Drivers of Safety: The outdated practice of MOT testing

Economist Alex Hoagland puts the MOT to the test. He finds that mandatory vehicle safety inspections have few safety benefits and that motorists could be up to £250m better off each year if they were scrapped.

Executive Summary:

  • The MOT requires drivers of any vehicle older than 3 years to pay between £30 and £80 annually for vehicle safety inspections, generating over £250 million in yearly revenue for more than 20,000 garages throughout Britain. However, this industry has not been rigorously evaluated for over 20 years.
  • The idea of vehicle safety inspections is an outdated one stemming from widespread use of unsafe vehicles in the 1950s. Over the years, reforms have added burdens to drivers rather than removed them due to an unsubstantiated assumption that inspections increase safety. However, this assumption has proven to be inaccurate.
  • As vehicle technology increases, annual safety inspections are rendered more and more useless. While the MOT has remained essentially unchanged for half a century, improvements in vehicle safety technology have spurred a 55% decline in traffic fatalities over the last 10 years.
  • Mechanical failure accounts for merely 2% of all accidents in the United Kingdom, the same rate as other regions that do not require comparable inspections (for example, the greater portion of the United States). A recent 2018 study performed in the United States shows that discontinuing these inspections has no effect on either the rate or severity of accidents due to mechanical failure.
  • Furthermore, over 65% of accidents in the United Kingdom are due to driver-specific behaviours, such as driving with excessive speed, driving under the influence of alcohol, or forgoing the use of a seat belt while travelling—none of which an annual MOT test can prevent. 
  • If the MOT is not abolished, it should at least be overhauled substantially to place emphasis on driver-specific behaviours, rather than vehicle-specific ones. At a minimum, the age of testable cars ought to be increased and the frequency 2 of inspections reduced.

 

 

1 Million Years of Life: How harm reduction in tobacco policy can save lives

Research Economist Daniel Pryor sets out the case for a liberal harm reduction policy in tobacco. He argues that an evidence-based harm reduction approach that expands reduced-risk options for current smokers can save lives while respecting individual choices.

The key findings are:

  • Young female smokers are being left behind in our vaping revolution; if young women vaped at the same rate as young men, over one million years of life could be saved.
     
  • A liberal, evidence-based approach to tobacco harm reduction has been shown to provide enormous gains for public health, both domestically and internationally.
     
  • Sensible reforms to e-cigarette advertising restrictions could help many smokers switch by combating widespread misperceptions about the risks of vaping.
     
  • Repealing counterproductive EU regulations on e-cigarettes and encouraging public bodies to reexamine their indoor vaping bans will also help more smokers make the switch.
     
  • While e-cigarettes are having a significant positive impact on public health, it's important to ensure smokers have a wide choice of reduced-risk products since different smokers have different preferences.
     
  • Creating a new taxation and regulatory category for ‘heat-not-burn’ and similar products will encourage innovation to ensure as many smokers as possible switch to safer alternatives.

Stable Footing: Ensuring a sustainable future for social care

Eamonn Butler and Paul Saper argue that a long-term solution for social care requires older but wealthier people contributing more to their own generation's care costs.

Executive Summary:

The Problems:

  • Although the existence of the future funding crisis in adult social care is widely acknowledged, its scale is greatly underestimated. Factors in supply and trends in demand both fuel this crisis.

  • On the demand side, the demographic trends are understood. But care budgets cover not only the needs of the elderly; they also the needs of younger people with physical and intellectual disabilities, whose numbers are increasing.

  • More women participate in the economy, making it harder for them to care for relatives. Many family carers are themselves elderly and limited in what they can do. And families are more dispersed, with fewer people living near their elderly relatives. Meanwhile, inefficiencies and perverse incentives force more people with social care needs onto the NHS, leading to unsustainable budget pressures.

  • On the supply side, it is difficult to induce people to save for something that only one in four of them will need. And insurers are unwilling to step in because of the ‘long-tail’ risk that some individuals may need many years of expensive care. 
     
  • The system is a lottery and widely perceived as unfair. The old mechanism by which self-pay residents subsidised public provision is, increasingly, no longer working. 
     
  • Care at home often flouts employment and wage legislation, and many of those hired as live-in carers have low skills and few qualifications, risking poor quality care. A crackdown on this seems inevitable, meaning that other care options will have to be provided.

