Look beyond the Brexit forecasts

The leaked report from Britain’s civil service, apparently showing that the UK would be worse off after the country leaves the EU, can be quietly forgotten. It is based on out-of-date assumptions about a world that has long since moved on.

One might start, of course, by asking why the report has been leaked at all—when it is only a draft that is far away from being presented to ministers, if it should get that far at all. The answer is, of course, that it questions the wisdom of Brexit. But then Britain’s civil-service establishment—traditionally hostile to change, keen to keep the UK a big fish in small pools of any sort—is anti-Brexit to its core. Nothing new there, then.

The thing is, that there’s nothing new in the analysis, either. Whitehall, and its East End branch the Bank of England, are fixated with the current conception of the ‘gravity model’ of trade. This is the idea that the volume of trade a country can do is most strongly related to the size of its trading partners their closeness to it. Not surprisingly, this model concludes that our best bet is to hang in with the EU, because there are some very large economies there (Germany, France…) that are about as close as any country could be. QED.

But as leading economists (and ASI authors) including Professor Patrick Minford of Cardiff, Professor Kevin Dowd of Durham and others have shown, this ‘gravity’ model based on geographic proximity does not fit all the facts. A look over the UK’s trading history reveals that it is wrong, and getting more wrong by the day. In the 19th Century, the UK’s main trading partners were the US, Canada, the West Indies, Argentina, Brazil and China. No near neighbours in that lot. Nor, today, does the gravity model account for the huge surge in the UK’s export services, particularly financial services, all around the globe. Barriers must play a part, some of these were strict quotas and blocks, some others on cost. Costs have been brought down nearby, but have been kept up or expanded elsewhere and we still have substantial transport costs. Transport and related costs are a better prediction of trade potential as Tim Worstall has argued previously. 

And the gravity model does not explain well the fact that we do so much trade with Anglophone countries—even though the US and Canada are much further away than the EU, while Australia and New Zealand are about as far away as any country could be. Often the Anglosphere (and the Brexit analysis is guilty of this) ignores the potential of trade with these countries. Bringing down barriers in countries with a common language boosts trade and investment. Bringing down barriers so those that can speak our language can move, live and build businesses here increases trade (from the USA, to India, Ireland, and Australia). It’s part of the reason EU trade has grown so reliant on the UK: we speak English and they’ve learned it. Proximity as a measurement alone underestimates British and Irish trade by 5 times, and there’s good reason to think we might expect a greater than currently modelled boost in trade with the rest of the world. Our share of trade with the (much closer) EU countries has fallen, from 54% in 2006 to just 43% today and that’s before we’ve even begun making it easier to trade with the rest of the world.

In fact, the traditional model of trade works much better at explaining the flow of imports and exports. That is because it is based on solid realities like comparative advantage—whereby countries buy things from other countries that are comparatively better at producing them. And on historic, cultural, language and trading ties. And the fact that EU-style protectionism—yes, it’s supposed to be zero-tariff free trade, but look at all the regulatory and other barriers that EU countries erect to keep out others' goods and services—just gets in the way of trade.

Remember too, that as road, maritime and air transport get so much easier and more efficient, more entrepreneurs are going out to more distant countries to exploit those comparative advantages and round-the-world ties, while moving goods over long distances has become much safer and cheaper. Meanwhile, worldwide internet connections have made doing deals with and exporting services to people in faraway places very much faster and easier than they were in the days of fax machines. 

Ask a silly question and you get a silly answer. Ask a sensible question and feed it into Whitehall’s theory- (as opposed to reality)- based calculating machine and you will get a very silly answer indeed. Very much worth leaking if that’s your prejudice, because no media reports look beyond the bogus ‘worse off out’ headline. But not exactly QED, Sir Humphrey. 

Looking at the world through Neoliberal eyes

In my 2015 lecture to Brighton University, “Looking at the World Through Neoliberal Eyes,” I made the point that neoliberals tend to compare the present with the past, rather than with some hypothetical imagined future.

Many on the Left tend to imagine what the world could become by dreaming up an idealized image of what it might be like. They compare that vision with the current world, using it to point to what they perceive to be its inadequacies and injustices.

