Tory nudging


Richard Thaler, co-author of the book Nudge will be joining Camp Cameron as an adviser on regulation. Should the Conservatives form the next government, he will sit in a regulatory “star chamber" designed to analyse the impact and effect of proposed regulation.

Thaler is an American behavioural economist whose work has long been popular with the Conservatives. He argues that the concept of humans as fully rational and logical is wrong; instead, we often react instinctively, affected by emotion or acting in ignorance. In essence, Thaler doesn’t believe that we are entirely capable of making our own decisions. Instead he suggests that the government should create social nudges that encourage and influence us to make the ‘best’, socially useful decision. Examples include presumed consent for organ donation, and the proposed Tory policy of comparing a household’s energy expenditure with their neighbours on the bottom of gas and electricity bills.

Thaler calls such ideas examples of “libertarian paternalism"; they are deemed libertarian because they do not force anyone to change their habits, yet they are paternalistic because they assume that the governments’ desired outcome is the most correct. A major problem is that this work is based upon an individual’s unconscious and psychological reactions to the situations before them. ‘Nudging’ people to act in a certain way requires the manipulation of these reactions, such as our ‘herd instinct’, encouraging people to 'make the right choice'. As Lib Dem MP Danny Alexander claims: “There's something worryingly illiberal about all this Nudge stuff. If governments wanting to change our behaviour don't need to explain what they're trying to do, how they're trying to do it, or what outcome they're after, then they are ignoring what voters want."

The influence of economists like Thaler add to the creation of our Nannying State, where citizens are perceived as too ignorant and base to rely on their own desires and morals. It is difficult to see how principled views such as a reluctance to donate organs can be ob ‘wrong’, even if we do make rash and impulsive decisions in day-to-day life.

One hopes that we have enough awareness not to be nudged. However, if we are as susceptible as Thaler claims it is a serious cause for concern. Perhaps it is better to be shoved than nudged; at least then you can retaliate in self-defence.

My risk not yours


Your average man, woman or child on the street partakes of risk on a daily basis. It's life. Ninety nine percent of us accept this and glibly stroll into the road safe in the knowledge that having looked both ways there's no traffic. What of that other one percent? Mainly the ones that work for the Health & Safety Executive.

In their bureaucratic fantasy land of the anaesthetised office, cleverly covered in bubble wrap (the office not the desk jockey), including the paper, can't be too careful with that stuff might take your hand off) they dream up more rules and regulations. Attempting to ensure that during any day in Great Britain no one will so much as have a hair on their head bent out of shape. And, no, you can't order everyone to lie in bed all day (yet) as that's cheating, and don't forget bedsores are a risk. For them risk is everywhere: from standing in the shower, to putting on socks, to walking, eating, using your car, your phone...etc. Yet, the majority of us decide not to put our socks on in the shower while attempting to drill through a wall. Why? Because someone else attempted this and managed to pass through the bottom of the bath to the other side.

Anything could happen to anyone at anytime. It doesn't mean that we need an HSE officer standing over us with a clipboard loudly and sharply inhaling every time we raise the level risk. Risk belongs to us. We gather information in the hope of limiting risk. If we choose to ram a knife into the live toaster, then we accept that as we have raised the chances of removing ourselves from the gene pool. Deserving the consequences should the toaster shockingly reject the unwanted metallic intrusion. This is natural selection, not an opportunity for some faceless office wonk to call for a ban of toasters, knives, bread and electricity.

All of which is comparable to asking the police force not to take any risks while protecting the public. Yes, they have.

The fifty percent fiction


Despite George Osborne's assertion that the next Conservative government will retain Labour's 50 percent top tax rate on incomes over £150,000, it is highly probable that this will not happen. It is not that Mr Osborne was misleading the Tory Conference, merely that events will change and force with them a change in policy.

In the first instance Mr Osborne has underestimated the opposition to this tax in both the City and within his own party. City people are united in a hostility to it that borders on contempt. They already have no respect for the government that introduced it, and will have none for a government that sustains it. The pressure of their opinion will cause the Shadow Chancellor to re-visit his plans. Nor have I met a single Conservative MP or candidate who supports the tax; and as their opinions are expressed privately to Mr Osborne, this, too, will influence his thinking.

The chief thing to change opinion will be the increasing chorus of expert opinion that this tax, far from raising additional revenue, will cost the nation dear and leave a big hole in the finances unless it is abandoned. Already the Adam Smith Institute and the Institute for Fiscal Studies, both using a dynamic interactive model of the economy, have concluded that a 50 percent rate will raise less than the current 40 percent rate as incentives decline and people choose to seek more tax-friendly regimes in which to base their activities. By the time this tax change takes effect in April, the scale of the exodus will be becoming clear, as will the loss to the Revenue caused by the departures.

Mr Osborne's point that the tax should stay in place throughout a public sector pay freeze is not a valid one. What he should have stressed is the importance of getting the rich to pay their fair share. In fact the proportion of tax paid by the rich declines when rates go up, and increases when they are lowered. Faced with united anger from the City, zero support among his backbenchers, and the evident fact of a loss in revenue, the 50 percent tax will be allowed a decent but hasty burial. On its grave they might inscribe "2010 – 2010. Killed by reality."

Check out Dr Madsen Pirie's new book, "101 Great Philosophers."

Hammond’s way


Shadow Chancellor, George Osborne, has made a start in announcing some headline-grabbing public expenditure cuts, including a one-year freeze of many public sector salaries. But Shadow Chief Secretary, Philip Hammond, has apparently been charged with finding other cost savings.His priority should be delivering material cuts within a four-year time horizon, something that the raising of the pension age does not address.

