It's a wonderful life

The name of Nigel Vinson may not be one bandied across the breakfast tables of Britain, but he has done more, for longer, to promote the cause of personal and economic freedom than most. And, raised to the peerage (as Lord Vinson of Roddam Dene) for that and for his work in re-shaping and promoting British business, his impact continues. So it is good to see a new biography, Making Things Happen, written by Gerald Frost and published by Biteback, which provides fascinating insights into Vinson's quite remarkable life, ideas and approaches. He had a good start in life, but built up his own business – and fortune – from scratch.

In the 1950s, Vinson was one of the first to see the huge potential of plastics, particularly as an anti-corrosion covering for metal. Starting from a Nissen hut in Guildford, he overcame the technical difficulties to coat all sorts of metal objects, from refrigerator shelves to aircraft parts. He would later win the Queen's Award for Industry in recognition of the company's technological innovation.

As well as his insight and initiative, much of Vinson's success was cutting through the class barriers that dogged British business in the postwar decades. Vinson saw his workforce as a team, the only distinctions being the different tasks they each did. Even as the business grew, he insisted on personally meeting every new employee and on 'walking the ship'. He kept production units small, so that people felt part of a human enterprise, not cogs in a faceless machine. When he eventually sold the business, he shared a large part of his gain with those workers, even though he did not have to: they were not just his employees but his friends and colleagues.

Vinson's abilities as a successful entrepreneur and enthusiast of the potential of better-managed British business, put him in demand elsewhere. He joined the Council of the CBI and became President of the Industrial Participation Association and Chair of the Wider Ownership Group – again promoting his idea that employees of a business should be participants in that business. Many other businesses sought him for their boards.

Never slow to back the things he believes in, Vinson was an early supporter of the Institute of Economic Affairs and the Centre for Policy Studies. In the early 1980s he also supported IOUS, an annual freedom conference for students: the new Culture Secretary, John Whittingdale, was one of its first participants. IUOS eventually grew into ISOS, a series of sixth-form conferences run by the Adam Smith Institute, and the Freedom Week student training course, run jointly by ASI and the IEA.

Making Things Happen is an uplifting story of how much one person with a vision can achieve – though it makes you yearn to have just a quarter of Vinson's drive and energy.

So Britain has solved climate change then

As regular readers will know we're pretty simple in our approach to climate change around here. If it's happening, we're causing it, then the thing to do about it is a carbon tax. That lovely Pigouvian Tax on externalities, just as Mssrs. Stern, Nordhaus and Tol tell us is the solution. And, for the sake of argument, while we think it's too high, we're willing to at least consider Stern's rate of $80 per tonne CO2-e. Which brings us to:

Environmental taxes hit a new record high of £44.6 billion in 2014, official figures show, as the bill for renewable energy levies rose to almost £3 billion. The data from the ONS shows that the green tax burden has more than doubled over the past two decades, from £19.4 billion in 1994. Last year saw the ninth consecutive increase in the tax burden, which stood at £43 billion in 2013. The vast majority of the taxes are those levied on transport fuels such as petrol and diesel, accounting for £27.1 billion. Vehicle duties accounted for £6 billion of the total and air passenger duty £3.2 billion. The cost of renewable energy taxes to subsidise wind and solar farms rose by more than a fifth to £2.9 billion.

So, the UK has already solved climate change. We're done and dusted. Emissions are of the order of 500 million tonnes a year in this country. That's $40 billion in taxes righteously required in order to adjust market prices. We're already charging ourselves more than that. We're done.

This is of course somewhat in contrast to the repeated squeals that much more should be done. But this is absolutely the mainstream scientific opinion here that we are cleaving to. If climate change, then carbon tax. And when the appropriate tax is in place then no more need be done, we can just wait for that alteration of prices to work through the market system.

So, what's it like to live in the first country that has actually dealt with the major environmental challenge of our times? And wouldn't it be just lovely if those who rule us realised that they've already managed that feat?

