Spendy Sunak: The ASI responds to Budget 2021

In response to Chancellor Rishi Sunak’s 2021 Budget, the Adam Smith Institute’s Head of Programmes Daniel Pryor said:

This high-tax, big-spending budget is largely bankrupt of inspired policy. 

The Conservatives seem to be out of new ideas, instead sticking to the tired old ‘tax and spend’ playbook. Where they see a problem, they reach for your wallet. Housing crisis? Tax developers while watering down planning reform. Social care? Hike up taxes and ignore the red tape. 

The Chancellor says he wants a more innovative, high productivity economy but is increasing corporate tax rates that will discourage investment. He says that he wants work to pay but is increasing National Insurance. The new fiscal rules at least signal some interest in controlling public spending, though are conveniently the same metrics the Government is already on track to meet.

There are welcome reforms to tackle increases in the cost of living and working, including on the Universal Credit taper rate, reductions in duties on alcohol, and business rates reform. All of these will help the worst off in society and the hardest hit industries following the pandemic. At the same time, we’ll need cheaper pints to cope with the rest of our eye watering tax burden.

Notes to editors:  

For further comments or to arrange an interview, contact John Macdonald, john@adamsmith.org | 07584778207.

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.

Global minimum tax could cost Britain billions

Minimum global corporate tax will undermine sovereignty and key Government policies

• £7 billion annual tax revenue could be lost because of global minimum tax

• Super-deduction and free ports incompatible with global minimum tax

• Corporate tax most damaging to entrepreneurship, productivity & economic growth

Conservative MPs are raising concerns that the proposed global minimum tax will undermine national sovereignty and economic growth.

It comes as a new report from the Adam Smith Institute finds that the minimum tax could cost £7 billion in lost tax revenues because of the relocation of companies. The report also spotlights the risk of the proposals being rejected by the United States Congress, resulting in an uneven global playing field.

Chancellor Rishi Sunnak will deliver the budget tomorrow and President Joe Biden will push the minimum tax at the G20 in Rome on the weekend.

The ASI has also said that the proposals are incompatible with key UK Government policies, including the super-deduction, free ports and the patent box.

The new report, Draining Our Pockets: How the global tax cartel could cost Britons billions, analyses the OECD’s Pillar One and Pillar Two proposed tax treaties that 136 countries have agreed to negotiate: 

• Pillar One would create a new tax on profits above 10% for companies with an annual revenue of over €20 billion, thus changing the recipient country for some of the taxes on profits of the world’s largest multinational companies.

• Pillar Two would introduce a global minimum tax of 15% on multinational companies with annual revenues of over €750 million, to avoid jurisdictions competing with lower taxes.

The minimum tax is meant to prevent a ‘race to the bottom’ in tax rates. But, according to the report, tax revenues have risen along with falling corporation tax rates in recent decades. In the UK revenues from corporation tax increased even as the rate was decreased from 30% in 2000 to 19% in 2017. 

Corporate taxes, economic analysis has consistently found, are the most damaging major tax to economic growth because they significantly reduce investment and entrepreneurial activity. The minimum tax, according to the ASI report, would undermine national sovereignty by locking the UK into a model of corporate taxes and reduce future policy flexibility

The report recommends, if the proposals are not to be abandoned entirely, a series of changes to the tax design:

1. Set the global minimum effective tax rate in proportion to the current global average effective tax rate, and at a lower rate, such as 10% rather then 15%;

2. Permit full expensing of capital in the global minimum tax rate to enable ‘super-deduction’ and freeports;

3. Calculate the minimum tax at an entity level (‘global blending’ in OECD-speak) rather than at each jurisdiction; and

4. Expand the definition of an excluded fund to cover all regulated entities such as private equity funds, insurance company funds, and unregulated (private) funds;

Greg Smith MP for Buckingham:

“The concept of a minimum level of taxation is absurd.  The United Kingdom must have total flexibility and sovereignty over taxation.  To lock ourselves into global minimums will end up a race to the bottom, hampering competitiveness, enterprise and growth.”

