Adam Smith Institute Budget Reaction: Well, that was boring

Commenting on the 2014 Budget: 

“Well, that was boring. The total tax and spending changes barely scratch the surface at around £2bn/year in each direction – that’s a tiny 0.3% of the £732bn the government is expected to spend this year. The exception may be the pensions announcements, which may prove to be very significant in the years to come.

“Much of the budget was gimmicky: inheritance tax exemptions for emergency services personnel who die in the line of duty must only affect a handful of people and giving LIBOR fines to Help For Heroes continues to be one of the most bizarre revenue hypothecations of modern times. Even the much-heralded ‘welfare cap’ can be easily undone by any Parliament that wishes to in future, so cannot count as more than a political stunt.

“If there is cause for optimism it is in the economic data released today, which shows that the labour market is rebounding strongly (even if productivity still leaves a lot to be desired), and the language used by the Chancellor. At last the government is speaking in dynamic terms, recognizing in rhetoric at least that lower tax rates can produce higher revenues. Mr Osborne is talking the talk on taxes, but he doesn’t have much time left to walk the walk.” 

– Sam Bowman, Research Director, Adam Smith Institute

Pensions

“At last Britain's private pension savers will be treated like responsible adults. The rule has long been that, apart from a proportion that can be taken as a lump sum on retirement, pensioners have had to convert their retirement pot into an annuity, paying them a lifetime income. But as lifetimes have lengthened and financial uncertainty has abounded, annuity rates have fallen, leaving savers much worse off then they expected.

“From April 2015, retirees will be able to access their pension savings pretty much as they wish. Instead of being hit by a 55% tax if they took out 'too much', ordinary rates of tax will apply. So it all becomes much easier. You build up a pension pot while you work; on retirement, you can take 25% of that tax-free (a provision designed to help people with moving costs and other changes on retirement); then you can decide whether you will buy an annuity, draw down the pot at a set rate, or withdraw the whole sum, facing tax only at the prevailing marginal rate.

“Most people are perfectly capable of managing their retirement income and do not want to fall back on the state anyway. The new rules recognise that. On the rare occasions when governments treat us like adults, they should be encouraged.”

– Eamonn Butler, Director, Adam Smith Institute

Personal Allowance & National Insurance

“As anticipated, the income tax personal allowance has been raised to £10,500. That’s good, and will help nearly all workers, but the Chancellor missed the opportunity to tackle the National Insurance threshold, which is much lower than the personal allowance and affects low paid part-time workers who may not benefit from the personal allowance rise at all.

“A part-time worker earning £10,500 will pay no income tax, it is true, but they will still face a National Insurance bill for £330 a year. National Insurance is the great elephant in the room in British tax policy: although administered separately, it goes into exactly the same revenue pot as income tax. It desperately needs reform if the working poor are to be given the tax break that almost everyone agrees they need.

“Still, the rise to the personal allowance is better than nothing, and the government is right to pursue tax cuts for lower earners.”

– Sam Bowman

Childcare

“The government is right to recognise that childcare costs are becoming increasingly unaffordable throughout the UK: at £106.38 per week, the cost of 25 hours of childcare is unaffordable for many families.

“Ofsted regulations around childcare, such as stringent qualification requirements and low mandatory child-to-staff ratios, are some of the harshest in Europe, and have caused prices to skyrocket.

“These regulations have real consequences for the consumer: the UK ranks as the second highest spender in Europe on childcare services and parents are spending a staggering 28% on childcare in out-of-pocket costs.

“Unfortunately, the government’s proposals do nothing to address these supply-side factors, and will probably just perpetuate the vicious cycle of high costs. Families would benefit far more from deregulating the childcare sector than from increasing the childcare subsidies, which fund a highly distorted and expensive market.”

- Kate Andrews, Communications Manager and Research Associate, Adam Smith Institute 

Missed opportunities

“The most obvious missed opportunity was the lack of any additional cut to Corporation Tax. Adam Smith Institute research has found that nearly 60% of the Corporation Tax comes out of workers’ wages, with the rest acting as a harmful tax on capital. The Chancellor could have boosted wages and stimulated the economy by cutting Corporation Tax even more, killing two birds with one stone.

