Category: Economics

Philip Hammond eyes £1bn budget raid on freelancers – @TheSundayTimes

The Sunday Times reports that the Chancellor is considering another attack on sovereign professionals. The concern seems to be, as before, “disguised employment” and the Sunday Times’ coverage is couched in terms of “levelling the playing field” and “significant tax advantages”.

The reality of course is different.

When running properly, individuals operating through personal services companies are each individual businesses carrying all the risks of business and not enjoying the corporate comfort blanket benefits of traditional employment. If the cost to the client company is higher than employing a traditional employee (and often the fully loaded costs are not as far apart as crude comparisons of “day rates” suggest), then the client business benefits from flexibility and agility that no commitment, on-demand services provide.

A tax raid risks damaging the supply of this important flexibility while also increasing the cost to client firms. This has already been seen in the public sector where restrictions similar to those imagined here have already been implemented. It’s a short-sighted and ill-considered move.

Does “disguised employment” actually exist? I’m sure it does. A number of recent court cases suggest that there has been a trend for some employers to seek the cost benefits of using freelance contractors whilst retaining all of the control traditionally associated with  “permanent” employment. Those cases should rightly be pursued, but not by painting the self-employed as either downtrodden, abused workers or system-abusing fat cats.

Being a sovereign professional is a choice. It has real benefits – not least in flexibility – but it comes with risks, costs and responsibilities. A suitable test of employment would investigate the extent to which those risks are real, rather than simply punishing providers of needed skills through a flexible model.

 

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Markets, fairness and wolves – @mattwridley, @worstall

Over on CapX, Tim Worstall elaborates on Matt Ridley’s recent Times column regarding free markets and fairness.

Ridley observes that free trade, contrary to common socialist rhetoric,  actually makes people behave more fairly and generously:

The more integrated into the commercial world people are, the more generous they are. As one of the authors, the economist Herb Gintis, summarises the results: “Societies that use markets extensively develop a culture of co-operation, fairness and respect for the individual.”

Worstall elaborates that, as a result, a free market of repeated interactions is self-regulating:

Buying bread is, for example, a fairly common activity. Anyone trying to cheat us will quickly find their market disappearing. We might tell on them. We might just reject their offering. But bad bread does quickly disappear.

Buying pensions on the other hand is different – we only really do it once in a lifetime. And it takes perhaps 50 years to find out we made the wrong decision. We can rely a great deal less upon that trained-to-operate-in-markets set of reflexes that multiple iterations allow.

Which is rather a long-winded way of explaining what must be regulated and why.

Worstall’s assertion that fairness is a learned response reminds me of this recently reported experiment which found that wolves and domestic dogs have a similar sense of fairness (i.e. that it pre-dates the domestication of dogs). As reported on the BBC:

Two animals of each species were placed in adjacent cages, equipped with a buzzer apparatus. When the dog or wolf pressed it with their paw, both animals got a reward on some occasions. Other times, the dog or wolf doing the task got nothing while the partner did.

The key finding was that when the partner got a high value treat, the animal doing the task refused to continue with it.

“When the inequity was greatest they stopped working,” said Jennifer Essler, from the University of Veterinary Medicine in Vienna.

“For some of them it was a really really quick and strong response. One of the wolves stopped working after the third trial of not receiving anything while his partner received something. I think he was so frustrated he even broke the apparatus.”

 

Photo by Courtney Clayton on Unsplash

 

Matt Ridley on free trade – @mattwridley

Matt Ridley’s column from the Times, now on his own site, offers a powerful, evidence-driven, argument for free trade:

The “ultimatum game” is a fiendish invention of economists to test people’s selfishness. One player is asked to share a windfall of cash with another player, but the entire windfall is cancelled if the second player rejects the offer. How much should you share? When people from the Machiguenga tribe in Peru were asked to play this game, they behaved selfishly, wanting to share little of the windfall. Not far away, the Achuar in Ecuador were much more generous, offering almost half the money to the other player — which is roughly how people in the developed world react.

What explains the difference?

The answer is, here.

