NEWS

Dr. Madsen Pirie 20/09/2024 Dr. Madsen Pirie 20/09/2024

Overton Window: Policies for a Better Britain

Dr Madsen Pirie calls on politicians to embrace bold, innovative solutions to reverse Britain’s decline including abolishing the Town and Country Planning Act, moving to an Australian-style healthcare system,and scrapping inheritance tax.

This conference season, as politicians of all stripes are reflecting on the suite of challenges facing the UK, a new discussion paper shows how we can address them and build a better Britain.

Co-Founder and President of The Adam Smith Institute, Dr Madsen Pirie, sets out a series of game changing ideas that would tackle the UK’s long standing problems. He draws from real-world examples, including New Zealand’s agricultural policies, Singapore’s tax system, Sweden’s model for education and pensions, and Australia’s healthcare approach.

This unapologetically radical paper cuts through the Westminster consensus, encouraging our political class to think beyond traditional limits. His key recommendations include:

Allow businesses to fund university degrees, ensuring students graduate with jobs and no debt;

Improve the UK’s healthcare system by adopting the Australian model under which people can choose between public and private treatments;
Pay for social care out of funds into which young people put money, which are invested and grown, and are there to pay for their own social care later in life if needed, and to be passed on to heirs and successors if not;

Repeal the Town and Country Planning Acts to free up so-called Green Belt land, providing the homes needed for the next generation;

Abolish subsidies and tariffs, emulating the model of New Zealand’s world-leading agriculture sector;
Simplify the tax system, and scrap inheritance tax;
Treat drug addiction as a medical, rather than a criminal, problem;

Cut funding for quangos at home and abroad;
Count foreign private aid in the form of remittances sent overseas as part of its total foreign aid;
Incentivise private aid to poorer countries by making it tax-deductible.

read the report

Dr Madsen Pirie, President and Co-founder of the Adam Smith Institute and report author said:

“As we have long been saying, the Adam Smith Institute proposes things which people regard as being on the edge of lunacy. The next thing you know, they're on the edge of policy.

It pays at times to stand back from the constant cut-and-thrust and point-scoring of everyday politics to examine what Britain might look like if some of its problems were addressed by imaginative and long-term solutions.

I called this paper the Overton Window because the ideas included in it are radical and game changing. Given the condition of and prospects for the state-run current practices, it is time that the Overton Window was stretched to bring them inside it.”

-ENDS-

Notes to editors:

For further comment, or to arrange an interview with Madsen, please contact press@adamsmith.org | +44 7584778207.

Dr Madsen Pirie is President of the Adam Smith Institute, and was one of three Scots graduates working in the US who founded the Institute in 1977. Before that, Madsen worked for the House of Representatives in Washington DC, and was Distinguished Visiting Professor Philosophy at Hillsdale College in Michigan.

At the Institute, Madsen was part of the influential team which pioneered privatisation and the extension of market choices and incentives. His work in helping to develop the Citizen’s Charter led to his appointment to the Prime Minister’s Advisory Panel from 1991-95.

The Adam Smith Institute is one of the world’s leading think tanks. It is ranked first in the world among independent think tanks and as the best domestic and international economic policy think tank in the UK by the University of Pennsylvania. Independent, non-profit and non-partisan, the Institute is at the forefront of making the case for free markets and a free society, through education, research, publishing, and media outreach.

David Cowan and Tom Jones 18/09/2024 David Cowan and Tom Jones 18/09/2024

End the UK’s Reliance on Mass Migration and Make Immigration System More Selective

End the UK’s dependence on low-skilled migration and move to a highly selective immigration system by investing in automation, capping visas and seeking out the best talent from across the world.

A new report from the Adam Smith Institute (ASI) argues that we need to bring migration figures down to the tens of thousands, but that in order to do so we must make sure that the economy, which has been propped up by mass migration, can adapt.

Three Conservative Party leadership candidates have provided comments welcoming the report.

In an accompanying foreword, Lord Frost praises the report’s calls to fundamentally change the UK’s economic model by transitioning away from a dependency on low-skilled migration and focusing on attracting the best and brightest to the UK.

The Adam Smith Institute highlights the recent changes in immigration trends:

The era of mass migration began in 1997. In the 25 years leading up to the 1997 election, the UK’s average annual net migration was 68,000. In the 25 years that followed, it tripled to an average of 236,000;
Recent changes to the immigration system have intensified this trend. In just two years, 2022 and 2023, around a net 1.3 million people came to the UK legally;

Authors David Cowan and Tom Jones looked at the economic impacts of mass migration, and found that high levels of low-skilled immigration has been helping to prop up a low-wage, low-productivity and low-growth economy:

Gross GDP has been artificially boosted by increasing the size of the population, creating a larger economy by default. But GDP per capita, which is a better measure of a country’s prosperity, has stagnated since 2008. The economy might be getting larger, but we are not getting individually richer;
The economic impact of migration has been shown to be quite small- between only +1% and -1% of GDP;
High levels of low-skilled migration disincentives the investment in machinery and automation the UK needs to boost its productivity;
Mass migration is not necessarily the cause of the UK’s poor economic performance- there are a number of factors at play, including our planning system, high energy costs, and over-regulation;
But it is propping up our current economic model by subsidising certain sectors, especially the UK’s universities and healthcare system.

