Ruth Davidson speech to Adam Smith Institute

This week the ASI hosted the feisty Ruth Davidson to deliver a lecture on lessons from Scotland’s founding father of economics – Adam Smith – as she outlined her vision of an alternative to the SNP’s statist agenda.

Good Evening Ladies and Gentlemen.

Thank you for the opportunity to speak to you this evening.

It seems to me that there is a rather long and – if I might say – inglorious tradition of Scottish politicians hanging speeches round the neck of Adam Smith and his legacy.

I’m sure you’re familiar with them, but – for me – there seems to be two main types.

The first type is what I would refer to as the Gordon Brown method.

The Brown method is where you examine Smith’s philosophy from three hundred years ago and demonstrate that, astonishingly, it coincides almost exactly with your own policy agenda here in early 21st century.

Yes, it turns out that Adam Smith was a kind of New Labour prophet, just waiting to be discovered all this time.

Which shows your current policy platform isn’t a tricksy wheeze to triangulate left and right, all the better to scoop up the votes of middle England. Oh no!

It turns out that it has a “golden thread” linking it right back to the heart of the Scottish enlightenment where, before the words “Tony Blair” were ever heard, it was first discovered that liberal economics and social justice could go hand in hand.

The fact that Smith actually came from Kirkcaldy is just the cherry on top of the cake.

I can only say that if I was Gordon Brown looking for some kind of ballast to hold my political beliefs together, I probably wouldn’t have been able to resist either!

But that isn’t the only type of speech of course. There’s a slightly shabbier version of the Brown method which adds a great dollop of parochialism mixed with hubris.

This is the one where Politician B seeks to assert that pretty much everyone has got Adam Smith wrong from Day One. Apart, of course, from the speaker himself.

And why have they got him wrong?

Broadly speaking, continues Politician B, this is because they are not Scottish.

And, in not being Scottish, they therefore fail to understand the true meaning of Adam Smith.

Target number one is, of course, the Adam Smith Institute.

(Read the full speech here.)

If even business doesn’t get this then what hope?

One of the standard bits of economics that we need to explain again and again is the incidence of taxes. Corporations don’t pay profits taxes, shareholders and workers bear the burden. similarly, business, in the form of a business that uses commercial property, doesn’t pay business rates: they fall upon the landlord. But if business itself doesn’t manage to grasp this point then what hope of getting everyone else to grasp it?

The Government’s “business tsar” has backed an emphatic call from the nation’s retailers for a fundamental reform of business rates to boost Britain’s productivity.
Sir Charlie Mayfield, chairman of the John Lewis Partnership and president of the British Retail Consortium (BRC), has thrown his weight behind a chorus of complaints from the bosses of Britain’s high street traders that the hefty business rates tax is hampering investment in the sector.
An overwhelming 95pc of 100 UK retail bosses surveyed by the BRC said that a reform of business rates would boost the nation’s productivity.
“Business rates bills have continued to rise when property values have fallen,” Sir Charlie said.
“Retailers are now paying £2.40 in business rates for every £1 in corporation tax. Reforming the rates system would be a welcome boost for retailers and help drive investment in training and technology,” he added.

The level of business rates makes no difference at all to the operating costs of those who rent buildings or space. The total rental value is determined by what people are willing to pay to occupy such space. How that is split between landlord in rent and government in rates is irrelevant to that price the occupier will pay. Thus the incidence of the rates is not upon the operating business but upon the landlords.

And reducing taxation upon landlords is not going to make any difference at all to the adoption of technology nor productivity.

What this is is a rather more naked call from landlords that they should be taxed less: any reduction in the rates bill will lead, as above, to their being able to increase rents. And of course there’s a few retail chains that own their properties, rather than lease them…..such a reduction in rates would privilege those businesses over others.

We’re not so naive as to believe that any part of Britain’s taxation system is perfect but business rates are one of the better parts of it as is. Taxing landlords and their rent is closer to a land value tax than anything else and as such is one of the least distortionary taxes and one with the lowest deadweight costs. Don’t reduce it.

Public economic discourse is reduced to this?

We fear for the future of the nation if this is the level of public economic discourse:

Fiscal austerity has become such a staple of conventional wisdom in the UK that anyone in public life who challenges it is written off as a dangerous leftist. Jeremy Corbyn, the current favourite to become the next leader of Britain’s Labour party, is the latest victim of this chorus of disparagement. Some of his positions are untenable, but his remarks on economic policy are not foolish and they deserve proper scrutiny.

