Eamonn Butler: The Chancellor should cut CGT in his Budget. Higher rates have been counter-productive.

Dr Eamonn Butler is Director of the Adam Smith Institute. Follow Eamonn on Twitter.

The reason that Moody’s gave for downgrading the UK’s AAA status is that, although the Chancellor remains committed to sound public finances, there is precious little economic growth around to help him.

Quite simply, when you, or I or a government are deeply in debt, only two honest choices are available to us. We have to earn more or spend less.

Before this government was formed, many of us argued that there needed to be real and significant savings – what the BBC would call ‘deep cuts’ – in public expenditure. It would mean closing whole programmes, maybe even whole department, and focusing expenditure on only the top priorities.

But while politicians are very good at spending more, spending less does not come naturally to them. George Osborne figured that he could leave spending more or less unchanged, and that growth would rebalance the economy, leaving the state sector as a smaller, more affordable proportion of the whole. But that just hasn’t happened. Our customers in the US and EU are suffering, customers and businesses at home are sitting on their hands to see what happens, and people just aren’t making investments for the future.

Dr Eamonn Butler: Wind power - the more you have, the bigger the problems

Dr Eamonn Butler is Director of the Adam Smith Institute. Follow Eamonn on Twitter.

“Curse this wind,” said Spike Milligan on The Goon Show. “I should never have eaten those balloons.”

Today it is the wind farmers who are cursing the wind. It just won’t blow consistently enough to make their kit run efficiently. Which is why there is so much talk about building more and bigger turbines – generating even louder curses from the people who live within sight of them.

With wind farms now well established in the UK, practical experience is now taking over from the original – and apparently optimistic – theory. Many people, at the start, presumed that turbines would produce no CO₂ at all, except that used in their manufacture. That was always naive, but estimates of the actual life-cycle CO₂ emissions from wind turbines vary massively, from 5 to 100 grams equivalent per kilowatt-hour of electricity produced.

It’s our accursed weather again. When wind speeds vary inconsistently, there are wide variations in power output at different times and in different places. So if power companies are to keep the lights on, they need other, backup generation systems – mostly, fossil-fuel generators. Exactly how much backup they need will depend not just on the wind variability but on the nature of the grid itself – things like the distance between the hills where the turbines are located and the city you need to get the power to. But let’s face it, the CO₂ produced from that backup is an inevitable part of the wind-turbine deal.

So how much of a reduction in CO₂ emissions can turbines actually produce? A report released this week by the Adam Smith Institute reckons it is about 18% – absolute tops. We could never have more than a fifth of our electricity produce by wind precisely because of the need for backup alternatives, and even wind produces some CO₂ emissions.

Dr Eamonn Butler: Lords reform, Hayek-style

Dr Eamonn Butler is Director of the Adam Smith Institute and author of the forthcoming book "Friedrich Hayek: The Ideas And Influence Of The Libertarian Economist" (Harriman House). Follow Eamonn on Twitter.

The government of a free people must be a limited government. Freedom means we minimize coercion. Only the state is allowed to use force – and even then, only to resist and discourage coercion by others. But we cannot trust our leaders with power any more than we should trust ourselves with it. Hence the need for constitutional restraints on its use.

Some Liberals – and liberals – argue for House of Lords reform as being more democratic and accountable, and that in a genuinely bicameral government, each elected chamber of Parliament would restrain the other. 

Unlikely. Little is achieved by separating powers that are themselves unlimited. In the House of Commons, ministers have all the powers than George III had at his zenith. As power drifted from monarchs, it simply ended up in Parliament. The institution that was originally set up to protect the general public from the unlimited power of the executive now harbours that same executive. And many of the MPs who should be defending us against such power cannot in fact wait to wield it.

Dr Eamonn Butler: Why have an inquiry into the banks when the politicians are to blame?

Dr Eamonn Butler is Director of the Adam Smith Institute. Follow Eamonn on Twitter.

Do we need an inquiry on the Libor scandal? No. The boom phase of every boom-bust cycle breeds this sort of excess and dishonesty. It is to be expected. All another banking investigation will conclude is that we need more curbs on the banks. That might cure the symptoms – quite probably by killing the patient – but it will not prevent the disease from coming back.

