FT: Deficit axe poised over welfare state

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Old Teaser

28 April 2010

Written by Nicholas Timmins

“Two parliaments of pain” is the phrase used by the independent Institute for Fiscal Studies to describe what is in store for Britain in the years ahead.

With the next government, of whichever stripe, needing to cut nearly £37bn a year from public expenditure by 2014 just to halve the deficit, can the welfare state survive?

“Not as we know it,” says Eamonn Butler, director of the rightwing think-tank, the Adam Smith Institute. In the 1980s at the height of Thatcherism, it promoted – with limited success – vouchers for health and education, drastic cuts to child benefit and big reductions in state pension spending, along with tax breaks to help people provide privately services that are currently publicly funded, from health to unemployment insurance.

Andew Haldenby, director of Reform, another right-of-centre think-tank, agrees the fiscal deficit will force a reappraisal of the relationship between citizen and state. “The idea that the state can do everything, or even as much as it is doing, is just not tenable,” he says.

Yet, far from using the election campaign as a forum in which to debate the hard choices ahead, politicians’ chosen battleground is the degree to which they will preserve the current entitlements – free bus passes, winter fuel payments, free TV licences and child benefit in the case of the Conservatives, in addition to the health and overseas aid spending that all parties say will be protected.

With the exception of Reform, which has outlined big cuts to middle-class welfare, the think-tanks have been almost equally silent.

Mr Butler notes: “No politician wants to talk about these things before an election. Whoever wins, however, will have to tell us about them afterwards”.

The political promises of protection are greeted with scepticism by many closest to policy and politics. Gail Adams, head of nursing at the biggest health service union, Unison, says: “We know that, despite assurances from all sides of the political divide, the NHS cannot escape from funding cuts in the very near future.”

So, aside from a future in which public services inexorably worsen year after year, what could happen?

Ruth Lister, professor of social policy at Loughborough University and a member of the government’s National Equality Panel, says key pillars of the welfare state could crumble. Child benefit could be removed from the better off. All benefits could be subject to a far greater degree of means testing so as to concentrate help on the poor. Education vouchers could provide a basic schooling that parents could top up if they had the means. New charges could be introduced for NHS services, or its spending could be frozen.

“But that would produce a radically different society,” she says. “It would be one with much higher levels of inequality and much less of the equality of opportunity that all parties say they support. In health and education it would produce a second-class service for the less well off . . . And it would risk creating a downward spiral in which the middle classes don’t get much out of the welfare state and so become ever more resentful about having to pay in.”

Back in the 1970s and 1980s, when the fiscal arithmetic was bad, though not as dire as it is now, and when the welfare state was under ideological as well as fiscal attack, “it did survive”, she says. “Somewhat ragged, but it did survive.”

Some believe the problem is overstated. Julian Le Grand, professor of social policy at the London School of Economics, says: “I am not convinced about the need for massive spending cuts. As soon as economic growth resumes, a lot of the red ink will disappear. I suspect both the political and the economic reality is that after the election, somehow the really big cuts won’t happen.”

Mr Butler sees this as “Micawberish – just hoping that something will turn up”. But focus group research undertaken for the 2020 Public Services Trust shows the public are deeply unwilling to contemplate big changes to the boundaries of the welfare state.

Even Mr Haldenby acknowledges the next parliament is unlikely to dismantle great swathes of the welfare state given the political pledges currently being made. But pressures, including that of an ageing population and the need to eventually eliminate the deficit, mean this state of affairs cannot last, he says.

Published in the FT here.

Daily Mail: Tories have exposed the scale of Government waste - now they must tackle it

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Old Teaser

28 April 2010

Written by Harry Phibbs

The Adam Smith Institute dubbed May 14 ‘Tax Freedom Day’ - but if taxes were put up to pay for the Government borrowing then we would all have to keep working until June 25 - the Cost of Government Day. It is a formula for paralysis.

Published in The Daily Mail here.