The Solutions:

  • Nearly all care homes with local authority-funded residents are at least 20-25 years old and no longer up to standard. We need a new mechanism to encourage pension funds, insurers and other long-term investors to invest in this segment of the market. If this were combined with efficient management delivered by independent for-profit or non-profit providers, chosen by the investing institutions and the local authorities, the latter would have access to lower-cost and better-quality provision than is currently available and allow them to phase out obsolete stock. 
     
  • We recommend that government creates the conditions for a long-term care insurance market by the state agreeing to pick up the long-tail costs of those who insure themselves after, say, six years. This would make insurance products viable and affordable so that individuals would be able to pool their risks and insure themselves, just as they do in other areas of life. Moreover, bringing in the insurance sector would bring more order into the market, as the insurers would be responsible for meeting the costs. 
     
  • At present, care at home is contracted on the basis of hours or number of inputs, with the focus on price rather than outcomes, and with no encouragement to integrate health and social care. This cannot continue in its present state and local authorities should look in future to contract with the new providers (who are waiting to come to the UK) who have developed technology platforms and more sophisticated caregiver recruitment, along with training plans that are the stuff of transformational change. Developing insurance products for long term care will also be a catalyst for network building and increased use of technology in this sector. We foresee that commissioners, who currently know what they are getting elsewhere in terms of quality standards, will want the same level of knowledge for the home care sector. 
     
  • Older people enjoy a number of benefits, from free TV licences and Winter Fuel Payments, to lower rates of National Insurance before they reach pensionable age. These, and the pensions Triple Lock, should be reviewed, and the Personal Income Tax Allowance adjusted, so that older but wealthier people make more of a contribution to their generation’s care costs. 
     
  • A more rational and affordable care system will involve disrupting the market, but deliver greater supply, sustainability and fairness. Tinkering with the present system will not solve the looming crisis. What we need are new partnerships in a new market.

A Third Way for Britain's Railways

Britain's railways need more, not less, competition. Entrepreneur and rail analyst Adrian Quine sets out an alternative to the status quo to see off calls for re-nationalisation. 

  • Efficient infrastructure is the bedrock of a successful economy. For too long Britain has failed to take bold decisions and is lagging behind fast-growing economies such as China and India. The lack of new towns, airport runways, modern power stations and high speed internet is hampering UK growth.
     
  • The UK rail network is no exception and is a prime example of where investment is urgently needed. However it also needs a fundamental change in its structure too. The industry is facing crisis; public confidence is at an all-time low with growing calls for re-nationalisation worryingly gaining momentum.
     
  • Passengers are fed up with the status quo but nationalisation is not the answer.
     
  • Privatisation was supposed to bring about competition however this has not been achieved. British Rail (BR), a state run monopoly, has simply been replaced with largely non-competing privately-run franchises delivering the same uncompetitive model as was the case under BR.
     
  • The Department for Transport (DfT) stipulates exactly what a franchised train company can offer: dictating timetables, frequency, stopping patterns and even minor details such as whether a train has a catering trolley or not. Under the current model Train Operating Companies (TOCs) have very little room or incentive to show flair or innovation. What is needed is less central control, not more while protecting core services.
     
  • The current ‘one size fits all’ franchise model needs to be replaced with a system that is agile and best reflects the diverse needs of the passengers it serves. The railway must be competitive to encourage innovation, improve standards and drive down fares. 
     
  • Different railway routes serve different markets. The new structure needs to better reflect the specific needs of passenger types on each route – whether they be commuters, business or leisure travellers. There needs to be a better distinction between the commercial and social railway and to create bespoke models that best serve the passenger, communities, businesses, and taxpayer.
     
  • Flexible long distance train fares are some of the most expensive in the world. It is often cheaper to fly twice the distance. The current privatised railway model is largely immune from the basic principle of competition as each franchise is, in effect a monopoly in its own right.
     
  • This paper advocates a new, fresh and dynamic approach to running Britain’s passenger train services that best reflects the markets they serve while also driving down costs and improving the service for the end user. By creating choice, fares will be lowered, service standards will be raised and costs can be reduced proving a ‘win win’ for both passenger and taxpayer.

Read the full paper

Only Capitalism Can Solve The Housing Crisis

The housing crisis of ever rising prices and unaffordability can only be ended by a capitalist revolution in housing, argues leading architect Patrik Schumacher in a thinkpiece for the Adam Smith Institute.

Executive Summary:

  • Restrictive planning laws have led to enormous growth in London’s rental and house price to earnings ratios

  • Housing crisis is a failure of politics not markets and is the result of restrictive planning laws.