The paper also highlights that mass migration is not the solution to Britain’s ageing demographic problem:

Low fertility is a global problem. By 2050, 75% of nations will not have above-replacement fertility levels, rising to 97% by 2100;
Mass migration is also unlikely to increase the UK’s fertility rate. Evidence shows that when women move to a different country with a different fertility rate, they adapt their behaviour accordingly. This is known as ‘fertility convergence.’

Read the Paper

This report puts forward recommendations which would create a highly selective immigration system which actively seeks out the best talent from across the world, and which would accelerate the UK’s transition to a high-skill, high wage, high productivity and highly innovative economy. These include:

Reducing low-skilled immigration, whilst promoting global talent:

Support annual caps on visa routes informed by annual Migration Budgets approved by Parliament and informed by a Migration Book, as proposed by the Centre for Policy Studies;
Return migration levels to pre-1997 levels by setting an overall skilled worker cap at a higher number of around of around 50,000 to 60,000 , which is informed by the Migration Budgets;
Abolish the graduate visa route. The best and brightest who study in the UK will be able to enter the country via other routes; we do not need an open-ended graduate visa system. This should be mitigated through an unfreezing of student fees for UK students, alongside wider reforms to student loan repayments to prevent UK students being overburdened;
Retire the Shortage Occupation List, and cap the number of health and social care visas, thus ending two of the most straightforward open-ended routes for mass migration to the UK;
Auction out work visas for foreign hires to employers every three months, raising much needed revenue;
Allow anyone employed in the same company for the whole five years to apply for indefinite leave to remain, with further steps in the citizenship process contingent upon bespoke assessment;
Issue extremely limited rounds of work visas for highly desirable immigration streams, including a relocation bonus and pathway to citizenship;
Create a new guest worker programme for seasonal work that has no pathway to residency and citizenship, and no access to the welfare state whatsoever.

Ending low-wage dependency:

Scrap the British Medical Association’s cap on the number of medical training places available, enabling more top domestic students to qualify in the UK and reducing the need for doctors who have qualified abroad;
Re-establish the Resident Labour Market Test for medical practitioners;
Abolish all state-sponsored immigration schemes for low-wage occupations, including £10,000 ‘international relocation payments’ and Qualified Teacher scheme;
Incentivise domestic workers to work in the public sector, for example by offering part-time courses and grants;
Remove the social care visa route gradually to give time for the market to adjust;
Raise the salary threshold to £40,000 per annum and thereafter tie it to inflation and/or immigration data on net contributions to the UK economy.

Supporting automation to boost productivity:

Introduce tax credits to incentivise private investment in robotics and automation, with expanded eligibility criteria expanded to include long-life plant machinery and buildings;
Grant National Insurance holidays for companies that automate more jobs;
Provide tax relief for pension fAunds that invest in infrastructure and technological capital investment;
Expand technical and vocational training for fields related to robotics and automation.

Maxwell Marlow, Director of Research at the Adam Smith Institute, said:

“Over the years, politicians have used high immigration figures to artificially increase the size of the UK’s economy.

But this is unsustainable. We haven’t been getting individually richer, and the UK’s productivity has been flatlining. Mass migration may not be the cause of our woeful economic performance, but it is propping up a model which simply isn’t working for Britain.

Nor will it offset our ageing demographic problem. Fertility will increasingly be a global problem, so we cannot rely on migration to boost our population.

We need to reduce our reliance on mass migration. But it will not be enough to simply cap numbers. The economy will need to be able to adapt.

This report does not recommend that we pull up the drawbridge. Instead, it puts forward a progressive vision for Britain, where wages and productivity are rising, our working practices are innovative, and which actively seeks out the world’s most ambitious and skilled people. In short, our immigration system would be fit for the future.”

As reported by the Telegraph on the 18th September:

James Cleverly, Shadow Home Secretary and Member of Parliament for Braintree, said:

“Migration has been far too high, which is why I brought it down within weeks of being Home Secretary.

As this report rightly points out, we need an immigration system where GDP per capita is our barometer so that we transform our economy away from low skilled low wage labour.”

Robert Jenrick, former immigration minister, and Member of Parliament for Newark and Bingham, said:

“The only way to end the cycle of broken promises on legal migration is a legally binding cap on numbers. As I have repeatedly argued, that should be in the tens of thousands, or lower, as is the historical norm.

It’s clear that mass migration has created profound challenges in this country. But as this report shows, the low-skilled migration we have experienced over the past 25 years is also propping up a broken economic model: fuelling the housing crisis, deterring business investment and storing up long-term fiscal costs for the taxpayer. The case for ending mass migration could not be stronger.”

Tom Tughenhat, Member of Parliament for Tonbridge, said:

"We must shift to a high-wage, high-skill, high-investment, and low-migration economy. This means a cap on numbers, no longer granting hundreds of thousands of visas, and fundamentally transforming our economy to end our reliance on low-wage overseas workers.

This timely report is right to make a strong case for a more productive economy, where the current high levels of immigration are no longer necessary."

-ENDS-

Notes to editors:

For further comment, or to arrange an interview, please contact press@adamsmith.org | +44 7584778207.

The report is available here.

David Cowan is a Substack writer and PhD candidate in history at the University of Cambridge. He has worked as a staffer and researcher in the House of Commons, and has been previously published at American Affairs, The American Conservative, Engelsberg Ideas, Fusion, and National Review.

Tom Jones is the Councillor for Scotton and Lower Wensleydale at North Yorkshire Council, where he also serves as Whip. He is also a lobbyist and the author of the Potemkin Village Idiot substack.