Neoliberals tend to look at what the world was like in the past, comparing it to the present world to point to the progress that has been made, and to incremental ways in which yet more progress might be achieved. They look at the improvements in life expectancy, in deaths in infancy and childbirth, in control of diseases, in living standards, and they identify what they see as the principal sources of these improvements.

Some of this is down to advances in knowledge, especially of scientific and medical knowledge, and some of it is down to changing attitudes as more becomes possible. But a large part is owed to the increased wealth created by trade and specialization, wealth that funds yet more research and its application, and that makes it possible to afford improved standards.

Neoliberals look to improvements, of course, but more often than not, by using methods that have been tested and seen to work in practice. This is part of the empiricism that characterizes the outlook. When new ideas are tried, neoliberals are usually cautious, testing them carefully, ready to incorporate modifications when necessary, and to abandon that which does not work in favour of that which does.

Some on the Left claim that “true” socialism has never been tried, pointing to some hypothetical version of what socialism might be like in the future. Neoliberals reply that it has been tried many times in the past by people who acted in its name and declared it was socialism they were implementing. They point out that socialist governments have always failed, producing shortages, shoddy goods and services, often starvation, and sometimes mass murder. It has been tried and found wanting, not in theory but in practice.

Nick Cohen proves Hayek's "Road to Serfdom" correct

One of Hayek's points in "The Road to Serfdom" was that a government health care service, one financed and provided directly, would lead to a dictatorship. Nothing produces more giggles on the left than this very idea, that "free" health care would make us serfs if not slaves. 

Except, of course, it's true:

If you imagine a healthy future for Britain, or any other country that has put the hunger of millennia behind it, you see a kind of dictatorship. Not a tyranny, but a society that ruthlessly restricts free choice. It is a future that views the mass of people as base creatures jerked around by desires they cannot control. Expert authority must engineer their lives from above for their own good and the common good.

That's just the bien pensants telling the rest of us how we must live of course, not a new phenomenon, but then:

Here’s my partial sketch of how Britain would have to change to limit the costs to the NHS that stunted lives and avoidable pain will bring.

Yes, we must change our behaviour in order to suit the NHS. Which was the very point that Hayek was making. Once we have an institution, one that in modern Britain is closer to a religion than anything else in the collective belief system, then we must alter ourselves to suit the institution.

We must not eat sugar because that costs the NHS money, we must not be obese, or drink, smoke, because that costs the NHS. That all save it money is true, for shorter lives lead to less health care expense, but still, the mantra is that we cannot, must not, live our lives as we wish, suffer our deaths at our pleasure, from those pleasures even, but must change our ways to be worthy of the State institution.

It is the Grand Delusion again, that the aim and point of this government business is to change humans into fitting the system, rather than the system existing to allow us to be human in all our messy glory. New Soviet Man, that non-human that would make centrally planned socialism work, is no different in basic philosophy from NHS Man, the thin lipped and hipped prude who does nothing fun in order to die unhappy but at the convenience of the government run health care system.

Hayek really did warn us about this however much it makes lefties giggle. 

Amazingly, The Observer used to be both liberal and observant

An interesting little example of how times have changed. Sonia Sodha, who is the chief leader writer for The Observer:

Laying on drinking fountains isn’t enough; despite their ubiquity in the US, Americans consume almost three times as much bottled water per capita than here. We need to go further: let’s become the first country to ban bottled water altogether. Will anyone lament not being able to fork out for a bottle of San P in their Waitrose? Maybe. Tough – they should get themselves down to Argos and shell out for a £40 SodaStream. They’ll make their cash back in no time and the planet will be a happier place for it. And perhaps a few years from now we can think about imposing annual flying allowances.

We're entirely willing to agree that waste bottles are something which should be managed - don't want to choke no whales after all. But banning something that people obviously like and desire just because you can't see the point of it is rather a good definition of illiberalism.

There is one more little detail which we'd like to point to:

The airport: not the most fun place to while away a couple of hours. Most modern airports seem to prioritise row after row of fancy shops over providing enough seats at the gate. One of my pet peeves is how hard they make it to get your hands on free drinking water once you’ve dutifully chucked yours out before security. More than half of UK airports don’t provide drinking fountains, forcing travellers to choose between begging bartenders to fill up their bottle or coughing up for over-priced water.

