Time to update employment law

On the news that Uber have lost their employment tribunal appeal and that Uber drivers will be classified as workers and entitled to sick pay, holiday pay and the minimum wage, Sam Dumitriu, Research Economist at the Adam Smith Institute said:

“Uber drivers choose to use the app because they want the freedom to pick when they work and which trips to take. Granting drivers worker status may force Uber to schedule shifts and cut pay at peak times, leading to less choice for drivers and longer wait-times for consumers."

"It may also discourage rivals to Uber, like Lyft and Taxify, from coming to the UK hurting competition."

"Today's ruling reveals the problem of relying on employment legislation written before the word 'app' even existed. Minicab drivers have been traditionally classified as self-employed, but drivers who are able to choose their own hours, trips and simultaneously use a rival app are now classified as workers. We should update the law to take into account the added flexibility that gig economy platforms like Uber bring."

For further comments or to arrange an interview contact samd@adamsmith.org or call 020 7222 4995

Open Britain's doors to the world's innovators

Dr. Madsen Pirie calls on UK government to revolutionise its approach to innovation

  • Britain must be at forefront of world innovation to secure future economic growth.
  • Doubling number of visas available for those of exceptional talent will show UK is open to global talent.
  • An Innovations Database that allows innovators to safely publicise instead of going through a lengthy and expensive patent process.
  • UK should give more prominent awards to inventors and business people to boost profile of innovators.

Britain should double the number of visas on offer to innovators, streamline patent registration and give more prominent national honours to inventors, says a new report from the think tank the Adam Smith Institute that raises proposals to make Britain more open to innovation and entrepreneurship. 

The paper argues that Britain needs to expand the current Tier 1 visa that allows people of exceptional talent from outside the European Economic Area to come to the country. The present scheme allows 500 innovators to apply for a visa in the spring and autumn of each year. By increasing the number by a further 1000 visas the United Kingdom would enhance its reputation as a country that is open to youth and talent.

Dr. Pirie, founder of the free market Adam Smith Institute, suggests that the UK should emphasise its openness to global talent with this expansion and promote the places at universities, companies and embassies across the world. This, he suggests, would help show Britain ‘welcomes and rewards innovators’ that want to move to the country and make it easier to employers to access global talent.

Elsewhere the paper suggests giving further national recognition to innovators, combining innovation awards with the annual honours system to give prominence to inventors. This would help build a national recognition of entrepreneurship and encourage more people to enter the fields where Britain is at the cutting edge of research and business. 

A register of new innovations that gave limited protections to innovators’ ownership of their ideas before going through the patent application process would allow innovators to publicize their idea without fear of it being stolen and avoiding the lengthy and costly patent process. This would, Dr. Pirie argues, greatly speed up the development and cross-fertilisation of new ideas and help Britain tackle its productivity crisis.

By opening the door to the innovators of the world, and seeing that their contributions are recorded and rewarded, the United Kingdom can encourage a ‘race to the top’ and ensure that ‘innovators feel their contributions are valued and they themselves are honoured’, the paper says.

Notes to editors:
For further comments or to arrange an interview, contact Matt Kilcoyne, Head of Communications, matt@adamsmith.org | 07584 778207.

The report Advancing Innovation?’’ will be live on the Adam Smith Institute website from 00:01 FRIDAY 3RD NOVEMBER 2017 and is available here in advance.

Putting our stamp on the Budget

It was our duty and our pleasure to release a report on the damaging effects of Britain's Stamp Duty Land Tax. Ahead of the budget on the 22nd November Ben Southwood, Head of Research at the Adam Smith Institute, called on the Chancellor to drop the 'worst tax we've got'.

This cry for tax sanity was picked up by media organisations across the UK with coverage in the Sun (where it also featured in their budget recommendations), the Daily Mail, the Telegraph, the Daily Express, the Times, the i Newspaper and Independent, the Mirror, City AM (which also carried an opinion piece by Ben) and Metro. It was covered on Business Insider, PoliticsHome, ConservativeHomeYahoo UK, and Ben wrote comment pieces on CapX and the New Statesman's City Metric. It also featured in Industry titles Property 118, Property Industry Eye, Property WireEstate Agent Today and in the morning briefing of Inside Housing

Go on, read Beyond the Call of Duty today!

To arrange further comment or an opinion piece from a member of the Adam Smith Institute please contact Matt Kilcoyne via email (matt@adamsmith.org) or phone (07584778207). 


