The Pin Factory Blog

 The Coalition government should be lauded for Friday’s announcement of a plan to permit people to exercise control over inordinate council tax hikes that have increasingly squeezed the budgets of English households across the country. Local Government Secretary Eric Pickles announced his intention to allow people to decide through a referendum process whether to accept or reject council tax increases that exceed the rate of inflation. This is expected to be in place by March of 2012. Under the current system, Whitehall decides when an increase is “excessive” and must be capped. The move is positive for two reasons: it will likely arrest the dramatic increase in such taxes, and will allow people to better control their local governments.

First, the growth of council taxes, which has been unacceptably high, will at long last be controlled by the measure. Council taxes in England have nearly doubled over the last decade; the average council tax per dwelling in the country has increased from £656 in 2000 to nearly £1,200 today. Last year, the Telegraph reported that the increase in council taxes over the preceding decade outpaced inflation by a factor of four. That the referenda, which can be costly to administer, will be funded by the councils themselves will provide significant incentive for councils to make difficult budgetary decisions instead of irresponsibly raising taxes and further burdening families.

Second, the measure puts people back in control of their local governments. The central government is ill suited to make determinations about tax rates in local communities. Whitehall does not have sufficient knowledge of local concerns and cannot make appropriate determinations about which tax increases are “excessive” and which are acceptable. Such control belongs to the people, who know their communities much more intimately than bureaucrats in Westminster. Local government needs to be checked in some fashion, and it is only logical that such a check should come from the people most affected by its decisions.

The recent announcement is a heartening indication that the Coalition government has faith in the ability of communities to manage their own affairs. The referendum plan is a step in the right direction that further empowers the people, and simultaneously forces governments to make the crucial tradeoffs that English families must make everyday.

Free societies are those in which government minimizes its intrusion into the lives of its citizens, intervening only to protect individual liberty. Such government makes no effort to use the force of law to impose upon individuals whatever system of values or concepts of morality it may happen to espouse. The British public is generally accepting of this doctrine of non-interventionism, most perceptibly in areas of civil liberties; the swarm of criticism of the recent French law restricting the Islamic niqab, along with Damian Green’s prompt rejection of such an “un-British” law in the United Kingdom, is merely one example of the persistent acceptance of diversity of belief and expression in this nation.

Yet even in the United Kingdom, such tolerance has stiff limits. It does not extend to economic freedoms, as the government regularly pushes us to live our lives in a manner more amenable to the opinions and beliefs of the majority. The British government accomplish this sly form of paternalistic regulation through the imposition of a number of sumptuary taxes that seek to discourage the purchase and consumption of goods that society considers to be undesirable, such as alcohol and tobacco products. The taxes are a popular way to raise revenue, as they are targeted at behaviour considered either unhealthy or otherwise disapproved of by the majority of the public.

While the ability to raise revenue and simultaneously achieve some communal goal such as improved public health may be appealing, sin taxes must be recognized as the social engineering projects that they are. Governments should not seek to discourage or encourage any activity, save for those activities that interfere with the rights of other individuals. If an individual voluntarily chooses to engage in a non-offensive activity, such as enjoying a glass of wine, the government should respect their preferences and refrain from “nudging” (or, after Alistair Darling’s 2008 dramatic sin tax hike, “shoving”) the individual to make a decision desired by the state. Writing a tax code that discourages the consumption of a particular good based on the sole virtue that one is considered “undesirable” is a dangerous step for any society to take, as it imposes communal values upon the individual. In the United States, for example, the discussion of sin taxes has gradually extended from alcohol and tobacco to dietary habits and pornography.

It would be quite controversial for the government to levy a special tax on the sale of the niqab, in order to discourage its use. Similar resistance to behavioural revision should be applied to sumptuary taxes on alcohol and tobacco, as well.

The Food Standards Agency created a considerable row when it announced this week that meat from a cow born in the United Kingdom from the imported embryos of a cloned American cow was sold and consumed last year. British and European regulations prohibit the sale of products intended for human consumption from cloned animals without prior authorisation, which has never been granted. The discovery incensed animal rights activists, and public outrage has erupted due to deep mistrust of cloned and genetically modified food, as well as the failure of the Food Standards Agency to detect the products in a timely manner. Two lessons can be learned from the issue.

