Economy & Tax

Saving the Golden Goose: how the UK's Crypto Rules Narrowly Avoid America's Securitarian Trap

The UK currently stands at the forefront of competition for cryptocurrency and digital asset investment- and it is already the world’s third largest digital asset economy.

Britain’s success is due to our more permissive regulatory regime, compared with our international peers, most notably the US.  Although concerns were raised that the October 2023 reforms by the Financial Conduct Authority (FCA) have made the UK more restrictive, these measures concentrated on countering fraud. The UK has a good balance between consumer protection and support for business growth and development.

This advantageous approach contrasts with that of the USA, which is stifling innovation in the digital currency sector. Rather than treating crypto as a currency, the US regulates it in the same way it would an unstable asset such as a bond or a stock. This means it can be taxed if it fluctuates in value, and adds further layers of complex regulation, making the US less competitive in the process. 

As this paper highlights, if the Prime Minister wishes to achieve his stated goal to make the UK a ‘global crypto asset technology hub,’ the government must resist calls to over-regulate.

The Price of Everything, the Social Value of Nothing: How the Social Value Act damages British procurement

In this paper, our Director of Research Maxwell Marlow analyses the Social Value Act 2012 and its effects on the procurement process in the UK. The Social Value Act, and accompanying Social Value Model, stipulate over 40 regulations which essentially micromanage British businesses and their operations in order to execute social policy. However, this ups cost, lowers competition for SMEs against incumbents, and adds further waste to the procurement system.

The paper recommends:

  1. A new review of the Social Value Act by the Public Accounts Committee, ensuring that it can be evaluated to provide fairness and transparency to SMEs.

  2. A review of the reporting metrics for Model Award Criteria (MAC), removing social and economical engineering of companies from criteria.

  3. A review of the appropriateness of MACs on a contract-to-contract basis, rather than on whole system proscriptions.

  4. The retraction of the Social Value Act.

  5. A return to Most Economically Advantageous Tender, from Most Advantageous Tender.

Innovative Answers for Britain's Barriers

In this discussion paper, Dr Madsen Pirie (President, Adam Smith Institute) suggests ten solutions to Britain’s most intractable problems.

Key Suggestions include:

  • UK citizens should be given a Health Guarantee card, like a credit card, that guarantees them free treatment, funded by the state. In the event of any delay in access to treatment, the card should be valid for private sector treatment, with a cap on costs similar to those widely used in automotive and housing insurance. Tax deductions should also be introduced for those who use supplementary private insurance to save the state money and resources. 

  • The UK should look to follow the example of Finland’s successful Housing First model in order to combat homelessness. Under this system, tenants are housed in apartments, which they help to pay for if they are financially able, whilst receiving support services from trained personnel. Due to the savings to the emergency services which are no longer required, the project’s costs can be recouped over a six year period.

  • Abolish the interest surcharge on student loan repayments in order to reduce defaults. Australia - which has a much lower default rate with their student loan system - also has a lower salary threshold for when repayments start (compared to the UK).

Winning the Peace: How to safely unfreeze the economy and unleash British enterprise

The ASI’s latest paper, authored by ASI Deputy Director Matt Kilcoyne and Head of Research Matthew Lesh, explores how to safely unfreeze the economy and unleash British enterprise:

  • The protection of public health in response to Covid-19 is raising extraordinary economic challenges.

  • The Government has tried to “freeze” the economy using the Job Retention Scheme, generous business loans, and various handouts. But freezing the economy is the easy part. Just like we have not mastered the second phase in cryogenics — unfreezing a human — we do not know how to successfully unfreeze an economy. Both are complex systems that cannot simply be turned “on” and “off”.

  • The economic scarring has already begun. Thousands of businesses are shutting down, undermining the productive capacity of the economy. There have already been millions of job losses. Many who lose their job during a recession never find one again. Young people who are trying to enter the workforce could experience long-run lost earnings.

  • Freezing the economy has also had extraordinary fiscal costs: increasing government debt by hundreds of billions. While this was justified to prevent a total economic collapse, it is simply unaffordable for these sorts of measures or this level of state expenditure to be maintained.

  • The Government is now loosening the public health restrictions that have undermined economic activity through a phased plan. The focus must now turn to how to successfully unfreeze the British economy.