Scrap stamp duty to get Britain moving and generate £10bn of economic growth

New report sets out why the UK should abolish Stamp Duty Land Tax

  • Taxing transactions of Britain’s £7.5tn stock of property is keeping people in homes of incorrect sizes and too far from jobs
  • Stamp Duty Land Tax is four times more harmful to economic efficiency than income tax, eight times more harmful than VAT
  • SDLT could be costing the UK economy £10bn on top of the £12bn hit to house sellers
  • Britain should abolish SDLT to boost economic productivity, growth and employment

Stamp duty on property sales is gumming up the housing market, stopping people from moving to the jobs they need, and keeping people in houses that are too large for their needs, a new report released by the Adam Smith Institute this morning says. The report suggests that stamp duty is the most damaging tax Britain has, and scrapping it should be top of the Chancellor’s agenda in the run-up to the Budget this month.

The paper argues that SDLT is deeply damaging to the UK housing market. Economists in Australia found that a similar tax to SDLT there was costing 75p for every £1 raised, making SDLT around four times more damaging than income tax and nearly eight times more harmful than VAT per pound raised. With SDLT costing British people £12bn a year, this means the tax may cause as much as £10bn worth of deadweight losses.

This happens because SDLT gums up the housing market  by penalising people from moving house. While the lack of supply of new houses is still the biggest cause of the housing crisis, it is exacerbated by SDLT stopping the existing housing stock from being used efficiently. By penalising older people for downsizing after their children have left home, for example, stamp duty stops larger homes from being sold to new families, making the effective supply of family-sized homes even tighter. Since stamp duty creates a built-in cost to moving it also creates a roadblock to people moving from one part of the country to another to find work, trapping people in low pay and preventing them from advancing. 

The UK is home to around £7.5tn of property, with homeowners taxed regressively against values last updated in 1991, and charged SDLT at rapidly escalating rates. The report proposes instead to abolish SDLT altogether, covering the cost by raising council tax bills on the most expensive properties in the country.  

Three weeks ahead of the Budget this policy is probably the most effective tax cut the Chancellor could go for, boosting growth and improving the fundamentals of the housing market at a stroke. Although the increased economic activity would likely offset some of the losses in the long-run, the paper suggests revaluing council tax and creating a new band for the most expensive homes as a way of making the move revenue neutral if necessary. The paper argues Britain can boost housing and labour mobility, as well as economic growth and productivity, by focusing on the smaller taxes that cause the most damage to the economy. That all starts with abolishing SDLT.

Ben Southwood, Head of Research at the Adam Smith Institute and author of the report, said:
“One of the best things about Philip Hammond as chancellor is a resistance to eye-catching schemes that sound good but don’t make good economic sense. But stamp duty is so bad that scrapping it would be both eye-catching and good economic sense.

"Almost any way of clawing back the money will do less damage than stamp duty does: it’s worse than council tax, income tax, VAT, and even corporation tax. Caution is a virtue—but complacency is not—stamp duty has had its day and should be consigned to the dustbin of history!”
Sam Bowman, Executive Director of the Adam Smith Institute, said:

“Stamp duty is the worst tax we’ve got, almost as bad as setting fire to the money instead of raising it in tax. The reason is that Britain’s productivity problem is in large part a mobility problem. People cannot move to where the best jobs for them are because the houses aren’t being built, and that’s made even worse by stamp duty keeping older people in family homes that are too large for them. Stamp duty is gumming up the housing market and keeping people trapped in the jobs that aren’t best for them, and scrapping it should be a no-brainer for a government looking for a bold, affordable way to take back control of the agenda in British politics.” 

Notes to editors:

For further comments or to arrange an interview, contact Matt Kilcoyne, Head of Communications, matt@adamsmith.org | 07584 778207.

The report ‘Beyond the Call of Duty’ is available here.

The Adam Smith Institute is a free market, neoliberal think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

Subsidies and regulations on childcare are costing us all

This morning the TUC released a report showing that childcare costs are rising faster than wages and called for further public subsidy of childcare by the government. Matthew Kilcoyne, Head of Communications at the Adam Smith Institute, agrees that the cost of childcare is a pressing issue but is one that is best fixed by a free market approach, he says:

"The way to bring British childcare costs down isn't, as suggested by the TUC, to spend ever larger amount on subsidising nurseries but to remove the regulatory barriers that make childcare unaffordable. 

"By far and away the largest costs for childcare providers is the cost of labour. Currently in the UK one adult carer is required for every three babies, four toddlers, or eight children over the age of three. By contrast, in Norway the maximum ratio of carers to children is much higher for the very youngest, at nine children to one carer. Evidence from the USA suggests that adding one child per carer more cuts costs by between 9% and 20%. If we relaxed our rules on childcare to Norwegian or French levels we could end up halving childcare costs.

