Is the OECD right that inequality has significantly curbed economic growth? - Ben Southwood argues 'no' in the CityAM Forum

Head of Research at the Adam Smith Institute, Ben Southwood, argued against the recent OECD report that found income inequality curbs growth in the CityAM Forum: 

Ben Southwood, head of research at the Adam Smith Institute, says No.

International cross-sectional studies like the OECD’s – which compare different countries at one point in time – are prone to errors. This is true even if you look at a group of similar (rich) countries like the OECD, which includes Sweden on the one hand and Mexico on the other.

Countries that punish crime harshly may have more crime, but that doesn’t mean punishing crime harshly increases crime.

Countries with more doctors may have more disease, but we’d expect that doctors are a response to disease, not a cause.

Similarly, countries with less inequality may have more growth, but cutting inequality may not boost growth.

For such questions, it’s better to use time-series data. And if you look at countries or regions where inequality jumps, growth typically jumps as well.

A highly-cited paper by Kristin Forbes, for example, found “an increase in a country’s level of income inequality has a significant positive relationship with subsequent economic growth.”

Read the full debate here.

Kate Andrews' comments on Osborne's proposed spending cuts feature on BBC News online

Communications Manager at the Adam Smith Institute, Kate Andrews, was quoted in a BBC News article on where spending cuts should be implemented and whether the Chancellor can achieve his projected spending goals:

If the government is going to achieve its projected spending goals by 2020, then it's going to have to reform the big-ticket items: welfare, pensions, and the NHS.

It's not realistic to expect that policing and other unprotected areas will be cut by 50%; if the arithmetic is going to add up, the meaty parts of the budget are going to have to be cut too.

Local government cuts should fall precisely where the community and local council feel they can best handle a decrease in spending.

Westminster is not in an effective position to decide the level of services needed in local communities throughout the UK.

The solution is to devolve taxation and spending powers to local communities, where funding for public services and benefits can be better, and more efficiently, allocated.

Kate Andrews, communications manager and research associate, Adam Smith Institute

Read the full article here.

Ben Southwood's comments on the Autumn Statement feature in the Daily Express, Huffington Post UK, and This is Money

The Adam Smith Institute's Head of Research, Ben Southwood, was featured in the Daily Express, Huffington Post UK, and This is Money on the Chancellor's abolishment of the stamp duty slab system: From the Daily Express:

It is a victory for the Daily Express End The Stamp Duty Rip-Off crusade and was hailed by economists and property experts yesterday.

Ben Southwood, head of Research at the Adam Smith Institute, said: “The old stamp duty slab system was one of the worst taxes Britain had, and we welcome the Chancellor’s radicalism in abolishing it, rather than simply tinkering around the edges.”

From the Huffington Post UK:

Ben Southwood, head of research at the Adam Smith Institute, said it was an end to "one of the worst taxes Britain had."

"According to the best economic research, raising £1 through stamp duty imposes £2-£5 of cost on the economy. This is a tax cut for the squeezed middle that will make a big difference to a lot of people's lives. Politically, it could be a game-changer."

From This is Money:

Ben Southwood, head of research at the Adam Smith Institute, said: ‘The old stamp duty slab system was one of the worst taxes Britain had, and we welcome the Chancellor's radicalism in abolishing it, rather than simply tinkering around the edges.

‘According to the best economic research, raising £1 through stamp duty imposes £2 to £5 of cost on the economy.Though it will still, as a transactions tax, cost the economy heavily, the reform will reduce the economic cost substantially.

‘This is a tax cut for the squeezed middle that will make a big difference to a lot of people's lives. Politically, it could be a game-changer.’

The ASI's reaction to the Autumn Statement features in Conservative Home and the IBTimes UK

The Adam Smith Institute's commentary on the 2014 Autumn Statement were featured in Conservative Home and International Business Time UK: From Conservative Home:

The Adam Smith Institute welcomed the roads, stamp duty and ISA announcements, but said that Osborne’s R & D proposal “riskscrowding out private sector solutions” and argued that the Chancellor should make raising the National Insurance threshold “one of his top priorities”.  It concuded that his plans to reduce the deficit “still seem credible”.  On business rates, it said -

“A cap on business rate rises is welcome but the rates system itself needs more fundamental reform. The longer rates take to be revalued, the more distortionary the system is, penalising firms located in areas that have done badly since the last valuation. The longer the gap between rates revaluations, the greater the penalty for businesses in poorer areas and the effective subsidy for businesses in richer ones. Ideally the government should move towards a system of constantly rolling rates revaluations. If Zoopla can judge land values accurately on a rolling basis, so can HM Treasury.”

