fairly marginal variation between countries.  According to the figures here, Belgium’s top rate of tax is 60% and it kicks in at an annual income of around €49,600, whilst France’s top rate is a mere 55% and it doesn’t kick in until income reaches rather more than €562,000.  If the argument about high tax rates causing migration were true, then Belgium should be half empty by now.  Yet, the last time I was there, it didn’t look empty, and I have seen no empirical evidence of mass migration to France.  The CIOT itself refers to the example of Scotland and notes that there is “no clear evidence of significant effects on migration” but goes on to say that this is “probably because of a lack of awareness of devolved income tax rates”.  So, there’s nothing wrong with the theoretical model, and it’s not that higher income tax doesn’t cause emigration, it’s just that higher earners in Scotland are too thick to have worked out that they’re supposed to migrate to England to avoid paying higher rates of tax.

Classical economics tells us that, in a perfect market where all participants have perfect knowledge and where all but one of the variables are controlled for, then a change in that one variable should precipitate a change in behaviour by way of reaction.  It’s a good way of illustrating why theoretical economists should never be allowed anywhere near policy making.  My example above (of Belgium and France) is a very silly one, because there are a whole host of other reasons why people might choose to live in Belgium rather than France.  The CIOT article does itself suggest that tax differences alone won’t drive decisions – it suggests that people will also consider what they get for the taxes as well.  But reality, unlike the article, doesn’t stop there – people don’t make such decisions solely on economic grounds anyway.  The theoretical economic animal of economics responding solely to economic stimuli is a convenient fiction for the purposes of exploring theory in academia; but it doesn’t exist in practice, even if we allow for the relationship with the stimuli to be rather more complex.  

So, what can we actually say? 

1.    There is no hard, empirical evidence, anywhere that I am aware of, which supports the theoretical notion that differential tax rates drive migration between tax jurisdictions, other than for a tiny number of extremely high net worth individuals

2.    Actual human beings – as opposed to the mechanistic robots of economic theory – make decisions on a whole range of factors, not all of which are economic

3.    Anyone arguing from a basis of theory, unsupported by fact, that the Welsh Government should not vary its tax rates other than very marginally from those set by the UK Government because it may drive richer people out may, just possibly, be pursuing an agenda unrelated to what might be best for Wales.

Still, I expect that the argument will have another outing before long.

The remarkable patience of the EU

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Years ago, I found myself working on an IT outsourcing contract with a major client, where the client managers seemed to spend all their time looking for loopholes in the contract to avoid their own obligations whilst making ever more strident demands that we must stick not just to the letter but to the spirit of our side of the contract.  When I bumped into the guy on our side who’d led the contract negotiations and the drawing up of the deal, I asked him why he’d ever signed up to the contract without pinning everything down in detail.  “We assumed”, he said, “that we were dealing with honourable people”.

The EU27 have no such excuse.  They knew – as did everyone else by the time the Withdrawal Agreement was completed – that honourable was not a word which anyone could seriously apply to the current Prime Minister of the UK.  Having signed up to an agreement which specifically referenced the need for ‘level playing field’ provisions, he is now refusing to agree to any and demanding that the EU back down; and having signed up to customs checks between the UK mainland and the north of Ireland, he’s instructed his people to find ways of evading them.  The EU might have thought that they had clear agreement on both issues, but the PM’s belief that he should not be bound by any normal rules or conventions is hardly a new discovery.

My only wonder is that the EU27 are showing so much patience in continuing to negotiate with someone who clearly has no intention of being bound by any outcome which in any way constrains him.

Freedom from EU rules

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The Prime Minister has consistently said that ‘freed of EU regulation’, the new UK immigration regime will be designed to attract ‘the brightest and best’ from the rest of the world.  There was, of course, nothing in the ‘EU regulations’ which ever prevented this – an EU-wide agreement on freedom of internal movement never prevented any country from seeking to go beyond merely ‘allowing’ movement and selectively encouraging some types of movement. 

