TaxPayers' Alliance restate opposition to High Speed Rail as five-month consultation opens

By Jonathan Isaby

Transport Secretary Philip Hammond is today launching a five month consultation on the Government's plans for a High Speed Rail network which would link London, the West Midlands, Manchester and Leeds with stations in South Yorkshire and the East Midlands, whilst linking to existing lines to enable through-running services to other cities including Liverpool, Newcastle, Glasgow and Edinburgh.

Hammond says that it is a "once-in-a-generation opportunity" to transform the way we travel which would make Britain better connected, create jobs and help spread prosperity around the country.  

But apart from the concerns of those living near the proposed site of the line (with residents in parts of Buckinghamshire and Warwickshire being particularly vocal), some are expressing concern about the cost of the project.

Early out of the traps this morning have been the TaxPayers' Alliance, who say that the total cost of around £30 billion represents over £1,000 per family in Britain and that the cost of the debt interest alone on the Government borrowing to finance the initial £17 billion project from London to Birmingham would cost well over £700 million a year.

TPA Director Matthew Sinclair observes:

"With so much pressure on the budgets of families and businesses, it is utterly indefensible that the Government is planning on spending such an incredible amount of money on this project.  There are more affordable ways of getting the capacity needed and a high speed line for the rich, on a route already served by very quick trains, can't be the priority over giving ordinary families and firms across the country a better deal.  HS2 should be cancelled."

A year ago the TPA produced this paper which concluded that there was no robust financial or economic case for the project.

Two newspaper editorials this morning also sound notes of concern about the plans

The FT (£) states:

"At an estimated £130m per mile, HS2 would cost more than four times as much as the average European high-speed line. The consultation should consider whether this can be cut as it squeezes the economics. Every pound invested will generate less than £2 of benefit (measured by extra journeys, times saved and reduced congestion), compared with the £6 the government estimates for road projects. Even that depends on meeting ambitious traffic forecasts. To govern is to choose. Would the benefits of a shiny new high-speed line outweigh the less visible but valuable things that could be done with the limited funds available? The clearest case for HS2 would be to expand capacity on the congested London-to-Manchester line. Paying £17bn to upgrade half of it seems quite steep."

The Times (£), meanwhile, accepts that HS2 would stimulate jobs and the economy, but expresses a worry that the project does not yet have robust enough political backing.

Free market think tanks unite against increase in VAT

Tim Montgomerie

Four of London's leading think tanks have all attacked today's increase in VAT to 20%; an increase that George Osborne intends to be a permanent rather than emergency fixture.

Leading the charge has been Matthew Sinclair of the TaxPapers' Alliance. Speaking to the BBC earlier he pointed out that David Cameron had broken a promise not to raise VAT. The Lib Dems even ran a poster campaign against higher VAT (remember this?).  Matt Sinclair said taxes were high enough in Britain and more should have been done to cut spending.

Philip Booth of the Institute of Economic Affairs sets out the alternatives to higher VAT in a powerful piece on Coffee House:

"The NHS has been ring-fenced, even though it has experienced huge budget increases and has a shocking productivity record. Pricey gimmicks given to pensioners such as the Winter Fuel Allowance, free television licences and free bus travel remain in place, whilst the government has promised to increase state pensions in line with the higher of inflation, earnings or 2.5% - the “triple lock”, as the government calls it. This last profligacy is wholly unnecessary at a time when much of the working population is experiencing real wage reductions. A 2.5% trim of the NHS budget, not increasing the aid budget, the abolition of the pensioners’ gimmicks and not implementing the triple lock would enable the government to cancel the VAT increase with considerable room to spare."

Dalibor Rohac, a research fellow at the Legatum Institute, disputed the idea that a VAT rise was less economically harmful than other alternatives:

“There can be no question about the fact that the British economy would benefit from further downsizing of the public sector, but one can understand how difficult it is implement sizeable spending cuts, especially in the short run. This being said, the Chancellor is mistaken if he believes that a rise in the VAT will have a smaller impact on the economy than a rise in the income tax. For all practical purposes, the VAT and the income tax have the same economic effects and lead to equivalent economic distortions. Even if we were to accept that tax increases were needed, there are alternatives to a VAT hike, which would have a much smaller impact on incentives to work and do business.”