From IBTimes UK:

In the immediate aftermath of Osborne's Autumn Statement announcement in the House of Commons, economists, lobby groups and taxpayers hailed the radical move as one of the Conservative-led coalition government's best yet.

"The old stamp duty slab system was one of the worst taxes Britain had and we welcome the chancellor's radicalism in abolishing it, rather than simply tinkering around the edges," said Ben Southwood, head of research at the Adam Smith Institute.

"According to the best economic research, raising £1 through stamp duty imposes £2 to £5 of cost on the economy.

"Though it will still, as a transactions tax, cost the economy heavily, the reform will reduce the economic cost substantially. This is a tax cut for the squeezed middle that will make a big difference to a lot of people's lives. Politically, it could be a game-changer."

Press Release: Osborne scraps the worst tax in Britain - Autumn Statement commentary

The Adam Smith Institute comments on the Autumn Statement: Stamp duty:

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

The old stamp duty slab system was one of the worst taxes Britain had, and we welcome the Chancellor's radicalism in abolishing it, rather than simply tinkering around the edges.

According to the best economic research, raising £1 through stamp duty imposes £2-£5 of cost on the economy. Though it will still, as a transactions tax, cost the economy heavily, the reform will reduce the economic cost substantially. This is a tax cut for the squeezed middle that will make a big difference to a lot of people's lives. Politically, it could be a game-changer.

Business rates:

Deputy Director of the Adam Smith Institute, Sam Bowman, said:

A cap on business rate rises is welcome but the rates system itself needs more fundamental reform. The longer rates take to be revalued, the more distortionary the system is, penalising firms located in areas that have done badly since the last valuation. The longer the gap between rates revaluations, the greater the penalty for businesses in poorer areas and the effective subsidy for businesses in richer ones. Ideally the government should move towards a system of constantly rolling rates revaluations. If Zoopla can judge land values accurately on a rolling basis, so can HM Treasury.

Road infrastructure:

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

Infrastructure investment, especially into congested roads, is bound to pass a cost-benefit analysis. The problem is that we had to wait this long. If private firms could build roads, funded by tolls, then we'd likely have all of these roads already. As well as providing funds for investment, and making sure the investment goes to the most in-demand areas, pricing roads also means they get used more efficiently.

Pensions: 55% tax, tax-free inherited ISA

Director of the Adam Smith Institute, Dr Eamonn Butler, said:

The Chancellor is right to kill off the iniquitous 55% tax on inherited pensions, as well as the tax on inherited ISAs. If people have saved for their retirement but die before exhausting their nest-egg, it should go straight to their dependents, not to the Chancellor.

NHS Spending:

Communications Manager at the Adam Smith Institute, Kate Andrews, said:

The Conservatives, along with the opposition parties, are playing politics with the NHS budget. Everyone is vying to be seen as the 'party of the NHS' but no one is willing to have a serious conversation about the reforms that could make the NHS financially viable for the next ten years, let alone for future generations; like charging small fees for non-emergency visits.

It's been estimated that the NHS could fall into a budget crisis as early as 2015, which could result in cuts to core staff, longer patient waiting lists, and a deterioration in the quality of health care. While the extra £2 billion per year proposed by Osborne today will offsets short-term worries, it merely kicks the can down the road for a little while longer. Serious proposals to address the spending and demand that comes with free care ‘at the point of use’ could not come soon enough.

Personal Allowance rise:

Deputy Director of the Adam Smith Institute, Sam Bowman, said:

The Adam Smith Institute has called for the personal allowance to be raised to the full-time minimum wage rate for over a decade and it is welcome to see the government move in this direction. But the National Insurance Contributions threshold has been left untouched, which costs full-time minimum wage workers £667.68 a year. To really help low-income workers the Chancellor should make raising the National Insurance threshold one of his top priorities.