"High staff to child ratios aren't just expensive, they can harm the quality of care too. Studies show that looser mandated child to carer ratios encourage higher qualified staff to enter the industry at higher wages. 

"The Conservative government should embrace the free-market option, increase the quality of care and come on side with young parents who want the freedom to work and start a family."

For further comment or to arrange an interview please contact Matt Kilcoyne via email (matt@adamsmith.org) or phone (07584778207). 

We'll pay an absolutely extortionate bill for energy caps

With the government pressing ahead with a Bill to create an absolute cap on energy prices, the Adam Smith Institute laments the decision by the government to intervene in the energy market. Sam Dumitriu, research economist at the Adam Smith Institute, decried the move saying: 

“The Government’s proposed price cap risks fatally undermining competition in the energy market. The evidence is clear: when price caps are imposed customers stop switching, the best discounts are withdrawn and prices bunch around the cap. Customers may become complacent, leading to fewer billpayers accessing deep discounts by switching suppliers.

Imposing an absolute rather than a relative price cap is especially worrying. If wholesale prices change significantly, as they have in the past decade, then the cap swiftly become out of date. High prices send a signal to suppliers to invest in new infrastructure to meet demand. If the cap is set too low, firms may be deterred from investing risking blackouts. As a result Whitehall may be forced to take even an even greater role in picking and funding new investments in power generation. Theresa May will inadvertently make Corbyn’s case for nationalisation for him.”

For further comment or to arrange an interview please contact Matt Kilcoyne via email (matt@adamsmith.org) or phone (07584778207).

May burying head in sand with energy and housing policies

Today at Conservative Party Conference in Manchester the Prime Minister said she wanted to defend and explain the benefits of the free market. Sadly her words are not backed up by her actions as she announced an energy price cap and government housebuilding. Sam Dumitriu, research economist at the Adam Smith Institute, criticized the move to cap energy bills saying:

"Theresa May began her speech today saying she had a duty to defend and explain the free market. But her actions fail to match her rhetoric. Capping Standard Variable Tariffs will stifle competition and likely raise prices.

“The best way to make energy bills work for ordinary people is to boost competition, but May’s price cap will destroy the incentive for many customers to switch to a new provider, squeezing out new suppliers and will cause suppliers to raise prices on their cheapest tariffs. This is why the Competition and Markets’ Authority opposed price caps when they investigated the energy market in 2015.

“Huge price gaps between otherwise identical tariffs may seem bonkers, but it’s standard behaviour in any competitive market with high fixed costs. It costs Starbucks just a penny more to make a large rather than a small cup of coffee. But, politicians rightly don’t call for a price cap on Venti Chai Lattes.

“Excessive intervention by OfGem has reduced consumer choice, caused switching rates to half, banned the best deals on the market and led to E On’s Stay Warm tariff, which was praised for helping old aged pensioners, to be pulled from the market.

“Capping energy prices may be good politics, but it’s bad economics.”

On housing, where the Prime Minister committed the government to intervening in the market a rash move by the government could miss a golden opportunity to liberalise housebuilding and to win over younger voters. Sam Bowman, Executive Director of the Adam Smith Institute, says:

"It's tempting to laugh at today's speech but really it was quite sad. The Tories seem to have no idea what to do about housing, because they're so afraid of alienating their base that they won't do any substantive policy that could properly boost the supply of new homes. Again and again this week people asked how to connect with younger voters - the simple answer is to give them somewhere to live.

"Social housing isn't what people want to live in. Almost everyone would like to own their own home. We can do that, but only if we're prepared to change the rules of the game so that new developments benefit existing residents, and so that constraints on densification are eliminated. Take away the rules stopping streets of semi detached houses from being upgraded to terrace flats, and to build densely around railway stations and tube stations. Planning is the huge bottleneck here that is stopping millions of new houses from being built privately and affordably, and if the Conservatives are going to bury their heads in the sand about that then eventually voters will punish them for it."

For further comment or to arrange an interview please contact Matt Kilcoyne on 07584778207 or email matt@adamsmith.org

Help to Buy won't build the young any houses

This morning the government announced an extra £10bn would be used to revive the Help to Buy scheme. This will do nothing to increase the supply of housing, an issue we've looked at in detail recently, but could increase demand and so exacerbate the housing crisis it's targeting. 

