Today is Tax Freedom Day 2012

• Tax Freedom Day falls two days later in 2012 as UK re-enters recession
• Austerity measures cut the Cost of Government Day back to 23rd June, seven days earlier than in 2011

The UK's Tax Freedom Day – the day when Britons stop working for the Chancellor and start working for themselves – falls today, 29th of May.

The Adam Smith Institute has calculated that, for 149 days of the year, every penny earned by the average UK resident will be taken by the government in tax. This year’s Tax Freedom Day falls two days later than it did in 2011.*

Tax Freedom Day falls later this year down to a number of factors. The double-dip recession, the VAT increase from last year, our high personal taxes, as well as fuel duty and stealth taxes, all mean that the government is taking a larger share of our hard-earned income. Britain’s tax burden is still too high and tax cuts are desperately needed to boost economic growth.

This year’s corporation tax receipts are a good example of how tax cuts can pay for themselves. There were large increases in tax revenue from onshore corporation tax, coinciding with the government’s cuts to the headline rate of corporation tax. Reductions in the corporation tax rate have brought the government higher revenues as more companies choose to invest in the UK. By stimulating growth and investment, tax cuts really can pay for themselves.

However, our Tax Freedom Day still falls long after the USA’s, on April 17th and Australia’s, on April 4th. Our only comfort is that our tax burden isn’t quite as high as France’s, which will have to wait until July to celebrate its own Tax Freedom Day. With Hollande now in power, that day could get even later in years to come.

Cost of Government Day

Tax Freedom Day only measures the money actually raised by the government in taxes, not the full amount it spends. The government borrows one pound for every four it raises in taxes, so if the full cost of government is considered the Cost of Government day, this would fall on 23rd June.

Last year’s Cost of Government day fell on 30th June, meaning that the government’s austerity measures have reduced the cost of government by 7 days. But, when we take into account the extra two days tax burden, the net effect of George Osborne’s austerity measures is a measly five days net cut in the burden faced by taxpayers. “A lot of work still needs to be done,” says the Institute, “ to bring down government borrowing and the Chancellor must make more tax cuts to allow greater economic growth.”

The ASI's Director, Dr Eamonn Butler, says, "Tax Freedom Day, which the Adam Smith Institute has been calculating for 25 years, is the plainest way to show what the tax burden really is. That is why the Treasury hates it. They of course want to conceal how much tax we pay, which is why they are so keen on stealth taxes."

"But we put in every tax, including stealth taxes  – income tax, national insurance, council tax, excise duties, air passenger taxes, fuel and vehicle taxes and all the rest – and show just how long the average person has to work to pay their share of them all. The stark truth is that this burden costs us all 149 days of hard labour every year. That's not how long a rich person has to work – it is the time the average person must labour for the tax collectors."

“In the Middle Ages a serf only had to work four months of the year for the feudal landlord, whereas in modern Britain people have to toil five months for Osborne’s tax gatherers.”

"An increasing number of economists believe that Britain's taxes are too high and are choking off recovery. Some politicians say they need to keep taxes high in order to balance the government's books. But the trouble with governments is that they always spend everything they raise in tax – and then as much more as they can get away with through borrowing. Just as the rest of us have had to cut back, so should the government. The UK economy would be a lot healthier for it." (Here's a video of Eamonn talking about the morality of capitalism.)

Steve Baker, MP for Wycombe, said: "Many congratulations to The Adam Smith Institute for making transparent the cost of government and just how far government lives beyond its means. It's time to ask whether society is well served by such a huge state or whether we wouldn't all be better off with institutions which know their limits.

"A wealth of evidence is currently emerging which suggests we should stop fibrillating and make a near-revolutionary commitment to ending crony capitalism and embracing social cooperation through business."

*TFD was 28th May in 2011, and this year’s date includes the extra day for the leap year. Our yearly estimation of Tax Freedom Day is regularly updated to match the Treasury's most recent figures.

