Time to prioritise needs not numbers in immigration

Following the news that the Government has committed to an Australian-style points-based immigration system while scrapping the cap on numbers of migrants, Daniel Pryor welcomes what should be seen as a liberal shift on migration:

Good riddance to a bad policy. The never-achieved net migration target was a relic of a flawed approach to migration that prioritised numbers over needs.

The Government seems to have recognised that ending EU freedom of movement will require a more liberal approach to non-EU immigration. In recent months, we've started to see a move towards more sensible policies, from the welcome reintroduction of the post-study work visa to making it easier for those living abroad to come and work for the NHS.

In light of economic reality and changing public attitudes, the Tories must double down on this progress. A good place to start would be pushing through Boris' amnesty proposals and letting asylum seekers work. Both of these measures would boost the economy, prevent exploitation, cut crime and encourage integration.

To arrange an interview or further comment, please contact Matt Kilcoyne via email (matt@adamsmith.org) or phone (07904099599).

Send vape fears up in smoke

A new paper from the neoliberal think tank the Adam Smith Institute says if the UK Government wants to achieve its aim of a smoke-free generation by 2030 it will need a liberal approach to safer alternatives.

• Britain should not succumb to the same moral panic on vaping as has been seen in America.

• There is widespread misinformation about the relative risk of e-cigarettes. Over two-fifths (43%) of UK smokers do not believe that e-cigarettes are less harmful than tobacco cigarettes.

• There is a very strong correlation between the reduction in cigarette usage and the increase in e-cigarette usage in recent years. According to PHE estimates, up to 57,000 more people have quit a year due to e-cigarettes.

• There are 8.56 million smokers in Great Britain, 4.37 million smokers have tried e-cigarettes but gone back to smoking, while 2.88 million smokers have yet to try a reduced-risk product. This means there is a need to expand information about and access to reduced-risk products like heated tobacco and oral nicotine pouches.

• Among young people (16-24 year olds) the smoking rate has substantially increased in the last few years. In 2016, just 16.6% of young people smoked cigarettes, but this had increased to 23.6% by 2018. Since 2016, vaping in this age group has declined from 5.8% to 4.8%. 

Recent concerns about the safety of vaping from the USA are nothing to worry about for UK users. However, a new report by the Adam Smith Institute argues that Britain is at risk of a similar moral panic on vaping as seen over the pond this summer.

Earlier this year, a cluster of people developed severe and sudden lung injuries after e-cigarette use and several deaths have been linked to this. Following these reports, the U.S Centre for Disease Control’s response discouraging the sale and use of e-cigarettes spread a moral panic without scientific basis. The cause, the paper argues currently is likely to have been the use of unregulated black market e-liquids containing THC (the psychoactive ingredient in cannabis) and other chemicals. 

As e-cigarette use has increased in the UK, the numbers smoking traditional cigarettes has declined markedly. Since 2012 the number of smokers has decreased by 2 million, while e-cigarette use has increased from 800,000 to 3.2 million people in 2018. Over half of vapers are ex-smokers, with nearly four in ten being dual users and less than one in ten coming from a non-smoking background. 

This switching has had marked benefits to those who used to smoke. According to PHE estimates, up to 57,000 more people have quit a year due to e-cigarettes. 

But the Adam Smith Institute says Britain risks going backwards if we don’t keep up and promote switching to safer products, including encouraging further understanding of and a friendly approach to heated tobacco and oral nicotine pouches. Over four in ten smokers do not know that e-cigarettes are less harmful to health than traditional burned tobacco cigarettes. 

Far from the fears about e-cigarettes being a causal gateway into smoking, the report points to evidence that young people are taking up traditional cigarettes at alarming rates again while relatively few opt for e-cigarettes. 

