Daily Mail: Ephraim Hardcastle

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The Adam Smith Institute's Eamonn Butler points out that it is Cost of Government Day. 'This year we worked 134 days, until mid-May, to pay off the tax burden, and now we're just coming to the end of another 42 days' hard labour for all the borrowing that the Government has to do in order to pay its bills.

In total, we are working ten days longer for these expense-swindling, index-linked-pensioned twits than we did last year.'

Published in the Daily Mail here

The Telegraph: Government debt: That’ll be £2.2 trillion, please

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The amount of money owed by the Government is huge and rising, says Eamonn Butler, so why aren’t we pursuing simple, effective ways to reduce the burden?

Today is Cost of Government Day. Average taxpayers in Britain now have to work almost half the year – 176 days – to pay their share of the cost of running Gordon Brown’s administration. Every penny we have earned since January 1 has gone to feed the state leviathan. It is only from today that, at last, you have started working for yourselves and your families.

More than five months of our servitude – from New Year until May 14 – were spent working to pay taxes, such as income tax, national insurance, council tax, VAT and many others including the notorious “stealth" taxes. But all that effort was still not enough to feed the monster, and when he had run out of our money, the Chancellor, Alistair Darling, had to borrow – at £20  million an hour – to pay his bills.So for the past six weeks, day in, day out, we have been working to fund that borrowing. No wonder Mervyn King, the governor of the Bank of England, warned yesterday of the “truly extraordinary" scale of deficits.

We have had to put in 10 days’ more work than last year in order to keep the Government afloat. It is not just the money that Brown and Darling borrowed to bail out the banks. It is the fact that every bit of public spending – national and local – is rising faster than taxpayers’ incomes. In 1999 – when Brown had finished with New Labour’s 1997 election pledge to match Conservative budgets – government spending was just 36 per cent of the nation’s income. Now it is a third more – 47.5 per cent this year – and rising.

Not that you can believe official figures. The International Monetary Fund thinks things will be far worse. Our national income will take a knock, and more people will be out of work and receiving benefits from the Government rather than paying it taxes. That makes it probable that public spending will be more than 50 per cent of our income – sending Cost of Government Day into July.

It amounts to a huge surge in the burden of government for those of us trying to earn a crust – twice that in France, and even more than when Britain was reeling from the oil-price shocks in the early 1970s. In fact, it’s not far off the 1940s, when at least we were paying off the cost of saving the world from Hitler.

But then Alistair Darling’s budget predictions have proved just as over-optimistic as his predecessor’s. In November 2008, despite all the drama in the banking industry, his forecasts seemed almost rosy. Now, he expects the Government’s budget shortfall this year and in 2010 to be four times that prediction, with 2011 and 2012 about five times bigger. The gap between what the Government expects to spend and what it actually brings in has risen five-fold, from £120 billion to £608 billion in the space of six months.

At that rate, according to the Institute for Fiscal Studies, it will take 23 years to return government borrowing to anything like normal levels – Gordon Brown’s famous “golden rule".

And of course, every year you borrow keeps adding to what you owe. Right now, the Government calculates that it owes a total of £2.2 trillion – about £144,000 per household. The figure has trebled since the bank bail-outs. Some traders are beginning to wonder if Britain can actually pay its debts. If they start pulling out, then we really are bust.

And the real picture is worse, because the Government does not record all its debts on the official books. Take all those new schools and hospitals being built on tick at a future cost equal to £5,600 per household; Network Rail’s borrowing, another £1,000 per household; nuclear decommissioning, another £2,750; those generous civil service pensions – a future cost of almost £50,000 per household; not to mention the state pension. Add those in, and the real national debt is twice the official figure.

Do not imagine that all this extra spending and borrowing are the fault of the financial crisis and the need to counter recession – interest payments, social benefits and suchlike. A good half of it is simply feeding the Government’s pre-election spending splurge.

And do not believe the spin that the Conservatives would make 10 per cent cuts to balance the books. They have pledged not to cut education, the NHS, or overseas aid, and they are stuck with the debt repayments and the EU’s demands; even if they cut 10 per cent off everything else, it amounts to just 3 per cent overall. They would be shrinking next year’s spending bill from £717 million to £695 million. That is still more than Labour has ever spent.

“What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom," wrote Adam Smith. If your family had debts as big as the Government’s, you would know what you had to do:spend less or earn more – and preferably both.