What the EU rules on freedom of movement did do, however, was prevent the UK government from charging visa fees to EU citizens.  Freed of that ‘constraint’ on attracting certain types of migrant, the UK Government is now able to ‘attract’ those migrants it wants by charging them some of the highest visa fees anywhere in the world, together with an upfront charge for any potential use of NHS services.  There are those who might see this as a disincentive, but that fails to understand a key element of Tory philosophy, which is that people don’t appreciate something properly if they get it for nothing.  Only through paying for something – and the higher the price the better – will people understand the true value of possessing it.

Alternatively, it’s just possible that the targeted potential migrants will simply chuckle to themselves at the thought, marvel at the thought processes of the UK Government, and choose to go to Germany or France instead.  This interesting experiment in human behaviour is scheduled to start on 1^st January 2021.  Results are likely to be quite rapid, but I doubt that any sensible bookies will be offering odds on the outcome.

Assuming that change has no impact?

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In launching its scheme for a points-based immigration system, the Government has stated that the UK economy needs to move away from a dependence on low wages.  It is true that migrants from the EU have provided a source of comparatively cheap labour, although the extent to which that has, in turn, deflated potential wages for UK citizens has been shown by a range of studies to be marginal at worst.  But does it follow, as the government seem to be arguing, that reducing the supply of such labour will increase its price?

Classical economics suggests that, all other things being equal, a shortage of a commodity or service compared to the demand will lead to an increase in price, but it also tells us that increasing the price will lead to a reduction in demand.  In the case, say, of care workers, the extent to which the price of labour can increase is determined by the extent to which the price of the care provided can itself be increased to account for the increased cost of providing it, so unless the customers (and the biggest customer for care services is actually the the public purse, at local government level) are prepared to pay more for care services, the supply of care services will fall accordingly as companies fail.  That would certainly meet one of the government’s objectives – reducing immigration – because there would be even fewer jobs for people to come and do, but I doubt it would be entirely popular amongst those families who depend on the provision of care for their relatives.  Even at the crude level of vote-winning, the government ends up winning some and losing others.

One of the government’s potential ‘solutions’ to the shortage of people to fill the vacancies is getting the ‘economically inactive’ (around 8.5 million under the age of 65 according to the Home Secretary) to perform the tasks concerned.  But as this analysis shows, that total includes students, people who are disabled, the chronically sick, unpaid carers and those who have taken early retirement.  The number theoretically available for work is a great deal lower, and without looking at individual circumstances, it’s hard to estimate exactly how many of them are able, willing, in the right geographical location, and in possession of the right skills to do the jobs concerned.  And the mechanism for matching people with the jobs is also unstated – unless the government is proposing some variation on forced labour for one or more of the categories identified, it’s hard to see how this proposal will solve anything.  I’m not sure that I’d put it past them to try it, though.

The simple truth is that the government’s proposed policy is a significant interference in the labour market, aimed primarily at winning the votes of those who care little about economics or the sectors such as care likely to be affected – they just want fewer foreigners in the UK.  In its rush to play to that gallery, the government is introducing a major change to the labour market with no apparent attempt to forecast its effects let alone plan for them.  Their underlying assumption seems to be that numbers of immigrants can be arbitrarily cut and that the types of permitted immigrant (in terms of skills, qualifications and experience) can be arbitrarily varied without having any impact on the day to day lives of people – there’s no plan for dealing with the impact because the scheme assumes there will be none.  Forecasting the impact of a significant change in the employment market (and that is what is being proposed) isn’t easy and assuming that such a major change has no impact is a simple solution to a forecasting problem.  It’s also incredibly stupid and short-sighted.

Giving the right answer

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Last night’s television news included a report on the mass detention of Uighurs in China and showed a group of adults being coerced into chanting the official party line as part of their re-education. Most of us will find it disconcerting that this can really be happening, but if we look closer to home, we find that locking adults into a room and forcing them to chant lies isn’t something confined to a dictatorial regime like that in China – it’s now part of everyday business for government in the UK as well.

Perhaps the Cabinet saw it all as just a bit of fun for the camera but reciting what they all know to be lies is not a good look.  The cabinet, like the poor Uighurs, certainly know what the ‘right’ answer is when questioned by those in authority over them; whether people bullied into giving the ‘right’ answer believe it or not is another matter entirely.