Dalai Oliver

What with the ongoing eurozone crisis, G8 summits and NATO confabs, politicians from around the world continue to dominate the headlines – but things don’t seem to be getting any better. Amid all that hot air, though, were a couple of nice pearls of wisdom in the past week. Both suggested salvation from beyond the world of politics.

At a press conference on the occasion of his receipt of the Templeton prize, the Dalai Lama blamed last summer’s riots on young people “being brought up to believe that life was just easy. Life is not easy. If you take for granted that life will be easy, then anger develops, frustration and riots.”

Indeed. Politicians spend a lot of time promising to make life easy, alleviate risk and absolve individuals from the consequences of their behaviour.

Meanwhile, in a BBC interview prompted by the government’s scrapping of nutritional regulations for school lunches, celebrity chef Jamie Oliver said “I’ve given up on politics. My focus for the next 15 years is business and people. That is where the hope is. Governments are too short term. They’re too transient…They really don’t understand. There’s a political agenda but when you make these changes there’s very physical things that happen that they know nothing about which is very dangerous.”

Indeed, again. Jamie will probably be more successful spreading the gospel of healthy eating as a businessman than as a lobbyist.

Both express a sentiment reflected in the UK’s recent local elections when just less than a third of the electorate bothered to vote. That was the real news in the election – the vast majority of the population recognize that the government is just irrelevant to most of their needs and aspirations.

Whatever politicians may say and promise, life is not easy and they’re unreliable partners.

The rotten state of our democracy

Parliamentary democracy – Britain’s great gift to the world – has gone bad. It has putrefied into brute populism. The 24-hour media cycle forces politicians to respond to every trifling issue and act on every interest-group demand, no matter how overblown. The more they do so, the more government pervades and controls citizens’ lives. Then, as the role and power of government expands to accommodate this widespread pervasion and control, the more largesse and patronage it has available to disperse, so the more supplicants it attracts and the bigger the political class that feeds off it.

In this downward spiral, principle is abandoned to pragmatism: politicians indulge every populist cause that might prolong their term in office, power accumulates unchecked, and the democratic rights and liberties of minorities – and of the mute majority – are trampled underfoot.

Politicians even seem to think that they can amend our very constitution by a simple majority vote in Parliament. Witness the remarks of UK Deputy Prime Minister Nick Clegg that a reform of the House of Lords does not need a referendum and the onus is on those who believe otherwise to make the case for it. That really is a breathtaking ignorance about the principles of democracy and the rule of law. There may be a lot wrong with the House of Lords, right enough. But by that argument, a majority in Parliament could at a stroke abolish any democratic institution, void any established civil right, and declare itself a dictatorship. As Ayn Rand put it:

Individual rights are not subject to a public vote; a majority has no right to vote away the rights of a minority; the political function of rights is precisely to protect minorities from oppression by majorities – and the smallest minority on earth is the individual.

Politicians' powers come from us. We might well be prepared to accept some curbs on our activities on the grounds that it will, on the whole, produce a better-functioning society. But none of us would willingly give a majority the power to exploit and abuse us. That is why we cook up complicated voting and parliamentary systems – not to choose and empower our representatives, but to limit them, to restrain them and to be able to get rid of them. Sure, a history full of accidents and entrenched power means that those institutions are far from perfect, but it should be up to the whole electorate to decide how they should be reformed. Allowing parliamentarians to design what parliament should look like is akin to putting the cat in charge of the cream jar.

Perhaps it is already too late. Even the much-feted US constitution has been unable to prevent politicians expanding their role, their power and their budgets. It seems we have overthrown the tyranny of monarchs, only to enslave ourselves under a new tyranny of elected dictatorships. And the trouble is that we ourselves connive in this tyranny. We demand favours and subsidies for our pet causes, one after another after another. And – in a sort of political version of Say's Law – government simply expands to meet that demand.

The West shook off the control of the old aristocratic class through a worldwide wave of revolutions. We need a new worldwide wave of revolutions – constitutional revolutions – to save ourselves from the new tyranny of the political class. As I explain in my primer on public choice economics, we need voting systems that prevent interest-group capture of the policy agenda. Rules to stop minorities being exploited. Limits on what politicians can do. Curbs to end political careerism. Ceilings on government’s power to spend, borrow and print money.

