Press Releases

Comment: Encouraging Signs Abound in the Labour Market

Commenting on the Office for National Statistics's March release of labour market statistics, Ben Southwood, ASI Head of Policy said:

"Encouraging signs abound in the labour market: unemployment was down 63,000 in the three months to January compared to the previous three months, employment was up 105,000, economic inactivity fell 19,000, and total weekly hours worked in the economy grew 0.9m.

"Looking one month ahead, into February, the claimant count fell another 34,600 in that month, while vacancies grew 23,000 in the three months up to an including February (to 588,000) compared to the previous three.

"Even annual nominal earnings growth—heretofore the weakest piece of the puzzle—has edged up to 1.4%.

"But this labour market strength only brings the weakness in output into starker relief. With so many more workers streaming into productive employment we should be seeing growth much faster than the paltry 1.8% managed in 2013.

"This means weak productivity—something no economists has yet given a full and satisfactory explanation for—is still making up the difference. The worry is that there will be no sustained recovery until productivity growth returns."

For further comments or to arrange an interview, contact Kate Andrews, Communications Manager, at kate@adamsmith.org /07584 778 207.

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

Adam Smith Institute Budget 2014 Wishlist

In advance of the budget release tomorrow, the Adam Smith Institute has outlined seven announcements it would like to hear from the Chancellor:

1. Personal allowance and employee National Insurance thresholds should be merged and set at £13k/y after the NMW rises to £6.50/hour. The government should legislate to keep the tax & NI thresholds at at least at the NMW level. It is crucial that the National Insurance contributions threshold be raised as well as the income tax threshold.

2. The corporation tax cut planned for 2015 should be brought forward by a year (to 20% this year), with a commitment reduce it further by 2.5% per annum for the next three years to 12.5%. In the long-run it should be abolished altogether as it is a stealth tax on income (workers’ wages bear approximately 60% of the tax) and a distortionary tax on capital.

3. The Chancellor should go forward with plans to merge Income Tax and National Insurance. Employers’ National Insurance Contributions should be included on workers’ wage slips to highlight that this is a stealth tax on wages.

4. Help to Buy should be wound down ahead of schedule to reduce house prices in London and the South East. To create jobs and encourage construction the Chancellor should endorse radical planning reform that would allow more houses to be built.

5. Subsidies (“financial relief”) to energy intensive industries should be ended with the money saved paying for a broad reduction in green energy taxes to reduce consumers’ energy bills.

6. The ring-fence of NHS spending should be abolished. If savings can be made in the education, policing and welfare budgets, they can be made in the healthcare budget as well.

7. The Bank of England’s mandate should be revised, with the Bank instructed to target the level of nominal spending (nominal GDP) in the economy along a predetermined trend. This would reduce inflation in boom periods and prevent deep recessions by stabilising aggregate demand.

Commenting on the proposed policy changes, Research Director Sam Bowman said:

"National Insurance reform must be top of the agenda in this year's budget. At a minimum, Ben Gummer MP's proposal to rename it the 'Earnings Tax', to show workers that NICs are just another form of income tax, should be adopted, and employers' contributions should be cut back as much as possible. Raising the Personal Allowance is good, but raising the National Insurance threshold would do more to help part-time workers who do not earn enough to pay income tax as it is. 

"The government's corporation tax cuts should be sped up and the Chancellor should make a long-term commitment to reducing the corporation tax even more. Corporation Tax is an inefficient tax that mostly falls on workers' wages, with the remainder acting as a distortionary capital tax. Ideally the tax cuts would be offset by commensurate cuts to spending.

 

"Perhaps most importantly of all in the long-term, the Chancellor should announce a change to the Bank of England's mandate, replacing its inflation target with a nominal income target instead. By stabilising nominal income growth at a predictable rate, the Bank would provide macroeconomic stability to the economy that would prevent any repeat of the deep recession we are only now starting to emerge from."

For further comments or to arrange an interview, contact Kate Andrews, Communications Manager, at kate@adamsmith.org /07584 778 207.

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

 

Corporation Tax cuts will increase workers' wages, finds Adam Smith Institute report

1.     Nearly 60% of Corporation Tax comes from workers’ wages, making the tax a regressive and stealthy form of income tax

2.     Most of the remaining burden of the Tax comes from capital owners, an economically inefficient way of levying revenues

3.     The government should cut Corporation Tax more quickly to increase workers’ real wages and raise the level of investment in Britain

Almost 60% of the Corporation Tax burden falls on workers’ wages, a new report by the Adam Smith Institute has found. The report, released ahead of this week's Budget, reviews existing academic studies into the incidence of the Tax and recommends that the government reduce or abolish it.