We have some experience of airports. We're really pretty sure that they're equipped with toilets. Or given the amount of pearl clutching currently going on we should refer to them as the smallest room, the loo or the thingie. All of these comfort stations being equipped, at least in our experience, with sinks, taps and running water.

No one does run a special supply of non-drinking water into such privies. We must therefore assume that Ms. Sodha has a remarkably strong bladder - given the water she desires to consume this is a possibility we suppose - or is equally remarkably unobservant.

We too think that world can be improved even if we're rather more liberal in our suggestions. But we really do insist that those who make proposals for such improvements would be well served by being able to observe the world as it is before pronouncing. As those producing one of the country's great newspapers used to, in our memory at least, be capable of.

How much charity giving is just a subsidy to advertising?

One of us has been rather surprised, after perhaps a decade of not paying attention to the medium, to find that the Americans can actually make reasonably good TV shows. The resultant binge watching has led to exposure to the standard British advertising associated with such habits. A bit of which raises an interesting question.

How much of the government subsidy to charitable giving actually just ends up as a subsidy to such advertising? 

As we understand it this is not about gift aid, the return of tax that has been paid upon money that is then donated. Rather, upon the advertisements (from the likes of Save the Children, Action Aid and so on) there is a claim that, up to a certain amount, the government will 100% match donations made. So, when a viewer texts in with a £2 a month donation there is a match to that from public funds.

Well, OK. More taxpayer money goes to those organisations which, by their actions, people think should have more money. That's better than some committee somewhere deciding upon the allocation. And yet, and yet.....

Standard theory tells us that some amount of this matching money will end up not as an increase in the amount spent upon alleviating famine, plague and destitution, but as an increase in the advertising being done and thus a subsidy to the TV stations.

Imagine, sans subsidy, a charity pays 50 pence (purely made up numbers) in order to gain a £2 donation. That's £1.50 more to be spent upon alleviation. Now add in that subsidy. It makes sense for the charity to be paying up to £3.50 on advertising in order to gain that £2 donation plus the matching £2. For the net effect upon their funds is still that £1.50 increase in resources.

Theory tells us that some of this will almost certainly happen. Over time that it certainly will. What theory doesn't tell us is how much of this will happen. It is possible that it will be a little tiny bit at the margin and that the net effect is a substantial increase in the funds allocated to famine, plague and destitution relief. It is also possible that the arms race to advertise to gain donations will swallow up all of that matching funding, in fact theory tells us that net funding allocated to famine etc could actually fall.

Note the similarity here to the tax incidence argument - who pays the cheque isn't necessarily the same as who bears the economic burden. We are discussing much the same thing here. That more cash is nominally allocated to plague relief doesn't mean that more gets there - it's entirely possible that it ends up instead in larger advertising budgets and thus in the coffers of the TV stations. 

We don't know the answer here but we insist that it's an interesting question. How much of that matching charitable donations by government actually ends up as a subsidy to advertising to gain donations? Theoretical answers range from fractionally above 0% to over 100%. But what does reality say? And shouldn't we find out given that it is we taxpayers coughing up for this?

What an amusing demand - the rules of a private organisation must be turned into the law

Or perhaps not so amusing given the mindset it reveals:

The #MeToo and #TimesUp movements have enabled women to speak up about sexual harassment and abuse, so it’s cheering to see the Producers Guild of America taking the situation seriously by publishing new guidelines to combat sexual harassment on film sets. Post-Harvey Weinstein, action, as opposed to just words, is needed in the industry. It’s a good sign that Wonder Woman 2, the sequel to the female-helmed blockbuster, has already signed up to the guidelines, and hopefully this will encourage other forthcoming productions to do the same.

But, while it’s a step in the right direction, it may not effect much radical change. First, membership of the PGA is voluntary, so film producers can opt out of joining or leave the organisation if they aren’t keen on adhering to the new standards. Second, the guidelines are not legally constraining, so the 7,500 members of the PGA are bound only by “best practice” suggestions: their membership would not necessarily be threatened if they did not integrate them into their productions.

