Dealing with debt


Currently, the public sector is swelling far beyond its means. The UK is forecast to suffer a budget deficit of £170 billion later this year. This equates to every man, woman and child being in nearly £3,000 of debt. Every year, our government pays £200 billion to public sector employees and this is not sustainable. The problem with this is that the increasing deficit needs to be funded somehow.

There are several ways that this can be done. One way would be to increase taxes; however an increase in tax rates reduces incentives and is therefore likely to have the adverse effect of reducing tax revenues. Alternatively, ‘quantative easing’ (glorified printing money) could be used to pay off debt. But this is highly inflationary, as resources are no less scarce, so it would reduce the value of our currency, thus making the UK less attractive for investors.

Surely the best way to deal with the deficit is to reduce government spending. Reducing state funded employment would be a good place to start. Making public sector employees redundant would not totally reduce the burden, as they would then become an added burden to the welfare system through social security. Instead, it would be more effective to incentivise them to join the private sector, become entrepreneurial, set up small businesses, and employ people. This could be carried out through a number of measures. For instance, tax holidays for start-up businesses.

You could also increase firms’ willingness to take on new employees by abolishing national insurance. National insurance is a disincentive for businesses to employ people. It would be far more sensible to remove this tax in its entirety, encouraging businesses to employ more people who will in turn pay income tax themselves. This is likely to generate more government revenue than national insurance did to begin with.

Antisocial policies


Chris Grayling, Shadow Home Secretary, has given a snippet of the criminal justice strategy to be released by the Tories in the autumn. So far it’s not shaping up to be the most-hard hitting or persuasive of measures to tackle anti-social behaviour amongst young people.
The proposal is for the police to be given the power to confiscate bicycles and mobile phone SIM cards for up to a month if a young person is suspected of acting in an anti-social way. This is part of a plan to introduce ‘softer’ measures against teenagers to prevent them committing crimes and to save time and resources administering harsher punishments, such as the infamous ASBO. There are multiple problems with this approach, not least the policy-makers failure to understand the psyche of Britain’s teenagers.
This proposal is the latest in a long line of instances where politicians have sought to bypass some of the fundamental rights which we should enjoy as citizens, no matter what age. Police should not be given the jurisdiction to confiscate and punish ‘at their own discretion’. Giving such powers to police will only result in an abuse and overuse of state control over individuals.
I can see the logic behind Grayling's idea to confiscate bikes and SIM cards from troublesome youths as an intermediate punishment for lesser offences, but in reality it will never work. The type of young person who acts antisocially is probably not going to be put off by having their bike confiscated, they are just going to steal a new one. And by taking their mobile phones, they will no longer be texting one another from their bedrooms, but meeting in gangs in parks and on street corners. The way for authorities to forge productive and respectful relationships with young people is not by confiscating their property.
To tackle antisocial behaviour amongst young people, the Tories will have to attack the root of the problems. First they need to remove the disincentives endemic in the welfare system of modern Britain, rather than blacklisting and demonising them. Most teenagers make up a valuable part of our society, the Tories plans are well intentioned, but show they are still out of touch.

Sir David Walker: A response


Sir David Walker's report will be widely welcomed as sensible and indeed it does have some good aspects, notably limiting bank directors on the number of boardroom tables they can grace. Unfortunately, the major part is a hollow reannouncement of powers the FSA already has but has shown itself incapable of applying. The FSA can already veto bank director appointments it deems to be wrong but the FSA lacks the skills to distinguish "good" from "bad" appointments as at least one recent appointment testifies. And even if it did have those skills, would it have the muscle to impose that opinion on a united board of a major bank that thought otherwise? Such opinions are subjective and hard to prove in a court of law. And the FSA is run by lawyers.

Eminent as Sir David is, he is part of a system which has resisted all outside calls for major behavioural change so far, with the sole exception of switching short term cash bonuses to long term paper ones. Internally, banks have rediscovered conservatism not because of any government or FSA regulation but because the market has delivered a major shock. The same will apply to the future behaviour of bank directors. Until today's junior managers are taking their pensions, that is.

Re-energizing Britain


According to our latest reportRe-energizing Britain by Nigel Hawkins – there could be blackouts in Britain unless the government spends less time producing energy policy documents and more time trying to get the six major energy companies to invest.