 

The Magic Money Tree explained by @Worstall

All you wanted to know about QE, the circulation of money and why magic – at least as it relates to money trees – isn’t real, from Tim Worstall.

The magic money tree is permanent spending of the same invented money, it is not temporary – the effects are permanent – and it is not reversible without stinging tax rates. It is also known as the monetisation of fiscal policy, or the monetisation of spending. And it has everywhere and everywhen been a disaster from the point of view of subsequent inflation. Not inflation of a couple of percent here and there either, but of two and three digits a year sort of inflation.

There is also mention of the Hungarian pengő, which I understand to be a small and adorable penguin.

 

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Aging population and immigration curbs – Bloomberg @Business

Lessons we won’t learn?

A piece on Bloomberg about Singapore’s imminent labour crisis:

In Singapore, immigration restrictions can partly explain an expected drop in working age population growth from 2027, even as Kuijs [Louis Kuijs, Head of Asia Economics at Oxford Economics] credits foreign labor inflows for helping boost that pool over the last decade.

and…

The grim rule of thumb for the [Asia] region: A 1-percentage-point decline in labor supply growth in any of these areas would shave off a half-point to two-thirds of a percentage point in GDP growth.

Read the article, here.

 

Photo credit: Foter.com

Aspidistras and aspirations – @TheEconomist

The Economist draws bleak parallels for the independently-minded between today and the 1930s of George Orwell’s Keep The Aspidistra Flying.

“Keep the Aspidistra Flying” foreshadows the dilemma that befalls today’s millennials. With so little room for manoeuvre and such high penalties for non-compliance, their quiet conformity belies a devastating loss of freedom, a crushing of the spirit that only their great-grandparents could relate to.

Atlas and Albion – @TheEconomist

The Bagehot column in this week’s Economist contemplates an Atlas Shrugged-like future for Britain.

The combined result of Brexit and Corbyn could be the dystopia that Rand warned about: a stagnant society driven by resentment of the successful. The flight of talent will not only have a knock-on effect on the wider economy, as high earners who would have spent money in London or Leeds start moving to Paris or Frankfurt. It will also reduce the state’s revenues, since the top 1% of earners pay almost 30% of income tax and the top 10% pay nearly 60%.

 

Image source: https://commons.wikimedia.org/wiki/File:King_Alfred_Statue,_Winchester.jpg

 

 

Taxes hurt people, not just “business” – @ASI

The Adam Smith Institute’s Eamonn Butler posts a useful reminder:

But taxes, tariffs, quotas, regulations, licences, trade restrictions and all the rest do not cost business. They cost people. People like you and me, even those of us with no business interests. And they cost us far more than the £x price-sticker suggests.

It’s too easy to assume that “business” or “the rich” or just simply “they” can afford it, or even deserve it, whatever the “it” of the moment happens to be.

As Butler says,

Most businesses are small businesses, as small as one person, and most of a country’s commerce goes through these small operations. Something that costs “business” in fact costs millions of these same people, from the local farmer to the budding software developer.

Read the full post, here.

 

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Self-employed drive UK public finance surplus

The UK’s accounts had an unexpected monthly surplus in July – the first July surplus since 2002 – driven by unexpectedly large tax receipts from self-employed individuals (see The Telegraph, here).

Such news helps highlight the growing importance of self-employment and the Sovereign Professional.

Of course, because of the B2B nature of their work, many Sovereign Professionals will actually be employees of their own limited companies and related tax payments will not form part of these figures.

 

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Immigration, facts not fiction – Adam Smith Institute, @ASI

The Adam Smith Institute’s Executive Director, Sam Bowman, summarises the facts on UK immigration in this useful post.

It is a response to an article that misquotes the ASI’s position, but Bowman’s point-by-point tear down makes for a useful reference in its own right.

It troubles me that the UK is where it is because of misinformation, miss-selling and misunderstanding. Generations of politicians (on left and right) have failed to make the case for immigration, just as the right has failed to make the case for free markets.

This chart is particularly telling: the lower our net migration, the higher our national debt.

 

 

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