Tom Clougherty of the Adam Smith Institute (which recently calculated that Tax Freedom Day will be three days later this year) argued that the Coalition should be CUTTING tax to stimulate growth and revenues:

“Rather than increasing taxes, government should be looking at making targeted tax cuts to encourage economic growth. Raising the VAT might be the “least worst” option, but it still risks putting a dampner on our economic recovery.”

I have argued against the VAT rise but now regard it as a battle lost and surrender.

Heseltine defends City as think tanks warn that new banking regulations could cause next crisis

Tim Montgomerie

In today's Times (£) Lord Heseltine comes to the timely defence of the City:

“My view is a very clear one, the City of London is a vital part of the national economy. It is a world-class industry and brings huge wealth to this country. The politics [of the City] are very difficult, so skilled political judgment is needed to make sure you don’t throw the baby out with the bathwater, and there are at the fringes difficult things to defend. But the underlying health of the City and the financial world are of enormous significance to us.”

Tarzan's intervention will reinforce George Osborne's efforts to prevent Vince Cable from imposing even heavier taxes and regulations on London's banks.  Mr Cable - now known by Tory MPs as the Anti-Business Secretary - may have lost his battle against Rupert Murdoch but he is determined to pursue his attacks on the City. Cable has compared bankers to “spivs and speculators” and his tough stance enjoys widespread public support. He is also being egged on by powerful newspapers, including the Daily Mail.

Up until now there have been few defenders of the City's importance to the UK economy. Mark Field MP has been an honourable exception. Lord Heseltine's intervention coincides with the publication of a new report from The TaxPayers' Alliance and the Legatum Institute. In a joint piece for today's Wall Street Journal Europe (£) Matt Sinclair (TPA) and Dalibor Rohac (Legatum) warn that the post-crisis approach to regulating the banks could precipitate the next crisis. Their main concern is globally harmonised regulations:

"International rules are supposedly necessary to stop financial contagion and a regulatory "race to the bottom." But harmonized regulatory regimes behave like farming monocultures: both are very vulnerable to disease. International rules will encourage firms to hold similar assets, take a similar attitude to risk and respond similarly during a crisis. The result will be more severe and more frequent international crises."

In their joint paper (available here) Rohac and Sinclair also worry that there isn't a big enough counter-cyclical element to the new banking rules. They also warn that "some measures proposed, like attacks on tax havens and hedge funds, are motivated by other agendas and do not actually address the problems that led to the financial crisis."

Matthew Elliott of The TaxPayers' Alliance to run anti-AV campaign

Matthew Elliott commented:

“The big political decision facing Britain this coming year is whether we should change our electoral system from one which has served us well for decades to one which even many in the ‘Yes’ camp dismiss as a very poor substitute for the system they really want.

The key democratic principles of accountability and transparency have always been at the heart of my work at the TaxPayers’ Alliance, and I feel very strongly that the ‘Alternative Vote’ system would make politicians less accountable and make elections less transparent.

Ditching our electoral system is not only of interest to political anoraks, it is a fundamental change that would affect the major policy decisions on tax, public spending, schools and hospitals for decades to come.

Having spent the past five years campaigning against expenses abuses by MPs, I am keen that power is shifted from Parliament to the people, but the ‘Alternative Vote’ system would give people less control over the laws which govern their lives. Prescribing the wrong medicine doesn’t make patients better, it makes them worse.”

Matthew Elliott will have most Conservatives on his side but, to be successful, he will also need to build alliances with (1) trade unions and other left-of-centre opponents of AV as well as (2) supporters of more proportional systems of election if he is to build a broad and winning coalition of the kind described by ConservativeHome.

Defeating AV looks increasingly possible. The latest polling, analysed by Melanchthon on CentreRight, suggests that older voters, who are most likely to turn out to vote, strongly oppose changing the voting system.

While Matthew is running the 'No' campaign from the beginning of October the TaxPayers' Alliance will be run by Matt Sinclair, a regular contributor to CentreRight.

> Sign up to No 2 AV.

TaxPayers’ Alliance policies adopted by the Government

Following on from the lists from the Centre for Policy Studies and Policy Exchange of the government policies which they lay claim to have proposed, Matthew Sinclair of the TaxPayers' Alliance explains here which TPA proposals have been adopted by the new Government.

Much of the work of the TaxPayers’ Alliance is focused on building public support for lower taxation and spending, rather than making specific recommendations.  As such, the main result of the TPA’s work may be in having strengthened public support for necessary spending cuts and producing the climate of opinion in which a move towards lower spending is possible.  However, we have recommended specific measures in a number of areas that have since been taken up by the Government.

