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Comment: An independent Scotland would be better off using the pound without permission

Commenting on the Chancellor George Osborne’s announcement today that is likely to rule out an English currency union with an independent Scotland, the Adam Smith Institute’s Research Director Sam Bowman said:

“An independent Scotland would not need England’s permission to continue using the pound sterling, and in fact would be better off using the pound without such permission.

“There is very little that an English government would actually be able to do to stop Scottish people from continuing to use the pound sterling if they wanted to.

“As the American economist George Selgin has pointed out, what the Prime Minister really means is that the Bank of England would not act as a guarantor for Scottish banks or the Scottish government. Lucky Scotland: the implied promise of a bailout from the European Central Bank is exactly what allowed Eurozone banks and governments to borrow cheaply and get themselves into a debt crisis.

“Scotland’s position would be closer to that of countries like Panama, Ecuador and El Salvador, which use the US Dollar without American “permission”, and, according to research by the Federal Reserve of Atlanta, consequentially have far more prudent and stable financial systems than if they were part of a formal currency union.

“An independent Scotland that used the pound as its base currency without the English government’s permission, with banks continuing to issue notes privately and private citizens free to choose any currency they wanted, would probably have a more stable financial system and economy than England itself.

“It’s up to Scots to decide whether they want independence, but the Chancellor’s announcement today should be seen as a feature, not a bug.”

For further comment email 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.

ASI explains that liberalisation of supply is the only long-term solution to London's housing woes

Reacting to EY Item Club's new report on London's housing bubble, Ben Southwood, the ASI's Head of Macro Policy, said:

"This new report confirms what the Adam Smith Institute said in last year's report Burning Down the House—rampant demand and tightly-restricted supply are driving a huge and damaging rise in London house prices.

"Demand-stoking policies, especially Help to Buy, exacerbate the issue by driving prices upwards. The answer is to scrap these policies and allow housebuilders to build the homes the capital needs. Rolling the green belt out just one mile would create space for a million more homes, the LSE has estimated. 

"Scrapping regulations on height, density and usage would allow hundreds of thousands more to be built. And paradoxically, affordable housing regulations are actually like to drive average prices up overall, as well as creating an inefficient distribution of stock. Help to Buy should be scrapped but the government should not to go too far in the other direction, distorting the market by putting an arbitrary limit on loans individuals can secure in the marketplace, as some have suggested.

"It is a scandal how much badly-off Londoners must plough into their rents, and the situation is getting worse and worse as we build at a rate that would have been paltry in the 1920s, with a UK population tens of millions fewer. If the government can give the planning system the liberalisation it badly needs it can stop another housing bubble and allow prices to return to an affordable level."

For further comment or to arrange an interview with an Adam Smith Institute spokesperson, please phone 02072224995 or email

The Adam Smith Institute is an independent libertarian think tank based in London. It strives to engineer policies and educate the public in order to create a richer, freer world.


It's nice to see growth but real recovery will take change

Ben Southwood, Head of Macro Policy at the Adam Smith Institute, said:

"It is heartening and refreshing to see real output tick along nicely, putting it 0.7% up on the quarter, 1.9% up over 2013, and 2.8% higher than the same quarter last year."

"Despite all the talk about Forward Guidance failing, this looks like a win for Mark Carney's modest flagship policy. Without a futures market in nominal income it's nearly impossible to say for sure, but it seems like the policy gave markets extra confidence policy would not be prematurely tightened. We can say that the Bank of England was wrong about how quickly unemployment would fall, but that's a good problem to have."

"Still, it's not time to be complacent. Planning policy is so tight that even small liberalisations could add percentage points to GDP. The same goes for immigration, where an unnecessarily tight policy is clamping down on a major export—education—and keeping out potential entrepreneurs. The return to growth should not let us forget that CPI targeting allowed the 2008-9 crash and we need to seriously consider alternatives like nominal income targeting."

For further comment or to arrange an interview with an Adam Smith Institute spokesperson, please phone 02072224995 or email

The Adam Smith Institute is an independent libertarian think tank based in London. It strives to engineer policies and educate the public in order to create a richer, freer world.

Conservative backbenchers risk turning a bad bill into a terrible one

Commenting on the Conservative backbench amendment to the Immigration Bill, the Adam Smith Institute's Research Director Sam Bowman said:

"The anti-immigration amendment to the Immigration Bill being put forward by Conservative Party backbenchers is deeply misguided, and the Prime Minister is right to oppose it. Fears of a tidal wave of Romanian and Bulgarian immigration at the start of the year proved to be entirely wrong and highlighted the huge disconnect between the political debate about immigration and the reality.

"Immigration is good for Britain: Recent research shows that EEA immigrants pay more into the Exchequer than they cost in social services, meaning that they effectively subsidise the welfare state. [1] Public perceptions about immigration are based on mistaken ideas about basic facts: the average Briton thinks that 31% of the UK's population are immigrants, when in reality the number is 13%. [2]

"In the long-run, a high amount of immigration is vital: according to the ONS, the UK will suffer a debt crisis by the middle of the century unless net immigration exceeds 260k annually between now and then. [3] Conservatives who oppose immigration are thus no more fiscally responsible than the left-wing tax-and-spend politicians they oppose. Furthermore, immigrants reduce the cost of living by providing services and producing goods – particularly essentials like childcare – more cheaply. [4] These findings are generally true of both high-skilled and low-skilled immigrants.

"With its nanny statist provisions that turn private citizens into enforcers of state border controls, the Immigration Bill is already a dog's dinner. By trying to use it to restrict immigration even more, Conservative backbenchers risk turning a bad bill into a terrible one."

