Theresa May is trying to turn us into Italy

In response to Theresa May's pledge of a raft of new European-style workers regulations, as well as a crackdown on the gig economy, the ASI's head of research damned them as risky.

Ben Southwood, Head of Research at the Adam Smith Institute, said:

Theresa May’s decision to copy Ed Miliband’s continental-style labour laws risks continental style unemployment and stagnation.

One of the British economy’s greatest strengths is its flexible labour market: it is easy to hire and fire workers, and when you do, the terms are simple and lightweight. It is this flexible labour market that has allowed us to get unemployment down to 4.7%, and employment up to a record high, despite a historically slow recovery around the world.

And it is this flexible labour market that has allowed “gig economy” employers like Uber, Deliveroo and Airbnb to flourish here, completely changing markets with new innovative products. Clamping down on this kind of work will make it harder for British firms to experiment with new business models in the future and act as a drag on innovation at a time when we need all the entrepreneurship we can get.

Look over the channel where countries ban new entrants like Uber, and cynically regulate away their business models, and you find 10, 20, 30% youth unemployment in rigid labour markets that cannot deal with shocks. We don’t want to emulate that here.

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Theresa May's energy price cap will backfire

In response to Theresa May's call for an energy price cap, ASI Head of Projects Sam Dumitriu, commented:

"When Ed Miliband called for 70s style price controls on energy prices in 2013 the Tories were right to oppose it. The facts haven’t changed since then, only the politics. We said back then that proposing a cap would force energy companies to keep prices high even as wholesale prices fell as a precaution – and, with the price cap on the table since then, that’s exactly what’s happened. Since Theresa May floated resurrecting Red Ed's price cap, energy companies have hiked prices by as much as 40% in anticipation of a cap.

"The real solution to high energy prices is more competition – something that the Competition and Markets Authority and five previous Ofgem regulations have said is the real problem with the British energy market. Britain used to have an incredibly competitive energy market with the highest rates of active customer switching in Europe, but since 2009 over-regulation has lead to a nearly 50% fall in switching rates. Theresa May’s proposed cap on Standard Variable Tariffs would destroy the incentive for customers to shop around for cheaper tariffs making the market even less competitive.

"Ultimately expensive bills are caused by high wholesale prices and bad regulation, not profiteering – energy firms are no more profitable than similarly sized companies in other sectors. If the Prime Minister really wants to cut energy bills, she should go for competition and make switching easier and more attractive for billpayers."

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Corbyn reckless in wage promise - Adam Smith Institute comment

In response to Corbyn's promise to raise the minimum wage to £10 by 2020 Executive Director of the Adam Smith Institute, Sam Bowman, commented:

"Labour’s commitment to raise the minimum wage to £10/hour is reckless and ignores the potential costs of such a move. We know that increases to the minimum wage have to come from one of three places – either through lower wages or employment for other workers, lowered company profits, or higher prices. The evidence is pretty strong that higher minimum wages kill jobs, whether through direct layoffs or by slowing down new job creation, and this effect seems to get stronger the higher the minimum wage level is.

"Higher prices may be even worse for the poor, because they are regressive – poor households disproportionately consume goods produced with minimum wage labour. 

"As well as being bad policy, this is also evidence that we were right when we warned that Osborne’s politicised “National Living Wage” would poison policymaking in this area. Instead of being set by the technocratic Low Pay Commission, with an explicit mandate not to risk unemployment, the National Living Wage is now subject to a political bidding war, with neither the Conservatives nor Labour having any real incentive to keep the level at a level that minimises harm to Britain’s poorer workers."

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Rudd deeply misguided in encryption row warns Sam Dumitriu

Following calls from Amber Rudd to abolish Whatsapp's end-to-end encryption, Sam Dumitriu warns against this deeply misguided move from the Home Secretary. 

Sam Dumitriu, Head of Projects at the Adam Smith Institute, said:

"Amber Rudd's call on Whatsapp to give the government backdoor access to your private communications is deeply misguided.

"It is mathematically impossible to build a backdoor for just the good guys. It means building a backdoor to your private messages for Putin's favourite hacker Guccifer. It means opening up your private photos to perverts like the iCloud hacker. End-to-end encryption keeps us safe.

"Khalid Masood wasn't even on MI5's 3000 strong list of suspected jihadis. Ending end-to-end encryption would not have stopped the Westminster attack, but it would mean a free-for-all for cybercriminals and Putin's hackers."

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Appeal to Cabinet Office over government data leaks grabs headlines

Following an investigative piece in the Wall Street Journal by Mike Bird, ASI Executive Director Sam Bowman wrote to the Cabinet Office asking for a review of current procedures around pre-releases of ONS data to government ministers and civil servants. 

The letter, in full below, was a leading story for The Sun, and Sam's commentary ran across City AM , Guardian and The Daily Telegraph.

