Adam Smith Institute

When Gordon Brown decided to abolish the 10p tax rate, he was calculating that there wouldn’t be much of a political fuss.

After all, a large part of the workforce that benefited from the 10p tax rate were immigrants working in low-paid, unskilled jobs: factory workers, farm hands, restaurant staff and so on. These workers are conveniently unable to vote in parliamentary elections, and lack much political clout.

They are also increasingly important to the UK economy: it is estimated that 40% of EU migrants to the UK work in unskilled jobs – 96,000 EU immigrants took up unskilled jobs in 2006 alone.

While the rest of the country seemed oblivious to Mr Brown’s 10p tax reform following the 2007 budget, migrants from the EU appear to have been quietly taking note. According to research from the IPPR, about half of EU migrants have now left the UK, increasingly unimpressed by the economic opportunities offered by Britain. This trend is set to accelerate.

However, before Migrationwatch get too excited, this exodus of unskilled labour could bring with it a host of new problems: a tighter labour market, with increased upward pressure on wages and consequently greater general inflation.

As we know, inflation clobbers the lowest earners in particular, as essentials such as food become more expensive. So yet again, it will be Labour’s core voters that bear the brunt.

Fortunately, there are some 1.1 million people of working age on incapacity benefit who could feasibly be working. These people could fill the gaps left by our vanishing migrants, thereby easing inflationary pressures.

Time to put those welfare reforms at the top of the in-tray, Prime Minister?

Apparently Boris Johnson had just one glass of champagne at his victory celebration, and spent most of the night with advisers planning his first hundred days. It's good that Johnson knows he has to hit the ground running, because being London Mayor from 2008-2012 is not going to be the simplest job in the world.

The new mayor has two major projects to oversee. The first is preparing for the 2012 London Olympics. The budget has already spiralled from £2.4bn to over £9bn, but officials are said to be working to a £12bn target.* Johnson will need to do everything he can to control spending and ensure that Londoners do not end up shouldering more of the burden than was originally agreed (£300m). He is also going to have to make sure that London's dodgy transport system is ready for the influx of visitors.

The second big project is Crossrail, the long-awaited train line linking Heathrow with the City and the Southeast, for which the Mayor has direct responsibility through Transport for London. Keeping Crossrail on time and on budget is going to be a major challenge.

Apart from good management, voters are going to want Johnson to deliver tangible benefits in their everyday lives. More police on the streets and a reduction in violent crime, so people feel safer. Less delays and disruption on the tube and less congestion on the roads, so people can get around more easily. More housing so that London life becomes a little more affordable.

All of this is possible with the right policies (and Johnson has some good ones) but it won't be easy – especially when the new Mayor's every move is going to be scrutinized by a hostile central government who would love to see him slip up. London is going to be seen as a testing ground for Conservative government, so the stakes are undeniably high.

* Is it too late to send it to Paris?
 

Politicians complain that politics is being devalued, with the populace disenchanted with the political process. One could retort that this cultural shift is to be expected in a free society where the affluent can largely look after themselves, but perhaps the politicians need to look at their own culture a little more closely.

Where government is limited, politicians can restrict themselves to matters of principle, to the standards and constraints that govern the actions of the people. When government becomes a vast social work department, all the paradoxes and imponderables of constructing the public "good" come into play. In particular, politicians become slaves to a mismatch between idealised objectives and their own interests.

The debacle over the ten percent income tax rate highlights the contrast. Technically, a single rate of income tax is a good idea, it smoothes out marginal tax rates and helps remove the high barriers to escaping welfare. But the headline interest of politicians is not to be seen to be punishing the less well off. Retaining a 10 percent rate "for the poor" is a simpler message than removing a 70 percent marginal rate as the poor try to get less poor. Equally, the obvious route of cutting income tax to 10 percent for everyone is seen to be "helping the rich".

Politicians, in concert with the media, regress in these complex circumstances to a slanging match about whose incompetence was it that led to the mix-up in the first place. The Whitehall Village bellows to itself in its glass box thinking it is addressing the policy issue; while the public see weird people indulging in weird antics to protect their interests. Is it any wonder that so many of us respond by saying "frankly, my dears, we don't care a damn".
 

