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 email@example.com 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
The Adam Smith Institute praised the Queen's Speech for what it left out: "The omission of the snoopers' charter, plain packaging for tobacco products and minimum pricing for alcohol are cause for celebration," said the ASI. "Hopefully the government has learned that pushing people around is no way to govern, and paternalism over how much we drink and smoke is better left to the Victorians."
Its President, Dr Madsen Pirie, said "It is good news that there will now be no Big Brother powers for the authorities to spy on our private communications, and good news that there will be no more nanny state powers over tobacco and alcohol. Their omission is a victory for freedom and good sense."
However, the government is going the wrong way on immigration, said the Institute's Research Director, Sam Bowman: "Instead of clamping down on illegal immigrants and their employers, the government should expand the number of visas available so immigrants who want to work have an easy path to legal residence. If given the chance to work, immigrants pay more in taxes than they use in services and boost economic growth overall. Making life harder for immigrants will not help anyone."
· Other EU countries aim to strangle the City with regulation
· UK should push for global market regulation instead
· Global regulation must boost competition at low cost
Envious EU countries are out to tie the City of London up in regulatory knots, says a report today from the Adam Smith Institute. The independent economic think-tank says the UK needs to act now to preserve the future of its most important international earner.
Instead of submitting to onerous regulations inspired by our competitors in Paris and Frankfurt, the UK should call for simple and fair regulations that apply across the world. That, it says, would create a world market in which London could excel, rather seeing business move to Singapore and other low-cost centres.
“The UK should campaign for global rules that promote competition and innovation, rather than loading Europe and the UK with costs,” said the report’s author, regulation expert Tim Ambler. Those rules should focus on protecting consumers and promoting trade, not creating larger and larger rule-books that nobody can possibly read.”
Ambler says that thousands of pages of EU regulation could be replaced with just eight key principles to promote honest trading. [See 4-pager.]
“Regulation is already strangling the financial sector and there are just two ways to correct this,” he continued. “One is for the UK unilaterally to cut out the red tape and hope others will follow. But a better way is to recognise that finance is a global industry, needing global regulation, and for the UK to campaign to make this regulation as light as is needed to protect customers.”
Noting that only one new retail bank has been set up in the UK in the last 130 years, the Institute argues that the complexity and cost of financial regulation now seriously discourages competition in the UK and Europe. Increasingly, City firms will see their business by competitors in Asia and elsewhere. It argues that the new City regulator, the Financial Conduct Authority, should be “strangled at birth,” with the Bank of England regulating providers and the Financial Ombudsman Service looking out for customers.
Dr Eamonn Butler, Director of the Institute, added: “Not content with drowning our main industry in red tape, we are letting our competitors in Paris and Frankfurt pile on more. The UK government needs to come out, fists flailing, to campaign for effective but low-cost regulation across the world, rather than allowing us to become an uncompetitive backwater.”
The Adam Smith Institute is calling on the government today (TUESDAY) to slash CGT rates in next month’s Budget in order to boost revenue and economic growth. 2010-11 figures now released by HM Revenue & Customs (HMRC) show that the rise in Capital Gains Tax (CGT) was a failure. It meant to raise more revenue, in fact it raised less.
CGT was raised from 18% to 28% for most taxpayers (entrepreneurs’ relief stayed at 10%) in June 2010, nearly three months deep into the tax year. This unusual timing allows economists to see the impact of the rate changes during the year.
Comparing the 78 days from 6th April 2010 to 22nd June 2010, and the 287 days from 23rd June 2010 to 5th April 2011, shows a marked fall in revenues. The annual equivalent CGT revenues under each system are:
There was a 76% drop in normal disposals (taking 18% and 28% together for post-23rd June figures, because figures are not available for the equivalent split for pre-June). Clearly, many people sought to realise gains before the rate increased, knowing that the Coalition Agreement committed the Government to a sharp increase in CGT rate. There was also a 34% drop in 10% ER disposals, probably because entrepreneurs feared further tightening.
However, this highlights the fact that CGT is effectively a voluntary tax, paid only when people choose to dispose of assets. If they perceive rates to be too high, they choose to keep assets rather than dispose of them. Only a few people are forced to sell assets – many of them elderly people who build up assets throughout their lives and then cash them in to live on.
High CGT rates depress economic activity and prevent the flow of capital to where it can be most productively used. This lowers both economic growth and government revenue. This is why the Adam Smith Institute is urging the government to slash CGT rates to their pre-2010 levels, which would raise more revenue for the Treasury and also stimulate growth.