The FCA meddles with investment banks

In June 2014, the Chancellor created a Fair and Effective Markets Review (FEMR) of financial services, co-chaired by the Bank of England, FCA and HM Treasury. The report is due next month but has been widely trailed. Before we see that review, and in an effort to keep itself busy, the FCA has announced a further review covering some of the same ground, the Investment and Corporate Banking Market Study (ICBMS): “We are examining issues around choice of banks and advisers for clients, transparency of the services provided by banks, and bundling and cross-subsidisation of services.” Each of these reviews takes a year and costs you and me hundreds of millions of pounds. The FCA spends around £480m, growing at 6% p.a., and this is their biggest single project. It must cost the industry a similar amount in dealing with the FCA’s 3,000 staff. We consumers pick up the costs: every bill from my stockbroker has a £20 “Compliance charge.” That is hardly a key issue for most electors as they vote on the government every five years, so this unrestrained incubus feeds itself.

This second review is not just duplication: neither should be necessary at all. Both arise from Treasury and FCA failure to understand how markets do and should work – and we now have the Competition and Markets Authority. It was launched only last year and could perfectly well cover financial as well as other services. I would even go so far as to allege that the financial services regulators’ adversarial approach is in part responsible for the scandals. The FSA, and now the FCA, have forced banks to close ranks to deal with what must seem to them a common enemy. As Adam Smith pointed out two and a half centuries ago, putting competitors in the same room is likely to be bad for competition.

The Bank of England, by contrast, used to preside over the sector in the manner of a kindly uncle, nudging potential miscreants away from their misdoing, but not taking on the sector as a whole. Maybe the BoE can recover that role.

The terms of reference of the ICBMS seem to indicate that the FCA suspects clients do not choose their banks and advisers in the way they should, that things are not fully transparent and that cross-subsidy of services is a malpractice.

The first of these is a remarkable suggestion: that the FCA knows how clients should make decisions better than the clients do. Enough said.

On the second, in any market, the products should indeed be fully and accurately described, as the law requires. In the case of manufactured foods, for instance, the labeling requirements are extensive. But the FCA’s brand of “transparency” implies more than just product description: it means revealing everything about the product. If it were applied to oranges, it would require not just the variety, country of origin and the terms of trade proposed, but also the name of the supplier, the date purchased and the price paid by the retailer. Markets do not work this way: competition, along with proper product description, protect buyers by enabling them to compare.

The third implication, that bundling and cross-subsidies are wrong, is the most revealing. When I buy a car, I do not expect to buy all the parts and then have to put them together. I could do that, but bundling the components is far more convenient, and cost efficient, for both parties. And if I make £1 on a dozen oranges but £2 on a dozen pineapples, are my pineapples cross-subsidising the oranges? But then if the oranges sell for 50p each and the pineapples for £2, my margin on oranges is 17% and on pineapples is only 8%. Now the oranges are cross-subsidising the pineapples. Which is the more wicked?

The reality is that every market allows the seller a maximum price whittled down by competition, every seller has different costs, and some things are therefore more profitable than others. The notion of “cross-subsidies” is fantasy.

The FCA’s meddling with financial services adds cost to the sector as a whole, in addition to the growing burden of EU regulation.  And it damages competition through a failure to understand how markets work.  And its antagonistic approach may even be creating a climate where malpractice is more likely.  In short, it is counter-productive.

The absurd folly of some anti-prostitution campaigners

That prostitution exists is a fact. That, as far as we know at least, every human society has had a form of it is, to the limits of our knowledge about this, also a fact. And as far as we can work out at least it's going to be a feature of human societies into the future. The question therefore is how should we handle it societally, not whether we can magic it off the scene or not. Our own view is that what consenting adults get up to is up to consenting adults. We do now have a society, finally, that largely keeps the government out of our bedrooms and we welcome this. Quite why this liberty and freedom should be limited when cash changes hands we're not quite sure.

All of which makes this letter to The Guardian very strange indeed to us:

On Monday 1 June it becomes a crime to pay for sex in Northern Ireland, but legal to sell it. The rationale? Prostitution is violence against women and a barrier to gender equality – so end the demand, but don’t punish the victims. I agree. We cannot continue to turn a blind eye to the minority of men who feel entitled to sexually exploit vulnerable women. In 2006 I led Ipswich’s policing response to the tragic murders of five women by a sex buyer. We cracked down on kerb crawlers, diverted women away from the criminal justice system and joined with agencies to support women to exit. It worked. But current prostitution laws prevented us from tackling demand for off-street prostitution. Northern Ireland’s new laws should be extended UK-wide so we make it as difficult as possible for pimps and sex traffickers to operate. Alan Caton Former detective superintendent, Suffolk Constabulary

That women were murdered is appalling: that this is a crime is just and righteous, whoever and whatever those women were or were doing. But people are murdered walking down the street: are we to make walking down the street a crime in order to reduce murder? People have been murdered working in supermarkets: do we make supermarkets illegal in order to reduce the incidence of murder?