First, the issue highlights the inability of the government to regulate effectively, even in matters as trivial and simple as the one at hand. That the farmer involved in the controversy, Steven Innes, appears not to have tried to circumvent the law, further highlights the elusiveness of effective regulation. If the government is unable to draw up intelligible and enforceable regulations on mundane issues, it is unlikely that it will be able to fare much better with more complex regulatory schemes.

Second, it is high time that Britain and the European Union become more accepting of scientific advancements that have improved, and will continue to improve, agricultural productivity. Cloning of animals is one such improvement. Farmers and scientists in the United States have experimented with the cloning of animals in order to increase milk and meat production. Meat and other products from cloned animals have proven to be just as safe as products from naturally conceived animals, and the cloning of animals does not affect any other individuals other than those who choose to produce and consume such products. If the ban were lifted, those who do not wish to buy products derived from cloned animals would remain free to do so, the costs of related regulation would be eliminated, and agricultural productivity could improve.

The shock over the cloned cow should be over the observation that there was shock at all. That Britain outlaws a non-offensive and potentially productive enterprise that is successfully practiced elsewhere in the world without incident is unfortunate, and harms the country and its farmers.

The Department of Health recently indicated that the government might overturn an anti-tobacco law passed by the Labour government during its last months in office. The law has not yet been implemented, but will prohibit cigarette vending machines in pubs and force retailers, including convenience stores, to remove displays of cigarettes. It was argued that the legislation would reduce children’s access to cigarettes and other tobacco products, as well as improve public health by reducing the rate of tobacco use in the general public.

The law, however, is unnecessary, and the recent news from the Department of Health is a heartening signal that the Coalition government may be willing to retreat from Labour’s regulation reflex. The United Kingdom does not need further legislation to prevent children from consuming tobacco products; existing law already prevents tobacco vendors from selling to those under the age of eighteen. Instead of merely enforcing the smoking age, the Labour law imposes needless costs on businesses, which would have to reconfigure their shops to accommodate the new regulations. Furthermore, the British government has already placed severe restrictions on the tobacco industry in an attempt to reduce smoking rates; the advertising of tobacco products was banned in 2003, and a ban on smoking in public was implemented in 2007.

More important than the regulatory costs and redundancy of the law is the paternalistic attitude that underlies this and the rest of the regulations that are the product of the crusade against tobacco use. Such paternalism is dangerous because it subverts self-determination and places in its stead values that are imposed by the government. British adults are not ignorant of the health effects of smoking and are fully aware of the consequences of their actions; those that choose to smoke merely choose to accept these consequences. For those who have supported restrictions on tobacco products, the health of the individual is of greater priority than his or her wishes and preferences. While improving health is certainly a noble goal, the substitution of communal goals and values for individual autonomy is a dangerous path for British society to walk along. It is time to stop and turn around.

The recent controversy created by the BBC’s popular soap opera EastEnders highlights yet another problem with state run television. The BBC took hundreds of telephone calls and emails over a controversial scene in which a Muslim character, struggling to reconcile his faith and sexuality, slams a Koran on the floor. The scene was thought by some to be offensive to the Islamic faith. The incident does not mark the first time the soap has been the subject of public criticism. Over the course of its twenty-five year history, it has been variously accused on multiple occasions of racial stereotyping and insensitivity, promoting homosexuality, defaming the police, and anti-religious bias.

The seriousness with which these complaints must be addressed is peculiar to a system of heavily regulated or publicly operated media. As the government forces anyone with a television to fork over £142.40 for the BBC, the public broadcaster must attempt to avoid any and all offensive broadcasts. In a society as diverse in opinion as the United Kingdom, this is a nearly impossible task, and the government undoubtedly collects money from some individuals to pay for programming they find to be distasteful. Even if they do not watch EastEnders, Islamic viewers that found the Koran scene to be offensive must still pay for the content to be broadcast to their fellow citizens.

