The planned rises also failed to tackle the increasing problems that many consumers faced when paying their bills, with many people in so-called \”water poverty\”. The Citizens Advice Bureau told the committee that it dealt with 57,000 people who had struggled to pay their water bills last year. The charity described the current system of support for poor customers \”as like something out of the nineteenth century with a set of highly restrictive rules administered at companies\’ discretion\”.

The MPs agreed that thousands more customers needed help, with either wealthier customers picking up the extra cost, or taxpayers – both of which could resent the higher bills.

Look, yes, we do need to help those with insufficient money to survive in our society. You can call it a moral duty or a simple defence against being strung up in the street by a rampaging mob. But the right way to do this is through the tax system (assuming that we\’re not going to rely upon charity).

We don\’t and shouldn\’t insist that the purchasers of expensive cars subsidise those who cannot afford transport, we don\’t insist that those purchasing caviar subsidise baked beans and we shouldn\’t insist that those with large water bills subsidise those who cannot afford theirs.

One of the more important reasons for this is that we want transparency in all of this: sure, the poor should be aided, but we want to know by how much they are being aided as well, how much is it costing us to do so.

Hiding such aid leads to horrors like, at the extreme, the American system of poverty reduction. They spend hundreds of billions every year on aid to the poor: the EITC, Medicaid, housing vouchers, food stamps. The amounts have been rising substantially in recent decades as well (yes, even George W Bush raised the spend) and yet it is possible, as many do (John Edwards for example) to point to the poverty level, which has hardly budged at all.

This is because the Americans have this insane system whereby all the things that are done to alleviate poverty are not counted when calculating the poverty level. They count how many would be in poverty without government help: then they ignore all of the help that is offered, the EITC, housing vouchers, food stamps and Medicaid and then say, \”Whoa! Aren\’t there a lot of poor people!\”

Yes, I know it sounds insane but it is in fact true. You thus get two responses to such spending: from the right, hey, we\’re spending all of this money and it isn\’t reducing poverty so it\’s all wasted. From the left, we\’re spending all this money but there is still poverty so we must spend more. Both entirely missing the point that the resaon the spending isn\’t reducing poverty is because you\’re not counting the money you\’re spending on trying to reduce poverty.

This isn\’t directly applicable to the cross subsidy of water bills I agree: it\’s just an example of what can happen at the extreme if you start hiding the numbers. You want the poor to have their water bills subsidised? Fine, argue your case and raise the taxes necessary to do so. Don\’t hide it in the minutiae of the water rates.

3 thoughts on “Sorry?”

  1. Hang on a minute, Tim. Is it not standard practice for businesses to set the price of their goods to take acount of slippage somewhere in the system? Are we not always being told by the house/car/travel insurers that fraud increases the cost to all?

    Tim adds: Err, yes, that’s the point. The interest rate (the price) charged on all loans needs to include the costs of some of them defaulting. So we cannot simply say “you’re borrowing at 0.5%, you must lend at 8%” because that does not take account of the liklihood of different default rates.

    Thinking further, this is even more stupid than I had thought: we’re deliberately insisting that the banks should not price in that risk of default: isn’t the recent problem currently being blamed on the banks mispricing risk? We’re now going to insist that they do what made them bust?

  2. I don’t think Adam Smith would have agreed, for what that’s worth. He argued that road tolls should be higher for the rich (progressive taxation, indeed) to directly subsidise the tolls for the poor:

    “When the toll upon carriages of luxury upon coaches, post-chaises, etc., is made somewhat higher in proportion to their weight than upon carriages of necessary use, such as carts, waggons, etc., the indolence and vanity of the rich is made to contribute in a very easy manner to the relief of the poor, by rendering cheaper the transportation of heavy goods to all the different parts of the country.”

  3. But all of these diverse taxes and cross subsidies are just a means of camouflage. So those of us who are net contributors never get to find out the magnitude of our subsidy.

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