Attacking CEO pay is pointless and will hurt British firms

Commenting on the government's proposals to force FTSE 100 firms to publish pay ratios between their CEOs and ordinary workers, and to 'name and shame' firms if 20% of shareholders vote against the executive pay packages, Sam Bowman, Executive Director of the Adam Smith Institute, said:

"Forcing firms to publish executive pay ratios and ‘naming and shaming’ firms that face minority shareholder opposition to executive pay levels are both likely to backfire. Pay ratio information is not particularly helpful, and will misleadingly suggest that executives of firms that employ large numbers of low-skilled workers are less valuable than firms that employ skilled workers. Tesco will have a much less favourable pay ratio than somewhere like Goldman Sachs even if the two CEOs are paid the same.

"‘Naming and shaming’ firms after just 20% of shareholders vote against a executive remuneration package gives too much power to minority shareholders who may not have the firm’s best interests at heart and should not be allowed to hurt the company’s reputation if a majority of shareholders support the executive’s pay packet. It also makes firms more vulnerable to hostile takeovers as minority shareholders will be able to cause disarray by triggering a ‘naming and shaming’ of a responsible CEO. 

"The root problem with the government’s position is that many CEOs are worth a lot to their firms, sometimes well in excess of the millions that they are being paid. When Angela Arendts stepped down as CEO of Burberry the firm lost half a billion pounds in value; Tesco became £220m more valuable its CEO merely announced that he would take a more active role in managing the firm. Attacking the CEOs of FTSE 100 firms is likely to make it harder for them to attract the best leadership, and make British firms less productive and competitive compared to their foreign rivals – and that will hurt those firms’ workers as well as its shareholders."

For further comment or to arrange an interview please contact Sam Bowman via phone 02072224995 or email sam@adamsmith.org.

Scrap the Ibiza Tax and watch Tory votes soar!

  • The Conservative Party needs to offer younger voters a package of policies to boost incomes and improve their lives
  • A package of policy suggestions could transform the lives of young Britons including:
    • Scrapping the ‘Ibiza Tax’ of Air Passenger Duty charged on under-30s 
    • Making it easier for young people to live and work abroad 
  • Conservatives can redress the current age imbalance with minimal cost and boost the economy

As GCSE results are released across England and Wales, a new paper by the Adam Smith Institute warns that the Tories must cut the “Ibiza Tax” of Air Passenger Duty for young people or risk losing a whole generation of voters. These, as well as other policies such as targeted cuts to National Insurance, are vital to show younger voters that their wellbeing matters to the government.

Air Passenger Duty in the UK is the highest in the world, rising as high as £150 on flights to and from Britain, and levied on everyone over the age of 16. With trips abroad such an important part of young people’s lives - visiting friends, working, travelling, studying and partying in Ibiza - the tax is a huge cost on those with the least ability to earn. 

A Millennial Manifesto by Dr. Madsen Pirie, President of the Adam Smith Institute, suggests raising the age APD is applied at to 30. Despite fuel efficiency rising the tax has not fallen – some of the windfall to the Treasury should be passed to younger people to allow them to enjoy their lives now. 

Young people should not have goodies funded at the expense of future generations, the paper argues. Rather, the cost of government should be better spread across the generations. Young people should face a lower rate of National Insurance and one that’s only levied above the tax-free allowance. By doing so the Tories could save a young person earning £21,500 some £533 a year.  

In addition to reducing the costs of working at home and travelling abroad the government should make it easier to work and study abroad. The paper suggests a focus on the countries young people most likely say they want to live and work in – Canada, Australia, New Zealand, and the United States. Free movement for under-30s with these countries should be made a priority after Brexit to show young people that a Global Britain can work for them.

The report also argues that fundamental reform to the housing market through planning liberalisation and longer-term tenancy arrangements are vital to create cheaper and more secure housing for younger people. Fixing the funding of social care along a social or mandatory private insurance lines would create a better balance of government spending between young and old.

The Conservative Party does not need to write off young voters as inevitable supporters of Corbyn’s Labour. With a bold package of policies tailored to the needs of young people, says the paper, the Tories could improve young people’s lives, increase the opportunities available to them and win their votes for many years to come.

Sam Bowman, Executive Director of the Adam Smith Institute, said:

“It isn’t easy being young in Britain. Houses are mostly unaffordable, rents are high and most high-quality jobs are in the most expensive parts of the country. For all but a very lucky few, times are tough. But the Conservatives have ignored this and ignored the concerns of young voters, both neglecting their wellbeing directly and taking positions that are badly out of touch in areas like animal welfare and openness to immigration.