Dear Mr Gummer,
I am writing to you in your capacity as Minister for the Cabinet Office and Paymaster General. I wish to draw your attention to new evidence published in today’s Wall Street Journal showing dramatic moves in financial markets in the 24 hours prior to the publication of surprisingly strong or weak market-sensitive CPI and other market data. (
These moves, revealed by the WSJ’s Mike Bird and Prof Alexander Kurov, a professor of finance at West Virginia University, are large and suggest that official, confidential data may be being leaked to certain traders for the purpose of insider trading, before the data is made public. These leaks may be coming from inside the government and as such it is vital that they are investigated.
The UK is unusual in giving advance notice of this sort of sensitive data to a large number of people before it is revealed to the public – 118 different politicians and civil servants are given advance access to labour market data, for example, including ministers and their special advisors at the Treasury, Department for Work and Pensions, and other ministerial departments, and at least fourteen different government press officers. This creates a much greater risk of data leakages, enabling traders to profit illegally from secret information undermining trust in the markets.
In light of this new evidence, will the Cabinet Office review the people it gives pre-release access to, to determine whether these leaks are taking place and, if so, who is responsible? Furthermore, will the Cabinet Office re-investigate the rejected proposal from the UK Statistical Authority (made in 2010) that the maximum pre-release period ought to be cut to a maximum of three hours?
In the US official data is typically released less than 24 hours after it’s completed and physically delivered by courier to the White House, where only the President and the chairman of his Council of Economic Advisors have access to it. Prof Kurov found that evidence of pre-release drift was much less likely in the US. We ask that the Cabinet Office consider US-style security measures to prevent future leaks and ensure that leakers cannot enrich themselves or others through insider trading.
In the long run, the solution may be to move towards greater openness and transparency at the ONS so that leaks of this kind are not possible. There is little reason for the ONS not to make its data collection and generation open to the public throughout the process, so that we can see in real time what the statistics suggest about the health of our economy and ensure that no individuals can profit from corrupt leakages of government data.
Sam Bowman
Executive Director, 
Adam Smith Institute

The ONS needs urgent review - Sam Bowman comments

In response to a report in the Wall Street Journal this morning which revealed that current ONS procedure needs urgent review, Sam Bowman Executive Director of the ASI, made the following comment:

"Reports that markets are moving ahead of official ONS data releases in a way that is consistent with leaks and insider trading must be taken extremely seriously by the government and the ONS. 

"If flaws in ONS procedures are enabling market-moving leaks to take place, allowing some individuals to profit off secret information, then something has gone badly wrong. The Cabinet Office should review ONS procedures and consider substantial reforms in light of this new evidence.

"We could follow the lead of the United States, where these suspicious market movements are seldom seen, and data is released less than 24 hours after completion and statistical reports are physically delivered to the President. 

"An alternative option would be to make the process entirely open, so that the public (and the markets) can see ONS data in real-time as it is generated, and markets can price in new information immediately and openly. The ONS is already working on this, but today's findings should be an urgent call to action for them to speed up the process."

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The ASI Spring Budget Response

Sam Dumitriu, Head of Projects at the Adam Smith Institute, said:

"We knew this would be the dullest budget in recent history - the Chancellor even leaked that in advance. That's not necessarily a bad thing – exciting budgets tend to contain ill thought-out ideas, but there's a lot he should be doing now to prepare the economy for Brexit by cutting the worst taxes to make us more competitive.

"The Chancellor missed an opportunity to make major reforms to our outdated corporate tax system or tackle the thicket of loopholes and exemptions that plague our tax code. But, he has another budget in the Autumn, that'll be where the real action is. He should think hard about deeper reforms then."

On raising National Insurance on the Self-Employed:

"It's right to bring National Insurance on the self-employed in line with that paid by employees. The current system is in effect a subsidy of £1,240, and although the self-employed do have mildly reduced access to some contributory benefits, given the choice almost everyone would plump for the £1,240.

"But the Chancellor must ensure he is not discouraging the self-employed from investing - and allow them to immediately deduct capital expenditures from their taxable income. We shouldn't be looking to increase the overall tax burden - especially not on low income workers. So we should use the extra revenue raised to cut the overall National Insurance rate."

On equalising tax treatment between directors and employees:

"Company directors have substantial scope to avoid tax by misclassifying labour and investment income. Indeed, there's evidence that company directors' wages bunch up around the higher rate threshold, suggesting substantial avoidance. The Chancellor's right to consider reforming it to create a level playing field between employees and managers, but he must tread carefully.

"Taxes on income from dividends and capital gains are rightfully lower in order to incentivise investment. Simply raising dividend and capital gains taxes could discourage investment, reducing productivity and lowering wages across the board. To avoid this, Hammond should should allow company directors to immediately deduct capital expenditures from their taxable income. This would boost investment and deal with his fears of a shrinking tax base."

On business rates:

"It's reasonable that the Chancellor has increased the transitional support. Business Rates are ultimately paid by property owners with rents adjusting eventually. However, in the meantime some businesses may struggle to stay afloat.

"Mr Hammond should set out to reform business rates so that revaluations are more frequent and fluctuate less wildly. But he should also consider scrapping them altogether and replacing them with a tax on unimproved land values. That would reduce the need for transitional relief and encourage property improvements.

"He should reject calls to 'level the playing field' between the high street and internet retailers. Rates should be determined by rental values not special interests. Picking winners by favouring the high street over online businesses would make shopping more expensive, consumers poorer and only help landowners."

On rate relief for pubs:

"The Chancellor's plan to give pubs a £1,000 business rate relief is a mistake. We shouldn't be picking winners and creating an increasingly complex tax code. Landlords are already setting up snail farms to qualify for agricultural exemptions. When he wakes up tomorrow he'll face the hangover of an even more complex tax code that tries and fails to pick winners."

On social care funding:

"The Chancellor is right to ditch Labour's proposed death duty hike to fund social care. Taxes on inheritance discourage long-term investment and are notoriously easy to avoid."