Maxwell Marlow 31/08/2024 Maxwell Marlow 31/08/2024

Unintended Consequences of Charging VAT on Private School Fees Could Cost Treasury up to £1.8 Billion

Leading think-tank warns that parents who pull their children out of private schools may decide to work fewer hours, costing the Treasury millions

Parents who are currently paying school fees, but who cannot afford to keep doing so if 20% VAT is levied, will experience a boost to their finances when they move their children out of their private school and into a state school. This could mean that they don’t need or want to work as much as they are now;

Teachers, doctors and other skilled workers may decide to switch to working part-time, retire earlier than expected, or even quit immediately;
This would have harmful knock-on effects to the rest of the economy- these parents would pay less tax, businesses would suffer, and the UK could become less productive;
The Adam Smith Institute (ASI) has looked at the evidence on what happens when someone receives an inheritance or wins the lottery, and found support for the ASI’s concern that parents moving their children out of private school are likely to work less;
Based on this evidence, the think-tank looked at what would happen if 40% of the money that parents earn, or the hours they worked, specifically to pay for the school fees was taken as leisure;
It found that this unintended consequence alone could cost the Treasury between £360 million and £1.81 billion, depending on how many children migrate to state school;
The ASI urges the Government and the OBR to take this into account ahead of the Autumn Budget on the 30th October.

A new report by the Adam Smith Institute (ASI) warns the Government about one of the many negative impacts that charging VAT on private school fees could have. Parents who take their children out of private school may decide to work fewer hours, retire early, or leave the labour force altogether. This doesn’t just mean that many of these higher earners will pay less in tax. They’ll also be reducing their economic output, making businesses less productive, and which in turn will pay less business tax and VAT. This will be a drag on growth for years to come.

In order to pay the average annual £17k of school fees for two children over 10 years, a family will need to make a total of £340,000 of disposable income. If this family cannot afford to pay the extra VAT on their school fees, they experience a big wealth gain- enough to buy them a house.

Author Maxwell Marlow has looked at the evidence on what happens when people experience a similar wealth gain, for example when they inherit money, or win the lottery. This backs up the ASI’s concern that parents experiencing a similar ‘windfall gain’ will reconsider how much they need to work.

Based on evidence, the ASI looked at what would happen if 40% of the money that parents earn, or the hours they worked, specifically to pay for the school fees was taken as leisure. It found that this unintended consequence alone could cost the Treasury between £360 million and £1.81 billion, depending on how many children migrate to state school.

The ASI has built on its original report on the consequences of charging VAT on private schools, which found that the policy could make no money at all, or even cost money, overwhelm state schools, and harm underprivileged children.

If parents decide to work fewer hours then, combined with the other unintended consequences outlined in the ASI’s original report, this could mean that, in the IFS’ highly optimistic scenario in which 5% of children leave their private schools, it could raise a net £0.84 billion. If 10% leave, it could raise no money at all. If 25% leave, then it could cost as much as £2.51 billion.

read the report

Maxwell Marlow, Director of Research at the Adam Smith Institute and report author said:

“There is very little evidence on what will happen if the Government imposes a tax on private education, because most countries have never tried it. The only exception has been Greece, which had to reverse it because it was such a disaster.

So the truth is we just don’t know what will happen when VAT is charged on school fees. It is not possible to exactly predict how many children will leave, how many parents will reduce their working hours and to what extent, and what kind of impact it will have on state schools. That is exactly why it’s so risky.

What evidence on people who have experienced other types of wealth gains tells us is that it is likely that parents will reconsider how much they want, and need, to work. That has a wider impact on society as well as the economy. Every Doctor who works fewer hours, for example, will perform fewer medical operations.

At a time of low productivity growth, a staffing crisis in sectors such as teaching and medicine, and a skills gap, it is vital we don’t create further disincentives to work. We urge the Government and the OBR to take these unintended consequences into account ahead of the Autumn Statement in October.

-ENDS-

Notes to editors:

For further comments or to arrange an interview, contact press@adamsmith.org | 0758 477 8207.

In March 2024, the Adam Smith Institute released its original report on the topic, “Short-Term Thinking: Analysing the Effect of Applying VAT to School Fees.” This can be read here.

Maxwell Marlow is Director of Research at the Adam Smith Institute.

Emily Fielder 09/08/2024 Emily Fielder 09/08/2024

Russian Sanctions Should Pay for UK Infrastructure and Boost British Businesses

Boost our economy and punish hostile states by making anyone who breaks sanctions invest in UK infrastructure projects, pay for public services, or invest in UK businesses, says leading economics think-tank

In a foreword to a new paper by the Adam Smith Institute (ASI), former Chancellor Nadhim Zahawi calls for reforms to the UK’s sanctions regime;
The UK’s sanctions framework is ineffective and is not achieving its intended outcomes;
The most obvious example is our failure to effectively punish Russia or disrupt its invasion of Ukraine;
Our sanctions may even be harming the UK and other Western economies more than Russia. This year, the Russian economy is forecast to grow at a faster rate than the UK’s;
Individuals and businesses are getting around restrictions on investing in sanctioned states by trading via ‘third-party’ countries such as India and China;
Even when offenders are caught, the penalties are not harsh enough to deter them from reoffending;
In order to create a positive incentive to comply with our sanctions regime, the Adam Smith Institute (ASI) is proposing a new system of sanctions, under which anyone or any business caught breaking these sanctions is made to re-invest their capital in a way that benefits the British people;
The level of profits that an entity would be allowed to receive would depend on how responsible they are for, for example, the ongoing war in Ukraine. The worst offenders would receive none at all.

