We think leisure's a good thing too but we do note that it is a luxury

The results of the latest interesting little experiment in Sweden are in. Yes, shorter working hours make people happier. It's also more expensive for people to have shorter working hours and the same income. We're not entirely sure that an experiment was necessary to discover all this but this is what was discovered. Thus follows the usual insistence that we really shouldn't be looking over there:

A six-hour working day results in happier and healthier employees. It also leads to a higher quality of welfare services and a more sustainable and equal labour market. Despite what some news reports may have indicated, these are the findings from Sweden’s trial of six-hour working days.

A shorter working day is often portrayed as a utopian dream that would be too costly to realise, much as previous work reforms were portrayed in the past. But what if working less is the key to a more sustainable working life?

The problem being that expense thing:

Sweden’s experiment with a six-hour work day may be doomed after a two-year experiment showed that the costs outweigh the benefits.

The scheme saw 68 nurses at an old people’s home in Gothenburg have their eight-hour days cut in a bid to improve staff satisfaction, health and patient care. 

Preliminary results concluded that it achieved all of these aims, but the city had to employ an extra 17 staff, costing 12m kroner (£1.4m).

At which point we really need to start beating around us with the standard economic cluebat. Leisure is indeed desirable. And so are many other things in this life such as beer, bacon, boogie and even bedpan emptying for the old folk. We also have scarce resources to meet all of the desires for these desirables. The task is thus to allocate our resources so as to maximise human utility--which of these various things do we desire the most, at what point do we say lagom on the beer, the bacon or the boogie and then devote more resources to the bedpans? Or any other combination of desires?

A number of different methods of this come to mind from government allocation through to the free market just leaving people to decide. But whatever method is being used still has to deal with that basic idea of opportunity cost. More bedpans means less beer, bacon....well, you get the idea. We cannot have more of everything until technology has advanced to create more of everything from our resources. At any moment in time we have to give up some of something in order to have more of something else.

More leisure for nurses is an entirely admirable goal but it is also a cost. Someone else, somewhere else, must economise on boogie to the tune of €1.4 million to provide it.

Or as we can also put it leisure is a luxury good, something which we quite naturally spend more of our higher incomes upon as incomes rise thanks to that technology increasing the productivity of our scarce resources. This is why we work 8 hour days now, not the 10 or 12 of a century and two ago - we're richer. And as we become richer off into the future we will, no doubt, continue to take more of our wealth in leisure.

But what we should not be doing is trying to force the issue, insisting that these people here should gain more leisure at the expense of the other desires of those people over there. That's just theft, not liberal progressivism.

It's a good thing we're leaving this European Union, isn't it?

A quite extraordinary intervention here into the appointment of an EU Commissioner:

Oettinger, previously the digital services commissioner, was named in October by commission chief Jean-Claude Juncker to take on the budget and human resources dossier from Bulgaria’s Kristalina Georgieva after she left for the World Bank.

The last one has moved on to another gravy train so a new one must be appointed. OK so far. And then we get this:

Germany’s EU commissioner Günther Oettinger is unfit to run the human resources portfolio because of his divisive record of racist, sexist and homophobic remarks, rights groups have said.

In an open letter to the European Parliament, which will publicly question Oettinger on Monday, NGOs including Oxfam International and Transparency International said Oettinger was not suitable for the new job.

Those NGOs are, of course, major beneficiaries of the budget process. So the claim here is, at heart, that the people receiving our money should be determining who it is that gives them our money? Perhaps he is all of those things alleged but we don't allow prisoners to appoint governors and if we want a decent body politic we don't allow the special interest supplicants to appoint the politicians.

Good thing we're leaving this mess of a system behind really, isn't it?

Let’s make sperm donation easier

Right now, British sperm banks are facing a crisis. Serious sperm donor shortages mean long waiting lists, with about a third of sperm coming from foreign countries to fill the gap. As the chief executive of the National Gamete Donation Trust, Laura Witjens, puts it, Britain “has failed to keep pace with the dramatic increase in demand for sperm, particularly from lesbian couples and single women”. Although some of the 50-something sperm banks in the UK have enough sperm, many clinics are struggling to give would-be parents (particularly those of ethnic minorities) what they want.