The Government won’t earn more by putting up taxes. The Centre for Economic and Business Research estimates that the proposed 50 per cent top tax rate will make 25,000 people leave the UK, costing 140,000 jobs and reducing revenues. Britain is already overtaxed.

And the private sector has borne nearly the whole burden of the economic downturn. Wages have fallen, and unemployment is heading up to 3 million. But the public sector has been largely unaffected. That is why people are so angry when they see how much of their 176 days’ effort is simply wasted – or abused, as with MPs’ expenses.

The task is to reduce public expenditure without it showing. A freeze on spending and recruitment for a couple of years, then pegging it to inflation, would be surprisingly effective at re-balancing the books. (If spending since 1997 had risen no faster than inflation, we would be spending a third less than we do now, and could abolish income tax, VAT, and council tax entirely.)

Another useful move would be to publish online every cheque the Government signs, so we can see what it is spending and where. Private firms would be able to show what they could do more cheaply. And citizens could point out where they think their money is being scandalously wasted, as with the £300 million on departments’ service contracts, wasted through bad management, or the £200 million lost through bad procurement of hospital buildings.

Then there are the IT projects, such as the NHS records system, that are billions over budget and months or years late (the Department of Employment alone spent £59 million on a computer system that did not work). Exposing such wasteful incompetence would help eliminate it. And do we really need to spend tens of billions on ID cards?

Along with the Royal Mail, we can privatise the Tote, Channel 4, BBC Worldwide, air traffic control and various utilities, which would bring in a handy £20 billion. And we can get rid of central bureaucracy by measures like simply handing head teachers their bit of the budget and telling them to get on and spend it as they see fit, rather than as Whitehall bureaucrats think they should. The same could go for health – give the budget to patients or their doctors, not to layers of bureaucracy such as the strategic health authorities. And the quangos need to be culled again: they have grown in number, cost and power under Brown. For what gain?

Meanwhile, dozens of local government officers are now paid more than £100,000 and retire on generous index-linked pensions – something now almost unknown among the private-sector employees that work to support them. As this newspaper reported yesterday, PricewaterhouseCoopers claims that 96 per cent of companies regard final salary schemes as unsustainable.

About a third of Child Benefit is little more than pin-money for the middle classes. It should be given to the poorest. By taking everyone on the minimum wage out of tax entirely, we would see a stampede into work by those who we presently make better off on benefits.

Another huge saving would be to speed up the plans to raise the pension age, reflecting improvements in health and longevity. This is by far the largest spending change one could make. Yes, many people would not like it – though others would be delighted to avoid forced retirement at 65. But it would be hugely symbolic – a return to honesty in the public finances, and an end of the idea that we can all live at someone else’s expense. If this recession has taught us anything, it should have taught the politicians that.

Dr Eamonn Butler is director of the Adam Smith Institute and author of 'The Rotten State of Britain’ (Gibson Square Books)

Published in The Telegraph here

The Times: EU has jumped gun on City regulation

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Although the UK has the largest financial services sector in Europe, it will only have a small voice over EU regulations

Sir, We are concerned that hasty agreement to EU proposals for financial services regulation has pre-empted the discussion of what would be best for the EU as a whole. David Charter’s article (“Jubilant Sarkozy sees EU take powers over the City", June 20) appears to confirm the handover of financial services regulation to EU executive committees. Monitoring UK compliance with the rules will be largely left to the British Financial Services Authority (FSA) but the rules themselves will be written in Brussels. For the time being the UK has by far the largest financial services sector in Europe, but it will only have a small voice, just one of the 27 voting members, in determining what the new rules will be and how supervision takes place.

Due process seems to be flouted: the FSA’s call for consultation on this matter closed only last week with some organisations being given more time and the EU consultation on the communication closes in mid-July. We support the internationalising of financial services regulation but moving the regulation of one of the largest and most sophisticated markets immediately to a body with executive responsibility for a miscellany of markets in different stages of development threatens to undermine EU financial services competitiveness in the world market.

The EU formal legislative process has only progressed as far as a communication, albeit effectively a draft directive. The Treasury has yet to issue a draft British Impact Assessment as it should have done by now. The EU Impact Assessment fails to make the case for these changes, still less to quantify costs and benefits of this new agreement for the EU.

