Think Tanks


14 Feb 2012 15:01:14

Round-up of reactions to negative credit rating outlook announcement

By Matthew Barrett
Follow Matthew on Twitter.

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:

CPS"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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1 Feb 2012 14:53:44

Tim Knox: A substantial Corporation Tax cut would send a bold pro-growth, pro-enterprise message

Tim Knox is Director of the Centre for Policy Studies which today publishes How to cut Corporation Tax (pdf) by David Martin.

We have heard rather a lot recently about how we must not tolerate “high rewards for failure”. But there is a logical corollary to that particular line: that we should be equally vehement about not imposing high penalties on success. And that is what the tax system does, not just on those individuals who pay higher rate taxes but also on business. For Corporation Tax – a tax on business profits – is effectively a tax that is only paid by successful businesses. It is money taken by the state from highly productive enterprises, money that could otherwise have been reinvested in new ventures. And it is money that is then consumed by the state, notorious for its low level of productivity.

In this way, the state penalises the only organisations which can get us out of the hole that we are in. For growth will only come from business: the state and the consumer are both far too indebted. That is why, as leading tax expert David Martin argues in his Centre for Policy Studies paper published today, George Osborne should announce in his March Budget an immediate cut in the main rate of Corporation Tax from its current level of 26% to 20%. At the same time, he could also announce his intention to reduce it even further – to 15% or even 10% once the appropriate anti-avoidance measures are in place.

Such a move would have numerous benefits:

  • It would boost business confidence, encourage new investment by businesses (as it would improve net returns) and would send a strong signal that the Coalition is taking the bold supply-side measures necessary to restore growth.
  • It would immediately fulfil the Coalition pledge to “create the most competitive corporate tax regime in the G20”. Until 2005, UK rates of Corporation Tax were lower than the OECD average. Since then—despite the Coalition’s efforts so far – the UK has fallen behind.
  • It would present an opportunity for a major simplification of the tax system. If the tax base was defined as business profits, then we could sweep away the separate rules and calculations for different sources of income, and for capital gains, and for capital allowances; and abolish all the complex rules for aggregating the results of these calculations, and for how profits and losses can be offset.
  • It could have a significant “wealth effect”. One of the key measures of assessing the value of a company is the P/E multiple (the price earnings multiple). If earnings per share are enhanced because of a lower tax charge, the value of equities will tend to rise over time (assuming an unchanged P/E multiple). Higher share prices benefit most corporate pension funds (particularly through reducing the actuarial deficit), life assurance companies, other institutional investors and unit and investment trusts which harness the savings of millions of people. Private individuals thereby achieve a higher valuation of their equity investments through rising share prices which potentially enhance consumer confidence. That in turn adds to the buoyancy of the economy.
  • It could also heighten the impact of any further Quantitative Easing – or possibly even reduce the need for more QE. The use of QE by both the Bank of England and the Fed has tended to result in higher equity prices, thereby enhancing consumer confidence through this “wealth effect”, a consequence that has been publicly welcomed by both central banks. A reduction in Corporation Tax should achieve precisely the same effect. Moreover, that effect might well be leveraged by an announcement of an intention to reduce the rate further as it would result in an upward re-rating of P/E multiples caused by greater investor confidence in the regime of lower Corporate Tax rates.

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30 Mar 2010 10:07:51

Open Europe says Tory regulatory policy must focus on EU red tape

Screen shot 2010-03-30 at 10.06.23 A new report from Open Europe, reported in today's FT, warns that 72% of the costs associated with regulation are coming from the EU.

Here are the key findings:

  • Regulation has cost the UK economy £176 billion since 1998. Of this amount, £124 billion, or 71%, had its origin in EU legislation.
  • The annual cost of regulation in 2009 stands at £32.8 billion.
  • We estimate the benefit/cost ratio of EU regulations at 1.02, while the ratio of UK regulations is 2.35. In other words, for every £1 of cost, EU regulations introduced since 1998 have only delivered £1.02 of benefits, meaning that it is 2.5 times more cost effective to regulate nationally than it is to regulate via the EU.

On the Conservatives, Open Europe declares:

"The Conservatives have proposed a series of fresh regulatory reforms that are innovative and could cut the cost of regulation. However, the Conservatives have chosen to focus their regulatory reform agenda almost exclusively at the domestic level. This, in turn, could lead to contradictory or undeliverable policies since a potential future Conservative government will only on average have full control over 28% of annual the cost of regulation. The Conservative Party needs to make it a priority to set out how they intend to apply their domestic reform proposals to the EU decision-making process."