The consequences of this sperm shortage are far from laughable. Many women are resorting to ‘DIY fertilisation’ with donors they know personally – either with at home artificial insemination with menstrual cups or even through intercourse. Problems arise as women cannot screen the donors for disabilities or disorders, or when the DIY donor demands custody (sperm donations made through a clinic have no legal claim to their offspring). Equally, the DIY donors themselves are at risk of later being asked to give financial support.

So why the shortage? Surely there are millions of men across the world that would leap at the chance to be paid to give away their semen and spread their genes without any strings attached?

The problem is, donating to a sperm bank is a massive commitment. Once donors have got past the rigorous and time-consuming screening process, they have to make an eight-month commitment to weekly visits to a clinic to donate. Donors cannot be adopted, under the age of 18 or over 41, too sexually promiscuous, a recreational drug user or have ejaculated in the past 48 hours before each donation. It is illegal to pay a sperm donor, aside from a maximum of £35 per visit to cover travel expenses. Many British men are put off as they are no longer guaranteed anonymity: their biological offspring may find out who they are when they turn 18.

In fact, the controls on sperm donors are so tight that out of the sample of 100 men that were screened as potential donors at the NHS-funded National Sperm Bank, only five were cleared. Although of course we wouldn’t want anything other than proper medical checks for donors, we’ve got to recognise that something else has to change on the sperm supply side of things to keep up with this increasing demand.

One option could be offering more money to donors to recruit more donors. In 2012, after a regulator allowed egg donors to receive £750 instead of the previous £250, the average waiting time for fertility treatment halved. The key objection to paying donors anything more than for travel expenses is that it incentivises men to hide their medical details for money, however the reality is that most would still primarily donate out of good-will and the screenings should be thorough enough anyway to prevent any diseases being passed on.

Another option is to increase the number of children each donor may have. In the UK each donor is allowed to give to up to 10 families worldwide, however other countries are more relaxed: Canada allows for 25 children per population of 800,000 and the USA advises up to 25 per 850,000 of a population. This means that those lucky men with extraordinarily fertile and disease-free sperm who have managed to clear the medical checks can help even more childless adults.

Currently the NHS offers up to six cycles of IUI (intrauterine insemination - fertilising a woman with donor sperm) for free for couples that cannot conceive naturally. Although more than half will fall pregnant in that time, the rest are forced to either give up or fork out roughly £500-£1000 for each cycle of private treatment. Moreover, IUI is not available for free on the NHS for single women, and even those who can access it are subject to a postcode lottery with waiting times varying hugely in different areas. As time is of the essence with fertility (there is a 0% IUI success rate for women over 44), these waiting times can mean the difference between parenthood and childlessness.

Liberalising sperm donation laws - for most of us - may not be up there with Article 50 and the deficit, but changing the regulation would have a massive effect on the happiness of thousands of people in the UK.

The ASI's solutions to everyday problems in 2017

Politics can be alienating to those it most acutely affects, so this year at the ASI we want to give some more attention to the everyday things in life and try and solve some of the problems, barriers, and government inefficiencies that are affecting people up and down the country.

We’ll be looking at the whole life cycle, from going out on the tiles, to simplifying marriage laws and reforming sperm and egg donation, to childcare legislation getting women who want to work back to work, opposing meddling food laws that make us poorer and fatter, and bringing back the atmosphere at football grounds with safe standing terraces and cheaper tickets too.

Childcare reform:
Childcare costs in Britain are the highest in the Western world, with parents spending over a third of their income on nurseries and childminders – three times as much as in France and Germany. Some recent moves to subsidise childcare have been ill devised, driving up costs for middle income families by subsidising the industry rather than giving the money directly to the parents who need it.

Sky high childcare costs means that both parents going back to work often doesn’t make economic sense, and more often than not it’s women who end up staying at home. Philip Hammond has vowed to slash red tape surrounding childcare this year, and we’ll be keeping a keen eye on his progress, but an immediate improvement that we’ll be pushing for is the relaxation of the legally required staff-to-child ratios.

Currently in the UK one adult is required for every three babies, four toddlers or eight children over three years old – driving up staffing costs for crèches and consequently the financial burden on parents. In countries like Germany and Denmark there is no mandatory requirement, and they still manage to produce world standard childcare. It’s a small reform that could save people an awful lot of money and make it easier for women to return to work after having children.

Safe Standing:
The UK has had an effective ban on standing sections in top tier football since the Hillsborough Disaster, but as the inquest came to an end last year the fault was found to lie with poor management and policing, not with the fans on the terraces.

