Sadiq Khan's rent control demand is economically illiterate

Sadiq Khan's report out today demanding more powers devolved London to control rents shows that he's economically out of his depth and ineptly stepping outside of his brief while London's housing crisis worsens and violent crime rises.

Matthew Lesh, Head of Research at the Adam Smith Institute, takes the Mayor to task:

“Rent control would wreck London’s housing market. It would discourage developers from building homes for London’s residents, and shut London’s door to immigrants by making it harder to find an apartment in the city. Sadiq Khan is showing he is economically illiterate by not realising the damage that rent control does to cities.

“Since they were implemented in Stockholm, you now have to wait up to 35 years for a rent-controlled apartment, with an average wait of 10 years. It has meant bribes, patronage, a black market, and poorly maintained apartments. Only the socially connected can get into apartments, reducing access for the poor and minorities.

“London's Mayor should get back to fixing the issues within his control – like the Crossrail delay and knife crime – and spend less time demanding powers that would worsen the housing crisis.”

If you would like to arrange an interview with a member of the Adam Smith Institute or request further comment please do get in contact with Matt Kilcoyne via email (matt@adamsmith.org) or phone (07904099599 / 02072224995).

Dank on demand

A new paper from the free market, neoliberal think tank the Adam Smith Institute recommends a six point plan to legalise cannabis to reduce crime, reduce health risks, raise revenue from tax, and increase consumer awareness of risks.

Britain has fallen behind the rest of the world on recreational cannabis with Canada, ten US states and Uruguay having legalised and New Zealand organising a referendum to decide whether to legalise the drug.

  • One-third of Brits have used the drug at some point in their life, and nearly a fifth having done so in the past year 

  • Support for cannabis legalisation continues to rise rapidly, from 43% in May 2018 to to 59% in October 2018

  • Bring in £2.26 billion in tax revenue, and free up as much as £100 million in taxpayer funds and 1.04 million police hours  

  • UK’s cannabis providers should follow the takeaway delivery app market to compete with black market dealers that can provide at any time to anywhere.

There now is a clear appetite for recreational cannabis reform in the UK, a new paper by the Adam Smith Institute argues, saying legalisation could result in £2.26bn of revenue for the treasury but only if a competitive market is created that can undermine the power of black market players.

Far from being the fringe concern it once was, the debate over cannabis has moved into the mainstream following revelations of previous drug use by tory leadership candidates, and in the aftermath of high profile cases of Billy Caldwell and Alfie Dingley, who needed cannabis-based medicines to alleviate their frequent and dangerous seizures last year and medical cannabis’ subsequent legalisation.

Over the last year support for the legalisation of cannabis has skyrocketed. An October 2018 poll by Populus showed that the general public are now almost twice as likely to support the legalisation of cannabis than they are to oppose it. This is a significant shift in opinion since May 2018, with those supporting the legalisation of cannabis increasing from 43% to 59%. Just a third of Brits now think that the sale and possession of cannabis should be a criminal offence.

Recreational cannabis is unlawful to use and supply in the UK. The Misuse of Drugs Act, introduced in 1971, stipulates that the possession of cannabis can result in a five year prison sentence for users, an unlimited fine or both. Police can also issue a warning or an on-the-spot fine of £90 if a person is found with cannabis. Supply-related offences are treated much more harshly, with offenders facing up to 14 years in prison, an unlimited fine or both.

The first section of the paper, written by Liz McCulloch from the drugs policy advocacy groupVolteface, has looked into the evidence from the UK and around the world and concluded that “the evidence supporting the introduction of a legally regulated cannabis market in the UK is vast.”

She argues that “as the evidence builds that a legally regulated cannabis market would protect children, eliminate the illicit market, education people on the effects of cannabis and encourage safer cannabis consumption, that the debate should move beyond whether cannabis should be legalised and onto how”.

The Adam Smith Institute’s Daniel Pryor has done just that, creating a six point plan for cannabis legalisation:

  1. Private enterprise: The free market should be responsible for cannabis production and retail to ensure providers are responsive to consumer-wants and to avoid shortages driving a persistent black market. Recreational cannabis could be sold in dedicated licensed stores, behind the counter by trained staff in pharmacies like Boots and mobile apps to compete with drug dealers.

  2. Advertising and branding: Some forms of advertising and branded packaging should be allowed—as in many US states—in order to signal quality, consistency, and safety, giving legal products another advantage over the black market.

  3. Consumption: Edibles and vaping cannabis products should also be allowed to help people move away from tobacco joints.

  4. Taxation: The taxation of cannabis must be low enough to ensure the final product is as cheap as illicit cannabis, or risk continuation of the black market like in California. High potency cannabis (skunk) should be taxed more than lower potency varieties, encouraging consumers to switch to safer products.