Capital gains tax on property for foreigners:

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

Capital gains taxes are some of the worst ones on the statute book, making society poorer by reducing the efficiency of investment and its total amount, but if we have to have them then everyone should pay them.

This is not just because of fairness, but because it causes massive distortions when different groups face different tax rates. In this case it's likely to both lead to excessive foreign ownership of property—both by favouring foreigners over natives in property taxes and by favouring property over other assets for foreigners.

Masters degree loans:

Director of The Entrepreneurs Network, Philip Salter, said:

By extending Entrepreneurs’ Relief and R&D tax credits George Osborne is backing Britain’s entrepreneurs. However, the government’s intervention in the postgraduate student loan market risks crowding out private sector solutions. Banks already provide Professional and Career Development Loans, and entrepreneurial companies like Future Finance, StudentFunder and Prodigy Finance are responding to the demand for loans for postgraduate studies. We are on the verge of the equivalent of the funding revolution we are seeing in SME finance but this intervention risks stymieing it.

Deficit:

Deputy Director of the Adam Smith Institute, Sam Bowman, said:

The deficit is still enormous and much higher than anybody expected at the beginning of this Parliament. We are borrowing £100bn this year, both because planned cuts to the welfare budget have not taken place and because the growth we have had has not translated into much extra tax revenue. But as high as this is, the Chancellor’s plans to reduce the deficit still seem credible – financial markets are lending to the country at unprecedentedly cheap levels and once productivity eventually does start to recover, things should begin to look considerably better.

Notes to editors:

For further comments or to arrange an interview, contact Kate Andrews, Communications Manager, at kate@adamsmith.org / 07584 778207.

The Adam Smith Institute is an independent libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

Sam Bowman's comments on the government's plan to build homes on public land feature in CityAM and the Daily Mail

The Adam Smith Institute's Deputy Director, Sam Bowman, was quoted in CityAM and the Daily Mail on the government's proposal to commission and build homes on public sector land. From CityAM:

However, the government's latest bright idea for a fresh intervention into the housing market came in for sharp criticism.

Deputy director of the Adam Smith Institute, Sam Bowman, said:

The housing shortage does not exist because the private sector doesn’t want to build new homes – prices are rising rapidly, which signals demand is outstripping supply and there is profit to be made. The problem is that developable land is so scarce because the planning system makes it so.

Bowman argued that selling off public sector land would be a good idea, but if the private sector shows no interest in the land being sold, it's a pretty clear indication it's not somewhere people are particularly keen to live.

If the government then decides to build houses on the unsold land anyway, it would mean funneling taxpayers' money into houses nobody wants to buy. The key to alleviating Britain's housing shortage, says Bowman, is to liberalise the planning system and allow development in places where people actually want to live. In turn, that means "rolling back the green belt".

From the Daily Mail:

Sam Bowman of free market advocate the Adam Smith Institute, said: 'The housing shortage does not exist because the private sector doesn't want to build new homes. The problem is that developable land is so scarce because the planning system makes it so.'

Read the Mail Online's feature here.

Press Release: Danny Alexander's new homes would fail the Location, Location, Location test

Commenting on the government's proposal to build and sell homes on public sector land, Deputy Director of the Adam Smith Institute, Sam Bowman, said:

Danny Alexander seems to have gotten the wrong end of the stick. The housing shortage does not exist because the private sector doesn’t want to build new homes – prices are rising rapidly, which signals demand is outstripping supply and there is profit to be made. The problem is that developable land is so scarce because the planning system makes it so.

Auctioning developable plots of government land for private sector construction would be a good idea, but if the private sector is not interested in the land the government is selling, it is because it is not in places people want to live. If the government goes ahead with building after the private sector has shown no interest in doing so, it means spending money it doesn’t have on homes that nobody really wants.

This announcement feels like just one more misstep by the government on planning and housing – the key is not just to build more houses, but to build more houses that people actually want to live in. The answer is to free up land in places where demand is already there – rolling the Green Belt back by a few miles around England’s cities would be the surest way to bring land and house prices down for good.

Notes to editors:

For further comments or to arrange an interview, contact Kate Andrews, Communications Manager, at kate@adamsmith.org / 07584 778207.

The Adam Smith Institute is an independent libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.