Reducing burdens on small businesses


Shadow Chancellor George Osborne's promise to exempt new small firms from National Insurance is welcome news to the Adam Smith Institute. It has long been one of our central tenets that small businesses are more heavily burdened by taxes and regulations than are larger ones. A firm with hundreds or even thousands of employees can spread the cost of compliance, but to a small firm the expense and the time consumed can be crippling.

We have long advocated that small firms should be treated as a special sector, subject to lighter taxes and regulation. Of course, we want all firms to have those burdens reduced, but we think small firms are a good place to start. They generate most of the new jobs, and represent the future of employment. The biggest hurdle for a start-up firm is the stage when it first begins to take on paid employees. The nightmare of form-filling, compliance and charges begins, and is enough to keep many firms small in order to avoid it.

Osborne's move is a bold stroke because it establishes the principle that new and small firms require special treatment. Like tender shoots they need to be nourished and protected so that one day they might become big and sturdy. That principle, once established, can be extended. The next government should have ready a raft of proposals for selective application to small and new businesses. The aim must be to create the space of a light tax and regulatory regime in which they can grow at full speed to generate the future wealth and the jobs on which our prosperity will depend.

The encouraging thing about their new pledge is that it indicates the Conservatives are now beginning to look at the economy for ways to promote incentives, opportunity and enterprise. This is just what the ASI does.

Check out Dr Madsen Pirie's new book, "101 Great Philosophers."

Gun control


The country's top judge has demanded an increase in penalties to those arrested in possession of firearms. The Lord Chief Justice stated that, “Guns kill and maim, terrorise and intimidate" and that public safety must be paramount above all else. The main argument used by Lord Judge is one of deterrence, stating “deterrent and punitive sentences are required and should be imposed" such as mandatory minimum sentences for offenders including life sentences for distributors even if there was no intent to endanger life. In the debate over gun control there are a two major issues people often find themselves divided over: Firstly, where to draw the line between public protection and public dominion, and second, the trade-off between public and private deterrence.

At what point does the government change from protecting its citizens to controlling them? This is not an easy question, and it is one too often ignored by both citizens and governments. Government has a duty to protect its citizens from enemies and at times from each other. However, it is a slippery slope that leads governments down the path to total social control in the interest of protecting everyone everywhere all the time. Although the government should indeed be able to police its own citizens it should never be allowed to absolutely remove any single right. Does the government have a right to outlaw the possession of firearms by its citizens in the interest of protection if it means that they are severely limited in their own ability to protect themselves? Absolutely not.

The other question is that of deterrence. Is public or private deterrence a more useful method in fighting crime? In many crimes the use of public deterrence by the government is most often the best means. The government can do things not available to ordinary citizens such as fines and jail time. But in cases dealing with public or personal safety many times the best deterrence is private. A gun wielding criminal will be more afraid of a gun wielding citizen than of the possibility of incarceration. Private citizens concerned only for their own safety and not held back by court proceedings, warrants, or properly reading someone their rights can be the biggest deterrent of violent crime available.

If you discount the use of air-guns and only count real firearms, the use of firearms in violent crimes has continued to increase in the UK despite them being illegal (as reported by the Home Office Statistical Report on Firearms Offenses, pg 34). In a knee jerk reaction to horrific crimes committed in the past, the government is now controlling people instead of allowing them to protect themselves. Although it may be more difficult for criminals to get guns many will still get them. The problem is that the biggest deterrent against gun crime is no longer available.

The FSA and bank reserves


The Financial Service Authority's new rules on bank reserves is bad news for business and mortgage borrowers

The Financial Services Authority is a menace, it really is. One reason we had a crash is that the FSA was more interested in how quickly banks picked up the phone to customers than whether their fundamental business model was sound. Then it decided that 'stronger' regulation was needed and that it should have more powers and more staff – at the banks' expense, of course (an approach criticised in a recent ASI report)

Now it says that the banks should keep more cash in their reserves, to make them stronger so they don't collapse again. What it means, of course, is that they should keep more government bonds in their vaults. Which is nice for the government, who will at least get someone to buy its rubbish IOUs. But it's bad for the banks, who will have to spend an extra £6bn doing so.