Economic sanctions are measures that states or international organisations place on other states to make them change their behaviour. Some of these sanctions can be placed on entities- either people or businesses engaged in commercial activity- to stop them from transferring capital to the sanctioned state. Those that break these sanctions will face a penalty.

But the UK’s current sanctions framework is not helping it to achieve its aims, as the failure to punish or disrupt Russia has shown. In some ways the sanctions have even been self-defeating; Western markets have been continuing to struggle, whilst the Russian economy is not slowing. The IMF has upgraded its projections for the Russian economy’s growth this year to 3.2%, a much faster rate than the UK.

As a new paper from the Adam Smith Institute (ASI), entitled Market-Based Reforms to the UK Economic Sanctions Regime, highlights, one of the fundamental problems is that the penalties we are imposing on entities who are evading these sanctions, and are still doing business and investing in Russia are not strong enough to deterring them from doing it again. The maximum civil monetary penalty that can be imposed if they are caught is £1 million or 50% of the breach, whichever is higher. For some entities, this is a mere drop in the ocean.

read the report

Author Professor David Collins recommends that we should instead encourage sanctioned entities to divert their business to the UK by giving them the opportunity to profit here, in a way that benefits us at the expense of sanctioned states.

Under his ‘compelled re-investment’ proposal, if an individual or entity was found to have violated our sanctions regime, they would be given a choice to either face the normal penalty, or to re-invest its capital or any proceeds from an investment in a sanctioned country, back into the UK. The UK Government could decide that the most productive use of the funds is to maintain or even expand a current investment in the UK. Or it could invest the money in whatever would most benefit the British public such as an important infrastructure project, or it could take the money as a loan with a small interest rate to finance public spending.

Any profits from a successful investment project could be calibrated to the culpability of the sanctioned entity, with a zero-interest, no-profit category available for the very worst offenders such as those who are responsible for the continuing war, or human rights abuses in Ukraine. This would be considered on a case-by-case basis.

The Rt Hon Nadhim Zahawi , former Chancellor of the Exchequer, said:

“I was proud to have been a member of the government which supported Kyiv’s struggles against Putin’s regime from the very outset of the war. But he will only be defeated once we properly disrupt his war machine.

It’s clear that our sanctions regime is still in need of substantive reform in order to make this happen. This proposal from the Adam Smith Institute shows how we can divert capital away from sanctioned states and towards the UK in a way that actively benefits the British people. They are right too to call for the details of any re-investment to be considered on a case-by-case basis.

Improving our sanctions framework will better disrupt the activities of other sanctioned countries such as Iran and North Korea, as well as Russia, helping us to stand up for the Rule of Law across the world.

I urge the new Government to actively consider the proposals in this report.”

Maxwell Marlow, Director of Research at the Adam Smith Institute said:

‘The core aim of our sanctions regime- to disrupt the malign activities of hostile states such as Iran, Russia, and North Korea, is a noble one. But the evidence is clear- the effectiveness of the UK’s sanctions framework is being repeatedly undermined by sanctions evasions.

Even when we catch individuals and businesses breaking our sanctions rules, we’re not effectively deterring them from doing it again.

As every economist knows, in order to get commercial actors to change their behaviour, we need to give them a carrot as well as a stick. By compelling those who violate our sanctions regime to expand their investments in the UK or fund national infrastructure projects, we’ll be incentivising them to keep their capital and business here, boosting the UK economy at the expense of hostile states.”

-ENDS-

Notes to editors:

For further comments or to arrange an interview, contact emily@adamsmith.org | 0758 477 8207.

Professor David Collins is a recognised authority on World Trade Organization law and international investment law and international law. He leads the Digital Trade Research Group at City Law School and is the co-editor of the forthcoming Routledge Handbook on International Economic Law.

The Adam Smith Institute has recently published another research report on how to make sanctions more effective. This paper builds on the previous Government’s ‘Deter, Disrupt and Demonstrate’ Strategy and outlines what an ‘Economic Sanctions 2.0’ could look like. This focused on degrading the target’s ability to pursue its objectionable policies, and denying it the ability to get around any sanctions. This can be read here.

Emily Fielder 31/07/2024 Emily Fielder 31/07/2024

Sanctions 2.0: Taking the UK’s Sanctions Regime From Symbolism To Significance

A leading economics think-tank calls for a sanctions regime that works properly and constrains hostile states

Economic sanctions have become a central part of the West’s diplomatic toolkit;
They remain hotly contested, with critics even going as far as to suggest they are totally ineffective;
The evidence shows that sanctions can be effective at constraining the target state and making it harder for them to achieve their aims, but they are not particularly effective at making them abandon their policy;
A new paper from the Adam Smith Institute (ASI) shows how the UK’s economic sanctions on hostile states will be much more effective if the UK’s primary objective is to erode the sanctioned state’s military and economic capacity;
The ASI also highlights that the UK’s sanctions regime needs enhancement. Sanctions can still be evaded via third-country parties, some Western businesses are still operating in sanctioned countries, and we are not doing enough to incentivise transfers of capital away from sanctioned states to the UK;
Using Russia as a case study, this paper recommends a number of measures, including requiring Western businesses to cease operating in the sanctioned state unless granted a licence and penalising those who enable sanctions evasions.

Earlier this year, the previous UK Government published its sanctions strategy: Deter, Disrupt and Demonstrate. This stated that the purpose of sanctions is to “DETER future or continued malign activity; to DISRUPT current malign activity; and to DEMONSTRATE our readiness to defend international norms.”