The report, ‘Who Pays Corporation Tax’, (http://www.adamsmith.org/sites/default/files/research/files/CorpTax8.pdf) authored by the Institute’s Head of Policy Ben Southwood, proposes that the government significantly reduce, or abolish the corporation tax to reduce the burden on workers, and that it accounts for the lost revenue through either cutting spending or, if necessary, raising the money through more efficient means, such as property, income or consumption taxes.

According to the report, the Corporation Tax’s burden is split between workers— it reduces their pay without appearing on their pay slips—and capital, distorting decisions therefore reducing investment, UK growth and future living standards.

Though economists argue about the exact way in which the tax is initially and eventually split between capital and labour, all agree that the burden is shared primarily between the two.

Ahead of the Budget on Wednesday, the report’s findings should embolden the government to accelerate its corporation tax cuts to increase workers’ real wages and the level of investment.

Ben Southwood, author of the report and Head of Policy at the Adam Smith Institute, said:

"Tax avoidance scandals are often presented as if they were a struggle between the common man and the man—but economists know this is far from the truth.

“Corporation tax is partially paid by workers through lower wages, and the remaining chunk, though paid by capital owners, is likely to come out of investment, hitting growth and future living standards.

"If it can be done without introducing new distortions, we should definitely abolish corporation tax and get the revenue from a more effective tool with fewer side-costs."

Eamonn Butler, Director of the Adam Smith Institute, added: "In his Budget this week the Chancellor may announce a modest cut to Corporation Tax. He should go much further: cutting the Corporation Tax significantly will put more money in workers' pockets and boost the economy by stimulating investment. We need to grow our way back to prosperity by cutting back the state. The Corporation Tax should be the first tax to go."

The key findings of the report include:

1.     While most of the substantive details are hotly disputed, the best studies of corporation tax find that in an open economy, workers bear a significant part of the burden of the tax, along with owners of capital. In a closed economy—like the world as a whole—the burden falls mainly on capital owners.

2.     Though results have been contested, the average empirical result puts the burden on workers at 57.6%. Averaging theoretical studies is much more difficult, mainly because each study gives such a wide range of results over such varying sets of circumstances.

3.     Nearly all economists agree that taxes on capital are highly distortionary, and thus unattractive as means of raising revenue. Owners of capital do tend to be wealthier than non-owners, but capital taxes are far from the best way of redistributing wealth.

4.     Transparency is a virtue of a tax system, and many workers are unaware that their wages are lowered by corporation tax.

5.     In the presence of an extremely complex regulatory and legal regime like the UK’s, the costs of corporation taxes become even higher by distorting key decisions like choices between debt and equity.

6.     The interaction between corporate income taxes and corporate gains taxes may complicate the question, necessitating reforming both in order to properly reform one.

For further comments or to arrange an interview, contact Kate Andrews, Communications Manager, at kate@adamsmith.org / 07980 627940.

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

Comment: NHS was designed to care for patients, not to act as welfare scheme for staff

Commenting on Health Secretary Jeremy Hunt’s decision to veto a blanket pay rise for NHS workers, The Adam Smith Institute’s Research Director, Sam Bowman, said:

“The point of the NHS is to provide care for patients, not to act as a welfare scheme for NHS staff. Since the NHS's budget is limited, all increases in pay would mean foregone spending elsewhere. It may well be the case that NHS patients are better served by additional staff or more investment in medical equipment than they would be by this wage increase.

“Real private sector wages have fallen every year since 2010. Public sector workers already have much greater job security than private sector workers, so it's difficult to see why they should be regarded as being automatically entitled to pay rises that most taxpayers are not experiencing.

“The political wrangling over this decision highlights the need for devolution of pay bargaining to NHS Trusts. National pay bargaining makes little sense given differing labour markets and patient needs across the country: a pay rise that makes sense for patients in Suffolk may not make sense for patients Sunderland.”

For further comments or to arrange an interview, contact Kate Andrews, Communications Manager, at kate@adamsmith.org / 07584 778 207.

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

Government must do more for entrepreneurs, says cross-party group of MPs at the launch of An Entrepreneurs' Manifesto

The government must implement a package of pro-entrepreneurship reforms to revitalise the economy, said a cross-party group of MPs and business leaders at the launch of a new initiative designed to champion entrepreneurs in British politics.