The free market think tank suggests seven ideas that the government may want to implement if they want to achieve their stated goal of a smoke-free society by 2030: 

1. Develop an evidence-based set of generic health claims that can be used by regulated e-cigarette marketers to advertise products; 

2. Commission independent research to develop the evidence base in relation to heated tobacco products, with a view to allowing accurate communication of this information by marketers;

3. Reform counterproductive elements of the EU Tobacco Products Directive post-Brexit; 

4. Implement risk-based taxation to incentivise switching to reduced-risk products, building on the creation of a separate taxation category for heated tobacco; 

5. Legalise snus post-Brexit with a sensible regulatory framework; 

6. Encourage the NHS to take a leadership role in promoting tobacco harm reduction across trusts; 

7. Allow cigarette pack inserts that exclusively advertise reduced-risk products.

Daniel Pryor, author of the report and Head of Programmes at the Adam Smith Institute, said:

“Vaping is a British success story. It gives many smokers an effective and less harmful alternative to cigarettes. Free market innovation and sensible regulation are reducing the demand for cigarettes and saving lives — all the while retaining consumer choice. But there is substantial room for improvement as millions of smokers have yet to try vaping and millions more have tried it but returned to cigarettes. If the Government wants any chance of achieving a 'smoke-free' society by 2030, we urgently need to implement policies that encourage switching from smoking to vaping, and give smokers who don't like vaping more options to switch to other safer products.”

Matthew Lesh, Head of Research at the Adam Smith Institute, says: 

“E-cigarettes are a life-saving innovation that helps people quit cigarettes, but there's so much further to go. If the Government is serious about public health they must take a liberal approach to harm reduction. This means combating misinformation about the harm of e-cigarettes and harnessing the potential of reduced-risk products such as heated tobacco and oral nicotine pouches.”

Notes to editors:  

For further comments or to arrange an interview, contact Matt Kilcoyne, matt@adamsmith.org | 07904 099599.

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.

Don’t railroad it through — rethink HS2

A new paper from the free market, neoliberal think tank the Adam Smith Institute says the UK Government should rethink the controversial HS2 project - and sets out a number of alternatives to save time, save money, and deliver an improved service for rail passengers. The report argues that:

• HS2 risks being a massive black hole for taxpayer money with virtually nothing to show for it returning just 78 pence of value for every £1 of taxpayers' money spent. 

• Under HS2, a number of key northern cities destinations will lose direct trains to London: including Lancaster, Carlisle and Durham.

• The West Coast, East Coast and Midland Main Lines should all be upgraded at current bottlenecks to four tracks to improve capacity.

• The Great Central Railway should be reopened between London and Rugby. 

• Spur lines between the Main Lines and major cities like Birmingham and Manchester have speeds around half of that on the WCML/ECML. Key routes should all be upgraded to high speed electrified lines at 125mph. 

• Open a new London station at Old Oak Common to increase future northern train capacity.

As HS2 continues to run substantially over budget and fail to meet deadlines, rail expert Adrian Quine argues for a rethink on the UK’s rail policy. Ahead of the planned review to HS2, he writes for the Adam Smith Institute and sets out a number of less costly alternatives to the failed project — including upgrading existing routes with new signalling, doubling the number of tracks, reopening mothballed lines, and timetable redesigns.

HS2 is a product of political thinking, poor management and overly complex design. The project has been mismanaged from the outset, with too much emphasis on a misguided belief that it was the only solution to Britain’s ailing rail network, the free market think tank argues. 

The paper argues that the failure to deliver HS2 on-time and on-budget is just another example of a long string of failed rail projects. Including Crossrail, which was allocated a budget of £15.4 billion and was supposed to have opened in December 2018. It has currently spent £17.6 billion and is still under construction with opening delayed until early 2021.

Instead of focussing on a single project with rapidly escalating costs — government should instead admit that the project is no longer fit for purpose. 

HS2 was designed to increase capacity and reduce time spent on trains. The new report details smarter ways of achieving the same outcome for less money and in less time. 

UK rail passenger numbers have doubled in the past 15 years and are predicted to grow substantially going forward. 

