Foreigners should not be targeted in tax grab

In response to Theresa May’s plan to tax foreign homebuyers, our Head of Research Sam Dumitriu commented:

“Taxing foreign homebuyers won’t make housing more affordable, only building more homes will do that. ‘Buy to Leave’ is a myth – just 1% of new homes bought by foreigners are left empty – when foreigners buy property they either rent it out or live in it themselves.

“May plans to use the revenue to fund anti-homelessness schemes, but her plan will backfire as it means fewer homes will get built, pushing up rents. Advance sales to overseas investors enable developers to build affordable housing and market-rate homes faster. LSE research for the Greater London Authority (GLA) found that recent growth in the ‘Build to Rent’ sector was driven by overseas buyers.

“When rents rise, so does homelessness. Trying to prevent homelessness by taxing foreign investment is like trying to prevent crime by taxing burglar alarms."

If you would like further comment or to arrange an interview, please contact Matt Kilcoyne on 07584778207 or email matt@adamsmith.org

McDonnell plans pension raid with nationalisation and share ownership demands

John McDonnell, speaking at the Labour Party Conference 2018 in Liverpool, today took the party back 100 years when the party first introduced Clause IV. The Adam Smith Institute responds to the Shadow Chancellor’s Chavez-style commitment to nationalise industry, force executives out of jobs at Britain’s utility companies utilities, and to force companies to move to offer share ownership.

Sam Dumitriu, Head of Research at the Adam Smith Institute, said of the forced share ownership plan:

“What is startling about Labour’s plan is just how easy it is to avoid. The reform only applies to public companies listed in the UK. The Shadow Chancellor would have no power to force private companies or foreign-listed companies to do the same creating a powerful incentive for British companies to go private or list in New York or Frankfurt instead of London.

“It would discourage fast-growing startups from going public too, starving them of investment and potentially leading to worse governance. While the 250 employee threshold creates an incentive for firms to outsource and use contractors instead.

“The plan would cut investment too. Firms are less likely to invest if up to 10% of their shares are at risk of re-appropriation. As dividends are capped annually at £500 per worker (the rest going to the state) it would have the unintended consequence of rewarding labour-intensive firms and punishing capital-intensive firms creating low-productivity, low-wage economy.

“The only workers who might benefit are the corporate lawyers and accountants who will help companies avoid McDonnell’s plan altogether.”

Matt Kilcoyne, of the neoliberal think tank the Adam Smith Institute, said of McDonnell’s remembrance of Labour’s old Clause IV and his recommitment to nationalisation:

“McDonnell's full throated love-in for Labour's old Clause IV risks clawing the UK economy back into the dark days of strife and stagnation.

“The Shadow Chancellor isn’t handing back power to the people, he is planning a raid on millions of Britons' pension pots. Funds invested in our country’s utilities and the record levels of investment that private ownership has brought, are now at risk from a Labour government that intends to appropriate these assets with a partisan parliament setting any price paid.

“The Chavez-style commitment to readvertize jobs at utility firms taken back into state control will make the roles political and take people with years of experience and track records of success away from where they're most needed.

“At least he was honest about what all this would be called: Socialism.”

11 US & UK Think Tanks produce the ideal free trade agreement

• 11 Think Tanks in US and UK draft the legal text of an Ideal Free Trade Agreement;

• Simultaneous launches in the UK and US stress political and commercial will of securing a deal between world’s largest and 5th largest economies;

• Key policy innovations include:

  • Enshrine the “negative list” approach to liberalization across goods, services, investment, and government procurement, which is conducive to faster, broader, and deeper economic integration

  • Eliminate tariffs on nearly all goods upon entry into force

  • Permit free movement of British and American workers, conditioned on an offer of employment

  • Commit the parties to expedited customs clearance and administrative procedures

  • Mutually recognize professional qualifications and licenses

  • Mutually recognize the efficacy of conformity assessment, and equivalence provisions, which would allow companies to sell and operate in both markets by satisfying either Parties’ regulations in areas where there is agreement as to the objectives of the regulations

  • Are less restrictive on the use of inputs from third countries by lowering “rules of origin” thresholds that must be met to qualify for the agreement’s preferential terms

  • Preclude application of anti-dumping measures between the Parties

  • Preclude the use of investor-state dispute settlement

  • Provide for the accessions to the agreement of other Parties that can demonstrate willingness and capability to meet its market-liberalizing standards

This morning, a collaborative project spearheaded by the Initiative for Free Trade in London and the Cato Institute in Washington, D.C. presents its first fruit. With contributions from policy experts affiliated with 11 U.S. and U.K. think tanks, The Ideal U.S.-U.K. Free Trade Agreement: A Free Trader’s Perspective is the proposed legal text for a bilateral free trade agreement between two of the world’s largest economies and the two richest English-speaking countries.

With both states deeply committed to the institutions of free-market capitalism and the rule of law, the ideal free trade agreement between the United States and the United Kingdom is an opportunity to create greater prosperity for Brits and Americans. Novel, sensible, transparent rules to eliminate costly barriers to trade will help stimulate innovation, encourage competition, provide opportunities for all, and incentivize reform-minded governments around the world.