A new paper by the Adam Smith Institute (ASI), a leading economics think-tank, builds on this strategy and outlines what an ‘economics strategy 2.0’ could look like. In particular, it argues that the UK’s primary objective should be to erode a hostile state’s ability to carry out its aggressive acts. In other words ‘disrupt’ should be the core aim, partly because this is how ‘deter’ and ‘demonstrate’ are best achieved.

Read the Report

The paper uses Russia as a case study for the sanctioned state, and outlines the following ways to prevent it from procuring economic and military resources to wage war on Ukraine, and from getting around any sanctions. These measures can be used in order to sanction other states which carry out hostile activity.

Re-establish CoCom

Countries which are working together to sanction Russia should re-establish the Coordinating Committee for Multinational Export Controls (CoCom). During the Cold War it was effective at denying the Soviet Union access to Western tech. Its successor, the Wassenaar Arrangement, is not focused on restricting exports to a particular country, making it much less effective.

Require all Western businesses, including financial institutions, to cease operating in Russia unless they are granted a licence

Western businesses which are still operating in Russia should be given a deadline to exit from the Russian market. Licences could be granted if there is a very good reason for the business to continue to operate past this deadline, for example, to allow a proper wind-up of the business there.

Offer to remove individuals from the sanctions list if they publicly condemn Putin and contribute towards the re-construction of Ukraine

Individuals who are currently subject to targeted sanctions could be ‘delisted’ for taking appropriate steps to distance their business activities from Russia, publicly severing ties with the Putin regime and contributing towards a fund for the post-war reconstruction of Ukraine. Of course, those who bear direct responsibility for the war in Ukraine should be excluded.

Expand the use of secondary sanctions to deter enablers of sanctions evasion, for example though adopting the equivalent of the USA’s FDP rule

Secondary sanctions deter actors from facilitating sanctions evasion or providing a loophole for sanctioned entities to access international markets. This could take the form of an equivalent of the United States’ Foreign Direct Product (FDP) rule, under which export controls are extended to goods that are composed of US-origin commodities, technology, or software over a certain threshold. Criminal and civil penalties would be imposed on anyone that breaks them.

Encourage hard currency outflows

The West should consider incentivising certain transfers out of Russia, such as capital outflow, provided that they pass beneficial ownership and ‘Know Your Customer’ (KYC) checks.

Maxwell Marlow, Director of Research at the Adam Smith Institute, said:

“Economic sanctions can play a meaningful part in the fight-back against hostile states and malign actors- but only if they properly constrain their ability to carry out their aggressive policies, rather than act as symbolic measures.

The UK’s sanctions regime urgently needs updating to reflect this, whilst dealing with sanctions evasion, getting Western businesses out of sanctioned states, and incentivising the transfer of capital out of the sanctioned states and over to the UK.”

-ENDS-

Notes to editors:

For further comments or to arrange an interview, contact emily@adamsmith.org | 0758 477 8207.

James Gillespie is an Associate Fellow in the Centre for Financial Crime and Security Studies at RUSI, where his main research interests concern ransomware, illicit finance, and the use of sanctions in a cybersecurity context. James was previously a Policy Advisor at HM Treasury.

Emily Fielder 17/07/2024 Emily Fielder 17/07/2024

The Adam Smith Institute Responds to the King’s Speech

Commenting on the King’s Speech, Maxwell Marlow, Director of Research at the Adam Smith Institute, said:

“The new Government’s King’s Speech is a case of the Good, the Bad, and the Ugly. On the positive side, the Government’s proposed planning reforms could, if executed properly, get Britain building the homes, infrastructure, and lab-space that we desperately need. Moves towards leasehold and commonhold reform will be a welcome relief for the 5 million UK households still living under our outdated leasehold system. Businesses will be relieved that the Apprenticeship Levy will be stripped, and that a better emphasis on skills and productivity will be introduced into the economy. And legalising the production and sale of lab grown meat will help to substantially reduce greenhouse gas emissions and will be a boon for the UK’s science and technology sectors.

But not all the Government’s policies are evidence-led. The proposed Black Market Charter that is the generational smoking ban could empower criminals to sell tobacco to younger people who would be turned away from shops. Likewise, the proposed Education Tax of applying VAT to private schools risks actually costing taxpayers and causing chaos as pupils leave their independent schools for the state sector. Meanwhile, the Government’s ‘New Deal for Working People’ will create additional constraints on businesses, while disadvantaging working people by making it less attractive to hire new staff.

We also know that Martyn’s Law will add considerable strain for SME hospitality venues, at a time when liberalisation is needed. Plans to empower the OBR, regulate AI, create a new Football Regulator, introduce a new industrial strategy and impose a burdensome Race Equality Act are further worrying signs that this is a government that will expand the size and scope of the regulatory state.

The Government promised ‘Change’ during the election. Whilst there are elements of promising reform in mission and growth, this King’s Speech in great part is a continuation of managerialism, needless intervention in the lives of everyday people, and shows a lack of imaginative thinking about how this country should be governed.”

--ENDS-

Notes to editors:

For further comments or to arrange an interview, contact Emily Fielder, emily@adamsmith.org | 0758 477 8207.

The Adam Smith Institute has previously published a report on the potential negative consequences of levying VAT on independent school fees , including the impact on the economy and on state schools. The report can be found here.

The ASI has previously commented on the government’s proposals for planning reform. The comment can be found here.

