Vice and Taxation with Christopher Snowdon

It stands to reason that if the purpose of a tax is to help someone – by reengineering their choices, as it is in this case – then the tax should have an effect that is essentially benign. After all what would be the purpose of driving a family to the point of starvation in order to discourage the expensive and environmentally unfriendly practice of running a car, or smoking and drinking? Notwithstanding the idea that such a policy is illiberal, and undermines personal autonomy, as a way of helping people it makes no sense on its face.

That Sin Tax is, by now, certainly high enough to create that sort of problem is something of a surprise to me. I asked Christopher Snowdon to tell the audience how serious it had become:

He explained that, in real terms, the British state spends more than 6 times what it did after the second world war. There is no way for it to find that money by taxing the rich or even by taxing just the people who have a job. It has to do it in very sneaky ways using indirect taxes, and the burden of indirect taxes is on beer, cider and wine, on cigarettes, fuel duty and also on VAT which has crept all the way up to 20%. This has been extremely regressive, and oppressive

In 1977, the poorest 20% of the population were spending 22% of their income on Indirect Taxes, which has now risen to 30% of their income. But for the rich, it was 20% and is now 15%. So it has become increasingly regressive, although everyone is now paying more in absolute terms than they were before. During good times, it’s relatively easy to justify indirect taxes on the basis of saving the environment and good public health, but when the economy goes backwards the problem is far more obvious.

Sin taxes and Indirect taxes are a central part of the causes of the cost of living crisis now. If you are in the bottom 20% of the income bracket and you drive a car a moderate amount, and if you’ve drunk within the Government’s extremely modest guidelines, and if you smoke an average amount, you will be spending 37% of your disposable income on Indirect Taxes, not the products but just on indirect taxes – VAT, alcohol duty, fuel duty, etc.

Christopher suggested that fuel, alcohol and tobacco duties should be halved, VAT should return to 15%. VAT and Fuel add to the cost of everything so if we want to solve the crisis, now is a good time to reduce these taxes.

Ian Dunt differs from much of the left on these issues, and unlike his over-study he is uncomfortable with the level of taxation on so-called vices. Ian argued that sin taxes have proved to be a very poisonous cultural phenomenon. Firstly, when the budget comes around each year it is expected that a rise in sin tax is included. That impacts the way budgets are put together as we then expected a rise in these taxes, and they are not scrutinised.

The second point is more concerning, the way we’ve adopted a moralistic attitude towards people – the way we’ve started to look at health and life, not as something that should be had intensely and possibly for a shorter time, but something that should be assessed by how long it goes on for, regardless of the quality of the life itself. (Yaron looks extremely surprised by this comment), and this is an extremely authoritarian and toxic approach to public policy.

If you look at smokers, the truth is that smokers pay for themselves in the NHS. They do this by virtue of the fact that they often die (around 50% anyway) before the point in their life when they start costing the state money. Smoking is not something that kills you when you are 30. It tends to kill you (if at all) when you near 60. So all your working life is spent contributing to the state, and then you kill yourself when you are about to take any money from the state. Ian gets a laugh as the audience processes this gruesome idea. Ian does expose his collectivist streak when he suggests this is “good”, and accepts that it is in fact primarily good for the Treasury. According to Ian, we don’t just need to fight the taxes but the attitude and the culture that has turned authoritarian. In terms of fighting the cost of living, he does not accept that this is the best place to start.

Simon puts it to Yaron that alcohol is bad for you and surely a rationally self-interested person should not be engaging in it and since Yaron is committed to rational self-interest perhaps Yaron favours Sin Tax? In fact, says Yaron the state, your neighbour, and so-called society should not be telling me how to live my life. He agrees that it is stupid to smoke, for example, and it is self-destructive, but it is not automatically any of Yaron’s business. So Yaron asks why are we becoming more authoritarian, why do I we care about other people consuming bad food, etc? The reason he sees at work is that as healthcare is becomes more socialized, and if I am health and you are unhealthy, then I am subsidizing your unhealthy behaviour. The only way to step back from this authoritarian view of health is to step away from collective action in health and make people suffer the consequences of their own actions.

In a free market, he argues this would be automatic as – at a minimum – your insurance premium would go up, but then the collective is on then hook to pay for bad health then we start caring excessively and we become our neighbours watchmen.