Corbyn has proposed two alternatives to the UK’s current policy of austerity: a national investment bank, to be capitalised by cancelling private-sector tax relief and subsidies;

Very well, let us take this seriously.

The £93 billion in “private sector tax relief and subsidies” that Corbyn is talking about is a number made up out of the aether by a sociologist from a third rate university. Farnsworth, for that is his name, has decided that depreciation allowances for companies investing in capital equipment are in fact equivalent to the taxpayer paying for that capital investment. And that is by far the largest component in that £93 billion.

That is, the suggestion is that we will get more investment by taxing investment more heavily. This is of course ludicrous, economic insanity of the highest order.

And here is where we get worried about the nation. Robert Skidelsky, that is, Baron Skidelsky, Emeritus Professor of Political Economy at Warwick, is describing this as something not foolish, something we should take seriously?

Shouldn’t we worry about the future of the nation when the supposedly sensible, the adults in the room, get swept up in this sort of mania?

The case for abolishing Inheritance Tax

Posthumous taxation is no different to Victorian style grave robbery, only done on a much larger scale. Morally- the inheritance tax should be abolished.

As well as the moralistic argument, there are also serious economic consequences of the tax- chiefly that it makes the tax system incredibly complicated. Abolishing the tax also means that those who are about to die will have the security of knowing their loved ones will have enough to live comfortably- a worry most parents have in common.

Some say this will lead to more inequality of opportunity. However this may not necessarily be the case. Take the case of the Walton family. Sam Walton grew up very poor. Through innovation and enterprise he founded Walmart and grew it to be the biggest retailer in the world, and when he died in 1992 Walmart was worth roughly $45 billion. His six children have no such experience in building a business. They are better at spending money than making it, and so their fortune will decline over the generations even without inheritance tax. This happens across the economy in Britain and the U.S. Of all the Fortune 500 companies that existed in 1955, only 11% remain. The average life expectancy for a Fortune 500 firm is now 15 years old. Family owned firms are usually sold by a less competent individual family member to another firm or individual, one with a better talent for enterprise.

So, without inheritance tax, the market still distributes resources to ensure maximum efficiency. The inequality of outcome cannot be attributed to lack of opportunity, but to inequality in entrepreneurship, something which builds capitalist society. Additionally some wealthy individuals like Bill Gates, choose to give away their wealth voluntary on their death, Gates choosing to leave his three children with just $10 million each of his vast fortune so they can “find their own way”. Taxing this fortune would probably result in less social good than would result from it going to the charities of Bill Gate’s choice, given how efficient government is.

Of course some hereditary inequality will occur, but this is the case when parents hand down good parenting skills, or good genetics or good education. Why should hereditary property be regulated by the government? Inheritance tax is unfair, predatory and economically harmful. The UK economy would benefit from Inheritance tax being scrapped.

Theo Cox Dodgson is winner of the Under-18 category of the ASI’s ‘Young Writer on Liberty’ competition. You can follow him @theoretical23.                             

Keynesian infrastructure spending might not be the answer you know

This story of the Don Quijote airport in Spain is instructive about one of the delusions of our times.

Spain’s “ghost airport” – that cost hundreds of millions of euros to build and which became a notorious symbol of the excess of the country’s bonanza years has been sold to a group of British and Asian investors for just €10,000 (£7,000).
Ciudad Real airport airport, in the central Castilla-La Mancha region, has been closed since 2012, despite opening only four years prior to closure.
The regional authorities raised an estimated €1billion in private investment to build it. They had hoped it would draw millions of visitors each year to Ciudad Real and the surrounding area, which is known as the home of Miguel de Cervantes’s fictional knight Don Quixote.
But the airport itself soon became seen as a quixotic venture, drawing just 33,000 travellers in 2010.

This is of course a symbol of the investment excess in Spain in the boom years rather than of government infrastructure spending in a slump to boost the economy. But it faces exactly the same problem as all other such spending. Whether it is being done to boost the level of demand in the economy or not it is still necessary for the thing itself being built to add value. An airport (and this is not the only one in Spain) that no one wants to use is just a very expensive piece of tarmac with no other actual value. This thus makes all poorer.

Which produces a problem for those who would use infrastructure spending to boost the economy in recession. If the project itself would add value then it should be built, recession or no. And if it doesn’t add value then it shouldn’t be built, recession or no. There is no room left for the argument that it should be built because recession.