Speaking at the launch of The Entrepreneurs Network's new publication An Entrepreneurs' Manifesto in the House of Lords, the MPs outlined their proposals for reform of Britain’s entrepreneurship policies, which include a call for increased university commercialisation of scientific innovations by Liberal Democrat Party President Tim Farron MP and an alignment of development aid objectives with British trade policy in emerging markets by Conservative MP George Freeman.

The Manifesto comprises 17 papers by entrepreneurs, politicians and civil society representatives from across the business world and political spectrum. Each paper proposes one way to support and promote high-growth start-up businesses in Britain. Authors include Toby Perkins MP, Anne Marie Morris MP, George Freeman MP, Tim Farron MP, Adam Afriyie MP, and Simon Danczuk MP.

The manifesto puts emphasis on the international and educational reforms needed to encourage entrepreneurial pursuits in the UK. It outlines a more flexible visa system for international graduates who want to be entrepreneurs, explains how entrepreneurs can benefit from growth in emerging markets, and discusses how schools and colleges can better promote entrepreneurship and scientific innovation to give business experience to all young people.

Tax reform is emphasised, including the extension of Entrepreneurs’ Relief, the introduction of business advice vouchers, the provision of tax relief for small businesses, and business rate reform.

Commenting on the manifesto:

Philip Salter, Director of The Entrepreneurs Network, said: "The Government must deliver more policies to allow entrepreneurs to succeed. Entrepreneurship does not belong to any political party, and I'm encouraged to see cross-partisan recognition that there is much more that can be done to help start-ups flourish today."

Toby Perkins, Labour MP and Shadow Minister for Small Business,  author of 'Access to finance is vital for entrepreneurs to flourish', said:

“Entrepreneurs are the lifeblood of the British economy. Many of the suggested reforms put forward in An Entrepreneurs’ Manifesto, which would aim to give small businesses better access to educational and financial support, have the potential to provide a real boost to the UK economy.”

Anne Marie Morris, Conservative MP, Chair of the All-Party Parliamentary Group for Micro Business and Vice Chair of the APPG for Entrepreneurship, and author of 'The importance of definition for micro business', said:

“The policy ideas put forward in An Entrepreneurs' Manifesto can have a really positive impact on entrepreneurship in Britain. I’m proud to have contributed alongside other MPs to this collaboration and as Vice Chair of the APPG for Entrepreneurship, am excited to see how this manifesto can translate into policy.”

Guy Myles, Co-Founder and Managing Director at Octopus Investments, a sponsor of TEN, said:

“Entrepreneurial Britain is crucial to our economic prosperity and we need to ensure that we do everything we can to enable enterprise and high growth businesses to thrive in the UK. An Entrepreneurs’ Manifesto brings together many positive ideas to achieve this outcome. With a general election on the horizon, we need all the political parties to make sure their own manifestos address the needs of entrepreneurs to ensure that growing businesses across Britain can continue to help drive our economic growth."

Key quotes from the report:

Tim Farron MP, President of the Liberal Democrats, and author of 'We need to capitalise on our scientific excellence', said:

“Commercialising the UK’s research output is a potential open goal for the country’s entrepreneurs and scientists. If the UK is to move beyond the occasional bright spot of success, it will require both academics and entrepreneurs being willing to shift from their comfort zones and learn about each other’s worlds.”

Simon Danczuk, Labour MP and member of the Communities and Local Government Select Committee, and author of 'A Small Business Kitemark would foster local government best practice', said:

“One of the best ways a local authority can help a small business is to simply get out of the way. The sheer number of regulations a business has to navigate costs small businesses huge amounts in time and money and can be a deterrent to young entrepreneurs. I would therefore like to see local authorities committed to reducing the number of regulations small businesses are subject to by having a Red Tape Challenge similar to the one currently operating on a national level.”

George Freeman MP, UK Trade Envoy, and author of 'An integrated approach to aid and trade could unlock a new cycle of growth', said:

 “The UK has a choice: become an ever older, less productive, insular, more public sector and tax dependent ‘former’ European power or embrace these new markets and be the provider of the innovation and knowledge based expertise these economies will need. To do that we need to think less like a big corporation (UK plc) and more like a start-up (UK.net)."

Adam Afriyie MP, author of 'All schoolchildren should be given the opportunity to start and run their own business', said:

“Entrepreneurship is not just for middle-class kids or those from privileged backgrounds… Whatever your background, if you’re enterprising and hard-working, business will give you a leg up.”

