ASI Budget Reaction features in City AM and The Telegraph:

Deputy Director Sam Bowman has written on the impact of the Chancellor's new living wage on employment for CityAM.

There is lots of research into what the minimum wage does to jobs. Of the 103 papers reviewed by economists David Neumark and William Wascher in a 2006 study, most of them showed that raising the minimum wage reduces long-term employment. Of the 33 most methodologically robust studies, 28 (85 per cent) demonstrated this.

The Office for Budget Responsibility estimates that the new living wage will see 60,000 job losses and a £1.5bn cost to the economy overall. This will be among over 25s, who may be their families’ main breadwinners. Until now, the Low Pay Commission has raised the minimum wage very slowly to avoid job losses, and it has often been very restrained in doing so. Those days are now over.

The people who point out that 1997’s minimum wage introduction did not lead to substantial job losses, without considering all the other evidence, are embarrassing themselves. Based on the evidence, there is a consensus: minimum wage hikes cost jobs.

Read the full article here.

Director of The Entrepreneurs Network Philip Salter's comments on the impact of the Budget on entrepreneurs are in the Telegraph.

Philip Salter, director of The Entrepreneurs Network, said: "The Government should leave the decision of what level to set any wage floors in the hands of the experts at the Low Pay Commission, so that business owners aren't forced to sack employees if payroll costs go up too much.

"If the Chancellor wanted to help the low paid, he should have slashed Employers' National Insurance, 70pc of which is paid for by the employees, rather than just increase the Employment Allowance from £2,000 to £3,000 a year."

Read the full article here.

Adam Smith Institute Budget Reaction: Mandatory Living Wage is a disaster

For further comments or to arrange an interview, contact Head of Communications Kate Andrews: kate@adamsmith.org | 07584 778207 Commenting on the Mandatory Living Wage announcement, Deputy Director of the Adam Smith Institute Sam Bowman said:

The new National Living Wage is a disaster that will condemn tens of thousands of people to long-term unemployment. Almost all of the most methodologically-robust academic studies indicate that increases in the minimum wage kill jobs. Low-skilled people, young people and ethnic minorities are the ones who are hit worst.

There is also evidence to suggest that higher minimum wages slow down the creation of new jobs, particularly in sectors that employ large numbers of low-skilled workers. Firms may also respond to this by cutting back on non-monetary worker compensation like break times and sick leave, to offset their increased labour costs.

Britain’s experience with the minimum wage has been benign so far because the Low Pay Commission’s remit has always been to minimise job losses. It has done this admirably, restraining hikes like this. This can no longer be the case.

There is no magic wand we can wave to make workers more productive. Raising the National Insurance threshold for low-income workers would have given them more take-home pay and created jobs. But that would have required spending cuts or tax rises elsewhere, so the Chancellor has taken the politically-easy way out. If the OBR’s estimates are to be believed, today the Chancellor will have put 60,000 people out of work.

Notes to Editors:

For further comments or to arrange an interview, contact Kate Andrews, Head of Communications, at kate@adamsmith.org | 07584 778207.

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.

Sam Bowman's comments on Sunday trading hours feature in City AM

Deputy Director Sam Bowman's comments on the Chancellor's plan to extend Sunday trading hours have featured in City AM:

The Adam Smith Institute’s deputy director Sam Bowman welcomed the change: “Brits will be able to shop when they want, where they want. This will only be opposed by nosy moralisers who fret about other people’s consumerism. Some people enjoy shopping – get over it!”

Read the full article here.

Press Release: Scrapping Sunday trading laws would be a huge flourish by the Chancellor

Commenting on the Chancellor's plan to extend Sunday shopping hours, Deputy Director of the Adam Smith Institute Sam Bowman said:

Scrapping Sunday trading laws would be a huge flourish by the Chancellor. These laws are archaic and can be hugely inconvenient for people who rely on budget supermarkets for their groceries, who don't keep traditional working hours, or who just don't like spending Sunday evenings at home in front of the TV.

The existing laws harm retail workers by reducing the number of hours available to them to work. And getting rid of them means Brits will be able to shop when they want, where they want. This will only be opposed by nosy moralisers who fret about other people's consumerism. Some people enjoy shopping - get over it!
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.

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

Read the Independent's letter page here.

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

Read the letter here.

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.