The Pin Factory Blog

It's Budget day in Britain. We've a new Chancellor, but one under the shadow of his predecessor, Gordon Brown, who is now Prime Minister. That's a pity, because the public finances need repair. Spending and debt have both soared, to levels that the current economic climate makes unsustainable. It's not a problem that you can solve in one day – particularly with the markets so jittery. It needs maybe a five-year programme of reconstruction, at a pace that taxpayers and investors can afford. A new start. But we won't get it.

Ten years ago, UK public spending was lower than the (roughly) 40 percent of GDP that the OECD averages. Now it is much higher, at 45 percent. And as spending has grown, the government has consistently been on the over-optimistic side of prudence. Receipts have been overestimated, and spending underestimated, in almost every Budget.

And what has the extra money bought us? The NHS budget has almost doubled. Education spending is up by around 50 percent, as is policing. But our health, education, and crime figures just aren't keeping pace.

Many economists believe that countries prosper more when their public spending is less. And they certainly prosper more when business is not facing the constant assault of regulation and taxation – and of the uncertainty that goes with both. That's why we need a long-term programme to reduce the burdens, not fickle, headling-grabbing stunts like the assault on non-doms.

We need policies such as an annual phasing down of corporation tax, right down to the Irish level of 12.5 percent – which would create more investment, employment, and wealth. And getting a year-by-year better grip on spending by not replacing civil servants who retire. And a genuine strategy to reduce the cost of regulations – not just talking about it.

In the private sector, many people are now struggling to pay off the debts they accumulated in the good times. In the public sector, the government now faces exactly the same problem. Over the boom, when it should have been building up a cash chest that would help us all through the bust, it has carried on spending and borrowing. Like those private borrowers, it needs to take a long, hard look at its future finances and produce a long-term plan to get itself out of the hole. We need a new beginning. How sad it is that the political realities make that impossible.

59. "We need a Human Rights Bill to protect our liberties."

A Human Rights Bill is something which looks plausible on the surface, but disastrous when you look deeper into it. Such a bill would be a written codification of the liberties which Parliament thinks should be enshrined into a written law. In fact most of our liberties come from conventions and assumptions added to over the centuries. Some were acquired from individual laws passed by Parliament, some arose from celebrated legal judgements which enshrined an important principle.

Any attempt to write them all down will be forced to simplify them into a manageable text. Many of them have the nuances of precedents which arose in practice and are difficult to codify. Inevitably, such a text would be given priority over the history, losing subtle threads of association in the process.

Furthermore, once the principle of a Human Rights Bill were established, every pressure group in the country would try to get their particular hobby horse through its door and admitted as a 'human right.'  People would campaign to get the rights of children not to be chastised by their parents, and the right of unborn foetuses to be protected from abortion, or from mothers who drink or smoke. The right to free and equal education would be inserted to have independent schools closed down. The Bill would be an instrument to get the force of law to do things which elected Parliaments have thus far declined to do. In its drafting it would be near impossible to keep the contentious 'positive rights' separate from the negative rights which have constituted our liberties.

Parliaments have been scant respecters of those liberties in recent years, but a Human Rights Bill, far from protecting them, would open the floodgates to even more abuse and erosion of them, taking away our freedom in order to give others what some think should be their 'rights.'

Lord Razzall, the LibDem spokesman on business in the Lords, came in for an Adam Smith Institute Power Lunch this week. He's unusual among parliamentarians - a legislator who believes there is too much legislation. Quite so. Every year there are about thirty or more bills in the Queen's Speech. Ministers reckon it's a macho thing to get their department's pet bill on the agenda, and people think they are weak if they don't manage it. We've had nearly thirty bills on industry and employment issues in just a decade. Have they made us better governed - or safer, healthier, better educated? I think not.

And we're over-regulated too. Most regulation is actually home based, only a minority comes from the EU. But once UK lawyers get their hands on it, asking governments to define exactly what particular rules mean and when they will apply, the rule-book gets fatter and fatter. Like us, the LibDems propose sunset legislation on regulations - they fade out unless specifically renewed each year. But we have other ideas too, as readers of our report on regulation will know.

However, that sunset policy may come up against the fact that House of Commons scrutiny of bills and regulations is inadequate. Thanks to timetables and guillotines - and the vast queue of bills all jostling for time - measures like the competition bill have gone through the House of Commons without being properly looked at. Asking parliamentarians to stay up until midnight to vote on regulations (there are just so many of them) might be asking a lot.

Another area that our discussion alighted on was the future of the Business and Regulatory Reform department. The LibDems argued that the old DTI should be broken up, with most of the business promotion stuff being put into the Foreign Office, and most of the consumer protection side being done elsewhere. I agree that this makes sense. Dare one say that officials have sometimes promoted business at the expense of consumers? Several of our experts round the table though that the regulators certainly had - with bills rising at the same time that utilities' share prices began to soar.

Maybe the LibDems have a point - there is a lot wrong in politics. But there's just as much wrong with the system by which politics operates. If only we could get them to trust the market.

Today's installment of that ever so enjoyable emotion, schadenfreude, is of course over Eliot Spitzer. Here we have the explanation of what $4,300 really buys.

Here's an example of what's wrong with journalism today. And here's the explanation of why it's as it is. 

Perhaps the BBC becoming a newspaper publisher will improve things. Or perhaps not? 

A new idea for funding "revolutionary " science. Plus some thoughts about whether this would have changed economics. 

The joys of inflation.

Well, it's one budget submission, not that anyone will listen to it. 

And finally, philanthropy can be taken too far. 