There are a number of ways to improve Britain’s railways, without breaking the bank or causing undue disruption to towns and cities. The Adam Smith Institute report sets out a five point plan to replace HS2:

1. Upgrading existing routes with new signalling, doubling the number of tracks, reopening mothballed lines, and timetable redesigns;

2. Building new sections of conventional high speed, including between the mainlines and Manchester, Leeds and Birmingham, and upgrading northern sections of the mainlines;

3. Maximising current infrastructure by targeting bottlenecks on conventional lines,  including building flyovers at key junctions, upgrading the Chiltern route to Birmingham or reopening the southern section of the Great Central railway, raising line speeds to at least 125mph;

4. Upgrading stations in London, Birmingham and Manchester; and

5. Updating train facilities like wifi, seat quality, and charging points to improve passenger experience.

New conventional high speed between major cities like Manchester, Leeds and Birmingham, upgraded northern sections of the mainlines and reduced bottlenecks would, the think tank argues, altogether cost less than the projected £106bn pricetag for HS2.

In addition to existing lines there is potential too to look again at reopening the Great Central route between London and Rugby, with a new London terminus opened at Old Oak Common to increase capacity on northern trains coming into the capital. 

In order to deliver the rail infrastructure of the future, the Government should also look to private sector to fund projects. The Adam Smith Institute says that if private sector players are trying to get involved with a specific project it is an indication it would receive enough patronage to be profitable in its own right.

The paper comes out as the government is reviewing the viability of HS2 as currently envisaged. New options on high speed rail securing the same objectives at a lower cost, at just the right time.

Adrian Quine, rail expert and report author, said:

“HS2 has become the most out of control project of our generation. There is no disputing that the UK needs new rail infrastructure but HS2 does not deliver what it claims. It is ideologically driven, over engineered and will not solve the problems facing rail travellers today.

“Britain does need new lines in places and does need investment in rail to support the economy and social mobility. So much can be achieved with our existing network rather than applying an HS2 sledgehammer to crack a nut.”

Matthew Lesh, Head of Research at the Adam Smith Institute, said:

“HS2 is a massive white elephant - but it’s not too late to abandon this project that’s over budget and missing deadlines before it causes any more national embarrassment. It is broadly accepted that we need to increase capacity on the intercity rail lines, but this can be done without a £106 billion price tag for the taxpayer. 

“We can upgrade bottlenecks in existing lines, build new lines into major cities like Manchester, Birmingham, and Leeds, and reopen unused lines. It’s time to say goodbye to the failed HS2 model and think of innovative, cost-effective solutions to deliver the railway network of the future.” 

Notes to editors:  

For further comments or to arrange an interview, contact Matt Kilcoyne, matt@adamsmith.org | 07904 099599.

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.

Boris can talk the talk, but can he walk the walk?

Boris set out a strong defence of free market economics as the UK leaves the EU. It's a positive vision but one that can't just be words, but needs deeds too. The Adam Smith Institute looks at what the Prime Minister’s speech to Conference said and what it should mean.

Deputy Director of the Adam Smith Institute, Matt Kilcoyne, said:

“It’s refreshing to hear a Conservative Prime Minister backing dynamic free market capitalism and damning failed socialism. If the Prime Minister wants to send Corbyn into orbit, he needs to match his words with deeds. A high skill and low tax economy is possible post Brexit. But it will mean bringing down the fifty year high tax burden on businesses and individuals. It will have to mean reducing trade barriers with the USA, Commonwealth and Asian markets.  

“It will also mean making sure we’re paying our way. It may not fit the zeitgeist, but Britain is still running a deficit, and government debt stands at over £1.8tn. We must not pass the buck to the next generation. The best way to do this is through growth, so it’s good to hear the Prime Minister reiterate his commitment to decreasing red tape, increasing in capital allowances, founding new freeports, and championing free trade.”

