5 January 2009
5 January 2009
Published in the Daily Telegraph here.
SIR – The Government will get no more joy out of another bank bailout (report, January 3) than it did with the last, because its policies are contradictory.
It demanded that banks plug their financial holes. When they strove to do so, by curbing their lending and raising their charges, the Government complained that they were putting their own prudence over the country's needs. Then, the Government cut interest rates, trying to promote more borrowing, despite having told us two months earlier that too much borrowing was the cause of our crisis.
Now, their plan is to drive interest rates down to zero, which will completely discourage the savers on whom both the banks and the economy depend to provide the finance needed for recovery.
The Government won't rest until it has completely nationalised them and is churning out more of the easy credit that created the disastrous Brown boom in the first place. Taxpayers can't win either, because we will end up paying for it all.
Dr Eamonn Butler
Director, Adam Smith Institute
1 January 2009
by Christopher Bantick (January 1 2009)
Published in the Melbourne Herald Sun here
DID you get a book for Christmas?
If it was a novel, it just might save you the angst of having to wrestle with the economic downturn.
"How?" I hear you say.
Well, according to researchers at Manchester University and the London School of Economics, fiction and - get this - even poetry, should be taken as seriously as facts-based research when seeking an insight into the issues of a modern world.
Dr Dennis Rogers, of Manchester University, believes fiction may help us understand these bleak economic times.
"Despite the regular flow of academic studies, expert reports and policy position papers, it is arguably novelists who do as good a job - if not a better one - of representing and communicating the realities of international development," he said recently.
The latest Man Booker Prize winning novel, The White Tiger, by Aravind Adiga, comes in for special praise by the researchers for "its passionate depiction of the perils and pitfalls of rampant capitalism in contemporary India".
The miserly Scrooge, famous in Charles Dickens' A Christmas Carol, who even refused to burn coal because he was so tight-fisted, nonetheless gives a message as relevant today as it was in Dickensian London.
That's the view of Robert Douglas-Fairhurst, a fellow of Magdalen College Oxford who is writing a biography of Dickens.
"For Dickens himself, money meant far more than the power to buy and sell," he said.
"Money brought people together and split them apart; it turned ordinary people into models of generosity or monsters of greed; it kept the world moving and was forever threatening to make it spin out of control."
Sound familiar? We only have to think of the collapse of the American sub-prime mortgage market, which pitched the world into its present sorry financial mess, to see the sense of what Dickens imagined to be a danger of money.
But if "literature is a luxury and fiction a necessity", as G.K. Chesterton suggested way back in 1901, the lessons and the insights fiction may offer still have detractors.
Tom Clougherty, the policy director of a conservative think tank, the Adam Smith Institute, thinks novels have their own dangers.
"There is a problem. Fiction works by appealing to people's emotions, not their intellect or rationality," he said.
"Fiction absolutely can't replace factual evidence-based analysis."
So could that novel you've been promising yourself to read when on holiday help you understand the changes and chances of this fleeting world? Maybe.
But what is clear is that books have defied all market predictions that they would suffer in the economic downturn.
Dave Fenlon, managing director of book chain Angus & Robertson, had this to say on why people were buying books in large numbers before Christmas when all the predictions were for a retail tsunami.
"We think that books are quite a resilient category," he said.
"People find them accessible, they're still a relatively cheap form of personal entertainment - and they are also somewhere you can escape."
That's something to think about as you lie back on the sand, watch your investments crumble and read about a fictionalised world that just might be closer to reality than you think.
Christopher Bantick is a Melbourne writer and social commentator.
30 December 2008
By Deepak Lal, Senior Fellow in Globalization (December 30, 2008)
Published in The Business Standard here
28 December 2008
28 December 2008
Published in the Sunday Telegraph here.
SIR – That parents in Clare, Suffolk, have been refused permission to start their own rural state school is entirely typical of how decisions are now made in this country (report, December 21).
The Government, in 2006, was trumpeting a new law to allow just such parent-led start-ups. Just months ago, Ed Balls was calling for “active parents" because they would “know best what is needed in their area".
Now it’s clear that this was all spin rather than substance. The legislation stands exposed as simply an attempt to undermine the Tories, who were picking up votes with their promise of Swedish-style education.