  • The next stage of the recovery will require a new approach guided by following principles:

    • Prosperity: The focus must shift from redistributing a shrinking economic pie to expanding the pie by embracing private sector entrepreneurship and innovation, and earned success to get people back to work.

    • Temporariness: Extraordinary emergency measures to “freeze” the economy that undermine long-run prosperity must not be allowed to become permanent.

    • Flexibility: Existing ways of thinking will not suffice, it is necessary to be adaptive to circumstance, pursue industry-specific measures and implement radical policies.

    • Common sense, not micro-management: The state should not seek to micromanage the reopening of the economy, but rather encourage businesses to adapt to new circumstances.

    • Supporting people, not businesses: Support should be broad-based and focused on helping individuals, not on bailouts to politically favoured companies.

    • Accepting failure: The economic structure and businesses must adapt to new circumstances; this will mean accepting some previously viable firms are no longer sustainable.

  • This paper outlines a plan to help reboot the economy in the short to medium term, to “unfreeze” the economy in the least possible damaging way.

  • In practice, this means taking steps to reduce the footprint of the government in the economy, boost employment, reform insolvency arrangements, support hospitality and retail, reduce the tax burden on enterprises, support housing reform, improve accessibility to child care, champion trade and immigration, and back innovative new transport.


Recommendations

Fiscal and temporary measures

  • Abstain from increasing taxes that hamper economic activity

  • Replace the pension triple lock with a double lock to improve intergenerational fairness and the Government’s fiscal position

  • Pursue a phased withdrawal of temporary spending and interventions that undermine prosperity

Employment

  • Phase the Coronavirus Job Retention Scheme into Universal Credit to ensure continued incentive to work

  • Suspend 45 day redundancy consultation notice to discourage businesses from beginning to make staff redundant and encourage hiring

  • Exempt microbusinesses from written Covid-19 risk assessments to reduce the red tape burden 

  • Raise the employer’s National Insurance threshold to encourage hiring

  • Defer the introduction of the single employment regulatory body to avoid new costs to hire

Insolvency and liabilities 

  • Fast-track forthcoming insolvency reforms allowing firms to continue to operate while insolvent for a limited period to allow restructuring

  • Introduce a temporary Coronavirus Insolvency Limited Liability Forgiveness Scheme to prevent viable businesses from going bankrupt 

Hospitality and retail

  • Allow the world’s largest beer gardens in public parks during the summer to save our pubs and breweries

  • Fast track approval of drone and robot deliveries for of food, drinks, and shop purchases to support hospitality and retail

  • Waive the license fee for a new pub that establishes on a site of a previous establishment that has become insolvent to encourage business turnover

  • Scrap Sunday trading laws to enable greater social distancing and economic activity

Taxation and investment

  • Abolish the Factory Tax, by allowing for the immediate full write off on capital investments, to encourage business investment

  • Allow companies to bring back revenue from overseas tax-free for 18-24 months to encourage greater investment in the UK

  • Combine enterprise investment schemes and refocus on private capital

  • Scrap the Key Information Document for Investment Trusts to encourage investment 

Housing 

  • Extend Permitted Development Rights to allow for dynamic repurposing of office space to housing, with design codes for amenity and external facade

  • Allow councils to continue charging business rates on property converted from commercial to residential to prevent revenue losses 

  • Provide a temporary suspension of stamp duty to get housing market moving

  • Reduce time in homesale conveyancing to encourage activity

Child care

  • Liberalise staff to child ratios to reduce the cost of childcare 

Trade and immigration

  • Unilaterally approve Covid-19 treatments, vaccines and other goods such as personal protective equipment and testing processes from comparable countries to speed up medical innovation 

  • Provide an automatic extension of visas to immigrants to encourage necessary migration and reduce international travel

  • Instigate amnesty for illegal migrants to encourage proper public health support

  • Unilaterally recognise qualifications and occupational licenses from other developed countries to help fill skills gaps

Transport

  • End the Transport for London fare freeze and increase ticket prices for public transport to discourage unnecessary use of public transport

  • Replace the ‘Congestion Charge’ with a national dynamic road pricing scheme to better manage the flow of people

  • Pursue a liberal approach to e-scooter legislation to encourage social distanced transport

Shifting out of Lockdown: The Four Days On, Ten Days Off Model

The ASI’s latest paper, authored by Imperial College Professor Keith Willison and ASI Head of Research Matthew Lesh, outlines a creative way to phase out the lockdown using a ‘four days on, ten days off’ cyclical strategy:

  • The COVID-19 lockdown was justified for clinical reasons, however it is broadly acknowledged that it is causing substantial economic, educational and social disruption and should be phased out as quickly as is safely possible.