Instead, we would be much better investigating and curbing the excess and dishonesty of the politicians who created the artificial, unsustainable boom in the first place, and thereby encouraged the banks – and we borrowers too – to make some pretty massive mistakes and do some pretty colourable things.

There have been so many boom-bust cycles over the decades that by now we ought to be able to recognise the pattern of what occurs. In the boom phase, business is great. Money seems to be growing on trees. Loans are cheap. Every investment becomes affordable. House prices spiral upwards, so people take out bigger and bigger mortgages. Every deal and every business works brilliantly. Every risk pays off. Sure, there are some sharp operators lining their own pockets, but who cares, when everyone's having such a good time?

In the bust phase, the exact opposites are true. Money is short. Credit is tight. Investments made in the boom phase now fail and have to be written off. House prices splutter, and people can no longer afford their mortgage payments. Businesses go bust. Even small risks come to look frighteningly dangerous. And the sharp operators suddenly feel the heat of people's anger as cash-strapped individuals and businesses start caring about the pennies again.

Dr Eamonn Butler: It's Tax Freedom Day today. Yes, for almost five months you've been working just to pay taxes.

Dr Eamonn Butler is Director of the Adam Smith Institute. Follow Eamonn on Twitter.

Congratulations! Today is Tax Freedom Day. It’s that point in the year when you finally stop working for the Treasury and start working for yourself. Yes, it’s amazing but true – you work nearly five months of the year solely to pay taxes. You are left with only seven months of the year to provide for yourself.

For 149 days, from New Years’ Day, through the Iran oil embargo, the Arab Spring, the second Greek bailout, the announcement that Encyclopaedia Britannica is scrapping its print edition, the picture of North Korea’s exploding rocket, the $120m sale of The Scream, your whole working energies have been absorbed by the black hole of HM Revenue & Customs – even that extra day of February 29, this being a leap year. You have paid income tax and national insurance on what you earn, VAT (at its new, higher rate) on what you spend, corporation tax on your business, fuel and vehicle duties on your motoring, council tax on your house, stamp duties on your transactions, excise duties on your cigarettes, beer and gambling, inheritance tax on you late mother’s estate, air passenger duty on your holiday flights, climate change levy on your gas and electricity bills, and a lot more besides.

And that 149 days of thraldom to the Treasury, believe it or not, is only the burden suffered by the average taxpayer. If you earn above the average, you pay even more on what you earn; if you have a bigger house, you pay more council tax and stamp duty; if you take longer-haul flights, you pay more on those; and since you probably buy more stuff, you pay more tax on all that, too.

Eamonn Butler: Disillusionment with politicians is so great there is serious talk of clipping their wings

Dr Eamonn Butler is Director of the Adam Smith Institute. His new book Public Choice – A Primer is published by the Institute of Economic Affairs and can be downloaded for free here.

For most people, politics is an utter turn-off. We are all exhorted to take more interest in our community and how our country is governed – and in the debates about our schools, the health service or roads. But few people actually do. Why is that, when so much is at stake? Why do we leave the future of our nation and our institutions to the few?

Partly because we feel that getting involved in politics will not make a scrap of difference. It is more likely that you will be run over on your way to the polling station than that your vote would actually make a difference. The question isn’t exactly ‘Why take the risk?’, but it certainly is ‘Why bother?’ And it is a question that increasing numbers of people ask themselves: despite all the efforts to make us vote, fewer and fewer of us do.

Perhaps we figure that, even if by some million-to-one chance our vote did make the difference in an election, the people we elect would still do pretty much the same. Like pre-revolution France and Russia, we seem to be governed by a completely separate class – not a hereditary aristocracy, but an elected one. Politicians have become full-time political professionals. Officials act like our masters rather than as our servants. Journalists trade favourable stories for information, in the kind of insider trading that would land any businessperson in jail – but not politicians or spin-doctors, it seems.

Dr Eamonn Butler: The idea of forcing the banks to keep more ‘safe’ assets at hand is equally misguided

Dr Eamonn Butler is director of the Adam Smith Institute. The briefing paper BankReform: Getting the Policy Right and the full report Bank Reform: Can we Trust theVickers Commission are available here.

A short while ago, George Osborne set up the Independent Commission on Banking (ICB), telling it to look for ways to improve the strength of the banking system.