No, obviously, we do not. And for the obvious reason that if walking down the street or vending comestibles are a crime then those who are attacked, injured or murdered while doing so are already criminals and thus have no protection from the police or the law.

So it is with prostitution. It is going to happen and consenting adults should have the same protections as the rest of us as they go about their consenting and consented to activities. Legalise, fully, prostitution. It may not be our life choice, either as provider or customer. But then nor are many things, all of which should be, and are, legal and protected by that full majesty of the law.

This is quite apart from that old point we learned from the Bloody Code. When stealing a loaf of bread brought a hanging, when murder brought a hanging, then why stop at the stealing? Making it illegal to purchase sex is going to increase the danger to those selling it, not reduce it.

FIFA and the wider problem of corruption

Sepp Blatter, re-elected as head of FIFA, gained so many first round votes that his opponent withdrew.  Many of those votes came from Africa, Latin America and Eastern Europe.  Not many came from Western Europe and North America.  How could the man be re-elected after presiding over an administration that for decades has involved bribes to delegates and illegal payments by sovereign governments? 

The answer may be simple.  In many of the countries whose delegates gave him votes, corruption is a normal part of everyday life.  You want to do business?  You bribe a bureaucrat.  You want to move goods across the country?  You have cash ready at the police checkpoints.  You want to win a government contract?  You transfer funds into the secret foreign bank account of the President's sister.  Corruption is endemic, and their people suffer its consequences.  This could be why so many delegates seemed relatively sanguine about its exposure in FIFA.

That corruption is so widespread is a major factor holding back economic growth in developing economies.  The Organization for Economic Co-operation and Development estimates it at more than 5% of global GDP, with the World Economic Forum putting it at US$2.6 trillion, and the World Bank putting the amount paid annually in bribes at over US$1 trillion.

It adds costs to business activity.  The kickbacks have to be factored into production costs, raising prices and therefore reducing the volume of activity.  Less wealth is created than there would be without it.  Corruption is like a tax, but a particularly toxic one because of its covert and unpredictable nature.  Tax incidence is public; it can be calculated and taken account of; but no-one publishes tables of bribes that will have to be paid.

Corruption causes resources to be misallocated, with contracts being awarded to firms that would not have won them in open competition.  Bribes to ministers lead to construction projects for which there is no genuine market demand.  Those with access to decision-makers, and with resources to bribe them with, are advantaged at the expense of those lower down the social scale with neither influence nor resources.

Because corruption is illegal, its prevalence undermines respect for the law.  It also corrodes the public trust that is part of the background of successful market economies.  The only antidote to it is a government with the moral integrity to uphold the law, and for a legal system that remorselessly exposes and punishes the perpetrators.  The FIFA scandal is about more than football; it gives us another glimpse into a worldwide problem.

Excellent news; so there will be fewer milk farmers then?

Some people don't seem to get the point of this market thing:

The boss of British yoghurt-maker Yeo Valley has warned that the removal of the EU milk quota system, which previously capped production will be another blow for struggling farmers.

Tim Mead, chairman of the Somerset-based dairy producer, said the removal of restrictions will encourage the industry to ramp up production, leaving farmers with a surplus of dairy products that they are then unable to sell.

Yes, this is rather the point of the changes.

Currently there are restrictions upon production. This means that each producer is operating at inefficient levels: they require more inputs in the form of land, labour and capital than the level of their output should require, because of those production restrictions.

So, we remove those production restrictions and the more efficient of those producers will expand their production, from very much the same set of inputs. This does of course mean that the less efficient producers then go out of buseinss. Allowing those inputs, that land, labour and capital, to be repurposed to go off and produce something else which satiates some other human desire or want.

That is, we all become richer by removing those production constraints. Because, from our same set of inputs, we get more human desires satiated. And this is the point and purpose of having an economy in the first place: to satiate, as best we can, as many human desires and wishes as we are capable of.

