Reacting to the the key points of the Autumn Statement, Sam Bowman, Research Director at the Adam Smith Institute, said:
Ben Southwood, Head of Macro Policy at the Institute, said:
"It's understandable, now that the economy looks finally to be recovering, that the chancellor has moved his focus away from monetary policy, but it's also worrying.
"Economies can absorb financial crises but they cannot absorb inconsistent monetary policy and massive drops in demand. We need George Osborne to change the Bank of England's remit, requiring it to stabilise demand according to strict rules.
"A rule-based monetary policy will stop the economy from overheating into unsustainable booms, and dive-bombing into harsh recessions."
The Adam Smith Institute is an independent classical liberal think tank based in Westminster. For further comment from one of its analysts or its Director Eamonn Butler, please phone 02072224995, or email Sam Bowman at email@example.com or Ben Southwood at firstname.lastname@example.org.
As Britain faces dire PISA education rankings, the government should liberalise the free schools application process and give parents a voucher for a place in any approved school, state or private, says a new research report from the think-tanks the Adam Smith Institute and the Centre for Market Reform of Education. (School Vouchers for England: Harnessing choice and competition for greater quality and equality in education – http://www.adamsmith.org/sites/default/files/research/files/Voucher%20pa.... Executive summary: http://cmre.org.uk/uploads/publications/Voucher%20exec%20summary.pdf)
The move would abolish the restrictions that prevent poorer parents from accessing England’s best schools. Proximity-based admissions should be scrapped, being replaced by lotteries and subsidised transport in cases of oversubscribed schools.
At a time when many areas will face a 20% shortfall in places by 2015, urgent and cost-efficient action is required, the report says. Parents may be left without schools to choose from unless the government accelerates the development of new free schools.
The government therefore must simplify the school creation process, says the report, cutting through red tape and introducing a voucher system so that parents can signify where and how they require schools to be built.
Gabriel Heller Sahlgren, co-author of the report and Director of Research for the Centre for Market Reform of Education, said:
“Parents are currently restricted to choosing schools they can afford or the schools they can afford to buy a house near. Giving parents a voucher, redeemable to all state schools and participating private schools, would usher in a new era of social mobility and reverse the decline in the quality of English education.
“A voucher programme would expand the number of schools that parents could choose. Parents could choose participating private schools, which would be incentivised by the prospect of a more steady income. The resulting increased competition between schools to attract pupils would cause significant improvement in education.
“Good schools in sparsely populated areas would be incentivised to expand by receiving more pupils and money. Similarly, bad schools would be incentivised to improve by the threat of losing pupils, and therefore funding. A voucher programme would avoid the need to build more costly free schools, as well as the huge costs and regulations surrounding which have hampered the government’s education reforms."
A copy of the paper is downloadable here: http://www.adamsmith.org/sites/default/files/research/files/Voucher%20pa.... An executive summary of the paper is downloadable here: http://cmre.org.uk/uploads/publications/Voucher%20exec%20summary.pdf.
Please contact Alexander Blackburn to arrange an interview with the paper’s authors by calling 020 7799 8903 or 07400 902 290, or emailing email@example.com.
The mission of the CMRE is to explore the potential for more diverse, competitive and entrepreneurial provision in the education sector, and the feasibility of market-led solutions to public policy issues.
The CMRE is a registered non-profit company limited by guarantee and independent of all political parties. The Adam Smith Institute is an independent classical liberal think tank.
Zombie firms threaten to cause a “lost decade” of economic stagnation – Adam Smith Institute report
Over 100,000 “zombie firms” are threatening the UK’s recovery from the Great Recession, according to a new report by the Adam Smith Institute.
Record low interest rates and the willingness of banks to show “forbearance” to unprofitable firms is damaging productivity, undermining competitiveness and preventing workers and money finding its way to the companies of the future.
The Trading Dead: The zombie firms plaguing Britain’s economy, and what to do about them (http://www.adamsmith.org/sites/default/files/research/files/ASITradingDe...), by Tom Papworth, identifies “zombie firms” as heavily indebted firms that can generate enough revenue to pay down debt interest but not debt principle and are dependent on low interest rates to continue doing so. The paper argues that many of these firms require either insolvency or restructuring for a strong economic recovery to emerge. The report is sponsored by OpCapita, an international private equity partnership that specialises in turnaround through operational change.
The report shows that Britain’s “productivity problem” may be partially due to zombie firms holding up capital and labour in relatively unproductive sectors, raising the costs of entry for new, innovative firms. The two main factors responsible for the zombie phenomenon are low interest rates and bank capital regulations. Low interest rates may be misdirecting money to unproductive zombie firms, and bank capital regulations (such as Basel III) discourage banks from foreclosing on zombie debtors, which would worsen the liability on their balance sheets. This also discourages business lending by banks in general.