It's getting to be a familiar pattern. Think up some wizard scheme that will buy you a day's headlines. Announce your policy. Enjoy the headlines. Watch with mounting alarm as the Opposition, everyone affected, experts on the subject and the media all point out how unjust and unworkable it is. Try to get yourself out of your hole by getting the civil servants to think up a few ifs and buts that might make the policy more palatable. Press on to the next headline-grabbing stunt.

We're seeing this script being rehearsed again in the debate over the taxation of non-domiciled persons in the UK. The Conservatives (sadly) started it, saying that foreign millionaires living here ought to pay at least some tax. It didn't exactly excite the general public, though anything that does in millionaires is usually reckoned to go down well at the ballot box. And it was too good for the government – still in Brownian mode of trying to fund its tax-and-spend imperative by extracting from taxpayers as much money as it can in as many ways it can devise with whatever penalties it considers necessary – to miss. But of course, the very power of that imperative meant that the HMRC vampires sank their teeth in too far – far enough for non-doms to start consulting their lawyers and saying that they (and their investments) would be leaving the UK for somewhere sunnier and lower taxed.

So the next phase, the extrication phase, has now begun. Spin-doctors have been suggesting that non-doms who have lived in the UK for more than seven years will hardly be affected at all. They'll just have to pay a flat rate of £30,000 pa (which seems like rather a large tax bill to me) – or face paying UK tax on their non-UK earnings (which is undoubtedly even more). Special negotiations have gone on with Washington to try to make sure that American non-doms, in particular, will be able to offset the £30,000 against their US tax bills, sparing them a dose of double taxation. And the art market will be specifically exempted from the non-dom charges ... and so on.

All of this might indeed take some of the sting out of the new tax. It might even convince a few non-doms that the UK government is not in fact a bunch of unscrupulous money-grabbing opportunists who are not worthy of their trust, and that they should stay. It might.  If it does, unfortunately it will do so at the cost of making the tax system even more complicated.
 

58. "We owe it to our labour force to protect their jobs by limiting imports."

If we prohibit imports, it is because they undercut domestic production. Always the cry goes up about cheap foreign goods, usually raised by organized labour and the political parties which depend on it. Sometimes the cry is about sweated labour paid starvation rates overseas. The arrival of many Asian goods made with high priced labour is, of course, glossed over.

When we restrict imports we can temporarily keep going with our own high-priced production, and thus, for the moment, save the jobs. But it also means that we have to pay more than we need do for those goods. After all, we could be buying them more cheaply from overseas. So we have less money than we could have to spend on other goods and services, and to develop more modern job opportunities there.

We get locked in to a fortress economy in which we produce high-priced goods which cannot sell overseas. We finish up with a collection of out-of-date industries unable to make their way in the world market.

The best way to respond to competitive imports is by cutting our own costs with up-to-date methods, or by moving into other areas. If South Korea can produce high quality and low priced steel, we should not try to sustain a production of our own which is much more expensive. If we do, then every industry which uses steel will be paying more than it needs to. This means higher prices for domestic consumers, and exports unable to compete with goods using the cheaper steel.

We should use our resources instead to alleviate social burdens, and to transform our economy into one which develops what we can do better and more competitively. By encouraging mobility and the retraining of labour, we will do very much better than by trying to raise walls of sand against an inexorable tide.

The UK government wants to ensure that all new fossil fuel plants are prepared for carbon capture. The plan was announced by business secretary John Hutton (pictured) at a packed Adam Smith Institute conference on The Future of Utilities this week. Much to the dismay of the enviro-lobbyists present, Hutton also confirmed that the government was sticking with its plans to boost clean coal technology.

"Fossil fuels will continue to play an important role in ensuring the flexibility of the electricity generation system," Hutton told us. "Electricity demand fluctuates continually, but the fluctuations can be very pronounced during winter, requiring rapid short-term increases in production. Neither wind nor nuclear can fulfil this role. We therefore will continue to need this back up from fossil fuels, with coal a key source of that flexibility,"

Ah well, the penny seems to have dropped there, at least. And it continues: the government has already declared its support for new nuclear power to replace (or even expand) the 20 percent or so of electricity generation that currently comes from Britain's elderly reactors. Which makes sense, given that the government is trying to balance the need for secure energy with its commitment to cut carbon dioxide emissions (by 60 percent from 1990 levels, by 2050).

Proving that the Archbishop of Canterbury does not have a monopoly on stupid ideas,  Mgr Gianfranco Girotti, a senior adviser to the Pope, has come up with an updated list of the seven deadly sins: genetic modification, carrying out experiments on humans, polluting the environment, causing social injustice, causing poverty, becoming obscenely wealthy, and taking drugs.

Junksmith prefers the Telegraph's take:

Allow us to suggest our own list of Seven Vices Best Avoided in Ecclesiastical Pronouncements: prissiness, moralising, over-familiarity, self-righteousness, babyishness, cant and, above all, banality.

Hat-tip to Tim Montgomerie at CentreRight.com.

What signs can tell you. For example, a place that has signs up asking that you not assault the staff must be assuming that there's something about the customer service which makes you likely to make said assault, doesn't it?

One reason that you see Laffer effects in the higher ranges of taxation. But will tobacco actually grow in the UK? 

Continuing the statistical analysis of MPs' expense claims. One employing more staff (or, ahem, one claiming more expenses for doing so) should be better at answering constituents' questions, shouldn't they? 

Quite, if reflexology actually worked, we'd all have terrible health problems from walking down the street. Or be cured of them all perhaps? 

The mockery that follows a particularly stupid piece of public sector advertising. 

That new deal on GPs' hours explained in detail. 

And finally, scamming the scammers. A glorious escapade with one of the 419'ers.