Sam Bowman, Executive Director of the Adam Smith Institute, decried the move saying:

"Reviving Help to Buy is like throwing petrol onto a bonfire. The property market is totally dysfunctional because supply is so tightly constrained by planning rules, and adding more demand without improving the supply of houses is just going to raise house prices and make homes more unaffordable for people who don't qualify for the Help to Buy subsidy. 

"London has the second highest property prices per square metre in the world, only behind Monaco. New build houses are even smaller in the UK than in the Netherlands, despite being the most densely populated country in Europe. Only 2% of England is built on, but we're fenced in by NIMBYs and planning laws that block development nearly anywhere.

"To improve the housing market you need to change the rules of the game, so that damaged parts of the green belt can be built on, so we can have more dense and efficient development of existing urban areas,  and so that locals benefit from new developments near them. Reviving Help to Buy is an astonishingly ill-judged move that may prove economically and politically disastrous for the government."

For further comment or to arrange an interview please contact Matt Kilcoyne on 07584778207 or email matt@adamsmith.org.




Corbyn's controls will put renters on a long wait to nowhere

While we were never going to come out batting for Jeremy Corbyn his speech this afternoon ending Labour's annual conference in Brighton marked a new low with his promise for rent controls. 

Ben Southwood, Head of Research at the Adam Smith Institute, said any reliance on rent controls was fantasy economics:

"Jeremy Corbyn’s plan to institute rent controls will lead to smaller properties, shoddier upkeep, and long waiting lists to get a flat. What’s more, it risks cronyism if councils get a role in deciding who jumps to the front of the queue.

"It may come as no surprise that the Adam Smith Institute disagrees with hardline socialist Jeremy Corbyn—but rent control is a rare case where economists almost all agree, left and right.

"95% of top economists agreed rent controls in San Francisco and New York had worsened the amount and quality of affordable rental quality there. And you can see why: prospective tenants in rent-controlled Stockholm languish on waiting lists for 15-years on average—expensive is one thing, but impossible is quite another.

"Unable to make back their investment, landlords in rent-controlled cities let paint peel, carpets mould, and furniture rot. And if you haven’t got connections—whether with property owners or council powerbrokers—then you might be completely out of luck. Even fewer new units are built in the places that need them most, and the ones they do build are lower quality and smaller in order to make it worth their while.

"There are lots of policies that could help fix the housing market—all centred around building more housing—but rent control is one of the few big changes that will make things much, much worse."

To arrange an interview please contact Matt Kilcoyne on 07584778207 or email matt@adamsmith.org

John McDonnell is being Pretty Financially Irresponsible

The Shadow Chancellor, John McDonnell, committed himself to being pretty financially irresponsible as he blasted PFI during his headline conference speech in Brighton this afternoon.

Sam Bowman, Executive Director of the Adam Smith Institute criticised McDonnell's commitment to bring an end to PFI, to nationalise swathes of British industry and the impact these policy proposals will have on British taxpayers. He said:

"Behind everything John McDonnell promised was an unspoken, but unavoidable, price: to pay for all this, we’re going to face big tax rises.

"The tax avoidance ‘tax gap’ exists because beyond a certain point it costs more to pursue tax than it actually raises, not because of some clever conspiracy at the Treasury. So you can’t hope to raise revenues just by ‘getting tough’, because ‘getting tough’ is expensive and difficult in itself. It’s dishonest to suggest that this can pay for the sort of policies McDonnell is proposing, and people should be aware that Labour’s extra spending will mean higher indirect taxes for most workers.

"There are problems with private finance initiative schemes, but on the other hand using private funds to pay for new roads, railway lines and hospitals seems like quite a good idea when government itself is so strapped of cash. By all means we should be trying to do PFI schemes with more accountability for the government departments that go ahead with them, so that taxpayers do not face unnecessary risks, but ruling out PFI altogether will either mean much greater costs for taxpayers or much less money available for capital investment. Higher taxes and less investment might be a price John McDonnell is willing to pay for ideological purity, but for the rest of us the right option is to improve the existing systems, not scrap it altogether.

"Nationalising big swathes of the economy will likely mean higher prices, worse service, or higher taxes, or some combination of the three. In the case of rail and energy, costs are high for users because wholesale prices are high and we have chosen to make users pay instead of forcing others to subsidise them. Nationalising these industries will end up starving them of investment, just as they were before they were privatised in the 1980s. That could mean a return to energy shortages and an underserved train network that barely anyone rode."

For further comment or to arrange an interview please contact Matt Kilcoyne via email (matt@adamsmith.org) or phone (07584778207).