Can government be limited?

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Last week I bemoaned the fact that the EU’s Lisbon Treaty fails to set any real limits on the size and scope of EU government. This is a significant failing: surely defining and limiting the proper role of an institution is one of the primary roles of any constitutional document? That said, it is also worth asking whether constitutional limits on government actually work, or whether they are ultimately powerless when faced with a state intent on expansion.

Political theorist Anthony de Jasay would argue that the latter statement is the more accurate one. To use his example, a government accepts constitutional limits to gain the confidence of its subjects in much the same way a lady agrees to “wear a chastity belt to reassure her lord". However, with the key to the belt always within reach, “it can occasion delay, but cannot stop Nature". When government itself has the ability to amend a constitution, that constitution cannot absolutely limit its power. Indeed, outright amendment is rarely even necessary – an expansive ‘interpretation’ of the constitution can often achieve much the same end.

The American example is instructive here: as the Cato Institute’s William Niskanen has pointed out, the US Constitution only authorizes the Federal Government to exercise “18 rather narrowly defined powers". And yet since the 1930s, the powers of that Federal Government have “expanded enormously without a single amendment to the Constitution". Much of this is due to the ‘interstate commerce clause’, which is today interpreted in a way that would horrify the Founding Fathers. The result is a Federal Government that “acts as if it has the authority to define its own powers" and seems to grow faster with every passing year.

On the other hand, it might be that there are some constitutional devices that could succeed where others have failed. The best would probably be those that limited the ability of government’s to tax, spend, or print money. Government spending could be strictly limited to projected revenues, while any tax rises or new taxes could be made subject to affirmation in a referendum. Likewise, the long-term growth in the money supply could be strictly limited by a constitutional rule like the one Milton Friedman suggested.

Another idea is the ‘non-discrimination clause’ advocated by James Buchanan. As John Meadowcroft has put it, this would make “legislation that discriminated on the basis of sex, race, age or religion, or on the basis of occupation, income or wealth" unconstitutional. Such a clause would outlaw the allocation of government privileges, and would only allow a flat tax. It would also require any benefits to be universal. The result, in theory, would be to prevent the exploitation of particular groups via the political process, while also balancing the incentives in the democratic system – people would in future only be able to ‘vote themselves more money’ by also voting themselves a higher rate of tax.

Whether or not these measures would work in practice is difficult to predict in advance. The democratic state tends naturally to grow, and de Jasay may be right that attempts to constitutionally limit its size are doomed to eventual failure. But despite that, I’d say it was still worth trying.

Power Lunch with Geordie Greig

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Geordie Greig, editor of the London Evening Standard, was our guest at a Power Lunch in Westminster this week.

He outlined the brave new business model at the Standard, which used to charge 50p but is now given away free on London's streets and at commuter stations. I don't think any newspaper makes money these days – most have found that advertising revenue has collapsed during the recession – but the new strategy has cut losses and greatly increased the circulation (and hence the attractiveness to advertisers) to 600,000 and rising, so the Standard hopes to be in profit within three years' time. And, of course, the Standard has seen off two other free papers, The London Paper (which Murdoch pulled the plug on last month) and London Lite (which closed last week).

The Standard is indeed an interesting model in these changing times. It is the latest example of what my colleague Dr Madsen Pirie has dubbed the 'free economy' where product is delivered to people free – think of all those radio stations, free magazines, advertising matches, and DVDs that come with the Sunday papers – but is paid for by advertising or other support further upstream. Many of these free offerings are of course of rather poor quality. Greig's mantra, however is 'quality, but free' and he hopes to maintain the mix that has kept the Standard going, against the competition, for many decades.

Human capital investment

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The OECD report Education at a Glance 2009 shows the disturbing fact that during the last 10 years it hasn't become more economically advantageous to undertake higher education in the UK. This has of course affected the number of people doing degrees at the university. During this period the number of people undertaking degrees has stayed about the same; however, this stability has been due to an increase in the intake of international students. Today about 10% of all postgraduate students undertaking advanced degrees at British Universities are from abroad. The OECD report also reveals that about half of all students graduating from their research degrees are not from the UK.