As part of that drive to inform the public debate over spending and taxation, the TPA has made heavy use of the provisions of the Freedom of Information Act.  To extend that principle, spending transparency has been a key TPA objective for a number of years.  There was a section on the options for improving transparency and international and local examples in How to Cut Public Spending but calls for greater transparency have been a priority for the TPA campaign since it was launched.  The Government has published the COINS database and plans to introduce more thorough spending transparency in central and local government over the next year.  Transparency over pay for senior staff in the public sector has been another TPA priority and delivered directly through the Town Hall Rich List and the Public Sector Rich List.  The Government has produced a number of releases giving pay for top civil servants, special advisors and other staff clearly inspired by those reports.

Many cuts in spending announced by the Government match recommendations from the TPA:

• Halve the government advertising and publicity budget.  The TPA recommended halving the advertising and publicity budget in How to Save £50 billion and again in How to Cut Public Spending.  A recent press release from the Central Office of Information announced that total COI turnover on advertising and marketing was down an estimated 52 per cent in June 2010 on the same period last year.
• A two-year pay freeze for public sector workers.  The TPA recommended a two-year pay freeze in How to Save £50 billion and again in How to Cut Public Spending.  A two-year freeze was announced at the Emergency Budget.
• The abolition of the Child Trust Fund.  The TPA recommended abolishing the Child Trust Fund in How to Save £50 billion and again in How to Cut Public Spending.  Its abolition was announced as part of the coalition agreement.
• The abolition of Building Schools for the Future.  The TPA recommended abolishing the programme in How to Save £50 billion and again in How to Cut Public Spending.  The Government have since announced the abolition of the programme.

A wide range of quangos and programmes have been abolished following recommendations from the TPA:

Continue reading "TaxPayers’ Alliance policies adopted by the Government" »

Taxpayers Alliance blasts The Spirit Level

Richard Wilkinson and Kate Pickard's "The Spirit Level: why equal societies almost always do better" summarises its theme in its title.  It argues in effect for equality of outcome, not equality of opportunity.  The Guardian's Polly Toynbee has praised it as "ground-breaking" (now there's a surprise).  Charles Moore, the Greatest Living Englishman and Daily Telegraph columnist, has blasted its methodology as "bogus" and labelled it a "socialist...political tract" (now there's another surprise.)

Now along comes the Taxpayers' Alliance.  Matt Sinclair writes on its blog about a new analysis of The Spirit Level that the organisation has published today, entitled "The Spirit Illusion: A critical analysis of how “The Spirit Level” compares countries, written by Nima Sanandaji, Arvid Malm and Tino Sanandaji.  Sinclair says -

"The findings are stark.  On almost no measure does the central claim of the Spirit Level, that income inequality decreases life expectancy, stand up to scrutiny. In some areas, the book’s authors appear to be promoting utterly absurd ideas, like the notion that the United States doesn’t host a particularly innovative economy.

The truth is that income inequality is a much more complex phenomenon than the all-purpose bogeyman that redistributionist politicians would like it to be.

...There can certainly be problems if a failure to provide proper education and training or social dysfunction prevents certain groups within society responding to that incentive, and creates a lasting inequality.  But the answer then is not to try and treat the symptom, inequality, but the cause, and reform education and benefit systems that trap people in poverty.

Hopefully this report can contribute to a more meaningful debate about the causes and importance of inequality, by showing that the simplicity of The Spirit Level just doesn’t reflect reality.  That way we can avoid unjustified policies hurting the economy and burdening ordinary taxpayers."

Paul Goodman

London's think tanks react to the Budget

OVERALL JUDGMENT

Madsen Pirie of the Adam Smith Institute: "Basically the coalition's first budget was a reality check, and an indication that Britain is on the way back from the madness of the Brown years. It will be a slow haul, but this was a positive start."

BIG CUTS IN SPENDING...

Matt Sinclair of The TaxPayers' Alliance: "There is plenty of very good news in the Budget.  A two year public sector pay freeze, the abolition of the Child Trust Fund and cuts in welfare spending are all longstanding TPA recommendations that will be absolutely key to getting the public finances under control.  As a result of all the measures proposed, annual spending will be £31.9 billion lower than planned by 2014-15."