In a market system without a publicly funded BBC, however, viewers would have choice, and could vote with their money and attention, allowing broadcasters to compete for advertising and subscription revenue by creating content that viewers enjoy. If EastEnders were a privately created program aired by a private broadcaster, anyone who found the show to be offensive could simply change the channel to something more amenable to their tastes. This would be a more efficient and just system than the regulatory process overseen by Ofcom, and perhaps the NHS would could reduce its budget for hypertension treatment for Britons who would have no longer have reason to fume about the expenditure of their hard-earned license fee on content they find to be disagreeable.

While many Britons undoubtedly enjoy EastEnders and other BBC programs, the repeated grievances are an indication that the current system could be operated in a fairer and more appropriate manner that would allow viewers to choose where their money is spent.

The government has announced that the default retirement age will be phased out by October 2011. The default retirement age permitted employers to retire workers at the age without justification, and is an exception to United Kingdom labor law, which prohibits employers from making employment decisions on the basis of age and forces them to provide justification for dismissing a worker. Personnel groups and those supportive of the elderly cheered the announcement, while business groups such as the Confederation of British Industry expressed concern about the law. There is merit in both reactions.

The decision to scrap the default retirement age reflects the growing need for Britons to continue working later, given that people are living longer and healthier lives. The average British male aged 65 today can expect to live past the age of 82, and the average 65 year-old female is expected to live even longer, until the age of 85. This is a full five years longer than elderly Britons lived in the 1970s. The retirement age, however, has failed to increase in commensurate fashion, and these lengthy retirements require substantial taxpayer support. In light of this problem, the spirit behind the decision to scrap the retirement age is encouraging, and the benefit it is hoped to bring to the strained public budget is welcome.

Yet there exists another side to the coin as well. The default retirement age allows for a certain degree of flexibility in that it permits employers and employees a chance to reevaluate the employment contract, and to terminate it if it is not beneficial to one party. The law does not force workers to retire, and is merely a mechanism that alleviates the burden of labor market regulations. When the changes go into effect, employers will be more constrained, and will be forced to undergo a costly firing process to eliminate redundant or underperforming elderly workers. The semblance of at-will employment that is permitted to exist under the current law will disappear.

Sixty-five is certainly an inappropriate retirement age for many Britons, but the law as it exists now encourages this. Yet instead of further regulating the market, the government could relax the regulatory requirements of firing a worker, whether they be elderly or young, which would, in turn, lessen the risk of hiring a new worker. The decision of when to retire could be made entirely by the individual, without any government interference that encourages sixty-five as the appropriate age. As we have discussed before, we could divorce retirement from the collection of state benefits altogether. In any case, the government’s changes are a welcome start to a much-needed national discussion of how to cope with Britain’s ongoing demographic shift.

Foreign students will no longer be required to speak English prior to obtaining a visa to come to the United Kingdom as a result of a High Court decision issued today by Justice David Foskett. The restriction, which was issued by Labour Home Secretary Alan Johnson, was overturned on technical grounds; Mr Johnson should have submitted the changes to Parliament. The case was litigated by English language schools in the United Kingdom, which estimated that the industry contributes £1.5 billion to the British economy annually.

Apart from the absurdity of requiring students of English to have learned the language prior to coming to Britain to study it, the law would have incurred damaging economic consequences that Britain will now thankfully avoid. In addition to the money that they contribute to language schools, foreign students provide badly needed revenue for British universities, which face restricted competition and dependence on government funds for the education of home students. Universities, however, are free to charge foreign students the market price for their education, allowing them to better educate British students with the resulting revenue. Furthermore, it is in Britain’s national interest to attract the world’s most intelligent and innovative students to study, and eventually work, in the United Kingdom. Having these allows them to spend money while they study (the British Council reports that international students contribute £5.6 billion to the national economy every year), and then produce value for the British economy once they graduate and find work in the country (if they are allowed to stay).

