10 Sep 2013 06:41:44

Philip Booth of the IEA: There's a threat to growth, despite the recovery. Here's what it is - and how to counter it.

Professor Philip Booth is Editorial and Programme Director at the Institute of Economic Affairs.

George Osborne capitalised on some good economic news in his speech yesterday. He argued that the economy has turned a corner, though he emphasised that risks remain.

If we are turning the corner, however, we are turning it slowly. After the Great Depression, the UK economy shot back to growth, and a little more than five years after the Great Depression ended the economy was back to where it would have been if there had been no depression at all.

Contrast that performance with the Great Recession. Not only have we not made up for the lost growth since 2008, we are actually producing less today than we did before the crisis. Arguably, it is the worst recovery from peacetime recession in British industrial history. In past recoveries, the economy has grown rapidly out of recession. Similarly, we should have had growth rates of over 2.5 per cent in the last two or three years.

What has happened? Firstly, there has been a banking crisis: recessions caused by banking crises are often worse than recessions caused by other factors. However, unlike in the 1930s, when we had a balanced budget, a small public sector and a liberally regulated economy, the current government presides over a very different policy background.

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3 Sep 2013 17:43:33

IEA, TFA, CPS, TPA, PEN, BBW and the ASI write to the Government about the Lobbying Bill's "fundamental failings"

By Mark Wallace
Follow Mark on Twitter.

As reported by Guido, a range of think tanks and campaign groups have this afternoon written to the Government expressing concerns about the impact of the Lobbying Bill on their work:

We wish to highlight our grave concern about the Government’s Lobbying Bill, a piece of legislation that poses a significant threat to legitimate campaigning freedom of speech, political activism and informed public debate.

Part II of the bill threatens the ability of charities, research and campaigning organisations to inform the public debate, fulfil their missions and raise awareness of important issues. The current drafting would capture a huge number of organisations who would not presently be considered as relevant to electoral law and who do not receive any state funding. It also threatens to dramatically expand the range of activity regulated far beyond any common sense understanding of commercial lobbying. 

We do not regard the Cabinet Office’s assurances as sufficient given the widespread legal doubts expressed from across the political spectrum. It cannot be a prudent approach to legislate on the basis of assurances that enforcement will not be to the full extent of the law. The exceptions offered are unclear and unconvincing.

The lack of clarity in the legislation further exacerbates its complexity, while granting a remarkably broad discretion to the Electoral Commission. The potential tidal wave of bureaucracy could cripple even well-established organisations, while forcing groups to reconsider activity if there is a perceived risk of falling foul of the law. This self-censorship is an inevitable consequence of the bill as it stands. 

We urge the Government to reconsider its approach and to urgently address the fundamental failings in this legislation.

Yours Sincerely,

Mark Littlewood, Director General, Institute for Economic Affairs, Simon Richards, Director, The Freedom Association, Tim Knox, Director, Centre for Policy Studies, Matthew Sinclair, Chief Executive, Taxpayers’ Alliance, Jo Glanville, Director, English PEN, Emma Carr, Deputy Director, Big Brother Watch, Eamonn Butler, Director, the Adam Smith Institute

4 Jun 2013 16:46:38

Philip Booth: Economic activity in the shadows – why it happens and how it might be prevented

Prof. Philip Booth is Editorial and Programme Director at the Institute of Economic Affairs.

There is remarkably little economic commentary on the shadow economy. This is possibly because, by its nature, it is difficult to measure. Survey evidence tends to under-estimate the shadow economy because many respondents either do not wish to reveal their activities or they convince themselves that their activity is legal.

However, there are some more sophisticated ways of estimating the shadow economy than simply asking people. And, if we examine the latest research, the figures are quite alarming. In the UK, about 10 per cent of economic activity is unofficial. In Mediterranean countries, the figure is about 20 per cent. Some supporters of a free economy might be in two minds about this. For some people, the shadow economy is a great example of free, untaxed endeavour. Indeed, where I live, the smugglers of past centuries were known as “free traders” and they are still commemorated by the uniforms that the bonfire societies wear on November 5th. In Europe, the size of the shadow economy seems to be correlated with Catholicism; in Britain, support for the shadow economy seems to be correlated with enthusiasm for burning Catholics.

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16 May 2013 16:13:20

Andy Mayer: A longer working life means a healthier life – policymakers should take note

By Andy Mayer of the Age Endeavour Fellowship

There is compelling evidence in a new report, Work Longer, Live Healthier: The relationship between economic activity, health and government policy, from the Institute of Economic Affairs and Age Endeavour Fellowship, that Sir Alex Ferguson may have more than one reason to regret his decision to stand down from Manchester United at a youthful 71 years of age.

