NEWS
ASI Budget wishlist: Tax credit cuts must be offset by tax cuts for the working poor
For further comments or to arrange an interview, contact Head of Communications Kate Andrews: kate@adamsmith.org | 07476 915072. In advance of the Budget next Wednesday, the Adam Smith Institute has outlined four announcements it would like to hear from the Chancellor:
Raise the employee National Insurance Contributions threshold
National Insurance Contributions kick in at £8,060 per year, or after just 24 hours worked per week on the National Minimum Wage. Raising the Income Tax personal allowance will do less to help the poorest workers than raising the NIC threshold, and raising the threshold will help to make work pay, particularly if the government goes ahead with its cuts to tax credits.
According to CentreForum, the cost of raising the NICs threshold to £10,000/year would be £8.8bn per annum.
Scrap the triple-lock and freeze the state pension
The pensions triple-lock means that the state pension will rise by at least 2.5% this year even though prices are not rising at all. This is unsustainable in the long-run and wasteful in the short-run. As long as cuts are being made across the board, pensioners should at least have their income frozen in real terms. Doing this would save over £2bn per annum.
Build more houses to cut housing benefit
Housing benefit spending is only so high because the cost of housing in general is so high. Building new homes of any kind will reduce the general level of housing costs, both for buyers and renters, and the government could allow this simply by rolling the Green Belt back around England’s cities.
The size of the reduction to the £25bn Housing Benefit bill would be dependent on the number of new homes built, but the government should aim to reduce the Housing Benefit bill by at least 20% over the course of this parliament, netting savings of £5bn per annum.
Revalue council tax and business rates and aim to merge them
Business rates have not been revalued since 2010 and council tax has not been revalued since it was first introduced in 1993. This means that tenants in places that are poorer than they were in 1993 and 2010 are paying relatively more than tenants in places that are richer than they were then. As well as being unfair, this is inefficient, and hurts the North in particular, with businesses there paying rates far higher than their property deserves.
As with the old Stamp Duty slab system, the council tax band system is out of date and should be replaced with a fluid penny in the pound system like rates. For both, revaluations should be done on an annual basis, revenue-neutrally. The two systems should eventually be merged at the same rate, so that the tax system does not distort where businesses and houses are located. If Zoopla can value property prices on a rolling basis, so can HM Government.
Deputy Director of the Adam Smith Institute Sam Bowman said:
There is a big danger that the cuts in next week’s Budget will be dictated more by what is good politics than what is good policy. In-work benefits are being cut without any offsetting cuts in taxes for the working poor while pensions will rise well above inflation, at a significant cost to the public purse.
The measures we have outlined would still reduce the deficit but do so in a more equitable way, so that the cuts do not fall disproportionately on the working poor.
Notes to Editors:
For further comments or to arrange an interview, contact Kate Andrews, Head of Communications, at kate@adamsmith.org | 07476 915072.
The Adam Smith Institute is a free market, libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.
How tax and benefits affect the poor - Dr Eamonn Butler's letter to the Independent
Director Dr Eamonn Butler's letter to the Independent on poverty and tax:
How tax and benefits affect the poor
Your graph showing that the poorest fifth of the population pay the highest proportion of their income in tax (30 June) is no reason to oppose cutting the top rate of income tax.
The fact is – as Geoffrey Howe and Nigel Lawson found when they cut the top rate from 83 per cent to 40 per cent – that rates above 40 per cent bring in less revenue, and encourage tax avoidance.
Rather, your graph is one of several good reasons why the Chancellor is right to take people on minimum wages out of tax completely, and why he must now take them out of National Insurance completely too.
Scrapping NI on low wages would more than offset the planned reduction in tax credits, and would be far simpler than paying people with one hand and taxing them with the other. It would also raise the incentives for people to get themselves off benefits and into work – which is by far the best form of welfare and independence.
Dr Eamonn Butler
Director, Adam Smith Institute, London SW1
Sam Bowman's comments on the Vickers Commission feature in IBTimes UK
Deputy Director Sam Bowman's comments on the Vickers Commission have featured in the International Business Times UK:
Sam Bowman, deputy director, of the Adam Smith Institute, told IBTimes UK: "Basically I think the Vickers Commission has come up with the wrong solution to the banking crisis.
"As I see it, we could either try to create a narrow banking system, where depositors' money is only lent out to extremely safe borrowers (e.g. the US, UK governments) and traditional loans are made by different financial institutions where the 'depositors' (more accurately described investors in this case) do not have immediate access to their funds, or we can try to make the banking system that we have as stable as possible.
"For stability, we want banks that are diverse and can withstand unexpected shocks. This is exactly the opposite of what Vickers will do – by splitting investment and retail arms of banks, Vickers makes both arms less steady.
"It's a mistake, I think, to equate systemic importance with size – America has thousands of small banks, but because they are very undiverse they are much more fragile than, say, Canada's banks, which are fewer in number but much more diversified," he said.
'Bank stress tests are inadequate' - author of ASI report "No Stress" writes letter to the Independent
Author of Adam Smith Institute report “No Stress: The flaws of the Bank of England’s stress testing programme” Professor Kevin Dowd has written a letter to the Independent:
Bank stress tests are inadequate
James Moore’s article (18 June) on “No Stress”, my Adam Smith Institute Report on the Bank of England’s stress tests, dismisses its conclusions without any attempt to grasp its analysis.