...BUT NOT IN BRITAIN'S CONTRIBUTION TO THE EU

Open Europe: "While today's emergency budget in the UK provided many talking points for the media at large – it also provided new information for those with an interest in the UK’s ever-increasing contribution to the European budget *(courtesy of one T.Blair). Hopefully this graph should illustrate how sharply our contributions climbed last year, and will continue climbing until 2014/15 when the contribution will hit an estimated £10.3 billion."

...WITH PAIN SHARED FAIRLY

Neil O'Brien of Policy Exchange: "As a share of their income, the richest 10 per cent are contributing twice as much as the poorer half of the population towards fixing the debt crisis. The richest tenth will be about £1,600 a year worse off, while the poorest tenth will be less than £200 worse off."

ALTHOUGH VAT HIKE WAS UNFAIR

Matthew Sinclair of The TaxPayers' Alliance: "Voters might be left wondering why they should bother paying attention during elections if campaign rhetoric bears so little relation to reality on such a big issue. The increase in VAT from 17.5 to 20 per cent means that instead of the higher income tax threshold being a welcome break for millions of families on low to middle incomes, it is just inadequate compensation for their increased VAT burden."

BUT WHERE IS THE REFORM OF PUBLIC SERVICES?

Andrew Haldenby of Reform: "Two weeks ago, when launching the Spending Review, George Osborne called for a once-in-a-lifetime debate about the shape of government in the UK.  He implied that there is a right and a wrong way to cut the deficit.  It would be right to cut spending by addressing the structural causes of the deficit - i.e. public sector inefficiency and the UK's unwillingness to cut its pensions and health entitlements.  It would be wrong to leave the shape of public services and welfare unchanged, but limit their costs temporarily – “salami slice” – with public sector pay freezes for instance. Today George Osborne opted for the slice: a two year freeze in public sector pay (rather than linking pay with performance), a three year freeze in child benefit (rather than withdrawing it from middle and high earners), a slightly lower rate of increase of benefits and a slightly lower rate of increase of tax thresholds.  The general sense was that his ambitions for government were similar to that of the last administration."

AND WHERE IS THE ENVIRONMENTALISM?

Global Warming Policy Forum: "Chancellor George Osborne has today left low carbon businesses disappointed with arguably the least green budget address in recent memory. The low carbon economy and the need to cut carbon emissions barely received a mention as the chancellor's first budget address focused almost exclusively on the spending cuts and tax rises required to tackle the UK's budget deficit. There were a few bright spots for green businesses as the chancellor confirmed that the coalition government would "bring forward" plans for a green investment bank, although he provided no further detail on how such a bank would operate. He also said that the Treasury would "explore" proposals to replace Air Passenger Duty with a per plane levy that the Chancellor said would help to cut carbon emissions. However, a report on the proposal will not be delivered until the autumn, despite the reform being included in both the Conservative and Lib Dem manifestos."

...AND A WELCOME FOR THE END OF REGIONAL DEVELOPMENT AGENCIES

Matthew Elliott on The TaxPayers' Alliance: "A quick scan through the document this afternoon for information on the Regional Development Agencies (RDAs) threw up something worthwhile: they are to be abolished through the Public Bodies Bill, for which a White Paper will be produced later this year. Of course, we will be keeping a close eye on it to ensure that this Budget promise is not reneged on or fudged in any way."

62% of grants from Regional Development Agencies don't go to business but to other public sector bodies

New research from The TaxPayers' Alliance shows that 62% of the £2.9 billion awarded by Regional Development Agencies from 2007 to 2009 did not go to private businesses but to public sector organisations.

The report also argues that RDAs failed to deliver on their key objective of closing regional imbalances. Gross Value Added (GVA) in the North East increased from £10,758 per head in 1999 to £15,887 in 2008 (+48%). Over the same period, London’s GVA increased from £22,150 per head to £34,786.3 (+57%). The chart below summarises the changes in all regions:

Matthew Elliott, Chief Executive of the TPA, commented:

"The Regional Development Agencies are hugely wasteful and ineffective, and they should all be abolished. These quangos have claimed for years to be focused on business, but in reality the majority of their grants have been going to other bodies in the public sector. With a huge budget deficit, the RDAs should be at the top of the list for abolition to save money. We simply can't afford to spend billions on organisations that fail to fulfil their mission, and the RDAs lack any claim to either success or legitimacy."

A PDF of the full report is here.