Sexual harassment may be considered discrimination, in legal terms, but without a legal requirement to put the PGA guidelines into practice, it is possible that many producers may not bother.

Leave aside the background here, the entire MeToo story. Look at the actual demand there. Membership of the PGA is voluntary. Anyone can make a film without being a member. It's simply a private club, a part of those little platoons which make up society. 

But those rules of that private club must be turned into law which apply to everyone, club member or not. This is to demand that the rules of the Boy Scouts, the Labour Party, the Derwentwater Bowls Club, be turned into the law of the land.

Not, perhaps, all that amusing in fact. Rather, a betrayal of a complete lack of understanding of what civil society actually is.

Policy Priorities in 2018: Practical Liberalism

Beyond increasing productivity and incentivising innovation, we advance the cause of individual liberty by promoting practical, evidence-based, liberal solutions to pressing social issues. Regulatory prohibitions often restrict liberty, and can also backfire creating dangerous black markets. We will make the evidence-based case for expanding consumer choice, ending counterproductive prohibitions, and reducing harm. Innovation, not greater regulation, can improve public health as consumers demand healthier, safer products.

The UK has become a world-leader in tobacco harm reduction. Smoking rates are falling as smokers switch to safer e-cigarettes. Fears that e-cigarettes would increase tobacco use by making smoking ‘cool’ were unfounded; in fact, the recent decline in smoking has been strongest among 18-24 year olds. But we can do better. European regulation is slowing take-up. Manufacturers and public health campaigners are restricted from advertising the fact that e-cigarettes are safer. This is a huge problem when 19% of smokers haven’t tried an e-cigarette because they were concerned about safety. Worse still, regulating tank sizes, nicotine strength and bottle sizes may make e-cigarettes less desirable for some users. This is a serious problem as evidence suggests bans on e-cigarette flavours led to higher smoking rates. The sheer number of lives that could be saved if smokers switched to e-cigarettes is staggering. This is why we are prioritising harm reduction in 2018. Repealing EU vaping restrictions, stopping indoor vaping bans in public buildings (the ASI now allows considerate vaping in the office), and making it easier to bring the next generation of e-cigarettes to market will all be key in saving lives by expanding choice.

We may be leading the way on e-cigarettes, but we’re falling behind on cannabis. By July 1st, Canada will have legalised cannabis nationwide. Rising evidence from across the US has proven doomsday predictions of cannabis legalisation have fallen flat. The case for cannabis legalisation is powerful. Criminalisation has increased organised crime, created stronger strains, and led to undesirable street dealing. Drug dealers don’t check for ID and they don’t label the strength of their products. It’s led to a nationwide street lottery where strains vary massively in strength and safety. More of the same simply won’t work. We can stamp out street cannabis by taking supply out of the control of criminals and creating a legal, regulated market. In 2018, we will ensure evidence, not hyperbole, guides the debate around cannabis legalisation.

When prices are artificially capped, shortages occur. This is not only the case for housing. Every year hundreds die waiting for a kidney transplant, while thousands sit on dialysis spending nearly 12 hours a week in a hospital. The situation for bone marrow is similar – 140 patients fail to find a donor each year, with the situation especially bad for ethnic minorities. Financial incentives can solve this problem. Compensation for blood and plasma donors in the US has effectively ended the seasonal shortages that affect other countries, with fears about exploitation or safety being unfounded. As a result of campaigning by think tanks, ethicists and economists, compensation for bone marrow donors is now allowed in the USA as of last year. In New Zealand, new laws will compensate organ donors for lost wages. Both parties recognise there’s a problem, with Theresa May announcing an opt-out system for organ donation. That will help, but not solve, the problem. And it’s not a long-term solution. Autonomous vehicles will save lives, but leave fewer organs available for donation. Financial incentives provide our best bet to cut waiting lists and save lives, and in 2018 we will team up with international think tanks to make the case.