The ASI has previously published a report on the benefits of legalising lab grown meat. The report can be found here.

Emily Fielder 17/07/2024 Emily Fielder 17/07/2024

The Adam Smith Institute to Rachel Reeves’ Plans for Planning Reform

Commenting on the Chancellor’s Plans for Housing and Planning reform Maxwell Marlow, Director of Research at the Adam Smith Institute said:

“ New housing and infrastructure is directly correlated with economic growth. So we welcome the Chancellor’s plans to introduce supply-side reforms, in particular re-introducing mandatory house building targets, reversing the ban on onshore wind, and plans to make decisions about vital infrastructure nationally, not locally.

There are ways she should go further. A new task-force and 300 extra planning officers will reduce the backlog and speed up the approvals process, but this could be accelerated further if all planning applications are automatically approved after 6 weeks. She will also need to consider that there is a significant labour and skills gap in the planning and construction industry. We also hope too that a review into the greenbelt boundary results in the release of land within a 10 minute walk of a train station for development, as we have previously called for.

Overall, this indicates a seriousness of purpose in fixing one of the greatest drags on Britain’s prosperity. But ultimately, these plans must be based on results rather than intentions.”

ENDS

Notes to editors:

For further comments or to arrange an interview, contact Emily Fielder, emily@adamsmith.org | 0758 477 8207.

Emily Fielder 16/07/2024 Emily Fielder 16/07/2024

Today is London’s Cost of Rent Day

Renters in London worked for 197 days for their landlords this year. The 16th of July is the first day they start working for themselves.

London’s Cost of Rent Day falls on 16th July;
Renters in London are working 197 days of the year solely to pay their landlords;
Cost of Rent Day is the day on which, on average, renters in England earn enough before tax to cover their annual rent bill;
This analysis of local areas shows Cost of Rent Day is even later in England’s major cities and the South East;
Specific Cost of Rent Days in local areas in London can be found in the London tab of this spreadsheet.
The average Cost of Rent day in London is the 16th July, more than two months later than the national average, which fell on the 5th May. This means that higher salaries are not sufficient to compensate for higher rent prices renters face in the capital;
This research also exposed gaps in ONS housing statistics that need to be addressed to enable better tracking and understanding of the costs of rent;
It is now incumbent on policy makers to fix the housing crisis, in particular, addressing the shortage of supply of homes.

Cost of Rent Day is a brand new initiative from the Adam Smith Institute (ASI). It is the day on which renters in England stop paying rent and start putting their earnings into their own pocket. This year, the ASI has estimated that every penny that, on average, renters in London earned before tax for working before and including July 15th went to their landlord- from July 16th they are finally earning for themselves.

The ASI has created this measure in order to translate the severity of the housing and rental crisis into simple terms that can be easily understood by all audiences. It provides a useful measure to hold politicians to account and track changes over time.

To calculate the Cost of Rent Day, annual rents were divided by gross annual pay, to understand what proportion of earnings are spent on rent. Cost of Rent Days were calculated for 309 local areas across 9 regions across England.

The ASI also created a tool where users can calculate their own Cost of Rent Day.

As the ASI outlines, the root problem is the lack of supply. Since the 70s, England’s construction of new homes has lagged behind population growth. In other words, new demand has outstripped supply. Even if the government manages to deliver on the 1.5 million new homes by the end of this Parliament, we will still be short of delivering the 4.3 million backlog.

Directly punishing all landlords or introducing policies such as rent controls will only make the situation worse for renters. Instead, politicians must focus on creating the right incentives for developers and landlords, and on increasing supply.

The ASI has previously outlined a number of solutions, which it calls on the government to consider. These include using compulsory purchase orders to buy, and develop on metropolitan green belt land, and give local residents a share of the profit, releasing all green belt land within a ten minute’s walk of a railway station for development, and extending ‘full expensing’ to brownfield sites.

James Lawson, Chairman of the Adam Smith Institute and author of this report, said:

“We all know that rental costs in England are just too high.

But alarmingly, as our research shows, the rental crisis is even worse in our capital city where Cost of Rent Day falls over 2 months later than the national average. This means that higher salaries, which many professionals have historically moved to London for in the first place, do not compensate for the higher rent prices that they face.

In the midst of a cost of living crisis and nearly two decades of stagnation, London’s ‘Cost of Rent Day’ is a damning indictment on the performance of our economy, and our failure to match the demand for homes with supply in the Capital.

Concrete proposals to reform our sclerotic planning system and to deliver the homes we need must be an urgent priority for both the government and opposition parties.”

-ENDS-

METHODOLOGY:

To calculate the Cost of Rent Day monthly rents were converted into an annual figure. Then annual rents were divided by gross annual pay, to understand what proportion of earnings are spent on rent.
To balance for leap years and support better inter-year comparisons, a year is treated as being 365.25 days long.
Using otherwise unrounded inputs, this calculation implied 125 days of the year are spent on rent. The 126th day of the year is May 5th.
The ASI used annual gross pay (before fiscal deductions / taxes) to generate these calculations.
This is a deliberately simple calculation and as outlined above and below, will not capture the nuances of individual circumstances. However, it enables a simple, transparent, and intuitive calculation - this is preferable to more complex alternatives we developed.
To produce this analysis, the ASI used two readily available ONS data sources. The analysis is based on the average rent, across all types of rental. The data is broken down by rental type, including a ‘room’, ‘studio’, ‘one bedroom’, ‘two bedrooms’, ‘three bedrooms’ and ‘four or more bedrooms’ properties but this is not used in the headline calculation.
Regional analysis is based on ONS data and segments England into: East, East Midlands, London, North East, North West, South East South West, West Midlands and Yorkshire and The Humber.
The two data sets have common Area Codes, enabling the analysis across the 309 local areas and 9 regions, both data sets have in common, and where there are values.
The Median was used by default for both data sets. When a series of numbers are arranged by order of magnitude the median represents the middle value. The median was chosen instead of the mean, because the data sets are skewed and have outliers.

