ja_mageia

I don't really want to scare the beejabbers out of you but I have a feeling that those saying we can just keep on borrowing are whistling as they shamble past the graveyard. For we've got not just huge and ongoing deficits, a slump in growth and a spiralling national debt. We've also got demographic changes happening:

The combined effects of an ageing population and a more unstable economy will lift the cost of borrowing radically in the coming years, Barclays has warned. In its closely-watched Equity Gilt Study, the lender predicted the average long-gilt yield – the government interest rate which effectively influences borrowing costs across the entire economy – would rise from its current level of around 4pc to 10pc or beyond.

Now the problem with that is ably laid out in this book, "This Time is Different" (recommended for those who like facts at fingertips about debts and defaults). For our national debt is expected to hit 100% and go beyond that in the not too far distant future. And if the interest rates we have to pay on that go over 10%....well, as the book explains, looking at the 800 or so incidences of debt default by governments, when interest to be paid passes 12.5 % of GDP that's the general trigger that raises the likelihood of such default from a well, mebbe to "so when will it happen, Tuesday or Friday?"

You can see that a 10% or more interest rate on a 100% or more national debt gets us close to or over that 12.5% danger mark. Which means, essentially, that we've got to get a grip on the budget. I mean, well, we could default, but as a huge chunk of that debt is owed to our own pensions we might not really like that all that much.

The book is also the source of the fabulously interesting fact that Greece has been in default on its national debt for some 50% of its time as an independent nation. But perhaps that's not all that cheering under current circumstances either.

Tax, it is often argued, is one of the most influential issues when it comes to determining a country's competitiveness. Included amongst the many reasons for this, is that low taxes help attract a better skilled workforce, thus generating higher productivity.

The suggestion that lower tax has a positive effect on a country's attractiveness for highly educated people is about to be proven in Denmark. From the first of January this year Denmark has implemented tax reform securing lower income taxes and cutting the highest marginal tax rate by about 10 percent. The Danish government has done this to make Denmark more attractive to highly skilled people in a climate of sharpened international competition.

In Denmark highly skilled people can sign a three year contract giving them a tax discount for those three years. The most common scenario in the past has been that people come to Denmark, have their three years of tax discount and then move on to another country . However, The Confederation of Danish Industries (DI) can already now report that since the reforms it has become easier for Danish companies to convince foreign staff to sign contracts for longer periods than those three years.

This is a good thing for Denmark, but there is a cloud on the horizon. There is much uncertainty about the opposition’s plans regarding these tax reforms if they eventually come to power. The leader of one of the opposition parties (Social Democrats) has stated that she intends to roll back these tax cuts. This position induces uncertainty about the future and may have the effect of minimizing the effect of the tax cuts.

Tax is important in determining competitiveness. However certainty about the future is also important. The Danish Social Democrats should therefore take a close look at what their sister party in Britain have done to the business climate by introducing tax rises and set their policies accordingly.

Taxing the Sheriff of Nottingham will harm the poor

SIR – The "Robin Hood Tax" proposed by several celebrities (Comment, February 10) is not a "tiny tax on banks to help the poor".

First, it is not tiny. The headline rate is only part of the cost. There are the administrative and IT costs of collecting it, paying it and policing compliance. There are economic costs, too, as people switch into less productive investments to avoid it, and as finance moves to other countries that do not impose it.

Secondly, it is not a tax on banks. They will simply pass the cost on to their customers – everyone with a bank account, an insurance policy, a mortgage, a loan, or pension savings. It is we, the public, who will pay this new stealth tax.

Thirdly, it will not help the poor. The tax revenue will be administered by governments, so politics, not economic sense, will determine where it goes.

Poor countries need access to affordable capital to fuel their development. This tax will raise the cost of capital and make capital markets less efficient, starving poorer countries of that fuel.

If celebrities really want to help the world's poor, they should campaign for governments in the EU and elsewhere to drop the protectionist tariffs that deny people in poorer countries a market for their products. That would be simpler, and benefit the whole of humanity.

