The IEA publishes its LIBOR Reader

By Peter Hoskin
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A very quick post to point ConservativeHome readers in the direction of the Institute of Economic Affair’s new pamphlet on the LIBOR scandal. It contains everything that any normal, interested person could want to know about intra-bank lending rates: a Q&A on what went wrong, a timeline, and a selection of articles from across the media on the whole dispiriting affair. One of those articles is by ConHome’s own Andrew Lilico — it was the detailed and typically insightful column that he wrote on 2 July. Now, courtesy of the IEA, you’ve got a good excuse to read it again.

The Institute of Directors attacks "glacial speed" of Coalition's supply-side reforms

By Tim Montgomerie
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A few reactions to today's disappointing GDP numbers.

First from the Institute of Directors:

“Today’s figures come as a severe blow to business. The Eurozone countries show that we absolutely cannot afford to waver from the deficit reduction programme, but there are several steps the Government must take to boost the economy through supply-side reforms. New infrastructure projects financed by our low interest rates, proper relaxation of planning and employment red tape, and action to lower energy costs for manufacturers would all show Britain means business. Too often, programmes are moving ahead at glacial speed. To help unlock corporate cash piles, Government needs to show decisive leadership and a real sense of purpose.”

A similar message comes from Philip Booth, Editorial Director, at the Institute of Economic Affairs:

“An expanding private sector is the key to economic growth. The government must do more to prevent stagnation of the economy. The four key measures it could take are a serious liberalisation of planning law; deregulation of labour markets; an end to the completely incoherent “green” policies; and radical reform of the welfare state. There are many factors impeding growth that are beyond the government’s control, such as the eurozone crisis. That is not an excuse for inaction in those policy areas where the government can make a difference. Productivity and not unemployment is the main problem. As such, increasing government borrowing from current levels is clearly not the answer. It is time for bold supply side reform.”

The TaxPayers' Alliance reaction focused on the need to help the construction sector:

“Yet another quarter of economic contraction is dismal news for families already struggling to make ends meet. The evidence doesn’t support those blaming Britain’s economic woes on cuts in government spending though, as the Government and other services category actually expanded in the quarter. The most immediate problem is in the ailing construction sector. While public sector capital spending is set to be cut relatively sharply, the real problem is market uncertainty being compounded by new taxes like empty property rates, which massively increases the risk for investments in commercial property, and Section 106, an increasingly punishing tax on new developments. If the Government are serious about making the health of our economy their top priority, then they need to deliver a less onerous tax system, which doesn’t get in the way of the investment that can deliver more jobs and higher wages.”

James Stanfield: What's wrong with the profit motive in education?

James Stanfield is a director at the School of Education at Newcastle University, and also the Editor of "The Profit Motive in Education: Continuing the Revolution, a new publication released this week by the Institute of Economic Affairs.

It is fair to suggest that many politicians are still cautious about combining the profit motive with children’s education.  The suggestion is that educating children should not be for profit, and that because education has always been separate from the forces of the free market, then that's how it should stay.  However, this anti-profit mentality in education raises more questions than it answers.

Firstly, would politicians still believe that educating children should not be for profit if schools run by for-profit companies could be shown to produce much better results at a lower cost – especially for the less-well-off? Or should these schools be permanently excluded irrespective of how they perform?  While many politicians might claim that no such evidence exists, we should also question why they don’t appear to be interested in finding out which type of school performs the best. Are they confident in their belief that all government schools will always outperform all schools run by for-profit companies, both now and at any time in the future?  Or is there some objection in principle to the profit motive, even if the education of children suffers as a result of excluding it?

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David Laws battles for classical liberalism in the Lib Dems

By Harry Phibbs
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Eight years ago a group of Lib Dems contributed essays to a volume called the Orange Book which sought to shift thinking in the Party away from socialism and towards liberalism. While social liberalism in the Party was well represented, the case for economic liberalism was not. Nor had it been for many years even before the merger with the SDP. Jo Grimond believed in economic liberalism but he ceased to be Liberal Party leader in 1967.

The Institute of Economic Affairs have now published a new collection of essays Eight Years since the Orange Book: Have the Liberal Democrats ‘reclaimed’ liberalism?

It seeks not just to mark the progress of this small group of liberals within the Lib Dems, but also to consider what future direction the Party should take.

The Lib Dem MP and former cabinet minister, David Laws, co-edited and contributed to the original book and has also written a contribution to the sequel.