Further details can be found in the report.

Notes to editors:

For further comment, or to arrange an interview, please contact emily@adamsmith.org | +44 7584778207

James Lawson is Chairman of the Adam Smith Institute. He led on the creation of Cost of Rent Day and is the author of the accompanying report.

The accompanying report to Cost of Rent Day is available here.

The full set of local data can be found here.

The ASI has also published extensive research on the housing crisis. Highlights include:

Emily Fielder 09/06/2024 Emily Fielder 09/06/2024

Tax Freedom Day: Tax Burden Is The Highest Since Current Records Began

Taxpayers worked for 161 days for the Taxman this year

Tax Freedom Day falls on the 10th June;

This year, Brits are working 161 days solely to pay taxes, 4 days longer than last year;
In 2019, before the pandemic, Tax Freedom Day was on May 22nd.
UK Taxpayers will fork out over £998.6bn to the Treasury this year, 44.06% of net national income;
Based on current Government taxation and spending plans, and OBR projections, the ASI expects Tax Freedom Day to hit June 22nd in 2028.
Cost of Government Day, which factors in borrowing as well as taxes, is July 20th—the latest since the pandemic.

Tax Freedom Day is a measure of when Britons stop paying tax, and start putting their earnings into their own pocket. In 2024, the Adam Smith Institute has estimated that every penny the average person earned for working up to and including June 9th went to the taxman- from June 10th they are finally earning for themselves.

British taxpayers have worked for a gruelling 161 days for the taxpayer this year, the latest since current records began. That’s 4 days later than last year, and 19 days later than before the pandemic. In 2009, Tax Freedom Day fell on May 18th- almost a whole month earlier. In 2010, it was on May 21st.

Tax Freedom Day takes into account the total tax burden. This includes both direct taxes (such as Income Tax and National Insurance) and indirect taxes (such as VAT and Corporation Tax).

Britain’s tax burden has been moving in the wrong direction for years, and has now been made heavier by frozen income tax thresholds dragging Brits into paying higher rates of tax.

The Adam Smith Institute is calling on politicians seeking election to be honest with the public about the size and nature of the tax burden on British taxpayers.

James Lawson, Chairman of the Adam Smith Institute, said:

“High taxes don’t just eat into our pay packets, they hinder the UK’s economic prospects as a whole. They make starting or investing in a business more risky, and contribute to our stagnant wages, low productivity, and sluggish growth.

As the General Election approaches, politicians must be honest with voters about the size and nature of the tax burden. This includes frozen tax thresholds, which is dragging workers into paying high rates of tax, and increased taxes on businesses, the costs of which are often passed onto consumers and employees.

Whoever wins on July 4th, they will need to grapple with the fact that Tax Freedom Day is getting later and later. But a government which finds ways to let people keep more of their own hard-earned money will be rewarded by the electorate.”

The Rt Hon Dame Priti Patel DBE, Prospective Parliamentary Candidate for Witham, said:

“Tax Freedom Day reminds us all that the overall level of taxation in the economy needs to come down so hard working families and businesses can keep more of what they earn.

Over the last 14 years some targeted tax cuts have made a real difference. The freezes and cuts in fuel duty I campaigned for have helped the nation's motorists save thousands of pounds and the raising of the basic rate thresholds for income tax and national insurance have lifted millions out of paying tax on salaries and reduced the tax burden for many. But more needs to be done to cut taxes and reduce regulatory costs.

I will always champion the Conservative values that promote low taxes and the economic freedoms our country needs to grow and secure its future prosperity and success.”

The Rt Hon Sir Brandon Lewis CBE, Former Member of Parliament for Great Yarmouth, said:

“Tax Freedom Day has been steadily going in the wrong direction now for a number of years.

We owe it especially to Britain’s hard-working young people to remove some of the financial burden on them by allowing them to keep more of the money they earn.

Manifesto week is an excellent opportunity for the Conservatives to demonstrate to voters that we are the party of aspiration and investment, through carefully thought-through tax cuts for both businesses and individuals. I hope my Party grasps the nettle.”

The Rt Hon Nadhim Zahawi, former Member of Parliament for Stratford-on-Avon and former Chancellor of the Exchequer, said:

“This long-running initiative by the Adam Smith Institute is a vital tool which holds politicians to account.

Tax Freedom Day has fallen far too late in the year, and we should be concerned that it is forecast to fall a whole 12 days later by 2028.

The Chancellor’s cuts to National Insurance and long-term ambition to abolish it altogether have already demonstrated that the Conservatives are committed to lowering tax. My Party should now capitalise on this, for example by abolishing the hated death tax, unfreezing tax thresholds, or lowering business taxes.”

Richard Tice, Chairman of the Reform Party and Prospective Parliamentary Candidate for Boston and Skegness, said:

“It is almost half the year before we start to keep what we earn, as the Tories have added 3 weeks to this Tax Freedom Day, of 10 June.

Yet public services have got far worse proving wasteful spending.