Daniel Pryor, Head of Programmes at the Adam Smith Institute, questioned the love-in for the NHS:

“Boris set out a bombastic Conservative case for the NHS, but he left out some crucial stats. Cancer survival rates in the NHS are behind the likes of Australia, Denmark, Ireland, New Zealand and Norway. Healthcare free at the point of use, but using private providers, is an elegant solution to a simple problem. It’s tried and tested right across Europe and it means longer healthier lives. Boris’ love for free market capitalism and the dynamism of service and innovation it provides should extend to our national health rationing service.” 

For further comment, or to arrange an interview, please contact Matt Kilcoyne on 07904099599 or email matt@adamsmith.org

Corbyn's calls would crash the economy

Jeremy Corbyn’s calls for hundreds of billions of pounds of taxpayers’ money to be spent on his pet projects, as well as extra red tape, attacks on the media, and dismissing future trade deals, shows he is still stuck in the past doesn’t understand how the modern economy works. Matthew Kilcoyne, Deputy Director of the Adam Smith Institute, said:

“With a Christmas election looming, today Corbyn delivered his wishlist of unaffordable, uncosted, unworkable policies. He's written a list and obviously not checked it twice, but he's already decided who he thinks is naughty not nice — run a business he doesn't understand and you'll be nationalised, earn a wage he dislikes and he'll tax you the hilt, if you've got a pension or investments in British companies he'll be picking your pocket.

“Corbyn talked about healing the divides in the country, but his rhetoric and plans for the economy suggest nothing but more discord, division, and debt. Undermining patents will undermine care for patients. Drugs are very expensive, time-consuming things to create but the capitalist system has produced more techniques and more medicine than ever before in history — with more people living longer and better lives as a result. Less profit from discovering new medicines now will lead to fewer new medicines in future.

“After promises worth over £500bn in just the one sentence, pension raids, and regulation that will crash the economy, it's clear now that the Tories will never outspend or regulate more than communist Corbyn. At their conference next week the Conservatives have a chance to make the case for sound money, for boosting economic growth through tax cuts, and setting the individual free to live their lives as they wish and not at the beck and call of Corbyn.”

Morgan Schondelmeier on the debt Labour plans on passing to the next generation via Corbyn’s commitments:

“Corbyn's Labour would have you believe that they can provide a world of services and improvements - but we should ask: with what money? His sums don't add up. Either he's lying about the rate at which he will raise your taxes, or he is planning on relying entirely on borrowing from future generations. It's ironic that Corbyn fancies himself the champion of the youth when his policies will see them saddled with unimaginable debt.”

Adam Smith Institute commentary was picked up by The Sun, Daily Mail, on the BBC and on TalkRadio.

For further information, to arrange further comment or an interview, please contact Matt Kilcoyne via email matt@adamsmith.org or ring 07904099599.

When Labour went Caracas

Following a Labour conference filled with bans, spending pledges, and a total economic revolution, the press picked up on some healthy Adam Smith Institute scepticism.

The Sun picked up on our analysis that Labour was now committed to spending more of our taxpayer cash than the Tories in every area (and send borrowing soaring again as they’ll struggle to raise the cash to meet their obligations).

The Telegraph picked up our reminder that Labour’s plans for an enforced four-day working week would mean people put back on the dole after a decade long period of growth in employment, and near record low unemployment.

And the Daily Mail quoted Matthew Kilcoyne warning that Labour’s experiments with our economy would end exactly the same way they do wherever in the world they’re tried: in disaster.

Let people decide how much they work

Labour Party Shadow Chancellor John McDonnell’s idea to force a 4-day work week have now been debunked by a Labour-commissioned report.

Matthew Lesh, Head of Research at the Adam Smith Institute, says the people should be free to decide how much they work:

“It is damning that even the report commissioned by the Labour Party rejected the idea of a 4-day work week as unrealistic and undesirable.