Removing production quotas will mean some milk farmers go bust. Good, that's the point of removing the production quotas.

Today is Tax Freedom Day

As of June 2024, this is out of date. Please refer to Tax Freedom Day 2024 for the updated statistics.

For the full press release, click here. This year’s Tax Freedom Day, the day when Britons stop working to pay their taxes and start earning for themselves, falls on 31st May, according to Adam Smith Institute calculations.

The Adam Smith Institute estimates that Britons will work 150 days this year solely to pay their taxes. This is one day later than 2014′s Tax Freedom Day, which is not statistically significant. However, the UK’s Tax Freedom Day falls more than a month later than it does in the United States, where citizens started earning for themselves on 24th April.

Tax Freedom Day is designed to reveal to the public how much they really pay out in taxes, which Britain’s lengthy tax code can often obscure. The Institute’s calculations include all taxes raised by HM Revenue and Customs: direct taxes like income tax, national insurance and corporation tax, and indirect taxes like VAT and excise duties.

Cost of Government Day, which represents Total Managed Expenditure as a day of the year, falls on 29th June, three days earlier than it fell in 2014. While this suggests a slight improvement over last year, the money borrowed to cover the month-long gap between Tax Freedom Day must eventually be paid off with future taxes. This means without tax cuts or major growth Tax Freedom Day would eventually have to drift even later.

Director of the Adam Smith Institute, Dr Eamonn Butler, said:

The Treasury hates Tax Freedom Day, because they don’t want us to know how much tax we really pay. They prefer to conceal the tax burden through stealth taxes and indirect taxes that we don’t even realise we’re paying.

Most people are shocked to learn that the government takes over two-fifths of the country’s earnings – and then borrows more. Mediaeval serfs had to work about a third of their time for their feudal lord, but we are in serfdom to the government for even longer!

High taxes are very bad for economic growth, as talent and initiative drain abroad. Ask President Hollande of France.

Alan Mak, Conservative MP for Havant, added:

The ASI’s work on Tax Freedom Day reminds us that we must carry on reducing the tax burden on hardworking individuals and businesses so we have greater economic growth and individual prosperity. That’s a goal I champion as a member of the new Conservative intake; income tax cuts and frozen council tax and fuel duty have so far made millions of Britons better off, but politicians must continue to look for new ways to get money back into taxpayer pockets, not out.

The ASI calculates Tax Freedom Day by measuring local taxes, direct and indirect national taxes, and national insurance contributions as a proportion of the UK’s net national income (41.2% per cent in 2015), mapping that proportion onto the days of the year.

Tax Freedom Day figures are not available up-to-date for calendar years so they are proxied from government and OBR forecasts and financial year numbers. They are then revised when exact numbers become available.

For further comments or to arrange an interview, contact Head of Communications Kate Andrews: kate@old.adamsmith.org | 07476 915072

Will Hutton doesn't quite grasp this FIFA thing, does he?

Not that this should be all that much of a surprise, that Will Hutton doesn't grasp the central reality of a matter. The thing that does surprise is the sheer number of things that Will Hutton doesn't grasp the central reality of. Take this from his latest, about FIFA:

Is the over-riding principle of our times that bad behaviour drives out good? The assertion of self-interest and the pursuit of profit, by fair means or foul, trumps everything. Great values are under assault. Whether nobility of purpose, behaving with integrity, looking out for others, accepting responsibility or just doing the right thing – all seem to be withering on the vine.

Emblematic of the age was the action of 133 leaders of world football associations tamely re-electing Sepp Blatter for a fifth term as president of Fifa.

It's no more emblematic of this age than of any other. The central assertion of economics is that incentives matter. So, if people can enrich themselves through bribery and cronyism, they will. The question is, if we do not desire that they do so, how do we design the incentives so that they do not do so?

Under different leadership, the published report could have triggered global action against corruption in football. Fifa’s governing processes should have been overhauled from top to bottom. There should be term limits on executives, transparency in the bidding process to host tournaments and proper checks and balances. None of this happened and the author of the inactivity has now been re-elected president. It is breathtaking hypocrisy and a global signal that bad behaviour pays off.