“A change to the Bank of England’s remit. Inflation targeting has unequivocally failed, giving us the worst recession and slowest recovery in living memory. If the Bank were tasked with targeting Nominal GDP instead, as many prominent economists are now suggesting, the macroeconomy would likely improve immediately and remain stable during future supply shocks such as the 2008 Financial Crisis.” – Sam Bowman

For further comments or to arrange an interview, contact Kate Andrews, Communications Manager, at kate@adamsmith.org /07584 778 207.

The Adam Smith Institute is an independent libertarian think tank based in London. It advocates liberal public policies to create a richer, freer world.

Letter to The Times: Justifications for HS2 have failed to convince

Dr Madsen Pirie and Dr Eamonn Butler, President and Director of the Adam Smith Institute, co-signed a letter to the Times, calling for "a comprehensive review of the UK’s transport priorities, and where, if at all, HS2 fits with this.

"Sir, There are few more iconic images of the recent storms and the flooding which devastated so many thousands of lives than the Great Western Line at Dawlish collapsing into the sea, cutting off the main rail route to the South West of England.

"This underlines the stark choice in determining priorities for investment in Britain’s transport network — between investment in increasing resilience, developing regional transport connections and relieving the plight of the thousands forced to stand on trains each day, or ploughing ahead with a London-centric high-speed line with a dreadful business case which connects just four cities.

"Successive justifications for HS2 have failed to convince, so its supporters are asserting that the West Coast Mainline is full to capacity and HS2 is needed to relieve it. Yet Network Rail’s latest figures show that intercity trains are running at just 52 per cent full into Euston station at peak times, and that Euston is one of London’s least busy termini.

"With the Treasury predicting that HS2 will cost £73 billion — £1,500 for each adult in Britain — as well as causing huge environmental damage, it is clear that the time has come for a comprehensive review of the UK’s transport priorities, and where, if at all, HS2 fits with this."

Hilary Wharf, HS2 Action Alliance; 
Baroness Bakewell; 
Natalie Bennett, Green Party; 
Sir Keith Bright, ex London Regional Transport; 
Dr Eamonn Butler, Adam Smith Institute
Nigel Farage, UKIP; 
Sir Christopher Foster, Network Rail; 
Jonathan Isaby, TaxPayers’ Alliance; 
Denise Jeffery, Wakefield Council; 
India Knight; 
Ruth Lea, Arbuthnot Banking Group; 
Dr Madsen Pirie, Adam Smith Institute
Mary Portas; 
John Prideaux, Intercity and British Rail; 
Roger Salmon, ex Rail Franchising; 
Alexei Sayle; 
Chris Stokes; ex Strategic Rail Authority; 
Martin Tett, Bucks County Council; 
Sir Andrew Watson, CPRE Warks; 
Sir Barney White-Spunner, Countryside Alliance; 
Baroness Wilkins; 
Paul Wilkinson, The Wildlife Trust

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Think piece: Bitcoin and the English legal system, Part II

Commercial lawyer and ASI Fellow Preston J. Byrne continues to explain why, despite the cries of his inner libertarian, more government involvement in Bitcoin would be a step forward for the cryptocurrency-cum-payment-system, rather than its end.

I should begin by thanking the numerous individuals who privately provided feedback on my proposition that cryptoledgers need law, and therefore the state.

I am pleased to report that the proposition was overwhelmingly opposed, with a few exceptions.

My position, however, remains unchanged. To set the scene for later discussions, I will provide the primary objections and my responses in outline.

Read the whole thing here.

Press release: Who pays corporation tax?

  1. Nearly 60% of Corporation Tax comes from workers’ wages, making the tax a regressive and stealthy form of income tax
  2. Most of the remaining burden of the Tax comes from capital owners, an economically inefficient way of levying revenues
  3. The government should cut Corporation Tax more quickly to increase workers’ real wages and raise the level of investment in Britain

Almost 60% of the Corporation Tax burden falls on workers’ wages, a new report by the Adam Smith Institute has found. The report, released ahead of this week’s Budget, reviews existing academic studies into the incidence of the Tax and recommends that the government reduce or abolish it.

The report, ‘Who Pays Corporation Tax’, authored by the Institute’s Head of Policy Ben Southwood, proposes that the government significantly reduce, or abolish the corporation tax to reduce the burden on workers, and that it accounts for the lost revenue through either cutting spending or, if necessary, raising the money through more efficient means, such as property, income or consumption taxes.

