The Adam Smith Institute responds to the Spring Budget

Commenting on the Spring budget, Director of Research of the Adam Smith Institute, Maxwell Marlow, said:

“It’s encouraging that the Government understands the overwhelming need to cut taxes from the current record high, and the benefits that doing so brings to individuals, families and businesses. The Adam Smith Institute welcomes the cut to National Insurance, as well as the Chancellor’s commitment to even greater tax cuts in the future. Ideally, these would be both soon and include the abolition of entire taxes, like the immoral death tax, and even scrapping National Insurance itself. This would end the farce of double taxation on income by merging income tax and National Insurance for good.

“It’s also good to hear the Treasury has been listening to the Adam Smith Institute’s calls to further broaden full expensing to leased equipment, such as vans, diggers, and the kit we use to build Britain. 

“The move towards working out child benefits by households, rather than by individuals, will end an unfair penalty on parents, and make it easier for Brits to have the number of children they want. In the meantime, raising the childcare threshold support to £80,000 is a good stop-gap. 

“The planned public sector productivity drive for the NHS, especially by embracing AI, is going to be transformational, but it should be extended across the entire public sector. 

“To really unlock the United Kingdom’s potential, the Government must now turn to serious supply side reforms, most importantly by allowing new houses to be built for current and future generations, giving the families of the future a place to call their own.”

-ENDS-

Notes to editors:

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

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

Adam Smith Institute Launches the Next Generation Centre

Leading UK think-tank will tonight launch a new policy initiative aimed at increasing economic opportunities for Britain’s young people

The Adam Smith Institute (ASI) is launching the Next Generation Centre -  a new policy initiative which will be proposing bold new ideas, by young people and for young people - at an event tonight in Westminster.

Economic Secretary to the Treasury, Bim Afolami MP will be joining the Centre as a Patron, and will be making the keynote speech at tonight’s launch event.

The Centre will be commissioning research from new ‘Next Generation’ fellows, building lasting relationships with the policy-makers of the future, while also building on the ASI’s existing body of work on how and why our current economic model is failing to deliver for young people. 

In an accompanying paper, new Director of the Next Generation Centre, Sam Bidwell, outlines the six ways in which young people in Britain today are facing worse economic outcomes than their parents and grandparents; including housing affordability, renting costs, tax, higher education and professional prospects, family formation, and the ability to save for the future.

As this new report highlights, the economic challenges facing young people are directly responsible for their increasing disillusionment with our political system, markets and even liberal democracy itself. But with the right ideas, we can re-engage young people by allowing their natural dynamism to flourish.

Commenting on his new role as Patron of the Next Generation Centre, Bim Afolami MP said: 

“The Adam Smith Institute has a rich history of putting forward bold new ideas to improve the lives of Britain’s young people, and so I’m delighted to be supporting their Next Generation Centre as a Patron.

The Conservatives have always understood that young people are inherently ambitious and entrepreneurial, and that it is our historic duty to help them realise their goals in life. I am sure that this initiative will complement the work that the Government is doing to deliver greater opportunities for young people.”

Commenting on the launch of the Next Generation Centre, its Director Sam Bidwell said:

“Up and down the country, young people increasingly feel that the economic status quo isn’t delivering for them. Whether it be because extortionate housing and renting costs are denying them the opportunity of owning their own home, or because higher education no longer meets their needs, they are turning away from the ideas and institutions that made Britain so successful.

But it doesn’t have to be this way- liberal democracy and free markets have in the past delivered enormous prosperity, and they can do so again. This will require more than tinkering at the margins; addressing the intergenerational gap will require a fundamental reconfiguration of how we think about our economy.

 We at the Next Generation Centre look forward to working constructively with the Government and all those across politics who want to increase opportunities for our young people.”

-ENDS-

Notes to editors:

Bim Afolami MP has joined the Next Generation Centre as a Patron. He will be supporting the Centre’s ambition to deliver greater opportunities for young people through bold, market-orientated ideas. 

As Patron, he will be supporting the aims of the Centre, but his role does not constitute a formal endorsement of all of the Centre’s proposals. 

Sam Bidwell is the Director of the Next Generation Centre. He has worked as a Parliamentary Researcher, and as a Press and Research Consultant for the Commonwealth Enterprise and Investment Council. He is a graduate of the University of Cambridge where he specialised in public law, jurisprudence, and legal history. 

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

The ASI Calls for Inheritance Tax to be Scrapped

Leading think-tank’s paper on abolishing inheritance tax, building on arguments it first made nearly 30 years ago, shows that the economic case for abolishing inheritance tax is even stronger 

A new paper from the Adam Smith Institute revisits the case for scrapping Inheritance Tax (IHT) that it first made in 1995, and finds that the same arguments are just as strong today and, in some cases, are even more so.