“John McDonnell’s bizarre idea to force people to work less will mean lower wages and fewer opportunities for millions. If we force people to work less they will inevitably earn less. The British economy will also be a much less friendly place to invest and start businesses if staff cannot work a full week. We should celebrate people who work hard to provide for their families, not take away this freedom. Low income Brits in particular want to work more, not less.

“Just forcing people to work less will not magically improve productivity. We need to embrace technological advancements to allow us to work even less in the future. In historic terms we are already working less than ever before, about 30 fewer hours compared to before the Industrial Revolution.”

Consent held back by pride and prejudice

A new paper from the neoliberal think tank the Adam Smith Institute says UK Government should update British laws on consent in body modification to become more liberal and permissive.

• British laws on grievous and actual bodily harm are outdated with consent not a valid defence.

• Judicial rulings that body modification and sexual practices (such as BDSM) are unlawful raise philosophical and legal questions about consensual activities in which neither party is aggrieved. 

• The law is applied inconsistently with personal prejudice and public opinion impacting on interpretation of the law to the detriment of minority groups.

• The development of transhumanism - technology to evolve beyond our current physical and mental limitations - could also be limited by existing laws that prevent body modification.

• Government should enable greater personal freedom, protect minority expressions, and enable emerging technologies, by reforming the Offences Against the Person Act so consent becomes a valid defence to charges of ABH and GBH. 

Britain’s consent laws are utterly outdated and harmful to minority groups and individuals, argues a new paper by free market think tank the Adam Smith Institute. 

Although undoubtedly well intentioned, and designed to protect individuals or society from harm, the law surrounding consent  Offences Against the Person Act and actual or grievous bodily harm is too vague and poorly applied allowing personal prejudice of judges and public opinion to impact on the interpretation of the law. 

The law in question, the Offences Against the Person Act stems from 1861 and the think tank says attitudes have changed since its inception. It has resulted in the conviction of some of the country’s most violent offenders, but it has also resulted in situations in which people have seen their rights curtailed by the state, unfair incarceration, and the stigma and loss of opportunity that comes from a criminal conviction.

The report says that it's high time the law was reformed so that consent becomes a valid defence to charges of ABH and GBH on a broad range of activities not currently allowed for under the law. 

While certain levels of consent have become included, such as surgery and tattoos, the lack of a permissive approach discriminates against minority groups who haven't been able to lobby for opt outs for their rituals or personal tastes. 

Under the plans put forward by the Adam Smith Institute, the onus in future would be on the defendant to prove that the alleged victim had consented to the acts. This way the government could enable greater personal freedom, protect minority expressions, and enable emerging technologies.

Sexual, cultural, and ethnic minorities are most likely to suffer from the current laws that do not allow individuals to consent. At present minority groups sit in a grey area waiting for a judge to determine if their ritual or activities meets their judgement as being in the public interest.  

In 2018 a tattooist called Brendan McCarthy (self-styled ‘Dr Evil’) was convicted of GBH after performing a number of procedures on willing and paying customers including: removal of an ear, removal of a nipple, and splitting another’s tongue so it forked. While extreme, in each case the customers gave consent and over 13,000 people signed a petition in favour of his case.

The think tank argues that this case and others show that courts have allowed personal feelings of disgust (and media around specific cases) to shadow the interpretation of the law. Minority groups receive this most often with a disgust reaction triggered when people bear witness to something which clearly deviates from the norm.

This has implications for the future too. Transhumanism promises to transcend the human experience with the promise of helping eliminate disease, tackle the effects of ageing, live longer, healthier, and happier lives the think tank argues it’s important to reform the law now so Britons that want to adopt and implant technology are free to do so.

With the law already out of date, and the world changing apace, it’s time to look again at consent.

Ben Ramanauskas, author of the report, said:

“It is a well established principle that a person should not face prosecution for partaking in consensual acts. However, the law currently criminalises people for activities taking place in private and involving consenting adults. The law needs to change. A more liberal approach would uphold individual liberty, reduce harm, and help to ensure that as humanity engages with futuristic technology Britons can benefit.”