Although he will feel good for a few months, in the long-term the impact on his health from not spending each Saturday shouting referees into favourable decisions will be negative. The same will be true for most of us – particularly if we choose early retirement.

For example, the research finds that the employment rate for men aged between 55-59 fell from over 90% to under 70% between 1968 and the late 1990s. From 80% to 50% for those between 60-64, and 30% to 15% for those between 65-69. This whilst both life expectancy and healthy life expectancy were rising.

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20 Mar 2013 14:45:10

Centre right think tanks don't like Budget's complexity

By Tim Montgomerie
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Matt Sinclair of the TaxPayers' Alliance liked the populist measures - #Crosbynomics according to Matthew d'Ancona - but worried about the Budget's complexity:

"Unfortunately, the great limitation of this budget was that it relied far too much on complicated targeted reliefs instead of tax cuts across the board. Simpler, strategic tax reforms that reduce the overall burden would be fairer and do more to produce the stronger economy Britain needs."

David Skelton of Policy Exchange also welcomed what he called the "Boddingtons Budget," citing the end of the beer duty escalator and another freeze in petrol duty. He worried, however, that more could have been done on housebuilding:

“Although measures to help first time buyers are welcome, the UK is still on track to preside over the lowest level of housebuilding since the 1920s. More radical planning reforms combined with the introduction of measures such as self-build should be introduced to get Britain building.”

Professor Philip Booth of the IEA is concerned that the Chancellor's housing measures have actually learnt little from recent economic history:

"The decision to provide further Treasury guarantees for mortgages is leading the government to get involved in exactly the sort of reckless behaviour that led to the failure of major banks in 2007-2008. Any attempts to provide support for the housing market whilst not liberalising the planning system will simply lead to higher house prices and rents.”

3.45pm updates....

On behalf of the CPS, Ewen Stewart commented:

“The most significant announcement today was the proposed changes to the Bank of England’s inflation targeting remit. Whilst lip service was paid to maintaining the 2% inflation target, it’s clear Mark Carney will be given significant rope to engage in even more expansionary monetary policy. So far QE, despite being larger as a proportion of GDP than that undertaken in the US, has failed to generate growth. A further loosening risks embedding inflation and sterling weakness.”

Also from CPS Kathy Gyngell echoed my concerns from earlier today about the anti-family dimension to the Budget:

“This budget is worse than nothing for the stay at home mother (the single earner couple family). Already grossly penalised in the tax and benefits system for the instinctive and reasonable choice to care for their infants at home, now this couple are meant to subsidise rich working women’s nannies.”

The Adam Smith Institute lists its good, back and ugly conclusions here.

5 Dec 2012 16:48:59

Where's the radicalism George? Think tanks worry at Osborne's "tinkering".

A few think tank reactions to the Autumn Statement...

Mark Littlewood, Director General at the Institute of Economic Affairs, focused on the big picture and the fact that Britain is becoming a high debt nation: "The Chancellor has basically stuck to his spending plans, but not to his deficit plans. Low growth and weak tax revenues demanded that he made greater reductions in spending today. His plan is now to add around £6,000 to the national debt for every man, woman and child in the UK between 2013 and 2018. By the end of this Parliament this will mean the UK’s national debt is close to £65,000 per household. It’s clear the government is still failing to take the necessary action to restore economic credibility. It’s all very well acknowledging the need to get public spending under control, but it requires substantial reform. Limiting benefit rises to 1%, scrapping the planned fuel duty increase, devolving power over teacher pay to schools and cutting corporation tax are steps in the right direction. But they are tiny, tinkering measures – not radical reforms."

Sam Bowman of the Adam Smith Institute was even more depressed at the Chancellor's lack of boldness on spending and public service reform: "Deeper cuts to public spending are clearly needed to cut the deficit, but these are not possible without a fundamental shift away from socialistic monoliths like the NHS. The only way real cuts to expenditure can be made is by shifting to more efficient, market-based models of social insurance for healthcare and welfare. The claim that we can make substantial savings by ‘trimming waste’ is a lie – and we’re fast learning what a dangerous one it has been.”