The real risk is that a succession of failed gilt auctions to fund the staggering annual issuance requirement, perhaps accompanied – or even caused – by a downgrading of UK sovereign debt, pushes up borrowing costs substantially. Where should Hammond start? Instead of cherry-picking individual programmes, there is a strong case for imposing ongoing across-the-board real cuts averaging 3% per year – with a few exceptions.

Clearly, social security, with an expected £165 billion out-turn this year, is an obvious target. Reducing both individual payments or limiting eligibility are sensible starting-points. With an annual budget of over £100 billion, the NHS should not be exempt. Given its massive work-force, there must be potential for cost savings away from the front-line. Local Authority expenditure has seldom been properly controlled. Now is the time to clamp down on excessive local government expenditure, both in terms of job numbers and salaries.

Bearing down on some profligate Conservative-led local authorities would be a useful start - along with adopting Wandsworth Council as the Tory template. Furthermore, finding large savings within the MOD’s notorious procurement division should not be difficult, especially from the aircraft purchasing programme. In terms of capital expenditure savings, scrapping Crossrail would be a sensible decision. Given its vast cost, is there really a compelling case for Crossrail at a time of acute financial stringency?

If Philip Hammond adopted these policies, the Treasury numbers would stack up nicely and the PSBR would plummet. But how strong is the political will?

Tory regulation policy won't impress business


Tory regulation policies show they don't understand the burdens on business nor how to lift them

Regulation in the Post-Bureaucratic Age is the third Conservative policy paper on the subject in three years. Each bears little relation to the one before and no doubt another will be along before the general election.

The title is fantasy. Apparently, by next June, bureaucracies will no longer exist. For example, the Audit Commission will no longer audit local government; that will be done by a Whitehall department. At least the Audit Commission has some level of independence and accounting skills. Replacing it with a government department doing the same job hardly cuts bureaucracy.

Most of the proposals are so old hat they already are in place. The proposals for enforcing regulations are near identical with the Hampton proposals now being implemented. The “Star Chamber" to challenge new regulations is exactly what Downing Street had under Blair. Gordon Brown announced the regulatory budgets idea, but withdrew it in March 2009 when shown it could not work. The idea of getting the public to identify poor regulations is equally old hat. The Better Regulation Executive has been imploring us to do that for the last five years.

The paper doesn’t even consider how to deal with EU regulation which is the source of most of the burden.

New but daft is the idea that we can replace regulations by “nudging". This comes from Professor Richard Thaler, a US behavioural economist (that is the dismal nonscience invented to cover the gap between what classical economics predicts we will do and what we actually do). Thaler has coined the idea that people are more likely to change habits if they are "nudged" than told what to do. So Professor Thaler – with no knowledge of EU or UK regulation or governance, will be parachuted in as adviser to the “Star Chamber".

But take heart: it is not all bad. The section on regulators, such as Ofwat, is encouraging. The paper suggests taking them back to the original plan, namely that they concentrate on economics and phase themselves out in favour of competition and consumer choice. Sunset clauses would mean that any regulator would have to justify its continued existence at least every seven years.

Regulation is a key topic for what remains of British business. Let’s hope the Tories can do better on it before they come to power.

Tories' alcohol taxes won't cure binge drinking


Shadow Home Secretary Chris Grayling wants to tax alcopops and curb pub hours. Neither will stop binge drinking.

When problems like binge drinking crop up, lots of people from 24-hour news channels thrust microphones under the noses of politicians and ask what they are going to do about it. Naturally, they say they're going to take 'tough' action, right away. But often their 'tough' action is only tough on the symptoms, not the disease. And quite often, the politicians' actions have exactly the opposite effect of the one intended.

Here's an example. As Fraser Nelson reported a year ago, when the Rudd government in Australia jacked up the price of pre-mixed drinks by 70%, consumption fell by 30% but spirit sales jumped by 46% as the kids mixed their own. And of course the kids poured themselves bigger measures than you got in the average alcopop. The result was a 10% rise in alcohol consumption.

Australia also used to have the ‘five o’clock swill’ as pub customers drank as much as they could before the official 5pm closing time. I remember the same happening in Scotland, where pubs were open a few hours at lunchtime, then from just 5pm-10pm in the evening. They didn't even open at all on Sundays. After Scotland deregulated in 1978, allowing 24-hour opening, everything improved – there was less drunkenness, less violence, an easier job for the police, and a fall in alcohol-related illnesses. Pubs were no longer just male drinking holes, but started selling food and becoming much more welcoming to families.

Politicians who want to seem ‘tough’ on binge drinking would be better focusing on the real, cultural cause. Alcohol is far cheaper in France and they drink at all hours, but they don’t have anything like our problems. Instead of an instant reaction for the microphones, our politicians would be better to understand why it is that young people go out binge drinking. Maybe it's because we have regulated our pubs so much that young people can't afford to drink in them. So they are no longer drinking under adult supervision, but go and get smashed on supermarket lager instead. Maybe the decline in the nuclear family, thanks to perverse welfare rules, also means that kids never learn to handle the joys and the dangers of alcohol as they do in France. Maybe it's bad state education or a nanny state that just picks up the mess with no come-back for kids or parents. Whatever the cause, slapping on new taxes and bringing in regulation isn't going to stop the effect.

Dr Butler's book The Rotten State of Britain is now in paperback.