In Sweden, local parents who are fed up with state education can create their own schools and still get the money that the state would have spent on their children’s education anyway. This has led to the creation of hundreds of new schools, funded by the state so nobody is excluded, but run by parents, teachers, voluntary groups and even private companies. Parents are hugely pleased.
In Britain, by contrast, only one parent-promoted school has yet been created. Many more have been thwarted by ministers or local councillors who do not like the idea of parent-led schools competing against their own bureaucrat-run education authorities.
Dr Eamonn Butler
Adam Smith Institute
1 December 2008
By Dr Terence Kealey, Adam Smith Institute Senior Fellow in Education (November 29, 2008)
Published in The Telegraph here
26 November 2008
Published in Investors Chronicle here (26 November 2008)
YES, says Will Hutton, executive vice chair of the Work Foundation:
Extraordinary times call for extraordinary responses. And that’s what we saw from the Chancellor earlier this week: a package of measures that only months ago would have been unthinkable in its scale looks today like a bold and positive response to the challenges the UK is facing.
I’m more upbeat than others about the potential impact that temporarily reducing VAT will have on our spending habits; this increase in personal spending, combined with bringing forward some £3bn of capital spending into next year, should give a desired jolt to demand. Jobs will be created.
Alastair Darling’s focus on mitigating the impact of higher unemployment is welcome. JobCentrePlus will inevitably face greater flows of people and needed to increase its capacity. The rapid response initiative will enable a more nimble reaction to those made unemployed, while the employment partnership should ensure that vacancies don’t stay unfilled for long. Small businesses, employing around 60 per cent of the workforce, will have been bolstered by his measures that guarantee loans, keep flows of credit open and allow more flexible tax payments.
In this new settlement, the political lines are being redrawn too: raising the top rate of tax for those earning above £150,00 to 45 per cent - and in doing so, rolling back on Labour’s commitment not to increase tax for the highest earners - will have more impact on the backbenches than on the balance sheet. Ideology feels like it is coming back again.
There were omissions. There are risks in delaying the introduction of measures that that would encourage the flow of mortgage finance and I would have liked to see Mr Darling go further in stimulating bank lending – the genesis of this crisis. An economic plan that – with a fair wind – will only balance out in 2016 seems like a huge risk, politically and economically. No one can possibly know the state of the public finances so far away and George Osbourne’s publicly-expressed anxiety about the value of sterling unquestionably found its mark. In addition, if Mr Darling proves to have been overly optimistic in his expectations of how the economy will respond to his interventions, borrowing will be even further north of his already high forecast. But if it’s a gamble, it’s a gamble that deserves to pay off. All credit should go the Chancellor for a bold, imaginative PBR. Crisis has given Labour a renewed sense of mission.
NO, says Tom Clougherty, policy director at the Adam Smith Institute:
What stimulus package?
Is a measly (and temporary) 2.5 per cent off VAT really going to accomplish what high streets full of half price sales and buy-one-get-one-free offers couldn't, and get people spending again? I doubt it.
Anyway, VAT isn't charged on food, children's clothes or mortgage payments, and is already set at 5 per cent on domestic fuel. Petrol isn't going to get any cheaper, because the Chancellor has hiked fuel duties, and the same goes for alcohol. Few will see much benefit.
Most economists can't imagine the VAT cut prompting any significant change in consumer behaviour, or doing anything to stimulate the economy. But that's still more than can be said for the rest of the pre-budget report.
Lower taxes boost the economy by strengthening incentives to work and invest, and by increasing productivity. Yet most of the PBR goes in the opposite direction. National Insurance contributions are set to rise by 0.5 per cent, while high-earners will be hammered by marginal rates of up to 60 per cent. And we are still going to get higher corporation taxes for small business and retrospective rises in Vehicle Excise Duty, just not straight away.
Meanwhile, the UK's budget deficit is set to hit 8-9 per cent of GDP, as borrowing reaches £120bn a year. Public sector debt is likely to top 60 per cent of national income and exceed £1trn by 2012. These will be the worst figures on record. The taxes needed to service this debt will be a significant drag on the economy for years to come.