According to the report, the Corporation Tax’s burden is split between workers— it reduces their pay without appearing on their pay slips—and capital, distorting decisions therefore reducing investment, UK growth and future living standards.

Though economists argue about the exact way in which the tax is initially and eventually split between capital and labour, all agree that the burden is shared primarily between the two.

Ahead of the Budget on Wednesday, the report’s findings should embolden the government to accelerate its corporation tax cuts to increase workers’ real wages and the level of investment.

Ben Southwood, author of the report and Head of Policy at the Adam Smith Institute, said:

“Tax avoidance scandals are often presented as if they were a struggle between the common man and the man—but economists know this is far from the truth. Corporation tax is partially paid by workers through lower wages, and the remaining chunk, though paid by capital owners, is likely to come out of investment, hitting growth and future living standards.

“If it can be done without introducing new distortions, we should definitely abolish corporation tax and get the revenue from a more effective tool with fewer side-costs.”

Eamonn Butler, Director of the Adam Smith Institute, added: “In his Budget this week the Chancellor may announce a modest cut to Corporation Tax. He should go much further: cutting the Corporation Tax significantly will put more money in workers’ pockets and boost the economy by stimulating investment. We need to grow our way back to prosperity by cutting back the state. The Corporation Tax should be the first tax to go.”

The key findings of the report include:

  1. While most of the substantive details are hotly disputed, the best studies of corporation tax find that in an open economy, workers bear a significant part of the burden of the tax, along with owners of capital. In a closed economy—like the world as a whole—the burden falls mainly on capital owners.
  2. Though results have been contested, the average empirical result puts the burden on workers at 57.6%. Averaging theoretical studies is much more difficult, mainly because each study gives such a wide range of results over such varying sets of circumstances.
  3. Nearly all economists agree that taxes on capital are highly distortionary, and thus unattractive as means of raising revenue. Owners of capital do tend to be wealthier than non-owners, but capital taxes are far from the best way of redistributing wealth.
  4. Transparency is a virtue of a tax system, and many workers are unaware that their wages are lowered by corporation tax.
  5. In the presence of an extremely complex regulatory and legal regime like the UK’s, the costs of corporation taxes become even higher by distorting key decisions like choices between debt and equity.
  6. The interaction between corporate income taxes and corporate gains taxes may complicate the question, necessitating reforming both in order to properly reform one.

For further comments or to arrange an interview, contact Kate Andrews, Communications Manager, at kate@adamsmith.org / 07980 627940. The Adam Smith Institute is an independent libertarian think tank based in London. It advocates liberal public policies to create a richer, freer world.

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Freedom Forum 2014

It's that time of year again- building on last year's fantastic conference, Liberty League Freedom Forum 2014 is only a month away!

Put the 11th- 13th April in your diaries, and head down the the UCL Institute of Child Health for a weekend of seminars, workshops and socialising with liberty-minded individuals.

The line up for this year's Freedom Forum is looking the be the best yet, with speakers coming from across the world. Amongst those confirmed are Cody Wilson, creator of the 3D-printed gun and bitcoin annonymising DarkWallet, and fellow American and serial liberty-promoter Dr Tom G. Palmer. There's also world expert on the universal basic income Phillipe Van Parjis, Detlev Schlichter, author of Paper Money Collapse, director-general of the IEA Mark Littlewood, and pro-drug law reform ex-cop Tom Lloyd, with loads more to be announced – and of course, there's the ASI's own Sam Bowman. 

Seminars cover topics from lifestyle freedoms to macroeconomic policy, immigration to the age-old question: But who will build the roads? Plus, there's workshops in journalism from City AM's Mark Sidwell, public speaking from Peter Botting, and an entrepreneurial session curated by The Entrepreneurs Network. 

All of the above, plus meals, drinks and evening events from only £29- and accommodation tickets a mere £39.

To find out more visit the Liberty League website, and book your tickets here.

Event: Liberty League Freedom Forum 2014
Date: Friday 11th April (7pm) to Sunday 13th (5pm)
Location: UCL Institute of Child Health, and Clink78 Hostel

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