Vir Cantium

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Monthly Archives: March 2010

Miss! Miss! That Boy Won’t Let Me Play With His Toys!

Suppose you are a supermarket and you want to offer to your customers goods which only a competitor currently sells. You approach them for a deal to buy from them and re-sell in your stores. Why would a competitor allow that? The ‘why’ is irrelevant – it may be that they want to expand their own brand ‘reach’ or simply to increase turnover by selling to a section of the market that wouldn’t otherwise buy their brand or products.

So they strike a deal with your supermarket chain. Clearly, they are still going to look for a mark-up, but they’re entitled to make a profit, so that’s fair enough. If you don’t like the price they are charging then you can always go elsewhere, or accept that you won’t be offering that particular range of products.

Of course, what might happen is that the competitor will laugh at your request and tell you to take a hike. That is their right.

What happens, though, if you aren’t a supermarket but a television broadcaster? In the happy regulated world of broadcasting, there is now a teacher to going crying to when you don’t get your way – they’re called OFCOM. And if the big boy who won’t let you share his toy is not popular – maybe the teachers just don’t like his wealthy parents, say – they will find in your favour and order the other lad to share his toys. In other words, force Sky to share Sky Sports 1 and 2 with other broadcasters like Virgin and BT at wholesale prices to be set by the regulator.

I’m trying to think of a parallel where such discriminatory intervention by the state would actually be justifiable, but am struggling. Sky don’t have a monopoly on sports coverage (some leagues of some sports, maybe, but that’s hardly harmful in any way). They are not the sole supplier of some essential means of survival (ignoring jokes about football “not being a matter of life or death but something far more important than that”).

If Virgin, BT et al don’t like the prices they are being charged – and presumably they feel unable to pass those charges on to customers or advertisers – then either they should be bidding for sporting TV rights themselves, or they can tell Sky to get stuffed. This should have nothing to do with a state regulator.

So what happens next – assuming that Sky doesn’t succeed in their perfectly justifiable legal challenge? Sky reduces their margins, and quite possibly their profits and customer base. That lost profit will have to be made up somehow. Perhaps through lower prices for TV rights? A good thing, some will say; that’s as may be, but something is worth whatever someone is willing to pay for it. In Sky’s case, that someone is the combination of advertisers and subscribers: ultimately, either directly or via proxy, the sports-watching public – the same consumers whose interests OFCOM would no doubt be claiming “deliver benefits” to. I’ll bet there’ll be plenty of football fans complaining when season ticket prices increase to make up for the depressed market in broadcasting rights.

Things may turn out better – Sky may make more money with the wholesale agreements, but if that was the case, wouldn’t they be doing it already? Again, though, the question stands: what the blinking flip has it to do with a government regulator?

And unlike in the real world, Sky won’t be allowed to stop feeding the moaning minnies at Virgin et al. So, having invested in a popular service, Sky are now finding that because those without have shouted loudly enough, the state has come along and forcibly redistributed the fruits of that investment – sorry, that should be “delivered consumer benefits”. How very … socialist.

Now suppose that Sky was charging people for their channels even if they never looked at them, and then threaten then with criminal prosecution if they refused. You’d think they would be throwing the book at them for such extortionate behaviour, no? So how do the BBC get away with it?


Shock: Lib Dem Apologises for Stretching Truth

It’s still three days until April 1st, so it looks like this one is genuine:

Vince Cable apologises for Treasury boast

Vince Cable, the Liberal Democrat Treasury spokesman, has been forced into an embarrassing apology after exaggerating his own economic importance.

Mr Cable earlier this month claimed to have been consulted by the Treasury about his party’s policies and suggested the talks were a prelude to his becoming Chancellor in the event of a hung parliament.

Mr Cable’s presentation of the event angered Treasury officials, and the Lib Dem has now written to Sir Nicholas to apologise.

Darling’s Stealth Council Tax Bombshell

Buried away in Wednesday’s budget speech was the latest waffle about efficiency savings – part of the government’s attempts well thought out strategy to shave a micron or two from cut the deficit. £11bn was the figure.

Part of those plans was £2.3bn from the Department of Communities and Local Government (DCLG).