And we need a revolution in understanding: reminding ourselves and the likes of Nick Clegg and other MPs that democracy is not merely the dictatorship of the majority, but the vital mechanism by which dictatorship of can kind can be thwarted.

Our reaction to the Queen's Speech

In response to the Queen’s Speech, the Adam Smith Institute gives its reactions to some of the key areas:

“The government seems determined to tinker around the edges of business and employment regulation. The tepid piecemeal modifications the government is proposing will do virtually nothing to make doing business easier in Britain, and that's the only hope we have of generating a strong recovery. Our export markets are weak and domestic demand is stagnant – without a supply-side revolution that slashes business taxes and employment regulation, we will not see growth.

“The Communications Bill is particularly concerning. One of Britain's best comparative advantages internationally is its dynamic and fast-growing tech sector. So far, the government has talked the talk about protecting this sector, but not walked the walk. The Communications Bill should establish the exceptionalism of the internet and protect it from the stifling regulation that is holding back the rest of the economy.

“Instead of more regulation like the immigration cap and the Communications Bill, the government should be throwing out the regulation book and starting from the ground up. It should determine which regulations are absolutely necessary and ditch the rest. In the meantime, companies with 100 employees or fewer should be encouraged to register their employees as self-employed under contract, to side-step much of the existing employment regulation. Growth won't come from anywhere else, so we can't afford not to unleash British business. Unless we tackle the regulatory blockages, competition and enterprise policy will bear little fruit.” — Sam Bowman, Head of Research

On the Groceries Code Adjudicator – what will they think to regulate on next?!

“So now we are going to have an OfGrocer. What will they think of to regulate next? At this rate, almost the entire country will be employed in regulatory quangos, with hardly anyone left to produce things at all.” Dr Eamonn Butler, Director

On public sector pension reforms – long overdue, and must be in line with private sector:

“The bill to reform public service pensions is long overdue, though it will be hugely controversial. But the pensions for public sector workers have to be in line with what people in the private sector can aspire to. Right now, the perceived superiority of public pensions – larger, inflation-proofed, with more generous sickness provisions and available at an earlier age than most private pensions – causes enormous resentment.” Dr Eamonn Butler, Director

On Freedom of Speech – welcome news but they won’t go far enough:

“I am pleased to see measures to protect freedom of speech and reform the law of defamation. No doubt the government will not go far enough, but freedom of speech is essential for a healthy public debate on the important issues of the day. Right now people are unable to speak their mind for fear of being prosecuted or sued.” — Dr Eamonn Butler, Director

A Queen's Speech we'd like to see

While there might well be some good things in the Queen's Speech laid before Parliament, there are some things which could be added to it.

"I have decided to tackle youth unemployment by scrapping the Minimum Wage for those under 25 years of age."

"Firms with fewer than 100 employees will be allowed to register their employees as self-employed.  Such firms create two-thirds of new jobs in the United Kingdom, and this will dramatically increase the number of them, taking hundreds of thousands of those currently employed into work and off benefits."

"My government has decided to reduce the burden of regulation by imposing a five-year moratorium on new regulations while existing ones are scrutinized for possible abolition.  This will include regulations and directives that emanate from the European Union, and the only exceptions will be for any that relate to national security."

"My government will abolish mandatory retirement laws."

"Towns and cities across my kingdom will be invited to apply to become Charter Cities, and six will be selected on a four-year trial basis.  These cities will be administered by private management teams with private equity involved, and will operate under a much lighter tax, planning and regulatory climate in order to boost business and growth."

"My ministers have decided to bring forward the raising of the income tax threshold, and will be increasing it to £12,500 by the end of the current Parliament."

"In view of recent discoveries of low cost reserves of relatively non-polluting natural gas, my government has decided to phase out subsidies to wind energy sources, and to reverse the increase to energy bills which this entails."

"To encourage the setting up of new businesses, my ministers commit themselves to lower the rate of Capital Gains Tax to 15% within 2 years, confident that this will raise more revenue than is yielded by the current rate."