Graeme Leach, speaking for the Institute of Directors, was more positive: "Graeme Leach, Chief Economist at the Institute of Directors, said: “This was a tricky job, well done by George Osborne. Faced with a weaker outlook for GDP growth, the Chancellor needed to raise business confidence whilst at the same time keeping the deficit on a downward path. And he largely succeeded, particularly with the surprise reduction in Corporation Tax. Ideally, we would have wished for further and faster deficit reduction but political reality always made this unlikely. Our key concern is that the OBR’s growth forecasts will yet again prove too optimistic, with the result that the deficit in the out years will be much higher than forecast. Business confidence will be boosted by the corporation tax cut.”

While welcoming many of the Chancellor's measures Jonathan Isaby of the TaxPayers' Alliance expressed concern at the increasing number of people paying the 40p tax band: "The Chancellor has sent out entirely the wrong message to those earning, or hoping to earn, the increasingly modest wage where almost half of your income starts to be taken in Income Tax and National Insurance.  Hundreds of thousands of new people are being ensnared by a punitive rate of tax."

Christian Guy of the Centre for Social Justice regretted that - yet again - the Chancellor had failed to introduce a tax allowance for married couples: “The Government said it would introduce a transferable tax allowance for married couples, it is disappointing that this pledge has still to be fulfilled as it is shown that it would have a positive impact on the incomes of the poorest working households. It would also play a part in tackling the perverse incentives which currently persuade many people on low incomes  to reject  couple formation and the stability of marriage.”

20 Sep 2012 18:12:33

The Government needs to succeed in its Red Tape Challenge — and quick

Mark Littlewood is Director General of the Institute of Economic Affairs. Follow him on Twitter.

Over the last ten months I’ve been acting as an independent adviser to the government’s Red Tape Challenge, which seeks to extinguish unnecessary, burdensome regulations that impede growth.

It’s been a long drawn-out business, but since the reshuffle the coalition has certainly upped the volume on their professed desire to cut back on the vast swathes of red tape and regulation stifling businesses and deterring enterprise.

Today, Michael Fallon, the new Tory minister for Business and Enterprise, has unveiled government plans to make life easier for so-called “challenger” businesses.

“Challenger” businesses might sound like something out of a Star Trek movie. (The government used to refer to them as “disruptive business models”, perhaps giving the unfortunate impression that such companies were like an unruly schoolchild causing mayhem for the rest of the class.)

But the sort of businesses Mr Fallon is referring to are those that emerge – often at great speed out of a clear, blue sky – and pose a fundamental challenge to the orthodox order.

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11 Sep 2012 18:25:22

The Government ought to rouse our sleeping casinos

Christopher Snowdon is a Fellow of the Institute of Economic Affairs. Follow Christopher on Twitter.

They say that laws are like sausages, it is better not to see how they are made. If so, the 2005 Gambling Act was of the supermarket own-brand, ‘sixteen for a pound’ variety. It began with some sensible proposals from the distinguished economist Sir Alan Budd and ended with a fudged piece of legislation which had been built up, torn down and hastily patched back together.

The 2005 Act aimed to reform every part of the British gambling industry but it was casinos which drew all the attention. You may recall that peculiar period in late 2004 and early 2005 when there was fevered talk of “Las Vegas-style super-casinos” in parts of the press. It was never adequately explained what a super-casino was, nor how it threatened the moral health of a nation more seriously than a common or garden casino. Nevertheless, the prospect of such an establishment being built in Blackpool or Manchester became a fleeting tabloid obsession.

Unusually for New Labour, the problems stemmed from poor presentation. The earlier 1968 Gaming Act had granted a set number of casino licences to be used in a set number of permitted locations. In the spirit of localism, Labour recommended giving any town the chance to have a casino if it so desired, subject to planning permission, consumer demand and approval from the Gambling Commission and local council.

With hindsight, it would have been better if Labour had mooted some limits to casino development from the start. Transferring power from central to local government was never likely to lead to the country being overrun with gambling dens, but for those who disapproved of casinos, it was enough to know that there would be no theoretical limit on their number. Opposition came from the incumbent gambling industry, backbench MPs, certain newspapers and faith groups such as the Salvation Army. This alliance of political enemies, vested interests and moral entrepreneurs won the day. No ‘super-casino’ will be built in the UK and, in many respects, the casino industry is in a worse state today than it was a decade ago.

In its haste to appease its critics, the government discarded necessary reforms which would have attracted little attention had they not been part of a broader package of deregulation. After blowing too hot in 2000-03, the government blew too cold in 2004-07 and the modest reforms required for the casino industry to adapt to the twenty-first century were abandoned along with the headline-grabbing schemes for ‘super-casinos’.