Dr Eamonn Butler (Director, Adam Smith Institute), Dr Madsen Pirie (President, Adam Smith Institute), Shane Frith (Director, Progressive Vision), Tim Ambler (Honorary Senior Research Fellow, London Business School), Mark Littlewood (Director-General, Institute of Economic Affairs), Dr Tim Evans (CEO, Cobden Centre), Prof Philip Booth (Editorial & Programme Director, Institute of Economic Affairs), Richard Teather (Senior Lecturer in Tax Law, Bournemouth University), Prof Patrick Minford (Professor of Applied Economics, Cardiff University Business School), Prof Julian Morris (Executive Director, International Policy Network), Jill Kirby (Director, Centre for Policy Studies), Keith Boyfield (Chairman, Regulatory Evaluation Group), Richard Jeffrey (Regulatory Evaluation Group), Mark Austen (Regulatory Evaluation Group), David B. Smith (Visiting Professor, University of Derby), Dr Peter Warburton (Economic Perspectives Ltd), Eric Anstee (Managing Partner, Anstee Associates)

Lord Mandelson’s policies of economic interventionism that have accompanied his latest return from exile have had much support from many on the left of the political spectrum. However, the chickens are now coming home to roost, as the recent case of universities makes only too clear.

The oft-stated analogy of a government trying to control the price of bread is as pertinent in the case of universities as all other examples where those in power try to control the prices, supply and demand of any good. The real and disastrous consequences of this fatal conceit have been repeatedly proven in the annals of history. At present the government is unable to keep up with the demand for subsidised university places, while being fairly accused of both engendering elitism and funding ‘Mickey Mouse’ courses. At the same time the universities are complaining that government cuts are driving them to the wall. Higher education is in a mess that only the private sector can solve.

Rather than admit defeat, Madelson is instead dolling out more advice to the inheritors of Labour’s debt. Apparently, those that cannot find a place at university should “take up an apprenticeship or college place”, because “the traditional three-year after school honours degree should no longer be a focus for future growth”. What happened to higher education as social engineering? Now its higher education as economic engineering.

Policy Exchange's latest report points the way, but in calling for top-up fees limited at £5,000 does not go far enough to set universities free. It also fails to fully address the iniquitous fact that the state subsidies offred to universities are in effect a transfer of money from the poor to the rich.

It is time to get government out of higher education. This is exactly what a soon-to-be-published ASI report by Dr James Stanfield of the EG West Centre will set out. If you have an interest in the findings of this report, do get in contact with me at: This e-mail address is being protected from spambots. You need JavaScript enabled to view it , and to find out about the launch event of this publication click here.

Since the 1990s, charter schools have sprung up across America. Set up by non-profit groups such as parents, teachers and universities, they receive public money but are freed from certain rules and regulations, possessing greater autonomy than regular state schools. They two vital things: choice and competition. However, they have been criticized in a recent UCLA Civil Rights Project report for the racial segregation that they cause.

Original critics of charter schools worried that they would ‘cream off’ the brightest, more wealthy and predominantly white students. However, this never happened. 54% of charter school pupils qualify for free or reduced lunches, and black students account for 32% of charter school enrollment: twice their share of enrollment in regular public schools. Throughout the USA, ethnic minorities and low earners have been moving their children into charter schools. Dissatisfied by the one currently handed to them by the state, parents have been seeking to give their child a better education. Because of this, the concentration of particular ethnicities has risen. The UCLA’s study found that 70% of black charter students are in schools where over 90% of the student population is non-white- in comparison to only 36% black pupils in regular public schools.

According to UCLA this is a cause for concern. Professor Gary Orfield, co-director of the Civil Rights Project insists that "the vision of a successfully integrated society…ought to be a defining characteristic of charter schools. Federal policy should make this a condition for charter school support”.This type of political posturing is not only infuriating but potentially damaging. Studies show that charter schools have been very successful in helping minority students. As many charter schools cater to their local community, the ethnic mix of pupils often reflects racially exclusive neighborhoods, not prejudice.

Threatening a school’s future just because they cannot attract the right mix of skin tones would be far from progressive, and would hinder those who require a decent education the most. Interfering in charter schools through politically motivated and discriminatory legislation undermines the very concept of an autonomous place of learning. charter schools should continue to focus on providing quality teaching to whoever walks through their door regardless of colour; their job is education, not integration.

It's a problem of the EU's own making, of course: had they tried to design the Euro as a stable and solid currency for the whole region, they would have just re-branded the Deutschmark, and they certainly wouldn't have let Greece in. Indeed, they probably wouldn't have let Italy in. But no, the Euro was designed not as a currency but as a testament of political faith in the Union.