It isn't a matter of just having the right people in place. It's a matter of the incentives. Any private business that acted in this manner would be going bankrupt right about now: because that's what competition does, weeds out those who misbehave. Yes, even among those who run competitions that competition works.

If you really qwant to sort out FIFA then the answer is to start another competition between national football teams. And may the best cup win the match.

Yes, we've said 'competition' and 'NHS' in the same sentence

There are certain ‘danger words’ you’re not supposed to use when talking about the NHS. These include ‘privatisation’ and ‘competition’. Usually it doesn’t really matter if you’re prescribing something or not; the mere use of the word leads to total destruction (i.e. a lot of yelling and inaccurate statistics thrown around about America). Perhaps the usual absence of these words explains why the NHS continues to fall short in international rankings, and received a below-average DEA score from the OECD, even when compared to similar, publicly funded and run healthcare systems.

But a  new report from the Economic and Social Research Council has dared to mention the unmentionable – and as it turns out, competition is key to bettering public hospitals, from management practices to patient outcomes, including mortality rates:

The report The Impact of Competition on Management Quality: Evidence from Public Hospitals, building on ESRC-funded research, shows that hospital competition can improve healthcare by improving the quality of management practices. The research measured the management quality of 100 public hospitals through a management survey of clinicians and managers, and used data published by the government to assess the performance of NHS hospitals in England.

Key findings • Hospital competition is useful for improving management practices and outcomes in healthcare. • More hospital competition leads to improved hospital management and higher hospital performance in terms of quality, productivity and staff satisfaction. • Management quality is linked to improved indicators of hospital performance including clinical quality, mortality rates and staff turnover rates. • Hospitals with higher management scores also had shorter waiting times, lower MRSA infection rates and performed better financially.

This report will probably come as a surprise to many, but only because competition is not allowed to be part of the debate.

The DEA scores I mentioned above: when comparing publicly funded, publicly run systems, some countries actually do quite well. Norway and Italy have high DEA scores, and Poland ranks above average; but in all three cases, there is more choice among providers. (The OECD actually flags up how restricted choice is in the UK.)

I’m not crying ‘correlation equals causation’ here (Sam and Ben would kill me) – but this new research only adds to the evidence that competition in the healthcare sector – public or private – might not be such a terrible thing to bring up after all.

Yes, first thing, let's defund all the artists

We fully support the thrust of this article. Indeed, we've been saying much the same thing for years no, defund the arts:

Just the threat of the Tories forming a majority government was enough to start those in the arts squealing about cuts. Well, those living rich on state handouts would panic, wouldn’t they? But as a theatre critic, I have a simple plea for culture minister Ed Vaizey: stop all public funding of the arts, now!

I don’t say that because I believe the burden should be transferred to corporate sponsorship or American-style philanthropy. I say it having just come back from the Norfolk and the Norwich Festival where I sat through a show called What Will Have Been - an awful mix of contemporary circus and dance that could only exist through state funding.

The show was described as “ground-breaking,” as such shows always are, but it had much in common with every other piece of dreary, pretentious, self-consciously "arty" subsidised theatre that I have seen in 20 years of reviewing for The Stage and the former What’s On In London.

There is a difference here though in the reason why we would immediately stop all such funding. We don't think that we are capable of, nor that we should be, deciding what art others might wish to enjoy. So our argument to defund the arts does not rest on the idea that much of what is funded is dreadful, stale, boring or even simply not to our taste. Given the existence of Simon Cowell there must be people who enjoy things that we find dreadful, stale, boring or even simply not to our taste.

Given that multiplicity of tastes out there the only way we can possibly justifiy any spending on such artistic endeavours is for the people who enjoy the specific form of it to pay for that specific form of it. We'll not argue for subsidy of Dr. John if you don't argue for subsidy of whatever it is that you enjoy and we do not.

There is then one further argument, that there are some forms of art (say, ballet and opera at the highest level) which we are told simply cannot exist without subsidy. Patrons of those arts would simply never pay enough to make the spectacles viable. Which is simply another way of stating that such spectacles make us all poorer. Those who see them are not willing to pay the cost of their production. Thus the benefit gained from their existence is less than the resources put into their production. That is the same thing as stating that they are subtracting value.

And we really don't institute government to make us all poorer.

So, close down the Arts Council, abolish all tax subsidy of the arts and make the nation richer in the process.