Andrew Bridgen MP for North West Leicestershire:

“While the Government’s proposals are well-intended, without adoption of the Adam Smith Institute’s sensible recommendations, the proposals as they stand would risk damaging the U.K. economy and further rewarding jurisdictions which are not implementing the measures. 

“This is unfortunately the same situation as the proposals for the U.K. to move to zero carbon. As Conservatives we should always appreciate that unfortunately we have to live in the world as it really is, not how we would like it to be.” 

Julian Morris, report author, says:

“Corporation taxes reduce investment, innovation and economic growth. Sunak understands this, which is why he introduced the super-deduction. But the global minimum tax would limit Britain’s flexibility to maintain such deductions and lower corporate tax rates.

“It would put Britain—and the world—onto a path of lower growth from which it would be difficult to escape.”

Matthew Lesh, Head of Research at the Adam Smith Institute:

“The global minimum tax could not only cost the Treasury billions, it would be incompatible with key Government policies such as the super-deduction and free ports. The lowering of corporate tax over the last decade has driven investment, entrepreneurial activity and economic growth. It’s crazy to give up the freedom to decide your own economic destiny. Brexit was meant to be about taking back control not sacrificing our tax-setting powers to Paris and Washington.  

-ENDS- 

Notes to editors:  

For further comments or to arrange an interview, contact John Macdonald, john@adamsmith.org | 07584778207.

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.

Send kids to tiny schools, says think-tank

Microschools vital to help disadvantaged pupils catch-up on lost education

• ‘Microschools’ could play a key role in mitigating the damage caused to school pupils by the COVID-19 pandemic

• Cumbersome regulations and funding disparities that make it practically impossible to set up microschools in the UK should be reexamined

• The UK must embrace innovation in education if it is to boost attainment for disadvantaged students

• Competition and choice are key to driving up educational standards —  but only the rich currently have school choice

A new report from the Adam Smith Institute (ASI) calls on the Government to embrace microschools to help disadvantaged students catch up on missed Covid-19 learning and increase choice in education.

Report author Sophie Sandor argues that microschools or ‘pandemic pods’— set up by parents and educators to serve around 3 to 12 students—were valuable for students and parents in many countries including the UK during the pandemic. They served those who couldn’t afford tutoring or private schools during the pandemic. 

The new report, School’s Out, argues that microschools would give students and parents more choice, explore a diverse array of education techniques and increase competition to boost quality across the sector. 

Parents across the world, including in the UK, have begun to homeschool in recent years. This reflects not just improvements in communications technology but also dissatisfaction with the poor quality state education. Many parents who homeschool or are dissatisfied by state schools would value the option of microschools, which could offer high quality professional teaching, small class sizes and a focus on core academic subjects.

However, microschools are held back by cumbersome regulations and a funding system that limits parental choice. There is no regulatory ‘halfway house’ between homeschooling and large independent schools, meaning anyone wishing to set up a microschool faces the extremely difficult task of dealing with red tape and satisfying Ofsted.

The report recommends cutting red tape on would-be microschool providers and developing a schools sandbox: modelled on the Financial Conduct Authority's regulatory sandbox, to allow entrepreneurs to experiment with a diverse array of new arrangements for schooling.

It also calls for issuing parents with a voucher for education, redeemable at any school: state, traditional private school, or new options like microschools. The voucher would be equal to the average per-pupil cost of supplying a state education and would give low-cost microschools the chance to compete with state schools on a level playing field.

Rachael Ammari, the Founder of Hove Micro-School, which was established in September 2020:

"Mainstream schools no longer suit many children’s needs and home schooling can be overwhelming or simply impractical for families. Micorschools bridge the gap by providing expert tuition adapted to each child, in smaller class sizes and a more comfortable learning environment while providing a wide range of activities. Hove Micro-School demonstrates that it is possible to build a new type of school that really puts children’s learning first."