 

For further comment or to arrange an interview with any of the authors of the report, please email philip@tenentrepreneurs.org or phone 0207 222 4995. 

An Entrepreneurs' Manifesto was formally launched in the House of Lords on Tuesday, 11 March 2014.

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. The Entrepreneurs Network 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.

 

Comment: Immigration minister should read his own report

Commenting on the immigration minister James Brokenshire's debut speech this morning, Sam Bowman, Research Director at the Adam Smith Institute, said:

“Today’s migration impact report released by the government confirms what economists and businesses have been saying for years: that immigration is good for Britain, and we need more of it.

“Contrary to the claims of immigration minister James Brokenshire today, immigrants have no long-term negative impact on native wages or employment rates, and by acting as innovators and entrepreneurs probably have a substantially positive impact on natives overall. The mild short-term disemployment effects found in the report can be eased through labour force deregulation and welfare reforms.

“The government’s cap on migration is crude and harmful to growth – the ‘cure’ is worse than the disease. The report highlights that even the mild, short-term negative impact on employment associated with immigration applies only to low-skilled migrants. The government should therefore only include unskilled migrants on tier-3 work visas in its cap, to allow British businesses to hire the best and brightest skilled workers the world has to offer.

“In the longer run, the cap should be dropped altogether, in tandem with welfare and labour market reforms to reduce the impact of unskilled immigrants on unskilled native workers.

“The Conservative Party once claimed to stand for economic growth, open markets and individual liberty. If Mr Brokenshire’s speech today is any sign, those days are over. Instead, the Conservatives have retreated to the worst kind of populist protectionism on immigration, sacrificing long-term prosperity for short-term electoral gain.”

For further comments or to arrange an interview, contact Kate Andrews, Communications Manager, at kate@adamsmith.org / 07980 627940.

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

 

Comment: Minimum Wage rise risks harming workers; cut taxes on the poor instead

Commenting on the Low Pay Commission's recommendation that the National Minimum Wage should rise by 3% today, the Adam Smith Institute's Research Director Sam Bowman said:

“The empirical evidence is pretty clear that minimum wage increases lead to more unemployment (http://www.nber.org/papers/w12663), slow growth in the creation of low-skilled jobs (http://www.nber.org/papers/w19262), and lead to long-term reductions in some people’s income by ‘kicking away the ladder’ and delaying their acquisition of workplace skills (http://www.nber.org/papers/w10656). These risks are significant enough that raising the minimum wage should be judged as, at best, a very risky way of helping the poor and runs the risk of harming them instead.

“Instead, there are two things the government should do to help the working poor. It should peg the personal allowance and, crucially, the national insurance threshold to the minimum wage level, so nobody on minimum wage pays any tax on their income. This would give full-time minimum wage workers almost exactly as much income as they would be on a “Living Wage” that was being taxed at current levels. If necessary, the 40p rate threshold should be lowered to offset this for those earners to make sure that this is targeted at low- and middle- income earners only.

“In the medium-term, the government should simplify the tax credits system and overhaul welfare in general along the lines of a ‘Negative Income Tax’, which automatically topped up low-income workers’ wages with a steady taper to avoid disincentivising work. The simpler income redistribution is, the better for low-paid workers.

“A 3% rise in the minimum wage is modest so the negative effects that it has are also likely to be modest. Nevertheless, it is still likely to be harmful on net. Rather than trying to shift costs to businesses, the government should accept that it cannot wave a magic wand to help the poor. Instead it has to accept the existence of trade-offs and find savings elsewhere to pay for much-needed tax cuts for the poor."

For further comment email sam@adamsmith.org.

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

ASI: still lots of slack in the labour market

Commenting on today's Labour Market release from the ONS, ASI Head of Macroeconomic Policy Ben Southwood said:

"Though the labour market looks strong, the Bank of England must not be complacent and it would be crazy to tighten policy now.

"Employment was up 193,000 on the quarter and 396,000 on the year, and the rate was up 0.3 percentage points; unemployment was down 125,000 on the quarter, 161,000 on the year, and the rate fell 0.4 percentage points to 7.2%.

"But the labour market is not yet what we'd call tight. Nominal wage growth is still running far too slow, suggesting the existence of substantial slack. Total earnings grew just 1.1% over the year to the last three months. By comparison earnings grew 4-5% for nearly every month of the 16-year great moderation.

"This, combined with well-below-target core inflation, suggests the Bank of England's policy is not too loose, and it would be premature to raise rates or roll back QE now."

For further comment email ben@adamsmith.org or phone 02072224995.

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

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