The problem is that even if Greece is bailed out (and since the UK provides 20% of the EU budget, you know that we will be doing a good deal of the bailing, Euro members or not), Italy looks similarly shaky, and is an awful lot larger. Greece's debt is a tiny and manageable 4% of the total government debt in Europe, while Italy's is a huge and potentially disastrous 23%. And as Laurence Copeland of Cardiff University Business School points out, 'the difficulty is that Italy's the Euro zone's third-largest economic power, [and] has a debt-to-GDP ratio similar to Greece's'.

Copeland thinks it could play out two ways in the UK, Germany and other countries who will be forced to bail out their irresponsible neighbours. Nationalism and anti-EU parties could rise; or voters might support the same profligacy that they have seen in Greece, thinking that everyone else can darn well bail us out for a change.

Either way, it's bad news for the Euro, and a source of instability that the world financial system, already punch drunk, will have trouble defending itself from. Only urgent action to remedy the core problem – government overspending and overborrowing – will keep us upright.

In 1999, the Competition Commission succeeded the Monopolies and Mergers Commission (MMC), which was established in the 1970s during an era of unlamented corporatism.

The CC continues to undertake sector investigations – a useful little earner for lawyers and a few superannuated academics. Hardly surprising, perhaps, that there is a strong lobby to investigate the planned UK tie-up between Orange and T-Mobile. Regulators talk grandly of invoking the ‘nuclear option’ – a reference to the CC. But what does the CC actually bring to the party?

Its advocates will point to the various mergers that the CC ruled against – and were endorsed by Government. But whether banning these planned mergers benefited UK plc is doubtful. In recent years, MMC/CC intervention has been unpredictable. The CC has just announced yet another investigation into the bus sector outside London. As expected, Stagecoach, the doyen of such enquiries – and the bearer of battle honours from Darlington and Carlisle – has been critical: sector investment will be delayed.

In aviation, the lengthy enquiry into BAA’s airport ownership produced the obvious results. BAA should sell Gatwick and Stansted airports. And, given the row about panel membership at that enquiry, those responsible should read the well-known case – studied by most law undergraduates - of R v Sussex Justices (1924) regarding justice being seen to be done.

In the energy sector, the MMC/CC’s efforts have been ineffectual. The long saga of the MMC and British Gas held back the latter for years – until peace was eventually signed by Ofgas and British Gas with the Treaty of Transco. Subsequently, British Gas’ three succeeding companies have prospered. Since the large energy players are crucial in building new power plants, their supply businesses – despite many threats of CC referrals – have avoided real scrutiny.

With the next Government seeking savings, should the CC be finally put down?

When I was 17, I gave a floor speech in a Cambridge Union schools debate against the motion ‘this house believes politics is an honourable profession in Britain”. Writing this now makes me feel old, but it couldn’t have been that long ago that this was a serious topic for debate.

My comments centred around the lucrative careers in the “private” sector that politicians enjoy on leaving office. Clearly one of the most lucrative of these is in lobbying, as Tory backbencher Andrew Mackay and, according to some reports, his wife Julie, know all too well. Having been forced to give back all that expenses money, they are apparently so desperate for new revenue streams that they are becoming lobbyists.

Of course, there is nothing wrong with lobbying per se – the right to petition the government is in both the British and American Bills of Rights. The problems arise only in our “mixed-market economy” where politicians have so much control over private companies - enough control that it is becoming increasingly harder for companies to succeed without lobbying governments. As PJ O’Rourke said – “when buying and selling are controlled by legislation, the first things to be bought and sold are legislators”. Andrew and Julie Mackay prove the point only too well.

A Telegraph piece reports that JP Morgan think "Britain's economy is now in a comparable state to the 1970s," and that in many ways "the UK’s fiscal position is currently worse than observed around the IMF loan in 1976." This is very bad news indeed. In the 1970s Britain was the "sick man of Europe," if not the laughing stock of the world. Government debt, in proportion to the size of the economy, is higher now than it was then.

There is one crucial difference between then and now which gives grounds for optimism. In the 1970s no-one knew if a ruined economy could be restored to life and health. After the experience of the 1980s, we now know that it can. Once we started doing the right things, the recovery came much faster than any of us thought possible. By the mid 80s Britain had gone from being in many respects the worst performer in the EU to being the best. That experience should hearten us for the task ahead: we did it before and we can do it again.