And for what? To finance wasteful public spending that we already know doesn't boost the economy? Japan spent the 1990s trying to overcome a recession with infrastructure spending, and achieved nothing except debts amounting to 180 per cent of GDP. Massive public spending increases in the US in the 1930s, 1960s and 1970s all failed to increase economic growth rates. And let's not forget 1970s Britain. "Priming the pump" hasn't worked in the past. It's not going to work now.
Ultimately, the Chancellor's only idea is to tax, borrow, and spend. This is not the route to recovery. This is the road to ruin.
26 November 2008
By Francis Elliott and Emily Gosden (November 26, 2008)
Published in the The Times here
Lock-keepers’ cottages, assorted forests, a conference centre, military radio frequencies and a uranium enrichment company – the sale to help to plug Britain’s £1 trillion deficit is now open.
Buried in the Pre-Budget Report is a list of state-owned assets with “potential for alternative business models".
Treasury ministers rejected claims that the privatisation drive amounted to a firesale that would leave taxpayers short-changed. “This is about preparing assets for market where that is appropriate. If it doesn’t make sense to sell, we won’t," said one yesterday.
Included in the list are bodies that have eluded previous attempts at privatisation, such as the Royal Mint, the Tote, Ordnance Survey and the Met Office. Other organisations freshly offered to the markets include the Oil & Pipeline Agency, which manages a 1,500-mile (2,400km) network of underground fuel distribution pipelines and 46 storage depots. Around half the network – built to supply the military in an emergency – is mothballed.
Darling's £1 trillion debt gamble
Alistair Darling stored up big tax rises for the better-paid and huge public spending curbs in his fight against recession. Watch video
The people of Marlow Road in Maidenhead, London give their verdicts on the economy
More prosaically, bidders are sought to help the Government to realise its “long-term objective of disengagement" from the Covent Garden Market Authority. The Queen Elizabeth II Conference Centre in Central London is up for sale, as is British Waterways’ “canalside property portfolio". The Forestry Commission has been told to consider what it can sell.
The prospect of squeezing extra cash out of the Dartford Crossing is raised in the Pre-Budget Report’s so-called Red Book, as is the exploration of “options for the commercialisation of other transport assets", a phrase that will send a shudder through toll-weary motorists.
One asset with the potential to realise billions of pounds is the state’s 33.3 per cent stake in Urenco, a uranium enrichment company.
The man chosen to manage the sell-off is Gerry Grimstone, a former Treasury mandarin, who will reveal next spring how much he believes can be raised. Officials emphasised that an outright sale was only being considered for some organisations. Others, such as the Met Office and Ordnance Survey, will be helped to exploit commercial opportunities, they said.
Even advocates of privatisation said that taxpayers could lose out if assets were sold now. Nigel Hawkins, of the Adam Smith Institute, said that the Government would, for example, be “very hard pressed" to achieve the £500 million valuation put on the portfolio of British Waterways this year.
Matthew Elliott, the chief executive of the TaxPayers’ Alliance, said: “It is great news that the Government is looking to offload assets that unnecessarily burden the public. It is of the utmost importance, however, that the timing and structure of these sales provides the best possible deal for taxpayers. The last thing the country needs now is a repeat of Gordon Brown’s disastrous bargain-priced sale of British gold reserves."
Dai Hudd, deputy general secretary of the public sector union Prospect, said: “Any attempt to sell them off now would be economic madness. It would be a case of sell in haste, repent at leisure. The Government will face the justifiable anger of taxpayers if they see these national assets sold at bargain-basement prices."
25 November 2008
By Deepak Lal, Senior Fellow in Globalization (November 25, 2008)
Published in The Business Standard here
24 November 2008
23 November 2008
Click here to listen to Tom Clougherty, the ASI's policy director, calling for tax cuts on Radio 4's The World This Weekend. You will need to fast-forward to 8 minutes into the programme.
23 November 2008
By Kenny Farquharson (November 23, 2008)
Published in Scotland on Sunday here
ALEX Salmond has been unwell all week (get well soon, First Minister), and I sincerely hope he has been avoiding the news bulletins as he tries to make a full recovery.
I especially hope he managed to miss reports of David Cameron's extraordinary U-turn on the Tory attitude to tax. If Salmond did happen to catch this, I bet the groans from the Bute House sickbed were all the louder.