“Today’s paper should start a conversation in the government and the Conservative Party at large about how to win back some of the younger voters lost to Corbyn, both in terms of specific policies that might improve young people’s prospects by raising their spending power, cutting their rents and giving them better access to the public services they need, and in terms of a wider culture shift that puts the priorities and problems of young people at the heart of Conservative governance.”

Madsen Pirie, President of the Adam Smith Institute and author of the manifesto, said:

“Older people have done very well from recent governments. And some have suggested that there is now an imbalance. There are many things that governments could do to help young people. 

“The Conservatives should look at innovative policies, like reducing the cost of travelling and making it easier to work abroad, to win over young voters.”

The report “A Millennial Manifesto’’ is available to read here.

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

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.
 

Devolution of transport strategy is welcome, devolution of spending should follow

We welcome the commitment of Chris Grayling, the Transport Secretary, to devolve planning and strategy for infrastructure but also call on the government to go much further and devolve spending too. 

Matt Kilcoyne, Head of Communications at the Adam Smith Institute, says:

"The North remembers the promises of the last parliament to devolve significant powers, it also knows that these have amounted to very little real change. So while it is extremely welcome that the transport secretary wants the North to take control over planning its transport infrastructure this time it has to translate into results - faster journey times, more and better quality trains, faster decisions taken on infrastructure projects.

"If the government is serious about reversing regional decline and ending the UK's reliance on London for economic growth it has to get serious about where it spends constrained resources on infrastructure. The government should, however, go further than changing who suggests where money is spent. Spending should be devolved entirely, on a per-capita basis, so that city-regions have the money to spend – not just advise – on local infrastructure. The Northern Powerhouse, with a population of over 10m people, a mix of manufacturing and services industries, and famously poor public transport links, would be the right place to start."
 

For further comment or to arrange an interview please contact Matt Kilcoyne, via phone 07584778207 or email matt@adamsmith.org

[Image Credit: Manchester City Centre sunset photo. Taken from the 15th floor of a Piccadilly building. Tecmark Manchester]

 

Public Health England needs to pizz-a off with its busybody interference

Following the news that Public Health England are seeking to set targets to limit calories in pizzas, burgers and ready meals, the Adam Smith Institute is quick to blast this absurd decision.

Sam Bowman, Executive Director of the Adam Smith Institute, condemned the move saying:

"Public Health England needs to wind its neck in. It’s one thing to give advice about how to live healthily, but threatening food producers into making their foods less calorific and, let’s face it, less enjoyable to eat is way out of line. People eat high-calorie foods like pizza and pasta because they taste good – we know it’s fattening, but that’s a choice we make. If we feel we’re too fat, we can eat less or exercise more.

"Lucozade has already faced a massive backlash over its new ‘low sugar’ recipe, which many people think now tastes disgusting. Making pizzas less cheesy or smaller for the same price just means people getting ripped off and having more of the pleasure sucked out of their lives. We don’t need miserable bureaucrats at Public Health England interfering with our food choices and making the world a greyer, sadder place – even if it’s a slimmer one."

For further comment or to arrange an interview please contact Matt Kilcoyne, via phone (landline: 02072224995, mobile: 07584778207) or email (matt@adamsmith.org).

Government is right to continue Everything But Arms trade policy

Today, with the release of the UK Government's briefing paper on future customs arrangements the Adam Smith Institute welcomes the government's continued support post-Brexit of the EU's current Everything But Arms initiative with Least Developed Countries. But we can go even further.

Sam Bowman, Executive Director of the Adam Smith Institute, says:

"It’s good news that the UK government had pledged to maintain the EU’s Everything But Arms and Generalised System of Preferences initiatives even after we leave the Customs Union. These give exporters in many of the world’s poorest countries duty-free and quota-free access to EU markets, preferential market access for many other developing countries’ exporters, and less strict rules of origin checks on goods. Free trade is one of the best tools we have to reduce poverty in the developing world and it is an encouraging sign that the UK has committed to maintaining openness to the world’s poorest producers.

"But we can go a lot further. Many more countries can be given full duty-free and quota-free access to the UK’s market once we leave the EU’s Customs Union, particularly countries that we are unlikely to agree trade deals with in the near future and countries that are not major export destinations for British businesses. Giving full duty- and quota-free access to exporters in places like Vietnam, Bangladesh, Nigeria and Pakistan would drive economic development there and cut costs for British consumers here at trivial additional cost to the Exchequer. It would also help to prove to internationalist voters that Brexit really is about creating an open, free trading, globally-minded Britain."