Ian Dunt challenges Yaron on this because it does not correspond to the trend (or at least to other data). Typically America is where the fiercest anti smoking campaigns are happening, and this has been happening for the last 20 years but America is a free-market insurance based system. In a fascinating exchange Yaron corrects Ian claiming that even before Obamacare 51% of health spending was spent by the government largely because over-65s have a very high level of care provided so America has had socialised medicine since the late 1960s. Yaron agrees there is indeed a huge movement to regulate or tax fat and sugar, and soon the government might go as far as rewarding you if you exercise. Ian challenges Yaron on the point that people in America don’t consider that that is the system that they live in, instead typical-Americans think that they live in an insurance based system and so that doesn’t explain how that frenzied moral puritanism took over. Yaron, who watches the American elections for clues as to what ideas are dominant, describes how Republicans have campaigned to remove the socialised medicine that exists now and to protect free market healthcare but they always promise not to touch MediCare. As such there are actually conflicting opinions that are both popular and Yaron believes one of those conflicting opinions causes the puritan sentiment.

Christopher seems to settle matters by agreeing that the main argument people use to defend sin taxes is the cost to the NHS, but he believes this opinion is not sincerely held. The real underlying driver that they don’t approve of it and seek excuses to ban it. Kristian concurs, adding that 100 years ago people would say alcohol or smoking is bad because it’s immoral. Now nobody would say that because that would imply they are judgemental, so as a result they come up with all these rationalizations. In passing, Christopher remarks it is probably a good thing that blatant moralising is now frowned upon and that real puritans have been forced to hide it in order to make progress.

Before we break, Christopher Snowdon suggests that it all might be a lot simpler that this. The state is looting. Since the sinner, especially the smoker, is already the subject of opprobrium and is in a minority, it is a simple task to extract tax revenue from them because the majority will support it, and so punitive 37% rates of double taxation are imposed and the state gets away with it.

Duncan Stott on Housing and planning

I put it to Duncan that the incredible cost of housing is down to the planning system and we’re unlikely to get any disagreement on that. Duncan agrees and uses a fantastic analogy with the car market to demonstrate just how overplanned and overcontrolled the system is and how this leads to shortages and spiralling prices. The audience cannot help but laugh, but of course this is real and has serious consequences for the housing market and the “countless” people that have been “Priced Out” of the house market.

Priced Out is the name of the campaign Duncan works on, one that favours house building programmes as the means to achieve a zero house price inflation target, and caps on the amount of a mortgage relative to income, both policies that would have proved controversial had they been discussed.

Duncan moves on to talk about the Green Belt claiming that the Green Belt (an area of restricted development around London and other towns) represents some of the best land to build houses on but this is not permitted. He says there is little hope of these restrictions being lifted.

Turning to mortgages Duncan did not mention his plan to cap lending but did argue that plans to help people afford homes by subsidising them would only raise prices still further. Yaron Brook volunteers a comparison with US institutions “Freddie Mac and Fannie Mae” which ran subsidy programmes in the US and which collapsed and (as I recall it, though it is rarely mentioned) precipitated the collapse of the entire US banking industry and lead to the global Credit Crunch, or which “contributed” to it according to Duncan.
Feeling a bit more combative than to earlier segments I turn to Ian Dunt and ask him about Ed Miliband’s plan to simply overrule all of the market distortions and malincentives already discussed by simply setting the price of rents. I ask Ian whether he believed this widely supported.

In fact, Ian tells us, the Labour Party would prefer something more radical, and more redistributive such as changing Council Tax bands. He doesn’t say whether this means penalising the owners of larger homes (one assumes it would, in order to be redistributive) nor what the effect would be on house prices for first time buyers.  According to Ian, the main issue is a lack of supply and it is well understood internally in the labour party and across the political spectrum.
Ian explains one barrier to progress is that there are no tory party policies that are not targeted specifically at the election. He attributes this to the appointment of the chancellor George Osborne as the election co-ordinator, it is this, he believes, that motivated the Chancellor to put “the entire economy of the country at risk so that people in the South East can find it a little easier to buy houses” – referring to the Help To Buy scheme.

Ian regrets a political culture which is which has stifled the communication of Labour Party policy saying “no interesting ideas have come out of the party”. In fact, in their 2 year policy review, ideas were stamped on very hard to make sure that nothing could be used against them in the media.
I ask Kristian why, if there is broad agreement within parties the problem cannot be solved immediately. The answer: full time NIMBYs. There is a culture of complaining about housing development in your own back yard, so to speak, and the people involved often do nothing else with the rest of their time. We all seem to have an idea of what needs to be done but no one does anything about it because there are these groups who purely work against any housing development. In fact it’s like an industry. Kristian talks about how they egg each other on on twitter, encouraging each other to sign petitions, contact planning officials, and write articles with the objective to stop housing development.