  • Government should resist calls to impose rent controls or mandatory long-term tenancies as they reduce supply and hamper labour mobility

  • Sadiq Khan’s plan to mandate that up to 50% of developments be “affordable” will discourage development and push up prices elsewhere

  • Micromanaging land uses creates high price distortions in our cities and should be abolished

To read the full essay, click here.

Prices not points: A post-Brexit immigration solution

  • As the UK prepares to leave the European Union in 2019, the government must create a new policy for immigrants from EU-member nations. It should also rethink its policies regarding non-EU immigrants as well. 
     
  • In recent years, UK immigration policy toward non-EU migrants has prioritised highly skilled workers. Free-movement migrants from within the EU have generally held low- or semi-skilled jobs and had strong labour force attachment. 
     
  • UK immigrants have higher education levels than natives, on average, and while the largest economic gains typically come from highly skilled immigrants, less-skilled immigrant workers make economic contributions as well. 
     
  • The empirical evidence indicates that immigration has had a negligible overall effect on natives’ employment, unemployment, and wages in the UK. However, a few studies conclude that the labour market prospects of less-skilled native-born workers have been harmed by immigration.
     
  • Reducing immigrant inflows, particularly of highly skilled immigrants, would create considerable economic costs in the short and long run. Admitting more highly skilled immigrants, from inside or outside the EU, is particularly vital to long-run economic growth. 
     
  • Auctioning employer permits to hire foreign workers would maximise the economic benefits of immigration and increase government revenue. 

Read the full paper

Monetary Policy After The Crash: Lessons Learned

  • Conventional monetary policy has serious flaws and contributed to the 2008 Global Financial Crisis. Since then, emergency monetary policy has been relatively successful but lacks clarity. We should take the opportunity to reform policy such that the same rules apply in good times and bad.
     
  • The Bank of England’s Open Market Operations (OMO) should be reformed to reduce discretion and provide financial markets with greater certainty.
     
  • We should replace the Bank of England’s 2% CPI Inflation target with a nominal income (NGDP) target. Under current policy, the Monetary Policy Committee (MPC) must distinguish between demand shocks and supply shocks. Moving to an NGDP target resolves this problem as nominal income is aggregate demand, reducing the epistemic burden on the MPC.
     
  • Central bank intervention should be restricted purely to managing the money supply.
     
  • Open Market Operations should be as neutral as possible, focusing primarily on gilts. Financial markets should know in advance which margins the Bank of England intends to exploit. For example, if the Bank of England owns more than a certain percentage of gilts of a specified maturity, they then extend asset purchases to a pre-announced basket of investment-grade bonds.
     
  • Monetary policy can buy policymakers time, but it is unable to solve underlying problems of low productivity. The Bank of England cannot raise the Natural Rate of Interest in the long-term, but free market supply-side reforms should be a priority for government.
     
  • Stress tests, designed to measure the ability of banks to withstand market shocks, are complex. This makes them vulnerable to being gamed and it leads to risks that can be felt across the financial system. Prediction markets provide the best chance we have of avoiding future bailouts by boosting market competition and punishing excessive risk taking.

Read the whole paper

Basic Income around the World: The Unexpected Benefits of Unconditional Cash Transfers

  • Replacing existing welfare systems with a universal basic income has the potential to streamline bureaucracy, eliminate welfare traps, and reduce poverty. 
  • The idea is being trialled by governments across the world including Scotland, United States, Canada, and Finland. These studies contribute to a growing body of evidence on the effects of basic income on employment and poverty.
  • While recently advocated by Labour's John McDonnell, basic income has a rich intellectual heritage on the free market right. Nobel Prize winning economists such as Milton Friedman, F.A. Hayek and George Stigler have advocated replacing existing welfare systems with a negative income tax (a form of basic income).
  • Automation and globalisation will deliver massive benefits for ordinary people, but they also run the risk of creating short-term mass unemployment. Existing welfare systems are ill-suited to handle the transition and mass retraining programmes rarely deliver their promise.
  • There is strong evidence that unconditional cash transfers are incredibly successful at alleviating poverty in the developing world. With studies in Kenya, Namibia, India and Uganda supporting the view that simply giving cash is one of the most effective forms of development aid.

Read the full paper here.

Back in the USSR: What life was like in the Soviet Union

A hundred years ago, the October Revolution brought about the biggest social experiment ever: The Union of Soviet Socialist Republics. Since its demise two decades ago, much has been written about its origin, and its politics, economics, and history more broadly. The field of Sovietology, once highly relevant to interpreting the USSR from the West, is now slowly dying, as its great scholars retire.