The UK's energy fate depends upon this sextet, and unless they invest enough in new generation plant, power cuts are not just possible, but probable. But – faced with tougher lending conditions from the banks and better investment opportunities overseas – two of the six are actually cutting back their investment plans.

In particular, the government needs to be more pro-active in driving through planning approvals for new nuclear power stations, and helping the companies put together nuclear investment funds, so that new nuclear plant is ready to fill the gap caused by decommissioning older stations.

The report's author, energy analyst Nigel Hawkins, says that nuclear power should be helped further by replacing the existing Renewables Obligation – which requires electricity suppliers to buy from wind, wave, biomass and other 'green' energy sources – with a new Low Carbon Obligation – which would include nuclear power.

Hawkins says that the three key aims of energy policy – security of supply, reduced carbon emissions, and lower prices – would all benefit from this change, since nuclear energy is both low-carbon and less expensive than many other ways of generating electricity, and does not depend on risky supplies of gas from Russia.

The report also argues that we need fewer words and more action on promoting investment in gas storage, where our capacity is just a tenth of that of Germany. This, it says, is "a very exposed position", since an increasing proportion of our gas now comes from abroad, much of it from Eastern Europe and Central Asia. The government needs to work with the energy companies to make sure that they have both planning approval and access to finance to increase Britain's gas storage facilities substantially.

Divorcing Gordon's ugly model economy


We have already seen tax receipts fall this year, noted by Tax Freedom Day's move to May 14th and the latest news is that they are set to continue to fall. McDonalds have decided to kick Gordon Brown where it hurts. They announced their move to Switzerland on Monday so to avoid being punished twice for being successful. They are not the first to move and it would be a surprise if they were last. But this also means with the companies go their high salaried directors thus making it a double hit upon the UK government's tax fund. As well as the wider economy where they would spend their money.

The Prime Minister has been successful in only one thing during his time at both Number 10 and 11 Downing Street: destroying the UK economy. The list of companies that have moved abroad in the past eighteen months include, "...WPP, Shire, Regus, Henderson, Charter, Beazley, Brit Insurance and UBM." They have moved because the UK has failed to remain competitive. These failings are the fault of Mr Brown entirely and his limited knowledge of the real world.

When governments seek to raise funds through higher taxes they should first consider whether their business environment is conducive to growth. If there is no chance of economic growth then taxes have to remain the same or be cut to attract businesses. What current governments are undertaking is a mass suicide pact: attempting to keep their spending levels at the pre-crisis levels through higher levels of taxation, greater borrowing and increased enforcement. As seen above, all detrimental as companies give up and move to places more conducive for their business to survive and grow.

When will governments wake up and recognise what works to make a successful economy?

A modern tale


It is the month of August, on the shores of the Black Sea. It is raining and the little town looks totally deserted. It is tough times, everybody is in debt and everybody lives on credit.

A rich tourist comes to town.

He enters the only hotel, lays a 100 Euro note on the reception counter and goes to inspect the rooms upstairs in order to pick one.

The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher.

The butcher takes the 100 Euro note and runs to pay his debt to the pig farmer.

The pig farmer takes the 100 Euro note and runs to pay his debt to the supplier of his feed and fuel.

The supplier of feed and fuel takes the 100 Euro note and runs to pay his debt to the town's prostitute who in these hard times, gave her "services" on credit.

The hooker runs to the hotel and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.

The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything.

At that moment, the rich tourist comes down after inspecting the rooms and takes his 100 Euro note, after saying that he did not like any of the rooms and leaves town.

No one earned anything. However, the whole town is now without debt and looks to the future with a lot of optimism..

And that, ladies and gentlemen, is how Europe and North America are doing business today.

Matthew Anisfeld joins the ASI


Having just completed my penultimate year at Haberdashers' in Elstree, I have the summer to await my AS level results. I wrote exams in Music, Economics, Mathematics and Further Mathematics. I hope to continue all of these subjects into my final year at HABS. Results permitting, I will apply at the end of this year, to Cambridge University to study either music or economics, two of my great passions.