And that means another £6bn that won't be coming to customers in loans and mortgages, but which will be hitting them in additional charges. So in one stroke, the FSA has added to the problems of householders and businesses, who currently can't get loans, and for every other bank customer, who will now pay more for their banking. Just what you need in a recession, isn't it?

Dr Butler's book The Rotten State of Britain is now in paperback.

Feeling green while the poor starve


Of all the insanities committed in the name of green politics, one of the most insane is the production of biofuels from food crops.  In pursuit of increased proportion of energy from renewable sources, governments have realized that wind and solar power cannot make sufficiently large contributions.  They have therefore turned to biofuels, a move that hugely delights their farming lobbies.

Left at that, this might not have done too much damage outside of a massive misallocation of resources, but in a move that compounds insanity with thoughtless wickedness, they have chosen to do so out of food crops, rather than push forward the development of fuels from biological waste products such as husks, stalks and other cellulose surplus.  

Now Robin Pagnamenta reports in the Times that "Britain's self-sufficiency in wheat will end next year because a giant new biofuel refinery needs so much of the staple crop that home-grown supplies will be exhausted."  Yes, we are now buying wheat on world markets to turn into fuel that is more expensive than that we can buy elsewhere or pump out of North Sea wells.  That puts upward pressure on world prices, forcing up the price of foodstuffs.  To affluent people this will be an inconvenience; to the poor it might mean starvation.

We have, in effect, reintroduced the Corn Laws which were abolished in 1846, ensuring that the poor have to pay more for their bread as landowners and farmers benefit from higher prices.  Well-to-do ladies driving their children to school in 4x4s can feel good that they are driving on 'green' fuel, even as people in poorer countries go hungry.  Already there have been pasta protests in Italy and tortilla riots in Mexico, as poor people protest as the higher prices.

Why in the name of sanity and decency did governments not do the obvious thing and offer huge prizes to rush forward the development of biofuels from waste products instead?  It has been achieved on small scale, and all it needs are the incentives and investment to roll it out on a larger scale.  Biofuels from food crops is a profligate waste of precious food to satisfy green consciences, and the next government should pledge itself to stop it.

Check out Dr Madsen Pirie's new book, "101 Great Philosophers."


Newton's laws of banking


The IMF and Bank of England want to tax banks to pay for future credit crises. It's a bad idea.
Newton’s third law of banking is that every good idea has an equal and opposite daft one. We had a banking crisis because banks did not have the cash when they should have done. So it is a good idea to pay executive bonuses in paper (shares) and not cash – always assuming they should be paid at all. The banks hold onto the cash and if the shareholders are silly enough to dilute their holdings in favour of the executives, so be it. There’s also a faint chance the executives’ shares will give them a longer view of performance.
On the opposite, daft, side, the IMF and Bank of England are suggesting two separate new bank taxes. The IMF head, Dominique Strauss-Kahn, long-term French economics minister and previously a member of the Union of Communist Students, is planning bank taxes and also for Britain to lose its seat at the IMF top table. No hint of nationalism there of course.
Closer to home, Paul Tucker, Deputy Governor of the Bank of England, is suggesting taxes for the government to squirrel away until the next financial crisis when the money can be returned to the banks. Who believes any money given to this government, or any UK government come to that, will still be there in two years time, never mind 20 years time?
The FSA had a similar idea in their March discussion document (DP09/2) which suggested the banks themselves should hide away some rainy day reserves. For most of the 81 respondents, that exemplified the very lack of transparency which the FSA was complaining about. Secret reserves in banking were outlawed 40 years ago and rightly so.
Could someone please bring these regulators back to earth? Banks are businesses and should be taxed like any other business. They should not be deprived of the cash they need but do not have.

Denmark's knife


More than 53 people have been put to prison in Denmark because they had a knife on them or had it lying in their car. This is the consequences of a new law the Danish government have implemented in order to prevent crimes committed with knifes.