Morality isn't just a question of obeying the rules

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When most of us want a holiday, we look to see what’s available within our affordable price range and then book it.  The Prime Minister, it seems, simply ‘lets it be known’ to his rich friends that he needs a break and that his partner wants to be by a beach, and one of those friends contacts his friends and finds a friend who just happens to own a suitable property where there just happens to have been a last minute cancellation and, hey presto, the PM and partner get a ‘free’ holiday in Mustique.  It helps that the person who owned the property also just happens to owe Johnson’s rich friend a favour anyway. 

Labour have been asking for details of who actually paid, which strikes me as completely the wrong question to be asking.  Probably, in effect, no-one has paid anything – the person who owned the accommodation where the PM and partner stayed has lost the potential rental for the period, but if it had been subject to a late cancellation, he or she may not have been able to find a new taker for the relevant dates, and may also have benefited from a cancellation fee anyway.  Those are details we simply haven’t been told.  But it’s all been, apparently, fully declared and no rules have been broken, so that makes it all perfectly acceptable.  Or does it?

The first thing that looks dubious to me is that the friend who arranged all this for the PM did so by calling in a favour from someone else.  He’s now done a favour for Johnson, so will he at some future date be looking to call that favour in as well?  And that goes to the nub of the problem with providing favours for those who are in a position to potentially take favourable decisions in the future.  Doing someone a favour isn’t actual corruption, of course, unless and until the person doing the favour seeks some sort of quid pro quo in the future.  The individual in this case may never do so but the potential is always there.  Keeping the PM sweet can’t do him any harm and he could always just ‘let it be known’ that certain policies might be of benefit to him without ever ‘asking’ for anything.

The second thing is the confusion between rules and morality.  Thinking back to the MPs’ expenses saga, claiming for moat cleaning and duck houses may well have been within the rules at the time that the claims were being made, but that didn’t make those claims right.  They called into question the good sense and judgement of those making the claims.  The moral of the story is that sticking within the letter of the law isn’t enough; there is a duty on public figures to consider how their actions might reasonably be interpreted by others.  Sadly, the only lesson that the MPs learned was that they needed to make the rules a little bit tighter.  But MPs and ministers can’t ‘outsource’ their judgement or their duty to be seen to be doing the right thing simply by obeying the rules.  Arguing that something is only ‘wrongdoing’ if it breaks a rule somewhere is an abdication of responsibility.  From a government with a moral vacuum at its heart, I suspect we’ll have to get used to such abdication.

Pursuing a new career?

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There were suggestions yesterday that, following his sudden resignation from the cabinet, the former chancellor might also be about to resign from parliament and pursue an alternative career.  In the light of his surprise discovery yesterday of the fossilised remains of a human backbone, perhaps he could be guided towards an exciting new career in archaeology.  Almost anything would be better (for the rest of us anyway) than for him to return to his former life selling the sort of dodgy derivatives which caused the 2008 financial crisis.

The reactions to his departure have caused me to question my memory.  I was sure that the slogan on the barn read ‘four legs good, two legs bad’.  I have a vivid recollection that, for the last ten years, the Tories have been telling us that a balanced budget was absolutely essential, and that the markets wouldn’t stand for unfunded expenditure.  Yet the immediate reaction in the financial markets to a suggestion that replacing Javid with someone who will do whatever Dominic Cummings Boris Johnson tells him to do, including abandoning the aim of a balanced budget so that Johnson can ‘splash the cash’, was very positive, and the pound soared.  I don’t think I dreamt the bit about the party (Labour) that is now looking like the fiscal conservatives being regularly accused of being profligate for urging rather less expenditure than the PM is now proposing.  Either my memory is seriously defective, or else the Tories have simply been lying to us for the last decade.  It’s not exactly a tough call between the two.

Who will be next?

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In defending itself against critics of the deportation flight earlier this week, the government claimed that the criticism was only coming from the ‘Westminster Bubble’; the implication being that it could be ignored.  The first part is ‘true’, in the sense that the outrage being expressed is mostly coming from MPs; but it is the conclusion that the government draws from that which should concern us.