Part of DCLG’s figures is £2.1bn from “local government efficiencies”. Now where have we heard that terminology before? Oh yes, it’s the fudge that is being used to pay for a major chunk of the costs of “free” home care for the elderly. In that case, it would be achieved by imposing extra duties and costs on councils without fully funding those responsibilities. In the case of the £2.1bn announced on Wednesday, it will simply be a case of reducing the amount of cash that central government gives to councils.

As anyone familiar with these things knows well, when the government says something will be paid out of “local government efficiencies” it means only one thing: it’s going on your Council Tax. If a council could find the required level of efficiencies, they would probably rather use it themselves, either to spend on other services or reduce/mitigate the level of Council Tax.

So, put bluntly, £2.1bn from “local government efficiencies” means £2.1bn on your Council tax … on top of the £250m (at least) to pay for “free” home care (assuming the bill survives and resurfaces in the next parliament).

Let’s grab ourselves an envelope, turn it over, and work out what this could mean:

Read more of this post

What Is The Top Rate Of Tax?

I know it can’t be easy being a financial journalist in the aftermath of budget day, with so much to take in and summarise for the laity. It must be even worse for the political journos, who have to give almost instantaneous reaction on subjects which are probably not their first love: maths and finance.

A case in point was the changes to the VAT rate. So many reported the change as being 2.5%. Well, yes, in a way it was: the difference between 17.5% and 15% is 0.025 = 2.5%. However, 2.5% on 15% is actually an increase of 2.5/15 = 16.67% in the amount of VAT paid.

As if that tiresomely pedantic arithmetical issue wasn’t enough, how about when you start talking about the tax system itself?

Try this easy question: what is the top marginal rate of tax in this country?

We’re talking personal tax rates, for, say, a “typical” person of working age.

50% – the new “top rate” coming into effect in a couple of weeks?

Well, let’s have a look at the rates applicable to a typical full-time employee with one child (for 2010/11):

Income up to Income Tax National Insurance Personal Allowance reduction* Tax Credit withdrawal* Total
£ 5,720 0% 0% 0%
£ 6,420 0% 11% 11%
£ 6,475 0% 11% 39% 50%
£ 23,753 20% 11% 39% 70%
£ 43,888 20% 11% 0% 31%
£ 50,000 40% 1% 0% 41%
£ 58,171 40% 1% 6.67% 47.67%
£ 100,000 40% 1% 41%
£ 112,950 40% 1% 20% 61%
£ 150,000 50% 1% 51%

Yes, the top rate of tax for high earners after April will be 61% for those on incomes between about £100,000 and £112,950. That 98% of the late Seventies doesn’t seem so far off now does it?

Now, I doubt those in that income bracket would be regarded as poor, but have a look at someone in the £6,475 – £23,753 range: they are paying 70%, not just from next month, but for quite some time to date. So there are some people on just £125 a week forking out 70% on every extra pound they earn.

I have spared you the horrors of the implications for pension contributions for those bringing in more than £130,000, the added complexity of the 10p band (yes, it’s still there for a few lucky souls), the age-related allowances and their withdrawal rate, the special rates for dividends … come on, wake up at the back! All this, together with the dark art of the tax credit calculation, does mean that the table I threw together above could have various permutations, but the essence is the same.

So, to all the journalists out there, a helpful hint: the new top rate of tax will be 70%, not 50%, and that’s for among the lowest paid. What’s more, it has been for some time now.

* Just to explain the two less familiar columns above: tax credit withdrawal rates are essentially a tax – for every extra pound you earn, you lose 39p back to HM Treasury. The personal allowance is withdrawn at the rate of £1 for every £2 extra income, taxed at 40%; so that’s 40p out of £2: 20%. Also, I have used the 2009/10 tax credit rates – what I had to hand – so the £23,753 might change slightly in 2010/11.)

(BTW, this lot does not count as professional advice. Placing any financial or tax planning decisions on a blog post, even by an accountant, would be a silly thing to do.)

UPDATE 25/3: I’ve had a chance to check and update the figures (around the 50% rate in particular) following the budget speech, and it’s even worse – the top rate of tax is still the 70% hitting low earners. Nice one, Gordon!