Research consistently finds that fans overwhelmingly support the reintroduction of standing sections in football stadia as a way of increasing atmosphere both in the ground and for those watching televised matches. Standing can also increase densities meaning that a broader range of ticket prices can be offered by clubs, giving more variation between the cheapest and most expensive ticket. Premier League clubs offering the levels of standing apparent in European clubs could cut the average season ticket by 57% - a potential saving of hundreds of pounds a year for avid fans.

The paper we released in 2016 with the help of the Football Supporters Federation, urged the Minister for Sport, Tracey Crouch, to intervene and lift the ban - a ministerial act that requires no additional legislation. It had a great reception in the press and with fans alike, and since then the likes of Manchester United and West Brom have started to consult fans on the issue. It's looking increasingly likely this might be an early goal in 2017, we’re certainly hoping to get it in the back of the net. (sorry)

Reforming Noise Laws and boosting the nighttime economy:
In 2015 London lost a third of its small clubs, the intimate venues that incubate touring talent, leaving the city with just 88 in total according to the Music Venue Trust. Last year we saw nightlife stalwart Fabric shut down because of drug misuse, only to be allowed to reopen again based on adherence to 32 new conditions and payment of Islington Council's £320,000 legal fees. The UK's nighttime economy is being strangled by red tape and regulation.

In cities the pressure to build more housing has caused a surge in venue closures with the spaces above being turned into residential flats. Despite the venue predating the apartments, it can make evening performances impossible at standard sound levels because of noise complaints by new residents, and generate noise-abatement notices that can cost thousands of pounds to contest.

This year we’ll be looking at practical policy solutions to address the rapid closure of London’s nightlife, from letting the burden be on developers to soundproof new builds next to venues, to root and branch noise law reform.

Liberalizing marriage laws:
If you managed to hold on to your partner through an unquestionably divisive 2016 you may be thinking of getting hitched to this political soul mate. Well let’s hope you’re not planning on a garden wedding as under the current UK law you must wed indoors, or at the very least in a pagoda. The Law Commission have been looking into sorting out the mess of UK marriage law, that limits not only where you can marry but what time of day and all sorts of erroneous other elements, but have been making limited progress. This year we’ll be pushing the idea that you should be able to marry whoever you like, wherever you like and leave the experience in the certain knowledge that you are in fact legally wed – which is currently not the case.

Liberalizing fertility laws:
Despite a steep increase in the number of women having children later in life (perhaps hoping to get far enough in their careers that they can afford the eye watering child care costs in store for them), a stark increase in same sex partners looking to conceive following the legalization of gay marriage, and one in seven UK couples having fertility problems, the UK egg and sperm donor market is…drying up.

Britain’s first national sperm and egg bank, backed with taxpayer money, has stopped recruiting new donors just two years since opening, but not because they’re full to bursting. The bank found that despite their best efforts to attract donors through altruism alone, people weren’t coming in and increasingly UK couples were looking abroad for donors and even on sites like Gumtree.

In 2017 we’ll be looking at ways we can liberalize sperm and egg donation to make having children more accessible for the increasing numbers of desiring couples. From raising the money offered to donors to help stimulate some altruism, the £250 offered to sperm donors for two visits to the clinic a week for four months isn’t pulling them in shockingly, to relaxing regulation to allow one man’s sperm to be used for 10+ families.

Those born through sperm and egg donation since 2005 will be able to know the identity of their donor parent come their 18th birthdays in 2023, and this will significantly alter the current discussion around incest risk from repeat donors.


These may not be typical areas for an economic think tank to tackle, but we think they're important. We hope that by the end of 2017 you'll be able to stand at the football on Saturday afternoon, dance till dawn on Saturday night, marry whoever you please in a night-time open air affair if you so wish it, have your pick of a wide array of affordable donor choices, and be able to pay for someone to take the resulting baby away for a few hours a day so you can maintain your sanity and go back to work. That's the dream for 2017.

Should we call this a shakedown attempt or not do you think?

  The latest from the land of lawsuits:

In a new federal lawsuit, public health advocates accuse Coca-Cola and the American Beverage Association of engaging in a “pattern of deception to mislead and confuse the public” and waging an “aggressive campaign of disinformation about the health consequences of consuming sugar-sweetened beverages.”