Matthew Lesh, Head of Research at the Adam Smith Institute, says: 

“People should be free to consent to activities done to their body, even activities that make most people squirm. It is outrageous that you can consent to some potentially harmful activities - such as ear piercings, contact sports and religious flagellation - but cannot consent to body modification or pleasurable sexual activities. We should apply the law consistently, not in a way that hurts minorities and subcultures. Updating the bodily harm laws, to include a consent defence, is also necessary for emerging transhumanism technologies, that will allow us to evolve beyond our current physical and mental limitations.”

Notes to editors:  

For further comments or to arrange an interview, contact Matt Kilcoyne, Head of Communications, matt@adamsmith.org | 07904 099599.

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.

Doing our duty by Hong Kong

A new paper from the free market, neoliberal think tank the Adam Smith Institute says UK Government should extend residency rights to Hong Kong nationals in response to violent scenes at protests in the city and a nearby military build up in Shenzen.

• The United Kingdom has a duty under the Sino-British Joint Declaration to uphold the rights of Hong Kong citizens until 2047

• While the United Kingdom cannot act within the territory of Hong Kong it can still act to maintain and enhance the rights of Hong Kongers within the territory of the United Kingdom.

• The United Kingdom should offer British National (Overseas) status to all Hong Kongers born before and after the 1997 handover, along with an extension of full residency rights to British National (Overseas) persons equivalent to the status of full British citizens.

• This would follow precedent as seen in arrival of Ugandan Asians in the 1960s and 1970s.

Following two months of protests in Hong Kong and more aggressive policing, a military build up in mainland China near the city, and more disruptive acts by protestors, the free market think tank the Adam Smith Institute argues that Britain has a duty to uphold the rights and civil liberties of Hong Kong’s citizens.  

In a paper today the think tank says that, while there’s little scope for action within the territory of Hong Kong, the UK Government could (and should) provide citizenship and the right to move and live in Britain to all current British Nationals (Overseas) in the territory and allow residents there to apply for that status freely. 

This would mean the 169,000 British Nationals would gain the right to move to and work freely in the UK, as well as open up the application process to the 4.5m Hong Kong nationals.

Britain has taken similar action in the past to help ex-citizens of the UK fleeing state violence with the most famous example being the persecution of Ugandan Asians by the dictator Idi Amin that saw tens of thousands of refugees come to the UK. Highly educated and with strong English language skills these refugees integrated quickly into society and they and their children are amongst the most likely to be in highly skilled professions, academia or own a business — famous Ugandan Asians include Lord Popat and Shailesh Vara MP, while Priti Patel the Home Secretary’s parents were from Uganda too. 

The UK has a unique role to play in de-escalating any violence in Hong Kong and upholding the rights and civil liberties of Hong Kong’s citizens stemming from a treaty between Britain and China preceding the handover of the colony in 1997. The Sino-British Joint Declaration, the think tank argues, requires the British government to maintain the rights of Hong Kong citizens until at least 2047, but says nothing about where this has to happen. 

The think tank therefore argues that the civil liberties that Hong Kong’s citizens enjoy now, should they be reduced by a heavy handed crackdown by the embattled Chief Executive Carrie Lam or by action from Beijing, could be offered in Britain instead. 

It follows similar calls by Tom Tugendhat MP, chairman of the Commons Foreign Affairs Committee, this week and in a Telegraph column.

Matthew Kilcoyne, from the Adam Smith Institute and report author, said:

“Britain has a duty to uphold the rights of the citizens of Hong Kong in the face of excessive force being used toward protestors and laws that infringe on the autonomy of the city. While the UK is far away, the country has a special link to these islands, and it has a responsibility and the ability to offer a home away from Hong Kong should the need arise.”

Notes to editors:  

For further comments or to arrange an interview, contact Matt Kilcoyne, Head of Communications, matt@adamsmith.org | 07904 099599.

