Business Standard: The global financial crisis

By Deepak Lal, Senior Fellow in Globalization (November 25, 2008)

Published in The Business Standard here

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Tom Clougherty calls for tax cuts on The World This Weekend

23 November 2008

Click here to listen to Tom Clougherty, the ASI's policy director, calling for tax cuts on Radio 4's The World This Weekend. You will need to fast-forward to 8 minutes into the programme.

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ASI calls for £12,000 personal allowance

24 November 2008

• Raising the personal allowance to £12,000 would take 7 million low-paid workers out of the income tax net altogether. People earning the minimum wage or less would pay no income tax at all.
• It would make the average UK household £100 per month better off, reversing substantial falls in household disposable income over the last 12 months.
• This tax cut would put almost £19bn per year back in people's pockets, allowing considerable additional spending and investment in the productive, private sector economy. This is the key to overcoming recession and restoring economic growth.

The Adam Smith Institute (ASI) has today called on Alistair Darling to substantially raise the personal income tax allowance in today's pre-budget report. Author Tom Clougherty advocates a personal allowance of £12,000 – which is roughly equivalent to the minimum wage, or half the average wage.
 
As well as stimulating the economy by giving people more disposable income to spend and invest, raising the personal allowance to £12,000 would strengthen incentives to work, help to eliminate the 'benefits trap' and make low-paid jobs more economic – greatly increasing opportunities for the unemployed.

If the higher rate threshold were kept at its current level, rather than raised in line with the personal allowance, this policy would cost the Exchequer just £18.9bn in lost revenue.
 
The authors argue that such a sum could easily be offset by cutting government waste, and urge against further government borrowing, noting that the taxpayer already spends more than £30bn a year servicing government debt:
 
In the face of a recession, every business and household in the country is looking to find economies and make savings. There is no reason why government, with an annual budget in excess of £600bn, should be any different.
 
Tom Clougherty, the ASI's policy director, added:
 
Tax cuts are not a silver bullet, but there they are the most powerful, pro-growth policy tool that the government has available to them. The government is right to want to cut taxes: they should start by putting more money back in  people's pockets, and this means radically increasing the personal allowance.
 
ENDS
 
The full briefing paper can be downloaded for free at <http://www.adamsmith.org/images/pdf/personal-allowance-briefing.pdf>

Notes for Editors
 

1. The Adam Smith Institute is the UK's leading proponent of free-market economic and social policies. The Institute is politically independent and non-profit.
2. The £100 per month better off figure assumes a single-earner household. Dual-earner households would in fact show greater savings from the reform, due to the availability of two increased personal allowances.
3. According to ASDA's monthly income tracker, disposable incomes were 9.6 percent lower in September 2008 than they had been 12 months earlier.
4. It would cost an additional £6bn to raise the higher rate threshold in line with the personal allowance – taking the total cost of this reform to £25bn. 
5. Tax calculations were performed by Richard Teather, a Fellow of the Adam Smith Institute and an Associate Senior Lecturer in Taxation at Bournemouth University.

 
WHY ALISTAIR DARLING SHOULD RAISE THE PERSONAL ALLOWANCE is published by the Adam Smith Institute, 23 Great Smith Street, London SW1P 3BL.

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Scotland on Sunday: Tories take a backward step

By Kenny Farquharson (November 23, 2008)

Published in Scotland on Sunday here

ALEX Salmond has been unwell all week (get well soon, First Minister), and I sincerely hope he has been avoiding the news bulletins as he tries to make a full recovery.

I especially hope he managed to miss reports of David Cameron's extraordinary U-turn on the Tory attitude to tax. If Salmond did happen to catch this, I bet the groans from the Bute House sickbed were all the louder.

Cameron has spent the past month standing loyally by Gordon Brown's side as Britain wrestles with the financial crisis. The Tory leader expressed quibbles about the detail, but rightly judged that what the country needed was singularity of political purpose. It was no great sacrifice. After all, Cameron had already pledged to stand by Labour's broad economic strategy when in Government, including matching its spending plans until 2011. Last week Cameron abandoned this. In doing so, he did spectacular – perhaps irreparable – damage to his chances of moving into Downing Street.

Until this past week, Cameron seemed reluctant to differentiate the Tories from Labour to any great extent. He even gave the impression of wanting to be a kind of Tony Blair Mark Two, taking every opportunity to echo the former PM's nostrums. Cameron's hopes rested on a simple belief that voters would feel that he – rather than the dour and unsympathetic Brown – was more in tune with their hopes and instincts. Polls suggested he was right.

So why change tack? I suspect we need look no further than the US election. Just as Barack Obama had the presidency sewn up when he bested John McCain on the banking bailout, so Cameron has come to realise that if he cannot beat Brown on the economy he has zero chance of seizing power. And to beat Brown on the economy, the Tories have to offer something both distinctive and appealing. Hence the return to those golden oldies of Tory manifestos from yesteryear – fiscal restraint, low spending and low taxation.