Speaking to an audience at the Palace of Westminster on policing in the 21st Century, Baroness James of Holland Park (better known as the crime novelist P D James) said that Britons are increasingly living in segregated ghettoes and bedevilled by political correctness. Society, as she sees it, has become fractured beyond belief with a strong commitment to the immanent community yet with little for those beyond it. She also adds that, "mutual respect and understanding and recognition of our common humanity cannot be nurtured in isolation."

The UK’s 21st Century society is one that has been largely moulded by government, all the more so in urban areas. The idea of community has been taken from us by successive governments who, convinced that they "know best", have transferred power from the proverbial coalface to their own towers in the sky. Government weapons such as political correctness and multiculturalism have reduced 'communities' to small pockets of familiarity. Man has a predilection to comfort and trust though immediate relationships, which cannot be replaced by central government and the dictats of multiculturalism. It has to evolve through the interactions of those on the ground. Once this ever-changing and adapting civil society has been supplanted by the state, people retreat into atomised safety. We are now seeing across Britain with the breakdown of society.

The ties that once bound are now in Whitehall, as the government is attempting, through language and education, to take control of every aspect of our lives. As Baroness James stated, political correctness is "a pernicious if risible authoritarian attempt at linguistic and social control". The government backs this further with legislation that criminalises us all and silently celebrates the death of community and the atomisation of society. They seek for us all to be reliant upon them.
 

Over at the Spectator Coffee House blog Fraser Nelson has some typically cogent observations on Brown’s likely future course.  Perhaps most interesting, however, are his thoughts on the Parliamentary Labour Party.  He argues that ‘the Blairites have lost the argument with the party’, with the result that ‘we can now see orphaned Blairites and a resurgent Old Labour arguing over future direction.’

If the old Labour guard truly is in the ascendancy, then the key question surely is whether Brown has the ability – or indeed the inclination – to re-assert the importance of Blairite market reforms?  Given his own proclivity for centralizing, as well as his embattled position this seems highly doubtful: but does this represent the death-knell of the New Labour project?  Or merely a dormant phase prior to a re-awakening under a ‘post-Blairite’ (read Miliband) leadership?

Last week's local elections were pretty disastrous for the prime minister, Gordon Brown, and his ruling Labour Party. They lost hundreds of council seats – not just in marginal areas, but in the Labour heartlands too – and were beaten into third place in the popular vote by the Liberal Democrats. Even worse, Labour lost the London Mayoralty to Tory Boris Johnson – and the support of the capital city is correctly regarded as a pre-requisite for any general election success. All in all, these were the worst local election results Labour has endured since the 1960s, so I'd say 10 Downing Street is not a happy place to be right now.

Yet it remains very unlikely that Gordon Brown's leadership will be challenged. The Parliamentary Labour Party are much less prone to coups than their Conservative counterparts and, besides, there is not yet anyone who can realistically challenge the prime minister. On the Blairite side, David Miliband is not sufficiently established, Alan Johnson not sufficiently ambitious, and Charles Clarke not sufficiently popular. If there is trouble, it is more likely to come from the left of the party – John McDonnell, perhaps – who think old-fashioned socialism is the best route to electoral success. It isn't, of course, and most of the Labour Party knows it, so Brown should be safe for now.

The question remains though, what should he do with his leadership? On this front, it is vital that he is seen to be bold and decisive. He needs to set out a clear direction for his party, make radical policy proposals and then stick with them. How about this – in order to fight poverty, he should take the poor out of the tax system altogether and eliminate the absurd marginal tax rates which condemn millions to a life of state handouts. And in order to reduce inequality, he should reform public services, so that everyone is free to exercise consumer choice – and not just the rich who can afford to go private.

No, come to think of it, I can't see that happening either.
 

Anyone who talked to voters on the doorstep in the run up to the London elections will have found themselves explaining time and time again exactly who the Greater London Assembly (GLA) are and what they do. The problem is that with such large electoral areas – typically equivalent to three regular constituencies – assembly members have a low-profile and are difficult to hold to account.