Moore claims that the stress tests weren’t perfect, but the best the Bank of England could do; however, the analysis of the report shows that the BoE can, and should, be running safer tests. No one scenario can provide comfort that the system is sound.
Furthermore, the tests are based on an absurdly low safety standard, and if one stress-tests the tests against respectable standards all the banks would fail. They also lack credibility because the Bank can only allow the banking system to “pass”: anything else would imply that its own past policies have failed.
Moore might be satisfied with the results of the tests, but the rest of us should remain sceptical. Stress tests operate like a radar that is worse than useless because it cannot see the main hazards. We wouldn’t dream of sending out a ship or plane reliant on an unreliable radar. We shouldn’t do that with our banking system either.
Professor Kevin Dowd London SW1
ASI report, “No Stress: the flaws in the Bank of England’s stress testing programme”, examines the Bank of England’s stress testing programme and challenges the Bank’s conclusion that the UK banking system has sufficient capital to withstand a new downturn and suggests that the UK banking system is actually very weak.
The report argues that the stress tests are fatally flawed because they use a very low ‘pass’ standard, a 4.5 percent minimum ratio of capital to risk-weighted assets. This minimum is well below those coming through under Basel III. Had the Bank carried out a test using these latter minima, the banking system would have failed the test.
Sam Bowman discusses tax credits and Cameron's welfare reforms on Scotland Tonight
Deputy Director of the Adam Smith Institute Sam Bowman discusses tax credits and David Cameron's welfare proposals on STV's Scotland Tonight.
Sam Bowman discusses tax credits and Cameron's welfare reforms on Sky News
Deputy Director of the Adam Smith Institute Sam Bowman discusses tax credits and David Cameron's welfare proposals on Sky News.
Has Greek government been own worst enemy during negotiations? Sam Bowman argues NO in City AM
Deputy Director of the Adam Smith Institute Sam Bowman argues that Greece has been treated unfairly during debt negotiations in the City AM Debate Forum.
Greece has been badly mistreated by the rest of the EU. The structural reforms demanded by the Troika are desirable, though difficult in the current economic climate, but Greece has already cut state spending by 20 per cent and cut state employment by 30 per cent.Greece has been running a primary surplus since 2013, and most of the €240bn in bailout money lent to the country was intended to service existing debt. Irresponsible borrowers, which Greece undoubtedly was, need irresponsible lenders too. At the onset of the crisis, European banks owned nearly $54bn of Greek government debt, and a Greek default would have damaged many of them. These were bailouts for Europe’s banks, not just for Greece.
The Eurozone’s refusal to restructure Greece’s debt, perhaps indexing it to nominal GDP as Greece’s finance minister has suggested, is therefore highly unreasonable. Greece has been at fault, but so have many other players in this sorry saga.
Sam Bowman discusses the Northern Powerhouse on BBC Sunday Politics (North East)
Deputy Director of the Adam Smith Institute Sam Bowman discusses the need for northern revival on BBC Sunday Politics (North East and Cumbria).
ASI report “No Stress” features on BBC Radio 4's Today Programme
Adam Smith Institute report “No Stress: The flaws of the Bank of England’s stress testing programme” has featured in the Financial Times:
ASI report, “No Stress: the flaws in the Bank of England’s stress testing programme”, examines the Bank of England’s stress testing programme and challenges the Bank’s conclusion that the UK banking system has sufficient capital to withstand a new downturn and suggests that the UK banking system is actually very weak.
The report argues that the stress tests are fatally flawed because they use a very low ‘pass’ standard, a 4.5 percent minimum ratio of capital to risk-weighted assets. This minimum is well below those coming through under Basel III. Had the Bank carried out a test using these latter minima, the banking system would have failed the test.
ASI report "No Stress" features in the Financial Times
Adam Smith Institute report "No Stress: The flaws of the Bank of England's stress testing programme" has featured in the Financial Times:
The Bank of England’s stress tests of the banking sector have been attacked as “fatally flawed” for setting hurdles that are too easy to clear and giving false comfort about the safety of the financial system.A report published on Thursday by the Adam Smith Institute, a free market think-tank, calls for the BoE annual stress tests to be scrapped, arguing they are “worse than useless” because they disguise weakness in the UK banking system.
The report has been written by Kevin Dowd, professor of finance and economics at Durham University, who is a vocal critic of the tests and criticised them at a Treasury select committee hearing in March.
ASI report, “No Stress: the flaws in the Bank of England’s stress testing programme”, examines the Bank of England’s stress testing programme and challenges the Bank’s conclusion that the UK banking system has sufficient capital to withstand a new downturn and suggests that the UK banking system is actually very weak.
The report argues that the stress tests are fatally flawed because they use a very low ‘pass’ standard, a 4.5 percent minimum ratio of capital to risk-weighted assets. This minimum is well below those coming through under Basel III. Had the Bank carried out a test using these latter minima, the banking system would have failed the test.
Media contact:
emily@adamsmith.org
Media phone: 07584778207
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