Press Releases

Another fiscal crisis by 2019

 29 November 2010

· Despite the coalition government’s spending reforms, public spending is set to face huge rises due to future commitments on healthcare, welfare, pensions and education

· These commitments, combined with the pressures of an ageing population, could result in a fiscal crisis in the UK along Irish lines as early as 2019

· The Adam Smith Institute calls for a radical reform of the welfare state to avoid this fiscal emergency

In a report released today the Adam Smith Institute warns that the government’s future commitments on healthcare, welfare, pensions and education are unsustainable. Spending in these areas has continually grown, and will continue to face mounting pressure due to an ageing population. As a result, the official debt figure is in reality only a fraction of the story - far greater are the off-the-books future obligations that the government has guaranteed in these areas. The coalition’s spending cuts will not be enough to stave off another fiscal crisis. Instead the government needs to transform intergenerational expenditures (1) and the way we view the role of the state.

According to the calculations in the Institute’s report, ‘On Borrowed Time’ by Miles Saltiel, there are three possible scenarios for the UK’s fiscal outlook. The worst, where the Comprehensive Spending Review is followed to 2015-16 and all the ‘proceeds of growth’ are used to fund higher public spending thereafter, would result in fiscal crisis(2) by 2019. The second scenario, where the proceeds of growth are split 50:50 between spending increases and debt reduction from 2015-16 onwards, would only result in fiscal calamity being delayed until 2031. In contrast, the third scenario, where public spending is held constant and all the proceeds of growth are devoted to debt reduction, would lead to the national debt being eliminated in 2041.

The Adam Smith Institute favours the third scenario and makes a number of recommendations within the report on how the government could achieve such spending restraint. The proposals would see the transformation of the role of the state away from the insurer of first resort towards being a safety net for the poorest. The vast majority of people would provide for themselves, whilst the welfare state’s focus will only be on the most needy within our society.

The report identifies healthcare as a key area needing radical transformation. Miles Saltiel, author of the report and award-winning analyst, proposes that the government should mandate a minimum healthcare package that everyone would be obliged to buy, and would fund premiums for those unable to afford them themselves. Beyond that, the health system would be private. All service providers – such as hospitals – would be privatized, which he calculates would raise one-off proceeds of £236bn after recapitalising PFI obligations of £28.9bn.

On welfare, the report proposes the introduction of a supportive tax and regulatory regime to foster private provision of incapacity, income and mortgage insurance. State support would be a time-limited last resort and conditional on intervention to get claimants back into work. Suggestions on how to reform education and pensions (3) are also included in the report, in an attempt to replace run-away costs with self-limiting systems that focus on innovation and value for money.

Dr Eamonn Butler, Director of the Adam Smith Institute, says: “We cannot keep voting ourselves generous pensions, healthcare and other benefits and vainly hope that our children will happily pick up the bill. It's time we got realistic on the scale of the problem, forced politicians to fess up to the future costs of new policies, and brought in rules to make sure that future generations cannot be saddled with the cost of our extravagances.”

ENDS

1. Intergenerational expenditures are commitments to spending in healthcare, education, pensions and welfare.

2. Fiscal crisis is defined as when the UK’s accumulated debt exceeds the credit watch threshold of 1.0xGDP. At this threshold credit rating agencies give notice of risk of downgrades in government securites, e.g. gilts.

3. The key proposals for education and pensions are as follows:

Education: state providers would be privatized, and a voucher system introduced for primary and secondary education. Tertiary establishments – such as universities – would be re-chartered to establish non-state basis.
Pensions: people would be compelled to save a set percentage of their income in private retirement accounts, as occurs in Chile, Singapore, Australia and (on a more limited scale) Sweden, and would be given tax incentives to make further, non-compulsory contributions. Eventually, the state’s role would be confined to providing a safety net for elderly people with insufficient savings.

· On Borrowed Time is published by the Adam Smith Institute, 23 Great Smith Street, London SW1P 3BL. You can download the report for free here: www.adamsmith.org/files/On_borrowed_time_ASI.pdf

· The Adam Smith Institute is the UK’s leading libertarian think tank. It engineers policies to increase Britain’s economic competitiveness, inject choice into public services, and create a freer, more prosperous society. For more information on our work, go to www.adamsmith.org <http://www.adamsmith.org>

Response to Ireland's confirmed application for a bailout

 21 November 2010

In response to Ireland asking for an EU bailout, Sam Bowman, Head of Research, argues that the bailout will be bad for Britain:

"The proposed bailout for Ireland is a bad deal for for the UK. It puts the interests of the European Union and the eurozone before the interests of Ireland and the British government should have no part in paying for it. Asking the British taxpayer to cough up £7 billion shows just how audacious the European Union has become in its desperation to keep the eurozone project afloat.

“The UK successfully avoided entering the eurozone. Ireland was not so lucky, but it entered in full knowledge of the risks involved. Bailing out Ireland now would undo much of the benefits that Britain has yielded from keeping the pound and would make a mockery of the spending cuts announced by the coalition last month.

“The proposed bailout is a bad deal for Ireland, because it will simply extend the current pain for even longer and create another lost generation of Irish young people. Ireland’s leaders should take the politically difficult step of defaulting on Ireland’s debt and allowing the insolvent Irish banks to wind down.

“In the end Ireland will have to choose its own path out of this crisis. But the British taxpayer should not be held responsible for past mistakes by Irish politicians.”

Response to Ireland's confirmed application for a bailout

 21 November 2010

In response to Ireland asking for an EU bailout, Sam Bowman, Head of Research, argues that the bailout will be bad for Britain:

"The proposed bailout for Ireland is a bad deal for for the UK. It puts the interests of the European Union and the eurozone before the interests of Ireland and the British government should have no part in paying for it. Asking the British taxpayer to cough up £7 billion shows just how audacious the European Union has become in its desperation to keep the eurozone project afloat.

“The UK successfully avoided entering the eurozone. Ireland was not so lucky, but it entered in full knowledge of the risks involved. Bailing out Ireland now would undo much of the benefits that Britain has yielded from keeping the pound and would make a mockery of the spending cuts announced by the coalition last month.

“The proposed bailout is a bad deal for Ireland, because it will simply extend the current pain for even longer and create another lost generation of Irish young people. Ireland’s leaders should take the politically difficult step of defaulting on Ireland’s debt and allowing the insolvent Irish banks to wind down.

“In the end Ireland will have to choose its own path out of this crisis. But the British taxpayer should not be held responsible for past mistakes by Irish politicians.”

Response to welfare reform announcements

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.”

For more information please contact Sally Thompson, Communications Director on 020 7222 4995.

Spending Review: This is just the beginning...

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.”
 

Spending Review: Raise of DfID budget by 37% beggars belief

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.”

Civil legal aid for compensation schemes should be stopped

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.” 

Time to reform the BBC and scrap the licence fee

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.“

Pages

Subscribe to Press Releases

Media Contact

info@adamsmith.org

07584 778 207

0207 222 4995