The report finds that private sector rescue of zombie firms is possible, but only for some. This rescue, in the form of corporate restructuring, must also be done in a decentralised “bottom-up” fashion by individual entrepreneurs and investors such as private equity firms using their local knowledge of specific firms and industries. A government-led drive would likely suffer from chronic inefficiencies.
Tom Papworth, Senior Fellow of the Adam Smith Institute, said “We tend to see zombies as slow moving and faintly laughable works of fiction. Economically, zombies are quite real and hugely damaging, and governments and entrepreneurs cannot simply walk away.
“Zombie firms stop workers and money being redeployed to more productive uses, they prevent new, better firms entering the market, they undermine competitiveness, reduce productivity and slow the growth of the whole economy. Low interest rates and bank forbearance represent a vast and badly targeted attempt to avoid dealing with the recession. Rather than solving our current crisis, they risk dooming the UK to a decade of stagnation.
“Zombie firms need to be confronted with the reality that they are not profitable. With timely interventions by knowledgeable entrepreneurs, many firms can be restructured and saved. But others must be liquidated to allow resources to feed the growth of the future.”
Henry Jackson, CEO of OpCapita and the report’s sponsor, said: “Turnaround specialists are uniquely placed to help Zombie Companies to restructure and return to profitability – a far better outcome than that they continue to limp on indefinitely. And when private equity steps in it is using its expertise and insight to bring the radical changes required for a failing business to survive.”
The report sets out the role of investors in identifying firms that are ripe for restructuring through the seven key aspects of a successful turnaround: crisis stabilisation, new leadership, stakeholder management, strategic focus, critical process improvements, organisational change and financial restructuring.
Henry Jackson concluded:
“If a business can be saved, it is entrepreneurs and turnaround specialists who are best placed to effect the changes required. Private equity firms have the insight and knowledge to do that, and they are prepared to take the risks to get it right. Delivering change in such circumstances is often extremely hard and carries inevitable risk. But genuine improvements in profitability can create long-term sustainable value.”
To arrange an interview with the report's author or for further information, email firstname.lastname@example.org or phone 07585 937001. The report can be read in its entirety here: http://www.adamsmith.org/sites/default/files/research/files/ASITradingDe...
The government should sell off £40bn of assets, says new Adam Smith Institute report (http://www.adamsmith.org/sites/default/files/research/files/CashInTheAtticPrint.pdf)
The government could fund temporary tax cuts worth £40bn or reduce the national debt by the same amount by selling off a fraction of its assets, according to a new Adam Smith Institute paper released today (Thursday October 8th). The report, Cash in the Attic (http://www.adamsmith.org/sites/default/files/research/files/CashInTheAtticPrint.pdf), shows the huge windfall that could be realised by releasing state-owned real estate and firms into the private sector. The government is estimated to own around £600bn of assets.
The report’s author, investment analyst and Adam Smith Institute senior fellow Nigel Hawkins, details how the government could bring in around £23bn from sales of excess real estate holdings and around £17bn from privatisations (excluding the bank stakes) by 2017-18.The report argues that useful resources are languishing in the public sector with no market assessment of their use to society.
Furthermore, the just-beginning re-privatisation of Lloyds TSB, as well as the sales of Royal Bank of Scotland, the government's stake in Urenco, and the Royal Mail, need to be a top priority, Hawkins says. The government should also part with a minority stake in Network Rail to raise around £7bn while still retaining control of the company.
Divestment of the Ministry of Defence’s estate would be another profitable area. Even a very limited approach to defence land sell-offs could raise £3bn, Hawkins says. In health, selling just 10% of Primary Care Trust assets would bring in £500m.
Along with these sales, agencies that already have plans to divest government assets—the Government Property Unity (GPU) and Defence Infrastructure Organisation (DIO) need to be pressured to meet their targets, the report argues.
Sam Bowman, Research Director of the Adam Smith Institute, said: “The government is sitting on hugely valuable resources that it should sell. The Royal Mail privatization is a good start, but going further would be win-win. Sell-offs of real estate and privatization of firms that the government doesn’t need to own would allow those resources to be used more productively by the private sector and net the Treasury some much-needed cash to fund temporary tax cuts to stimulate investment and job creation in the private sector.
“The £40bn of assets that we have identified as being ready for sale are just the tip of the iceberg. We need a slim, efficient government that is as cost-conscious as any business would be. It might be too soon to start planning to move government buildings to an industrial estate in Slough, but that’s what we should be aiming for.”
For further comment or to arrange an interview with the report's author or an Adam Smith Institute spokesperson, please email email@example.com or phone 07596826323.