Duncan Stott agrees with the above and mentions the presence of these groups in places like Oxford. He says it is understandable as one would imagine that when you have already put the majority of your savings into a house, you would do everything you can to ensure the prices did not drop in value.

According to Yaron, the fundamental issue is the disregard for property rights – a term which seems to cause Ian Dunt some amusement. Yaron explains that once the government controls how individuals use their property, then various entities come into the scene and influence how things are run. You as the owner have very little say over how your property is used. The solution is having a property rights regime, so only the owners of the property have complete control over how that property is used and / or disposed.

I challenge Yaron to the effect that given complete freedom some property owners might build ugly homes, but Yaron believes the fact that people besides the owners want houses to look or be managed a certain way is not a reason to give give them that control. “You do not have a right to a view” of the green-belt or smart homes or anything else and peoples’ “wishes and wants” is not where the proper standard of rights or the standard of truth are derived from.

Kristian talks about a potential market solutions to the problem of preserving views. He recalls that before the Town and Country Planning Act individuals or groups bough restrictive covenants or development rights. This did not involving physically buying the plot of land or property but gives an “exclusionary right”. Such a system would allow neighbours to ban all or certain types of development – at an appropriate price. Such a solution would mean that an entity like the CPRE would have to buy these development rights. Instead of signing petitions then, they would have to collect money from their members in order to purchase what they wanted. Kristian was hinting that this would neatly and fairly disincentivise NIMBYism.

Yaron makes a more general point that all of the problems discussed so far are caused by markets not being allowed to function, and that when they do they can be incredibly innovative at finding solutions.

While wrapping up Duncan makes the point that anarcho-capitalist solutions are a long way off, but in the meantime he would like help ensuring that councils are as ambitious as possible with targets. He says that Councillors are sensitive to the letters they receive so the next time you witness NIMBYism in action, send a snotty letter.

Chris Mounsey on Energy costs and climate policy

Chris Mounsey joined us for this section to talk about Energy prices. Chris’ superficially contentious central point – which none of the panelists actually disputed – was that the reason energy prices are high is becuase it is Government policy to increase them. That in order to protect the climate government policy has been to reduce the demand for energy by making it more expensive. This has happened through the Cap and Trade / Emmissions Trading scheme, through Green Energy mandates and other interventions. Chris observed that becuase energy costs are built into every economic transaction, increasing energy costs in this way silently pushes up costs throughout the economy, not just prices on energy bills. This narrative differed hugely from the oft repeated claim that Energy companies are extracting huge profits from consumer bills.

Kristian Niemietz’ research made two appearances. From the chair, I made the point that the increase in food bank use, seen as a moral and market failure by many (and a victory of both by me, if you want my opinion) is not just down to the increasing food prices we pay, but is caused by all of the various drains on our income, and energy is one of the major ones.

On his own behalf Kristian asked why it is that total carbon emmissions are capped and traded and  – at the same time – the energy market is micro-managed with certain industries and types of power generation protected or discouraged. Kristian’s view was that a cap and trade was enough and, that once the licences to emit were moving through the economy, the market would determine the best way to address the cap. Individual managers made decisions about what emission producing activities to cut and which to licence.

I also asked Chris whether the process of arriving at the selected mix of top down caps and micromanagement was fair, accurate and honest. He said that while it might be contentious, he suspects the answer is no. Chris gave a quick review of the controversy surrounding the University of East Anglia’s work on climate modelling. Some hacked data, code and emails had been released to the public and the emails had caused quite a stir (the “Hide the Decline” controversy) which ended in a select committee inquiry. However, for Chris the “smoking gun” was not the “Hide the Decline” email (which hinted that climate thoeries had been proved wrong) but the code and programmer’s commentary on the code which revealed a number of problems:

  • Data used inaccurately, reversing it’s meaning
  • A process that could not be reproduced
  • No process for handling invalid inputs

So alongside controversies about where this data came from in the first place Chris was doubtful (to put it mildly) as to whether the process was either honest or accurate.