The Spectator: The British constitution is in dire need of reform

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Old Teaser

27 April 2010

Written by Dr Eamonn Butler

The UK Conservative leader David Cameron says that any Prime Minister not 'directly elected' by the public should be forced to hold a general election within six months. He has in mind his Labour opponent Gordon Brown, who in June 2007 was catapulted into the position by a secret ballot in his own party, rather than by an open election of the people. And if, after the forthcoming general election on May 6, Labour chose to ditch Brown and catapult that gap-year kid...ah, yes, David Miliband...into the top job in order to stitch up a coalition deal with Nick Clegg's Liberal Democrats, well, Cameron would give him only six months to get a public mandate too.

On the surface, this looks like a good idea. Gordon Brown is Prime Minister only because the Labour Party's constitution makes it almost impossible to unseat a leader who doesn't want to go, and since Brown was the real éminance grise behind Blair, no ministerial colleagues wanted to cross him. Those chauffer-driven limos exert a powerful discipline on ministers and would-be ministers.

Look deeper, though, and Cameron's remark reveals how unfit for purpose our constitution has become. Whom Brits elect at a general election is their local MP, not a Prime Minister. The Prime Minister is simply the leader who can then command a majority in the House of Commons. It may not even be the leader of the largest party: if there were a hung parliament, it might be whoever who can mollify different factions and stitch together a workable agreement between them.

But, as with the debates, Britain's political system has now become presidential. Millions of people honestly report that they will be voting for David Cameron, or Nick Clegg, or Gordon Brown – even though only the electors in their own particular constituencies will actually get the chance. The rest of us vote for them by proxy, by choosing one of their party colleagues as our MP. None of our Prime Ministers is 'elected' by the general public.

In the US, the public explicitly choose a President – along with Representatives and Senators. Sure, after deaths and resignations, a Vice President can step into the office, but at least the public knows who to expect. When a UK party leader resigns (or indeed dies), consulting the public is the last thing on the deal-makers' minds. The UK has become a Presidential system with a Parliamentary constitution, and it doesn't work. There is simply nothing to restrain those who take office in Downing Street – who have powers pretty much as wide as George III had.

Making a step-into-the-dead-person's-shoes Prime Minister face an election after six months does not solve the problem. The problem is that if we are to have a presidential system, with all the TV debates and all the power concentrated in Downing Street, we need a constitution designed to elect – and, much more important, to restrain – that president. What we don't want is what we have now – a stream of elected dictators who the vast majority of us don't even get to elect.

Published in the Spectator here.

CNBC: UK Economic Recovery Slows

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Old Teaser

23 April 2010

Published pn CNBC here.

CNBC: Liberal Leader Shines in UK Debate

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Old Teaser

16 April 2010

Published on CNBC here.

Banking reform vital, but levies aren’t the answer

Thursday 8 April 2010

According to a new briefing from the Adam Smith Institute (ASI), proposals to introduce a new ‘bank levy’ would do little to correct the problems in the banking sector, and act as a distraction from other, more pressing reforms.

The briefing also expresses skepticism that governments would ring-fence the proceeds of such a levy for future crises, suggesting that they would soon become just another tax to finance current expenditure.

Indeed, it has already been reported that Alistair Darling favours national discretion to use the proceeds of a proposed EU-wide levy as the government sees fit, rather than reserving funds for the future.

According to Miles Saltiel, the author of the ASI’s briefing and a City financial expert, imposing such a levy is also likely to prevent banks from rebuilding their reserves – a key economic priority, in his opinion – as well as holding up lending.

Saltiel, who is a senior fellow of the Institute, also dismisses the ill-thought out populism behind ideas such as the ‘Tobin tax’, punitive regulation of hedge funds, and swingeing tax increases on bankers.

Instead he argues that policymakers should focus on six key issues:

(1) The government should abolish future expectations of “too big to fail” and encourage competition by breaking up the nationalized banks. The Williams & Glynn Bank, ABN-AMBRO and NatWest should all be filleted out of RBS, while HBOS and TBS should be split out of Lloyds.