Cameron has spent the past month standing loyally by Gordon Brown's side as Britain wrestles with the financial crisis. The Tory leader expressed quibbles about the detail, but rightly judged that what the country needed was singularity of political purpose. It was no great sacrifice. After all, Cameron had already pledged to stand by Labour's broad economic strategy when in Government, including matching its spending plans until 2011. Last week Cameron abandoned this. In doing so, he did spectacular – perhaps irreparable – damage to his chances of moving into Downing Street.
Until this past week, Cameron seemed reluctant to differentiate the Tories from Labour to any great extent. He even gave the impression of wanting to be a kind of Tony Blair Mark Two, taking every opportunity to echo the former PM's nostrums. Cameron's hopes rested on a simple belief that voters would feel that he – rather than the dour and unsympathetic Brown – was more in tune with their hopes and instincts. Polls suggested he was right.
So why change tack? I suspect we need look no further than the US election. Just as Barack Obama had the presidency sewn up when he bested John McCain on the banking bailout, so Cameron has come to realise that if he cannot beat Brown on the economy he has zero chance of seizing power. And to beat Brown on the economy, the Tories have to offer something both distinctive and appealing. Hence the return to those golden oldies of Tory manifestos from yesteryear – fiscal restraint, low spending and low taxation.
British politics has a decidedly retro feel this weekend. It's Labour Keynesians versus Tory Monetarists. They'll be bringing back clackers and ra-ra skirts next. The Tory right is delighted. They haven't been so happy since Iain Duncan Smith beat Ken Clarke for the leadership and the party was characterised by its rabid anti-Europeanism and it's sourness towards immigrants. And we all know how well that went down with the great British public. The real Tory party has Cameron back in its clammy clutches. I'm reminded of that scene in Shaun Of The Dead when the zombie mob drags the character played by Dylan Moran out of the safety of the pub and devours him alive.
Just a few months ago, Cameron looked like a prime minister-in-waiting. All he had to do was stay alive, stay smiling and avoid any black-tie reunion dinners of the Bullingdon Club. Now, he finds himself having to re-sell Thatcherism to a sceptical public.
For Salmond and the SNP, this is a disaster. The more "clear blue water" Cameron puts between the Tories and Labour, the more difficult it is for the Nationalists to claim the two parties are actually one and the same. The more the next election becomes a genuinely ideological battle between left and right, the harder it is for Salmond to argue that it should be a vote on Scotland's constitutional future. And the SNP's back-of-an-envelope strategy for independence (Britain votes Tory; Scots are disgusted at Tory rule; Scotland opts for full sovereignty) becomes a far harder sell.
The Tories are right to believe that tax is the touchstone issue in politics. You can talk yourself hoarse about civil liberties, the constitution and privatisation, but it's remarkable how voters start paying attention when the debate gets round to how much cash the Government is taking from their pay packets. Since 1991 the Adam Smith Institute has worked out when we should celebrate Tax Freedom Day, the day of the year when we start working for ourselves instead of working to pay into the Treasury coffers. This year it fell on June 2, a full week later than it did in 2002. Politicians ignore this at their peril. Just ask Salmond, whose 'Penny for Scotland' rise in income tax is often identified as a contributory factor in the SNP's failure to win power at Holyrood in 1999. No party is more attuned to this public mood than the Tories.
Yet there are flaws aplenty in Cameron's reasoning. All the evidence suggests that people are happier paying tax if they have a clear idea of where the money is going. When Gordon Brown raised National Insurance by 1p in 2002, he promised the £40bn it raised would be devoted entirely to the NHS. This 'hypothecation' took some of the political sting out of Brown's raid on our wallets.
The tax hike we'll be suffering in two or three years' time will be surely be seen in a similar light. We'll be footing the bill for the emergency measures that were necessary to stop Britain's recession turning into depression. Seems like a pretty good cause to me. Are the Tories really going to argue that the tax cuts shouldn't have been so generous? Or that the subsequent attempt to balance the books shouldn't be so prudent?
Cameron last week appealed to voters to ignore Labour "propaganda" that the new Tory strategy meant cuts in public spending. It was, he insisted, simply a slower rate of growth. This is true – but unsellable. Labour isn't in the clear yet, but Cameron is now in danger of being yet another Tory 'nearly' man.