Now the New Local Government Network has proposed an effective solution. In a new research paper James Hulme argues that the GLA should be scrapped, with its power to scrutinize the London Mayor transferred to a London Leader’s Council (LLC), consisting of the 32 elected council leaders in Greater London. Hulme argues that:

The crux of the problem is that, put simply, members simply don’t have enough to do to justify full time engagement….Through day-today interaction with their local communities, Borough Leaders would be best placed to offer first-hand guidance on the views and aspirations of ordinary Londoners.

Not only would this make both the Mayor and those who scrutinize him more accountable to ordinary Londoners, it would also save a great deal of the £8.7 million allocated in the 2008 Mayoral budget to run the London Assembly. In fact, the report estimates that removing the Assembly would save £6.6 million – that’s an extra 165 police officers on London's streets.

Much of Ken Livingstone's historic electoral success has been his ability to put himself across as a man of the people, in touch with the concerns of everyday folk.

Why, then, did he put climate change at the centre of his campaign?

Only 21% of respondents to a March Yougov poll thought that climate change should be in the top three priorities of the Mayor. Respondents considered issues like crime, transport, housing and tax to be of far greater importance.

For most Londoners, it seems, the promises of a candidate with regards to climate change is of marginal importance compared to things that are affecting their lives here and now.

Quite right. After all, is it a sensible use of the Mayor's budget to spend millions of pounds addressing a threat that may or may not impact on the children of our great-grandchildren, when there are pressing concerns that need to be dealt with today?

The people of Peckham, for instance, need better policing far more than subsidised low energy lightbulbs.

Meanwhile, Ken's initiatives to tackle climate change – such as raising the congestion charge to £25 for 'gas guzzlers', and implementing the low emission zone – achieve little except making London even more expensive than it already is.

Moreover, if the economy continues to grow, it is highly likely that future Londoners will be sufficiently rich and technologically advanced to deal with whatever the climate throws at them – hot or cold.

Ken's decision to campaign hard on climate change was a strange lapse of political judgment. He may have won the dubious honour of being selected as the ‘greenest’ candidate by Friends of the Earth, but this has little resonance with the ordinary, cash-strapped Londoner.

Still, Ken will not let electoral defeat stop him from contributing to the climate change cause. His retirement will mean hot air emissions from City Hall will instantly plummet by around 95%.

Presumably with an eye to a swift recovery after a possible drubbing in today's local and mayoral elections, Labour is sensibly losing no time on the Crewe and Nantwich by-election. They have already taken the unusual decision to table the writ before the funeral of Gwyneth Dunwoody has taken place and it now looks as if they are lining up Gwyneth's politically active daughter – Tamsin Dunwoody – as their candidate.

The late Gwyneth Dunwoody had a 7,000 majority and the seat is only 165th on the Conservative list of target seats, requiring an 8.4 percent swing. This said, if the News of the World’s target seat data is to be believed then this could be a Conservative gain. Their ICM poll suggests that the Conservatives would make a net gain of 131 seats, resulting in a 64-seat majority – or, to put it another way, Tory donor Lord Ashcroft's field-ops team has done rather well.

Either way, we have an intriguing contest on our hands. If the Conservatives fail to make a significant inroad into the Labour majority Brown will use it to shore up his position, whilst if the Tory's cut the majority to anything below 3,000, Cameron will really be able to claim that his message is reverberating throughout the country.

The election is only three weeks away, on Thursday 22 May. It will be very interesting to see what happens.

Just over two months ago I blogged about the arrival of the Libertarian Party on the UK political scene. At the time there was little in the way of policy pronouncements, but since then they've been busy in the forums on their website discussing a multitude of topics. Now they are beginning to assemble a very credible programme that would see the reduction of the size of the state and a restoration of individual responsibility.

The first highlighted manifesto policy is the abolition of personal income tax. It is a well thought through and well argued for piece of legislation that the LP would seek to introduce in the second year of them being in power and would finally, after 200+ years, rid us of this 'temporary' tax. This is the cornerstone of their economic programme which would also see them lower corporation tax to 10%, abolish IHT and CGT, the replacement of VAT with a national sales tax and Council Tax replaced with a local sales tax. As well as the strengthening of the Bank of England's independence they would also reduce government borrowing to zero and abolish the minimum wage. All very sound libertarian actions to take to drive an economy forward and free the market.