The agreement includes provisions that foreclose governments’ access to discriminatory protectionism and obligate both parties to refrain from backsliding. Mutual recognition across sectors in developed countries would help achieve maximum market barrier reduction, the report argues, and enables consumers to access goods and services across both markets fully. All the while both states would preserve national sovereignty to legislate and regulate in ways that do not discriminate against imported goods, services, or capital.

As the U.K. government prepares to repatriate its authority over trade policymaking for the first time in 45 years, concluding and implementing a free trade agreement with the United States should be among its highest priorities. Indeed, the Department for International Trade has selected the U.S. as one of four potential trade agreements on which it is currently seeking public consultation.

In many respects, the U.S. and U.K. economies already benefit from a high level of economic integration. U.S. entities are the largest foreign direct investors in the United Kingdom, and U.K. entities account for the largest share of foreign direct investment in the United States. The value of the cumulative investment stands at nearly $1.3 trillion today. More than 1.1 million Americans work for British companies in the U.S. and nearly 1.5 million Britons are directly employed by U.S. affiliates.

It is, in addition, an exceptionally popular proposition for both the UK and the US. In a recent Public First / YouGov Poll, 67% of British people surveyed said that they supported an FTA being signed with America (with just 9% opposed), while 64% of Americans would support an FTA with Britain (with just 7% opposed).

The greatest area of benefit could come from an enhanced equivalence model of mutual recognition across all financial sectors. Finance and insurance represented 7.5% of US GDP (or $1.45 trillion) and 6.5% of UK GDP (£119bn). After the financial crisis of 2007-2008 financial regulators have sought equivalent outcomes with high degrees of synchronization on Wall Street and in the City and the report argues fostering greater collaboration between regulators could increase best practice while expanding and access to services for consumers.

In total, the ideal free trade agreement includes provisions to liberalize trade that are spread over 18 different chapters.  Innovative, market-based rules are presented on subjects such as Regulatory Coherence, E-Commerce, Sanitary and Phytosanitary measures, Dispute Settlement, and provisions governing third party accession.

Dan Ikenson, director of the Cato Institute’s Centre for Trade Policy and co-author of the paper, said that the the objective of the project is: “to persuade policymakers and the public in both countries that a comprehensive bilateral trade and investment agreement removing all barriers to trade across all sectors of both economies without exception is in their best interests and to provide the blueprint of an agreement that would be the most liberalizing FTA in the world.”

Beyond providing the formal agreement text and summaries, the paper “provides an intellectual basis for why real free-traders are often skeptical of free trade agreements, which often include protectionist or ‘managed trade’ provisions, and how this FTA overcomes those concerns,” Ikenson explains.

Victoria Hewson of the Institute of Economic Affairs, says:

“This has been a fascinating and important project, cutting through rhetoric and misinformation to point the way towards a genuine free trade agreement to deliver increased prosperity to the people of the UK and the United States. As the British government makes pivotal decisions that will have far reaching effects on trade policy for a generation, a glimpse of what the ideal free trade agreement might look like could not come at a better time.”

Tom Clougherty, Head of Tax at the CPS and co-author of the report, said:

"This isn't just an ideal free trade agreement between Britain and the United States; it is a model for how trade liberalisation can and should work in the 21st Century.

“Our draft agreement would put British and American policymakers at the forefront of a new movement for free trade in goods and services, for unrestrained cross-border investment, and for mutual recognition of national regulatory regimes.

“In short, it represents a modern gold standard for international trade and cooperation."

Matt Kilcoyne, of neoliberal think tank the Adam Smith Institute and co-author of the report, said:

"Together the US and the UK have the clout to rewrite the rules of global trade. This deal would be about freeing citizens of the two largest English speaking countries to trade without impediment, to be able to move for work and change their stars.

“Britain's future is bright, so long as it doesn't just buy into the status quo or joining in trade wars against her own citizens. Instead the UK must seek to bring down barriers and push up prosperity."

Sheila Lawlor, Director of Politeia and co-author of the report, said:

“A mutual recognition free trade deal for services will bring great benefit to the US and UK. And for the financial services sector, in which London and New York are global leaders, Barnabas Reynolds' chapter pioneers an equivalence-based trade deal.

“Already developed and adopted as the UK plan for trade with the EU, the concept is here extended to the US, increasing the depth and range of global financial market activities.”

For further comments or to arrange an interview in the UK, contact Matt Kilcoyne, via matt@adamsmith.org| +44 (0) 7584 778 207

For further comments or to arrange an interview in the USA, contact Sheridan Hoover, Media Relations Coordinator @ The Cato Institute, via shoover@cato.org| +1 (202) 216-1495

Old McDonnell has a broken record at the TUC conference

As John McDonnell took to the stage late at the TUC conference, it turns out that we’d already heard the speech before. Matt Kilcoyne of the Adam Smith Institute, criticised the crack down promised by the Shadow Chancellor on gig workers’ rights and his ill focused cures for the British economy.

“Like a broken record John McDonnell is out again criticising gig economy workers that won't work like he wants them to. But the gig economy has been good for both consumers and workers. Freedom to choose flexibility is not one that workers will want to relinquish easily. It might be called a jobs miracle but Britain's record employment is very much a human achievement.”

“If McDonnell wants to increase people's purchasing power he won't achieve it by pushing up the minimum wage – that will just price people out of the market altogether. Instead he should commit Labour to making it easier to build houses where workers want to live, and reduce the burdens on childcare providers to bring down the bills that working families have to pay.”

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