  • The UK has now passed peak infections, but it remains in the danger zone. There is concern that reducing the draconian lockdown measures could cause a second peak that overwhelms the healthcare system and necessitates a more damaging second lockdown. The public is also worried about loosening the lockdown, with many expressing that they would prefer to not return to work or send their children to school.

  • It is now necessary to develop creative solutions that enable people to get back to work while avoiding a second peak of infections. 

  • In order to be effective, these solutions should allow for variation in local circumstances while ensuring broad safety of the public.

  • One such solution that should be considered, along with other measures such as social distancing, ‘track, trace and quarantine,’ and hygiene, is the Weizmann Institute of Science’s ‘Four Days On, Ten Days Off’ cyclic strategy:

    • Populations would be divided into two groups of households. Each group would work or attend school for four days, Monday through Thursday, and then enter a 10 day period off. Each group works or attends school while the other group is off. Individuals in the two groups do not interact with each other.

    • The advantage of this approach is that it would limit social interactions, reduce pressure of public transport and enable greater social distancing in schools and workplaces by halving numbers.

    • Individuals who become symptomatic would be likely to do so during their ‘off’ period, limiting their ability to unintentionally spread the virus.

    • It would immediately allow a large number of people who are not able to work or study to return to 40% employment or education, reducing the impact of the lockdown while keeping people safe.

    • Extensive modelling has found it would maintain R0 below 1, therefore reducing the probability of a second peak. The specific work/off work ratio can be varied in response to observations.

  • If the Government wants to safely reopen the economy while avoiding a surge in infections that overwhelms the healthcare system, they should:

    • avoid excessively prescriptive guidance to business about how to safely operate;

    • allow businesses to develop innovative, sector and company-specific protocols;

    • encourage creative and innovative methods in how to operate such as the ‘Four Days On, Ten Days Off’ ; and

    • trial new approaches, such as the ‘Four Days On, Ten Days Off’ spearheaded by the Weizmann Institute, in the civil service and education sector.


Reopening Britain: The economic urgency

The ASI’s latest paper, written by ASI Director Eamonn Butler and Head of Research Matthew Lesh, explains the urgent need for the Government to plan an exit from the economic lockdown:

  • The economy is not a machine that can be simply turned “on” and “off”. It is a complex system, dependent on billions of relationships that are falling apart.

  • The outbreak of a deadly pandemic has necessitated the forced closure of one-third of the economy – causing a sizeable immediate decline in incomes and rise in unemployment.

  • The short-term damage has been universally acknowledged. However, many analysts and politicians are substantially underestimating the damage being done and the challenge of reanimating the economy after the lockdown.

  • The impact of closures spreads through an economy in the same networked fashion as the virus itself spreads between humans: each business’s problems affect several others.

  • The longer the lockdown, the more businesses will run out of cash, lose hope, and shut down. This will cause substantial unemployment – the extent of which may currently be hidden by the ability to furlough employees. 

  • The impact of the lockdown grows deeper and faster over time. Each business that closes causes problems for its staff, suppliers and customers, and their problems in turn knock on to others and on and on.

  • While the Government’s policies are logical and necessary, escalating economic hardship is inevitable. It is necessary to stem the damage as quickly as possible to prevent massive economic collapse.

  • ‘Lives versus livelihoods’ is a false dichotomy — a strong economy is what keeps people fed, housed, and ensures we can afford quality health services. Economic contractions are not only associated with lower quality of life, but also worse health outcomes and loss of life.

  • The UK is falling behind other European countries — including Austria, Czech Republic, Denmark, France, Germany, Italy, Norway, and Spain — who have developed and are beginning to execute strategies to reopen their economies.

  • If the Government wants to safeguard the people’s lives and livelihoods they must:

    • (1) develop, and release, a phased plan for lifting the lockdown to provide greater confidence for businesses and citizens:

    • following the best possible public health research and latest evidence;

      • explicitly aiming to prevent subsequent mass outbreaks and loss of life;

      • including a strategy for decentralised mass testing, and isolation and tracing of cases while protecting privacy;

      • encouraging physical distancing, maintaining limits on mass gatherings and special measures for at-risk groups in early stages;

      • allowing as many businesses as possible, as quickly as possible, to reopen their operations;

    • (2) scale back the state’s extensive role in the economy after the crisis to avoid crowding out the rebooting of the private sector; and

    • (3) introduce policies, both permanent and temporary, that will enable the economy to bounce back after the crisis, including cutting excessive red tape and taxes that discourage investment.