Today, the casinos that were created by the 1968 Act are still tied to the same old permitted areas. This means over-provision in some places and under-provision in others. Punters could take some consolation from the sixteen new licences that were created by the 2005 Act, but these were mainly granted to places which are already well served with casinos, such as Leeds, or places which do not have sufficient demand for them, such as Stranraer. Seven years later, only one of these sixteen casinos has been built. It is unlikely than more than a handful ever will be.

The radical shake-up of the casino industry that was first envisaged never took place, but it was surely nobody’s intention to prevent existing casino licences from being used. Today, however, more than fifty of the country’s 202 casino licences lie dormant despite several local councils expressing an interest in using them. As I explain in a new Institute of Economic Affairs paper Seven Years Later: Casinos in the Aftermath of the 2005 Gambling Act, this is the result of poorly drafted legislation which failed to make the basic reforms that anyone familiar with the industry agreed were needed over a decade ago.

There was never even a remote possibility that the UK would see “blackjack on every street corner”, as theDaily Mail once put it, but it does not seem unreasonable for any sizeable town or city be able to host at least one small casino if the community is in accord. If the current government is not prepared to look again at regenerating one or more seaside destinations with a resort casino, it should at least allow the take-up of existing licenses by the many local authorities that would welcome the jobs and investment a casino would bring.

The economic benefits that would derive from modest reforms (which require no new laws to be passed) would not be trivial. It is estimated that an average casino generates between 120 and 150 jobs and produces £600,000 in gaming duty each year. With more than fifty licences currently unused, the Exchequer is potentially foregoing more than £30 million. This is not going to pay off the national debt, but nor is it peanuts. Quick fixes do not come along very often in tough economic times, but this could be one.

10 Aug 2012 13:14:41

Andrew Lansley's plain cigarette packaging plans called "a draconian attack" on freedom by the Institute of Economic Affairs

By Matthew Barrett
Follow Matthew on Twitter.

Andrew Lansley's consultation on plain packaging for tobacco products ends today. The Health Secretary has support from backbench MP - and medical Doctor - Dan Poulter, in the Guardian today. Dr Poulter argues plain packaging...

"...could certainly help to reduce the brand marketing appeal of cigarettes to teenagers, and most importantly, help to stop young people from developing a smoking habit that can only shorten their lives."

Whatever the rights or wrongs of the proposal, the Health Secretary has two headaches this week. Firstly, the Hands Off Our Packs campaign delivered a petition of over 235,000 people opposing the plain packaging policy to the Department of Health on Wednesday. The Health Secretary is not one to be swayed by petitions, as the recent Health Bill situation showed. He has been open to intra-Coalition opposition, however, so it's perhaps worth noting that Hands off Our Packs is headed by Angela Harbutt, who worked for Sir Menzies Campbell during his time as Lib Dem leader, and now runs the Orange Booker blog Liberal Vision.

Mr Lansley's second headache will come from the harsh attack on the proposal by the Institute of Economic Affairs. The IEA's Deputy Editorial Director, Dr Richard Wellings, says:

"Plain packaging legislation would represent a draconian attack on the freedom of smokers, retailers and manufacturers. Branding on packaging plays an important role in providing information for consumers, helping them choose between high and low-quality products. Accordingly there is a serious risk that plain packaging would lead to more smokers buying counterfeit products containing high levels of dangerous chemicals. Plain packaging is therefore likely to be entirely counterproductive from a health standpoint. The evidence that it would reduce smoking is also highly questionable."

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8 Aug 2012 17:01:46

The IEA criticises the Coalition for failing to reduce the size of government and calls for tax cuts

By Matthew Barrett
Follow Matthew on Twitter.

This morning's growth forecast figures were disappointing. David Cameron, speaking to LBC radio, said:

"Obviously the growth forecasts are a matter for the bank of England, but they’ve all been coming in line with the reality, which has frankly been disappointing. I think what’s happening is there’s a rebalancing of the British economy taking place. ... yes, it’s tough, yes the growth figures have been disappointing, but there’s a rebalancing of the economy taking place – more enterprise, more small businesses, more start-up businesses that are going to be the engine of the future, and we just have to roll up our sleeves and work really hard to achieve this economic rebalancing that has to happen."

The Institute of Economic Affairs' Communications Director, Ruth Porter, has released a statement calling for the state to get out of the way, and allow tax cuts and labour market liberalisation:

"It’s hardly surprising the economy is not recovering when the government has failed to reduce public spending significantly. Focusing on increasing private sector investment and productivity is the key. Heavy regulation and high taxes will inevitably put businesses off investing."

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