The Forgotten Medium: Helping Mid-Sized Businesses to Scale Up

A new report from the Adam Smith Institute co-authored by our Executive Director, Duncan Simpson; Director of Research, Maxwell Marlow; and Head of Research, Daniel Pryor, finds that medium-sized businesses (MSBs) and their size-specific challenges are often neglected in public policy debates. MSBs are the “Forgotten Medium”.

• Focus is skewed towards both the smallest and largest companies in the UK, who benefit from support not offered to the “Forgotten Medium.”

• Scaling up MSBs would boost the UK’s growth prospects, in particular in areas of ‘levelling up’ concern. 

• Over 83% of MSBs are outside London and the South East. Their products are overwhelmingly in non-services sectors such as retail, wholesale, and transport.

• The following policy changes can alleviate these problems:

  • Implement a recommendation of the 2019 Augar Review for a lifelong loan entitlement. This would allow for 4 years of post-18 education over the course of a lifetime, allowing individuals (especially in MSBs) to re-skill. 

  • Enterprise Investment Allowance & Venture Capital Trust schemes should be modified to remove the cliff-edges facing MSBs who partake in them. To keep current and potential investors, the number of employees allowed should be raised to 999 from 249, as well as increasing the turnover and balance sheet totals.

  • High Potential Individual visas should have a widened list of elite universities and a lower application fee to attract more high-skilled foreign labour. 

  • The Annual Investment Allowance should be made unlimited from its current level of £1 million. This would improve the growth prospects of MSBs, especially in capital intensive industries.

Levelling Down: How the Global Minimum Corporate Tax Undermines the UK

The Adam Smith Institute’s latest paper, written by Dr. Tyler Goodspeed, calls for a rethink of the UK’s decision to rush implementation of a global minimum corporate tax rate.

• The UK’s decision to rush the implementation of a global minimum corporate tax rate will undermine the levelling-up agenda, hurt the competitiveness of key UK industries, pose unique challenges for the insurance and reinsurance service sector and fail to raise substantial revenue;

• Proposed rules could undermine key areas of UK tax policy including investment zones and freeports, business tax credits, super-deductions for the depreciation of equipment investments, and accelerated cost recovery for new investments in intellectual property, which makes up over one-third of all UK investment;

• Negotiations and technical considerations remain ongoing at the OECD, while the EU is moving forward with their own planned implementation. Moving forward before global rules are finalized risks imposing significant transition costs on UK companies and multiple rounds of transition costs for HM Revenue and Customs, undermining the ability of British businesses to compete on the international stage;

• The insurance and reinsurance service sector — one of the UK’s biggest financial services industries — faces unique challenges from the proposed changes, including excess tax liability, the risk of double taxation and high compliance costs;

• Under current plans, implementing the global minimum tax is unlikely to raise substantial revenue — low-tax jurisdictions could continue to compete for out-of-scope enterprises by lowering their corporate tax rates;

• The UK’s early implementation of global minimum tax rules is fraught with risk and policymakers should carefully scrutinize current proposals to limit their potential economic damage.

Boomer and Bust: Realigning Incentives to Reduce Intergenerational Inequality

The Adam Smith Institute’s latest paper, written by John Macdonald, James Sean Dickson and Dr. Michael Turner, proposes policies to address the causes of Britain’s growing intergenerational inequality.

• Intergenerational inequality is not just an issue of fairness between the young and the elderly. The ways in which it is expressed are a drag anchor on the productivity and economic growth that Britain desperately needs;

• Drastic reforms to planning, tax, welfare and education are needed to boost productivity, wages and prosperity, and lower taxes from a postwar high;

• In September 2021, research for the ASI showed that 38% of Britons supported building more homes in their local area, while 33% opposed it. Today, support is up 14pts to 52%, and opposition is down 8pts to 25%;

• The paper recommends the following policies:

• See through Street Votes;

• Street Votes would allow local communities to set design rules to en-sure high quality and, if they choose, graceful densification. By giving residents a financial and amenity incentive to vote for densification, this will ensure building can be a win-win for residents, helping to ad-dress the housing supply shortage;

• Replace the triple lock on pensions with a smoothed earnings link;

• A smoothed earnings link would enable the state pension to be hiked to deal with significant inflation shocks, but minimises situations in which it will continue to substantially outstrip earnings, or where the Government has to temporarily suspend the lock;