We discovered something else then. It was that a leader with a firm philosophy can have the stamina to persevere with correct measures, enduring the unpopularity they bring, in the conviction that success will come. In the late 70s and early 80s, no-one knew if that philosophy would successfully restore economic health. Now we know that it did, and therefore that it can. Those two lessons make all the difference between then and now, and give us more grounds to be optimistic about the future.

The Cabinet Office revealed last week that, although the number of quangos is down in the two years to 2009 by 7% to 766 (some people think there are nearer 1,200), the costs in that period rose by 25% to £46.5bn. Quangocrats are paying themselves increasing amounts to achieve very little at all.

Brown’s plan is to merge some of them, but the outcome of that will be still higher costs, as the quangocrats promote each other in the enlarged units.

Cameron has promised a bonfire of quangos. So how will he go about it? Suggestions that all quangos, with a very few meritorious exceptions, will be closed down en bloc and made to apply for their jobs have been dismissed as too radical. The Cameron plan is to study each one in turn. Terrific! We will then have another 1,000 quangos studying the 1,000 we already have.

At a stroke the quangocrats, whose main purpose in life is to preserve their incomes, will have doubled the size of their empire. And don’t expect them to be in any hurry to conclude their reviews. Where else would they find such comfortable employment?

The latest Times poll on life in Britain makes grim reading. Some 70 percent think that Britain is 'broken,' while 68 percent say that people who play by the rules get a raw deal. Not surprisingly, 82 percent think that it's time for a change. The figure that leaps out, however, is that 42 percent of people in Britain would emigrate if they could. That figure represents over 25 million people!

Britain does have its drawbacks, including endemic discomforts such as its appalling weather and even more appalling Guardian columnists, but it is doubtful that these are enough to drive people out of the country. The real reason is probably lack of opportunity. Social mobility has declined under Labour governments, with the chances higher than before that someone born into a social milieu will remain trapped there. Taxation, including income and stealth taxes, act against opportunity and ambition, and the dead hand of bureaucracy stifles innovation and enterprise.

Studies tell us that happiness is associated more with progress than with any level of wealth. Denied the chance to better themselves, people feel less content than they do in societies where progress seems possible. The poll results speak of a deep unease with Britain as it is, coupled with a wish that it could be better.

The lesson for the next government, now fewer than 100 days away, is that it should restore opportunity, encouraging people to get ahead and improve their lot in life themselves, instead of passively taking what government feels able to deliver through its public services. There are some who need help, of course, but what the majority need is opportunity. The next government should remove the barriers to it, and let talent do what it can.

The terrifying thought is that if things don't change, and 42 percent do manage to emigrate, they will include all those who might otherwise improve things.

One of the many Power 2010 proposals is to introduce a Bill of Rights into the UK. As several commentators have noted, there already is one. However, this is not the main problem with the proposals. In fact, a Bill of Rights that set out the freedoms that people should enjoy as citizens (not subjects!) of the United Kingdom – bringing together both ancient liberties and new ones – would be a good thing.

As the authors themselves note: "A bill of rights is a list of rights that a nation believes to be of such value and importance that they deserve special protection - examples include freedom of expression, freedom of religion and the right to a fair trial.The purpose of a bill of rights is to protect the rights of individual citizens from infringement by the state."

However, as is so common when talking about "Rights", the authors of this proposal go on to conflate two very different issues, and in doing so they undermine their case. At the very end of an otherwise quite safe proposal, they suggest that "it could include rights which we value as a society, such as the right to trial by jury, and even rights to welfare and public services like the NHS."

This is where the suggestion of a Bill of Rights goes wrong.

The successful American Bill of Rights and the Déclaration des droits de l'Homme et du citoyen set out the freedoms of individuals and the limits of the state. They aimed to prevent the abuse of state power but did not give anybody a claim on anybody else (except the negative claim not to have their life and liberty infringed).

This is what a Bill of Rights should be for: we could call it a Bill of Freedoms.

By comparison, what is being suggested towards the end of the Power 2010 proposal strays into a Bill of Entitlements. This is fundamentally different from a Bill of Freedoms. Firstly, rather than setting people free, it makes people beholden to others; one person's entitlement is another's obligation (you are entitled to something; therefore I and all others must give it to you).