We tend to think that this will come under the rubric of free speech. The Supreme Court has been very clear in insisting that commercial speech does indeed come under the First Amendment, even if with some constraints.

However, our real interest comes in the suit itself:

Plaintiff Praxis is a nonprofit corporation pursuant to section 501(c)(3) of the Internal Revenue Code, with offices in Oakland, California, and Washington, DC. Plaintiff’s mission is to build healthier communities, and through the efforts of its staff, Plaintiff engages in significant advocacy relating to sugar-sweetened beverages and the health consequences of their frequent consumption. Plaintiff’s work is well recognized, including but not limited to the efforts of its Executive Director, Xavier Morales. As alleged in more detail below, Plaintiff has diverted significant resources to its advocacy concerning sugar-sweetened beverages. This diversion has prevented Plaintiff from allocating resources to other projects that advance healthier communities. Plaintiff could have avoided many of these expenditures if Defendants had not engaged in deception about the consequences of consuming sugar-sweetened beverages, consistent with its legal duty. 

One way of reading that is that the complaint is - Coke is saying something different to us, make them stop.

However, it is possible to be more cynical than that. For here is what the proposed solution is:

Plaintiff seeks injunctive relief for the conduct alleged in the complaint. Among other things, Plaintiff seeks a permanent injunction to require the Defendants to: publicly disclose their files on the potential health implications of consuming sugar-sweetened beverages; fund a public education campaign to educate consumers about the association between sugarsweetened beverage consumption and obesity, diabetes, and cardiovascular disease;

Which the absurdly cynical among us might read as - Coke should give lots of money to Praxis.

Which leaves us with the real question we face. How cynical are we?


The ASI and housing in 2017

The problem

National, local, and municipal UK governments have always intervened in housing supply. They have built housing, subsidised it, taxed it, planned where it could go and what type it could be, regulated materials, construction, and standards, and much more. In the 1950s, 1960s and 1970s, swathes of UK cities were destroyed and replaced with unpopular, ugly, post-war developments, most of which reduced housing density. A huge fraction of housing was not traded in the marketplace, and swingeing tax rates contributed to a rapid demolition of much of Britain's architectural heritage.

Thankfully the situation is much better now, but in some ways we still have the worst of both worlds in housing policy. You might imagine that housing policy aims at balancing out two concerns: quality and quantity/price. You might think policy picks one spot along a line: at one end we guarantee very high standards in design, materials, space, and amenity, but prices are high; and at the other we allow lower quality housing to proliferate, meaning prices are low. In fact we have managed to create a planning system that builds mostly ugly, unpopular housing in inconsistent and unpredictable ways, mostly where it's least needed, and builds so little of it that prices in growing cities are staggering.

Why don't we build housing

Currently planning authorities and local residents have every incentive to oppose new developments near them. Local governments do not fund themselves through the local tax base, but from central government block grants, and so they benefit very little from new business and housing in their area. Local residents are mostly homeowners, and while new building raises the total value of housing in the area, it will cut individual house values, because infrastructure, education, and healthcare are delivered centrally, and thus unresponsive to changing patterns of demand. What's more, there is no mechanism to allow developers to compensate locals for their loss of amenity out of the massive gains from meeting market demand for construction and expansion.

This is made even worse by planning regulations, and architect design preferences, that mostly deliver development that locals find ugly. The four and five-storey terraces of Pimlico and Islington, not to mention the six- to eight- storey mansion blocks of Victoria or Kensington, are highly dense by London standards. In practice post-war "slum clearance" usually reduced density. But ill-thought-out regulations effectively ban new estates like this.

This is all exacerbated by the continued existence of policies like housing benefit and the provision of social housing. Instead of giving the badly-off more money and letting them decide how to economise on scarce goods, they hand them high value real estate with no option of buying better food, clothes, training or transport instead. Similarly, we raise taxes on property, not land values, disincentivising improvement, and on transactions, stopping property from reaching those who value it most.

What should we do

The ASI has consistently advocated for a swathe of policies to ameliorate, and even solve, the UK's housing crisis, policies that compromise where group interests conflict, while nevertheless delivering huge social benefits.

