JP Floru: The inequality debate has shown Ed Miliband to be a relic of our socialist past

JP Floru is the Director of Programmes at the Adam Smith Institute.

Government should stop overruling its peoples’ choices. That is what the current assault on capitalism is about. After all, what is capitalism, but the millions of decisions people make every day? We are all capitalists: when we buy a pint of milk; when we earn a salary for going to work; when we sell our used car. All these different acts create the price system and the free market. This spontaneous order is called capitalism. Every one of our 62 million individuals decides on the basis of their own information. These 62 million individual minds are infinitely better suited to dealing with reality than one single government mind is. This is why the market succeeds, while government action usually fails. Centralised government simply does not have all the information the 62 million have: this is FA Hayek’s famous Knowledge Problem. When the state acts, the unwanted side-effects become the main effect. 

Market success benefits everybody; it is the source of the advance of civilisation itself. The only responsible action a government can take is to leave people free to deal with reality as they see fit. It can tweak at the corners, to provide for the few of us who cannot cope with daily life, or to provide the legal certainty necessary for the market to operate (e.g. a legal system, and the protection of property rights) – but when it tries to protect people against themselves it is basically saying: “You are too stupid to take care of yourself. Big Brother knows what’s good for you!”. When the state spends 52% of GDP we are way beyond tweaking.

JP Floru: Why both the left and the right should do nothing about inequality

J P Floru is the Director of Programmes at the Adam Smith Institute.

Based on empirical evidence, abandoning inequality policies could be desirable for both the left and the right.  Doing nothing about inequality could become mainstream and middle-of-the-road ; precisely where all parties want to be. 

Why the left should abandon inequality policies

The attraction for Mr. Milliband consists of the fact that empirical evidence shows that equality can best be promoted by… doing absolutely nothing about it.  Labour introduced substantial measures to fight inequality during the thirteen years it was in power.  The result was the opposite: inequality increased.  In fact, in 2007/8, inequality was higher than at any time since records began in 1961.  Inequality also increased under Thatcher, in line with international trends (though not as high as under Labour).  Under John Major, inequality declined.

It is worthwhile pointing out that inequality as measured by the Gini Coefficient is a typical left-wing way of seeing the world – I am using it here as it is a measure which the left understands.  Those on the right generally believe poverty is absolute, not relative.  One is poor because one has no food and or no roof and or no clothes – not because your neighbour has a Rolls Royce and you haven’t.  Thatcher would typically say that under her policies everybody was better off, including the poor.

JP Floru: Attacking bankers does not help the free market cause

JP Floru is the Director of Programmes at the Adam Smith Institute.

Free marketeers are deluding themselves if they believe that their cause will be helped by attacking bankers or the City. This morning, Radio 4 had another shamelessly biased item on “bankers’ bonuses”. This time, the assault was led by John Humphrys. It was peppered with clichés such as “this is the public mood”; “the squeezed middle are fed up”; and “inequality is growing”. Regulation would of course solve all the problems. The Occupy Movement was granted Kim Jong Il-style Messianic Status. It was all put into an historical perspective, making the defeat of capitalism seem all but inevitable. No attempt was made at balancing the debate: all contributors were resoundingly anti-City and anti-capitalist. Nice one, Humphrys.

As Hayek wrote in The Intellectuals and Socialism, it is usually the intellectuals (all those who inform themselves of current affairs early) who are at the vanguard of public opinion as a whole. Contrary to John Humphrys’ assertion, I believe the assault against capitalism is still at this early stage. Though endless repetition on our taxpayer-funded state radio and state television may very well infect the population as a whole.

JP Floru: Middle England is fed up with tax, redistribution, and welfare, survey shows

JP Floru is the Director of Programmes at the Adam Smith Institute.

When money is short reality kicks in.  A few years ago people were flush with cash and didn’t mind spending more on health and education.  They duly elected Tony Blair.  Labour came, spent, and departed in ignominy.  Nothing improved, but the cash is gone.  Strapped-for-cash households all over Britain wonder where it went – and turn their backs on the big government policies which many politicians from both the left and the right still feel compelled to defend. 

65% of people do not want more redistribution by government.  54% say unemployment is high because benefits are too generous.  63% say that child poverty is the result of parents not wanting to work.  Only 31% support tax increase to spend more on health and education.  The National Centre for Social Research’s latest British Social Attitudes Report must have caused some gasps among Guardian readers and assorted BBC journalists.  Left wing media all over the UK have spent the day inventing misleading headlines to hide what this survey really tells us: that collectivism is OUT.  Middle England joins Ronald Reagan, in stating, loud and clear: “The state is not the solution.  It is the problem”.

Politicians always aim for the centre ground, in the hope of harvesting votes from both the left and the right.  The astute ones notice when the centre ground shifts to the left or the right.  He who correctly identifies where the centre ground has moved to wins elections – he who still targets yesterday’s centre ground loses.  The 2010 election result was highly significant in that respect.