"To accelerate the building of many new homes affordable to first time buyers, my ministers will introduce legislation to allow farmland in the UK to be converted to other uses in the ratio of 80% woodland, 10% housing and 10% infrastructure."

"My government will abolish Inheritance Tax by the end of the current Parliament."

"My government is confident that these measures will boost growth and employment by such amounts as will more than compensate for any temporary diminution in revenues they might entail."

Why I think voting matters

I disagree with Sam's view on voting.  I think I might be more Popperian than Sam, in that I never expect to find a candidate whose views correspond with mine.  We're all different, and the best I can hope for is some agreement.  That's not why I vote.  I vote to turf out, or keep out, the bad guys, the ones I don't want to see holding office.  This follows Popper's view that democracy helps us to prevent bad or incompetent rulers from doing too much damage.

I could take the position that even if I don't vote, other people will do that job for me, so I can save myself the inconvenience and free-ride on their efforts.  I know that many critics of free-marketeers accuse us of acting only in self-interest, but many experiments in game theory situations show that the default position is not selfishness but co-operation and goodwill if others reciprocate.

I'm happy to go along and co-operate with my fellow electors in trying to turf out, or keep out, the bad guys.  In the election for London Mayor I regard one of the front runners as well worth keeping out, and will vote accordingly, hoping that enough of my fellow electors do likewise.

Why I won't be voting

Today, Londoners will vote for the next Mayor. I won't be among them. I don't think that voting is any more one's "duty" than supporting a football team. Indeed, in large-scale elections (like the Mayoral election) it is probably a lot less important than cheering on your favourite team. If your aim is to affect policy, voting is irrational. If you want to act ethically, voting is irrelevant.

Mathematically, the chances of a single vote actually determining the outcome of an election in a meaningful way (that will affect policy outcomes) is infinitesimally small (ten million to one for voters in US swing states in 2008). The closest general election result ever in the UK was in 1997, when Lib Dem Mark Oaten was elected by two votes. Not only would one vote still not have made a difference here, the result was annulled and a new election held in which Oaten won by a landslide. Even if one vote did make a difference, the result would (apparently) be annulled.

This was with a turnout of 62,000 – the larger the turnout, the less likely it is that the vote will be tied or won by a single vote. In the last London Mayoral election, turnout topped two million. The chances of a single vote determining this election are extremely slim – less slim than they'll be at the next general election, to be sure, but still very slim. (Incidentally, some people will always reply to this, "If everyone thought that way, nobody would vote!". This is silly. We act marginally as individuals. If everyone went to the cinema tonight, there would be no room for me. This is a bad reason not to go to the cinema.)

Voting isn't instrumental, aimed at affecting policy, it's expressive. Like supporting a football team from home, you do it because it makes you feel good, not because you think it'll make the team win. But there isn't really much reason to care who wins the Mayoral election. The Mayor's powers are extremely limited, and the differences between Boris and Ken (the only two people who have a hope of winning) are more about personality and style than policy. Sure, Ken gives me the creeps, but Boris has disappointed me by resorting quickly to spending pledges whenever he's challenged about things like transport or policing. Maybe that's what it takes to win, but don't expect me to care enough about you to go out and vote for you if it is.

Some people like to say that voting is everyone's duty as citizens in a democratic country. This is nonsense. States establish and enrich themselves by violence. Don't believe me? See what happens when you choose not to pay all your taxes because, say, you don't want to use the NHS. You have no more of a duty to vote than you have a duty to go down to your local Mafia's consultation meeting about how to make protection money collection as pain-free as possible.

Voting is a remarkably poor tool in determining socially-optimal outcomes. When I go to the bookstore, I can pick from thousands of different books and even pay more to buy obscurer titles. Even if I'm in a minority wanting to learn Polynesian nose flute-playing, I can pay extra to express the intense wish I have to learn, which will allow my minority wishes to go fulfilled.