  5. Education: Users should be presented with the latest evidence on the health effects of cannabis at point-of-sale — like in Canada.

  6. Criminal justice: Those currently or previously involved in the illegal cannabis industry should have pathways to transfer in to the regulated, legal market. The Government should also expunge previous cannabis convictions, where appropriate, in order to limit the damage that criminal records cause to the life chances of low-risk offenders.

The government has to be careful during any form of legalisation, the report argues, as the way in which cannabis is regulated in a legal market is almost as important as the debate over its legalisation in the first place.

The Adam Smith Institute suggests that it should be a core aim of reform to: reduce underage and problem use of cannabis; reduce the size of the illegal cannabis market and the various harms it causes; encourage cannabis users to switch to less harmful patterns of consumption; reduce the negative impacts of public cannabis consumption on local communities; inform the general public about evidence of cannabis use.

In order to undermine the power of players in the black market, legal providers will have to be able to compete in a free and competitive market. With drug dealers across the country sophisticated in use of technology and delivery on demand. To keep up, the free market think tank suggests that licensing restrictions on sales should be kept to a minimum, and we should expect delivery on demand and advertising to form part of the legal cannabis economy.

With a commitment to protect young people, improve public health, crack down on violence in our streets, promote social justice, boost tax revenues, and let responsible adults choose whether to use a regulated consumer product; the Adam Smith Institute says it’s time to give a green light to cannabis legalisation.

Daniel Pryor, report author and the ASI’s Head of Programmes, said:

“With most Brits in favour of legalising recreational cannabis, the UK is likely to do so in the next few years. When we do, it’s vital that we learn from other countries who have taken back control of their cannabis markets.

“We should avoid the mistakes of Uruguay and instead involve the private sector: preventing shortages and snuffing out the criminal market through competition between regulated products and different licensed business models. We should embrace Canadian-style efforts to inform people about the health effects of cannabis at point-of-sale and through public information campaigns. And we should shift people towards less harmful ways of using cannabis: taxing high-potency cannabis at a higher rate and making safer alternatives like edibles available as many US states do.

“If we seize the opportunities of legalisation, we can protect children, cut crime, boost the economy, and help adults make safer cannabis consumption choices. Politicians should catch up with public opinion and give the green light to a legal, sensibly regulated cannabis market.”

Notes to editors:

For further comments or to arrange an interview, contact Matt Kilcoyne, Head of Communications, matt@adamsmith.org | 07904 099599.

The Adam Smith Institute is a free market, neoliberal think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

Privatize the air!

A new paper from the free market, neoliberal think tank the Adam Smith Institute explains how we can boost competition in the aviation industry and why Boris and Hunt must commit to competition when expanding Heathrow.

  • For the first time, there are multiple applications to build the new terminal at Heathrow Airport.

  • Terminal competition — separate construction, ownership, and management for the new terminal at Heathrow — would encourage innovation and lower prices for passengers.

  • Boris and Hunt must commit to competition in the £14bn+ expansion project.

  • Landing and take-off slot auctions — ending the EU’s administrative allocation system that massively benefits incumbents — could enable 16 million more passengers a year, and raise billions of pounds, the ASI has calculated.

  • Auctioning low-altitude airspace corridors for forthcoming forms of transport such as air taxis and autonomous freight drones.

The Adam Smith Institute today calls for a major shake up of competition in the aviation sector, including terminal competition for the first time in the UK, auctions for landing slots to break up cartels and monopolies in the industry and reduce prices for air passengers, and auctioning low-altitude airspace for air taxis and autonomous freight drones to enable the new technology.

The free market think tank explains that competition forces firms to innovate, reduce costs, and be responsive to provide greater consumer benefits. It ensures resources are put to best use. Monopolies lead to stagnation, laziness, overcharging, market manipulation, and higher prices for consumers.

Within aviation, competition has improved from the days of national carrier monopolies, allowing millions of people to fly regularly for their holidays, for work and to see their families. But there is still some way to boost competition and innovation. The free market think tank argues for three recommendations that could radically increase competition, keep the UK at the forefront of the aviation industry, and reduce prices for passengers.

1 - Terminal competition

As the issue of Heathrow Airport expansion makes its way into the Tory leadership debate, the Adam Smith Institute says that separate terminal ownership should be considered. A new terminal at Heathrow could be built and operated by a separate entity, creating competitive pressure to keep expansion and ongoing costs low for passengers. This is the model is used at many leading global airports, including JFK Airport in New York City. There are now two proposals for Heathrow expansion, but no tender-like process to decide which proposal to pursue.

