11 November 2011
Dr Eamonn Butler, Director of the Adam Smith Institute broadly welcomes Iain Duncan Smith's welfare reforms and adds:
"The government's simplification of the welfare rag-bag is long overdue. Boiling 51 different benefits down to one universal credit will eliminate many of the perverse incentives that make it daft for people to seek work.
If millions of East Europeans can find work in Britain, so can people who live here. It is just a case of having the incentive. Some of the poorest people face an effective tax rate of 90% when they take work and lose their benefits. This reform should have happened years ago.
Most people will be staggered that it has taken politicians so long to insist that people taking state benefits should be actively seeking work. Mrs Thatcher was saying this back in 1983. Gordon Brown in 1998 told us that his New Deal meant there was 'no option' for people to stay at home on benefits. And he told us the same again when the plan was reinvented a decade later. In these straitened times, people in work are simply refusing to carry the burden of those who could work, but won't.”
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20 October 2010
Tom Clougherty, executive director of the Adam Smith Institute gives his initial reactions to the spending review:
“I’m delighted that the Chancellor has stuck to his guns, and laid out plans to eliminate the structural deficit by the end of the parliament. Politically, this may be difficult, but economically, it is absolutely vital.
“It is important to remember though that severe as some of these specific cuts are, the overall impact of the spending review is modest. Health spending is protected, while areas like social security and debt interest payments – which the review's cuts will not affect – are set to surge.
“In cash terms, government spending will continue to rise over the term of the government. In real terms the overall cuts only amount to a couple of percent.
“We need to realize that this is just the beginning. It is vital that the government goes on from here to carry out a radical, comprehensive reform of the public sector, since only that will make cuts sustainable in the long term.
“We also need a hard-headed, positive agenda for economic growth. Now the spending review is out of the way, the government’s attention must turn to these issues.”
20 October 2010
In response to the CSR today, Sam Bowman, Head of Research at the Adam Smith Institute, argues that the increase in DfID’s budget is indefensible in light of cuts to other departments:
“The Comprehensive Spending Review today makes necessary cuts in government domestic spending, but will raise the budget of the Department for International Development (DfID) by 37%.
“For example, the Treasury’s figures show a shrinkage of 23% in cumulative real terms for the Home Office between now and 2015 while at the same time showing an increase in DfID’s budget of 37% in cumulative real terms.
“Budgetary cuts are sorely needed, and to increase spending overseas while cutting spending in Britain beggars belief.
“Overseas aid is a waste of taxpayers’ money that props up dictatorships in sub-Saharan Africa and funds fast-growing countries like India, whose economy has grown by nearly 8.8% in 2010 and which has its own space and nuclear weapons programmes.
“Why the Chancellor thinks that the British taxpayer should fund the Indian space programme is unclear. At a time when the British government is cutting spending domestically it makes no sense to increase overseas aid spending. The government should slash DfID's budget and end this budgetary double standard.”
26 August 2010
The Adam Smith Institute argues that the current legal aid system in the UK is fundamentally flawed and should be abolished in almost all civil compensation cases.
The rise of ‘no-win, no-fee’ arrangements means civil legal aid is no longer necessary. However current arrangements unduly favour claimants and encourage risk-free speculative legislation.
The ASI report proposes that the level of additional costs recoverable from unsuccessful defendants – specifically those relating to lawyers’ success fees and after the event (ATE) insurance – should be capped to discourage this excessive litigation and its disproportionate costs
Civil legal aid should be abolished for almost all civil compensation cases according to a new report from the Adam Smith Institute released today (Thursday). It argues that Britain’s current legal aid system, the most generous in the world, is fundamentally flawed - it puts claimants in a no-lose and defendants in a no-win situation. With the rise of Conditional Fee Arrangements (CFAs), civil legal aid is no longer necessary.
Crucially, however, the report suggests that current CFAs are subject to the same problems as civil legal aid: the balance of risk in litigation is biased in favour of claimants. The main drivers of this risk imbalance are the claimant’s ‘additional costs’ – specifically lawyers’ success fees and ATE insurance premiums – which are always paid by unsuccessful defendants, but not by unsuccessful claimants.
In the ASI report, ‘Access to Civil Justice: Balancing the risks’, Anthony Barton, a lawyer and medical practitioner, proposes the additional costs borne by unsuccessful defendants should be capped. This would deter claimants from bringing weak cases with no risk to themselves, whilst preserving access to justice in the absence of civil legal aid.
Anthony Barton goes on to criticize Lord Justice Jackson’s Review of Civil Litigation, which proposes that the recoverability of the success fee and ATE insurance should be abolished and one-way cost shifting should be introduced. Barton points out that this cost shifting would mean costs are borne by unsuccessful defendants but not be unsuccessful claimants and would therefore open the floodgates to further risk-free, speculative litigation.