In most of the cases, the defendants have been craftsmen forgetting to take their tools out of the car after work, anglers coming home from a fishing trip, or just people with a multitool in their car in case something should happen (with the car). An overwhelming majority of those put in prison are peaceful people that offer no threat to anyone else. Now they are convicted criminals because the (Conservative – Liberal) government doesn’t understand the consequences of letting the “Big Brother State" loose.

In Denmark this injustice is putting innocent people in jail. How constructive is that I may ask?

How David Cameron can reverse Labour’s unjustified attacks on civil liberties

A judicial review of Britain’s liberties would give the Conservatives a programme of reforms and help David Cameron establish his pro-liberty credentials, says Madsen Pirie.

Over the last few years, many traditional liberties which protected our way of life have been removed or compromised by the Government’s initiatives. In the name of taking more effective action against terrorists, drug dealers or paedophiles, customs and practices that shielded the citizen from arbitrary abuse by authority have been over-ridden or subverted.

We used to enjoy the protection of habeas corpus, and no detention without trial. We used to have the right to remain silent without it counting against us, or be forced to testify against ourselves. We could demand trial by jury, and once acquitted, need not face the ordeal of a retrial. We enjoyed the presumption of innocence, and could not be punished or have our property seized without conviction in a fair trial.

All of those liberties and many more have been eroded or abolished in a flurry of government and official zeal to crack down on possible law-breakers. Almost every day we read of incidents in which people are bullied or harried by police, not for criminal activity, but basically for doing things the authorities dislike. It will be difficult to regain ground lost for liberty, given a now-entrenched official culture unsympathetic to it.

It is fanciful to suppose that a consolidated repeal bill could be passed to reverse at a stroke all of the illiberal measures of recent years. There is, however, an effective measure that an incoming government could take. David Cameron should announce his intention to establish a year-long judicial review into the state of British liberties. Presided over by a senior and respected judge, the review body would hear evidence in public concerning the degree to which traditional liberties have been eroded.

Crucially, the review body would be empowered to make recommendations at the end of its enquiry, recommendations of measures to restore and entrench the freedoms needed to protect citizens from abuse at the hands of an arbitrary and oppressive authority. While the Conservative Government would not be compelled to implement its findings, there would be a moral pressure on it to do so. Through its year-long inquiry, the review body would raise awareness of liberty issues, and publicize the degree to which it has been lost or threatened. A culture of liberty would gradually supplant the illiberal culture that currently prevails. It would be difficult for government to resist its recommendations.

The announcement now of such a review would enable Mr Cameron to establish the pro-liberty credentials of himself and his party. It would not impose any great costs, nor commit his government to any specific pledges. What it would do it establish a momentum of liberty, and secure carefully thought-out and well-drafted proposals to restore our freedoms to their respected place at the heart of British law and tradition.

Dr Madsen Pirie is President of the Adam Smith Institute and author of the newly-published ‘101 Great Philosophers’.

Published on here.

Brown's decade of disaster




In his editorial in yesterday's City AM, Allister Heath wrote:

Next year, government spending in Britain will reach 54.1 per cent of gross domestic product (GDP), up from 36.6 per cent in 2000. This devastating statistic, buried on the OECD’s website, has been largely overlooked; yet it is one of the most important facts that everybody should know about today’s Britain. It demonstrates that almost an extra fifth of our economy (17.5 per cent, to be exact) has come under state control on Labour’s watch since the start of the century.

Sadly, that's not the only devastating statistic buried on the OECD's website. Indeed, if you look at this OECD spreadsheet from July this year, you'll find everything you need to destroy Gordon Brown's absurd reputation for economic competence. Actually, I'd say there is enough there to bury that particular fantasy at a crossroads with a stake through its heart. For example:

  • In 2000, we had the 7th lowest public spending in the 30 OECD countries. In 2010, we will have the 6th highest.
  • In 2000, we were the 16th most indebted country in the OECD. In 2010, we will be the 8th most indebted country.
  • In 2000, we had the 7th lowest deficit in the OECD (in fact, we had a surplus). Next year, the UK will have the biggest budget deficit of any country in the OECD.

I've put together a few tables showing the declining health of the UK's public finances over the course of Brown's disastrous decade. If you can't see them, click here.