I would describe myself as a free market devotee; so I anticipate that this week of work experience will provide further depth to my beliefs. In these economically fascinating times, it is easy to take the view that this is the fall of the free-market. I would argue quite the opposite. To quote Eamonn Butler “If you bound the arms and legs of gold-medal swimmer Michael Phelps, weighed him down with chains, threw him in a pool and he sank, you wouldn't call it a ‘failure of swimming'." It is therefore obscene to suggest that this financial collapse is a failure of the free-market.

Will the dinosaur howl or whimper?


It's a strange time for the BBC. As its Annual Report comes out, it faces attack on all sides; sometimes for editorial reasons, often for reasons of quality and decency, and endlessly for being so damn big and intrusive.

But if a dinosaur stands up and says over and over again that it's the biggest and best player in the steamy swamp what else should it expect?

The oddity about the Beeb is that it always plays with one very old bat - that as the incumbent at the wicket of British culture it has a mission to reflect our culture across its entire diversity and that without it, we would all be worse off. The trouble is that, like politicians, it has been found out. By being part of the establishment, ossified in its position, it has adopted the stance of a typical nationalised entity, with highly paid executives, multiple layers of administration and a self-opinionated belief in its own value.

Seen from outside by viewers who are discovering the delights of many new ways of taking in information, entertainment and education from other source channels, the BBC is in serious risk of becoming - er - quaint. Where a howling vibrant kick-ass BBC would be out there creating waves in drama and documentary, stirring up stupid politicians, and pushing back new frontiers of content delivery, it has become more self-conscious about its position as owner of half our broadcast industry and much more besides. It knows it has to look inward to protect itself against waves of anger by viewers and listeners measuring its offerings against their licence tax. Is that any way to run a vibrant business? Whimpering about good value, compliance standards and splendid achievements does not move it forward.

The BBC desperately needs to be privatised, to move us further towards a universal subscription model, to allow consumers decide what they want from its considerable creative talent. Only then will we get the real diversity we want, the incisive journalism we want, and the ferment in new media that will emerge with true competition between creative players. The Dinosaur can then take its place among other scary raptors, novel mammals and yet stranger fish. Plurality will out, and we can enjoy the tussle for our attention.

Record government borrowing.....and guess who will have to pay for it?


The measures taken by the current government in an attempt to minimise the severity and length of the current downturn are simply unprecedented in scope or scale. Their reach into markets, particularly financial, has many serious implications. For example, the state-sanctioned merger of Lloyds and HBOS created a titan of the consumer finance sector, with 28% of the UK mortgage market and 35% of savings accounts. However, the government ignored this oligopolistic evidence and overruled the concerns of the Office of Fair Trading that this would cause a "substantial lessening of competition", making the argument that the survival of all the major banking institutions was essential to avoid a 1930s style depression.

However, government intervention is now becoming more prevalent across other sectors which are surely not vital to Britain’s economy. For example, Britain lost comparative advantage in mass production of cars many years ago: the presence of plants such as Nissan’s and Honda’s is simply due to existing tax breaks and subsidies. Yet, the Government appears to be unwilling to face up to the harsh new market realities, offering the industry up to £2.3 billion of loans. Widespread governmental intervention, in providing financial assistance and circumventing competition laws, distorts the free market, meaning that we, the consumer, ultimately suffer. It negates our fundamental free-market liberty to decide through our purchasing power which companies thrive and which fail, and which products and services are offered.

Unprecedented state borrowing also creates a more long-term implication for our liberty. This year the government will borrow £175 billion, and national debt will rise to 79% of GDP by 2013-14. This debt ‘time bomb’ led Matthew Elliott of the Taxpayers' Alliance, to say that "This commits taxpayers to a terrifying amount of debt that will burden ordinary families for decades to come." Public service spending will be squeezed hard, but tax rises in both progressive and regressive taxes are inevitable. These diminish our liberties, as they decide how a large proportion of our income will be spent, and therefore leave us less money which is ours to spend as we choose. Therefore, the compulsion to pay for the government’s reckless spending and failure to predict the downturn is particularly unpalatable, and the scale of the inevitable tax rises represents a serious long-term threat to our freedoms as economic agents.

This article is written by James Freeland, winner of The Young Writer on Liberty 2009.