Monday, March 30, 2015


BLOG 160


The Budget traditionally sets out the government’s fiscal programme.  It is followed by a Finance Bill which parliament considers, amends where appropriate, and enacts.  A parliamentary Bill goes through a number of stages.

First reading: This is a formality.  The minister states the name of the Bill and the House votes to give it a first reading.

Second reading: This is party politics at its best or worst.  It rarely considers the detail of the Bill.  Instead the government side explains how brilliant is the Chancellor’s financial acumen and the opposition scoffs at it.  The House then gives the Bill its second reasons and it passes to the Committee stage.

Committee Stage:  The bill is considered by a General Committee (formerly Standing Committee).  Up until around 1960, it was considered by a Committee of the Whole House, i.e. the Speaker left his chair to be replaced by a Committee Chairman and the House pretended that it was a Committee.  Since 1960 the Committee of the Whole House has normally considered half a dozen or so clauses of the Finance Bill and the rest has been considered by a real General Committee.

Report:  The General Committee reports to the House what changes it had made to the Bill and the House is entitled to consider and make further changes.

Third reading:  This again is a formality.  The Commons says, “We’ve done our bit”; it’s now down to the House of Lords to look at the Bill afresh.

House of Lords:  The Finance Bill is what is called a “money bill”, as it raises funds for the Crown.  Since Magna Carta, only the Commons has been able to assent on behalf of the citizenry to be taxed.  All that the House of Lords can do is to debate it and recommend to the Queen that she should agree to it.

Royal Assent:  The Queen agrees to adopt the Bill and it is transformed into an Act of Parliament and becomes part of our body of law.

The Parliament website tells us that General Committees “are unique to the Commons and mainly look at proposed legislation in detail”.  Note “in detail”; I will come back to that later.  The website also tells us that “Public Bill Committees [a species of General Committee] examine each Bill line by line”.

Of course this is an election year, so one would expect the Finance Bill procedure to be a bit truncated.  There have been two ways that this has been done in the past.  Model 1 is to start the detailed scrutiny of the Bill, and when parliament shuts down for the election, enact what has been scrutinised and scrap the rest.  Model 2 is to enact the tax rates and scrap everything else.  The Provisional Collection of Taxes Act 1964, says that HMRC can collect tax based on the Budget Resolutions pending the enactment of the legislation, but only until 5 August.  If the tax rates have not been enacted by then, HMRC has to hand back all the PAYE it has collected since 6 April, which is why at least the tax rates are always enacted before 5 August.

But in the past the House of Commons has not been populated by Superheroes.  It has been populated by mere mortals whose brainpower, like mine, is limited so are not able to scrutinise pages and pages of draft legislation in a few hours.  This parliament is apparently populated by superheroes.  The Finance Bill was published last Tuesday 24 March.  It did not contain everything in the Budget but only, I assume, the bits that the Labour party indicated to the government that it was prepared to support.  Even so, it ran to 349 pages.

It had its second reading on 25 March from 12.48pm to 2.40pm.  It then was scrutinised in detail by a Committee of the Whole House from 2.40pm to 6.56pm after which it had its third reading and went to the House of Lords.  The House of Lords debated the Bill on 26 March.  They started at 11.37am and finished at 12.40pm.

I don’t know if the Guinness Book of Records have a section for Quickest Line by Line Scrutiny of a Parliamentary Bill.  If so, I suspect this one will be unbeaten for years to come.  The facts speak for themselves.  Line by line scrutiny in detail by the House of Commons:  256 minutes = 0.44 seconds to scrutinise line by line each of the 349 pages.  Scrutiny by House of Lords 10.8 seconds per page. I cannot even read a page of the Finance Bill in 44 seconds, let alone scrutinise it!

