RELEASE DATE: Tuesday 14 July 2009
Government told to stop talking and bring on nuclear investment
New 'low carbon obligation' would boost nuclear power
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, a new think-tank report says today.
"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," says the Adam Smith Institute. 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.
"It is time for fewer words and more action from the government," concludes the Institute concludes in Re-energizing Britain.
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.
Re-energizing Britain: Promoting investment in our energy future can be downloaded for free here.
RELEASE DATE: SUNDAY 12 JULY 2009
EU seizing on finance crisis to advance federalist agenda, says think-tank
EU bureaucrats are seizing on the financial crisis to centralise financial regulation in Brussels – a move welcomed by France and Germany as a way of curbing their competition from London. But this new EU regulatory bureaucracy will not improve financial stability and will only cause business to drift away from the EU to the financial centres of New York, Switzerland, and the Far East, says the Adam Smith Institute in a strongly-worded new report.
Despite Lord Mandelson's claims that he will defend Britain's interests – saying that "we have more skin in this game than the rest of Europe put together" – the Chancellor and the Prime Minister seem to have rolled over and accepted the EU proposals, even before the public consultation on them has ended, claim the report's authors, Tim Ambler of the London Business School and regulation expert Keith Boyfield.
"When you look at this you wonder whether Alistair Darling's White Paper on UK financial regulation is a rather pointless exercise," said Boyfield, chair of the Regulatory Evaluation Group. "It seems that we have already handed over our right to police ourselves, despite the fact that London's financial market has more scale, experience and expertise than the whole of the rest of the EU." Under the new proposals, the UK, with its huge financial sector, would have no more voting power than Latvia, which is on the edge of collapse.
Brussels wants to create two new bodies, the European Systemic Risk Council and the European System of Financial Supervisors, despite any evidence that the lack of EU cross-border rules had anything to do with the crisis. The real need, they argue, is to improve the supervision structures that failed in individual EU countries – including Britain. But "instead of dealing with the fundamental problem, the European Commission is proposing to add new bureaucratic structures" that will be top-heavy and could actually make financial instability worse. "The proposals seem opportunistic, using the financial crisis to provide an opening for long-held political objectives in Brussels," the report suggests. "These proposals are not just a knee-jerk political reaction. They are too well thought out for that."
The report echoes complaints last week from the Mayor of London, Boris Johnson, that London's innovative hedge fund industry had nothing to do with the financial crisis, and would be crippled by the heavy hand of new EU bureaucracy, driving them to New York and Shanghai. He agreed with the report's authors that "what is good for London's financial services sector is good for the EU".
There are also proposals to create three new European Banking, Pensions and Investment authorities, all with executive powers to control firms across the EU, stripping Britain of control over its own financial sector. But, says Ambler, "Since financial crises of this scale come along only every sixty years or so, there is no economic reason for this haste." He suggests that these deals were all stitched up at the G20 meeting in April, where President Sarkozy threatened to walk out unless new EU-wide financial regulations were agreed.
Instead, the report calls on the European Commission to conduct a thorough investigation into the real causes of the crash, which they believe was actually made worse by international regulation such as the Basel II banking code – rather than rush headlong, for political reasons, into new cross-border regulation that could simply increase future instability. It says that the EU should aim for "bottom up" improvements in European countries' financial supervision, rather than imposing "top-down" regulation.
"The UK should lead strongly on a positive agenda for financial regulation in Europe," said Adam Smith Institute director, Dr Eamonn Butler. "That will focus on the need for prudential supervision by central bankers (like the Bank of England) rather than tick-box regulation from the likes of the Financial Services Authority. If we focus on improving supervision in the individual EU countries, then the financial services industry of Europe as a whole will get along fine. But if we shackle the diverse financial industries of Europe with heavy-handed, "one size fits all" regulation, the only gainers will be New York, Switzerland, and the Far East."
Financial Regulation: What is the best solution for the EU? can be downloaded for free here.
Monday 22 June 2009
The City of London has been “Sold down the Rhine", a group of regulatory experts says today (Monday 22 June).
According to the Regulatory Evaluation Group (REG), part of the Adam Smith Institute, it looks as though Gordon Brown agreed last week to hand over the control of financial services regulation to EU executive committees. UK agencies such as the Financial Services Authority and the Bank of England will monitor compliance with the regulations, but the regulations will be written in Brussels.
According to press reports, France’s President Sarkozy claimed after the decisive meeting “We have agreed a European system of supervision with binding powers."
The REG experts say this is a severe threat to the UK, which presently has by far the largest financial services sector in Europe. However, it will be in a small minority when it comes to voting on the new regulations and monitoring arrangements – just one out of 27 votes.