Abolishing The Factory Tax: How to Boost Investment and Level Up Britain

The ASI’s latest paper, written by ASI Fellow Sam Dumitriu and academic economist Dr Pedro Serodio, argues that the Government should Abolish the Factory Tax to level up Britain and boost wages:"

  • The UK has had the lowest level of private investment in fixed capital as a share of GDP in the G7 for over two decades. This low level of investment has contributed to the rapid downfall of the UK’s manufacturing sector, which has declined by more than any other G7 nation.

  • Britain’s corporate tax system is exceptionally hostile to capital investment. The UK is ranked 33rd in the OECD on the Tax Foundation’s Capital Cost Recovery index.

  • The UK’s system of capital allowances fails to account for inflation and a real return on capital, as a result businesses cannot fully deduct the costs of investments in equipment as they can with other day-to-day expenditures such as wages.

  • The capital stock per worker in manufacturing is more than twice as high as it is in other areas of the economy. The UK’s corporate tax treatment of investment in fixed capital is in effect a Factory Tax, holding back growth in parts of the country that are relatively more dependent on manufacturing, such as the North and Midlands.

  • The bias in the tax system against investment is a contributing factor to Britain’s productivity crisis by discouraging investment. Output per hour worker has grown at its slowest rate since the industrial revolution over the last decade, at just 0.3% a year. 

  • Eliminating this Factory Tax, by allowing businesses to immediately write-off capital expenditures, would boost investment by 8.1% and labour productivity by 3.54% (£2,214 per worker) in the long-run.

  • It would also improve the UK’s Corporate Tax Rank on the Tax Foundation’s International Tax Competitiveness Index from 15th to 6th and move us from 33rd to joint 1st best treatment of fixed capital investment in the OECD.

The ASI has also launched a campaign to Abolish the Factory Tax:


Safe to Scoot: How Legalising E-scooters Will Save Lives, Bust Congestion and Help the Environment

A new paper by Matthew Lesh, the ASI’s Head of Research, makes the case for why and how the United Kingdom should legalise e-scooters:

  • Electric scooters — or ‘e-scooters’ — provide low-cost, environmentally-friendly ‘last mile’ transport. They are a central plank of the ‘micromobility’ revolution that is transforming urban transport.

  • E-scooters are among the fastest growing technologies in history. Since the first dockless rental scheme in September 2017, they have provided hundreds of millions of rides and are now available in 350 cities worldwide. 

  • The United Kingdom is the last major European country where it is illegal to use e-scooters on public roads, bike paths, and pavements. This is despite surveys and usage indicating they are overwhelmingly popular where they are legal.

  • E-scooters are safe. They have comparable injury rates to bicycles. The legalisation of e-scooters could itself increase safety by providing clear rules and education. It would also provide ‘safety in numbers’: the higher numbers of a road user type (i.e. pedestrians, bicyclists) associated with proportionally fewer accidents.  

  • One-third (33%) of e-scooter rides replace car rides, helping reduce CO2 emissions, NOx pollutants and busting congestion. 

  • The UK is missing out on the economic benefits of the e-scooters industry, which is worth billions and responsible for thousands of jobs. E-scooter users also spend in local economies helping struggling high streets and, by reducing travel times and road congestion, boost productivity.

  • E-scooters provide a transport option for communities and routes underserved by traditional public transport, helping lower income and minority communities. E-scooters have a complementary relationship with public transport.

  • If the UK Government wants to enable technology of the future, help the environment, and reduce congestion, they should:

    • Amend the outdated Highways Act 1835 and the Road Traffic Act 1988 to legalise e-scooters;

    • Begin open trials in cities across the UK, with associated data collection and independent studies;

    • Allow cities and councils to develop a locally appropriate regulatory regime;

    • Adopt a liberal approach to regulation, avoiding limits on e-scooter numbers, companies or restrictions such as helmet requirements; and

    • Invest in education and appropriate infrastructure, including parking spaces and separated bike lanes.