Firstly, of course, the MPs are elected to represent us.  There is no requirement (or indeed mechanism) for them to check whether their constituents agree with the stance they are taking, but that is no excuse for simply ignoring their views.  If they are doing any sort of job at all, the MPs should also be more aware than the mass of the population of the detail of the content and implementation of government policy.

The bigger concern is that the government believes that it can and should do whatever it wishes as long as it thinks that the population at large isn’t going to actively object.  They are probably (and sadly) correct in assuming that the population at large is not hugely exercised about the deportation of convicted criminals, particularly (and this aspect doesn’t go away just because it isn’t voiced) black ones.  As we’ve seen in relation to other issues, mere facts and details (such as the fact that they’re being deported to a country of which they have no memory or knowledge, the lives that they have built in the UK, their families, their conduct after serving their sentences) don’t shift prejudices and preconceptions, which are often deep-rooted.  The fact that the decisions being taken fly in the face of what the same government calls ‘British values’ (such as justice, equal rights, and fair play) is also irrelevant; the adherence of many to those values is, like that of the government, more a matter of words than actions or beliefs.

History tells us that failure to oppose the loss of rights for some leads to the loss of rights for others.  Those who take away the citizenship and rights of one group today will come after another group tomorrow, and another one the day after.  Convicted criminals, even those who’ve served their sentences and reformed after release, aren’t the easiest group to defend or support, but picking on the least defensible group is the way normalising the loss of rights always starts.  The way to avoid the question “Who’s next?” even arising is not to turn a blind eye to the treatment of those currently in the line of fire.

What's the alternative?

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I was surprised to see that Plaid are apparently signing up to the campaign to stop HS2 completely, using the hashtag #NoToHS2 on the propaganda which has appeared on social media over the last day or two.  I understand the argument that Wales should receive a Barnett consequential for the expenditure which benefits only England, although the extent to which I agree with that argument depends on whether HS2 is seen as the beginning and end of high speed rail in the UK or as just the next phase of a plan to connect the whole UK.  As presented by the UK Government currently it is a stand-alone project, and as such should unquestionably generate a consequential under the Barnett formula.  But if it were just the first phase, with a subsequent phase being a connection to Wales, then the argument that it is a UK-wide project becomes much stronger.  Arguing for either a consequential budget payment, or else for Wales to be part of the next phase, seem to me to be entirely valid stances for Plaid to pursue – arguing that another country (England) shouldn’t go ahead with the project at all seems a strange position to take.

I’m not entirely convinced by the argument that Wales won’t benefit at all, either.  Certainly, Glamorgan and Gwent won’t benefit (and will even lose out if they remain excluded), and that’s where the majority of the population live, but it isn’t the whole of Wales.  There is no necessary reason why high-speed trains are confined to operating on high-speed lines if the system is designed appropriately (and the whole network electrified) from the outset.  French TGV trains, for instance, travel beyond the high-speed network to a range of destinations on the ‘normal’ network, albeit at lower speeds.  There is no fundamental obstacle to using HS2 trains for direct services from North Wales to London, joining the high-speed network at Crewe.  It might be a benefit at the margins, but it’s still a potential benefit, subject to the big ‘if’ of whether it’s planned that way.  And, in the same way, parts of Wales west of Cardiff could benefit from a future high-speed link to Bristol/Cardiff from London.

There are, of course, sound environmental arguments for opposing the project; there is no doubt that it will do damage along the whole of the route, wherever it’s built and however many phases it comprises.  And I’m completely unimpressed by the argument that shaving time off journeys to and from London is adequate justification for such a project.  The question is, though, whether the project can be looked at in isolation, or whether we need to compare it with the alternatives.  What, in short, happens if it doesn’t go ahead?

The ‘best’ alternative, in environmental terms, is for people to travel less, but I doubt very much that that will happen if it’s left to millions of individual decisions, and I can’t imagine any elected government taking measures to prevent people from making journeys around the UK.  The demand is growing, not falling, and the question is about how to cope with that.  If rail transport is not expanded, then either road traffic will increase or else domestic air traffic will increase, both of which are likely to be more damaging than a high-speed rail network. 