The continuation of the ban on foreign students who do not speak English would have not only denied many students entry to the country, but may have also tarnished Britain’s reputation as a welcoming destination for foreign students. This could have deterred other qualified and productive English-speaking students from choosing Britain as a destination, giving other popular destinations for international students, such as the United States and Australia, a competitive edge in attracting talented foreigners. Parliament should refrain from resurrecting the ban, which harms educational institutions, business, and the nation as a whole.

Equalities minister Lynne Featherstone recently suggested that the Coalition government may decide to expand the rights afforded to gays and lesbians wishing to enter into civil partnerships. While certainly a step toward parity, a more equitable solution would reduce the role of the state in our personal lives.

Gays and lesbians have been able to enter into contracts called civil partnerships since the Civil Partnerships Act 2004 went into effect one year later in 2005. The arrangement grants same-sex couples parity with married opposite-sex couples in virtually all areas, including those involving financial matters, taxes, parental responsibility, next-of-kin rights, and immigration among others. There remain only minor procedural differences between the two contracts, which distinguish each in terms of the way in which they are formed. An amendment to the Equality Act 2010 repealed a prohibition on civil partnership ceremonies on religious grounds, and Ms. Featherstone has indicated that the current government may move to permit religious elements in civil partnerships. Neither the change to civil partnerships, nor its reclassification as marriage, would have any significant impact provided that religious organizations remain free to choose who they marry, as differences between the two are merely semantic and technical in nature.

However noble a goal true marriage equality may be, the current discussion is misguided, as those who present the discussion in terms of “pro-gay marriage” and “anti-gay marriage” ignore a third alternative: marriage privatization.

Under a system of marriage licensed by the state, the government offers only one type of contract into which people may enter. This contract is inflexible, and, as it is written, debated, and passed by Parliament, it is not the ideal contract for every couple. The privatization of marriage, an idea raised more than a decade ago by libertarian David Boaz, is not only a viable alternative; it permits a much broader range of options available to individuals, whether heterosexual or homosexual. Marriage licensing is merely a form of regulation, and is identical to any other form of state licensing. Privatization would end this regulation, and instead allow private individuals to contract with one another to design a legal structure most suitable for their needs. The government could enforce such contracts as it does any formal business arrangement. Many people would surely opt for a traditional marriage contract, and would be able to pursue a contract identical to that which exists today. Religious organizations would be able to hold ceremonies for whichever couples they would like, and heterosexual couples who do not agree with the connotation attached to marriage, such as Tom Freeman and Katherine Doyle, a heterosexual couple denied a civil partnership last year, would be permitted to contract with one another in a secular manner.

Allowing people to form contracts themselves would not rob any individual of rights or abilities. Instead, it would increase choice and reduce government intervention in our private lives.

Despite hints of a more levelheaded approach to the regulation of the aviation industry signaled by the upcoming Airports Economic Regulation Bill, the coalition government is off to a poor start in this area of policy. Though anticipated for some time, the government’s recent prohibition of further expansion at three London airports is a poorly conceived decision that will disadvantage Britain, while failing to deliver the environmental benefits advertised by groups concerned with global climate change.

BAA Limited, the private owner and operator of six United Kingdom airports, including two in the London area, had proposed constructing a third runway at Heathrow Airport in order to cope with congestion and passenger numbers that are approaching the airport’s capacity limit. The desire to expand the airport was not without merit. Heathrow, which handles more than 466,000 landings and takeoffs per year and hosts more passengers than all but four other airports in the world, has few runways compared to similarly busy airports. Heathrow’s two runways are operating nearly at capacity, causing delays that interfere with commerce and travel. Airports are vital links for an economy, and the ban on expansion comes at a high price to Britain; research by Oxford Economic Forecasting estimated the annual cost of congestion at the airport to be £1.7 billion, and projected that the construction of a third runway would have generated an additional £7 billion per year in economic activity.

