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Germany's role in the future of the Euro

You can read the letter at The Times here.

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 24 November 2011

Miles Salitel, Senior Fellow at the ASI writes a letter to The Times arguing that dissolution of the Euro is much more preferable than trying to keep the Euro on life-support.

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George Osborne must find courage to be tougher

GEORGE OSBORNE has been accused of tinkering with a British growth strategy instead of pushing for radical reforms to turbocharge the economy.

Free market think tanks say the Chancellor lacks the “political courage” needed to free British business from suffocating red tape and regulations.

Today they have outlined a package of measures they believe are vital to jump start Britain’s flat-lining economy, from slashing the tax code to axing the minimum wage for ­under-25s and relieving small firms of the burden of health and safety and employment laws.

Yet the Institute of Economic Affairs and the Adam Smith Institute both warned British businesses to prepare for a disappointing “steady as she goes” approach when Mr Osborne delivers his Autumn Statement on November 29.

The Office of Budget Responsibility has already revised down its growth forecast for 2011 and may do so again before the end of this month.

The think tanks said Downing Street’s dismissive response to the leaked Beecroft recommendations last week showed a lack of political courage in the face of stalled growth.

Former venture capitalist Adrian Beecroft said bosses should be able to fire poorly performing staff with a pay-off rather than face tribunals.

The report was backed by the Institute of Directors and the British Chambers of Commerce but was shelved due to Lib Dem opposition.

Sam Bowman, head of research at the Adam Smith Institute, said: “I sometimes wonder what planet people are living on that they still think we have the luxury of keeping Nineties-style employment laws.

“The Coalition doesn’t seem to have any economic policies apart from keeping the deficit down. It is necessary and it may be staving off the worst but it does nothing about the fact that it is an incredibly difficult environment to hire people in.”

He called on Mr Osborne to speed up moves to take low paid workers out of income tax and said minimum wage guarantees for under-25s must be axed. Firms with less than 100 staff should also be relieved of health and safety obligations, he said.

He called for Iain Duncan Smith’s “brilliant” welfare reforms to be accelerated and for the mandatory retirement age to be scrapped.

Mr Bowman also said planning reforms should go further and called for a middle income tax cut from 40 to 35 pence in the pound. “These would be the first steps in my first aid kit for the economy. What will Osborne do? Nothing,” he said.

Both think tanks said the 50p tax band should also be axed.

Published in the Sunday Express here.

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13 November 2011

Sam Bowman argues for liberalising employment regulations and scrapping the minimum wage for under 25s in the Sunday Express.

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Radio Five Live: Eamonn on high executive pay

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22 November 2011

Dr Eamonn Butler argues on Radio Five Drive Time that the government should not seek to control higher executive salaries. He argues that we need less regulation, not more, and that we need to allow companies to offer high salaries to insure they get the best talent to compete internationally. Otherwise we risk seeing our best talent leaving the UK.

He also argues that instead we need to ensure shareholders are given greater power if higher executive pay is indeed a problem. 

You can listen to Eamonn here (at approx. 42mins in)

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There is no big bazooka

You can read the letter in full here.

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15 November 2011

Miles Saltiel, Senior Fellow at the Adam Smith Institute, argues that there is no simple solution to save the Eurozone in the Financial Times.

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George Osborne must find courage to be tougher

Published in the Sunday Express here. 

 

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13 November 2011

Sam Bowman argues for liberalising employment regulations and scrapping the minimum wage for under 25s in the Sunday Express.

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Government must say no to Financial Transaction Tax

Legend has it that Nero played the fiddle while Rome burned. It’s rather less poetic, I know, but G20 politicians are doing much the same thing by discussing a Financial Transaction Tax while the eurozone teeters on the edge of collapse.

Yes, Greece is racing towards a disorderly default. Yes, Italy, home to the world’s eighth-largest economy, might be next. And yes, this could all add up to the greatest economic crash since 1929. But no, let’s not do anything sensible about that; let’s just see if we can squeeze a bit more cash out of bankers. This, effectively, is the mindset of Europe’s political leaders.

But even if there weren’t more important things to be thinking about, the Financial Transaction Tax would still be a harebrained idea. Its rationale is as follows: you put a small, proportional tax on share, bond and derivatives trades, and in so doing you discourage short-term transactions in favour of longer-term ones. This reduces speculation and volatility, advocates argue, and raises significant revenue to boot. If only things were so simple.

In reality, there’s a good chance that a Financial Transaction Tax would increase volatility rather than reduce it. Take derivatives as an example – at the moment, exchanges tend to be rapid, high volume and low margin. This means that new real world information is constantly being incoporated into asset prices, which are continually fine-tuned. But a Financial Transaction Tax would make many of these trades uneconomic: traders would save up trades, and only buy and sell in response to large price movements. That means more volatile markets.