[3] See

For further comment or to arrange an interview with an Adam Smith Institute spokesperson, please phone 02072224995 or email

The Adam Smith Institute is an independent libertarian think tank based in London. It strives to engineer policies and educate the public in order to create a richer, freer world.

Minimum wage increase will hurt the poor

Commenting on the Chancellor's backing for an above-inflation rise in the National Minimum Wage, the Adam Smith Institute's Research Director Sam Bowman said:

"A minimum wage increase will hurt the poor, particularly young people and vulnerable groups like migrant workers. Most of the empirical economic evidence has found that increases in the minimum wage cause increases in unemployment. The evidence also suggests that minimum wage increases lead to slower job creation for low-skilled workers.

"Minimum wage work is usually a stepping-stone to something better where employees can acquire human capital. There is also evidence to suggest that minimum wages stop young workers from acquiring these skills that allow them to get better jobs in the long run, so today’s increase could have far-reaching harmful effects by keeping people in low-paid jobs.

"One way to actually help low-income workers would be to raise the income tax and National Insurance threshold to the current minimum wage level, which would give these workers a take-home pay equivalent to a minimum wage. That would require spending cuts or tax rises elsewhere, but it would be a responsible and effective way to improve the lot of the working poor that would carry none of the unemployment risks that this minimum wage increase does – in fact, it would create jobs.

"Increasing the minimum wage runs an indefensibly high risk of creating more unemployment and harming the people that supporters of the increase want to help. Even if the immediate impact is not large, this increase will lead to a long-run decline in job creation and standards for Britain's poorest workers. It will hurt the very people it is supposed to help."

For further comment please email

The Adam Smith Institute is an independent classical liberal think tank based in London. It advances free markets and social liberalism to create a richer, freer world.

Adam Smith Institute Autumn Statement Reaction

Reacting to the the key points of the Autumn Statement, Sam Bowman, Research Director at the Adam Smith Institute, said:

  1. Raising the pension age sooner than previously planned will be unpopular, but it is the right thing to do. With an ageing population we will experience a fiscal crisis unless we raise the pensions age and, ultimately, move to a system of private pensions savings accounts so the system is robust to any demographic shifts.
  2. Borrowing has been £111bn in 2013/14, which is equivalent to £304m/day or £12.6m/hour. It’s great that the deficit is falling faster than previously (though not originally) projected, but the numbers are still staggering.
  3. The economy is recovering, but compared to this point in previous recoveries, growth is still sluggish. The Bank of England’s mandate is muddled and should be replaced with a single target to stabilise aggregate demand and return nominal GDP to the level it was growing towards before the financial crisis. This would also offset the effects of government cuts, stopping the cuts from having any negative macroeconomic impact. (Ben Southwood, Head of Macro Policy, comments further below.)
  4. The cap on total welfare spending seems like a PR stunt. It will be modified every year and doesn’t make much sense in any case: what happens if/when negative economic shocks that create lots of unexpected unemployment? 
  5. The development budget was heralded, but the best tool for development is letting in more immigrants from poor countries, because immigrants send money home – indeed, they sent 3 times as much money to poor countries as was sent in total official aid last year. And this is good for our economy too.
  6. It’s bizarre to give LIBOR fines to charities. It simply makes no sense. What's the connection between LIBOR and military charities? 
  7. The pensions triple lock is about buying votes. Many pensioners don’t need more money and there is no real reason to redistribute wealth to them over other groups in society. 
  8. Help to Buy and other expanded mortgage subsidies completely miss the cause of expensive housing. If more houses are built (increasing supply) then prices will fall. This will happen if we liberalise the planning system. Throwing money at the housing market will drive prices up and do little to increase supply. Rolling the Green Belt back by one mile would free up enough land to build one million new homes.
  9. Corporation tax is a terrible tax and, though the government’s cuts are welcome, it should be abolished altogether. Corporation tax largely falls on workers’ wages and as such it is an invisible and regressive tax on earnings.
  10. The Chancellor’s confirmation that the personal allowance will rise to £10,000 is good news, but the government should go further and peg it to the minimum wage rate to reduce the tax burden on the working poor and help to make work pay.
  11. Cutting employers’ National Insurance contributions for workers under 21 is a good move and highlights the cost of employer NICs to jobs. Employer NICs are a jobs tax and the government should be aiming to abolish them altogether.
  12. Ultimately, there was no mention of reform to planning, immigration or monetary policy – the three things most important to Britain’s economic prospects. The Chancellor has done a good job at balancing the books but he should look to making significant structural reforms that would really get the country booming: liberalising planning to allow hundreds of thousands of extra homes to be built; scrapping the net migration cap to allow talented immigrants to work here and fee-paying foreign students to study here; and giving the Bank of England a new mandate to target Nominal GDP to ensure a stable macroeconomic environment.

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 or Ben Southwood at

CMRE: Introduce school vouchers and liberalise free school creation to improve UK education

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 – Executive summary:

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: An executive summary of the paper is downloadable here:

Please contact Alexander Blackburn to arrange an interview with the paper’s authors by calling 020 7799 8903 or 07400 902 290, or emailing

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

Zombie firms threaten to cause a “lost decade” of economic stagnation – Adam Smith Institute report

  • Up to 108,000 “zombie firms” threaten to cause a “lost decade” of stagnant growth and productivity
  • Corporate insolvencies are unusually low, suggesting that zombie firms are holding up capital and labour that could be used productively elsewhere
  • “If a business can be saved, it is entrepreneurs who are best place to make the changes required” says OpCapita’s CEO Henry Jackson

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 (, 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 or phone 07585 937001. The report can be read in its entirety here:



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