Allow student loans to be spent abroad!

Vishal is the winner of the Adam Smith Institute’s ‘Young Writer on Liberty’ competition. The subject of the competition was ’3 Policy Choices to make the UK a Freer Country’, and below is one of Vishal’s three submissions.

If the objective of providing student loans is to ensure that everyone has access to higher education, why do we stipulate that its use be restricted to British universities? Why not grant all prospective university students the freedom to use their loan money on foreign universities?

 Simply expanding university places in the name of ‘widening participation’ doesn’t change the fact that people from disadvantaged socioeconomic backgrounds are disproportionately well represented in the lower-tier universities (where graduate unemployment rates are the highest). Furthermore, the prospect of graduating with up to £37,725 of debt (for a 3-year course; £9000/year for tuition + £3575 maintenance loan) is far more daunting for people from lower-income households (bursaries and grants are limited, after all).

Allowing students to spend their student loans on foreign universities would ease the pressure on British universities whilst simultaneously encouraging them to be more competitive with the services they offer – most importantly though, students would have more choice (and often cheaper alternatives).

Many middle-income and upper middle-income families (whose children hold the lion’s share of places at the best universities, currently) may find that the resultant change in the marginal cost of sending their children where fees are relatively more expensive (to the USA, Canada and Australia, for example) would actually make this option financially feasible – thereby freeing domestic places.

Furthermore, if students chose to study in Europe (as many would, seeing as it is closer), many European countries do not even have tuition fees (and, if they do, it’s a fraction of what we pay for our universities) – this means that they’d only really need a maintenance loan, if at all! There are no tuition fees charged in Austria, Denmark, Finland and Sweden. Norway charge about 40EUR/semester (no, I’ve not omitted any zeroes), German universities can charge a maximum of 1000EUR/year, the French public universities charge between 250-650EUR/year, the Dutch 1835EUR/year, the Spanish between 525-1280EUR/year and the Swiss up to 3000EUR/year. That means massive savings for the taxpayer and many happier British graduates with a lot less debt.

Also, for those students who are adventurous and/or enterprising enough to want to get their foot in the door of certain emerging markets sooner rather than later, they could study in the BRICS countries (again, for a fraction of the cost).

If the objective of student loans is to educate, let students spend it on the education they would prefer!

Don’t take this new estimate of poverty all that seriously

A new report out insisting that poverty has climbed over the past few decades. Not a report to take all that seriously really:

The number of British households falling below minimum living standards has more than doubled in the past 30 years, despite the size of the economy increasing twofold, a study on poverty and deprivation in the UK claims . According to the study, 33% of households endure below-par living standards – defined as going without three or more “basic necessities of life”, such as being able to adequately feed and clothe themselves and their children, and to heat and insure their homes. In the early 1980s, the comparable figure was 14%.

The actual research itself isn’t quite as bad as the write up of it (although that’s last year’s version, this year’s is not published as yet). Not as bad as long as we recall the limitations to it.

The number of people falling below the minimum standards of the day has doubled since 1983

The important part is that “standards of the day”.

It’s a good measure of poverty for all that. Very similar to the way the Rowntree people calculate the Living Wage and we at the ASI have several times insisted that we support that method of measurement. It’s Adam Smith’s linen shirt all over again. Not being able to afford a linen shirt does not make you poor. But if you live in a society where not having enough to be able to afford a linen shirt means you are regarded as poor then in that society you are indeed poor. Thus the Rowntree surveys of what people ought to be able to do without being regarded as poor in this society.

But that makes this a survey of relative poverty, not absolute. For as society becomes generally richer then the list of things you should be able to do without being regarded as poor expands. For example:

Specifically, one in three people could not afford to adequately heat their homes last winter and 29% had to turn the heating down or off or only heat part of their homes.

I very much doubt that anyone at all expected to be able to heat all of their house the entire winter back in 1980. Perhaps the very richest: but partial heating of a house was entirely the norm even in a thoroughly middle class upbringing like my own. Yes, the report does talk about this but the standard of “fully heated” has changed markedly over these decades.

The interesting way to read this report is actually to look at the advances that have been made. The general standard of living has risen sufficiently that what used to be considered being reasonably well to do is now regarded as being in poverty. At which point three cheers for free market capitalism: the only socio-economic system that has ever actually managed this feat.

The NHS is terminally ill—we need a new Healthcare system

Tom won second place in the Adam Smith Institute’s ‘Young Writer on Liberty’ competition. The theme of the competition was ’3 Policy Choices to make the UK a Freer Country’, and the following is one of Tom’s policy suggestions. 

The NHS is bloated, overweight and obese.  In 2012/13, its annual budget was over £100 billion.  A staggering sum.  For that sort of money we must be getting world-beating healthcare, right?  Well…not quite.  A Bloomberg study put us behind Libya in terms of efficiency!  While our healthcare costs per capita are the 15th highest in the world, our infant mortality rate is only the 30th best.  Life expectancy is no better.  For the huge costs to the taxpayer, the NHS isn’t good enough.