Criminalization fuels violence in illegal drug markets, and the same is true for sex work. The UK’s current approach to regulating sex work is failing, putting the safety and wellbeing of over 70,000 (predominantly female) sex workers at risk. Street sex workers face fines and criminal records at the moment rather than access to social and healthcare interventions or protection against client violence, while indoor sex workers must break the law if they want to band together for safety. Some advocates believe that adopting the Nordic Model, which criminalizes clients alone, is the way forward, but a wealth of evidence shows that attempting to ‘end demand’ harms sex workers in a myriad of different ways. The best solution is full decriminalization, which has been the policy of New Zealand since 2003. Research shows that this liberal approach will reduce violence against sex workers, improve relations with police (assisting in anti-trafficking efforts), give them the best chance to assert their legal rights, and assist public health efforts to combat HIV/AIDS. As well as advocating for full decriminalization, we’ll be debunking flawed arguments in favour of the Nordic Model and encouraging local authorities to experiment with managed street sex work zones.

This is the third part of our Policy Priorities in 2018 series. Check out how we're tackling Britain's productivity crisis and encourage permissionless innovation

Addendum: Oh, and we'll also continue to make the best memes of any think-tank.

Policy Priorities in 2018: Innovation without permission

Reforming the tax system, planning law, and facilitating immigration is essential to raising living standards in the UK. However, with a few exceptions these policies only raise the level of GDP. It is only by removing the regulatory barriers that prevent new technologies from being adopted that we can increase the trend rate of growth. Even relatively small increases in the trend rate of growth (0.1pp) can lead to very large increases in living standards over a few decades. This highlights the importance of getting innovation policy right.

To advance in innovation in the UK we will focus on three key areas in 2018.

Emerging technologies such as drones, autonomous vehicles, and consumer genetics could save lives, cut pollution and save money for millions of consumers. But the rate of innovation of depends on the speed at which entrepreneurs can bring new products to market. While centrally planned rollouts often backfire (e.g. smart meters), government can play a role. By proactively deregulating in favour of emerging technologies, they can create the space for entrepreneurs to experiment with new technologies.

Britain is a world-leader in FinTech as a result of the Financial Conduct Authority’s regulatory sandbox. The FCA’s sandbox allows start-ups to trial new products without going through extensive regulatory approval processes. This reduces risk for investors as firms are able to demonstrate business models before getting full regulatory approval. This is particularly useful to start-ups who both cannot afford legal counsel to navigate the regulatory process and cannot attract investment without demonstrating their business model is viable. We should apply the FCA’s regulatory sandbox approach to other emerging technologies such as driverless vehicles, consumer genetics, and commercial drones.

It also important that regulation does not deter innovative business models. Ridesharing firms such as Uber have expanded flexible employment and delivered a cheaper, faster service. To ensure the sector remains competitive and to avoid a chilling effect on innovation, central government should restrict the ability of local authorities to unfairly crack down on disruptive firms.

Competition policy should protect competition, not competitors. But in recent years, innovative tech giants including Amazon, Facebook and Google have come under attack for being too large by the so-called ‘hipster antitrust’ movement. There is a risk that we return to a naïve ‘big is bad’ policy. The European Commission’s intervention against Google highlights the risk posed to innovative businesses. Even though there was little evidence that Google harmed consumers, the Commission forced Google to restructure its Shopping business. They risk deterring innovation and harming consumers. Recent attacks on Google, Facebook and Amazon rely on overhyped theory (network effects) when evidence suggests that platforms can still face intense competition (e.g. the fall of Myspace). There is a risk that firms face restrictive data requirements deterring innovation in AI. Others call for burdening Facebook and Google by treating them as publishers. Both policies would be a step backwards: they will reduce investment and make consumers worse off. If we’re to keep our economy innovative, competition policy must be guided by consumer welfare.

As we live more of our lives online, the importance of cybersecurity is increasing. However, government intervention risks making us less safe. Attempts to prevent terrorism by undermining encryption through backdoors, make us more vulnerable to cybercrime. At the same time, attempts to prevent children from accessing online pornography may put adults at risk of fraud and leave sensitive data unprotected.

We should also ensure that reducing the risk of terrorist cyber-attacks using driverless vehicles and drones does not create restrictive standards that impede innovation and create lengthy regulatory approvals processes.

This is the second part of our Policy Priorities in 2018 series. Check out how we will boost productivity and how we'll support the return of practical liberalism in British politics. 