“Do you recall President Sarkozy threatening to walk out of the G20 unless he got what he wanted? It would appear that he was successful. The EU will have control over the City of London, and with it, a substantial part of the British economy," commented Tim Ambler, Senior Fellow, London Business School, a REG member.
The blueprint for the takeover, says Ambler, was written by M. de Larosière, a former Governor of the Bank of France, and was supported in a letter from Alistair Darling to the President of the EU on 3rd March 2009.
Britain has negotiated some minor opt-outs on the cost of the new scheme, but the Europe-wide regulation plan seems unstoppable, with the EU leaders agreeing a ‘Communication’ – effectively a draft EU-wide Directive.
The Adam Smith Institute plans to publish its response to the EU Communication in a report by regulation experts Tim Ambler and Keith Boyfield, in mid July.
“The timing of this decision is extraordinary," said the Institute’s director, Dr Eamonn Butler. “The Financial Services Authority has not even had time to read the submissions to its ‘consultation’ on the future of UK financial regulation, which closed just last week. It seems that it doesn’t matter what we think about the future of our own financial system, Gordon Brown has already sold it out."
“I predict that many firms currently based in the City of London will be moving to Switzerland, which is bad for everyone in Britain."
MONDAY 22 JUNE 2009
The financial crash was entirely foreseeable, was made worse by abject policy failures by the government, and will only be cured by a long period of reduced taxes, balanced by public expenditure cuts.
That is the conclusion of a think-tank report, The Recession: Causes and Cures by Harvard-trained economics professor David Simpson, published today.
Causes of the crisis
According to Simpson, four major policy blunders contributed to the crash:
(1) For years, the British and American governments kept interest rates too low. They claimed they had 'abolished boom and bust'. In reality, they were fuelling a huge bubble in the price of houses, shares, and other investments, and eventually, that bubble had to burst.
(2) Britain's regulatory system, set up by Gordon Brown, focused on form filling – questions like how quickly a bank answered its customers' phone calls – rather than looking at whether banks were taking dangerous risks. Like MPs, the banks obeyed the rules, but it didn't stop the system collapsing.
(3) Implicit government guarantees encouraged banks to become 'too big to fail'. They took dangerous risks because they knew that the government would bail them out if they got into trouble.
(4) Governments encouraged borrowing that people could not afford. The worst offender was the American government, which forced lenders to make home loans available to people with no record of creditworthiness. When house prices were booming, nobody noticed. When the bubble burst, the lenders were ruined.
Another reason why the banks took excessive risks, says the report, is that UK law gives too much power to boardrooms and not enough to shareholders – the people who actually own the business. This balance must be restored if future excesses are to be avoided.
Where do we go from here?
The only way to avoid crashes, says Professor Simpson, is to avoid creating booms. Now that the recession is here, the only way back to normality is to re-establish business confidence. And the best way to do that is to cut personal and corporate taxes, encouraging businesses to invest and customers to spend. But the government is trying to borrow its way out of the problem, which digs the hole even deeper and dents confidence even further.
Serious, long-term, confidence-building tax cuts will of course require equally drastic cuts in public expenditure. The Adam Smith Institute believes that the public is ready for such a programme, particularly when people look at the salaries, expenses, and index-linked pensions now enjoyed by public-sector employees.
The government's flawed response
Professor Simpson says the government's move to bail out the banks was a mistake which will prove harmful. Instead, some banks with large volumes of 'toxic' debt should have been allowed to fail, which would have left the others in a stronger position. The banks would now be lending again, and small businesses would have been able to borrow, and jobs would have been saved.
Furthermore, while there may be a case for targeted help to avoid the worst hardships caused by recession, a general financial stimulus package is likely to do more harm than good by preventing markets from adjusting to changed circumstances.
'Quantitative easing' – effectively printing money – will provide only a short-term stimulus, but will stoke up long-term inflation, says Simpson. The Bank of England does not have a good track record of keeping inflation under control.
Indeed, the whole crisis casts doubt on whether governments can actually be trusted with our money. They can print as much as they like, and enjoy the resulting fake boom. But, says Professor Simpson, we might be better off with money that is rooted in something governments can't manipulate – gold, for example – which would save us from the politicians' booms and busts.
TUESDAY 16 JUNE 2009
'Regulators, not under-regulation, caused the financial crash'
The financial crash occurred because regulators were too preoccupied with form-filling and did not see that the whole financial system was at risk, a leading economic think-tank says today.
Like Members of Parliament in the expenses scandal, the banks did not actually break any of the regulators' rules. But the rules were targeted on the wrong things, allowing a disaster to flare up under the regulators' noses.