I am probably being a bit unfair.  It may well be that the more conscientious MP’s spent all of Tuesday scrutinising the Bill on their own.  Assuming it was published at 9.00am on Tuesday and those conscientious MP’s studied the Bill through the night, before staggering into the Chamber of the House of Commons for 12.48pm, that would have given them 27¾ hours of continuous scrutiny, which means they would have been able to devote 4.8 minutes a page to the Bill. That is still an incredible feat. Imagine scrutinising page 340 line by line having been awake and furiously studying solidly for the previous 27 plus hours. I am sure that I would have been far too tired to have managed it.

I salute such dedication.  I couldn’t read a Finance Act for 27¾ hours non-stop, let alone consider whether there were potential gaps in the legislation or room for improvement in under 5 minutes a page.

Truly today’s MPs are an utterly exceptional breed of men and women.  I am justified in calling them superheroes.

I do of course accept that I might have some cynical readers who doubt that MPs have the devotion to their work and the incisive minds to properly scrutinise a 349 page Bill at the speed of 4.8 minutes a page.  Indeed some may think that many MPs did not spend much time on the Bill before the debates began at 12.48pm on Wednesday.  Some might even think it utterly beyond the bounds of credibility that anyone – even a superhero – could then have scrutinised the Bill flat out at 44 seconds a page for almost 4 hours.

Such people will doubtless wonder why MPs are paid three times average earnings plus a similar amount in tax-free expenses (the bulk of which would be taxable if paid to someone who was not an MP but had a job that involved his working say four days a week in Westminster and one day a week in Leeds (or wherever)), if they are delinquent in their obligation of line by line scrutiny of the government’s proposed legislation.  Indeed, such people might even question the role of parliament if its members believe it acceptable to rubber-stamp hundreds of pages of legislation with complete indifference as to whether it is going to be effective, riddled with loopholes, operate fairly or unfairly, or be reasonably intelligible to the citizenry.

I do not want to accuse my MP of dereliction of duty though.  I prefer to believe that he is a superhero.  My only worry is whether I might be being just a little bit naïve! 


Wednesday, March 04, 2015


BLOG 159


I have been reading Thomas Piketty’s book, Wealth in the 21st Century.  I read somewhere that most buyers don’t get far past Chapter 1.  If so, that’s a shame.  I found the first two-thirds fascinating but was disappointed with the rest.  It was also a bit wearing.  It is clear that Mr Piketty has a very dim view of other economists.  They mostly botched the research and the world has had to wait until now for Mr Piketty to come along and do it properly.

The first bit of the book is about economics.  Mr Piketty goes to great lengths to prove his theory that in the long run the return on capital exceeds the rate of growth throughout the world.  That is a convincing theory.  Indeed, it is probably a statement of the obvious.  Growth is an average of established businesses and innovation.  It is hard to see why anyone should take the risk of investing in innovation if he did not think that would give him a better return than a less risky established business.

Perhaps, more importantly, Mr Piketty shows that money begets more money, so the effect of return on capital exceeding growth is that the rich get richer and, by doing so, own an increasing share of national capital.  The theory was disrupted by two world wars but Mr Piketty says that we are now back to where we were in the middle of the 19th Century.  That is apparently a world disaster because it means either that in the very long term (assuming the world lasts that long) the top 1% of the world population will own everything, or the poor will have revolted long before we reach that stage.

Don’t panic, says Mr Piketty, there is a solution.  It will be very difficult to achieve but we must do so for the sake of the world.  There are no other options.  There is a single magic one: we must have a worldwide wealth tax!

I’m not an economist, but I did find Mr Piketty’s return on capital exceeds growth theory compelfling.  I do however have an interest in tax and I found his wealth tax theory rather silly, poorly thought through and based on no discernible evidence whatsoever.  It makes me wonder if I was convinced by the economic bit of the book largely because I am not an economist and an economist might have found it riddled with flaws.