Another problem is that a Financial Transaction Tax would hit growth. Indeed, the European Commission admits as much – its impact assessment projects a 4.5 percent long-run drop in capital investment and a 1.76 percent reduction in long-term growth across the EU. This implies a cost to the UK of £26bn over the next two decades. But the actual impact would likely be much, much higher, given the size of Britain’s financial sector and its dominance of the world’s derivatives market. Let’s be clear about what this means: significant job losses both in the UK financial sector and in supporting industries. It’s hardly a recipe for economic recovery.

The icing on the cake is that a Financial Transaction Tax probably wouldn’t even raise much money. EC President Jose Manuel Barroso seems to believe it will bring in €57bn a year (roughly 10 percent of global banking profits) but he’s been living on cloud cuckoo land for some time now. Look what happened when Sweden put a 0.5 percent tax on trading shares back in the 1980s. They expected the tax to raise more than £300m a year, but its average yield turned out to be little more than £10m – a gain almost entirely offset by falling capital gains tax revenues. Put simply, the tax sparked an exodus of financial activity from Sweden. By 1990, trading for more than 50 percent of Swedish equities had moved to London.

Exactly the same thing would happen with an EU-wide Financial Transaction Tax– trading in equities, bonds and derivatives would shift to New York and Asia. And given the importance of the UK financial sector – which, let’s remember, provides about 10 percent of the government’s tax revenues – we would be hit particularly hard.

For all these reasons, it is vital that George Osborne does not give an inch on the Financial Transaction Tax. If, as has been suggested, eurozone members press ahead without us, then so be it. After all, it’s their funeral.

Read on ConservativeHome here.

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4 November 2011

Tom argues on Conservative Home that the George Osborne must oppose the Europe-wide Financial Transaction Tax.

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Warning on banker tax

Read in the Daily Mail here.

 

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4 November 2011

The Daily Mail covers the Adam Smith Institute's latest report arguing that a Robin Hood Tax would cost the UK economy £25 billion.

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EU Financial Transaction Tax would wipe out derivatives markets and cost UK £25.5bn

 4 November 2011

  • An EU Financial Transaction Tax (FTT), or Robin Hood Tax, would impact Britain more than any other EU member state
  • The FTT would eliminate derivatives trading in the City of London
  • The tax would not raise any significant revenue and would increase market volatility

In a report released today (Friday) the Adam Smith Institute warns that an EU-wide Financial Transaction Tax would cripple the British economy. Its research reveals that, based on European Commission impact assessments, an FTT would cost the UK economy £25.5bn, and hit EU member state economies by £185bn in the long term.(1) This figure is likely to be even higher once Britain’s disproportionate share of financial trading in the EU is factored in. The tax would also lead to increased market volatility, reduced market liquidity, higher unemployment, greater tax avoidance and reduced tax revenues.

The impact on derivatives trading will be particularly damaging to the UK. The City of London currently accounts for 74.4% of interest rate derivatives turnover within the EU (its next biggest rival is France with just 11.7%). An EC impact assessment projected that the FTT would lead to a decline in derivatives trading activity by up to 90%. Therefore a Financial Transaction Tax would nearly eliminate derivatives trading in the UK. This would hit tax revenue and other parts of the City by preventing traders from hedging against real-world risks. As a result of this, ordinary consumers would find it harder to find fixed rate mortgages.

Advocates of an FTT argue that it will reduce volatility, but the ASI report shows there is no clear, consistent evidence that the tax would reduce volatility. However, empirical studies do show a positive relationship between increasing transaction costs and higher levels of volatility. This increase in volatility with rising transaction costs would be accompanied by significant declines in turnover, stock prices and a migration of trading activity.

An introduction of a Financial Transaction Tax would also lead to a reduction in the market volume of transactions. This would shrink the tax base considerably, off-setting the apparent revenue gained from an FTT. It would also lead to a decline in investment, which combined with the elimination of derivatives trading, would lead to job losses and an exodus of companies from the City. Our financial services sector is the UK’s flagship national industry and employs over 1.9million people (6% of the UK total) and as such must be protected from such an economically damaging tax.

Commenting on the report, Sam Bowman, Head of Research at the Adam Smith Institute, adds:

“This report reveals the huge damage that a Financial Transaction Tax would cause to the UK. It would wipe out London’s derivatives sector, destroying jobs and driving other traders overseas. By destroying a critical part of Britain’s most lucrative industry, an EU Financial Transaction Tax would be killing the goose that lays the golden eggs.

“The EU is proposing this tax to distract from the real culprits for Europe’s troubles – spendthrift governments who cannot balance their books. Using markets as a scapegoat might buy Eurozone leaders some political credibility, but it would ruin the City of London.”

(1). The figure of £25.5bn comes from applying EU impact assessment to UK GDP 2010 figures

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Media contact:  

emily@adamsmith.org

Media phone: 07584778207

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