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Think tanks and campaign groups give mixed reaction to Osborne bank lending plans

By Matthew Barrett
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Following George Osborne's Mansion House speech, and announcement of new bank lending programmes, several think-tanks and campaign groups have reacted to the news.

The Institute of Economic Affairs' Editorial Director, Prof Philip Booth said:

"The government has got itself into a terrible muddle over this crucial policy area. On the one hand, it is imposing huge liquidity and capital requirements on banks to reduce the potential cost to the taxpayer of bank failure. The FSA is also increasingly regulating financial product markets to reduce the flow of funds to borrowers. On the other hand, the government is bringing in a series of schemes to subsidise and guarantee lending through the same commercial banks whose lending is being restricted. Emergency measures to deal with liquidity crises are one thing. However, with regard to the fundamental policy issue, the left hand of the Treasury does not seem to know what the right hand is doing."

Graeme Leach, Chief Economist at the Institute of Directors, said:

"Facing a bombardment from the euro zone the Chancellor and Governor are calling up the reserves. Defensive measures need to be put in place and they’re making sure everyone knows they’ve done it. The extended liquidity and funding for lending schemes are welcome, but limited. The liquidity scheme will need to be massively expanded if break-up and contagion spread across the euro zone. The funding for lending scheme helps the supply of money and the demand for it, by lowering the cost of borrowing. But the core problem remains. Companies alarmed by the euro crisis will not be eager to borrow regardless of the cost."

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Think tanks give lukewarm reception to the Queen's Speech, urging more radical economic measures

By Matthew Barrett
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Following the Queen's Speech this morning, several think tanks have reacted to the legislation announced (full details of which can be found here). I've collected them below.

8pm update: Open Europe have given their reaction to the proposed European Union Bill:

"The UK government is likely to sell the measure as a guarantee that it will never again be forced to indirectly contribute to eurozone bailout funds - a few papers have already run with that story. At the same December summit, Britain won a political declaration and an EU decision that the article that forced it to contribute to the EU-wide bailout funds, the EFSM, won't be used again (Article 122 - for background, see here and here). However, the legal status of this guarantee is uncertain. It is not part of the treaty change itself, and MPs may argue that a guarantee that isn't anchored in the Treaties could well prove ineffective. After all, the UK has received guarantees before which proved to be pretty worthless (clue: Charter of Fundamental Rights, Working Time Directive). If MPs wake up to the legal ambiguity underpinning the 'guarantee' they may ask for something firmer in return for ratifying the treaty change."

7.15pm update: Nick Pickles, the Director of Big Brother Watch, has commented on the surveillance aspects of the Queen's Speech:

"So there we have it – the Communication Capabilities Development Programme will have it’s day in Parliament. We don’t know what the draft clauses will be or when we will see them, but the Government remains intent on pursuing legislation in the coming session of Parliament. If someone is suspected of plotting an attack the powers already exist to tap their phone, read their email and follow them on the street. Instead of scaremongering the Home Office should come forward and engage with the debate about how we improve public safety, rather than pursue a policy that will indiscriminately spy on everyone online while the real threats are driven underground and escape surveillance."

2.45pm update: The Centre for Policy Studies' Head of Economic Research, Ryan Bourne has commented:

"What’s needed now is for the Government to use the Enterprise and Regulatory Reform Bill to get serious about deregulation and repealing unnecessary legislation, especially for small businesses. This should include reform of employment legislation and the recommendations of the Beecroft report. Unfortunately, the emphasis on being family-friendly will, in some areas, directly contradict this liberalisation. Flexible parental leave, for example, is unlikely to be popular with many employers. In other areas, such as tax reform, planning, infrastructure and energy policy, it’s a case of wait and hope. Though there wasn’t anywhere near enough in the way of growth bills, it was welcoming to see the Government highlight the need to see through pensions reform. Finalising the creation of the single tier pension is a sensible step. This should be undertaken as soon as possible to put the Government in a better bargaining position with the public sector trade unions on pensioner poverty. The decision to continue with the 10 year period of protection for public sector employees approaching retirement will, however, eliminate much in the way of any early cash savings from public sector pensions reform."

The Institute of Directors has commented on a number of the specific measures announced. Simon Walker, Director General of the Institute of Directors, gave his reaction to the Speech overall:

“The Government is right to place deficit reduction and economic stability at the forefront of their programme. However, we need to see them pursued enthusiastically in practice, not just in principle. To restore business confidence, which is the real key to growth, there must be drastic measures to cut costly regulation and continue to tackle the deficit. Tweaking the edges of the system will not be enough – it’s not the number of Bills that matters, it’s what is in them that really counts.”