To arrange an interview or to seek further comment please contact Matt Kilcoyne, via email (matt@adamsmith.org) or via mobile (07584778207).

Forget NIMBYs, it is all about YIMBYs now

New report explains how politicians can easily end the housing crisis, boost the economy and win more votes. 

  • The UK’s housing crisis is among the worst in the world and needs urgent action
  •  Inaction is holding back economic growth, hurting productivity and wages, and creating a generation who can never hope to own their own home
  •  UK could boost GDP per capita by 30% if we built enough homes in the right places
  •  We should let residents vote on letting their own streets add homes
  •  Millions of homes, enough for all the housing anyone could want, could be built within a generation if proposals are adopted.

The United Kingdom is suffering from a housing crisis caused by a chronic lack of new homes being built. A new paper by John Myers of London YIMBY (Yes In My Back Yard), released today in conjunction with the Adam Smith Institute, offers three ways to beat the housing crisis, boost living standards and disposable incomes, and revitalise the economy.

Households would be on average £10,000 a year better off if we had better planning and built enough homes in the right places, shows John Myers, author of the report. Shortages of housing near job opportunities lead to high rents and prices. These prevent young people - as well as those from deprived communities - from moving to areas which have good jobs. This is a needless and self-inflicted brake on growth.

After a string of prominent rejections of developments, such as the redevelopment of an ASDA and its car park on the Isle of Dogs into nearly 2,000 new homes, it is more important than ever to reform the planning system so that residents feel they benefit from new housing. The alternative is economic stagnation, social divide, and potentially political turmoil.

The report suggests three practical proposals to win the support of existing homeowners for development that makes the country richer and fairer:

  1.     Letting individual streets give themselves planning permission to extend or replace buildings. This, coupled with a design code chosen by the street, could allow up to 5 million new homes to be built over a generation in London alone, while making existing homeowners two to three times better off and beautifying streets by turning semis and bungalows into traditional terraces.
  2.     Giving local parishes the power to improve their green belt by swapping out ugly dead land or intensive farmland for development and adding protections to areas of outstanding beauty.
  3.     Handing the new set of devolved city-region mayors radical new powers to choose different planning regimes for their area, to see what works best. What’s right for London might not be right for Leeds, and Birmingham may want to grow even if Cambridge does not.


Politicians could neutralise NIMBYs, the paper argues, by seizing the opportunity and letting local people take the lead on deciding how and where to build new homes. By giving more power to locals, the billions of pounds spent on armies of planning lawyers and consultants could be retained within communities. The reforms would also benefit the exchequer, not just through property taxation, but also as people move closer to better jobs and earn more.

Failing to end our housing crisis will most hurt those that can least afford it, according to the report. Those who are just about managing (Theresa May’s JAMS) will pay the price for inaction—once you take into account housing costs real incomes are completely stagnant.

Paying through the ear to rent a box or a dump is radicalising the youth, but politicians stand to benefit hugely if they can make housing within reach of job opportunities abundant and affordable. The UK can avoid clarion calls for rent controls or mass social housing if we act to expand private housebuilding now.

Britain has one of the worst housing crises in the world, the report shows, but that should mean benefits of even partial reforms are felt greatest here. Simple changes could substantially increase the supply of new homes, boost the economy, tackle intergenerational inequality and improve social mobility, while making our existing cities better. It is time to build a better country.

John Myers, co-founder of London YIMBY and author of the report, said:

“A new generation of young people is demanding change to avoid being worse off than their parents. There are vote-winning ways to make decent homes truly affordable with the support of existing homeowners, if only we seize them.”

Ben Southwood, Head of Research at the ASI, said:

“The planning system is a mess. We all know we need more homes and infrastructure in the places people actually want them—but it isn’t delivering. But we can hardly blame locals for blocking development when not only does it blight their views with ugly designs, but it detracts from their living standards. So we are proposing a raft of measures that may bring homeowners around the country on-side. If new housing benefits people already living there, then we may finally be able to build enough to stop rents taking half of people’s pay packets.”

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

The report “Yes In My Back Yard - How to end the housing crisis, boost the economy and win more votes’’  is available here.

Student debt can be taxing

  • New idea reveals how Britain can deal with student debt
  • Current student loan system has not carried popular support since its inception
  • England should move from a fees system to a graduate tax
  • Remove interest charges and replace with an index against inflation
  • Have repayment at a fixed percentage of income above a threshold and capped with higher repayment for higher earners
  • Faster repayment and lower default rate means graduates are freed from debt earlier but the state gets a better return from its investment

The current system of student loans by which university education in England is financed has been dogged by controversy since it was brought in by the Labour Government under Tony Blair. This was compounded by fees rising to £3000 per annum in 2004 and to £9250 under the Coalition Government. Critics of the policy regularly claim that it discriminated in favour of middle class students and those from well-off backgrounds.