The ASI outlines the following economic reasons to abolish IHT:

1. It places an unfair burden on those liable to pay the tax, often when their relatives are in the midst of grieving the death of a loved one. The responsibility to pay the right amount in tax falls entirely on the executor of the deceased’s will, often at great administrative expense. The pages of forms that have to be filled in have quintupled from 23 to 118 since 1995.

2. Family businesses are more likely to go bust, and it discourages individual ownership of shares. This is because shareholders in ‘quoted companies’ - those large enough to be floated on the stock market- are able to sell their shares. But shareholders in much smaller ‘unquoted companies,’ often family-run small businesses, are far less likely to have enough money, so the charge falls onto the company instead. This weakens the company financially and means that it's either more likely to go bust or be taken over.

3. The way the tax is structured encourages individuals to invest their money into less productive areas of the economy, rather than investing in companies and capital. 

4. All of these negative impacts are due to a tax which is making up increasingly less of the total tax take. In 1992/3, it was 1.7%, and in 2022 it was a mere 0.89%. And it’s costing the Exchequer £26.3 billion in exemptions and carve-outs; far more than the tax actually raises. 

The Rt Hon Nadhim Zahawi, Member of Parliament of Stratford-upon-Avon and Patron of the Adam Smith Institute said:

“Conservatives have long understood that the continued existence of inheritance tax is fundamentally antithetical to our instincts. It is levied disproportionately on the most entrepreneurial parts of our economy, it complicates our already over-burdensome tax code, and it prevents us from fulfilling the most basic human desire of all; to leave our children better off than we were ourselves. 

This newly updated report by the Adam Smith Institute highlights how the moral and economic arguments in favour of the abolition of inheritance tax that they were making almost 30 years ago are just as compelling today.

The Government has the opportunity in the Spring Budget to demonstrate our Conservative values; that we understand that individuals know best what to do with their own money and that we are on the side of family-run businesses. One of the most effective ways to do so would be to abolish the immoral death tax.”

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

“The Adam Smith Institute has been outlining the numerous reasons to rid the UK of this distortionary tax for decades. 

With fiscal drag now pulling more and more people into paying, there can be no more appropriate time to properly consider the negative impacts that inheritance tax has, and the benefits of scrapping it.”

ENDS

Notes to editors:

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

Barry Bracewell-Miles (1931-2021), author of the original paper, authored six papers for the ASI, ranging from inheritance tax, to alcohol duties, to capital gains tax. He was Chairman of the Executive Committee of the Society for Individual Freedom, and was the Economic Director of the Confederation of British Industry. 

Maxwell Marlow, who has updated the paper, is the Director of Research at the Adam Smith Institute. 

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.

UK childcare crisis can only be tackled by radical reform

New policy brief sets out vital steps to drive down childcare costs and improve quality

• The prohibitive cost of childcare disproportionately hurts women. Women are often financially punished for pursuing a career because the cost of childcare in the UK is the highest in the OECD.

• Many women must choose between becoming relatively poorer or putting their career aspirations on hold. But this need not be the case.

• Despite the recent Budget announcing an extra £4 billion a year to subsidise childcare, it remains in need of significant reform.

• The Adam Smith Institute has compiled the strongest arguments in favour of reforming childcare and complementary policies to bring down costs, provide better quality, and increase parental choice.

A new policy brief from the Adam Smith Institute’s proposes a variety of measures, including:

1. Ending the £100,000 tax cliff edge.

2. Easing informal childcare arrangements.

3. Providing tax credits for work-based creches.

4. Frontloading Universal Credit payments.

5. Restructuring the Free Early Education Entitlement Scheme.

6. Increasing training and qualifications subsidisation. 

Sofia Risino, Research Associate at the Adam Smith Institute, said:

“Whilst it is very encouraging to see the Chancellor take steps to adjust our childcare regime, there is still so much to do on the supply side. Simply dumping more cash onto parents solves some issues, but only in the short-run. Changing the cliff-edge, deregulating childminding, going further to encourage work-place creches, and opening accessibility to the Skills Fund are the longer-term solutions that the government should be pursuing.”

Notes to Editors:

For further comments please contact Director of Communications Connor Axiotes on connor@adamsmith.org, or 07584 778207.

The Bank of England’s Failure: baked in inflation is making us all poorer

The Adam Smith Institute on Bank of England rate rises amidst high inflation and excessive Quantitative Easing.