Voting can't measure intensity of feeling like markets can. It's blunt, uniform and heavily weighted towards the wishes of a majority that often chooses poorly. Democracy is a bookstore where you can have any novel you want, as long as it's Twilight.

To be fair, things might be different in your local elections, where one vote sometimes can make a difference. That's a good argument for more localism, so democracy can be a little less tyrannical and local government a little more attractive to talented people. But in this large Mayoral election where the candidates are offering, more or less, the same thing, there's no point. Instead of trudging down to the polling booth today, I'll be going home and reading a good book. I suggest you do too.

Blue Sky Thinking

Long queues are a clear indication of supply failing to meet demand. In the Soviet Union, you queued for bread and butter. In the UK not too long ago, you queued for the GPO to install a telephone. The mismatch was usually due to some government agency mucking things up.

So it is now with Britain’s airports where arriving passengers have faced queues of up to two hours due to an inefficient UK Border Force. The solution is obvious – privatise the UK Border Force. Let the airports, airlines and passengers sort out amongst themselves how to deliver an efficient immigration service. Let them decide how much to spend and how much to charge and when and where to staff.

In the government’s defence, they’ve been forced to slim staff numbers as part of its overall priority to get a grip on the nation’s finances, but that’s why more imaginative thinking is required. That process may have started amid reports of talks to increase charges on airlines to hire more Border staff. That makes eminent sense – users and beneficiaries should pay.

Willie Walsh, head of the company that owns British Airways, has said that airlines would be prepared to pay for the right service but then hit the nail right on the head with his comment that this willingness disappears if the government was wasting money. Indeed, as Labour proved with health and education, you can’t just pour endless cash into a government agency without accompanying structural reforms.

Unsurprisingly, Ryanair’s Michael O’Leary weighd in with his claim that “The big problem with the queues at Heathrow and at Stansted is they are treating EU citizens like potential bloddy terrorists and they are not.” He claimed it wasn’t short-staffing as a result of budget cuts but rather a work-to-rule mentality.

So don’t offer the government more money to carry on as is; privatise the whole process.

In the spirit of airline pricing, there could be first, business and economy immigration lanes or the equivalents of easyJet’s Speedy Boarding and Ryanair’s Priority Queues. A really clever company would roll out trolleys with refreshments when queues do build up or maybe offer up work experience students to hold your place in any queue while you take a toilet break. How about immigration hall buskers?

Private companies have a much better record in chopping and changing to altered circumstances and in adopting and adapting modern technology. Let them get on with it.

Oh, the vested interests will squawk that national security is too important to be left to the private sector, just like teachers claim that children cannot be entrusted to anyone but their own guarded priesthood. However, assorted government agencies over the years don’t have a spotless record when it comes to keeping out undesireables.

Fighting the culture wars

Looking through Madsen's "Think Tank – the story of the Adam Smith Institute," the one achievement that stands out is the seismic shift it helped to make in popular thinking.  Starting out in a world dominated by the postwar consensus, the leftist assumption that only the state could run an economy, the ASI played a leading role in shifting that over to a belief in enterprise and private initiative.

How was it done?  It was done by a mixture of policy and populism.  Armed with a self-confident narrative, they took every opportunity to push for radical, free-market policies, while at the same time propounding those ideas through every outlet available.  They wrote articles in the Mail, the Sun and the Sunday Post, as well as in the more highbrow journals.  They regularly appeared on popular radio and TV shows.  The fact that this was done with minimal resources makes the story all the more compelling.

The book has the effect of making the reader more determined to oppose the banker-bashing anti-achievement culture that the left seems intent on peddling today.  "Think Tank" shows how a belief in enterprise transformed national thinking, as well as the nation itself.  It is a stirring lesson.

The Jeremy Hunt affair is simply public choice in action

Poor Jeremy Hunt is perhaps the latest victim of the Leveson Enquiry. Whether this is the end of a promising career or not remains to be seen – politicians of any stripe love to clamour for a ministerial resignation and the Coalition is racking them up fast (I count three at cabinet level). Still, whatever the ins and outs of Mr Hunt’s involvement with News International and his relationship with James Murdoch, there can be only one clear conclusion: if politicians and bureaucrats are allowed to regulate markets, corruption, monopoly and loss of general welfare must be the result.