At the election in June the Labour Party pledged to scrap tuition fees altogether and insinuated they would look again at dealing with the debt burden by students that had already graduated. Student voters are thought to have flocked to Labour as tuition fees financed by student loans shift the finance of university education away from older taxpayers towards a cash-strapped younger generation.

A new report by the Adam Smith Institute says that while the current scheme has positive features - including the increased numbers of pupils from disadvantaged backgrounds going to university - the complexity and fears of high levels of personal debt continue to dog the system.

Repayment has proved difficult in practice with the default rate estimated at 45% and the average student accruing £5,800 of interest before they graduate. The system of funding also incentivises students and institutions towards courses that do not, on average, lead to high salaries. Institutions that offer low-cost arts and humanities courses now attract 47 percent more income per student than they did in 2011, whereas the highest-cost courses only attracted 6 percent more income.                 
            
Madsen Pirie, President of the Adam Smith Institute and author of the report, says that all this is undermining the government’s desire to ensure a fully funded system and boost take-up of places in core subjects such as science, maths and engineering.

While loans given to students are not like conventional loans - with repayment delayed until earning and dependent on salary - it operates like a graduate tax. The current system has the disadvantages of both tax and loan based systems. Students are told the full value of debt they are accruing at the time when their earning power is at its weakest. Adult taxpayers that earn well are funding the courses of those that earn little. Education is not perceived as free and not all graduates end up paying the tax that funds it.

The suggestion is made in the paper for a new model of graduate tax, one capped at a level commensurate with the amount of education consumed and with a high threshold for repayment. Dr. Madsen Pirie suggests repayment could start at £22,500 per year, above the current level, with a 5% tax on salary level, rising to 8% beyond an earnings threshold of £30,000. This could allow for quicker repayment and reduce the level of non-payment in the system.
                    
The report also calls for incentives to boost take-up of places in a number of core subjects, those that have high remuneration for graduates. One suggestion made is to remove the obligation to refund their education if awarded a first class honours degree in a core subject. What constitutes a core subject would be decided by a body of academics so people actually involved in education were making the judgements, rather than politicians or civil servants.          
            
Students will see in this tweaked system that they can receive an education free at point of take-up and would see repayment as a tax based on their earnings. They will not pay fees when they enrol and will not have to take out loans to do so - removing the fear of large personal debts built up during a time they are not earning. This gives students more security, universities a greater degree of independence and the nation a continued flow of highly qualified graduates.    

Madsen Pirie, President of the Adam Smith Institute and author of the report, says:

“Students in England have been short-changed by a complex and expensive loans system which leaves them feeling a huge burden of debt, made worse by high interest rates. A simple and fair reform like that proposed in the paper, would allow students to pay for the benefit of their education through a graduate tax surcharge and without interest.”

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

The full report is available to read here.

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.

Don't get into a flap about chlorinated chicken!

New paper stresses the importance of flexibility in upcoming trade talks between US and UK

  • A trade deal between the UK and the world’s largest economy is a key priority post-Brexit
  • Removing the ban on chlorinated chicken will be a highly symbolic move and will allow a speedy trade deal
  • American chicken, treated with the chlorine wash process, is more than a fifth cheaper than British chicken—reforms could cut UK prices by 21%
  • Water is responsible for 99% of someone’s intake of chlorine by-products
  • Brits would have to eat three entire chlorine-washed chickens every day for an extended period to risk harm

As trade talks between the United Kingdom and the United States of America begin in Washington, a paper released by the Adam Smith Institute this morning shows how Britain can make symbolic concessions to wrap up a deal as quickly as possible.

Donald Trump and Liam Fox have both previously stressed the ease with which a bilateral trade agreement can be reached. The paper argues that the UK should use its new found nimbleness outside of the EU to do what’s necessary to strike trade deals quickly.

Poultry market access has been at the heart of EU-US negotiations in the past and is likely to be a ‘take-it-or-leave-it’ condition attached to any deal that the UK pursues. One of the major stumbling blocks in previous talks has been an EU ban on imports of poultry meat due to the USA’s use of chlorine rinses. The report argues that allowing the import of chlorinated chicken products would show Britain is willing to agree sensible compromises, and is able to use partial agreements such as TTIP as templates to rapidly make deals with other partners.