  1. Allow some development on the UK's green belt. Just 3.7% of London's green belt—that fraction within 15 minutes walk of existing train stations—would be enough for 1m new homes at unambitious densities. Green belts, which constrict cities like London, Cambridge, and Oxford from growing and providing jobs and output, are often made up of intensive farmland which is neither beautiful nor environmentally beneficial. We needn't sacrifice areas of exceptional beauty to provide Brits with better homes where they want them.
  2. Liberalise height restrictions near city centres. So much of Britain's most valuable land, often a handful of miles from a key city centre, is taken up by ugly one- or two-storey post-war houses. Not only will converting these into dense terraces make neighbourhoods more beautiful, reduce rents, and give everyone more living space, but it will create many more viable commercial areas in cities, with the local shops and businesses everyone appreciates. Automatically allowing all developments to go up to five storeys in zones 2-6 in London, with similar rules elsewhere, would make a gigantic difference.
  3. Scrap a swathe of design regulations. The most beautiful and popular housing styles cannot be carried out with current rules on window size, corridor width, stair steepness, and minimum lift numbers. Authorities should lift these regulations, or pre-approve popular time-honoured designs.
  4. Tax unimproved land values, not transactions. Stamp duty land tax destroys huge amounts of economic value and prevents allocative efficiency—it should be abolished. Council tax and business rates disincentivise improvement and bias buildings toward certain uses—they should be first merged, and then levied only on unimproved values. Housing consumption should be taxed at the same rate for tenants and owner occupiers. Leaseholders should not be able to infinitely extend current terms, so that freeholders have an incentive to lease their houses out, creating a mid-point between owning and renting.
  5. Reform the housing benefit system. Housing is a good like any other. Everyone implicitly accepts this when they decide to live less centrally or in a less beautiful apartment to save money. We should trust the badly-off to make these trade-offs as we trust the well off. Housing benefit should be rolled into general cash benefits, and tenants can then decide how to spend their money. Social housing should be sold off, and money should beef up the credits already going to those in council houses or on the waiting list.

The ASI's role

The Adam Smith Institute has been a loud and consistent voice for planning liberalisation to create output, wealth, jobs, and growth for years, with staff blogging, writing across the web, appearing on TV, commenting in newspapers, and hosting events to build a coalition and drive the message forward.

Highlights include:

We have also created videos for the ASI hub, hosted on youtube, facebook and twitter—our videos often receive thousands of views and large social media traffic.

And we have produced research outlining the baleful effects that policies like the green belt and help to buy have on the UK housing system. These have had ripple effects over time, and people keep coming back to them for clear explanations about the planning failures in the system.

The UK is finally at a point where it may be able to rationalise its housing policy. We have in Sajid Javid a housing secretary who knows what the problem is, and knows what to do. The door is heavy, but if we keep pushing on it, we think it is going to open. The next year will see continued outreach to others who understand the problems, and a special focus on showing conservative supporters and voters—those who might be expected to oppose development—how their concerns can be met.

This is a bit of a blow to the theory, isn't it?

We're told that all are fatty lardbuckets simply because too much sugared water is being drunk. Thus we can and should have that tax on sugary drinks.

At which point we are told:

Soft drinks made with artificial sweeteners, such as diet colas, do not help people lose weight and may be as big a part of the obesity problem as the full-sugar versions, academics have said.

A paper by researchers at Imperial College London and two universities in Brazil contends that artificially sweetened beverages, often called diet drinks, are just as big a problem as those containing sugar.

We might like to apply a little basic logic here. If not sugared water causes the same problems as sugared water then it's not the sugar causing the problems is it? And thus a tax on sugar is not the solution.

All of the more minor explanations offered here don't obviate that basic logic. For example, people who drink the diet versions might think that they can gorge on something else because they've been so good. OK, we have no doubt that could be part of it. But it does tell us again that it's not the sugar in the drinks causing the problems, is it? It's caloric intake which is.

At which point we'll drift off into supposition ourselves. A long held contention here is that the rise of lardbucketism is a result of a general diet suitable for the previous generation, one which used rather more calories each day than the current one does. The major difference, given that we are mammals and this is the major use of energy in mammals, being temperature regulation.

Or, as we've also said before, if you want to get a slim population then tax home heating. And if you're not prepared to tax home heating then you don't, sufficiently, want a slim population, do you?


It's ridiculous to limit Airbnb as London is doing

It appears that the jobsworths have been able to limit Airbnb in London. This is not sensible:

 Starting next year, the online service will automatically prevent hosts in London from letting their homes for more than 90 nights a year, unless they have the required “change-of use” planning permission from their local authority.