Next month the Adam Smith Institute’s Regulation Evaluation Group, of which the undersigned are members, will publish its full response to the EU communication in the form of a report that considers the optimal financial services regulatory arrangements for the EU as a whole. The blueprint for all this was written by a team led by a former governor of the Bank of France, and supported in a letter from Alistair Darling to the Commission President, dated March 3, 2009. It would appear that agreement in principle was the price of French involvement in the recent G20. The UK Government appears to have negotiated some minor opt-outs, such as the EU committees not being able to commit member state governments financially but to claim credit for recovering £1 from £100 given away is perverse.

London’s pre-eminence as a financial centre is as dependent as ever on its fiscal and regulatory environment. As a result of the pending increase in the UK marginal tax rate to 51.5 per cent, including national insurance, we know a significant number of firms were already considering moving to Switzerland. The prospect of this takeover of financial regulation can only hasten this exodus.

Tim Ambler, Eric Anstee, Keith Boyfield, Eamonn Butler, Tom Clougherty, David Foxman, Michael Green, Richard Jeffrey, Hugh O’Donovan, Edmond Robinson, Mike Waterson

Adam Smith Institute, London SW1

Published in The Times here

Daily Mail: UK's £230bn budget gap equals 'biggest' hole in economy

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Analysis from the Adam Smith Institute shows British taxpayers would have to hand over every penny they earned between January 1 and June 25 to pay for this year's vast public spending programmes.

Published in the Daily Mail here.

London “Sold down the Rhine” say experts

RELEASE DATE:
Monday 22 June 2009

London “Sold down the Rhine" say experts

The City of London has been “Sold down the Rhine", a group of regulatory experts says today (Monday 22 June).

According to the Regulatory Evaluation Group (REG), part of the Adam Smith Institute, it looks as though Gordon Brown agreed last week to hand over the control of financial services regulation to EU executive committees. UK agencies such as the Financial Services Authority and the Bank of England will monitor compliance with the regulations, but the regulations will be written in Brussels.

According to press reports, France’s President Sarkozy claimed after the decisive meeting “We have agreed a European system of supervision with binding powers."

The REG experts say this is a severe threat to the UK, which presently has by far the largest financial services sector in Europe. However, it will be in a small minority when it comes to voting on the new regulations and monitoring arrangements – just one out of 27 votes.

“Do you recall President Sarkozy threatening to walk out of the G20 unless he got what he wanted? It would appear that he was successful. The EU will have control over the City of London, and with it, a substantial part of the British economy," commented Tim Ambler, Senior Fellow, London Business School, a REG member.

The blueprint for the takeover, says Ambler, was written by M. de Larosière, a former Governor of the Bank of France, and was supported in a letter from Alistair Darling to the President of the EU on 3rd March 2009. 

Britain has negotiated some minor opt-outs on the cost of the new scheme, but the Europe-wide regulation plan seems unstoppable, with the EU leaders agreeing a ‘Communication’ – effectively a draft EU-wide Directive.

The Adam Smith Institute plans to publish its response to the EU Communication in a report by regulation experts Tim Ambler and Keith Boyfield, in mid July.

“The timing of this decision is extraordinary," said the Institute’s director, Dr Eamonn Butler. “The Financial Services Authority has not even had time to read the submissions to its ‘consultation’ on the future of UK financial regulation, which closed just last week. It seems that it doesn’t matter what we think about the future of our own financial system, Gordon Brown has already sold it out."

“I predict that many firms currently based in the City of London will be moving to Switzerland, which is bad for everyone in Britain."

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The Times: Professor Norman Gash: historian and biographer

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Several of Gash’s protégés, who included Michael Forsyth (now Lord Forsyth of Drumlean) , were later to provide powerful suppport to Thatcherism in the 1980s as MPs or leaders of the influential Adam Smith Institute in London.

Published in The Times here.

Lower taxes and spending cuts are the keys to overcoming recession

RELEASE DATE:
MONDAY 22 JUNE 2009

'Lower taxes and spending cuts are the keys to overcoming recession'

The financial crash was entirely foreseeable, was made worse by abject policy failures by the government, and will only be cured by a long period of reduced taxes, balanced by public expenditure cuts.

That is the conclusion of a think-tank report, The Recession: Causes and Cures by Harvard-trained economics professor David Simpson, published today.