Help to Buy scheme will worsen Britain's housing crisis, says new Adam Smith Institute paper
The government’s Help to Buy scheme, which offers government-backed equity loans to house buyers and mortgage guarantees to banks, will distort the housing market, risk taxpayers’ money with no promise of a return, and introduce into the UK housing market the same perverse incentives that led to the US subprime mortgage crisis, argues a new paper by the Adam Smith Institute, released today (Monday, September 2nd).
The report, Burning Down the House (available to download here: http://www.adamsmith.org/sites/default/files/research/files/burningdownt...), argues that without measures to increase supply by liberalising planning laws, the Help to Buy scheme will simply drive up house prices, making housing no more accessible overall. Indeed, users of Help to Buy benefit at the expense of those who fail to use the subsidy scheme; the policy is like putting a platform under the buyer while also raising the bottom rung on the housing ladder.
If already badly-off people are less likely to access the scheme, it could have a particularly hard effect on the poor, the report says, a group who already lose out badly—the UK's extreme restrictions on housing supply have been calculated to add 3.5 percentage points to the GINI coefficient measure of inequality.
According to the report, a preferred alternative would be liberalising a hostile regulatory environment which inhibits the construction of additional housing supply—allowing houses to be built in more places, and slashing regulation on doing so. According to official statistics, only about 10% of the UK is built on, and of that the biggest fraction is gardens. If we want to control runaway house prices and give first-timers a chance to get on the ladder, we need to allow more houses to be built.
"It is crazy for the government to stoke demand even more without addressing supply and claim that this will help the housing market," said the Institute's Research Director Sam Bowman. "Making taxpayer-subsidised handouts to homebuyers will only drive further house prices up, risking a bubble, improving access for a select few but making housing even more unaffordable for most people."
"On the other hand, radical liberalisation of the planning system has the potential to drive massive economic growth, drastically reduce housing costs for the badly-off, and give millions more a chance to own property of their own. "
"Deregulation is a way of addressing the housing supply shortage while avoiding recourse to public fiscal intervention,” commented Preston Byrne, the Institute’s Legal Fellow. "If the Government is serious about finding a long-term solution to the housing crisis, it's time to take a hard look in the mirror and examine the role existing planning regimes – both local and national – play in regulating and inhibiting new housing construction.”
This paper is available to download here: http://www.adamsmith.org/sites/default/files/research/files/burningdownt...
The Adam Smith Institute is a independent libertarian think tank based in London. For further comment or to arrange an interview about this paper, please contact Sam Bowman at 075-9682-6323 or email firstname.lastname@example.org
Think tank launches live markets to compete with government economic forecasters
The Bank of England’s economic forecasts have been wrong again and again. To counter this, the free market Adam Smith Institute is today (Wednesday 28th August) launching two betting markets where members of the public can bet on UK inflation and unemployment rates, taking the government’s experts on at their own game. The markets are designed to aggregate individual predictions about the economy’s prospects to use the ‘wisdom of crowds’ to beat the predictions of government experts.
The launch coincides with Mark Carney’s first major speech as governor of the Bank of England and follows his announcement earlier this month that the Bank will consider both inflation and unemployment when deciding monetary policy.
The markets (which will be run by bookmaker Paddy Power and can be accessed here: http://www.paddypower.com/bet/current-affairs/economy-specials?ev_oc_grp...) offer these odds:
UK Inflation on 1st June 2015
7/1 - 2% or Less
3/1 - 2.01 - 3.00%
9/4 - 3.01 - 4.00%
5/2 - 4.01 - 5.00%
7/2 - 5% or Greater
UK Unemployment rate on 1st June 2015
9/2 - 5% or Less
3/1 - 5.01 - 6.00%
15/8 - 6.01 - 7.00 %
5/2 - 7.00- 8.00%
5/1 - 8% or Greater
Bookmaker odds tend to be far more reliable than expert opinions about sports, politics and the Eurovision Song Contest, because betters have a strong financial incentive to bet in a dispassionate way and betting markets collect the judgments of thousands of different people, eliminating individual biases.
Even if no single member of the public can beat the experts, collecting the local knowledge of thousands of people in betting markets allows for a much broader set of data points, weighted according to the strength of people’s beliefs. The Office for Budget Responsibility already collects around two-dozen expert predictions, but this is nothing like the kind of volume needed for the ‘wisdom of crowds’ effect to take place.
These markets follow the CIA’s attempts to use betting markets to anticipate geopolitical crises, which were short-lived because of public objections. In future, the Adam Smith Institute will use these markets to compare betters’ judgments about the direction of the economy to those of government forecasters.
Sam Bowman, Research Director of the Adam Smith Institute, said: “No individual can know enough about the economy to make a really reliable prediction about it. By combining the local knowledge of thousands of people, betting markets can outpredict any panel of experts. If these markets catch on, the government should consider outsourcing all of its forecasts to prediction markets instead of expert forecasters.”