Within the Coalition, resistance to abolition of RDAs is being led by Business Minister Mark Prisk MP. A critic said: "Mark has gone native in his department faster than any minister I've ever known."

Think tanks give generally positive verdict on the Coalition's first cuts

The Institute for Fiscal Studies notes that today's cuts are "less than a tenth of the fiscal repair job" that Alistair Darling said was going to be necessary.

Andrew Lilico, Chief Economist of Policy Exchange identifies the Departments which have suffered the largest cuts:

[Today's cuts as a percentage of today's budgets | The extent to which today's cut reverses the rise in departmental spending in the last parliament]

• CLG communities: 7.3% | 75%
  
• Transport: 5% | 65%
• Work and Pensions: 5.4% | 90%
• Home Office: 3.5% | 73%
• Ministry of Justice 3.4% | 44%

Matthew Elliott of the TaxPayers' Alliance welcomed the cuts:

"Taxpayers have suffered the pain of a recession and rising taxes, and they will welcome the news that a Government is finally making the public sector share the burden. This must only be the beginning - we need to see tens of billions of pounds of cuts in the Emergency Budget in June to start to make an impact on the country's vast deficit. It was refreshing to hear the Chancellor talking about scrapping waste and closing down quangos. At last it seems Westminster is starting to wake up and do the things we have long called for."

From the Institute of Economic Affairs, Mark Littlewood saw strengths and weaknesses in today's announcements:

“Rightly a high proportion of these initial cuts will be borne by the Department of Business, Innovation and Skills. The flawed industrial activism policy pursued up to now must be abandoned. A strategy based on government deciding which ideas are likely to be commercially successfully is bound to fail. It is therefore of concern that some of the future spending plans look set to ignore this fact. There are other areas of cuts that are misguided in their approach. Reducing the number of civil servants by not replacing those who resign is an imprudent measure. Staffing the civil service as efficiently as possible requires strategic placement of staff, not an ad hoc plan.”

Patrick Nolan of Reform, said it was not "credible" for George Osborne to protect health and welfare budgets AND bring borrowing down to sustainable levels.

ConservativeHome's report on the cuts is here.

The IEA and TPA condemn Cameron's plan to train 5,000 community workers

Last week David Cameron announced plans to recruit and train 5,000 community workers as part of his 'Bigger Society, Smaller Government' agenda.

The idea has been condemned by Mark Littlewood of the Institute of Economic Affairs...

"It’s all very well for the Conservatives to wax lyrical about the merits of a post-bureaucratic age, but their prescriptions for society’s ills do seem to involve employing a large number of bureaucrats."

...and questioned by Matt Sinclair of The TaxPayers' Alliance:

"There is clearly a huge risk that the organisers could use their position to take up political causes and push those that fitted with their own views."

Matt Sinclair is right to be worried about the politicisation of community activists but he must also appreciate the need for better advocacy on disadvantaged estates. Clergy were once very powerful advocates for urban communities. Faith community leaders, because they were resident on estates, provided a voice for the voiceless when professional workers retreated to the suburbs at 5.30pm. The decline of the church's urban witness and the the general retreat of faith has left some communities without a voice. The Pilkington tragedy might not have happened if a community advocate had been able to bang heads together and forced officialdom to address the failure of the police and other statutory services to protect a vulnerable family from the terrible torment that ended in suicide for Ms Pilkington. The middle classes have always been better at accessing schools, hospitals and public services. Building similar capacity in disadvantaged neighbourhoods is no bad thing.

For Mark Littlewood the only thing that is necessary is for government to step back and civil society will blossom again. "Private groups of citizens," he blogs, "will spring up spontaneously and take positive action if government gets out of the way." I fear this is libertarian utopianism. Some individuals are so broken that they need intervention to help them stand on their own two feet. That certainly was the lesson of US welfare reform where the long-term unemployed needed all sorts of help with transport and self-esteem in order to leave welfare and the culture of welfare behind. Can we expect children who've never been properly parented to become good parents automatically? Can we expect communities that have only lived under the dead hand of the state to become vibrant centres of voluntarism without all sorts of supportive advice?

Any Cameron government needs to take the Littlewood/Sinclair warnings seriously but it's more important that it works with genuine civil society organisations to build the kind of welfare and family support services that so many communities lack.

The challenge for London's think tanks is to propose alternative ways of rebuilding the social infrastructure that lies betwen the individual and the state and, which we can all agree, the big state has usurped.