The reason for this is simply that Britian has too many people who enjoy saying "you'venotgottherightformforthisandIwon'tgiveyoupermissionanyway". Presumably for no other reason than that some people like saying that.

The effect of this is a $400 million loss in wealth to us Brits:

Airbnb will miss out on more than $400m worth of bookings in London this year as it enforces its new 90-night limit for hosts there, according to data that underpins the growing cost of regulatory compliance for the high-profile Silicon Valley start-up.

You might not think that renting out spare rooms, even for 91 days a year, is a method of creating wealth. But you would be wrong to think that way.

The definition of wealth creation is when we move something, some asset, from a lower value use to a higher value one. We've not abstracted anything more from the environment, not had to break into a sweat, not actually worked - and yet there it is, more value that can be enjoyed by human beings.

We're richer by the box room being rented out here, yea even unto 364 days a year. And we miss out on those riches, are poorer than we need be, by the bureaucrats demanding those forms and pencil filling.

But then that's rather the basis of the entire property planning business in the UK, isn't it? Don't allow anyone to build where people would actually like to use a building and most certainly don't allow people to add value by coming up with new things to do with a building.

And we are indeed all the poorer for it. As before, time to abolish the Town and Country Planning Act and all successors.

The Adam Smith Institute on Tax in 2017

Even after nearly seven years of austerity, state spending as a proportion of GDP sits at 43.2%. If we’re going to have a state anywhere near this size we need to minimise the destruction caused by the taxes we raise to fund it.

As Sam Bowman said on Monday "not all taxes are created equal". The starting point for all tax reform is that taxes change behaviour. Simply put, if you put a tax on something you should expect to see less of it. This basic insight is why we tax 'bad stuff' like booze, fags, and pollution. It's also why we should be concerned about taxes on 'good things' like saving, work, and selling your house.

Now our tax system raises revenue in about fifteen different ways. And some ways are much worse than others. In particular transaction taxes and taxes on savings are especially harmful to growth.

Nearly all taxes harm the economy, but our vision is a tax code which does as little harm as possible. To make that a reality, we'll be putting forward radical but realistic revenue-neutral reforms that will boost growth, boost competitiveness and boost wages for ordinary workers.

To that end, here are three reforms we'll be pushing in 2017.

1. Abolish all taxes on savings and investment

As it stands, our tax system punishes long-term investment and rewards short-term consumption. It’s a truism that people save to finance future consumption. Taxes on interest income, capital gains, inheritance and corporate profits all effectively tax future consumption higher than current consumption, incentivising short-termism. And this future consumption tax goes up every year you forgo instant gratification. A few months back, I did the maths. Assuming a 5% interest rate and the European Commission’s estimate for the Marginal Effective Tax Rate on capital (47%), you’re effectively paying 97% extra in tax for waiting 30 years and a whopping 147% if you leave it another 10 years. It was this finding that led Stanford Economist Kenneth Judd to conclude that the optimal tax rate on capital is zero.

If we fixed this bug in our tax system and moved to a system that taxed consumption at the same rate regardless of when it takes place we could substantially boost growth or more. Nobel Prize winning Economist Robert Lucas estimated that this could boost long run GDP by 7%. That’s 7% extra to average incomes EVERY YEAR, just for tweaking how we collect taxes. As he points out, that’s better than eliminating the business cycle and every single product market monopoly. This would boost the income not just of wealthy savers but ordinary workers too, as capital investment boosts productivity makes labour more valuable.

Simply abolishing all capital taxes would blow up the deficit, and raising the revenue by simply raising a flat(ish, see point 3.) consumption tax like VAT would simply shift the burden to the poor. So how do we do it? To start with, we should tweak income tax to create a unlimited exemption for savings and investment. Think of it as an ISA on steroids. This would remove the savings penalty on those most able to increase their savings.

Next, we should abolish our complex corporation tax and switch to a simple Destination-based Business Cash Flow Tax. There’s three parts to this. First, it would tax all sales made in the UK just like VAT. Second, it would have an unlimited exemption for capital investment guaranteeing that future consumption wouldn’t be hit. Third, it would fully exempt all wages from tax making it progressive (counteracting Employer NICs that fall heaviest on low and middle earners). To get rid of the other smaller capital taxes like capital gains tax, we should simply raise the DBCFT.