Ultimately, that strikes me as the best argument for developing a high-speed rail network across the UK – fast, reliable surface transport using low carbon energy is a better alternative than continued growth in air traffic.  One of my biggest criticisms of the current plans is the use of a new terminal in London rather than the existing HS1 terminal, a decision which makes it impossible to have an easy interchange onto trains bound for the mainland, let alone have the direct through trains which I’m sure I remember we were promised at the time of the agreement to build the Channel Tunnel.  Reducing the number (or at least halting the growth) of short-haul flights should be a key element of government policy, and that means either restricting the right to travel or else providing a viable alternative.  It’s not the most ringing of endorsements, but high-speed rail appears to me to be the least-worst option available.

Making our own rules

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A lot of people are being very unkind to Michael Gove following his admission that almost all imports and exports to and from the EU will be subject to border checks from next year, after he and other Brexiteers have spent years arguing that trade will be frictionless.  The critics are missing the point – this is all about taking back control.  From 1^st January next year, we will no longer have to follow all those horrid and bureaucratic EU rules which arbitrarily imposed free trade between the UK and the EU.  Instead, we will be entirely free to set our own rules to limit and complicate trade with the EU by putting it on the same footing as trade with non-EU countries.  It may look like bureaucracy and regulation, but it’s British bureaucracy and regulation.  That’s exactly what people voted for, isn’t it?

Pluses and minuses abound

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Prior to the 2016 EU referendum, the messages from the Brexiteers weren’t exactly consistent, but there were plenty of them willing to state that 'nobody' was talking about leaving the single market and that Brexit was simply about opting out of the political institutions and the ‘ever closer union’ of states.  Remaining in the single market would make a comprehensive trade deal the ‘easiest deal in history’ said one, and that could have been true just as long as the UK accepted the associated rules and standards.

Having won a majority on the basis of a series of mixed messages, it suddenly became obvious to them that such a scenario, often called Norway or even Norway⁺, was not a ‘real’ Brexit at all, since it involved continued compliance with all the rules to which the UK had previously agreed (and even, in many cases, initiated).  In the interests of ensuring an ever-purer version of Brexit, talk moved on to other scenarios, such as Canada⁺⁺⁺, or, in the worst case, no deal at all.  The latest iteration is that the best we can expect from the current government is Canada (with no pluses) or the alternative of Australia (which is the new name for ‘no deal’ since Australia has no trade agreement with the EU, but it sounds a great deal more voter-friendly than no deal).  I find myself wondering how long it will be before some Brexiteers start to propose North Korea^---, under which there would be no trade at all with the EU, sanctions on anyone who attempts to trade, and warships in the sea between the UK and the EU to enforce the trade ban.  And I understand that current trading arrangements with Mars allow the UK to set all the rules with no Martian input at all.  I just hope I’m not putting ideas in their heads.

Yesterday, Michael Gove went as far as to say that we don’t need any sort of agreement with the EU.  Strictly speaking, he’s entirely correct – we can trade with the EU with no agreement at all in place as long as we accept tariffs, quotas, rigid border checks, and a huge reduction in trade volume.  The PM himself said that there was no need for the UK to follow EU rules to get a deal, any more than he would expect the EU to follow UK rules.  Not for the first time, it underlines the English nationalists’ absurd belief that the UK and EU somehow enter the talks as equals, and ignores the fact that, on Day 1, the UK and EU will be following a common set of rules anyway – the question is about what happens when one or other decides to change those rules.

All trade agreements involve a degree of compromise around standards and regulations – even the basic WTO rules include provisions against state-subsidised dumping.  And the closer the alignment in regulation, the easier it is to reach agreement on tariffs and quotas for trade.  Or to put it another way, the purer the Brexit, the more barriers to trade with the EU.  What would help to ensure minimum barriers to trade would be some sort of framework for agreeing joint rules and a system for enforcing them.  I wonder why no-one’s ever thought of that before.  Oh, wait...