With CPI rising to 10.4%, inflation is more baked in than many imagined. Inflation is most hurtful to the poor and vulnerable in our society, who are least able to afford price rises or renegotiate their pay. The Adam Smith Institute wants to see:

1. The Bank of England answer for its abject failure in meeting its 2% target and recognition that they were too slow and timid in managing inflation.

2. Central bankers refocus on the core types of money (such as M1 and M2), which were neglected despite huge spikes, a key cause of current inflation.

3. Caution against overcompensating now (through excessive rate rises), needlessly risking financial stability, and prompting bank runs, and a recession.

4. The government helping to counter inflation, with supply side and planning reform - not further boosts to demand that distort the economy and fail to fix the root problems in the UK economy.

CPI rising to 10.4% shows that inflation is more baked in than many imagined. The rise prolongs our cost of living crisis, punishes savers, makes goods increasingly expensive, and encourages public sector strikes as workers seek higher wages to compensate.

Inflation is most hurtful to the poorest in our society - those least able to afford price rises or renegotiate their pay. It is a moral failing of policy and leadership that the most vulnerable take on a disproportionate share of the burden.

We cannot continue to sit idly by and expect the problem to fix itself. The ASI believes there has been an abject failure of monetary policy. Although the Bank of England has independence to make rate decisions, they have materially failed to meet their 2% target. This alone should prompt the resignation of the Governor, Andrew Bailey. However, with Number 10 redirecting flak to external supply side shocks, the Old Lady of Threadneedle Street has been cleared from blame in the press and politics.

Inflation was not a transitory problem, or simply the result of Ukraine and supply shocks, but a failing of central bankers. Monetary policy was too loose in the US and UK, with a huge spike in M2 money supply during Covid. The Federal Reserve and Bank of England were too slow and too timid to raise interest rates.

The Bank of England and its peers have serious questions to answer. Central banks must stop neglecting monetary theory and re-focus on money supply metrics. It is perhaps revealing that the Federal Reserve even discontinued weekly measures of money supply (M1 and M2) in January 2021, just after they spiked and provided a clear warning sign of the inflation which would follow. Likewise, the long-run pumping of M4 (broad money) propped the economy on credit-based stilts, meaning that it remained exposed across all sectors to external shocks.

Worryingly, central bankers now risk over compensating, with rates increasing and therefore monetary policy tightening too aggressively - a key historical cause of self-inflicted bank runs and recessions. One US measure of money supply (DM4) recently declined year-on-year, its largest fall in over a decade, a worrying omen: such declines have been followed by bank runs and recessions in the past Without a proper focus on money supply, the Bank of England risks needlessly damaging financial stability, prompting avoidable bank runs or causing a recession.

Our government can help counter inflation too, by revisiting supply-side and planning reforms. For example, if the UK builds more houses, creates more childcare capacity in nurseries, and rapidly approves and builds more nuclear energy, the price of these goods will come down. Some measures in the recent budget were targeted at the right areas (e.g. childcare), but by focusing on demand not supply, failed to fix the root issues.

END

For further comments, please contact Director of Communications Connor Axiotes on connor@adamsmith.org, or 07584 778207.

Simplify the Tax System - Maxwell Marlow on BBC's Sunday Morning Live

Our Director of Research, Maxwell Marlow, debates the ethics of taxation on the BBC’s Sunday Morning Live.

UK about to fall behind Poland - tax and red-tape is killing us

Our Director of Research, Maxwell Marlow, writes in the Express about the UK’s woeful economic performance and how even Poland is out-growing us. But Max explains there is a path back to economic vigour, and it lies in sound economic policy:

UK about to fall behind Poland - tax and red-tape is killing us, says MAXWELL MARLOW

As the Chancellor pores over his papers ahead of the budget, British businesses are concerned that they will be left in the cold.

Our Forgotten Medium event in Westminster was a hit

Duncan Simpson, Minister Kevin Hollinrake MP, Saqib Bhatti MP and Richard Harpin provided great analyses of our new report Forgotten Medium: Helping Mid-Sized Businesses to Scale Up.

The Forgotten Medium: Helping Mid-Sized Businesses to Scale Up

A new report from the Adam Smith Institute co-authored by our Executive Director, Duncan Simpson; Director of Research, Maxwell Marlow; and Head of Research, Daniel Pryor, finds that medium-sized businesses (MSBs) and their size-specific challenges are often neglected in public policy debates. MSBs are the “Forgotten Medium”.

• Focus is skewed towards both the smallest and largest companies in the UK, who benefit from support not offered to the “Forgotten Medium.”

• Scaling up MSBs would boost the UK’s growth prospects, in particular in areas of ‘levelling up’ concern. 

