Press Release: International tax rankings show that Britain risks being left behind leaner rivals

Commenting on the 2014 International Tax Competitiveness Index, Head of Policy at the Adam Smith Institute, Ben Southwood, said:

It’s a nasty surprise to see that the UK ranks behind Mexico for tax competitiveness, and highlights the risk of the UK falling behind in the international tax competition stakes.

In contrast to small open economies like Estonia who are simplifying their tax systems to be as attractive to investment as possible, the UK looks in danger of the same institutional sclerosis that has bedevilled other major countries.

Thankfully these large economies—including France, Italy, USA, Japan—all rank even worse according to the index, except Germany who beats the UK by only one place.

But this narrow victory shouldn’t be cause for complacency. International competitiveness is important and helpful for spurring politicians into action, but nothing like the whole story.

Adam Smith Institute research from March found that approximately 60% of the burden of corporation tax fell on workers in the form of lower wages, while the rest weighed on investment—even ignoring the international impact.

This suggests that going further and faster with corporation tax cuts could deliver a cocktail of much-needed economic growth and wage hikes at the same time.

Notes to editors:

For further comments or to arrange an interview, contact Kate Andrews, Communications Manager, at / 07584 778207.

The Adam Smith Institute is an independent libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

“Left-Yes owes a debt to liberal right wing” – The ASI is featured in The Herald

The Adam Smith Institute was featured in The Herald’s article on the liberal right wing policies that would need to be adopted, should Scotland choose independence.

And while the left-Yes advocate what are promoted as radical new ideas for an independent Scotland, we should recognise that many of these ideas have their roots in the liberal right.

For example, the Citizen’s Income promoted by the Greens was advocated by the liberal economist Milton Friedman through a simple negative income tax starting rate, slashing the cost and complexity of delivering welfare. And just recently, the idea of an independent Scotland informally using sterling without a state central bank is simple liberal economics, as supported by the Adam Smith Institute.

Read the full article here.

Programmes Director of TEN writes for CityAM

Programmes Director of The Entrepreneur’s Network, Annabel Denham, writes for CityAM: ‘UK entrepreneurs are ever-more optimistic – but there’s still work to do.’

WE ALL know entrepreneurs are a positive bunch, afflicted with “optimism bias” – a rare ability to view the glass as half full – which drives them to success. And according to this year’s Hiscox DNA of an Entrepreneur report, business owners across the UK, US and parts of Europe are more optimistic today than they have been for some time.

We’re seeing signs that smaller companies have weathered the storms of recent years and are looking to the future with increasing confidence. Readers of this paper may be particularly pleased to hear that financial service business owners are the most optimistic of all, with a quarter planning to hire senior and junior staff (versus a 14 per cent average) in the near future.

Read the full article here.

The Entrepreneurs Network is a cross-party think tank designed to bring entrepreneurs to the forefront of political discourse and help make Britain the best place in the world to start a business. TEN is based within the Adam Smith Institute and is supported by Octopus Investments, one of the UK’s fastest growing fund management companies specialising in smaller company investing.

Sam Bowman rates an independent Scotland’s currency options in the Financial Times

Research Director of the Adam Smith Institute, Sam Bowman, participated in a panel of expert economists who were asked to rate an independent Scotland’s currency options for the Financial Times:

Sam Bowman, research director at the Adam Smith Institute
Currency union with the UK: 5

In many ways a currency union would be business as usual for Scotland and the least problematic short-term option. However, EU regulations may still require RBS and Lloyds to domicile in the City even under a currency union. In addition, Scottish sovereign debt may trade at artificially low rates thanks to the implicit backing of the BoE, encouraging unsustainable borrowing.
Most seriously, without fiscal transfers between Scotland and the rest of the UK, there is a danger that Scotland would not be able to do anything in response to demand-side shocks to the economy, potentially resulting in prolonged and harmful periods of deflation for Scotland.
Sterlingisation: 9
Sterlingisation could be Scotland’s best option in the medium to long term, especially if combined with banking reforms allowing banks to issue their own promissory notes, backed by the pound sterling on a fractional basis. With no central bank to act as a lender of last resort, banks would be required to make private provision for such facilities. International evidence from the dollarised Latin American states, notably Panama, Ecuador and El Salvador, suggests that this would improve bank soundness by eliminating moral hazard.
Without restrictions on note issuance (and the monopoly protections that encourage excessive issuance), banks would expand and contract their balance sheets in a countercyclical fashion, offsetting changes in velocity with immediate changes in the money supply, reducing the risk of the sort of demand-side recession that took place globally in 2008. This radical option may prove difficult to transition to in the short term, however.
A separate currency: 7
The option of an independent Scottish currency has been unfairly maligned. A free-floating currency would indeed be at risk of speculative attack but with the right mandate it could have substantial benefits as well. For example, were the Scottish central bank to target nominal gross domestic product instead of following an inflation target, a Scottish currency would provide a stable macroeconomic environment that adjusted to shocks automatically, keeping nominal spending levels (or aggregate demand) constant (in a similar way to the free banking option, albeit through a different mechanism). By keeping spending constant along a predictable growth level, an independent Scottish currency would lose purchasing power in recessions but would avoid the “musical chairs” problem of sharp drops in nominal GDP leading to unnecessary structural unemployment.
A free-floating currency would be at risk of the Dutch disease, however, with Scotland’s substantial resource wealth making its other export sectors relatively uncompetitive.

Joining the euro: 2
Joining the euro carries the same risks as a currency union with the UK but on a greater scale. The eurozone is already far from being an optimal currency area, and it is easy to imagine shocks to the Scottish economy (such as a drop in oil prices) that would be barely felt in the rest of the eurozone and hence would receive no policy response.
On top of these potential dangers the ECB has already proven itself to be a badly run institution in practice, strangling the eurozone, stifling recovery and pushing up unemployment with tight money. There is almost nothing positive to be said for this option.

Read the full article here.