For example, if someone owns a buy-to-let flat and is thinking about selling it to raise seed money for a new business, the fact that a large chunk of the proceeds has to be paid in tax will deter them. They may well decide to keep the flat and not start the business, thus depriving the state not only of the CGT revenue, but also the taxes that would be paid by the new business and its employees.
People’s reluctance to pay a large cheque to the state is increased by the knowledge that much of their capital gain is actually due to inflation. Indeed, roughly half of taxable gains are attributable to inflation.
Dr Eamonn Butler, Director of the Adam Smith Institute says: “The coalition policy of a sharp increase in CGT rates has failed. Not only has it raised less revenue, it has also reduced the available capital in the economy. That is the last thing businesses need at a time when bank loans are so difficult to get.”
· Wind power unreliability means there is little environmental benefit
· Need for reserve power generation or energy storage facilities to provide for users needs makes wind power a costly energy source
· UK government should stop overinvestment in onshore and offshore wind turbines
The report ‘The Limits of Wind Power”, released today by the Adam Smith Institute and US’s Reason Foundation, reveals that the heavy investment in wind power in the UK and US is misguided. Wind energy will never be suited as the lone or primary source of grid electricity due to its variable nature and will not deliver the environmental benefits expected.
The study looks at the limitations of wind power and argues that wind energy needs either expensive energy storage facilities or reserve power generation facilities to provide for users needs. Wind energy is intermittent and therefore these back ups are needed to avoid blackouts or brownouts.
Reserve power would have to come from facilities that use fossil fuels, which must operate even when not being used to ensure the reliability of the electrical grid. This undermines the supposed environmental benefits of wind power.
In light of this, the UK government is overinvesting in onshore and offshore wind farms. Not only is investment in wind power expensive, but it will also fail to provide a reliable source of energy for grid users. The Adam Smith Institute paper argues that the practical upper limit for wind power’s contribution to an electricity grid is 10% of the total energy mix. At the moment the government is hoping that between 8% - 15% will be generated by offshore wind alone by 2020, an unachievable target.
“Very high wind penetrations are not achievable,” said William Korchinski, author of the report. “As wind’s share increases, system reliability will be adversely affected disproportionately – unless adequate reserve power is available. That power reserve is expensive and lowers any possible environmental benefits.”
In response to today’s GDP figures, Sam Bowman, Research Director at the Adam Smith Institute, said:
“We shouldn’t be too surprised by these GDP figures. Since GDP figures include government spending, cuts to spending will depress the headline rate even if the private sector is doing quite well.
“What we are experiencing is a rebalancing of the economy. In 2012, nearly a million private sector jobs were created, a very positive development. The state is cutting its workforce, freeing up more labour for private sector productivity.
“However, the government is not doing enough to promote the growth of small and medium-sized enterprises (SMEs). EU regulation costs British business £100bn a year, and our taxes on business are killing jobs. Scrapping Employers’ National Insurance contributions for SMEs could create over 500,000 new private sector jobs.
“The government is right to cut state spending and employment, but it needs to promote stronger private sector growth to pick up more of the slack. Targeted tax cuts and deregulation designed to boost private sector job creation are just what the doctor ordered.”
In response to Osborne’s Autumn Statement, Sam Bowman, Policy Director at the Adam Smith Institute, said:
“One thing became clear today: economic stagnation is here to stay. There is no growth and no prospect of growth without a change of course that focuses on deregulation and targeted tax cuts. There is no trade-off between growth and deficit reduction. You can’t have one without the other.
“The key is to go for private sector growth. Government regulation is smothering small and medium-sized businesses, and today’s rate relief announcement is not enough to help them. National Insurance is a tax on jobs and prevents the creation of over 500,000 jobs by small and medium businesses. It should be scrapped. The best way to stimulate the economy is to give small businesses a break.
“The highlight of today’s budget is the rise in the tax-free personal allowance, which the Adam Smith Institute has long called for. It should be raised to the minimum wage level so that the poorest earners pay no tax at all. Scrapping of the fuel duty hike is a good thing, but we should not be too impressed at a Chancellor deciding not to raise taxes – we need cuts to regressive consumption taxes.
“The government and media have focused on trivial changes in spending like the £5bn newly allocated to capital projects. Meanwhile, the state borrows that amount every two weeks – or another £331 million every day.
“Deeper cuts to public spending are clearly needed to cut the deficit, but these are not possible without a fundamental shift away from socialistic monoliths like the NHS. The only way real cuts to expenditure can be made is by shifting to more efficient, market-based models of social insurance for healthcare and welfare. The claim that we can make substantial savings by ‘trimming waste’ is a lie – and we’re fast learning what a dangerous one it has been.”