The manifesto is steeped in the notion of the rule of law which encompasses property rights, due process, equality and transparency. It outlines broad swathes of policy and the party's initial ideas concerning what action needs to be taken to free people from the dead hand of the state. Highlights include an end to the state monopolies in health and education, the former through a move to an insurance-based system the latter through a move to a Swedish style voucher system (similar to the one we covered here), a return to a more responsive and local police force, a localised planning system, a review of EU/UN membership and the removal of the welfare state hammock.

They are turning into a very well organized political party with appealing policies, so keep an eye on them. They may well surprise people in a few years time!
 

Just a few months after the capital gains tax farce, Gordon Brown made another embarrassing U-turn yesterday. With forty of his own MPs opposing the abolition of the ten percent tax band and local elections coming up next week, the prime minister announced that a 'compensation deal' for the losers from the tax changes would be unveiled in the autumn. The 10 percent starting rate of income tax will still be abolished, but the groups that stand to be left worse off – 60-64 year olds and low-paid workers without children – will get more winter fuel payments or new tax credits.

Once again, an attempt at simplification has ended up making the UK's tax code even more complicated and confused. It's already the longest in the world at 9,973 pages, while its administrative burden costs the UK £5.1bn a year. Nor is the government's quick fix (rushed out just in time for Prime Ministers Questions) likely to satisfy opponents of the tax change. The parliamentary rebellion may have been averted, but taxpayers will not be so easily satisfied. They don't want the hassle of filling out forms and applying for tax credits, they just want to pay less tax and keep more of their hard-earned cash in the first place.

A much better solution is to take the poor out of the tax system altogether. At the minimum, the personal allowance should be raised so that no one earning less than the minimum wage (about £12,000) a year pays any income tax at all. Then you could get rid of the labyrinthine tax credit system and all the bureaucracy that goes with it as well. 

Unfortunately I can't see the government going for such an obvious solution. They would rather tax you as much as they possibly can, and then give back only as much as they think you deserve.
 

"Why has the London election, which seemed a few weeks ago to be on the point of capturing the public imagination, degenerated into a dull Punch and Judy show that even London's local papers can scarcely bring themselves to report?"

That's how Anatole Kaletsky began an excellent article in Thursday's Times. It's a good question to ask. Is it down to the cynicism of the media, who are only interested in "the personalities of the candidates and their gaffes?" Well, perhaps. The Newsnight 'debate' was appallingly handled by Jeremy Paxman, who seemed entirely uninterested in getting the candidates to set out their stall, preferring to provoke constant interruptions and arguments. The same criticism can be levelled at much of the coverage.

But there's more to it than that. As Kaletsky points out, the London Mayor's areas of responsibility – transport and congestion; crime and policing; pollution, housing and urban planning – are things voters really care about. So you would expect a lot more interest in the election than there is. Kaletsky diagnoses the cause of this apathy correctly: Britain'se endemic over-centralization.

The London Mayor is really only an agent of central government. His job basically comes down to spending a big budget, and nothing more. It doesn’t matter who wins – they will still be dependent on the national government for any major policy shifts. That's why so many people just don't seem to care.

I'd like to see a radical decentralization of political power. London and the English counties could have the same responsibilities as the Scottish Parliament, and raise all the money they spend themselves. Greater accountability to voters would be one advantage. Competition between local government areas would be another: there would be more experimentation in public policy and the 'exit option' (people could move if they didn't like their area's services or tax rates) would serve to drive standards up and taxes down.

It's a win-win, in my opinion. But it will take a brave national politician to give up that much control.
 

Our friend Stuart Wheeler sends us the following message, which may be of interest to readers of this blog:

My Legal Case to Force a Referendum on the Lisbon Treaty 

I believe that there is an overwhelming moral case for a referendum on whether the UK should ratify the Lisbon Treaty because:

• The Labour Party, as well as all major parties, promised a referendum and they should keep that promise.
• The contents of the Treaty change our constitution so fundamentally that, irrespective of whether one is for or against ratification, one should be allowed a vote.

