Chris Yiu: We need new ways of solving the familiar problem of the revenue tax gap

Chris Yiu is head of digital government at Policy Exchange and is the author of a new report – The Big Data Opportunity – released today

The tax gap – the difference between the tax people owe to HM Revenue & Customs and the amount they actually pay – stands at an astonishing £35 billion a year. Getting back just a quarter of this amount would pay for a 2p cut in the basic rate of income tax. A prize this big is attractive to politicians on all sides. The tax gap is as big now, however, as it was back in 2004, seemingly stuck at around 8 per cent of total receipts.

The government knows something needs to be done. In 2010, Ministers announced that HMRC would re-invest nearly £1 billion of the savings from its spending review settlement in initiatives to tackle non-compliance in the tax system. Part of this is earmarked for investment in CONNECT, the department's tool for cross-referencing data on individuals and businesses. This exists to help officials spot and target the most risky cases of fraud, error and criminal activity.

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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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Centre for Policy Studies report proposes ways to boost savings

By Harry Phibbs
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The Centre for Policy Studies this morning released a new report - Put the Saver First - written by pensions analyst Michael Johnson with proposals for reviving a savings culture in Britain. The paper challenges the retirement savings industry to reform itself - with lower prices and greater transparency - to avert tougher regulation.

The report says:

"The interests of the nation and the industry are not aligned. Ordinarily this would not be of great importance, but financial services are an exception. Not only does the industry directly benefit from an annual subsidy of over £30 billion (via tax relief), but the Treasury fields the consequences of industry failure, via welfare payments, made manifest by an under-saving nation.

Consequently, the industry has to change, dramatically. The guiding principle for this paper is that change would be more lasting if it were driven by the industry itself, rather than through intervention from another key stakeholder, the state. The industry is in the Last Chance Saloon of public opinion. It now has a brief opportunity (between now and 2017) to take a lead and resuscitate its reputation."

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The Government needs a new Coalition Agreement to renew its purpose, says the Institute for Government

By Matthew Barrett
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A new report (pdf) released today by the Institute for Government recommends a new Coalition Agreement-style document to reinvigorate the government for the second half of this Parliament. The new "renewal plan" would set out objectives and priorities for the remainder of the term, and would help the parties in government work more effectively, the Institute’s report - "A game of two halves – how coalition governments renew in mid-term and last the full term" - says. The report is based on interviews with figures in Westminster and Whitehall and in countries where coalitions are common.

International research confirms that all governments struggle with mid-term renewal, but the challenge is even greater for coalitions. The Institute for Government - a think-tank which focuses on the civil service's role in government - warns that Britain's civil servants should plan for a minority government towards the final months of the Coalition, as the parties in government will be trying to distinguish themselves from the Coalition, and may cause a breakdown in relations between the two parties.

A new plan, apart from renewing the Coalition, would be able to take stock of new realities. Some policies of the Government, such as Lords reform, have been opposed by backbenchers on the grounds that they are not in the Coalition Agreement. An updated document would be able to include new economic measures, to take into account the progressively worsening situation in the €urozone. The Institute for Government argues that the new plan would:

• Clarify ambiguous policies in the Coalition Agreement
• Be open about which policies have been amended or dropped since 2010
• Develop a clearer link between policy objectives and the funding allocated from the Budget to pay for them
• Articulate the Coalition’s big objectives for the second half of the Parliament, and set out how the specific planned policies will help to achieve them
• Urge the government to think for the long-term, post-2015 political landscape

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The TaxPayers' Alliance calls on the Government to oppose new loans to Argentina

By Matthew Barrett
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The TaxPayers' Alliance is launching a new campaign today calling for the Government to oppose further World Bank loans to Argentina. The campaign includes an e-petition and new research (pdf) looking at the scale of the funding - the TPA's findings show that taxpayers' money is supporting loans to Argentina worth over £225 million, despite Argentina advocating a boycott of British goods, and its hostile and belligerent attitude towards Britain's territory in the Falkland Islands. The TPA also argues that Argentina has no pressing humanitarian need for aid.

The TPA is also releasing the video below to highlight the petition:

TPA research shows that outstanding loans from World Bank institutions to Argentina were worth $16.2 billion in March this year. Based on Britain's shareholdings in the two responsible institutions, British taxpayers are responsible for more than £225 million in loans to Argentina. The TPA says that we would not be isolated by voting against new World Bank loans to Argentina - the Obama administration already has a policy of voting against new loans, because of Argentina’s treatment of existing creditors. British representatives could be instructed to support the American policy.

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Deborah Dunleavy: How the Peel Policy Forum is helping kick start business in the North West

Deborah Dunleavy is Director of Business for the Peel Policy Forum. Follow Deborah on Twitter.