Secondly, welfare benefits should be decided by normal legislation. Only a parliament elected at a moment in time can decide what welfare society can afford and what should be provided by all to all, free at the point of delivery.

Thirdly, this might very well act as an impediment to reform. Almost nobody believes that public services do not need reform. But once a particular set of structures is locked in for all times by a Bill of Rights that is itself hard to change, reform will become massively more difficult. (I assume here that the Bill of Rights could not be overturned by a simple parliamentary majority – otherwise, how would it differ from current legislation?).

The aim of a Bill of Rights should be to protect individuals from the majority, not to subject the majority to the claims of individuals. By including entitlements within what should be a charter protecting fundamental liberties, the authors of this proposal have undermined its validity.

Commons to vote on electoral reform

You've really got to hand it to Gordon Brown. After nearly 13 years in government, and just a few weeks left until a general election he looks set to lose, he's suddenly decided we need to change Britain's electoral system. And yet he chooses to champion a reform that (a) won't win him any more seats, (b) won't persuade the Lib Dems to go into coalition with him, and (c) will do precisely nothing to 'restore trust in politics'. Indeed, by forcing politicians to stick even more closely to the centre ground than before, the alternative vote's main effect would be to empower the party machines and give people even less reason to care about who represents them.

MPs say the banks aren't lending enough

But why do we want bank lending to return to pre-crunch levels? Don't we all agree that that was an unsustainable credit boom, and that Britain has far too much debt as it is? Indeed, McKinsey say we are now the second most indebted industrial nation in the world – turning Japanese, if you like. And of course, isn't it funny how the government always forgets that it is discouraging lending by forcing the banks to increase their capital ratios by buying up lots of government bonds? They really can't have it both ways. Speaking of debt...

Stiglitz says keep on spending

But what does all this 'stimulus' actually achieve? The money has to come from somewhere, and whether it's taxes or government borrowing, that's cash that's being taken out of the productive private sector to fuel the unsustainable growth of a parasitic public sector. That may appear to boost 'growth' in the short term (hardly surprising when government spending is included in GDP stats) but in the long term it will land us with higher taxes, a sclerotic, imbalanced economy, and lower living standards.

The Conservatives' fall in the polls continues

I wonder if anyone at Conservative Headquarters has noticed that their decline in popularity has coincided with David Cameron's declaration that he wouldn't cut spending right away after all, thus leaving people with no real reason to vote for him? Let's face it: unless you are a corrupt African politician or an overpaid NHS bureaucrat, it really is becoming quite difficult to answer the question "what would the Tories do for me?"

And in other news...

Harriet Harman looks set to be nominated for The Sun's prestigious 'rear of the year' award. Well, she certainly has my vote – I'm just desperate to see the back of her.

The government has struck a clear line on the economy heading into the election, vowing that it will be the party to guide Britain tenderly through the steps of recovery, nurturing new jobs and fostering enterprise. Nothing could be further from the truth.

In contrast to this rhetoric, the latest research from the British Chambers of Commerce shows that proposed employment legislation would cost businesses £25.6bn in new taxes and regulations if they are but into effect. ‘Employment legislation: holding back recovery?’ is a timeline that breaks down the plethora of the costs of proposed regulations between 2010 and 2014. Amazingly, these estimates are lifted straight from the government’s own Impact Assessments, so in all likelihood the unintended financial consequences would prove to be even higher.

What is interesting is that only two of the new proposals will be EU legislation; sixteen will be coming directly from the UK government. While the EU-enforced Agency Workers Directive is set to cost business nearly 1.5bn a year, the rise in NI contributions will cost a staggering 4.7bn a year, and the Pensions Reforms in 2010 4.8bn. None of these regulations are even attempts to make British firms more productive, competitive or attractive; not a good idea and at a time when the private sector doesn't need it.

This £25bn won't even be reaching the treasury to fix the gaping hole in our nation’s finances. Much of the estimated cost represents lost opportunities, such as the closing down of a venture and the decision not to expand or start one up to begin with. Given the colossal national debt, the government shouldn’t be wasting our money dreaming up wasteful Keynesian initiatives and adding ever more regulation to an already fragile economy.