As the sole owner of all the terminals at the congested global hub, Heathrow Airport Limited has substantial market power. HAL’s revenue is capped by the government to a proportion of their total assets. Therefore, the more they spend on expansion and maintenance the more profit they can make. This creates a perverse incentive to overspend and has led to accusations by major airlines of Heathrow ‘gold plating,’ including wanting to charge £74,000 to chop down a tree and £61,000 per car park space at Terminal 2. This results in among the highest costs of any airport in the world for airlines, passed onto consumers in higher ticket prices. Heathrow charges about £20 per departing passenger, and has the second highest operating expenditure per passenger of any major airport in the world. A separate terminal would reduce the ability of Heathrow to excessively charge and overspend.

2 - Slot auctions

The ability for a plane to take-off and land at a particular time — known as a ‘slot’ — is a valuable resource at a congested airport. But EU regulations require these to be given away for free. This system allows the old airlines to hoard slots, preventing new profitable competition in the airline industry. British Airways now has over half the slots at Heathrow Airport. With Heathrow now the government’s preferred expansion plan for a new runway, the of market control by a single airline becomes more stark.

The ASI argues that slot auctions would ensure lead to each slot being used most efficiently and provide opportunities for new and mid-sized carriers to expand; report author Matthew Lesh argues this would help increase market competition, encourage innovation, and avoid arbitrary decision making and political interference.

Slot auctions for Heathrow alone could provide an additional 16 million passengers and giving the country an extra £171.2m of economic benefit every year. This system, endorsed by the Competition and Markets Authority in 2018, would undermine the historic position of larger players and allow new entrants to expand, increasing airline  and increased competition for airlines.

3 - Privatise the air
Air taxis will soon be able to transport passengers from Heathrow Airport to the City of London in 8 minutes and from London to Brighton or Oxford in 23 minutes. Hundreds of hourly take-offs and landings could congest the skies, requiring allocation of scarce air corridors.

Bureaucratic allocation of access to congested airspace would be unresponsive to changing technology, entrench early movers, and lead to inefficient allocation.

The auctioning of rights to operate an aerial travel corridor, at a specific altitude over for a period of time, would deliver efficient use of the space, and raise substantial revenue.

Flying between 200ft to 5,000ft above ground, air taxis and freight could transform the economy in the UK and other developed countries; the global air taxi market has been estimated to become worth between $615 billion and $3 trillion by 2040.

Matthew Lesh, report author the ASI’s Head of Research said:


”From flying taxis to faster and further flights, the future of transport is going to be awesome. But we have to get the policy right to foster competition and innovation. We must not make the same mistakes as the past. The Department for Transport should carefully consider the potential for terminal competition at Heathrow Airport, particularly in the context of competing Development Consent Order applications. The Government should pursue slot auctions to ensure new capacity is used efficiency, delivering more passengers and a big boost to the economy. To prevent the mistakes of the past, the government should also auction airspace for air taxis and autonomous freight drones. This would ensure the increasingly congested space is put to its best use.”

For further comments or to arrange an interview, contact Matt Kilcoyne, Head of Communications, matt@adamsmith.org | 07904 099599.

Internet red tape strangles free speech & the economy

A new paper by the Adam Smith Institute claims proposed online regulation is a serious threat to freedom of speech and entrepreneurship and argues for a sea change in the Government’s approach to technology post-Brexit:

UK politicians are becoming increasingly hostile to technology, undermining the free speech and innovation that is essential to economic progress

  • The Government’s Online Harms White Paper, which creates a new online speech regulator, is a serious threat to a free internet

  • Platforms—like Google, Facebook, and Mumsnet—must not be made liable for the speech of their users, as otherwise they will be forced to censor swaths of online speech

  • Despite fears about ‘big tech monopolies,’ closer analysis reveals that there is intense competition in the sector, including substantial R&D investment

  • New regulations would create barriers to entry that would hurt start-ups and entrench incumbents

  • A global top 500 company is 10x as likely to set up in the go-getting USA, than over-regulated EU, the ASI has calculated

  • The Government should embrace ‘permissionless innovation’ to encourage entrepreneurship

Technology is improving our lives, connecting people, creating communities, and contributing to Britain’s economy to the tune of £170bn a year. Internet companies alone are estimated to be responsible for 400,000 jobs and 80,000 businesses, and growing twice as fast as the rest of the economy in recent years. A new report, Safeguarding Progress: The risks of internet regulation, by the Adam Smith Institute makes the case for permissionless innovation to be put at the heart of the government’s approach to dealing with the digital economy.

Despite its positive contribution, the internet has been under attack from politicians of all stripes in recent months — from calls for companies to be broken up to the Online Harms White Paper which would create a new online censorship regulator, as well as privacy risks from demands to give security services access to encrypted private communications. The increasingly pessimistic rhetoric about new technologies risks undermining the sector.

The ASI has calculated that a large company is ten times more likely to develop in the United States than in highly-regulated Europe, after accounting for population differentials. The report argues Brexit provides the opportunity for the UK to diverge from the excessively precautionary approach of the European Union, therefore attracting substantial tech investment and creating jobs.