Why is this?  The NHS is increasingly filled with bureaucrats.  2008-9, the management staff numbers increased 12%, while the nurse numbers increased 2%.  Much money is being spent on middle management; not enough on frontline service.  Without the profit motive that exists in private business, the NHS has no incentive to cut costs, or drive efficiency improvements.  Consequently, the NHS budget has spiralled from just over 5% of GDP in 2000 to about 10% now.  A doubling in little more than a decade.  Moreover, the ‘free at point of use’ system is flawed.  Doctors’ valuable time is wasted;  88% said they spend time dealing with minor medical problems that patients could manage themselves.  If healthcare is provided free, of course people will misuse it; that’s how the incentives are aligned.  But is there an alternative?

Singapore’s healthcare system should be adopted immediately.  Bloomberg ranked it second in terms of efficiency; per capita healthcare costs are roughly half ours.  They also manage to deliver superlative healthcare outcomes.  They consistently rank near the top for life expectancy.  It is no surprise that they have the lowest infant mortality rate in the world.  How do they do it?  Healthcare spending is 68% market based.  Individuals control their own health savings account.  For low-income earners, this is topped up so they can afford their healthcare needs.  It also means people aren’t frivolous; they shop around, look for value.  Competition ensures that costs are driven down as healthcare providers fight for customers.  People also have catastrophic medical insurance so nobody is left to die because they couldn’t afford the surgery needed following a horrific accident.

This market-based system maintains fairness – everyone has access to healthcare – drives efficiency and increases consumer choice.  Roughly, the UK could save about £50 billion by increasing efficiency to Singaporean levels.  This is a policy to make society freer, richer and happier.

Why we really should get fracking

An interesting little report from the US. Looking at the full integrated costs (yes, including carbon emissions not made) of the various options for energy capture and or generation. And it looks like wind and solar really just don’t cut it:

[A]ssuming reductions in carbon emissions are valued at $50 per metric ton and the price of natural gas is $16 per million Btu or less—nuclear, hydro, and natural gas combined cycle have far more net benefits than either wind or solar. This is the case because solar and wind facilities suffer from a very high capacity cost per megawatt, very low capacity factors and low reliability, which result in low avoided emissions and low avoided energy cost per dollar invested.

It’s worth noting that that $16 gas price is well above the current gas price in the UK (around 40p per therm, while $16 equates to perhaps 100p a therm).

So, the really interesting question is how has the UK government managed to do the calculations showing that natural gas isn’t the answer? To which the correct response is that they’ve assumed that natural gas prices are going to rise very strongly in the future. Yea, even if we frack the entire country, for all of that would just be exported anyway. This is, to say the least, an unsupportable assumption.

In the long run the answer is undoubtedly going to include a lot of solar. Prices are still falling at 20% a year and it really doesn’t take all that many years for that to have a significant effect. As Bjorn Lomborg pointed out by 2025 we’ll all be installing solar purely on price grounds anyway. In the interim gas is still the best answer: so we really should get fracking.

Green belt is the reason for rabbit hutch UK

A Cambridge University study has claimed millions of people are living in homes that are too small for them, and the poorest are being hardest hit, what the academics call ‘rabbit hutch’ Britain.

The academics at Cambridge should know. It is one of those towns, forty miles from Central London, that is booming as a result of London’s suffocating ‘green belt’. London house prices have been soaring, and people who work in the capital have been forced to find homes further and further away. They blame foreign property buyers, or even the government’s Help to Buy schemes, for the surge in prices. But that is only part of the story. The fact is that London, like many other cities in the UK, is not building enough houses. To meet the demand, the UK would have to build around 260,000 houses each year. Last year, it built just 110,000. And, like the national debt, that deficit has been stoking up housing pressure for at least the last thirty years.

It is near-impossible to build houses to meet that demand hangover. The green belts, announced in the Town and County Planning Act of 1947 and introduced in the early 1950s, were supposed to be slim areas of woodland and farmland surrounding our cities. The idea was to stop ‘urban sprawl’ and to give city dwellers some nice countryside nearby that they could enjoy. The farmland, however, has become industrial farmland, more like the prairies of the MidWest rather than the bucolic idyll of Olde England, and quite inaccessible to the public. Meanwhile this so-called ‘green’ belt has been extended further and further as people living in it or near it campaign to stop development near them – which, if successful, means that their home rises in value because of the huge unfulfilled demand. So 73% of Surrey, near London, is now green belt, and the few houses their command huge premium values, as do those in the other Home Counties. In the cities themselves, space has become so valuable that homes have indeed become rabbit hutches.

As Paul Cheshire, Professor of Economic Geography at the London School of Economics (and a recent speaker at the Adam Smith Institute) points out, greenbelts are a form of discriminatory zoning. They deliver no real benefit to a poor child in Haringey, five miles away from the green belt. But they do deliver benefit to the stockbroker-belt residents, keeping the urban unwashed and their housing out of their backyard.

The Adam Smith Institute has suggested that 800,000 new homes could be built around the capital by shaving just half a mile off each boundary of the London green belt. Politically, of course, that is difficult. Every homeowner in London, and particularly those around the green belt, have an interest in keeping the supply restricted. Cheshire has another suggestion. Because of the green belt restrictions, if you can get planning permission on a piece of land, its value soars. Cheshire would simply say that when that premium reaches a certain level, it is obvious that the market is telling you something. And where the premium is highest, that is where we should release land for new building.