Chlorine-washed chicken is safe. The paper’s author, Peter Spence, highlights that the volume of evidence: the process is deemed safe not just by US regulators, but also by the EU’s own scientific advisors. The European Food Safety Authority has said four types of chemical rinse, including chlorine dioxide, ‘would be of no safety concern’: a person would have to eat around 5 per cent of their body weight in chicken every day (nearly three whole birds a day for the typical British man) to reach the safety limit, according to European Commission data. Drinking water poses a far greater risk, making up 99 per cent of the disinfection byproducts consumed in a typical daily diet.

Chlorination kills harmful bacteria often found in chicken. Immersing poultry meat in chlorine dioxide solution of the strength used in the United States reduces prevalence of salmonella from 14% in controls to 2%. EU chicken samples typically have 15-20% salmonella.

US imports could also help to bring down British grocery bills. A whole kilo of chicken costs an American shopper around 21 per cent less than the equivalent on UK shelves.

The UK has a chance to show that it is serious about being open for business by striking a deal with the largest economy in the world. The Government can show it bases regulation on scientific evidence and that it’s serious about helping hard-up families by bringing down the cost of living.

Peter Spence, independent researcher and author of the report, said:

“Trade critics like to suggest that signing a deal with the USA will mean that Brits will be forced to eat unsafe produce. In reality, chlorinated chicken is so harmless that even the EU's own scientific advisors have declared that it is 'of no safety concern'.

"Agreeing to US poultry imports would help to secure a quick US trade deal, and bring down costs for British households. European opposition to US agricultural exports has held up trade talks for years.

"By scrapping the ban on chlorinated chicken imports, the Government will send a signal to potential trading partners across the globe that the UK remains an open-facing and free trading nation.”

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

 “Chlorinated Chicken - Why you shouldn’t give a cluck’’ is available here.

 

Environment Secretary should seize chance to reform agricultural subsidies

The Adam Smith Institute welcomes the announcement by the Environment Secretary, Michael Gove, to reform the subsidies offered to farmers and calls on the Government to go further as Britain leaves the European Union.

Research Economist at the Adam Smith Institute, Sam Dumitriu, has said:

"The Common Agricultural Policy is an economic and environmental disaster. Michael Gove is right to propose withdrawing subsidies to the UK's wealthiest landowners, but he should go further and follow New Zealand's lead and scrap wasteful farm payments entirely.

"When New Zealand's cash-strapped Labour government boldy scrapped farm subsidies in the 80s, farmers were incentivised to diversify, innovate and boost productivity.

"In the years that followed, productivity growth doubled, food prices fell dramatically and agricultural exports surged. This didn't come at the expense of the environment either - fertiliser and pesticide usage halved.

"It would be harsh to throw small family farmers in at the deep end, but they already are shortchanged by the subsidy system. 80% of farm subsidies go to the 25% of farmers with the largest land holdings. We could reform the system without hurting family farms by paying out a five-to-ten year "transition allowance" equal to their recent average subsidy to family-scale farmers."

To arrange an interview or request further comment please contact Matt Kilcoyne on 07584778207 or via email matt@adamsmith.org

Welcoming the rising retirement age

The Adam Smith Institute has welcomed the Government's move to bring forward the rise in the pension age to 68 and calls on it to go further, faster.

Ben Southwood, Head of Research at the Adam Smith Institute, says;

"The Government has seen sense by raising the retirement age, but they should up the pace.

"Retirement should be more of a steady decline in work than an abrupt cliff. Today our sub-replacement fertility, combined with our steadily improving healthcare, mean that a smaller and smaller working population support a larger and larger group of dependent elderly.

"The mandatory retirement age, combined with the new flat rate, which reduces the disincentive to building up wealth, are steps in that direction. Retirement age hikes are another.

"The evidence from retirement age reforms is absolutely clear: they have huge effects on labour hours for older workers. [1] Not only do later retirement ages mean that older workers take out less—they also pay in more.

"Politicians, and society in general, are usually far too relaxed about the upcoming population bomb, but this move, at least, makes the situation a bit less difficult."

Please contact Matt Kilcoyne for further comment or to arrange an interview.

Email: matt@adamsmith.org Mobile: 07584778207

 

[1] https://ideas.repec.org/p/cra/wpaper/2017-02.html

https://ideas.repec.org/p/hhs/ifauwp/2016_011.html

http://ftp.iza.org/dp9834.pdf

http://nber.org/papers/w19913

http://www.nber.org/chapters/c13334.pdf

http://www.nber.org/papers/w19370