First Sign of Spring

Forget your robins and daffodils; Spring is definitely on its way. I know this because I saw the Kent Spitfire yesterday – presumably doing air testing – flying back home to Biggin Hill.

Lump in throat and all that.

How old am I again?

On The Conservatives’ Bank Levy

Someone less loyal to the Conservative leadership might have wept yesterday morning when they heard that the party was now supporting a bank levy regardless of whether other major economies introduced it.

They might have scratched their head and wondered why it mattered so much that some other countries – the USA most notably, for example – were now going to introduce such a measure that we had to declare that we would do it unilaterally. The justification for the change in tack seemed to immediately negate the change from multilateral to unilateral introduction of the levy.

They might have watched the Andrew Marr show this morning and sympathised with Phillip Hammond, who only weeks ago was following the more sensible line that any such tax would only be workable if everyone did it. They would have seen Hammond having to perform logical contortions to try to fit in with this weekend’s policy.

Someone so less loyal to David Cameron and George Osborne might have gulped as they realised that, on this issue at least, the current disaster of a Labour chancellor was actually demonstrating more economic literacy then his own party’s leader and shadow chancellor when he stuck to the multilateral line.

They might also have baulked at the citing of Margaret Thatcher’s legacy, and then rolled their eyes at the mention of President Obama, reflecting that just because an increasingly unpopular left-wing administration in another country seems bent on destroying the competitiveness of their financial sector, doesn’t make it OK for a future Conservative government to do so here.

Finally, that disappointed Conservative member might be reflecting that whereas a true Conservative would see an international move towards a bank levy / Tobin Tax / Robin Hood Tax as an opportunity to boost the City of London’s competitiveness by not imposing the levy, a socialist would see also see it as an opportunity – to introduce a new tax, something that is in their, not the Conservative, DNA (to borrow a Cameron phrase).

Me? Oh, I was just annoyed at the current fad of having David Cameron speaking to a backdrop of fidgeting, gurning (but carefully selected) party members which distracted from what he was saying to such an extent that I had to watch it all over again. (I had an invitation to attend that very event, but thought I would spare the nation the horror of looking at me over their elevenses). Surely Cameron could have made the speech in a traditional news conference setting, without corralling all those party members – candidates among them – who should have spent the Saturday morning campaigning?

Ban [insert party, faith or views of choice]!

Teaching unions are still demanding that BNP members be banned from the teaching profession.

Teachers will be allowed to keep their membership of the BNP and the National Front after a Government review ruled that there was no justification for banning them from joining extremist organisations.

Chris Keates, General Secretary of the NASUWT, the largest teaching union, rejected Mr Smith’s claim that it is possible for teachers to join organisations that promote racism without being racist themselves.

It seems that the unions do not think that some of their ranks can be professional enough to leave their political views at the school gates, and will discriminate against ethnic minority pupils. They also seem to think that stopping someone paying a subscription to a particular political party will erase such non-conformist views from their minds. (Yes, I think the ban on police officers joining the BNP, while it may be well intentioned, is pointless.)

So, will they next be demanding that, say, teachers holding hardline socialist views are ejected because they will discriminate against middle class kids?

No, thought not.

Remembering Lessons From History

Mark Wallace on ConHome’s CentreRight brings our attention to this story:

A group of stunned primary schoolchildren began crying when their teacher told them during a bizarre Holocaust game that they were to be taken away from their families.

The pupils, aged 11, became upset after a number of them were segregated and told they were being sent away or might end up in an orphanage.

The ordeal was meant to give the youngsters at the Lanarkshire school an insight into the horrors faced by Jewish children during World War II.

Deputy head teacher Elizabeth McGlynn segregated nine pupils and told them they were to be sent away.

According to a parent:

Mrs McGlynn told the children they would probably have to be sent away from their families and that their parents had been informed about this and knew all about it.

When one child asked if that meant they might have to go to an orphanage, they were told that might be a possibility.

One girl said her classmates began crying when Mrs McGlynn told them she had a letter from the Scottish Executive saying nine children had to be separated from their classmates.

