Tag: finance

Young People in Britain

You know, I find this argument so utterly tedious. Economics can be boiled down to old people verses young people. Polarising policy debates and setting one generation against another.

The UK Reform Party are pushing a commitment to the triple lock on state pensions. Not because they believe British pensioners deserve a good deal. No, it’s populist bandwagon to lock in the vote of one generation. Knowing that there’s a higher likelihood of older people voting for them than younger people [According to opinion polls].

It’s true that there’s a madness that has overtaken the British mentality. However, it’s not new. The value of land and property far exceeds its utility. The marketplace has been one of ever forcing a finite commodity to a higher price. The owners and inheritors of land and property have gained whilst its has become harder for younger people to get a foothold.

There have been different times. I remember my father talking about the inter-war period. It was of his father’s time. Practically farmland could not be given away. Estates were broken up. Labour was short. Taboos were challenged. The dynamic of marketplace for changed.

However, in the post-war period, the last 70-years, the cost of a modest dwelling, as a ratio of average earnings, has rocketed. Ownership of land and property has become concentrated.  

British humour addressed the situation in a famous TV sitcom. As said by the character Del boy over breakfast – this time next year, we’ll be millionaires. Only Fools and Horses captured the aspiration. Only that Del boy though it was second-hand cars that would lead to riches. Now, Office for National Statistics (ONS) data shows that roughly 27% of people aged over 65, in Britain, live in households with a total wealth of exceeding one million.

So, what do we conclude? That this pot of wealth has been taken from young people in a transfer from one generation to another. No, that would be playing a sectarian political card worthy of an unprincipled populist. A foolish strategy too.

Deep within British culture there’s an attachment to assets. This particularly goes for commodities that are restricted in supply. Remember Del boy got his wish in the end. Antiques saving the day. Now, amongst most popular TV shows is the Antiques roadshow.

Maybe it’s a latent mistrust of bankers. The shady image of people who hoard money for the sake of hoarding money. In Britain, holding land and property are seen to be a stable assurance of long-term security. I’ve heard it said about land many times – they don’t make it anymore.

The tragic element here is not that young people finding it harder to become just like their parents. To harbour the same attitudes towards land and property. It’s more a question of society undervaluing their contribution to prosperity. Now, and in the future.

It’s pure idiocy to set one generation against another. It’s a mean political trick. What does need to change are the rungs on the ladder, especially at the early stages of life’s journey.

For example, the law in respect of student loans is dire, unjust and unsustainable. Making young people pay a higher marginal rate of tax, when early in their working lives is abysmal. The government penny pinching of education funding and thinning out of courses is short-sighted in the extreme. Apprenticeships must be substantial not hollowed out routes to poor rewards. The world of work [and leisure] is changing more rapidly than it ever has in the past. It’s imperative that society equips young people with the tools needed to navigate a complex and dynamic world. It’s not generous to make a priority of all aspects of education and training. It’s absolutely essential.  

Disruption and the Gods

Always the most impressive artifacts to come out of archaeological digs are those made of gold. It’s an element that comes down through the millennium unhindered by the turbulence of the daily News. It’s been a repository of wealth for as long as we have walked the Earth. That might be a brave statement. Let’s say people have admired and desired gold for that long.

A strange hold over people. In the last couple of years, the chart of the gold price has resembled that of rocket taking off. If you thought house prices have shot up a lot in the last decade have a quick look at the gold price. From 1978 to 2008 the curve looks relatively flat. Once past that date renowned for the financial crisis then the value of gold goes mostly one way.

Is this good or bad? One might even say – who cares. Well, geopolitics, inflation and monetary policy all play their part. I’m not talking about a precise indicator of these factors, but the linkage is clear. Many people see gold as a hedge against the declining value of other assets.

Geopolitics is a nebulous term. It can mean a million and one things. I guess on the one side of the coin is stability and on the other is instability. To relate the rapid rise of the value of gold to anything it may as well be the growth in the influence of disruptive forces.

Disruption has become incredibly fashionable in the last few years.

It’s like a newfound management trend. Although it’s not. Once upon a time, everyone was supposed to be rational, to create a harmonious world in which we could prosper. Management gurus who said as much thrived. Classical theories flourished[1].

However, they did warn us that institutions and organisations would change dramatically, in time. And that’s the component that disruptors have latched on to. Impatient to change in a softly-softly manner, the current mode is more along the lines of – to hell with it, do it now, come hell or high water. Don’t bother me with any of that risk assessment stuff.

I think, the downside of this pursuit of disruption is instability, insecurity and a latent fragility. Yes, it’s hidden. When a powerful disrupter succeeds the surface reaction is a round of applause. Under the surface the lack of long-term thinking invites an avalanche of negative repercussions. If the current gold price is a crude indicator, then there are potentially a lot of nasties just over the horizon.

An example to consider is the radical move to privatise the water industry in the UK. You bet that was disruptive. A politically fashionable move at the time. Surely a commercial mindset would serve the consumer, improve efficiency and increase investment. Ho Ho.

In the management of change, disruption has its place. If it’s the only card that a leader holds, and couple that with impatience, and outcomes are not going to be good. If they are good then it’s sheer luck.

[1] https://www.waterstones.com/book/gods-of-management/charles-b-handy/9781788165624

Rethinking Taxation Strategies

The whole subject of land value tax is not one to get into if you are looking for something to read while waiting for a bus or looking for a light-hearted story. Yes, that could be said about any discussion about taxation. Probably one of the reasons why so few people engage in conversations about the nitty gritty of this subject.

LVT (Land Value Tax) is not new. This idea has been on the block for decades. One of the underlying reasons for its popularity is that instead of taxing things society likes, like business, commerce and employment, this tax scheme aims at an asset value. In a country where land is a valuable commodity, at least in populated areas, here’s a tax base that this solid.

The part LVT could play in UK tax reform is a major one. That’s where this subject gets twisty. How to get from where we are now to a new scheme that is understandable, straightforward, and acknowledged as fair. That is, at least in comparison with the existing taxation schemes.

One provision needed is to distinguish between public land to private land. There’s no point in raising revenue to fund local government and then getting that entity to use those funds pay the same tax. If private organisations lease public land, then there would need to be a provision too.

Then there’s the difficult issue of revaluations of private land such that the result is fair and genuinely reflects “value”. A city car park and a golf course are very different in that respect. Fine there is a national land registry, although there are still packets of land unregistered.

Quite a bureaucratic set-up establishing a Valuation Agency. Even if most of the necessary information is already held by lots of existing organisations. Every set of accounts is going to have value for assets held or owned. The range of accuracy of these values can be wide.

I’m not making a case against LVT. What I am saying is that tax reform is not easy. Those proposing it must have a long-term perspective. Must be committed to getting away from making ever more complicated fragmentary changes to legacy schemes. Adding ever more complexity to an unreadable tax code.  

Tax reform is not easy. Facing up to those who gain an advantage from the status-quo is often one of the greatest pressures that a government faces. Making life simpler and less burdensome for small businesses, shops, pubs and restaurants is a great ambition. Facing up to the owners of golf courses and sprawling country estates, now that’s not so easy.

Now, when I wonder what the New Year will bring it doesn’t seem that the current government is not brave enough to make radical changes. Their approach, over the last year, has been one of cautious incremental tinkering. If they have core principle, no one is quite sure what they are.