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Professor Philip Booth: Environmental problems and the “Big Community”

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

The concept of “community-based” solutions to environmental problems should be attractive to both the Liberal Democrats and the Conservatives, given the former’s interest in decentralisation and the latter’s interest in free-markets.

What do community-based solutions to environmental problems involve? Professor Elinor Ostrom, the 2009 Nobel Prize winner in economics, gave us an insight last night at the IEA’s F. A. Hayek memorial lecture which was attended by about 600 people. There is some hard and abstract theory, but amidst that there are important principles that can be enacted in policy. It is a pity that the same intellectual effort is not put into examining how communities can manage their own environmental problems as has been put into, for example, Downing Street’s “Nudge” unit.

Ostrom’s ideas are designed to deal with “common pool resources” and the management of environmental problems. The basic idea is that the specifics of different problems are different along a wide range of dimensions but that the government often does best by setting general rules and allowing those who have an interest in solving the problem to design the specific rules and enforcement mechanisms.

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Think tanks give mixed reaction to Budget

The TaxPayers' Alliance is, on the whole, pleased with the Budget:

“There is a lot of good news in the Budget for families who have struggled in the recession. The cuts in corporate and top rate taxes will improve the incentive to invest and innovate, meaning higher wages before tax. Then a higher personal allowance will mean they can keep more of the money they earn. Unfortunately some of the money is coming from higher taxes on pensioners; there is no relief for motorists from terribly high taxes on petrol and diesel; higher taxes on tobacco will be a boon for criminals selling dodgy cigarettes; and yet another higher rate on Stamp Duty is an unfortunate hike in an ugly tax. But overall this is a Budget that should ease the pressure on people’s living standards and allow most of them to keep more of their money.”

The Adam Smith Institute fears the cut in the 50p rate to only 45p will institionalise the top rate of tax at a new high level:

"It’s encouraging to see some steps in this budget towards greater tax simplification. Cutting the 50p tax rate to 45 percent is a step in the right direction, but the Chancellor should have scrapped this altogether. The danger is that the 45p will become a permanent rate.  It is also very welcome that the personal allowance has been raised, but the reduction of 40p rate threshold will mean that only basic rate taxpayers will benefit from the personal allowance rise. Up to 300,000 people will now find themselves upper rate taxpayers as a result. This will hit single-earner families particularly hard."

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Ruth Porter: Close DCMS, freeze benefits and pensions, scrap the regional growth fund... how to save up to £35 billion

Ruth Porter is Communications Director at the Institute of Economic Affairs

The very language of cuts has been markedly austere and depressing. It is now well established that the reductions the government will make to overall spending are actually tiny. Carving it back to around 40% of GDP by 2017 will take it to roughly the average amount the government spent under Tony Blair - hardly a radical plan.

The coming budget is the chance for George Osborne to reframe this discussion. If he can find further reductions he can create the conditions that will allow more growth in the economy – through tax cuts and more space for private enterprise. A thriving economy means more jobs, more prosperity, more opportunities for people, better education and better healthcare. Spring is a good time to send a more optimistic message for Britain’s future.

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Round-up of reactions to negative credit rating outlook announcement

By Matthew Barrett
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Following the release of a report by credit rating agency Moody's, which adjusted Britain's credit rating outlook to negative, several think-tanks and campaign groups have reacted to the news.

The Institute of Economic Affairs' Editorial Director, Philip Booth, said:

"The downgrade threat from Moody’s should come as no surprise. Whilst Moody’s are correct to cite the difficulties in the eurozone as a potential threat to the stability of government finances, many of the problems facing the UK government are home grown. Public spending continues to rise and the Office for Budget Responsibility has shown that there are huge pressures forthcoming from the effects of ageing populations due to increased health, long-term care and pensions costs. Furthermore, the pressures on business coming in the form of increased regulation – including in the vital banking sector – are supressing growth. All these things mean that the UK’s top-notch credit rating is deservedly on a knife-edge."

The Centre for Policy Studies' Head of Economic Research, Ryan Bourne, wrote:

"This intervention by Moody’s is therefore a timely reminder that the Government is doing the bare minimum to address our debt problem. In the upcoming Budget, George Osborne must at the very least indicate that he would be willing to make further spending cuts should circumstances require. Furthermore, he must take opportunities to enhance medium-term growth prospects through the only non-costly, pro-growth policies at his disposal: supply-side reforms. Whether reforming the tax system, deregulating, labour market reforms or policies to improve international competitiveness, the Chancellor must surely see the need to be bold."

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