The report calls for a ‘permissionless innovation’ approach, meaning allowing entrepreneurs to experiment with new business models and technologies, and only intervening when there are clear, demonstrable harms to the public.

The ASI argues that the Government should adopt Five Principles for Permissionless Innovation in technology if it wants to achieve an keep an open internet, and our tech industry competitive:

  1. Identify and remove barriers to entry and innovation;

  2. Protect freedom of speech and entrepreneurship by retaining immunities for intermediaries from liability;

  3. Rely on existing legal solutions, the common law, and competitive pressures to solve problems;

  4. Push for industry self-regulation and best practices;

  5. Adopt targeted, limited legal measures for truly hard problems based on evidence.

These principles are adapted from the work of Adam Thierer of the Mercatus Centre at George Mason University.

The report discusses two major regulatory issues facing the sector: liability exemptions for platform intermediates and competition issues.

The report argues that we should continue to see online platforms more as libraries than as publishers, with companies not liable for illegal activity of their users (although should continue best practice working with police and security forces) much like a library is not responsible for the content of the book on its shelves. The platform liability in the EU e-Commerce Directive and Section 230 in the US were fundamental to the development of the internet,

Laws forcing platforms to be liable for user content to restrict hate speech have prompted social media companies to engage in excessively risk-averse moderation, undermining freedom of expression. Threats of fines, jail time and website blocks have perverse, illiberal consequences. Liability would also, according to 72 per cent of tech investors, entrench the global tech giants who have the resources to comply by hiring moderators and developing AI.

Further, the report argues that claims that there is a lack of competition and innovation in the sector are a myth. Online firms compete (e.g. Facebook, Snapchat, Twitter, Tumblr, Netflix Fortnite, Amazon, TripAdvisor) for user attention and in specific product markets. They also heavily invest in R&D, which shows they are not lazy or stagnant as tends to happen in monopoly markets. History shows that concern about monopolies has been greatly exaggerated, as seen with the rise and fall of Myspace.

It is also argued that regulators should not intervene if there is harm to consumers demonstrated by excessive profiteering - that is not the case for tech firms that provide free services for consumers.

Nevertheless, new regulations, such as excessive data regulations, create barriers to entry and excessive costs. This is particularly harmful to startups and small-to-medium sized enterprises (SMEs) that have fewer resources for compliance. Eighty-one per cent of tech investors agreed that ‘policy and/or legislation in order to target specific companies (i.e. global giants) could lead to poor outcomes that inadvertently hurt or hinder tech startups’

Matthew Lesh, report co-author and the ASI’s Head of Research said:

“The UK Government is on the verge of making our internet the most censored and highly regulated of any Western democracy. This is a fundamental threat to our status as a free society and our global reputation as a liberal democracy. The creation of new online speech regulator, as proposed in the Online Harms White Paper, will not only make it harder for start-ups to establish and grow, it will undermine our core right to freedom of expression. Regulating the internet means crushing the internet and dismantling Britain's liberal freedoms.”

Philip Salter, report co-author and Founder of The Entrepreneurs Network:

"The growing burden of tech regulation risks strengthening the market position of tech giants by raising the barriers to entry. Treating platforms as publishers would hit startups hard. Facebook and Google can afford to hire an army of moderators, but their would-be competitors will struggle. While the Copyright Directive risks stymieing creativity, funding and innovation for disruptive tech entrepreneurs. Britain's tech sector is the envy of Europe. If we are to remain a world challenger, we need to up our game and factor in the significant cost of poorly targeted regulation."

Daniel Dyball, UK Executive Director at Internet Association, who represent leading global internet companies, said on the release of the ASI’s new report:

“This report highlights a number of important areas as we look towards the future of the internet and internet policy in the UK. Intermediary liability protections, for example, are fundamental to the success of the internet as we know it. Internet Association is committed to working with the government to find a regulatory framework that deals with genuine concerns about keeping people safe online, while retaining the significant economic and social benefits that internet companies provide to the UK.”

Jim Killock, Executive Director of digital rights organisation Open Rights Group said:

“This report is a timely reminder that regulation can have adverse consequences, especially for free expression. Regulation impacting free speech can have unintended consequences and needs to be cautious. The strong link between free expression and economic innovation is also well described. Policymakers should consider why the UK has lost sight of these important considerations in recent years."

Notes to editors:

For further comments or to arrange an interview, contact Matt Kilcoyne, Head of Communications, matt@adamsmith.org | 07904 099599.

Rory's Opium

Daniel Pryor of the Adam Smith Institute slams the hypocrisy shown in politicians' approach to drugs to the sons of Eton and those born on sink estates: 

"Over 12,000 Brits are in prison for drug offences, but it’s one rule for politicians and another for the rest of us. Rory Stewart’s opium experience is nothing new—countless senior politicians have admitted to using illicit drugs, but this hasn’t translated into a sensible approach to drug policy. 