The comments come in a report, Regulatory Myopia, from the Adam Smith Institute, which is its response to Lord Turner's Report on financial regulation, and published ahead of the Chancellor's Mansion House Speech in the City of London.
The Institute says that Turner is wrong to suggest that regulation was too 'light touch' for the job. The banks, it says, are minutely regulated, from how they deal in the credit markets to how quickly they pick up the phone to their customers. More regulations would not have saved the system, and will not do so now. Rather, the mistake was a shortage of overall supervision that would have seen the potentially fatal risks that the banks were running and would have intervened to curb them.
The report's authors, London Business School Fellow Tim Ambler and regulation consultant Keith Boyfield, say that the Bank of England should take on this supervision role, and that far from being expanded, the powers of the regulator, the Financial Services Authority (FSA), should be cut back to 'match its competence'. The FSA, they say, must realise it is 'part of the problem, not the solution'.
Click here to download a PDF of Regulatory Myopia.
Celebrate Tax Freedom Day, May 14 2009
But you'll still have 42 days hard labour to fill Brown's borrowing hole
Tax Freedom Day 2009, the day in the year when the average Brit has earned enough to pay his tax bill, is tomorrow, May 14. That's the earliest date since 1973.
But according to the Adam Smith Institute, who calculate the UK's Tax Freedom Day every year, there is little cause for celebration. If you factor in government borrowing Tax Freedom Day does not come until June 25 – the latest date since 1984.
More worryingly, the gap between these two Tax Freedom Day measures – one representing taxes collected, the other how much the government actually spends – is now 42 days. That's higher than it was at its previous peak in 1975, and may represent the widest gap revenue and expenditure since the Second World War.
The Institute's director, Dr Eamonn Butler, commented:
"Put simply, the government is now living further beyond its means than it did even in the dark days of the 1970s. We might not be paying for it this year, but Brown's borrowing binge is going to mean higher taxes for all of us in the years to come."
For more information please contact:
Dr Eamonn Butler or Tom Clougherty on 020 7222 4995
Notes for editors:
For Release: SATURDAY 2 MAY 00:01
But you'll have to work until June 25 to pay off Brown's borrowing binge.
Tax Freedom Day, the day in the year when the average Briton has earned enough to pay his annual tax bill, will fall on 14 May this year, according to independent think-tank the Adam Smith Institute. This means that for 135 days of the year, every penny earned by the average UK resident will have been taken to support government expenditures.
This is the earliest Tax Freedom Day since 1973 – on the face of it, good news for taxpayers. But there is a downside: the traditional Tax Freedom Day measure only reflects the money actually raised by the government in taxes, not the full amount it spends. If the government deficit is factored in, Tax Freedom Day does not come until 25 June (the worst figure since 1984).
This gap between Tax Freedom Day based on actual revenues and Tax Freedom Day based on government spending is now the widest it has been since the early 1970s – and possibly since World War II.
According to Gabriel Stein, Chief Economist at Lombard Street Research who calculates Tax Freedom Day every year, the figures indicate a bleak future for British taxpayers:
"Running up deficits can be described as a form of deferred taxation. The effect will be that when the economy recovers – as it will eventually do – the UK tax burden is likely to rise much faster than would otherwise have been the case and Tax Freedom Day is likely to creep later and later in the year."
Moreover, the reason that Tax Freedom Day will arrive so early in 2009 is not so much that the tax burden has been dramatically reduced – although the temporary reduction in VAT is certainly significant – as it is that tax revenues have collapsed due to the sharp downturn in the economy. Dr Eamonn Butler, the director of the Adam Smith Institute, commented:
"It's nice to see Tax Freedom Day come early, but our research doesn't leave me optimistic. Under Gordon Brown's stewardship of the economy, the government's annual deficit went from near-balance in 1998 to more than 3% in 2007. And that was when the UK economy was growing strongly. Now the Chancellor is forecasting a 13.3% deficit. Young people have the right to feel very angry, because they'll be carrying the burden of these mistakes for years to come."
Notes for editors:
For Immediate Release
When you read the fine print of the G20 agreement, it shouts 'heroic hypocrisy, unreliable sums, weak promises, meaningless language and self-serving commitments' according to the City financial analyst Miles Saltiel in a briefing paper for the Adam Smith Institute.
According to the paper:
"The G20 leaders are more concerned about their domestic problems than their international responsibilities. They turned up in London for a photo opportunity. Their talks convey a sense that there is little they can do to change events. And they are right. Eventually, the world economy will trade its own way out of the current confusion, as it always does."
G20 – Less Than Meets the Eye is published by the Adam Smith Institute, 23 Great Smith Street, London, SW1P 3BL. It can be downloaded for free at http://www.adamsmith.org/images/stories/less-than-meets-the-eye.pdf