Hannah Titley of Golden Circle Tuition Ltd. said:

“The ‘one size fits all’ approach of mainstream school doesn’t meet the needs of every child. Microschools offer a personalised, competitive, and flexible education which enables children to learn more creatively and at their own pace. Parents have reported that their children feel less anxious, more inspired, and are learning more in small groups at home.”

Sophie Sandor, report author and education activist said:

“The COVID-19-related school closures which kept children out of school for the best part of a year have done untold damage to children's education and in particular those who require school the most to enhance their chances of succeeding in life. This has not only abetted the pre-existing issues in the state education system, but put a spotlight on how government regulation thwarts common-sense responses by the education sector to unexpected events.”

Matthew Lesh, head of research at the Adam Smith Institute said:

“For far too long mediocre state schools have let down our most disadvantaged. Microschools have the ability to inject meaningful innovation and competition into the schools sector — boosting standards for those who have been left behind. All we need to do is get the state out of the way and give parents and students much greater choice.” 

-ENDS- 

Notes to editors:  

For further comments or to arrange an interview, contact John Macdonald, john@adamsmith.org | 07584778207.

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.

ASI welcomes New Zealand trade deal

The Adam Smith Institute has welcomed the New Zealand trade deal.  The ASI’s Head of External Affairs Morgan Schondelmeier said:

“This exhaustive trade deal will deliver huge benefits for British and Kiwi consumers and producers. We will be able to access their high quality produce including wine, lamb and honey at lower prices while New Zealanders will get more British spirits, cars and clothing. 

“This also presents a welcome opportunity for more Brits and New Zealanders to live and work across both countries, allowing for more possibilities and a more flexible labour market. It’s also welcome that UK professional qualifications like those for architects and lawyers will be recognised in New Zealand, allowing for businesses to better operate across borders. 

“This is another great step forward for Global Britain, as an independent trading nation and opens the door for more comprehensive trade deals with our other allies.”

Notes to editors: 

• ASI and CT Group polling has found that:

  • 61% of Brits want to trade more with New Zealand and just 3% want less trade, with majority support across every UK region

  • 69% of Brits believe that New Zealand has high standards of food safety and animal welfare, with majority support across every UK region

  • The strongest support for more trade with New Zealand comes from Conservative voters (77%) and Leave voters (72%) but there is also a majority among Remainers (58%) and Labour (54%) and Lib Dem (62%).

• We have also found that: 

  • 63% of Brits back a free trade deal with freer movement with New Zealand, 8% oppose,  

  • 69% of Brits support mutual recognition of qualifications of doctors, nurses and teachers, 8% oppose

• For further comments or to arrange an interview, contact our press line, john@adamsmith.org | 07584667326

• 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.

Boris' Blustering - ASI Responds to PM's Conservative Party Conference Speech

Commenting on Prime Minister Boris Johnson’s final speech at Conservative Party Conference 2021, Adam Smith Institute Head of Research Matthew Lesh says:

“Boris’ rhetoric was bombastic but vacuous and economically illiterate. This was an agenda for levelling down to a centrally-planned, high-tax, low-productivity economy. Boris is hamstringing the labour market, raising taxes on a fragile recovery and shying away from meaningful planning reform.

“Hiking the minimum wage risks locking the most vulnerable out of a job while increasing inflationary pressures. 

“Shortages and rising prices simply cannot be blustered away with rhetoric about migrants. It’s reprehensible and wrong to claim that migrants make us poorer. There is no evidence that immigration lowers living standards for native workers. This dogwhistle shows that this Government doesn’t care about pursuing evidence-based policies. We can both control migration and allow migrants to fill skill gaps. 

“‘Levelling up’ so far consists of little more than listing regions and their local produce. Boris throws out impressive-sounding economic terms like ‘pareto improvements’ to hide the fact that he lacks policies to drive growth.”

Notes to editors: 

For further comments or to arrange an interview, contact our press line, john@adamsmith.org | 07584667326

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.