What he didn’t say publicly, but everybody knew, was that he was looking for ways to spare the government having to bail out banks in the future. And so the Commission came up with two recommendations aiming at just that. One would be to restrict government bailouts to high-street banks, which would be ‘ring fenced’ from the banks’ other, international investment, business. And the second was to impose higher capital requirements – forcing the banks to hold more ‘safe’ assets as a cushion against future crises.

These recommendations are wrong and will damage Britain’s banks, raise the cost of borrowing for small firms, and cause our economic stagnation to drag on – right up to the next election, which cannot be a welcome prospect for Mr Osborne and his colleagues.

The ICB came up with the wrong answers because it completely misdiagnosed the problem. It wasn’t ‘risky’ investment banks that sparked the UK crisis. It was the ‘retail’ banks and building societies like Northern Rock and HBOS. They lent too much to people who could not repay, bought dodgy US investments they did not understand, pursued flamboyant takeovers, and borrowed to much to pay for it all.

Dr Eamonn Butler: There is no question that the EU comes at a huge and growing price in economic terms

Dr Eamonn Butler is director of the Adam Smith Institute.

Much of today’s parliamentary debate on the EU referendum proposal will focus on the constitutional argument that Maastricht, Lisbon and other major changes to the way the UK is governed were enacted without anyone asking electors what they thought; and that before the election, the politicians agreed to settle the issue with a referendum, so they should darn well deliver.

That seems to me a perfectly valid argument. But the debate will also turn on the costs and benefits of our EU membership. And this argument is much trickier.

In my student days I was a firm believer in European union, and was even on the committee of the Young European Federalists. Through much of the 1980s, despite serious misgivings about the politics, I still figured that the economic benefits to the UK were positive, thanks in particular to the (still incomplete) single market in goods and services. But like may other economists in the UK think tank world, I have come to the conclusion that our membership is a net economic cost rather than a net benefit.

Dr Eamonn Butler: The autonomy and accountability of Free Schools will ensure they succeed

Dr Eamonn Butler is director of the Adam Smith Institute.

Relax. The Free Schools idea is so right, so in tune with human nature and so powerful, that Britain’s new Free Schools will succeed. Despite Nick Clegg’s insistence that they can’t be profit-making, despite demands that they should face a quota system so they can’t select and get as many difficult kids as any other school, despite all the regulatory hurdles that campaigners and local authorities have put in their way – despite all this, they will still succeed.

How do I know this? Because there are now plenty of countries where schools are publicly funded but privately run, and there is a whole host of different regulations on the private providers. In many cases, as in the UK, ministers have imposed the regulations as a result of scare campaigns by educational statists who work in the state sector and just can’t believe that anyone else can do the job better. Personally, I would prefer it if politicians looked at the evidence rather than just pandered to scare tactics; but even with everything that has been ranged against them, the Free Schools will quickly prove their worth.

Dr Eamonn Butler: Austrian Economics is back

Dr Eamonn Butler is director of the Adam Smith Institute and author of the new book Austrian Economics – A Primer, which is available for purchase from today via the ASI Online Shop.

Modern economists had consigned them to history, but with the recent crisis of capitalism, they’re suddenly back.

No, not the Marxists, but the Austrian School of Economics.

With Keynesian ‘spend your way out of a recession’ policies plainly getting America and Britain even deeper into stagflation, the Austrians – so called because their early exponents (including Nobel laureate and Road to Serfdom author F A Hayek) taught or studied in Vienna – offer perhaps the most convincing explanation of our problems and what to do about them.

It’s the usual boom-bust cycle, they say. Governments and central bankers love a boom. So they keep interest rates too low, borrow too much, and pay for it by printing money. But this one is the mother of all boom-bust cycles. For three decades, the authorities have tried to head off every problem – the Savings & Loan crisis, the 1987 crash, the Russian default, and 9/11 – by flooding us with cash.

But, claim Austrians, cheap credit policies contain the seeds of their own destruction. They encourage people to borrow and spend. Hoping to cash in on this spree, businesspeople also take advantage of cheap loans and invest in new plants and equipment to boost their output.

Dr Eamonn Butler: Big Society sounds better than Big Government - but the Government must not try to direct social activism

Dr Eamonn Butler is director of the Adam Smith Institute and author of The Rotten State of Britain.

I can’t decide whether David Cameron’s new Big Society idea could become a Big Disappointment or a Big Bully.