These two simple (but radical) changes would boost growth while keeping our tax system progressive.

2. Abolish Stamp Duty

It’s not hard to find someone opposed to Stamp Duty. Few things unite Owen Jones, The Taxpayers’ Alliance and Kirstie Allsopp but Stamp Duty’s awfulness is one of them. The case against it is simple. It punishes people for moving and locks home-owners into properties they don’t want to stay in, while kicking away the housing ladder for first time buyers. To top it off, it doesn’t even raise that much (just 2% of total revenue). Let’s scrap it altogether.

3. Fixing VAT

VAT exemptions are the most inefficient form of welfare out there. It might seem compassionate to give a single dad on benefits a discounted tax rate when he buys his daughter a pair of £10 shoes from Matalan, but the VAT exemption also gives a discounted tax rate to a mum on a six-figure salary in finance buying her little boy a £200 pair of Baby Chanel shoes at Harrods. We have a welfare system that gives a single dad on benefits £2 and a high-flying banker twenty times as much. Surely there’s a better way?

There is. The IFS estimated that by scrapping VAT exemptions and zero-ratings we could raise £24bn. Since then, we’ve seen VAT rise to 20%, growth of around 14%, and inflation of around 21%, so it’d be even higher now. We could target that extra revenue at the poorest, make them better off than they are now and still raise an extra £3bn to pay down the deficit.

What we're doing in 2017

In 2017, we'll be continuing our media advocacy for these reforms, trying to reach as broad an audience as possible. Over the year, we plan to publish reports on all three proposals, summarising the state of economic research on each and setting out in detail our plans to fix the tax system. We'll also be putting on a range of lectures and panels, both in the ASI office and at Conservative Party Conference, forcing these ideas onto the agenda of policymakers.

If you were starting from scratch your tax code would look very, very different to what we have today in Britain. Our tax code has evolved over the years as a series of compromises, fudges and bad jokes. Adam Smith famously said "There's a lot of ruin in a nation" and it's certainly true when it comes to Britain's tax code. In 2017, let's do something about that.

More silliness on executive pay

It’s an open secret in think tank land that the period between Christmas and New Year is a great time to get news coverage even if your publication is, ah, a little thin.

One example of this was a sloppy study by Change Britain about the gains from leaving the Customs Union and Single Market, which I critiqued here.

Another was a paper by the Chartered Financial Analyst Society which claimed to show that there was no link between executive pay and firm performance over the past ten years – so high executive pay is wasteful. It did this by comparing the rise in executive pay over the last ten years (82%) with the rise to returns to investors over the same period (1%). 

Since 80% is higher than 1%, it’s obvious that paying executives more hasn’t improved firm performance, right?

Um, no.

First of all, the total pot of CEO pay is much, much smaller (in total, £525 million per year on average across the study period) than the total pot of returns to shareholders – dividends alone were about £75 billion last year. So increasing CEO pay by 80% – £420 million – and dividends alone by 1% – £750 million – means shareholders are better off, even though the percentage rise has been much smaller.

Nobody thinks there’s a mechanical relationship between paying CEOs more and getting better performance for the firm. We think that CEOs matter an increasing amount to their firms (and we have empirical evidence that supports that view), in the same way that computers and the internet do.

Would you be impressed with a paper that showed that IT spending had risen by 100%, but firm performance had only risen by 1%, and claimed that this showed that computers are actually a waste of money? No, me neither. What would have happened to that firm if it hadn’t spend money on computers while its rivals had?

And of course a lot of CEOs’ jobs, especially during and after the Great Recession, are not about maximising short-term profits but firefighting, keeping the firm afloat, retooling for a changing economy. Again, looking at returns on capital misses this.

There’s such a lot of drivel around CEO pay, and it goes mostly unquestioned when it’s released during quiet times of the year.

Incidentally: it’s “Fat Cat Wednesday” today, the day when a lot of people are surprised that big multinational companies pay their Chief Executives as much as 140 of their rank-and-file employees. (Which is a bit like wondering why Apple cares more about its CEO Tim Cook than the staff of the Apple Store at Stratford shopping centre.)

It's a quiet time of year, so it gets coverage. But, apart from pointing at large salaries and saying that they just must be unfair, there's really not much to it.