So what? Well the problem is that the British migration system has at the same time made it increasingly difficult for international students to stay in the UK after finishing their degree. The consequence is that the UK has had to  wave goodbye to more than 10% of this innovative raw material because of burdensome regulation.

As Martin Wolf argued in the Financial Times earlier this month, the UK government has failed to engage in a public discussion on migration policies. Now more than ever it is essential to argue the case that immigrants do have an important role in the UK economy. In the long run the UK cannot live without immigrants but it can’t cope with too many of the non working type either. It is therefore of great importance that the UK government starts to reform the system, positively encouraging people to settle down in the UK to work. As part of the process we should ensure that it is more affordable to work in the UK, that taxation is more competitive and overbearing administration reduced.

Schools Bill

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This is another missed opportunity to unclog Britain's sclerotic education system. Giving parents a right to request one-to-one tuition for failing children is a promise that is unlikely to see the light of day given the awful state of public finances. This might be a good thing, as the policy would be unworkable in practice. Deciding upon whether a child is failing would prove a bureaucratic nightmare. As children have marked differences in skills and abilities across subject areas, failing could not be determined by tests alone. This would lead a mammoth waste of resources, the misallocation of limited financial resources and a system even more confusing for parents than is currently the case.

Instead of instituting extra teaching for children outside the school day, the government would do better to consider why so many state run schools are failing them for the six or so hours they are under their care.

Creating five-yearly checks on teachers’ competence is another distraction from the imperatives of reform. In the same way that schools should compete with each other for places, schools also need to be able to compete with other sectors for talented individuals. The only way for this happen is to inject the workings of the market into the current system, with better teachers being paid for success and poor teachers losing their jobs.

Philip Salter is Programmes Director of the Adam Smith Institute.

A response to the Queen’s Speech

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With so much being leaked ahead of the Queen’s Speech, we have decided to offer a platform for a number of pre-responses:

  1. Richard Jeffrey: Financial Services Bill – to give the Financial Services Authority new powers over bankers’ pay and bonuses in crisis situations.
  2. Matthew Sinclair: Fiscal Responsibility Bill – to enshrine Labour’s plans to reduce the deficit in law.
  3. Dr Eamonn Butler : Draft Lords Reform Bill – to allow elections to the House of Lords for the first time.
  4. Dr Helen Evans: NHS Bill – to create maximum waiting times for some surgery and consultations.
  5. Philip Salter: Schools Bill – to create five-yearly checks on teachers’ competence and give parents a right to request one-to-one tuition for failing children.
  6. Kristian Niemietz: Social Care Bill – to offer free personal care at home for those with severe need.
  7. Philip Booth: Policing, Crime and Private Security Bill: to set new rules on the use and retention of DNA samples by police.

Social Care Bill

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The current, means-tested system of social care penalises thrift and foresight. However, extending eligibility for ‘free’ personal care to people who are not in need is a myopic proposal. These plans will surely be popular with the prospective heirs of care-dependant elderly people. But against the backdrop of an ageing society, they will either have to be accompanied by sizeable tax increases – with all the economic side-effects that entails – or they will increase the tendency towards rationed state care. These plans neither enable the long-term care system to cope with the demographic challenges, nor do they encourage savings or promote fairness.

We should take the bull by the horns and move towards a system of private long-term care insurance, based on the capital cover method. This means that people would take out long-term care insurance when entering the labour force, and pay modest but regular premiums. Private insurers would gradually build up a capital stock on behalf of each policyholder. People would have free choice between insurers (their old-age reserves would be fully portable), coverage levels, and models of care delivery. Apart from commercial insurers, friendly societies and trade union schemes could play a vital role in this market.

Kristian Niemietz is the Poverty Research Fellow at the IEA.

NHS Bill

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A new NHS bill which aims to stipulate maximum waiting times will eventually be consigned to the dustbin of history as it will no doubt produce an endless array of fiddles, anomalies and counterproductive unintended consequences.