Rory Scott from Paddy Power said “Mr Carney – forget your fancy financial models; let’s see where the great British public put their pound instead. Failing that, perhaps the solution to topping up the Bank of England coffers is to take advantage of Paddy Power’s 7/1 for inflation to be 2% lower come June 1st 2015.”
The Adam Smith Institute is a independent libertarian think tank based in London. For further comment or to arrange an interview about the markets, please contact Sam Bowman at 02072224995 or email email@example.com
Commenting on Mark Carney's announcement about Britain's monetary policy, Ben Southwood, Head of Macro Policy at the Adam Smith Institute, said: "Mark Carney had the leeway to make radical change here but he's bottled it with baby steps.
"The 'Carney rule', promising low interest rates and the possibility of more quantitative easing (QE) until unemployment is low or inflation rises, is definitely an improvement on the current regime. It gives firms clearer guidance on the future stance of policy, removing some of the uncertainty in the world economy today. I expect it to deal with some of today's demand shortage, and more importantly tomorrow's expected demand shortage.
"But unemployment and inflation come from both aggregate demand (which the bank can control) and aggregate supply (which it has essentially no control over). Since neither of these numbers distinguish between changes in supply or demand, the Bank is still fumbling in the dark with its guesses over whether a change in inflation comes from demand (which means it should react) or supply (which means it shouldn't). This means firms are still left guessing, and it means that uncertainty still reigns.
"What we really need is a truly rule-based system that takes discretion away from nine 'wise men' and uses market forecasts to create real stability. That system is nominal income targeting."
Ben Southwood is available for additional comment at firstname.lastname@example.org or 0207 222 4995.
Tax Freedom Day falls on 30th May in 2013
Tax Freedom day is pushed back again as coalition fails to cut burden of government on UK taxpayers.
Cost of government day 13th July, two days earlier than in 2012, due to effects of austerity programme
UK residents can rejoice as the Adam Smith Institute reveals that they have finally stopped paying the taxman and started to put their earnings in their own pockets. Tax Freedom Day—the day when the average Briton finishes their stint working for George Osborne and begins to work for themselves, falls on 30th May.
For 150 days of the year, every penny the average person earns is sent to the Treasury, according to Adam Smith Institute calculations. This means that no less of a worker’s year is going to the government than last year, when extra taxes pushed TFD from 28th May to 29th May (including an extra day from the leap year).
Though UK taxpayers can thank policymakers that they will not have to wait until July, like France, to start earning for themselves, they will remain jealous of American and Australian earners, who switch from paying into their chancellors’ bank accounts to their own by mid-April.
Since the government is spending hundreds of billion more pounds than it takes in through the tax system, the cost of government day is not for another month and a half. That is, if we imagined the government did all its spending before households, charities and firms, every pound of expenditure in the economy would come from the state until 13th July.
The ASI calculates Tax Freedom Day by measuring local taxes, direct and indirect national taxes, and national insurance contributions as a proportion of the UK’s net national income—this year that came to 41.5 per cent—before mapping the proportion onto the days of the year.
The ASI's Director, Dr Eamonn Butler, says “Tax Freedom Day, which the Adam Smith Institute has been calculating for 25 years, is the plainest way to show what the tax burden really is. That is why the Treasury hates it. They of course want to conceal how much tax we pay, which is why they are so keen on stealth taxes.”
“But we put in every tax, including stealth taxes – income tax, national insurance, council tax, excise duties, air passenger taxes, fuel and vehicle taxes and all the rest – and show just how long the average person has to work to pay their share of them all. The stark truth is that this burden costs us all 150 days of hard labour every year. That's not how long a rich person has to work – it is the time the average person must labour for the tax collectors.”
“In the Middle Ages a serf only had to work four months of the year for the feudal landlord, whereas in modern Britain people have to toil five months for Osborne’s tax gatherers.”
“An increasing number of economists believe that Britain's taxes are too high and are choking off recovery. Some politicians say they need to keep taxes high in order to balance the government's books. But the trouble with governments is that they always spend everything they raise in tax – and then as much more as they can get away with through borrowing. Just as the rest of us have had to cut back, so should the government. The UK economy would be a lot healthier for it.”
Steve Baker, Conservative MP and member of the executive of the 1922 committee, adds: “Many congratulations to the Adam Smith Institute for once again revealing the shocking truth about taxes and overspending. This doomsday machine of deficit spending, debt and currency debasement will eventually blow up and there is no kindness in pretending otherwise. Politicians who are serious about the prosperity of our country and the wellbeing of the poorest within it should take note.”
Contact: Ben Southwood or Geoffrey Taunton-Collins no: 0207 222 4995