Right now, nobody quite knows if the idea is anything more than a damp Steve Hilton marketing squib. And the idea of letting people run their own post offices, libraries and bus services – in just four trial areas of Liverpool, Eden Valley, Windsor and Sutton – is hardly a ‘revolution’.

But whatever it is, Big Society sounds an awful lot better to me than Big Government – unless Big Bureaucracy tries to run it.

One thing I do know is that this isn’t a cost-cutting exercise, as BBC blusterers claim (not having any other arguments). Conservatives have been talking about it for decades. “Too many people have been given to understand that if they have a problem, it’s the government’s job to cope with it,” said Margaret Thatcher in her famous “no such thing as society” speech. And Douglas Carswell was getting traction for his “localism” agenda long before anyone mentioned cuts.

Yet even Margaret overblew the government role. “No government can do anything except through people,” she went on to say. No, no no, Maggie: we don’t want government doing stuff. We want it to clear off so we can do our own. When Alexander the Great visited the philosopher Diogenes, who rejected worldly things and lived in a barrel, he asked what, with his wealth and armies, he could do for the thinker. “Stand out of the sun,” said Diogenes.

That must be the basis of the Big Society. Get out of the way of local activism, don’t try to lead it. When I read of a Big Society Bank to finance local groups, a National Citizen Service, a government-aided Neighbourhood Army of group leaders, state funding for social entrepreneurs, departments using charities to deliver programmes, or civil servants being obliged to ‘participate’, my toes curl.

That’s not unleashing local activism: it’s nationalizing it. Government’s ideas will prevail over the groups it funds and leads. The bureaucracy’s rules and values will be imposed on them. Then the voluntary sector will become just part of an even more intrusive state.

Voluntarism is strong: charities’ income is £28bn, and 611,000 people, one in 50 of us, work in 62,000 voluntary groups. Government should stand out of the sun and let that activism thrive. Things like CRB checks on parents who help out with school field trips or football teams, or health and safety rules that thwart charity duck races and village cheese-rolling, are exactly the kind of Big Bureaucracy that eclipse this local involvement. We need to clear all that clean away.

David Cameron is right that government needs to change itself to allow social activism to reassert itself. But if he thinks social activism is something the state can direct, the Big Society will become a Big Disaster.

Dr Eamonn Butler is director of the Adam Smith Institute and author of The Rotten State of Britain.

Eamonn Butler: Ten international lessons on how to defeat the deficit

Dr Eamonn Butler is director of the Adam Smith Institute, which has just published his paper Re-Booting Government, and he is author of The Alternative Manifesto (Gibson Square 2010).

(1) I was delighted to see David Cameron telling us the budget cuts would be extensive and painful – not because I’m a spending sadist, but because it’s the first honest thing I’ve heard from a politician in years. Frankness is the first essential in defeating deficits, says Jens Henriksson, the finance minister who defeated Sweden’s. If you tell people it won’t hurt, they’ll hate you all the more when it does. And don’t think you can mollify them with a little fresh spending here and there. Everyone will still remember the pain, not the sugar pills.

(2) Canada, which in the 1990s turned UK-size deficits into a stream of budget surpluses, teaches a second lesson: start quickly and make defeating the deficit your top priority. If it’s just one of many political aims, or if you put it off, the deficit will defeat you instead. It’s sound advice: you can’t blame the UK’s deficit on bank bailouts and think it will go away when growth resumes. Half our overspend is ‘structural’ – that is, chronic. It won’t go away on its own. And growth may not resume at all quickly when our main customers, America and Europe, are also drowning in red ink.

(3) The OECD cites a third lesson of the international experience. A few tax rises aren’t going to solve your problem. In the UK, already so highly taxed, you would just see talent leaching away as it did in the 1970s brain drain. No: you actually need to put your bloated government on a diet.

(4) You don’t lose weight, though, by eating a few less chips and a few less vegetables. You need to eat more vegetables and cut out the chips entirely. You need to change what you eat. Another lesson from Canada is that it’s the same for public spending: slim down by cutting out the ineffective and unloved bits, not the essential bits.

Eamonn Butler: Britain must follow the Canadian model for cutting the deficit

Dr Eamonn Butler is director of the Adam Smith Institute and author of The Alternative Manifesto: A 12-Step Programme to Remake Britain, which was published last week.