She told the shocked youngsters those who were born in January, February and March had lower IQs than other children, ‘due to lack of sunlight in their mother’s womb’, and that they had to put yellow hats on and be sent to the library.

The mother added: ‘When I asked why on earth they thought it was appropriate to deliver a role play situation to the children in this way, Mrs Stewart informed me that they didn’t inform the children beforehand.

‘This was because they wanted the children to experience an “accurate emotional response” to this scenario in order for it to be reflected in their story writing.

Now this was in the Daily Mail, so I have one hand on the salt cellar, but I’ll assume that there is more than a little substance in the story.

11 year olds do not have to be subjected to a “holocaust experience” in order to understand and appreciate the horror and lessons from that period of history. I was in the third or fourth year (year 9 and 10 in “new money”) when we had a school trip to the Flanders battlefields and war cemeteries. We did not have to experience simulated drowning in chlorine gas or having our faces blown off to understand the impact of the First World War on its combatants and the wider population of the UK and Europe. For my part, simply standing among acres of white headstones – especially with so many missing the names of those who lay beneath – and reading Owen and Sassoon in English lessons did the job for me.

I agree with Mark Wallace that this is not a case for yet more centralised micro-management of the school curriculum or teaching methods – there’s been enough of that over the last 40 years. What is needed is greater accountability of the school to the parents. If the teacher in question thought that parents would reject the approach she took and, critically, that those parents actually had some real influence over the school, it is doubtful that she would have subjected her class to the experience that she did.

Quote of the Day

Just conceive the state of…one parish, in which there are eighteen different local boards for [crime prevention], each acting without concert with the other!

The “day” was 11th May 1829: Robert Peel was discussing the case for the proposed new Metropolitan Police Force in a letter to the Duke of Wellington.

Of course, such bureaucracy and silo thinking would be unthinkable these days … there would be a partnership board to co-ordinate everything.

N.B. I have cheated a bit and modernised the language: Peel actually wrote, perhaps more poetically, of “the management of the watch” instead of “crime prevention”.

The BBC Needs More Than The Kid Glove Treatment

Yesterday, the BBC offered to cut off its own arm finger in an effort to assuage its critics. The BBC Asian and 6 Music radio stations are to close. Some have suggested that, despite its best efforts to bring about a different result, the Beeb is expecting a Conservative government after May which will freeze the licence fee.

The Tories, for our part, are talking about making the BBC publish details of top executives’ and presenters’ pay. This is in keeping with similar policies in other parts of government and state organisations. Fair enough, as far as it goes.

As a critic of the BBC – not necessarily of its output, but the way it is funded and operates – I support the policy, but suspect it’s about as far as Jeremy Hunt, Shadow Secretary for Culture and Stuff, can really go at the moment. The Conservative party is not united on the subject of the BBC licence fee. There are those, like me, who think it is an anachronistic method of financing a corporation that the state has no business in owning. At the other end of the spectrum are those who seem to believe that, because it produces what they like to watch/listen to, everyone should be forced to pay for it – it’s for their own intellectual good.

Forcing publication of pay details is a bit like the old trick of calling for a public enquiry. It enables you to be bombastic and vocal about a policy that would otherwise split your own ranks, but without having to come off the fence until the political ramifications are clearer, hopefully after the next election.

Well, let me repeat what I would do: in 2012 the digital TV rollout will be complete. There are many channels on the digital bands that earn revenue from their subscriptions – Sky being the most obvious, but many others too. Can you see where I’m going here?

If the BBC is such fantastic value for money already, what have the Beeb got to be afraid of? If the BBC is so good, why does it need to force people to pay for it?

Just before we start getting sniffy about commercial breaks, why couldn’t the BBC’s unique selling point continue to be the lack of intrusive commercials? (Of course, they could start straight away with cutting down on commercials for the BBC, including all those programme plugs masquerading as news items.) The lucrative overseas markets and programme-related merchandising could continue and flourish alongside the adoption of product placement, freed from the resistance to the same that arises from the BBC’s publicly funded status.

Oh, and of course, privatise it. State-owned broadcasters are the toys of one party states and banana republics. Despite Labour’s best efforts I don’t think we’re quite in that league (yet), but there is a small matter of a public deficit that needs dealing with.