• Over 83% of MSBs are outside London and the South East. Their products are overwhelmingly in non-services sectors such as retail, wholesale, and transport.

• The following policy changes can alleviate these problems:

  • Implement a recommendation of the 2019 Augar Review for a lifelong loan entitlement. This would allow for 4 years of post-18 education over the course of a lifetime, allowing individuals (especially in MSBs) to re-skill. 

  • Enterprise Investment Allowance & Venture Capital Trust schemes should be modified to remove the cliff-edges facing MSBs who partake in them. To keep current and potential investors, the number of employees allowed should be raised to 999 from 249, as well as increasing the turnover and balance sheet totals.

  • High Potential Individual visas should have a widened list of elite universities and a lower application fee to attract more high-skilled foreign labour. 

  • The Annual Investment Allowance should be made unlimited from its current level of £1 million. This would improve the growth prospects of MSBs, especially in capital intensive industries.

Richard Harpin, entrepreneur and founder of HomeServe, said of the Adam Smith Institute’s new report:

“Successive governments’ growth policies have overly focused on the biggest corporates or the smallest start-ups.  Yet it’s Britain’s tens of thousands of medium-sized businesses that are the lifeblood of the economy and key to more jobs, productivity, and growth.

“Growing HomeServe from an idea into a FTSE 100 company took 27 years but making the jump from medium to large was by far the biggest challenge. Just when businesses are on the cusp of something great, the policy support plug gets pulled.

“The Adam Smith Institute is spot on: if we want to catch up with the rest of Europe, Britain needs to rethink how it supports this crucial yet neglected segment of the economy.”

-ENDS-

Notes to editors:

• For further comments or to arrange an interview, contact Connor Axiotes, connor@adamsmith.org | 0758 477 8207.

A Global Minimum Corporate Tax could derail Levelling Up

The Adam Smith Institute’s new report Levelling Down reveals why A Global Minimum Corporate Tax could derail Levelling Up

• A new report by the Adam Smith Institute’s Senior Fellow, Dr. Tyler Goodspeed, finds that the UK’s decision to rush the implementation of a global minimum corporate tax rate will undermine the Government’s Levelling Up agenda.

• Proposals undermine key areas of UK tax policy including investment zones and free ports, business tax credits, and accelerated cost recovery for new capital investments - which makes up over one-third of all UK investment.

• The UK’s early implementation of global minimum tax rules is fraught with risk and the Government should carefully scrutinise current proposals to limit potential economic damage. 

• It will result in the Levelling Down of the UK rather than the Levelling Up.

A new report from the Adam Smith Institute (ASI) and authored by Dr. Tyler Goodspeed finds that the Government's Levelling Up agenda is at serious risk of being derailed by the decision to rush the implementation of a Global Minimum Corporate Tax rate.

There are two important weapons for the UK's Levelling Up agenda: freeports and investment zones. The Prime Minister wants to use these to incentivise firms to set up shop in run-down regions and coasts in the UK that could use the investment and jobs. Incentives include tax credits and breaks, subsidies, tariff-free zones for imports, the lowering of national insurance contributions when hiring new staff, among other attractive levers.

This report finds clear evidence that the structure of this global tax agreement directly undermines the Levelling Up agenda and hurts the competitiveness of key UK industries by tying the hands of the Government.

Former Secretary of State, the Rt. Hon. Jacob Rees-Mogg MP, in reaction to the Adam Smith Institute’s new report:

“Tax competition between countries keeps rates low and increases prosperity. Agreeing high rates among a cabal of developed nations will keep the world poorer.” 

The paper recommends the following:

1. The UK’s early implementation of global minimum tax rules is fraught with risk, and with limited upside. Policymakers should carefully scrutinise current proposals to limit their potential economic damage, damage which will disproportionately impact the poorest regions at most need of Levelling Up, not Levelling Down.

-ENDS- 

Notes to editors:  

• For further comments or to arrange an interview, contact Connor Axiotes, connor@adamsmith.org | 0758 477 8207.

• Dr. Tyler Goodspeed is the Kleinheinz Fellow at the Hoover Institution at Stanford University, and a Senior Fellow at the Adam Smith Institute. From 2020 to 2021 he served as Acting Chairman of the U.S. Council of Economic Advisers, having been appointed by the President as a Member of the Council in 2019. Before joining the Council, Dr. Goodspeed was on the Faculty of Economics at the University of Oxford and was a lecturer in economics at King’s College London. He received his B.A., M.A., and Ph.D. from Harvard University; and he received his M.Phil from the University of Cambridge, where he was a Gates Scholar.