Which party will correctly identify where the centre ground has moved to, and consequently win the next general election?  At present, it is still impossible to tell.

J P Floru: Income inequality is desirable

J P Floru is the Director of Programmes at the Adam Smith Institute.

In the Pantheon of Socialist Fallacies, income inequality features at par with outraged mutterings about so-called health inequality; the idea that Capitalism is “a system that was invented”; or the belief that “The Rich are always becoming Richer”.

In a study published on Monday, the OECD states that income inequality has grown. And this fact is linked to a call for (gasps of baffled surprise and wonder about the novelty of it)…The Rich having to pay their Fair Share! If you live long enough as a political commentator you can just tape your views and replay the tape every time another idiot comes along and repeats some poppycock that has been told countless time before. What is it with the lefties? Short of ideas? Or do they believe – not wholly unjustified – that if you repeat a fallacy often enough, people will actually believe it?

So here, repeated at nauseam: Income Inequality is Not an Issue At All. And from a general welfare perspective, income inequality is desirable.

Income inequality is first of all a very important market tool to show which behaviour is economically desirable, and which behaviour isn’t. For example: he who stays in bed earns no income; he who gets on his bike to work does. Result: fewer people stay in bed and society as a whole benefits because there is more activity and production. He who uses a hand loom earns less than he who uses a power loom. The income inequality signals to the person with the hand loom that it’s perhaps time to switch to the 21^st century.

JP Floru: Euro printing: Welcome to the President Mugabe School of Economics

JP Floru is the Director of Programmes at the Adam Smith Institute. 

The age of irresponsibility is here to stay, it appears. One person makes a mistake, and another person is supposed to foot the bill. Or bail out, as the new terminology goes.

The Greek government lives above its means? European politicians want the German taxpayers to pay up.

European bankers stupidly bought Greek and Italian debt? They want the Eurozone to guarantee it.

Germany stupidly allowed Greece into the Euro? Angela Merkel wants the UK to pay up through a Financial Transaction Tax.

British politicians stupidly transferred powers to Brussels and are now on the hook for Euro mistakes? Our ministers tell Merkel to print money to solve the problem.

JP Floru: Diageo stops hiring: 50p flight is real

JP Floru is the Director of Programmes at the Adam Smith Institute.

Diageo, the world’s largest spirit maker, has announced that it will stop basing staff in the UK because of the 50p tax rate.  CEO Paul Walsh explained that Diageo can pay its staff less in (for example) Singapore, where they only face 10% income tax.  A Lloyds TSB International expat study also found that 15% of British overseas staff do not plan to return to the UK.  They point at being financially better off (64%), and a lower cost of living (52%).

Announcements like Diageo’s are very welcome, as they provide a loudspeaker to a problem that otherwise occurs largely unnoticed.

A few weeks ago I wrote about residents from my ward who have left the UK for more tax welcoming countries such as Switzerland, Singapore, and Hong Kong.  One criticism was that this information was “too anecdotal”.  The reality is that 50p flight evidence is necessarily anecdotal – at least for now.

The Inland Revenue will only obtain firm figures of 50p flight 18 months after it happens in individual cases.  The first to notice – long before the Inland Revenue and therefore the politicians do - are family members and friends, local councillors, and HR departments in companies.  Companies like Diageo, stating openly that there is a problem are, alas, rare.

JP Floru: f.a.o. George Osborne: Hong Kong’s HK $71.3 billion budget surplus

By JP Floru

At a dinner in London two weeks ago, Hong Kong’s Chief Executive Donald Tsang unwittingly rubbed the Coalition Government’s inadequate tax policies in fellow attendant Vince Cable’s face (or, more precisely, he would have done so, if Vince hadn’t been late). Tsang happily elaborated on the HK $6,000 cheque the Hong Kong government is going to send to each one of its 6 million permanent residents aged 18 or above. Hong Kong currently has a HK $71.3 billion budget surplus.

The HK $71.3 billion budget surplus is after all possible public works and other spending plans have been taken care of (Hong Kong’s government spending is 18.6% of GDP). And the HK $6,000 cheque is not even the complete story: in addition, 75% of salaries’ taxes will be waived, subject to a maximum of HK $6,000 per taxpayer.

JP Floru: Families from my ward are fleeing from the 50p tax rate

By JP Floru

Residents in my ward (Hyde Park, City of Westminster) are fleeing abroad to escape from the 50p tax rate. I have heard similar stories from fellow councillors for areas such as Kensington, Knightsbridge, Pimlico and Mayfair. The people who are fleeing tend to be British citizens, therefore, people who pay their UK taxes in full – as distinct from non-doms, who have a lesser incentive to leave. The houses are bought by foreigners who are either non-doms, or who will use the place as a pied-à-terre. In other words, people who do not pay income tax. The shortfall in the nation’s total tax-take will ultimately need to be paid by those remaining: you and I.