But the purpose of this note is not to discuss economics; it is to look at Mr Piketty’s global wealth tax.  Wealth taxes do of course already exist in some countries.  Others have had wealth taxes and scrapped them – although in the Piketty world that is because a wealth tax has to be truly comprehensive and countries that scrapped their wealth taxes did so because their tax contained too many exemptions to be effective.  A true wealth tax must have no exemptions.  You must be taxed on the value of your house, your pension fund, your investments, your jewellery, your clothes, absolutely everything.  Otherwise the rich will move their money into non-taxable things so the tax will be ineffective.  Similarly the tax has to be global so that the ultra-rich cannot avoid it by moving to another country.

The purpose of the Piketty wealth tax is not wholly clear to me.  At one point he says that it does not really matter if it yields very little; the tax returns and record-keeping required will still be a good thing as it will produce statistics for future economists who will find it easier to write books and form theories.  Mr Piketty does not seem to question whether the economic cost of generating statistics for economists is actually a good use of the money.  However the main purpose of his wealth tax is to stop the ultra-rich becoming too rich.  He thinks the wealth tax should be graduated 0.5% - 1.00% of our wealth each year is probably the right level for you and me but Mr Branson and the Duke of Westminster should be deprived of 10% of their wealth each year.

Actually I think that the purpose of the wealth tax is that Mr Piketty thinks that inequality of income is undemocratic.  My dictionary defines democracy as a form of government in which the sovereign power is in the hands of the people and exercised by them directly or indirectly.  That carries no inference of equality.  I am not a historian either, but my understanding is that even in ancient Greece, democracy was not about equality and indeed not even about all the people but rather all the richer people only.  It seems to me that if my neighbour chooses to work harder than me, or spend less than me, or take more risks than me, it is only fair that he should end up richer than me.  Mr Piketty seems to think this view so outlandish that he does not even attempt to explain why it is wrong.  He simply starts from a position that inequality of wealth is so patently wrong that there is no need to explain why.  Mr Piketty does acknowledge that by and large the rich of today are not the descendants of the rich of 200 years ago, but it seems to be richness per se that offends him.

I am not seeking to defend the super-rich or even the mildly rich.  I am neither for nor against excessive wealth.  I certainly support equality of opportunity because I think that is a basic human right, but I think that equality of wealth has very little to do with equality of opportunity.

But that is by the way.  It is clear that Mr Piketty sees his universal wealth tax as a means of shifting wealth from the rich to the State (as agent of the citizenary).  The State cannot afford to build new schools and hospitals because, for example, Bill Gates has such a large chunk of the US national wealth that he chooses to squander on medical research.  Mr Piketty does not put it quite that bluntly but that is the thrust of his argument.  It relies of course on a number of assumptions that are not explored by Mr Piketty.  Firstly, that, if it had the money, the US government would spent it on schools and hospitals and not on warplanes or nuclear arms.  Secondly, that in the 21stc  century when everything else is going online, there will be a continuing need for schools and hospitals to the same extent as in the 19th and 20th centuries. Thirdly, that a civil servant in Washington who has never run a business is better able to decide how to spend money for the good of mankind than the Bill and Melanie Gates Foundation which has access to the entrepreneurial flair of Mr Gates.  Personally I think there is a better chance of Mr Gates benefitting humanity than of Mr Obama doing so if he had access to an extra 10% of Mr Gates’ wealth.  I may well be wrong.  My point is that Mr Piketty does not consider any of these questions worthy of debate.

The question of the efficacy of private wealth rather than State wealth in the development of society, is one that I would be interested in seeing an economist address.  I hope it is not Mr Piketty though, because once he departs from economics, he seems to depart from the reliance on evidence and substitute his personal opinions instead.  I am myself sceptical whether many, if any innovations were generated by the State in the history of the Western world.  Railways, canals, mines, even hospitals all derived from private enterprise and were taken over by the State only once they had been largely developed.  Even today there seems little appetite for the State to finance innovative national infrastructure projects; on the contrary the State generally delays such projects for year after year because it is inherent in democracy that people are generally not in favour of innovation if it risks disrupting their own lives.  Giving the State extra finance is unlikely to change that!