"Politicians are all too happy to prop up violent supply chains that wreak havoc in Britain’s cities instead of taking back control from criminals by legalising and regulating drugs. They’re eager to lay the blame on middle class drug users to distract from their own failed efforts to enforce prohibition. They're determined to crack down on child exploitation while opening the door to county-lines gangs that use children as drug mules. Politicians should spend less time apologizing for taking drugs and more time sensibly regulating them."

Please contact Matt Kilcoyne if you wish to arrange an interview with a member of the Adam Smith Institute on 07904099599 or 02072224995.


Happy Tax Freedom Day!

Taxpayers worked 149 days for HMRC this year, today is the first day they start working for themselves

  • Tax Freedom Day falls on May 30th; the latest it's been since 1995

  • Brits work 149 days of the year solely to pay taxes

  • UK Taxpayers will fork out over £734.1bn to the Treasury this year, 40.94% of net national income

  • Cost of Government Day, which factors in borrowing as well taxes is the earliest it has been since 2008. The UK is successfully bringing down the deficit, but spending is still too high.

  • With tax demands at record highs, Tory leadership contenders that want growth in the economy and people’s wages need to come up with ways to reduce, not increase, the national tax burden.

  • Top Conservatives back ASI call to cut tax burden for ordinary Britons and ensure Tax Freedom Day comes earlier in 2020.

Tax Freedom Day is a measure of when Britons stop paying tax and start putting their earnings into their own pocket. In 2019, the Adam Smith Institute has estimated that every penny the average person earned for working up to and including May 29th went to the taxman—from May 30th onwards they are finally earning for themselves.

British taxpayers have worked a gruelling 149 days for the taxpayers this year. That’s more than at any time since 1995. Conservatives under Theresa May have seen the tax burden go in the wrong direction, and now the free market think tank the Adam Smith Institute is calling on leadership contenders to commit to reducing the tax burden, as Director Dr Eamonn Butler launches his new book 'The Street-wise guide to the British Economy'.

The Adam Smith Institute’s call for lower taxes is joined by Tory Big Beasts Sir John Redwood, Steve Baker, and Priti Patel who argues that the Conservative Party needs “leadership that will radically attack the tax burden.”

Conservative leadership candidate Sajid Javid stated that “simpler, flatter, lower taxes” should be a priority for the government and that they both “good economic sense” and are “also the right thing to do.”

Esther McVey, also running for leadership of the Tory party says that “higher tax bills hit the least well-off families the hardest and it is dispiriting for hard-working taxpayers to have to work right up until the start of June just to pay their yearly tax bill.”

Government spending choices fall on UK Taxpayers, and this year to try and meet these commitments taxpayers will fork out £734.1bn—representing 40.94% of net national income.

Tax Freedom Day in the United Kingdom is now well over a month later than in the USA, where this year it fell on April 16th, down from April 19th the year earlier.

The ONS has revised net national income data and the Adam Smith Institute has calculated this means Tax Freedom Day is later than any day since reliable records began in 1995. The shortest number of days worked to meet HMRC’s tax demands was 122 in 1996.

In a sign of good news though, Cost of Government Day this year falls on 18th June with the smallest gap after Tax Freedom Day in over a decade. The Cost of Government Day calculates spending over net national income—i.e. including debt-financed government activity, which we must eventually pay, as well as tax-financed government spending.

While it’s good news that the gap is getting smaller, the money borrowed to cover the near three week long gap since Tax Freedom Day must eventually be paid off with future taxes.

With squeezed budgets, low wage growth, inflation above target and high housing costs, UK taxpayers cannot afford budget proposals from Left or Right that attempt to squeeze more money from taxpayers. Instead politicians should look at reducing the size of the state, and reforming our taxes. With a change of premiership the Adam Smith Institute argues that it’s time for the Conservatives to again become a party that again commits to a lower tax burden.

The Adam Smith Institute singles out three tax changes that would boost growth and the pay packets of Britons right across the country:

  1. UK Government should move to take the poorest out of tax altogether. With budgets tight across the government should boost the take home pay of minimum wage workers by raising the National Insurance Contribution threshold in line with that of income tax.

  2. Governments across the UK should abolish stamp duty (in Scotland the Land and Buildings Transaction Tax). Britain’s most damaging tax, Stamp Duty destroys 75p of wealth for every pound raised. The Government should prioritise cutting the taxes that do the most harm.

  3. Slash corporation tax to no more than 12.5% to induce job creation and higher wage growth.

Rt Hon Sajid Javid MP said:

“A low tax burden is not only essential to help grow the economy, which provides the tax base for public spending, but it is also morally right that workers get to keep the maximum possible amount of their earnings. It is noticeable that the increase in income tax under Gordon Brown led to a reduction in revenues, as did the recent Stamp Duty rises. Simpler, flatter, lower taxes should be a priority for any government. Not only does it make good economic sense, but it is also the right thing to do.”