Last month, Number 10 launched a new national initiative in the North West, with Brooks Newmark MP as their representative, hosted by the Peel Policy Forum, a newly established think-tank.

The vibrant city of Manchester was the first stop in the regional tour for Number 10's new investment scheme. Launched at a time when confidence in new small business has never been lower, this scheme offers unique opportunities to support new businesses in the North West. With twelve years of work in private equity, a senior Government Whip and Lord Commissioner of the Treasury, Brooks Newmark MP, met with representatives of the business community in the Manchester region to discuss this scheme and how it can bring prosperity to local business in the area. A spectrum of support gathered together at an event hosted by the Peel Policy Forum (PPF), which is the North West's first and only think-tank.

Announced in the Chancellor's 2011 Autumn Statement and part of the Government's agenda for national growth, this scheme offers generous tax breaks for individuals investing in qualifying companies. Just as young homeowners are currently struggling to get a mortgage, new entrepreneurs struggle to gather the capital to start new ventures. This project offers tax incentives to support these challenged new businesses.

Brooks Newmark MP commented, "I am delighted for Manchester to be the first place in my regional tour to launch this important scheme. I look forward to speaking with local businesses and financial advisors at the Peel Policy Forum to try and gather enthusiasm for this fantastic investment opportunity."

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The Centre for Social Justice attacks Coalition's record on family and voluntary sector, but praises progress on welfare and schools

By Tim Montgomerie
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One year ago the Centre for Social Justice graded the Coalition on what it regards as the key pathways out of poverty and towards prosperous, independent living (ConHome emphasises just three - family, school and work).

The CSJ has updated the scorecard now that the Coalition is celebrating two years in office. The grades are below (with last year's ratings in brackets):

• Reforming welfare 8 out of 10 (8)
• Education 7 out of 10 (6)
• Drug addiction 7 out of 10 (7)
• Tacklling debt 6 out of 10 (6)
• Family policy 4 out of 10 (2)
• Voluntary sector 2 out of 10 (no rating last year)

The CSJ blames Coalition tensions for the lack of progress on family policy. It says there has been no progress on introducing a married tax break or eliminating the couple penalty in the benefits system. It worries that in focusing on childcare and parental leave it has the same precoccupations as Gordon Brown and Tony Blair. Despite last week's announcement on parent classes it worries that there is a big gap between the Government's words and its wallet:

"The department for education (DFE) has committed to help encourage the take-up of relationship support by providing extra funds for innovative services. overall, however, funding to prevent relationship splits remains below a scant £4 million per year, despite family breakdown carrying an annual price tag of £44 billion."

The Coalition gets the lowest rating for progress on the charitable and voluntary sector. It describes the cap on charitable giving relief as "disastrous". Again the CSJ sees a funding problem; worrying at the impact of spending cuts on the voluntary sector:

"During this past year the Government has set out a vision of social action which is at the heart of mending the UK’s broken society [yet] the charities we need to deliver this agenda have faced unprecedented funding cuts at a local level. More should have been done to protect them in the short-term whilst helping to build their independence over the long-term.The £100 million Transition Fund set up by the Cabinet office is an example of a measure which recognised the sum of the problem and yet was insufficient to meet anywhere near the scale of the need (compare this to the estimated £553 million spent on security for the olympic Games)."

The full report card is here (PDF).

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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A new report from Jesse Norman MP and the Centre for Policy Studies urges the abolition and replacement of PFI

By Matthew Barrett
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In a new report - After PFI - released yesterday by the Centre for Policy Studies, Jesse Norman MP has advocated the abolition of PFI, and its replacement with a new model of public sector procurement. Norman, the MP for Hereford and South Herefordshire, sits on the Treasury Select Committee, and set up the PFI Rebate Campaign in 2010, which led Tim Montgomerie to label him "the £1.5bn backbencher", after the expected public savings from the campaign.

After PFI shows that PFI has been one of the costliest experiments in public policy-making, causing more than £200 billion of public debt - the equivalent of £8,000 for every household in the country.

Amongst the detailed recommendations in the report are:

• Placing all past and future liabilities on the government balance sheet as soon as practicable
• Establishing a new central unit across government to monitor all PFI-style projects, to advise on best practice, to educate actual and potential public sector clients on contract management, and to generate greater “shared client power”
• Far greater transparency of existing and future contracts, and of costs to the public sector within contracts
• Mandatory disclosure to government of data on secondary market transactions

Tim Knox, Director of the Centre for Policy Studies, comments:

“The extraordinary cost and opacity of PFI under New Labour must never be allowed to happen again. Over £200 billion of new infrastructure is needed over the next decade. We cannot afford to get it so wrong again.”

The full paper can be downloaded here.