• Unfreeze income tax thresholds;

• Our polling finds substantial support for indexing income tax thresholds via inflation. The Government should take the poorest workers out of tax altogether by pegging the Personal Allowance and National Insurance threshold to the National Minimum Wage rate, and begin pulling higher rates in line with inflation;

• Abolish Stamp Duty;

• Stamp Duty is an incredibly damaging tax. It disincentives people from making improvements and moving out of large properties when they might otherwise want to. It also destroys 75p of wealth per £1 raised;

• Offer personal development loans to school leavers;

• The student loan system should be reformed towards neutrality for school leavers, removing any bias towards the university system. This could be achieved by offering a £6,000 per annum income contingent loan over 3 years to all school leavers who do not attend university.

Broken Britain: 16 Problems Facing the Country

The Adam Smith Institute’s latest discussion paper, written by Dr. Madsen Pirie, details the key problems facing Britain today.

A Broken Home: Why It’s Time to Split up the Home Office

The Adam Smith Institute’s latest paper, written by Henry Hill, argues that we should split the Home Office into two new, more focused Departments: Immigration and Security.

• The Home Office has presided over numerous policy failures, and shows no sign of improving;

• The principal problem is that the Department’s remit is too wide, and the political team at the top is not scaled to the size of the tasks confronting it;

• The Ministry of Justice has a similar number of political staff, despite the much smaller Whitehall operation they need to oversee;

• The broad direction of reform should concentrate on splitting up the existing empire into two more manageable departments: Immigration and Security;

• The chief advantage would not be that it would automatically produce any particular change in policy, but it would roughly double the team of ministers and advisors, who would be assigned a narrower and more coherent portfolio of responsibilities;

• A dedicated Secretary of State for Security (the ongoing Home Secretary) could focus on reforming the police and improving the security services, whilst an Immigration Secretary could focus on issues such as small boats whilst also having the bandwidth to address other operational issues with real quality-of-life implications, such as the backlog at the Passport Office;

• Rishi Sunak’s Ten-Point Plan for Immigration concluded with “Commissioning work to look at more fundamental Home Office and Border Force reform.” This would be a good place to start.

Food for Thought: Reforming the Department for Environment, Food and Rural Affairs

The Adam Smith Institute’s latest discussion paper, written by Tim Ambler, proposes a number of reforms to improve the efficiency and value for money of the Department for Environment, Food and Rural Affairs.

This paper is part of the Adam Smith Institute’s “Reforming the Civil Service” series.

• The Department for Environment, Food and Rural Affairs (Defra) has responsibility for a number of functions that are currently performed inefficiently and represent poor value for taxpayer money;

• The Department’s headcount has increased by 36% since 2015/2016. The equivalent department in the Netherlands employs 1,000 staff, and on that staff/population ratio, Defra would employ only 3,300 in total;

• The report includes several recommendations, including:

  • Delegate more Defra responsibilities to local government;

  • Consolidate the five separate teams of Defra inspectors into one entity;

  • Reclassify all non-departmental public bodies either as Executive Agencies or as committees;

  • Sell the forestry units—forestry should not be a government function;

  • Close the Office for Environmental Protection, which is fundamentally a bogus watchdog;

• Taken together, if all the recommendations within this paper were implemented, this would amount to a saving of 15,749 staff.

Trimming the Fat: Reforming the Department of Health and Social Care

The Adam Smith Institute’s latest discussion paper, written by Tim Ambler, proposes a number of reforms to improve the efficiency and value for money of the Department of Health and Social Care.

This paper is part of the Adam Smith Institute’s “Reforming the Civil Service” series.

• The Department for Health and Social Care (DHSC) has responsibility for a number of functions that are currently performed inefficiently and represent poor value for taxpayer money;

• The NHS should become a coherent entity with its own staff functions, removing DHSC interference except to the extent that any parent company supervises its subsidiaries;

• Various arm’s length bodies (ALBs) should be privatised, merged or closed;

  • For example, there is significant overlap between the remits of the Medicines and Healthcare Products Regulatory Agency (MHRA) and the National Institute for Health and Care Excellence (NICE)—one agency could consider both safety and value perfectly well;

• Whilst parts of the departmental core should be retained, others can be closed as they duplicate NHS functions or should not lie within DHSC’s remit;

• Taken together, if all the recommendations within this paper were implemented, this would amount to a saving of 11,663 staff.