Rt Hon Esther McVey MP:

“With the tax burden now at its highest in almost 50 years, we must do everything we can to get rates down.

“Higher tax bills hit the least well-off families the hardest and it is dispiriting for hard-working taxpayers to have to work right up until the start of June just to pay their yearly tax bill.

“Allowing hard-working taxpayers to keep more of their hard-earned money will show that the Conservative Party is firmly on their side and will generate economic growth, higher wages and more jobs."

Rt Hon Priti Patel MP said:

“It is shocking to see that under a Conservative Government Tax Freedom Day keeps getting later as the tax burden rises to its highest level in a generation. A high tax economy hits people hard in their pockets, strangles economic growth and prevents investment in job-creating enterprises. People should not be working for nearly five full months to pay taxes. We need to see new Conservative leadership that will radically attack the tax burden, reduce complexity in the tax system and free families and businesses so they can keep more of what they earn.”

Sir John Redwood MP said:

“Better late than never. Tax Freedom Day should be brought forward. If we had lower tax rates the economy would grow faster and we could pay for our public services more easily. Taxes like Stamp Duty, Capital Gains and Higher Rate Income Tax are now at levels which mean the Treasury collects less revenue than if the rates were lower.”

Dr Eamonn Butler, Founder and Director of the Adam Smith Institute, said:

“If we were forced to spend 40% of our time working for the government, people would regard it as the most tyrannical slavery. But that is exactly what people in Britain have to do. And when they see what their forced labour goes on—the overspending on HS2, the dismal bureaucracy, the daily pantomimes in Parliament—they are quite understandably annoyed.

Taxes of 40% make working for a living pretty pointless. That’s why economists are clear that tax takes over 15% actually damage economic growth. And with less growth, there is less money to fund the essential services that are really needed.”

John O'Connell, chief executive of the TaxPayers' Alliance.

“It’s demoralising to think we spend so long each year working for politicians. It's even worse to think just how much of that hard-earned cash is wasted. We hope the Adam Smith institute will report an earlier Tax Freedom Day next year, as it might mean that Britain is becoming a more pro-enterprise country with lower, simpler taxes funding better public services.”

Mark Littlewood, Director of the Institute of Economic Affairs, said:

“We are almost half-way through the year and it is only now that UK workers are finally working for themselves, not the taxman. Tax Freedom Day demonstrates how heavy the tax burden is in this country with high income tax rates, national insurance payments and draconian VAT and stealth taxes, including the newly introduced levy on sugar.

“While the Government has brought the budget deficit down, for all the talk of austerity, progress is still too slow. Reductions in public spending to relieve workers of the burden they are saddled with will allow them to spend more of what they earn, thus providing the economic boost this country needs.”


Notes to editors:

For further comments or to arrange an interview, contact Matt Kilcoyne, Head of Communications, matt@adamsmith.org | 07584 778207.

Government must not prop up British Steel

With the news that government is to 'willing to act' and that it will 'leave no stone unturned in support of the UK steel industry', please find the following quote from Matt Kilcoyne of the Adam Smith Institute calling on the government to reveal the civil service advice received on any loans to be offered by government to this commercial operation and rejecting corporate welfare: 

"Before the government commits to throwing any more cash into a burning furnace to prop up the business of two super-rich brothers, they should make public the civil service advice on whether there was any business case for the £100m loan made just three weeks ago. And we should inquire whether this loan was used by British Steel to try and extend the private lines the company holds with banks and insurers. It is never in the national interest to make bad commercial decisions on the back of taxpayers' money.

"Greybull Capital demanding taxpayers put money on the line to save their business while limiting their own exposure is the worst of crony capitalism. Money funnelled from your pockets to Westminster and onto Mayfair, with the pretense of saving Scunthorpe just prolongs the inevitable. On top of this it undermines trust in our economic system and opens the door to even more direct control of our economy under Jeremy Corbyn.

"The British people have had enough of throwing their hard earned money at failing enterprises. No small business can demand a bail out, nor should any big one. It’s not the government’s role to bailout collapsing businesses."

For further comment or to arrange an interview, please contact the Adam Smith Institute press team via email (matt@adamsmith.org), mobile (07904099599), or office phone (02072224995).

Modern Monetary Theory is no Magic Money Tree

New paper by neoliberal think tank the Adam Smith Institute breaks down the case for Modern Monetary Theory:

  • Modern Monetary Theory advocates are driven by Utopian thinking, by those who want massive unaffordable public spending programmes.

  • MMT adherents claim that government spending can activate substantial unused economic capacity is false, and practice shows impact is inflationary and hyperinflationary.