The basic problem remains that the nationalists driving Brexit are stuck in a mindset which believes that the UK has a right to be treated as an exception and the rest of the world will simply bow down before us.  And the worst part of it is that those who are cheering them on most enthusiastically are the ones most likely to pay the price in the end.

Knee-jerk reaction, not strategy

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The tone with which the UK Government seeks to deny the right to hold a further referendum on Scottish independence is becoming increasingly strident; the rhetoric suggests that the current government will never allow one to be held.  Telling the people of Scotland that their votes count for nothing, and that it doesn’t matter how many times they vote for a party committed to holding such a referendum, their votes will simply be ignored anyway doesn’t immediately strike me as the best way of countering the demand and convincing Scots that they are valued partners.  Reminding them regularly that sovereignty lies with the Queen-in-Parliament rather than with the people looks almost like a deliberate attempt to push ever greater numbers into the independence camp. 

There was even a subliminal message in the fact that it was the Foreign Secretary who took the lead on the issue yesterday, although the implicit suggestion that Scotland is now part of the Foreign Office’s brief was, I am sure, entirely unintentional.  I suspect that it hadn’t even occurred to them.  But it did give him an opportunity to add some new reasons for refusing to allow a referendum, in that it might, apparently, encourage similar trends in Italy, France and Spain.  Ah yes, this is the new ‘independent’ British foreign policy at work, now that we don’t need to worry about those Europeans.  At the heart of their stated reasons for refusal, however, remains the way in which they have taken the expression of a personal opinion by Alex Salmond (who thought that the 2014 referendum would be a ‘once-in-a-generation’ opportunity), and turned into a pledge hugely more important and solemn than any suggestions about dying in ditches.

It is the application of double standards on a grand scale: firm pledges by Boris Johnson were just electioneering rhetoric which can be ignored, whilst mere expressions of opinion by the then-leader of the SNP are inviolable commitments; and winning 56% of the seats in the UK on 44% of the vote gives the UK Government an absolute mandate to do whatever it likes, but winning 81% of the seats in Scotland on 45% of the vote gives the SNP no mandate for anything at all except to shut up and do as they are told.  The first is just logically and morally bankrupt, but the second is, of course, constitutionally and legally true.  It is in the nature of devolution that power remains at the centre unless and until the centre decides to share it – and even that sharing can subsequently be revoked at any time.  Power devolved is always and inevitably power retained.

Theoretically, the position in Scotland and Catalonia is very different; in Catalonia, independence is constitutionally illegal, whereas in Scotland (and Wales) there is a legal path to achieving it.  In practice, however, the UK’s constitution leaves the right to choose more theoretical than actual if the English Government (which is what we effectively have) decides to block it.  Many in Scotland have urged the government there to pass legislation to hold a ‘consultative’ referendum on the issue.  Whether that would be legal or not is currently unknown, but we can be certain that it would end up with the Supreme Court having to decide, and even if the courts decided that it was legal, Westminster could easily and quickly change the law to make it illegal before it was actually held.  That leaves the First Minister and her party between a rock and a hard place – undoubtedly the best way to gain recognition for Scottish independence is though a legally organised referendum where opinions are freely expressed through the ballot box.  But such a referendum is entirely in the gift of the English PM, regardless of how many times the Scots vote for a party or parties committed to holding such a vote.

Johnson and his party seem to be pinning their hopes on next year’s Scottish elections.  If they can only spend enough money on propaganda, bypass or weaken the Scottish parliament and implement their own policies directly, and then prevent the SNP from winning a majority next year, perhaps the issue can be made to go away.  It’s not an impossible scenario, but it strikes me as more likely that undermining Scottish institutions will strengthen rather than weaken the support for independence.  And the images of the elected First Minister being repeatedly prevented from holding a referendum for which the Scottish electorate has now voted several times also seems to me to be more likely to strengthen than weaken support. I’m reasonably sure that isn’t Johnson’s intention, but I doubt that he’s thought it through.  He doesn’t seem to do ‘strategy’ – just knee-jerk reaction.