Only Reform has a robust plan to cut out public sector waste, make work pay and encourage small businesses as the engine of growth for UK Plc”

ENDS

Notes to editors:

For any future details on the methodology, or to arrange an interview, please contact emily@adamsmith.org / +44 7584778207

The Conservative Party and the Labour Party were approached for comment.

Methodology:

Tax Freedom Day (and its sister, Cost of Government day, which measures total spending over national income) is not meant as anything but an illustration—an indication of the size of the state. As the complexities detailed below suggest, it does not correspond exactly to any individual’s experience. And yet many people do find it shocking to see how large the state really is, expressed in an intuitive way.

While Tax Freedom Day is a simple idea in principle, in reality it’s a little bit more complicated. First, there’s no average person. Because we don’t have a proportional tax system, every individual will have a different tax freedom day. In theory, Tax Freedom Day will come later for high-earners and earlier for low-earners and the unemployed. In practice, this isn’t necessarily true because HMRC does not simply tax income, but also taxes consumption, investment and ‘sin’ activities at different rates.

Second, we measure the total tax take. This includes indirect taxes (such as VAT and Corporation Tax) as well as direct taxes (Income Tax and National Insurance). Economists distinguish between legal and economic incidences (a fancy economist word for ‘burden.’) The legal incidence of Corporation Tax may fall on individual firms, but corporations are just legal constructs. In reality, Corporation Tax is paid by people, the debate between economists is to what extent it falls between consumers, shareholders and workers. (Our paper Corporation Tax: Who Pays had a crack at the answer.)

Thirdly, we take into account depreciation and foreign investment earnings, as is standard around the world, measuring total taxes over net national income, not gross domestic product, so as to more closely approximate net wealth creation rather than economic activity.

Fourth, tax receipts and net national income statistics are regularly revised by the Office of National Statistics and we revise past Tax Freedom Days along with them.

Data Sources

Based on data availability, this year the ONS's NSRX was used for Net National Income and AHHY was used for Total Tax Take. This enables a TFD comparison going back until 1998, with a single consistent data source and methodology.

Historic reporting of Tax Freedom Days may have been based on different data sources, or prior to ONS data revisions, so can appear earlier or later than in ASI's latest analysis. The Tax Freedom Day for a given year in the past therefore may well have changed - typically the changes are very small, and the overall picture tends to be robust to these alterations.. For the purposes of monitoring the trend of Tax Freedom Day and making inter-year comparisons, our latest analysis is most appropriate.

Also, Net National Income and Total Tax Take figures are not available up-to-date for the latest or future calendar years so they are proxied from government and OBR forecasts and financial year numbers. They are then revised when exact numbers become available in subsequent years.

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Emily Fielder 04/06/2024 Emily Fielder 04/06/2024

State Pension Could Go Bust As Early As 2035

The Adam Smith Institute (ASI) built a new dynamic model which calculated when the State Pension could become fiscally unsustainable;
The ASI defines this as the point at which the state will be spending more on welfare payouts, the greatest proportion of which is the State Pension, than it will be receiving in National Insurance tax receipts;
This could happen as early as 2035. This is a crisis point for fiscal rules and Treasury spending commitments;
The increasing unaffordability of the State Pension is in great part due to the ratcheting effect of the ‘triple lock’;
In an accompanying research paper, report author Maxwell Marlow calls on the next government to urgently reform the State Pension; for example, through moving to a ‘double lock’ or smooth earning link, or by means-testing the State Pension.

In 2021, the last time that it was measured, the State Pension had a total obligation to the British people of £8.9 trillion- three times the UK’s current GDP. This is set to balloon even further, due to the ratchet effect of the triple lock.

The State Pension is paid from current tax revenues, rather than from money set aside in a dedicated pot built up during a person’s working life. In fact, the average person born in 1956 will receive £291,000 more than they put in. This is creating an economic burden on working-age people.

This will be exacerbated by Britain’s demographic trends. By 2040, we are likely to have 22.7 million claiming the benefits including the State Pension (but only 34 million people of working age to fund it.)

The Adam Smith Institute’s dynamic model takes into account this demographic deficit alongside a number of other factors including, but not limited to, data from the ONS, OBR and HMRC, on population growth forecasts, State Pension contributions, workforce participation, and aggregate pay. It found that the State Pension could become financially unsustainable by 2035, meaning that the Treasury is spending more on welfare, the greatest proportion of which is the State Pension, than it is receiving in National Insurance tax receipts.

The author of the accompanying report, Maxwell Marlow, urges politicians to have a full and honest debate with the public about the future of the State Pension, and to consider a number of reforms, including means-testing the State Pension, transferring to a ‘double lock’ or smooth earnings link, and moving towards a Swedish-style pension system.

Maxwell Marlow, report author and Director of Research at the Adam Smith Institute said:

“It should alarm us all that the state pension could become fiscally unsustainable within the next 10 years.

Working-aged people are already taxed to the hilt in order to universally subsidise pensioners, and this inherent unfairness within Britain’s economy will only become more entrenched as our demographic deficit worsens.

The government should look to review the state pension as a matter of urgency, either through means testing so that those with a net worth of more than £1 million are ineligible, or by moving to a double lock system to avoid the destructive ratcheting we see today.”

Notes to editors:

For further comment, or to arrange an interview, please contact emily@adamsmith.org / +44 7584778207

Maxwell Marlow is Director of Research at the Adam Smith Institute.

Media contact:

emily@adamsmith.org

Media phone: 07584778207