Causes of the crisis

According to Simpson, four major policy blunders contributed to the crash:

(1) For years, the British and American governments kept interest rates too low. They claimed they had 'abolished boom and bust'. In reality, they were fuelling a huge bubble in the price of houses, shares, and other investments, and eventually, that bubble had to burst.

(2) Britain's regulatory system, set up by Gordon Brown, focused on form filling – questions like how quickly a bank answered its customers' phone calls – rather than looking at whether banks were taking dangerous risks. Like MPs, the banks obeyed the rules, but it didn't stop the system collapsing.

(3) Implicit government guarantees encouraged banks to become 'too big to fail'. They took dangerous risks because they knew that the government would bail them out if they got into trouble.

(4) Governments encouraged borrowing that people could not afford. The worst offender was the American government, which forced lenders to make home loans available to people with no record of creditworthiness. When house prices were booming, nobody noticed. When the bubble burst, the lenders were ruined.

Another reason why the banks took excessive risks, says the report, is that UK law gives too much power to boardrooms and not enough to shareholders – the people who actually own the business. This balance must be restored if future excesses are to be avoided.

Where do we go from here?

The only way to avoid crashes, says Professor Simpson, is to avoid creating booms. Now that the recession is here, the only way back to normality is to re-establish business confidence. And the best way to do that is to cut personal and corporate taxes, encouraging businesses to invest and customers to spend. But the government is trying to borrow its way out of the problem, which digs the hole even deeper and dents confidence even further.

Serious, long-term, confidence-building tax cuts will of course require equally drastic cuts in public expenditure. The Adam Smith Institute believes that the public is ready for such a programme, particularly when people look at the salaries, expenses, and index-linked pensions now enjoyed by public-sector employees.

The government's flawed response

Professor Simpson says the government's move to bail out the banks was a mistake which will prove harmful. Instead, some banks with large volumes of 'toxic' debt should have been allowed to fail, which would have left the others in a stronger position. The banks would now be lending again, and small businesses would have been able to borrow, and jobs would have been saved.

Furthermore, while there may be a case for targeted help to avoid the worst hardships caused by recession, a general financial stimulus package is likely to do more harm than good by preventing markets from adjusting to changed circumstances.
 
'Quantitative easing' – effectively printing money – will provide only a short-term stimulus, but will stoke up long-term inflation, says Simpson. The Bank of England does not have a good track record of keeping inflation under control.

Indeed, the whole crisis casts doubt on whether governments can actually be trusted with our money. They can print as much as they like, and enjoy the resulting fake boom. But, says Professor Simpson, we might be better off with money that is rooted in something governments can't manipulate – gold, for example – which would save us from the politicians' booms and busts.

Download a PDF of The Recession: Causes and Cures

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CNBC: Less financial regulation, not more

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Published on CNBC here.

MoneyMarketing: Passing the buck?

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The Adam Smith Institute has slammed the FSA’s response to the financial crisis, saying its failure to recognise the extent of its own failings compromises its ability to improve regulation.

Authors of the report Tim Ambler and Keith Boyfield say the central problem is the FSA's "self-obsession and self-justification". Their report, Regulatory Myopia, says the FSA should be streamlined, rather than expanded, and core responsibilities should be given to other bodies. Adam Smith Institute director Eamonn Butler says: “Instead of being expanded, the FSA should be scaled back to what it can actually achieve, and more weight given to existing market-restraint structures, such as the Financial Reporting Council, the Accounting Standards Board and non-executive directors."

The report claims that the FSA has introduced “red herrings" such as international responsibilities, hedge funds and offshore funds to distract readers from its own responsibility in the crisis.

Should the FSA be scaled back and supervision of the banking system be given to the Bank of England? How can the performance of the FSA be judged moving forward to minimize further regulatory failings? And who should the FSA ultimately answer to on a formal basis?

Published in MoneyMarketing here.

Cambridge News: State of the nation

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By his own admission, Eamonn Butler spent several fruitless years trying to generate enthusiasm from publishers for his book chronicling what he perceives as our nation's decline from sceptr'd isle to septic embarrassment.

But even he could scarcely have imagined how, when it did eventually see the light of day, T he Rotten State of Britain would end up chiming so perfectly with the funereal mood of the times.

In the book, Butler takes a forensic scalpel to all aspects of modern British society, from the broken economy to abuses of political privilege via the rise of spin, surveillance culture and the nanny state...

Published in Cambrideg News here.