  • From the Green New Deal to Corbyn’s People’s Quantitative Easing, MMT is gaining ground in mainstream political activism while still being a fringe economic theory

  • Venezuela’s economic collapse following years of deficit spending shows again Hyperinflation marks the end point of thinking that suggests deficits don’t matter

  • MMT deserves critical thinking and debunking before it influences government policy in a major Western state

John Maynard Keynes said that economic ideas are powerful “both when they are right and when they are wrong”. The Adam Smith Institute today argues that an idea that is gaining ground among heterodox economists and left wing politicians in the USA and the UK is powerfully wrong.

Modern Monetary Theory hinges on the claim that since government issues its own currency it cannot go bust, and it is possible to use printing money to fund substantial government spending with the goal to deliver full employment.

It is this belief that leads author of the report, Professor Antony P. Mueller, to say that “Modern Monetary Theory is to economics what the flat earth movement is to geography.”

Despite gaining ground among political activists, Modern Monetary Theory remains rejected by mainstream economists. In a poll of 50 elite economists the University of Chicago’s Booth School of Business found not a single one believed that countries that borrow in their own currency need not worry about deficits. None found it possible to fund as much real government spending as desired simply by creating money.

MMT asserts, with limited evidence, that there is substantial unused economic capacity that government spending can activate. In practice, when government excessively expands the monetary supply (prints money) the impact is inflationary, if not hyperinflationary — as historically seen in the Weimar Republic, Zimbabwe, and today in Venezuela.

Dependent on government knowing precisely the natural rate of unemployment, and therefore when spending and taxing is needed to drain the excessive inflationary impact of creating money, MMT ignores ignorance on the part of politicians and government actors with no price incentive or competition to counterbalance political prejudice.

Instead of a serious theory about the role of money, the free market Adam Smith Institute stresses we should view increase support for Modern Monetary Theory as a sign of the growing tolerance for debt and deficits in political debate.

If there is no fiscal restraint for public spending, the report argues, opposition to huge public expenditure programs loses its legitimacy. Projects like the ‘Green New Deal’, ‘free’ university education, renationalisations, and massive increases in infrastructure spending can be launched with gusto.

There is no Magic Money Tree to be found in the annals of Modern Monetary Theory, the think tank argues, just a new justification for the same historic mistakes of printing money to finance government spending beyond its means.

Matthew Lesh, the ASI’s Head of Research said:

“MMT promises politicians almost limitless cash to spend on their pet projects. But if something sounds too good to be true it probably is. The state cannot print money without risking crippling inflation. More cash chasing the same amount of goods inevitably leads to sellers increasing their prices.

"When inflation spirals out of control it has disasterous consequences from the Weimar Republic to Zimbabwe to now Venezuela. MMT may just be wishful thinking today - the danger is that tomorrow a politician is stupid enough to follow its prescriptions."

Professor Antony P. Mueller, the paper author, said:

“Old wine in new bottles is a recurring phenomenon in economics, particularly if it is the bad wine of economic ideas that failed in the past. Modern Monetary Theory (MMT) is neither modern nor a theory - it is the attempt to sell something as new which is spoiled and rotten. While promising to cure all kinds of economic woes, MMT is the poisonous elixir that will ruin those who take it as it has happened before.”

For further comments or to arrange an interview, contact Matt Kilcoyne, Head of Communications, matt@adamsmith.org | 07904 099599.

ASI condemns British Steel corporate bailout

News has emerged that the Government is considering providing British Steel with a £75 million loan to prevent the company from becoming insolvent. The ASI has consistently opposed corporate bailouts on the basis that taxpayer money should not chase failing businesses.

Matthew Lesh, Head of Research at free market think tank the Adam Smith Institute, says:

“This massive loan is as good as shovelling taxpayer cash into a furnace. The British public should not be forced to subsidise failing, heavily polluting businesses like British Steel. Just like any other company, if you cannot convince enough people to buy your product to cover the costs then you shouldn’t exist. Too big to fail is a myth. The proposed £75 million loan comes after £100m of taxpayer cash was bunged over to the company just two weeks ago, amounting to a whopping £43,000 per employee.

“The Conservative Government should not adopt Labor’s socialist policy agenda. The British people are sick of massive corporations, who have close connections with the government, getting huge handouts at the taxpayer’s expense. It is time to leave the era of taxpayers propping up failing businesses where it belongs: in the past."

If you have any questions or wish to arrange an interview with Matthew Lesh please contact ASI media line on 07584778207 or via info@adamsmith.org.