Fortunately there is a legal, as well as a moral, basis for demanding a referendum and I have instituted proceedings against the Prime Minister and the Foreign Secretary, in which I seek a judicial review and a declaration that the refusal to hold a referendum is unlawful. The case goes to the High Court on 22 April for a crucial preliminary hearing in open court.

The Liberal Democrats, who were instructed by their leader to abstain in the House of Commons on the question of a referendum, are to be instructed in the House of Lords to vote with the Government against a referendum. This will make it very hard, though not impossible, for an amendment in favour of a referendum to be carried.

The only other chance of a referendum in the UK is in my case. It will not be easy to win it but, if I do, and if the referendum is then won by those who oppose ratification, we may well have saved for our country its right to govern itself. We shall also have changed the course of European history because the Treaty cannot come into force unless every one of the 27 members of the European Union ratifies it.

I have a website about the case - www.stuartwheeler.co.uk - and it will be updated as necessary.
 

Despite attempts by Gordon Brown to cover up the continuing proliferation of quangos under his leadership, the Sunday Times has revealed the truth: "13 out of 16 Whitehall departments failed to reduce their spending on quangos and seven departments created new ones, with more in the pipeline this year."

This is despite Brown claiming in 1995: "The biggest question … is why our constitution is over-centralised, over-secretive and over-bureaucratic and why there is not more openness and accountability. The real alternative is a bonfire of the quangos and greater democracy."

Brown's 'bonfire' has gone the same way as his predecessor Tony Blair's claim to consign them to the "dustbin of history". Part of Brown’s initial appeal in when stepping up to lead the Labour Party appeared to be his dislike for unelected bureaucracy that undermined democracy. However, as the signing of the Lisbon Treaty (i.e. EU Constitution) has shown, his words were all bluster and held no real value. Thus, the growth of quangos under successive governments is still undermining British democracy.

The cost to British taxpayers is now truly astonishing. An investigation last year by the Sunday Times found that a total of £180 billion was being spent on them, equivalent to £3,600 a year for every adult in Britain. Whether siphoned through tax or directly from industry, the amount of money tied up in bureaucracy is staggering. Laughable at a time in which everyone is feeling the pinch.

Is your money well spent? To get the answer simply visit the British Potato Council. Did you know it was the year of the potato?

The Barnett formula, which allocates UK government money to Scotland, has become a source of real resentment in England. Its effect is that Scottish residents receive over £1300 more government spending per person per year than their English counterparts. The disparity is not easily explained by different levels of wealth – the North-East of England is poorer than Scotland, but receives less government funding. Yet successive governments have stuck to the formula, claiming it shares out public funding on the basis of need.

But now Lord Barnett, the former Treasury chief secretary who devised the scheme, has dismissed these assertions in an interview with Holyrood magazine, saying Gordon Brown is simply too scared too overhaul it for fear of upsetting Scottish voters. Lord Barnett went so far as to say that it was not really a formula at all, that there was "nothing scientific" about it, and that he concocted it "almost on the back of an envelope" based on "approximate" populations figures in the 1970s. It's a pretty damning display of honesty, isn't it?

Lord Barnett is absolutely right to call for a thorough review of the system of allocating funding. The system is certainly unfair to English taxpayers, and I don't think it does much for the Scottish either. The fact that the Scottish Executive only spends money that is allocated to it – rather than having to raise revenue itself – entrenches high public spending, encourages waste, and discourages fiscal responsibility, as well reducing accountability.

The most sensible solution is to make Scotland fiscally autonomous. According to my own back-of-the-envelope calculations, the Scottish Executive could easily finance all devolved spending if it set, collected and kept the proceeds of income tax, corporation tax and VAT, and took a share of North Sea Oil Revenues. One additional bonus of such a system would be the introduction of tax competition within the UK. If Scotland cut its corporation tax rates to Irish levels, for instance, it would put a lot of pressure on the Westminster government to follow suit.

The SNP administration at Holyrood is known to be keen on the idea, so watch this space.