Policy Priorities in 2018: Boosting Productivity

Across the Western World, there is a growing sentiment that capitalism isn’t working. Productivity growth has stalled and inflation has outpaced wages. This has led to voters backing protectionists (Trump) and socialists (Sanders and Corbyn). In response, conservatives are becoming more interventionist, backing counterproductive policies such as price caps and curbs on executive pay. Worse still, sluggish growth hurts the government’s fiscal position making important reforms harder to implement.

Public consent for free market capitalism relies on rising wages and living standards. If the pie isn’t growing, then it’s only natural that politicians will win by promising to slice it up more evenly. To mount a robust defence of free-market capitalism, it is essential to develop policies that raise average income growth to, at the very least, historical norms and address rising living costs.

Our key policy priority for 2018 will be to address the housing crisis through planning reform. It is a real testament to the work of Sam Bowman and Ben Southwood that the housing crisis is now the key issue in politics today, and that it is widely accepted (at least on the centre-right) that the cause is restrictive planning laws.

High housing costs not only eat in into pay packets (that in many cases haven’t kept pace with inflation) but they also create barriers to mobility. By making it more expensive to where the best paying jobs are (productive cities like London, Oxford and Cambridge), they lead to people staying put in lower paid work elsewhere. Research by Hsieh and Moretti finds that this effect is responsible for a 13% reduction in GDP in the US and there’s reason to believe that this effect would be even greater in the UK.

It is also important for our limited housing supply to be allocated as efficiently as possible. This is why we will continue to advocate in favour of abolishing stamp duty, which prevents people from moving.

The rise in house prices driven by supply-side constraints is to blame for the rise in wealth inequality identified by Piketty. Importantly, the focus must be on increasing affordability: not just ownership. It is a mistake to state (as many commentators and politicians have) that one must own capital to support capitalism. If capitalism only benefited the owners of capital, then we would be socialists. As a result, we will continue to oppose demand-side interventions such as Help to Buy which fail to address the underlying supply-side problem.

The only way to resolve the housing affordability crisis is by increasing supply through planning reform. Building on our work last year with John Myers, we will work hard on developing politically feasible policies to radically boost housing supply.

Another priority will be removing barriers to investment within the tax system. Over the past seven years, reducing the corporate tax rate has made the UK an attractive destination for overseas investment. However, the corporate tax rate cuts were partially funded by reducing the value of deductions for machines and industrial buildings, making domestic investment less attractive. This effectively increased the marginal tax rate on some investments and blunted the potential of the rate cut to boost domestic investment.

Evidence from the UK (Maffini, Devereux and Xing) and US (Ohrn) found that shortening depreciation schedules or allowing for immediate deductibility can significantly increase investment leading to higher wages and employment levels. Moving to a system of full instant deductibility, where businesses can deduct the costs of capital investment immediately, would be a strong move to sustainably boost wages. Furthermore, this could be funded in part by removing the deduction for corporate debt interest. This would not only boost investment but would also end the bias of debt over equity.

Business Rates present another barrier to investment as they are calculated on the value of the property rather than the underlying land value. Firms that invest in building improvements increase the rateable value of their property. Business Rates are, on average, one of the less harmful taxes, as the incidence falls primarily on the landowner, because planning constraints limit the ability of owners to invest in their property. Still, shifting the burden solely to the landowner by replacing business rates with a tax on imputed land rents would be a pro-investment change.

Immigration reform will be another key factor in ensuring productivity growth remains high. Remaining open to foreign talent as Britain leaves the European Union is essential. The effect of high-skilled immigration on wages, revenue and investment is unambiguously positive, but the process for hiring skilled workers is bureaucratic and prevents many talented individuals from coming to the UK. Furthermore, the economic impact of EU migrants is, on net, positive. Freedom of movement may have lowered wages in the short term for unskilled workers (by about a penny an hour), but for the vast majority of workers it has boosted incomes. This minor harm is far outweighed by the positive contribution EU migrants make to the public finances; while the average Brit in the decade up to 2011 was a net drain on the public finances, EU migrants paid in £1.5bn a year more than they took out.