End socialism for the banks: ASI report

A new volume from the free market, neoliberal think tank the Adam Smith Institute, What a Capital Idea!: How to make Britain’s banks more competitive, innovative, and safer, is calling for a radical rethink of banking regulation:

  • UK banks that issue high levels of capital should be freed of other cumbersome prudential regulation, such as the mandatory deposit insurance scheme

  • Banks are more leveraged now than in the lead-up to the Great Financial Crisis of 2008, when market-value leverage ratios were just over 7% — they now stand at just 4%

  • The ‘Great Capital Rebuild’ that banks undertook in the past decade is ‘as real as the Wizard of Oz’ says Professor Kevin Dowd

  • Higher capital requirements and less other prudential regulation would help restore public faith in banking, make banks safer and less prone to causing financial crashes, and reduce the barriers to entry of new banks that would increase competition and customer service

  • This is similar to the regime in the United States’ CHOICE Act, which was passed by the Republican-controlled House of Representatives in the last Congress

Banks are not trusted. A poll last year found that two-thirds of the public do not trust banks to work in the interest of society and 63% are worried that banks may cause another financial crisis. They are broadly blamed for the global financial crisis, and prone to excessive risk.

The failure of the banking sector is not, however, a failure of the free market left to its worst impulses. Banking is highly regulated and directed by the state from the Bank of England’s control of interest rates to the Financial Services Act’s thousands of pages and the Financial Conduct Authority’s thousands of regulators.

The Adam Smith Institute report, written by Professors Kevin Dowd and John Cochrane, argues that the existing regulatory regime creates a moral hazard: the public deposit insurance scheme and expected taxpayer bailouts in a time of crisis encourage banks to take excessively risky behaviour and issue limited capital.

The growth of banking regulation does little to make banks less risky but it does increase compliance costs and create substantial barriers to entry for competitor banks. The lack of new entrants reduces customer service quality and innovation.

Professor Kevin Dowd argues that banks are considerably more leveraged now than they were going into the Great Financial Crisis. He says that the banks’ ‘Great Capital Rebuild’ in the wake of the crash is as real as the Wizard of Oz.

He argues that with banks more heavily leveraged that the next financial crisis will be bigger than the last, warning that there is a “good chance the next round of bailouts and stimulus will be beyond even our governments’ fiscal resources” and that “our fiscal firehouse is not infinite.”

Instead of following the same script of bailing out creditors to stop a run on a bank in any future crisis, and expanding asset and anti-competitive regulation, the free market think tank suggests that we should require banks to issue immense amounts of capital (and long-term debt) so that their remaining run-prone liabilities are not in question.


Banks should be required to issue immense amounts of capital, the free market think tank suggests, so much that their remaining run-prone liabilities are never in question. The issuing of more higher capital may mean banks can take fewer risks and are therefore less profitable, however current profits are dependent on an unfair taxpayer subsidy.

The United States’ CHOICE Act, passed by the US House of Representatives, offers banks a choice to either continue with the existing system that requires low levels of capital or if a bank operates with a higher level of capital it can be exempt from swaths of regulation. Britain should introduce a similar regulatory option for banks.

In the UK, the Adam Smith Institute argues that banks that issue more capital could be able to opt out of regulation stemming from Basel III and Solvency II (for insurance companies) and the Financial Services Compensation Scheme (i.e. deposit insurance).  Banks would be free to walk away from normal PRA supervision and new banks that wanted to set up on with high capital requirements (above 20%) would get automatic approval to do so.




Steve Baker MP, said about the report:

“Socialism for the banks — extensive regulation, state direction and taxpayer bailouts — is a disaster there as it is everywhere. In the public interest, it must be brought to an end. I congratulate Cochrane and Dowd on setting out how it might be done.”

John Cochrane, Senior Fellow at Hoover Institution at Stanford University and chapter author:

“We have the chance to end financial crises forever. If banks got most of the money they use to make risky investments by selling stock, as other companies do, we would not have crises when banks lose money. Modern financial, communications and computation technology allow such equity-financed banking to take over. This volume describes just how we can end financial crises forever in this way – and how the continuing effort to subsidize and regulate banks will not work.”

Kevin Dowd, Professor of Finance and Economics at Durham University and chapter author:

“Most people don’t realise that in market-value terms, banks are more leveraged now than they were before the crisis. This high leverage means that banks are vulnerable to a downturn and are being subsidised by the taxpayer to take excessive risks. It is therefore essential that minimum capital standards be much higher than they currently are.”


Matthew Lesh, the ASI’s Head of Research said:

“Banking as it stands is not the free market at work, but crony corporatism at its absolute worst. The time for tinkering around the edges is over. Taxpayers should not be on the line to pay the costs of excessive risk-taking from banks. It’s time to recreate an actual free market in banking, secured by proper capitalisation and limited prudential regulation that reduces risks while encouraging competition and innovation.”

-ENDS-

Notes to editors:  

For further comments or to arrange an interview, contact Matt Kilcoyne, Head of Communications, matt@adamsmith.org | 07904 099599.