My information is purely anecdotal. I know of four families from my ward who have fled in the last six months. Suddenly a woman from the St. John’s Church Choir disappeared. When I saw her back many months later, she said they had moved to Switzerland. Her husband runs a language school business. When I asked a mutual friend for news about Mr. & Mrs. G.C., the friend told me that they now lived in Guernsey. Mr. G.C. used to be the Chairman of the Conservative Ward Committee about ten years ago. Yesterday, at an event in my ward, I heard that family S. had just moved to Singapore. Another lady, Mrs. R.K., told me that she and her husband now live in Switzerland. I am sure many, many more are leaving, but I do of course not know them all.

JP Floru: The 50p tax rate destroys jobs for some of the poorest in society

By JP Floru.

In the last two days, I twice heard anecdotal evidence of how the 50p tax rate reduces the number of jobs at the bottom scale of the ladder, and increases welfare payments.

A person I met last night, a trendy West Londoner who at one time supported New Labour, explained how she had just fired her cleaner as, with the children leaving the house, and the 50p tax rate, she thought it no longer necessary and affordable. She used to pay the cleaner’s wages and social contributions in full.  The new part-time cleaner is paid cash in hand. The old cleaner is now claiming housing benefit and unemployment benefit.

A friend from Kent told me two days ago that she had just fired her part-time gardener, as she could not longer afford to employ him as a result of the 50p tax rate.

JP Floru: Immigration - When Socialism becomes National

By JP Floru

When the state starts doling out money on a vast scale, you have to limit the number of recipients.  A welfare state is therefore inherently tribal – its survival depends upon a ‘to us, but not to them’ - attitude.  People are herded into groups to exclude others – and merit is rarely the criterion to qualify.  One could say that a welfare system is inherently anti-social. 

So it is no surprise when socialist thinkers start to defend caps on immigration, so hand-outs can be limited to one specific tribe.  It is of course not affordable for a country to hand out money to all the poor of the world or to anyone flying into Heathrow. 

As a taxpayer I am frankly not interested what the tribal characteristics of a benefits scrounger are.  To me, a scrounger is a scrounger, irrespective of his race, sex, nationality, social background.  I myself am an immigrant.  Since I arrived on 2 October 1994  I, and many like me, have not lived one single day off the state.  Quite the contrary: I get out of bed to work every day, and am coerced into parting with a big chunk of my pay to people who decide to stay in bed.  I am frankly not interested to know the passport or the colour of that healthy chap who stays in bed at my expense.  The only thing I am concerned about is that he should not get a penny.

JP Floru: An inside job - NHS special interests decide UK health policy

A majority of the members of the NHS Future Forum, the body which recommended scaling back NHS health reform, are NHS-affiliates.  They are either directly or indirectly employed by it, or have another financial interest in it.  Not a single Forum member represents the private for profit sector.  The Government says it will largely follow the Forum’s recommendations.  Deciding NHS policy is apparently an inside job. 

Out of the Forum’s 43 members, 23 have strong NHS links.   Another 12 are directly or indirectly employed by the state (including councils and universities).  Of the voluntary organisations, several have NHS links.  There is not a single private for profit provider represented on the Forum.

JP Floru: New free university places provided by the free market

By JP Floru

When there is a shortage of supply, rising prices and rising demand, you don’t need a GCSE in Economics to detect the atoms for an infallible business project.   Step forward the New College of the Humanities, a brand new private university in Bloomsbury, London.  The tuition fee will be £18,000; but up to 30% will receive financial help with a substantial number having to pay nothing at all.  The market provides where the state fails.  For the rich AND the poor.

Thanks to the capping of university places, one third of applicants - or 226,000 people - will not be offered a place at a state-sponsored university by this summer.  An estimated 10,000 students from Britain pay to study in America – with numbers rising.  Add to this the fact that at some of our greatest institutions brilliant people are refused places because they are of the politically incorrect class – and the potential demand is of such magnitude that we must be mystified as to why more entrepreneurs have not come up with the idea of setting up a new private university sooner.

Up to now, only two universities in the UK were private: BPP and the University of Buckingham.  Until Labour brought in tuition fees, it was of course virtually impossible to compete with free universities.  Rising fees change the equation.  I think the New College is but the first of many.  Ultimately the competition will make prices go down.

And the quality up.  New College has all the potential of becoming a premier league institution.  It has attracted fourteen of the world’s top academics.  With no track record and high fees I believe New College will go out of its way to up its game.  Contrast this with the absence of incentives for institutions which know that they will be full, no matter what, thanks to the shortage of places created by the state.   It reminds me of how the Scottish Enlightenment took place in a climate where students paid their lecturers directly – underperforming lecturers had to look elsewhere for employment.

