This is the first of a three part series on the Adam Smith Institute’s Policy Priorities in 2019. In part two, we discuss how practical liberalism will tackle Britain's burning injustices. In part three, we outline a future worth fighting for.
It’s time to reboot Britain.
From housing and tax reform to cutting red tape and backing free trade, the Adam Smith Institute will continue to put productivity and economic growth at the heart of our policy agenda in 2019.
The ASI will continue to make the moral case for economic growth. Over the last two hundred years economic growth has reduced absolute poverty from over 90 per cent to less than 10 per cent today, despite substantial growth in population. This means more people than ever with not only a shelter over their head and food on the table, but also access to education for their children and smartphones for entertainment. And if anything, measures of economic growth actually underestimate the massive improvement in living standards over the past few hundred years. Nevertheless, it has become fashionable in recent years to reject growth. Equality, reallocating a limited pie, is often cited as their most pressing concern, others push the idea that growth is secondary to the nation or society, while others still say we must hold back growth to protect the environment. The thinking on all three completely misses the point. Economic growth helps the worst off by creating jobs which help the poorest individuals pull themselves and their families out of poverty (rather than aiming to pull down those at the top), and even improves the environment.
The biggest political challenge facing Britain in 2019 is leaving the European Union. The Adam Smith Institute had no institutional position on Brexit itself. Nevertheless, we do believe that with Britain having voted to leave we should take advantage of the opportunities presented. For many leaving the European Union is the end point. For the ASI, Brexit is a means to an end. The important issue is not the parliamentary antics in the coming days and weeks, it is the course that Britain charts in the coming years and decades. It is not politics that matters, but policy. The challenge for Britain is to take advantage of Brexit to create a freer, more prosperous, and more innovative nation.
This means rejecting EU protectionism and promoting free trade multilaterally in the World Trade Organisation, establishing CANZUK, and joining the TPP-11. It means bilateral deals with countries like the United States on the basis of mutual recognition, and unilaterally by reducing tariff and non-tariff barriers with countries around the world. Leaving the EU need not make Britain a closed society. In fact, it is an opportunity to make the popular case for migration. Migration is a good, for those countries that receive migrants, and for those migrants themselves. We will continue to highlight the folly of the illiberal arbitrary numbers cap while promoting migration from around the world: the people who will staff our public services, build the first trillion pound company, and lead our country. Britain could raise funds and ensure visas are taken up by those who can contribute most to our economy by introducing a visa auction system.
Brexit is also an opportunity to unshackle from costly EU red tape, such as the GDPR, nonsense protectionist restrictions on GMO crops, and the Working Time Directive which limits the ability for individuals to freely contract. Regulation does not just hurt innovation, as discussed in the A Future Worth Fighting For post, but also reduces competition by hurting business creation and is regressive because the poorest households spend a larger proportion of their income on goods in heavily regulated high cost sectors. The first step will be taking stock of regulation, understanding its causes and effects, and what is most important to reduce. We must also start talking about reforming occupational licencing, which restricts entry to many professions leading to higher consumer prices and unemployment.
It is essential that upon leaving the European Union chains are not reimposed. Britain must not simply replace a distant, unaccountable and harmful bureaucracy in Brussels with a slightly closer, unaccountable and harmful bureaucracy in Westminster. To fight a bias towards the status quo, EU regulation incorporated into British law should automatically sunset within 5 years unless Parliament specifically reauthorizes the rules.
We will continue to fight for the building of affordable, high quality housing to alleviate the housing crisis. High housing prices hurt productivity by reducing mobility. High prices make it too expensive to move for better jobs. Soaring housing costs also have intergenerational equity and political implications. The rising value of homes owned by older generations is increasing wealth inequality and makes it harder for those relying solely on income to succeed in any given generation. The cost of housing is also making young people susceptible to extreme anti-capitalist messaging. While not everyone needs to own their home – there’s nothing wrong with wanting the flexibility of renting – everyone should be able to afford their home.
It is essential to reject boring old proposals, like taxpayer funded social housing that crowds out private sector projects, patently ineffective rent control, or subsidies that push up costs further. House prices are high because there are restrictions on building more homes. Less strenuous and less politically ambiguous rules would means more affordable housing where we need and want it most. The first step is to allow building on the Green Belt, much of which is not actually green. It is also important to relax regulatory limits on the height, design, density, aesthetic, and size of houses which only serve to make building more expensive.
There are other steps that could be taken to fight the housing crisis. Councils could introduce planning auctions for property rezoned for residential purpose, with the proceeds directed to infrastructure and compensation for any loss of value of existing homes. Social tenants eligible for the Right to Buy should have access to Flexible Right to Buy: the ability to buy a different new home using the value of their Right to Buy discount. Reforming the taxing of property will also improve affordability. Stamp duty, council tax and business rates should be replaced with a Land Value Tax with regularly updated valuations. This will stop stamp duty discouraging downsizing.
Tax reform is key to boosting productivity. From first principles, the tax system should raise the necessary revenue for government services with the minimal burden on taxpayers with as little disruption to productive activities as possible. Following last year’s American corporate tax reductions, wages have been boosted by hundreds of companies, and, more importantly, the immediate deduction of capital expenditure has encouraged investment.
Taxes on interest, capital gains and inheritance discourage saving which is necessary to create the capital base for productivity boosting investment. These taxes should be replaced with a broader based VAT, since ultimately consumption is the endpoint of economic activity. If we want to reduce poverty, particularly among low income households, an important step would be to increase the personal allowance so more of the lowest income earners do not have to pay tax. There is also no reason for National Insurance to be separate from income tax, since the contributory link between NI and actual pension payments is long since broken.
Brexit is a watershed moment. Britain’s economic future is open. We should follow the low tax, light touch regulation model of the world’s richest countries such as Singapore and Hong Kong. The alternative path of higher taxes, more regulation, nationalisation and central control of the economy is the downwards spiralling trajectory of failed socialist nations, from communist China and the Soviet Union in the past, to Venezuela today. That choice is ours.