Minister of State for Transport Theresa Villiers has defended the government’s rejection of the plans at Heathrow, as well as that of proposals to build runways at Stansted and Gatwick airports, primarily out of concern that airport growth would adversely affect British efforts to reduce greenhouse gas emissions. Ms. Villiers, however, ignores the possibility that airlines may simply choose to expand routes outside of the United Kingdom, where airports have ample capacity to accommodate more flights. Instead of reducing emissions of greenhouse gases that may contribute to climate change, limits on airport growth in the United Kingdom may simply move business, and greenhouse gas emissions, across the English Channel, trading economic loss for no appreciable environmental benefit. British Airways chairman Martin Broughton raised this possibility when he announced in June that his airline will now focus on expanding at Madrid’s Barajas airport, which has recently finished an expansion of capacity.

As part of the effort to mitigate the effects of freezing airport expansion at a time when demand for air travel is projected to grow dramatically, Ms. Villiers has proposed that new high speed rail links be built to accommodate demand for domestic travel. Yet high-speed rail projects have generally proven to be economically unattractive. Only two high-speed rail routes in the world have not required subsidies from the state, and the United Kingdom’s high-speed train link to Ashford failed to attract sufficient ridership and depends on the British taxpayer for funds

Whereas BAA Limited would have funded the expansion at Heathrow privately, the high speed rail projects that are proposed by the government will be paid for with taxpayer money at a cost far higher than that of the proposed runway expansion. The government’s transport policy effectively calls for replacing an economically sustainable and privately funded method of transportation with taxpayer-funded transportation that will require indefinite support. At a time of fiscal austerity, the government’s plan appears to be a needless and fiscally irresponsible solution to a problem that does not exist.

The unrest in India this week should serve as a potent reminder of the tendency of unnecessary and outdated subsidies to become entrenched in a society, as rent-seekers become increasingly accustomed to insulation from normal market forces, leaving others to pick up the bill.

Strikes, demonstrations, and fires disrupted daily life across the country as tens of thousands took to the streets to protest a decision by the Indian government to reduce costly fuel subsidies that had begun to seriously burden the energy-hungry nation’s budget. For years, the country had fixed below-market prices for fuel, mandating that all of its state-owned retailers sell gasoline, kerosene, and gas used for cooking at a discount. The recent decision permits the sale of gasoline at market prices, and, though the state has retained price controls for kerosene, cooking gas, and diesel, these subsidies will decrease.

The price of gasoline is expected to rise by less than eight percent, while kerosene, cooking gas, and diesel will rise by eleven, thirty-three, and five percent, respectively. The Financial Times reports that India spends £10.7 billion annually on subsidies for these products, a burden that the market-oriented reforms will reduce by more than £2.8 billion. These savings are not unimportant for the government, which has increased spending and borrowing to record amounts in recent years, and is trying to reduce its budget deficit of 6.6% of GDP.

Unions and members of the political opposition have attacked the decision as a cruel measure that will harm India’s poorest, as the subsidies have long been defended as necessary to provide access to vital fuels. Yet the reality of the subsidies’ effects could not be very different. The poor in India do not use considerable amounts of fuel, which is instead consumed by wealthier Indians who have been able to purchase appliances and automobiles as the country has grown. Whenever the market price or consumption of fuel increases, as both are likely to continue to do given the scale of economic growth in the region, the Indian government must divert more of its budget away from more critical activities to sustain fuel subsidies that primarily benefit the middle and upper classes.

Furthermore, the economic rent seeking behaviour that is incentivised by the current system encourages government corruption and the concordant diversion of subsidised petroleum, ensuring that much of it does not reach the poor. According to Dr. Bhamy Shenoy, an economist at the International Institute for Sustainable Development, only sixty percent of subsidised kerosene in India reaches its intended recipients.

The Indian government has more to do in the way of eliminating price-distorting subsidies and trade barriers, but its apparent willingness to resist opposition pressure in response to its most recent decision is an encouraging sign of the country’s slow march toward a more open market. The intensity of the opposition to the price hike is suggestive of the oft-observed difficulty of ending subsidies once those who benefit become accustomed to their free ride. As Dr. Shenoy writes: “Once the subsidy genie is out of the bottle, putting it back in is a difficult task indeed.”