Hats off to Professor AC Grayling, who will be the first Master of the College. 

JP Floru: Scary Tories in the forests! (Why let the truth stand in the way of a Scary Tory Story?)

By JP Floru

Socialists want you to be terrified when you think of forests.  In the absence of a policy of their own (I searched for three hours but couldn’t find any on the web) the best the Labour Party and their acolytes have come up with to attack the Government’s plans on forests is ... Scary Tories Lurking Behind Trees!

All over the country socialists are busy frightening the population witless with stories of how the Tories will chop down our forests, will block access, will kill the mammals, and build houses on them.   Never mind that most of these activities are already illegal under existing law.  Never mind that most of the not-yet illegal activities of that nature will be prohibited by the terms of the long leases the Government will impose.  Why let the truth stand in the way of a Scary Tory Story?

On the Labour Party Website we can join the campaign to tell the Government that This Land is Our Land.  The terrified browser learns that “Ministers will have the power to sell off 85% of our forests – with no protection for public access or biodiversity”.  Never mind that 82% of our forests are in fact owned by the private sector already, and that the Government has absolutely no plans with those.  Never mind that the last Labour government introduced the Countryside and Rights of Way Act (2000) which guarantees access to private and public land.    Never mind that biodiversity is mentioned 22 times in the consultation document.

Mary Creagh MP, Shadow Environment Secretary, sent letters to Conservative and Liberal Democrat MPs in whose constituencies the state forests are located.  They should be truly frightened (of themselves?  Or their scary colleagues?) because, according to her, “the Government’s recent consultation paper has failed to provide reassurances about the scale of the sell-off or protections for public access”.  Has she actually read the paper?  In fact, leafing through its 64 pages, most of the text seems to be about preserving public benefit.

According to The Guardian, the Tories’ alarming plans have even aroused big beast Dame Fiona Reynolds, head of the National Trust (Not everyone calls her a Big Beast.  The Daily Mail once called her a Tony Crony).  Dame Fiona states that “the future of these important national assets will be decided in a matter of weeks”.  Not so.  In fact her membership might be pleased to hear that it is estimated that the disposal will take ten years because the Government wants to make sure the public benefit is guaranteed.   But she goes on: “...as yet, [there is] no explanation as to how [access, conservation and amenity value] will be ensured”.  Actually...there is.  64 pages of it.

Trade union Unite believes Scary Tories will cost rural jobs.  3,240, to be precise (in fact the Forestry Commission only employ 1,500).  We will not only sell the woods, kill the creepy-crawlies, build on it, and block access.  Once denationalised, we also plan on firing everybody!  Unite wants to spook the population with the prospect that the companies, charities, and community organisations which will lease and run the forests plan on letting them go to waste.  Forests as a state employment scheme?  Maybe there are dinosaurs lurking in the woods, too.

JP Floru: How to destroy personal pension rights

One of the reasons why the West has been so successful in the last two or three centuries is because of the Rule of Law.  Contrary to many other places, the respect for and the enforcement of legal contracts meant that individuals and entrepreneurs could plan their future.  They were able to invest wisely, and be confident that the law would back them up when they tried to enforce their contracts. 

Except when the state suddenly decides otherwise, apparently.  A few months ago Steve Baker MP was contacted by a constituent.  She was distressed to find that the previous government had changed her entitlement to her private pensions.  At the time when she had signed the additional private pension contracts she had been assured that she would be entitled to access the money upon reaching fifty.  She contributed to the funds, and planned her life and career accordingly.  Reaching fifty, she contacted the pension funds – who told her that she can only access the money when she reached fifty-five.

The previous government wanted to encourage people to work (and save) for longer, and changed the rules in 2004.  The existing contractual rights were guaranteed... for occupational pensions only.  Typically, Labour decided that existing rights of people who had been squirreling away for an additional personal pension needed no protection.  Labour was quite happy to dispense with legal protection of existing rights for those who had the audacity of trying to do some extra to provide for their own old age.

A certain George Osborne, then the Shadow Chief Secretary to the Treasury, pointed this out at the time.  He said:

“The Government have also said that people can keep a contractual right to retire at 50 in an occupational scheme.  However, that will not apply to people with personal pensions.  Some people will have paid higher contributions in order to retire at 50, but will not be able to do so, even though they have paid for the privilege, because it is not a contractual right.  Is that another example of one rule for defined benefit schemes and a less generous rule for defined contribution schemes?” (SC Deb(A), 18th sitting, 17 June 2004, c 645)

Steve Baker MP has written to Danny Alexander, Chief Secretary to the Treasury, to ask him what he will do about this inequity.  Will this Government bring back the respect for the Rule of Law?