That said, its eventual downfall might nevertheless contribute to some beneficial policy advancements in the short and medium term. For example, if linked to an extension of the patient choice agenda such an approach might eventually pave the way to a welcome step change in UK health provision. For while ministers recently talked about establishing a legal right so that NHS funded patients could automatically go private if they waited more than 18 weeks for treatment, the time is fast approaching when we should ask why any NHS funded patient should have to go into a state owned hospital or clinic?

Today, I believe no NHS funded patient should have to go into a state owned facility. All hospitals, clinics and care homes should be provided by a diverse and open independent sector that competes for patients and in so doing builds trusted brands. If the new bills further sets the NHS up to fail and therefore heralds the input of ever more private sector know how and expertise then I say bring it on.

Dr Helen Evans is Director of Nurses for Reform.

Policing, Crime and Private Security Bill

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The 'S' and Marper judgement in the European Court of Human Rights ruled 'blanket and indiscriminate' retention of DNA unlawful. The government's proposal to retain the DNA profiles of innocent people on a criminal database for 6 years fails to address the key legal principle: that any retention at all of DNA from those uncharged or unconvicted of a crime is a breach of privacy rights, and needs justification.

The proposals are calculated to change current practice as little as possible, and to keep building up the National DNA Database, already by far the largest in the world. But while Home Office figures suggest that testing more DNA from crime scenes has helped to solve more crimes, massively expanding the number of individuals with records on the database has not.

A far more proportionate and practical approach would be to adopt the Scottish system, where DNA profiles from a small number of innocent people are allowed to be retained for three years (or exceptionally five, on application to a sheriff, and with right of appeal) in cases where the person is arrested for a relevant sexual or violent crime, and proceedings are commenced and dropped or result in a not guilty verdict.

Just a few hundred individuals' DNA profiles are held under this legislation, as opposed to almost a million people in England and Wales.

Philip Booth is National Coordinator at NO2ID.

Fiscal Responsibility Bill

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The idea of this government locking in Fiscal Responsibility with a new law would be laughable if their current irresponsibility wasn’t mortgaging our future. At the moment, Britain has the second highest structural deficit in the developed world. The OECD estimates that, to put our debt back on a sustainable basis, we would need a fiscal tightening of 12.8 per cent of our national income. That is a nearly unthinkable £150 billion of spending cuts or tax rises just to get debt as a percentage of GDP down to 60 per cent, still much higher than just a few years ago.

That massive structural deficit exists despite taxes rising over the last ten years, with increases in stamp duty and national insurance for example. And, despite the Government having fiscal rules that they claimed were rock solid at the time. There were two problems that drove the failure to properly control spending. First, spending was conflated with commitment to delivering quality services, when more sustainable improvements could have been delivered by focusing on getting the best value with scarce resources. Second, with the Government purporting to have abolished “boom and bust" the windfall from an unsustainable boom was treated as a permanent improvement in our economic fortunes and that meant fiscal policy was formed in an utter fantasy land with no provision made for harder times.

If this Government or any future government are serious about fiscal responsibility they should do two things. They should first make serious cuts in public spending: a report we produced with the IoD set out £50 billion of potential cuts. That would be a good start. After that, they should put in place explicit expenditure targets, as the OECD recommends, so that spending can be further brought down to a sustainable level. Studies by both the EU Commission and the IMF have shown that reducing expenditure leads to more sustainable results in stabilising debt.

The ultimate control on excessive spending can’t come from rules and laws, though. It has to come from parliament. That’s why a complete plan to permanently address the current crisis in the public finances and prevent it recurring has to address the need for broader democratic renewal. A series of changes – like primaries to select and reselect party candidates – to make MPs more accountable to their constituents than their party leaders would mean a more meaningful check on policy and reduce wasteful spending.

Serious, credible action is needed to forestall a further crisis in the public finances. But this new law is nothing of the kind.

Matthew Sinclair is Research Director of the Taxpayers’ Alliance.