By now the 2008 Climate Change Act had been mentioned a couple of times, and Chris had made the point that this hugely expensive (£80-140 billion) Act had been passed on Ed Miliband’s watch. I put it to Ian, therefore, that the problem was caused by “his lot” the social democratic progressives and Green enthusiasts in Labour, the Liberal Democrats and the Green Party. Ian disagreed on three counts:

  • That environmental policy was the result of a “perfect storm” of tory and left-wing ideology which prioritises the protection of the country-side and the eco-system.
  • That in fact not much climate change legislation had been passed recently – Cameron has “cut the green crap” during the crisis.
  • That it was not possible to reduce the cost by much anyway because extracting energy from the ground was inherently very expensive.

It was Ian’s view that the other panelists were on the wrong track and this was not a good place to start working on reducing the cost of living.

Picking up on the first point I put it to Yaron that there was an inherent contradiction at work when every political ideology stands in favour of policies that make every value – regardless of what it is – much more difficult to obtain (by driving up the cost of every economic transaction). Yaron described this as naive (professionaly naive, I assure you dear reader) and said that humans regularly “commit suicide” – as individuals and as collectives. The environmentalist movement is an example of this happening to the West, but at the moment enough common sense is prevailing to avoid unmitigated disaster. Yaron’s preferred course is to allow fracking, and oil extraction investments to be made freely because the benefit of having carbon based energy vastly outweigh the damage from climate change, even assuming it happens just as environmentalists sell it (incidentally, though it may sound incendiary the expert has – prior to the event – already highlighted the fact that his is an officially recognised option, one which culture seems biased against).

Lee Rotherham on the Common Agricultural Policy, Food, and Trade

Lee Rotherham says that the Common Agricultural Policy is a major disaster. And he blames the French, their working population was dropping relative to other countries and they desired a subsidy to maintain the French countyside.

The costing he did demonstrated that the policy costs each family £398 anually (3.1% of a living wage) and an additional cost of £2.81 per week (1% of a living wage) stems from the Common Fisheries Policy. Dr Rotherham pointed out that other EU policies add additional costs on top of those two.

The mechanisms at work are the direct draw by the EU on UK tax payers and the indirect effect of higher (not lower, higher) prices for food products.

Ian Dunt complimented the French lobbying that lead to the CAP but pointed out that the upward trend in food prices is a more recent phenomenon. Combined with the fact that other countries have similar policies he contended that this policy does not fully explain the problems since 2008.

Kristian agreed after a fashion, and added that there was a historic downward trend in food prices. However although the problems of the crisis post-date it, he argued it is no longer reasonable to endulge French farmers. Times are tough and we would prefer food prices were lower than they are now. Kristian refered to global market forces to explain the more recent rises.

Yaron agreed that it is not proper to endulge French or any other farmers. This is form of central planning and Yaron believes that plannning creates unwelcome distortions in every area that it is attempted. Recalling his knowledge of US food markets he mentioned subsidies to leave land uncultivated (not unheard of here) and bio-fuels subsidies that raise the price of corn globally. He went on to repeat his observation that there are so many state interventions in various markets that it is difficult to clearly observe the effects, but he said that if you look at the areas where the state has kept largely out of the way you see prices come down and quality go up.

Yaron throws in an interesting extra point here, not specifically related to food but related to the price of every good, and that is the effect of regulating banks. Banks, he says, are the engine of the economy (I assume he refers to their heterarchical, and therefore free, role in allocating capital to where it is most productive – something Yaron has spoken about before). This drop in productivity is a cost that is passed on to all of us.

Kristian picks up on a passing remark Yaron made about the lack of a parrallel universe to demonstrate what he is arguing. Kristian refers to the recent deregualtion of agriculture in Australia and New Zealand as an example of market mechanisms restoring the productivity of the economy in a previously regulated sector. The panel appreciated that this was largely reponsible for the flood of good wine from those countries.

Returning to Dr Rotherham, I ask him what can be done to solve the problems that have been talked about. Lee was skeptical that this would be possible without a fundamental change to the nature of the EU treaties. Returning to the “Hobbits” he mentions that farmers in New Zealand are now so persuaded that the market-liberal approach is the right one that they are advocating in favour of the policy, having seen only small numbers of farms getting into difficulty at the end of their subsidy system.

Lee concluding by describing some of the flaws of the CAP, with subsidies flowing to golf clubs and airports and inner London councils rather than to farmers. He said that despite those flaws, if you kept the same system but ran it nationally you would still be £5 billion better off – that’s becuase the CAP is costing UK tax payers money and is sending that money abroad. For him this highlights the ethics of the situation which is that there are much better cases of marginal businesses offering social value in the UK and we ought to focus, if we are to have a CAP, on helping them.

That would certainly be a step in the right direction.