(2) The government should also ensure that failed banks can be run down in an orderly way, by requiring so-called ‘living wills’.

(3) The UK should campaign for derivative contracts to be moved onto regulated exchanges, rather than being traded over-the-counter. As well as reducing counter-party risk, this would be good business for the City of London.

(4) The British government should take the lead in advocating tougher international capital and liquidity ratios. They should also press for stricter rules on what counts as capital.

(5) The UK should restrict how much its banks trade on their own account in capital markets by requiring higher capital reserves to be held against such activity.

(6) Legislation should require honest accounting and transparency. Governments – whose off-balance-sheet obligations dwarf those of the private sector – must not be exempt from such rules.

Tom Clougherty, the executive director of the ASI, added:

“Banking reform is one of the most pressing policy challenges facing the UK, but too often our politicians resort to crude populism rather than grappling with the real issues. This needs to change – having a more stable, more competitive banking sector is vital to our future economic well-being.”

ENDS

The Lesson of a Levy on Banks is published by the Adam Smith Institute, 23 Great Smith Street, London SW1P 3BL. A PDF can be downloaded free of charge at www.adamsmith.org/files/a-levy-on-banks.pdf

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The Indpendent: Mischief-makers, misfits and mums: the bloggers who'll keep us plugged in

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Old Teaser

6 April 2010

Written by Michael Bywater

It is oddly comforting, as we approach the most dismal general election in living memory (with a Government that has presided over war, sleaze and economic collapse facing an opposition which has presided over the Bullingdon Club) to know that anybody with an internet connection can read Not Proud of Britain or Slugger O'Toole, Man In A Shed or Never Trust A Hippy, as well as drop in on more established mainstream commentators such as the BBC's political editor Nick Robinson or the Adam Smith Institute.

Published in The Independent here.

Daily Mail: 50p rate is least of our worries for year ahead

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Old Teaser

5 April 2010

Written by Lucy Farndon

When the Adam Smith Institute did its calculations for 2009 it concluded that Tax Freedom Day didn't arrive until June 25 if the deficit was factored in - the worst burden since 1984.

Published in The Daily Mail here.

The Times: The fat lady must learn to be a little thinner

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Old Teaser

2 April 2010

Written by Antonia Senior

A survey by the Department for Culture, Media and Sport found that only 40 per cent of those in the lowest employment bracket attended an arts event in the past year compared with 84 per cent of those in the highest. As a report by the Adam Smith Institute points out, the DCMS has a pretty loose definition of art, including street arts and any “live music performance”.

Published in The Times here.

Honest Politician Of The Year Award

April Fool's Day 2010

A Westminster think-tank has had to scrap its annual Honest Politician Of The Year Award because no qualifying candidates could be found.

The influential Adam Smith Institute, which organises the annual Award, said that it had considered a number of promising nominees, but found insufficient evidence to prove their honesty to the Award jury.

Anthony Steen MP was nominated for his frank view that people were “jealous” of his Balmoral-type second home. However, the jury ruled this untruthful because Balmoral lacks a taxpayer-funded duck house.

Nicholas Winterton MP also reached the shortlist for so truthfully expressing his opinion of standard-class travellers as “a totally different type of people.” But he was disqualified for falsely claiming that his views had been “misrepresented”.

Next year the Adam Smith Institute will give its award instead to the Corrupt Politician Of The Year. “This should give us many more candidates, said Institute director Dr Eamonn Butler. “Indeed, I can think of 646 already.”

“Corrupt politicians are actually the most honest. They have to do what they are bribed to do in order to stay in business. So when bought, they stay bought.”

Another problem for the Awards is that the trophy, depicting a golden hand in a back pocket, and sponsored by Lord Mandelson’s mortgage broker, has been lost. Stephen Byers held it in recognition of his sincere contempt for Railtrack shareholders, but somehow managed to leave it in a cab for hire. Geoff Hoon and Patricia Hewitt have been hired to ask questions, for the usual consultancy fee.

Press enquiries:
G Brown 020 7930 4433

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