First of all, it is salutary to remember that this is not a party political issue. As evidence to the Leveson Enquiry itself shows, politicians are drawn to newspaper proprietors and editors like flies to the proverbial. The two have a symbiotic relationship with each other, and always have done. Clearly this relationship is the result of a classic public choice style problem – politicians have power but need votes and newspaper editors can deliver votes in exchange for a chance to influence how that power is directed. Of course, this is a very reductive description of the relationship but that is what it boils down to.

Such a relationship is evidently corrupting and open to the exploitation of special interests at the expense of general ones. How should we prevent this? Whilst party politics calls for the minister to fall on his sword, such an action will hardly prevent future occurrences. The general tone of public discourse suggests the introduction of rules, guidelines and procedures on ministers with greater bureaucratic control and less personal control by the minister. In many ways this represents the general trend of constitutional developments over the past 100 years or so. Powers should be vested in ‘disinterested’ civil servants or, better yet, in ‘independent’ Quangos like OFCOM or the Competition Commission, rather than politicians.

The bureaucratic solution, however, is no more acceptable – as any fan of Yes Minister will confirm. Aside from the issues of democratic accountability such developments raise, we should remember that civil servants and bureaucrats are human beings and have a series of vested personal and ideological interests of their own. Bureaucratic rule-making is just as susceptible to corruption as ministerial rule-making. This is especially true in the case of newspapers, which are extremely well-placed to use their influence in order to promote their own interests. Again, the Leveson Enquiry shows us exactly this situation: journalists allegedly entering into corrupt relationships with police officers.

To suggest that newspapers themselves should be more strictly regulated is similarly fraught with danger. Regulators are, after all, highly susceptible to capture by large market occupants – we see this is the revolving door that tends to exist between jobs in regulators and the large firms they regulate. However, even assuming that bureaucrats or ministers could be objective in their decision-making and chose the best number and size of firms in a particular market, their decisions will have unintended consequences. Compliance costs favour large firms who are better able to meet them and have more effective lobbying organisations. This means that they can exclude market entrants, create an oligopolistic situation and drive up prices whilst preventing innovation. Large firms love big government and big government can only co-operate with large firms.*

Any serious examination of the implications of such behaviour suggests that the best means of limiting the prevalence of such relationships is to limit the power available to public officials, elected or otherwise. In this case, it means removing the ability of ministers or civil servants to make decisions regarding the size and shape of markets. This would eliminate both the public choice and the ‘knowledge problem’ effects outlined above. A minister or civil servant with little power to control outcomes is hardly likely to be a sensible target for corruption after all (this would bring the nice benefit that fewer civil servants represent a smaller drain on the public purse – viz. the failed ‘bonfire of the Quangos’, which failed because the functions of the Quangos themselves were not eliminated).

Of course, in the present state of our economy it is extremely difficult to eliminate competition authorities. The vast level of state interference, regulation and taxation creates a swathe of instances of anti-competitive behaviour and monopolistic markets – conditions which simply would not exist under free markets. Open markets in the UK mean foreign state-backed monopolists can simply move in and create new monopoles. Vested interests mean that large companies and the bureaucrats that support them cry foul at any attempt to liberalise markets. At the same time, sincere but mis-guided ‘Occupy’-type groups and celebrities call for more intensive regulation of various markets, thinking that this will result in more competition when we see exactly the reverse to be true. This is a very long way from the position of one embattled politician, corrupt or not, but it behoves us to remember Lord Acton’s dictum ‘power corrupts, absolute power corrupts absolutely’. Without power there is no corruption.

*As an aside, we should bear in mind that the really dominant player in the broadcasting news market is not BSkyB, but the BBC which controls 60% of UK audience share. It is the presence of the BBC, paid for out of the licence fee, far more than that of Sky, paid for voluntarily by subscribers and advertisers, which distorts the broadcast market and prevents the emergence of real competition.