The report - which you can read in full here - sets out thirty ways to cut red tape.

23 Mar 2010 16:01:53

Britain's £1bn health and safety industry is encouraging 'over-compliance'

Screen shot 2010-03-23 at 15.58.38 A new Policy Exchange report notes that Britain has a fast-growing health and safety industry - with 1, 500 ‘specialist health and safety firms' selling something between £700 million and £1 billion worth of services to other businesses.

The report - written by Corin Taylor -  warns that there’s such an enormous amount of uncertainty about health and safety legislation that a culture of over-compliance has emerged.

Taylor recommends greater clarity of what is legally required by the Health & Safety Executive to avoid firms over-complying (or gold-plating); a minimum standard of qualification for health and safety consultants; and giving consideration to whether certain health and safety requirements can be lifted from micro-enterprises and low-risk office-based businesses.

Click here for a PDF of the full report.

1 Jan 2010 16:52:49

The top 100 most costly EU regulations

Open Europe recently published a list of the 100 most costly EU regulations. See this PDF.

Four directives account for 53% of what will be an £184bn cost by 2020:

  1. The Working Time Directive, to cost the UK economy £32.8 bn by 2020;
  2. EU's Climate Action and Renewable Energy Package, to cost the UK economy £28.2 bn by 2020;
  3. Energy Perfomance Certificates for buildings, a.k.a Home Information Packs, to cost the UK economy £20.2 bn by 2020;
  4. Temporary Agency Workers Directive, to be implemented in 2011 and set to cost the UK economy £15.6 bn by 2020.

More here.

23 Nov 2009 10:36:00

Historical lessons on keeping spending under control

Policy Exchange

"Controlling Spending and Government Deficits - Lessons from History and International Experience"(PDF)

Authors: Dr Andrew Lilico, Ed Holmes and Hilba Sameen

Publication date: 23 November 2009

A comprehensive study contrasting historical UK examples when spending was cut during times of financial hardship with the similar experiences of other European countries and Canada. The paper calls for a spending cuts programme to address the dire state of the current UK public finances. However the authors warn that other countries have been better than Britain at implementing public cuts programmes by devolving the process of finding savings down to the government departments in question and is critical of previous centralised cuts programmes undertaken by the UK Government.

19 Oct 2009 16:21:00

Brooks Newmark MP on the public debt bombshell


"The hidden debt bombshell" (PDF)

Author: Brooks Newmark MP

Publication date: 19 October 2009

Brooks Newmark MP argues that the true state of the nation's finances is far worse than the Government's official figures and that the actual size of public sector Net Debt is £2,220billion rather than the £825billion stated by the Government. He claims the reason for this discrepancy is the failure of the Government to factor in debts caused by PFI projects, unfunded public sector pension liabilities, contingent liabilities such as Network Rail and the state intervention arising from the banking crisis. The report suggests it is time for an independent audit of the Government's books.

7 Oct 2009 14:43:00

The negative consequences of too much regulation


"Cure or disease? The unintended consequences of regulation"  (PDF)

Author: Keith Boyfield

Publication Date: 7 October 2009

This report argues that too much regulation can have damaging consequences. The author acknowledges the calls for tighter regulation of the banking industry following the credit crunch but notes that regulation in the areas of agriculture, fisheries and health and safety have had dangerous unforeseen consequences.

7 Oct 2009 09:41:00

Bringing an end to State Monopoly Capitalism


"Too big to live - Why we must stamp out State Monopoly Capitalism" (PDF)

Author: Niall Ferguson

Publication date: 7 October 2009

The author presents a free market alternative to state monopoly capitalism. The report focusses on how to end the existence of institutions deemed "Too big to fail" without increasing state intervention in the economy.

30 Sep 2009 23:13:00

More regulation not the answer to banking crisis


"A dangerous consensus"

Author: Nicholas Boys Smith

Publication date: September 2009

The report argues that increased State intervention and regulation is not the solution to the global banking crisis. The author suggests that greater Government control of the banking industry will make future banking crises more not less likely. The author also calls for a similar approach for hedge funds and states that no bank should be considered too big to fail.