Tom Clougherty, the executive director of the Adam Smith Institute, said: “The current system of civil litigation in the UK is unfairly stacked in favour of claimants. We need to address the risk-free, compensation culture and the excessive costs it brings with it. The reforms we’ve proposed will save the taxpayer money while also ensuring a system of funding access to justice that is simple, robust and fair. It’s a win-win that the government should be tempted to go for.”
2 August 2010
· Adam Smith Institute report calls for the BBC to be funded by a voluntary subscription service
· BBC must stop relying on public subsidy in order to become globally competitive and contribute to UK economy
· Report calls for a total reform and restructuring of our “public service” broadcasting system
In a report released today (MONDAY) the Adam Smith Institute calls for reform of the BBC and an end to the licence fee.
It argues that the BBC is a hugely important British institution but should be working harder for Britain. Rather than just exploiting the exclusive benefits of public subsidy, it should contribute to the national economy as well as to public welfare.
David Graham, author of ‘Global Player or Subsidy Junkie? Decision time for the BBC’, suggests that the current model of broadcast regulation in the UK is exhausted. The BBC invests heavily in opinion management and capturing UK regulators rather than looking outwards towards the international media market. Instead of relying on public subsidy the report proposes that the BBC become a voluntary subscription service, which will allow the development of a more dynamic, outward facing British media industry – led by the BBC.
The report argues that now is the perfect time to start reforming the BBC, allowing it to compete internationally with major US studios. It will also allow the public, for the first time, the chance to make its own choices and will make the BBC more responsive to consumer demands and interests.
David Graham, who is a former BBC producer, says: “Continuing with the current funding model means justified hostility from the rest of the industry, contraction and decline for the BBC. The new Government seems ready to rethink fundamentals. I hope this paper will help to encourage a serious debate, at a critical time, about a very important British institution. “
Tom Clougherty, Executive Director of the Adam Smith Institute adds:
“The status quo will not be an option for the BBC for much longer. The licence fee is already an anachronism, and opposition will grow as technological advances and changing viewing preferences make it even more outdated. But most of the reforms on the agenda at the moment – like scaling back the BBC or sharing licence fee revenues with other broadcasters – risk stifling the potential of the British media. Our proposals, as well as addressing the unfairness of the current system, would set British broadcasters free to make a significant contribution to economic growth.“
19 June 2010
According to the Adam Smith Institute this reduction in revenue is equivalent to over 30,000 public sector job losses.
In a new report the Adam Smith Institute calculates that tax revenues will fall by £2.48 billion if coalition tax policy of bringing capital gains tax rates in line with income tax rates becomes law. It points out that if the deficit is not to be widened further this reduction in revenue will be equal to 30,000 additional public sector job losses or equivalent cuts in the capital budget.
The report uses new evidence from Ireland, Sweden and Switzerland combined with existing analysis from America, Australia and Britain to identify more precisely the revenue consequences of CGT increases in the UK. It looks at both revenue losses from capital gains tax and from other taxes as a consequence of the economic damage caused by CGT rises.
Amongst the new evidence considered is the result of CGT rate changes in Ireland and Sweden. The 1997 Budget in Ireland halved the rate of capital gains tax from 40% to 20%. The then Minister for Finance, Charlie McCreevy, was heavily criticized on the grounds that this would reduce revenues. In fact revenues rose considerably, almost trebling and greatly exceeding official predictions.
The report draws together international evidence of CGT rises to show that for every 1% point increase in the CGT rates revenue will fall by 2%. This could involve a revenue loss of £880m.
The report also highlights the extent to which revenues from other taxes would be lower as a consequence of the negative effect on economic activity caused by CGT rises. Evidence from Switzerland shows that cantons which eliminated CGT had 3.1% higher growth over those that did not. Since a tax on capital reduces the amount of capital that can be formed and profitably used, the consequent lower levels of output, employment, and consumption would reduce a wide range of tax revenues. The report estimates that the effect on other tax revenues would be £1.6bn per annum.
Lastly the report addresses the fallacy that CGT rises are necessary to prevent ‘switching’ of income to lower taxed capital gains. Since only about 5% of gains come from assets held in the short-term and possibly affected by such switching, the revenue effects are negligible. Moreover, many countries with no capital gains tax such as Belgium and Hong Kong succeed in dealing with this issue.
In total the reductions in revenue that will result from the implementation of coalition capital gains policy will amount to £2.48 billion.
To put the consequences in perspective this will involve finding substantial additional cuts in public spending akin to over £30,000 public sector jobs or equivalent cuts in the capital budget.