A strike by two million people against the Greek Government’s ‘austerity’ package – weak as it is – must make David Cameron doubt the wisdom of mentioning any kind of ‘cuts’ agenda. Yet we need to balance the books. The last time we were in debt this deep, at least we had seen off Napoleon and Hitler.

Taxation has grown by half since 1997. All that extra spending has certainly bought us plenty of intrusive new quangos, much more expensive doctors, and superlative pay and pensions for local government officials and Whitehall civil servants. But has it bought us, the taxpayers and citizens this great leviathan is supposed to serve, anything we would really miss?

I hardly think so. Indeed, all this taxation and spending – and off-the-scale borrowing, of course – is actually getting in the way of enterprise, economic growth, and personal liberty. It’s also getting in the way of people getting on with running their own lives, which they mostly do for themselves rather better than civil servants can do it for them.

Dr Eamonn Butler is director of the Adam Smith Institute and author of The Alternative Manifesto: A 12-Step Programme to Remake Britain, which was published last week.

Eamonn Butler: The Rotten Police State of Britain

Dr Eamonn Butler is director of the Adam Smith Institute and author of The Rotten State of Britain, which is published on Tuesday by Gibson Square Books. The book offers a damning account of what the successive Labour Governments have done to Britain over the last twelve years and here he looks in particular at the perils of the state having accrued increasingly draconian powers.

How did we get into such a state? We’re spied on by the world’s biggest array of CCTV cameras. We’re bullied by the world’s most expensive police force, who are quite willing to arrest us for dropping an apple core. We seize the assets of our best friend in Europe – Iceland – under anti-terrorism law. Nannying officials say we can’t feed our dogs grapes or give our kids a sip of wine. The average worker has to save 60 years to get the same pension that an MP clocks up in just 13. The government’s total liabilities are three times the national income. The IMF says we’re the country least well placed to survive the downturn, not the best, as Gordon Brown insists.

Strikes, stagflation, even snow – it’s like the 1970s all over again. It took Mrs Thatcher to pull us out of that mire. Unfortunately, Gordon Brown seems to have bought us a return ticket.

We can’t blame the international economy, or terrorism, for the state we’re in. As I explain in my new book, The Rotten State of Britain, it’s rooted deep in the psychology of New Labour.

Traditionally, governments accepted that they were only temporary custodians of power. And that their power was circumscribed – by Parliament, the civil service, the courts, local governments, and even the media. They tried to work within those constraints. Mrs Thatcher got extremely annoyed when these institutions stood in her way. Not always, but for the most part, even the Iron Lady accepted their constitutional right to do so.

Eamonn Butler: Alan Walters provided an intellectual underpinning for Margaret Thatcher's economic policies

Sir Alan Walters, economic adviser to Margaret Thatcher and leading monetarist, has died at the age of 82.  Eamonn Butler, Director of the Adam Smith Institute - a pro-freedom policy think-tank based in London, pays tribute to him below.

Walters was a testament to Thatcherite self-help. His education was disrupted by army service, but he pressed on and obtained an external degree from the University of London. He became Professor of Econometrics and Statistics at the University of Birmingham, and then Cassel Professor of Economics at the London School of Economics. He was economic adviser to the World Bank in Washington DC, and a Professor of Economics at Johns Hopkins University, before being recalled by Margaret Thatcher in 1981 to serve as her economic adviser.

At Birmingham in the 1960s, Walters emerged as a strong proponent of monetarism – the view that the money supply must be strictly controlled if inflation was to be held in check. It was a decidedly unfashionable view. The postwar ‘Keynesian Consensus’ thought monetary policy was a weak tool, and boosting output more important than inflation. But as government spending expanded, inflation grew alarmingly. Then unemployment began to rise too – creating ‘stagflation’, something the Keynesians found hard to explain.

Like the American monetarist Milton Friedman, Walters knew there was no trade-off between inflation and unemployment. Inflation makes it impossible to see what prices are really doing – the ‘signal’ of real price movements gets lost in the ‘noise’ of general price rises. So people can’t make rational plans, resources are wasted, and unemployment rises.

Through papers for the Institute of Economic Affairs and others, Walters insisted that money was actually a hugely powerful instrument. There had to be strict limits on how much money governments created. You could not just spend your way out of a recession.