Unclear Benefits: Reforming the Department for Work and Pensions

The Adam Smith Institute’s latest discussion paper, written by Tim Ambler, proposes a number of reforms to improve the efficiency and value for money of the Department for Work and Pensions.

This paper is part of the Adam Smith Institute’s “Reforming the Civil Service” series.

• The Department for Work and Pensions (DWP) has responsibility for a number of functions that are currently performed inefficiently and represent poor value for taxpayer money;

• The Department should be restructured in line with the Ibbs guidelines, with a small policy and legislation core and policies being delivered by executive agencies;

• Various arm’s length bodies—such as The Pensions Ombudsman, The Money and Pensions Service and The National Employment Savings Trust—should be closed or moved to the private sector;

• The Department’s annual plan should have specific quantified targets for performance attributable to the Department or, better, one of its executive agencies;

  • The DWP annual report should then show the results against those targets and what we can learn from the comparisons;

• Taken together, if all the recommendations within this paper were implemented, this would amount to a saving of 19,621 staff (21.9% of the present total).

Shut the Back Door: Protecting Encryption From the Online Safety Bill

The Adam Smith Institute’s latest paper, written by John Macdonald, argues that the Online Safety Bill will, in its current form, undermine encryption to the detriment of privacy, security and the economy.

• End-to-end encryption is foundational to the proper functioning of our online experience;

• The Online Safety Bill would—in its current form—undermine end-to-end encryption by empowering Ofcom to demand service providers use ‘accredited technology’ to give them access to encrypted content in certain circumstances, under threat of large fines;

  • The Bill also grants the Secretary of State sweeping discretionary powers to determine the scope of services included in such provisions;

• Undermining end-to-end encryption poses a grave threat to privacy, security and the wider UK economy;

  • There is no sense in which encryption could be maintained while another party not participating in the information exchange has access to the contents;

  • Creating an encryption ‘backdoor’ for law enforcement would effectively be a blackmailer’s charter, allowing criminals and hostile foreign actors to exploit security flaws;

  • Such measures would undermine the growth and competitiveness of the UK technology sector, potentially resulting in large companies withdrawing from the market entirely;

• Weakening encryption undermines the credibility of the UK on the international stage, providing tacit justification for oppressive regimes like Russia and China to violate civil rights;

• Despite Government protestations to the contrary, the use of ‘client-side scanning’ would not address privacy concerns, as demonstrated in the school safety sector;

• The Government should redraft the Online Safety Bill to ensure end-to-end encryption is properly protected;

• Certain elements of the Bill should be removed entirely, including:

  • Clause 104(2) which allows Ofcom to issue a notice requiring service providers to use ‘accredited technology’ to identify and ‘deal with’ content deemed harmful;

  • Clause 92(4) which makes it an offence for the provider to give ‘information which is encrypted such that it is not possible for Ofcom to understand it, or produces a document which is encrypted such that it is not possible for Ofcom to understand the information it contains’;

  • Schedule 12 which further stipulates that failure to comply can lead to fines of up to £18 million or 10% of global revenue;

• The Government should also undertake a review of client-side scanning technologies, to better understand the tradeoffs between privacy and security that their implementation brings.

Measuring Up: Reforming the Department for Levelling Up, Housing and Communities

The Adam Smith Institute’s latest discussion paper, written by Tim Ambler, proposes a number of reforms to improve the efficiency and value for money of the Department for Levelling Up, Housing and Communities.

This paper is part of the Adam Smith Institute’s “Reforming the Civil Service” series.

• The Department for Levelling Up, Housing and Communities (DLUHC) has responsibility for a number of functions that are currently performed inefficiently and represent poor value for taxpayer money;

• DLUHC should set strategy and draft legislation whilst devolving initiatives and action to the regions and local authorities;

• The core department should need no more than 500 civil servants whose role should include disbursing the funding and then evaluating the funded schemes to disseminate the more successful to other regions and local authorities;

• Various arm’s length bodies should be closed, privatised or merged with other bodies;

• If government then considers DLUHC too small to justify a seat in Cabinet, its Union role should be strengthened by merging the Offices of the Secretaries of State for Scotland, Wales and Northern Ireland into DLUHC, now perhaps called the “Department for the Union”, and doubling the size of the core department;

• Taken together, if all the recommendations within this paper were implemented, this would amount to a saving of 5,030 staff (88% of the present total).