Dr. Eamonn Butler, Director of the Adam Smith Institute, said:
“Media analysis suggests this policy has arisen as a result of a political arrangement rather than careful economic analysis. When we have a dangerously large deficit politicians must take especial care that fiscal policy measures are adopted on economic rather than political grounds. Otherwise the deficit will worsen as a result of lower growth and reduced revenues, the opposite of what is intended.”
17 June 2010
• 30% of jobs in central government and its QUANGOs should be cut according to the Adam Smith Institute
• These cuts could save up to £60billion a year
• No job cuts are proposed for frontline public servants
A forthcoming report from free market think-tank the Adam Smith Institute will urge the government to reduce the number of people employed by central government departments and their QUANGOs by almost 30 percent over the next five years – which would mean reducing the number of public sector jobs by more than 270,000.
The plans, outlined in detail in the Institute’s forthcoming report ‘Towards Taxpayer Value’, could save almost £60bn a year, and help the Chancellor make significant headway towards his goal of eliminating the budget deficit by the end of the current parliament.
The report will not propose staffing cuts for front line public servants, such as teachers, nurses, doctors, police officers, or active armed forces personnel, but will argue for very radical reforms to the Ministry of Defence and the Department of Work & Pensions.
According to plans drawn up by Tim Ambler, Honorary Senior Research Fellow at the London Business School, the Ministry of Defence would be radically streamlined by returning procurement to the armed forces – a move that would make tens of thousands of civil servants redundant. In total, 100,000 jobs at the Ministry of Defence would be abolished over a five-year period.
The Department of Work & Pensions would be subject to more than 50,000 job cuts, as part of a complete overhaul of the welfare system, which would see job centres privatised and the benefits payment system radically simplified and integrated with the tax system.
The report’s lead author, Tim Ambler, commented:
“The goal of this research is not to cut jobs or spending. The point is to make Taxpayer Value absolutely central to public service provision. As things stand, the UK’s front line public services are held back by bureaucracy and fail to deliver bang for the buck. We need real change in the public sector, not least because Britain has the biggest budget deficit in the developed world.”
Dr Eamonn Butler, the director of the Adam Smith Institute, added:
“These numbers sound radical, but it is worth remembering that more than a million new public sector jobs have been created since 1997. And as for political feasibility, the Conservatives actually proposed to abolish 235,000 bureaucratic jobs in their 2005 election manifesto. Now that the public finances are in such dire straits, this must be firmly back on the agenda.”
11 June 2010
· The Adam Smith Institute calls on the new government to reduce public spending by at least 3% a year in real terms to balance the budget by 2015
· Nearly £20billion of spending cuts each year for the next five years must be made
· No department should be exempt from cuts
In a new report released today, the Adam Smith Institute (ASI) has called on the government to implement £91billion of cuts by 2015 to eliminate the deficit. This equates to a reduction in public spending across all departments of 3% a year for the next five years.
According to the ASI, the government is right to move early to cut spending and reduce the deficit but Nigel Hawkins’ report The Party Is Over – A Blueprint for Fiscal Stability argues that the government must go further. It claims that no budget should be ring-fenced and says that even the Health budget should be subject to an annual reduction of 2% a year. Further cuts also need to be made in the current financial year if the deficit is to be eliminated within the course of this government.
According to the report, Secretaries of State should expect to lose their jobs if they are unable to deliver the necessary savings – such is the economic importance of bringing spending under control.
The figures within the report are based on the Treasury’s current growth forecast and exclude spending on debt interest payments, which the Institute claims can only be brought down over time by reducing the national debt. However if Monday sees these growth assumptions downgraded, further cuts will be needed to balance the books.
ASI Senior Fellow and City Economist Nigel Hawkins said:
“Some economists say we should delay reducing the deficit until the economy has recovered, but our view is that the financial risks of deferring public expenditure cuts – including a possible run on the pound – far outweigh the risks of depressing the economy. As the plight of Greece demonstrates, there is one compelling priority for the new Coalition Government – deficit reduction.”
Dr Eamonn Butler, the director of the Adam Smith Institute, added:
“Quite plainly some very large reductions in public expenditure are going to be necessary over the next five years – that is the unavoidable consequence of the last government’s fiscal incontinence. But the good news is that countries like Canada and Sweden have shown us how it can be done. We need to look beyond cuts, and actually think about far-reaching reform. The key is to fundamentally rethink the role of the state. What do we really need government to do? And what is the best way to do it? These are the questions the Comprehensive Spending Review must ask if our fiscal problems are to be solved in the long run.”
1. The £91billion of cuts are broken down as follows over the next five years:
2010 – 2011: £19.3 bn
2011 – 2012: £18.7bn
2012 – 2013: £17.9bn
2013 – 2014: £17.8bn
2014 – 2015: £17.1bn