Almost everything that can be said about the USSR has already been said. Since the opening of the Soviet archives and the enactment of Glasnost, it has been known that the statistics now available to the world were the same statistics used by the Soviet leadership themselves to plan their economy. Long gone are the days of statistical trickery, common in Stalin’s times.

But there remain some historical questions that are of great interest to a curious reader. This book attempts to highlight some key aspects of the USSR to answer those questions. Some of those questions are probably familiar: How good was life there? Were there queues to buy food? How good were Soviet appliances? How advanced and powerful was their military? How did the USSR industrialise so fast? Was there poverty, unemployment, or inequality?

As mentioned, this book is explicitly not a general survey of the state of the art of Soviet history. While the content itself is state of the art, it is deliberately not general in scope. Each chapter addresses one question and one question only, drawing on every source available to answer it.

This book is accessible without prior knowledge, but it will be better enjoyed if the reader has previously read some introductory material. I recommend Red Plenty by Francis Spufford. While not academic, it does a good job in conveying the bigger picture. Broader in its scope, and extremely detailed, I recommend The Socialist System: The Political Economy of Communism, by János Kornai to understand how a socialist regime, in generic terms, has worked historically.

For textbooks about the history of the Soviet Union in general, I suggest The Rise and Fall of the Soviet Economy (Hanson), and Economic History of the USSR (Nove).

This book is divided into two sections. Section One is dedicated to the (in Marxist parlance) “base” of the USSR: its productive apparatus. Section Two explores some topics about its “superstructure”, such as food consumption or healthcare.

Due to the breadth of the topics covered, it is only possible to provide a relatively brief overview of them, and so some chapters may feel too dense for some readers. At the end of the book is a bibliography, so the interested reader can expand upon the themes explored in the book, and find some claims in their proper context.

The paper also reveals that...

  • In 1976 only two thirds of Soviet families had a refrigerator—the USA hit two thirds in the early 1930s. Soviet families had to wait years to get one, and when they finally got a postcard giving notice they could buy one, they had a fixed one hour slot during which they could pick it up. They lost their chance if they did not arrive in time.
  • In the same period, the USA had nearly 100m passenger cars. The USSR? Five million. People typically had to wait four to six years, and often as long as ten, to get one.
  • There was 30x as much typhoid, 20x as much measles, and cancer detection rates were half as good as in the United States.
  • Life expectancy actually fell in the Soviet Union during the 1960s and 1970s.
  • The USSR had the highest physician-patient ratio in the world, triple the UK rate, but many medical school graduates could not perform basic tasks like reading an electrocardiogram.
  • 15% of the population lived in areas with pollution 10x normal levels.
  • By the US poverty measure, well over half of the Soviet population were poor.
  • Around a quarter could not afford a winter hat or coat, which cost an entire month’s wages on average (the equivalent of £1700 in UK terms).

Read the book here.

Beyond the Call of Duty

  • There is about £7.5 trillion worth of property in the UK, but we tax it in strange and inconsistent ways: residential council tax is regressive and its valuation system hasn’t been updated since 1993; businesses pay at high rates; and homeowners pay rapidly escalating transactions taxes (stamp duty land tax), but private residences are part-exempted from inheritance tax and exempted from capital gains tax.
  • Transactions taxes are widely seen as especially damaging levies by economists: a representative Australian government review found their stamp duty destroyed 75p of wealth per £1 raised.
  • This makes stamp duty land tax around 4x more harmful per pound than income tax and 8x more harmful than VAT; some alternative taxes, like a carbon tax, would have small economic benefits rather than harming efficiency.
  • Taxing housing transactions keeps people in houses that are either too small, too big, or too far away from jobs, which are especially harmful when the housing supply is so tight, as it is in the UK today.
  • In the short term the Treasury should abolish SDLT and replace the lost revenues by reforming council tax – fixing the regressive top end of the system with a more proportional, or even progressive, tax on rental and imputed rental values would bring in the needed revenues easily, with far smaller economic costs.
  • Eventually the UK should rationalise its property taxation system by abolishing SDLT altogether, and then rolling council tax, and business rates into one system, with everyone paying the same rate, set at roughly 20% of imputed rental income, comparable to extending VAT to property services. This would be roughly fiscally neutral on a static analysis, but may lead to large increases in revenue over time, which should be used to reduce other taxes.
  • The UK should consider decentralising property taxation, but this is a separate step which does not need to be considered simultaneously. Abolishing SDLT is attractive whether or not the overall local taxation and governance system is reformed.

Read the whole paper.