The report ‘Doing our duty: how Britain can help Hong Kong’s citizens’ 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.

UK banking system an accident waiting to happen

New report shows UK banks still sickly, nearly 12y on from run on Northern Rock

• Latest round of Bank of England stress tests conducted in 2018 drastically underestimated the vulnerability of the UK banking system

• UK banks are still highly leveraged and a major shock could cause the banking system to collapse

• Had the Bank carried out its tests using market valuations of bank capital and appropriately high pass standards, then all major UK banks would have failed

• Big 5 UK banks have issued over £34 of debt for every £1 of equity

• Average Leverage of the Big 5 Banks has increased from 27.8 in 2017 to 34.4 in 2018

• The Bank of England’s stress tests are worse than useless because they offer false risk comfort that leaves the economy needlessly exposed

The British banking system is an ‘accident waiting to happen’ according to a new report released today by the Adam Smith Institute, nearly 12 years after the run on Northern Rock heralded the beginning of the financial crisis.

Kevin Dowd, author of the report and professor of finance and economics at Durham University, says the Bank of England’s stress tests continue to greatly overstate the financial resilience of the UK banking system.

High bank leverage was a key contributing factor to the severity of the financial crisis and UK banks are still highly leveraged.

“In market-value terms, the big 5 UK banks have issued over £34 of debt for every £1 of equity. That’s an enormous level of leverage,” said Professor Dowd. “Indeed, the banks were in worse shape in 2018 than they were the year before. What we are seeing is retrogression.”

Market-valuations of bank capital are more reliable than book valuations and indicate that markets believe that banks are still carrying large hidden losses that are not reflected in book valuations or in the stress tests. And if the markets don’t believe the Bank of England, why should anyone else?

Like their predecessors, the central purpose of 2018 stress tests is to persuade us that the UK banking system is strong when the evidence indicates that it is not. The banking system is weak now, before any ‘worse than financial crisis’ stress scenario, not strong after one.

The free market think tank argues that stress tests are compromised by conflicted objectives, an inadequate number of stress scenarios, low pass standards, reliance on unreliable metrics and questionable modelling.

Had the Bank carried out its stress tests using market values and using more appropriate pass standards, then the banks’ true weakness would have been revealed. The ‘worse than useless’ stress tests provide the public with false reassurance about the financial health of their banks.

Professor Dowd suggests that the stress test programme is so severely compromised that it should be scrapped. Instead, the Bank of England should focus on the reforms really needed to get the UK banking system on its feet – raising capital standards, shutting down zombie banks, establishing tighter corporate governance and reforming accounting standards.

Kevin Dowd, senior fellow of the Adam Smith Institute and author of the report, said:

“The fifth set of Bank of England stress tests is about as useful as a cancer test that cannot detect cancer. The stress tests seek to demonstrate a financial resilience on the part of UK banks that simply isn’t there.

“The fact that UK banks are still weak after a long economic recovery is testimony to the failure of the Bank of England to perform its core job function and rebuild the strength of the banking system after the trauma of the crisis.

“The Bank of England constantly sounds a false alarm on Brexit but is hopelessly complacent about the banking system. It should stop its Project Fear nonsense and focus on what is should have been doing all along, fixing the banking system.

“Another crisis is a matter of time and neither the UK banking system nor the Bank of England are remotely ready for it.”

Matthew Lesh, Head of Research at the Adam Smith Institute, said:

“A little bit of knowledge can be a dangerous thing. The misleading conclusion of the Bank’s stress tests is serving to hide the underlying vulnerability in the sector. We heard that ‘everything is fine’ before the financial crisis - which resulted in hundreds of billions of pounds of taxpayer bailouts and economic and political effects that are still being felt today. We should be wary of allowing banks to maintain their highly leveraged position on the presumption that their risky behaviour will be bailed out by taxpayers."

Notes to editors:

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

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.