To keep Britain open throughout the Brexit process, we will work with The Entrepreneur’s Network to set out a liberal immigration agenda. We will make the case for ending the skilled migration cap, ending the net migration target, and ensuring that international students are not penalised in attempts to control migration. We will advocate maintaining open to migration from the EU, expanding migration from CANZUK nations and streamlining non-EU migration by investigating visa auctions to ensure market demand (and not central planning) determine who comes to the UK.

We won’t stop there though. Housing, Tax and Migration may be our top priorities, but we’ll also work to boost productivity through a number of other policy channels.

  • Energy: All major political parties are committed to cutting carbon emissions, but disagree on the most cost-effective way to achieve it. The Helm Review on the Cost of Energy found that there were 13 different interventions in the energy market, including guaranteed pricing contracts, that rely on notoriously unreliable projections. The free-market solution is to simply tax carbon and let individuals and firms figure out the best way to cut back.

  • Infrastructure: Investments in transport (commuter-rail, roads, and airports) will contribute to faster growth and reduce pressure on housing. But, infrastructure funding is currently biased towards London and the South-East. Devolving infrastructure and allowing local government to use land value capture to fund it could deliver massive benefits.

  • Road Pricing: Congestion imposes significant costs on individuals. By underpricing roads, we encourage overuse. Politicians mistakenly call for expensive road-building projects, but they regularly fail to cut commute times as the number of road users increases proportionately. The only solution is to dynamically price the externality of congestion. London’s Congestion Charge was a step in the right direction but it’s priced too low, fails to shift journeys away from peak times, and fails to distinguish between a day driving in central London with a single trip.

  • Broadband: Another aspect of infrastructure is broadband. Many rural communities are still not connected. This problem is exacerbated by the EU’s Net Neutrality regulations which ban ISPs from charging edge providers for priority access to digital fast lanes. This deters ISPs from investing, leading to marginal investments (in rural communities) being cut. Rather than spending money or imposing a Universal Service Obligation, scrapping internet regulations outside the EU will boost access to broadband.

  • Agriculture: Direct payments to farmers raise food prices and lead to higher taxes. Leaving the European Union is an opportunity to rethink this harmful policy. Similarly, tariffs protect British farmers from competition, raising prices and encouraging environmentally harmful farming. We should follow New Zealand’s lead in embracing free trade and eliminating subsidies. Some support to farmers should continue for the provision of environmental services, but payment must be by results.

This is the first part of our Policy Priorities in 2018 series. Next we'll be tackling permissionless innovation and the ways we can support practical liberalism

Happy Australia Day!

Happy Australia Day! 

While it’s not a day that most Brits will notice, it is one we should. For the ties that bind us to our Antipodean cousins are strong, with around 1.2 million Britons living in Australia and over 100,000 Australians living in the UK. But this number has been in decline for some time now, accelerating in the past decade. Not because it’s becoming less popular to move here and for us to move there but because it has become harder. Government is getting in the way. 

The British crackdown is part of the government’s insane target of getting net migration down to the tens of thousands. With the EU exempt from any measures, Theresa May’s crackdowns fall on the rest of the world: including those countries whose citizens share our language and share our monarch. It’s odd to think the Prime Minister is happy to share intelligence with CANZUK states unimpeded, but finds the idea of their citizens having a choice to move here unacceptable. 

The Adam Smith Institute and our friends have a long and proud history of championing liberal immigration policy. Immigration makes us richer, increases our productivity and wages, reinforces our soft power and helps us tackle global poverty. Personally I prefer a more liberal system that looks to open borders as far as possible. But I recognise that it’s taken a beating in public debate in the past two decades and that to turn the tide, it makes sense to start where it’s popular. That’s how we’ll build the case for immigration again.

And it is politically popular. CANZUK International’s (who push for free movement between Canada, Australia, New Zealand and the UK) online petition has over 200,000 signatories calling on governments to open their borders. In a poll of 2,000 people in each state conducted in 2017, they found that a vast majority of those polled were in favour of free movement within the CANZUK countries. 64% supported it in the UK, 72% in Australia, 77% in Canada and 81% in New Zealand. 

It’s an idea whose time has come. It makes economic sense, it expands freedom and it will be an easy sell for politicians. So on this Australia Day I say: open the borders.