British politics has a decidedly retro feel this weekend. It's Labour Keynesians versus Tory Monetarists. They'll be bringing back clackers and ra-ra skirts next. The Tory right is delighted. They haven't been so happy since Iain Duncan Smith beat Ken Clarke for the leadership and the party was characterised by its rabid anti-Europeanism and it's sourness towards immigrants. And we all know how well that went down with the great British public. The real Tory party has Cameron back in its clammy clutches. I'm reminded of that scene in Shaun Of The Dead when the zombie mob drags the character played by Dylan Moran out of the safety of the pub and devours him alive.

Just a few months ago, Cameron looked like a prime minister-in-waiting. All he had to do was stay alive, stay smiling and avoid any black-tie reunion dinners of the Bullingdon Club. Now, he finds himself having to re-sell Thatcherism to a sceptical public.

For Salmond and the SNP, this is a disaster. The more "clear blue water" Cameron puts between the Tories and Labour, the more difficult it is for the Nationalists to claim the two parties are actually one and the same. The more the next election becomes a genuinely ideological battle between left and right, the harder it is for Salmond to argue that it should be a vote on Scotland's constitutional future. And the SNP's back-of-an-envelope strategy for independence (Britain votes Tory; Scots are disgusted at Tory rule; Scotland opts for full sovereignty) becomes a far harder sell.

The Tories are right to believe that tax is the touchstone issue in politics. You can talk yourself hoarse about civil liberties, the constitution and privatisation, but it's remarkable how voters start paying attention when the debate gets round to how much cash the Government is taking from their pay packets. Since 1991 the Adam Smith Institute has worked out when we should celebrate Tax Freedom Day, the day of the year when we start working for ourselves instead of working to pay into the Treasury coffers. This year it fell on June 2, a full week later than it did in 2002. Politicians ignore this at their peril. Just ask Salmond, whose 'Penny for Scotland' rise in income tax is often identified as a contributory factor in the SNP's failure to win power at Holyrood in 1999. No party is more attuned to this public mood than the Tories.

Yet there are flaws aplenty in Cameron's reasoning. All the evidence suggests that people are happier paying tax if they have a clear idea of where the money is going. When Gordon Brown raised National Insurance by 1p in 2002, he promised the £40bn it raised would be devoted entirely to the NHS. This 'hypothecation' took some of the political sting out of Brown's raid on our wallets.

The tax hike we'll be suffering in two or three years' time will be surely be seen in a similar light. We'll be footing the bill for the emergency measures that were necessary to stop Britain's recession turning into depression. Seems like a pretty good cause to me. Are the Tories really going to argue that the tax cuts shouldn't have been so generous? Or that the subsequent attempt to balance the books shouldn't be so prudent?

Cameron last week appealed to voters to ignore Labour "propaganda" that the new Tory strategy meant cuts in public spending. It was, he insisted, simply a slower rate of growth. This is true – but unsellable. Labour isn't in the clear yet, but Cameron is now in danger of being yet another Tory 'nearly' man.

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Tom Clougherty discusses tax cuts on the Today Programme

11 November 2008

Click here to listen.

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Telegraph.co.uk: Novels 'better at explaining world's problems than reports'

By Stephen Adams, (6 November 2008)

Published in The Telegraph here

People should read best-selling novels like The Kite Runner and The White Tiger rather than academic reports if they really want to understand global issues like poverty and migration, a study has claimed.

Fiction - including poetry - should be taken just as seriously as facts-based research, according to the team from Manchester University and the London School of Economics (LSE).

Novels should be required reading because fiction "does not compromise on complexity, politics or readability in the way that academic literature sometimes does," said Dr Dennis Rodgers from Manchester University's Brooks World Poverty Institute.

He said: "Despite the regular flow of academic studies, expert reports, and policy position papers, it is arguably novelists who do as good a job – if not a better one – of representing and communicating the realities of international development.

"While fiction may not always show a set of presentable research findings, it does not compromise on complexity, politics or readability in the way that academic literature sometimes does.

"And fiction often reaches a much larger and diverse audience than academic work and may therefore be more influential in shaping public knowledge and understanding of development issues."

Khaled Hosseini's The Kite Runner "has arguably done more to educate Western readers about the realities of daily life in Afghanistan under the Taliban and thereafter than any government media campaign, advocacy organisation report, or social science research", said the report.

It also praised the winner of this year's Man Booker Prize, The White Tiger by Aravind Adiga, for its "passionate depiction of the perils and pitfalls of rampant capitalism in contemporary India".

The novel "deftly highlights the social injustice and moral corruption that underpin the country's apparently miraculous economic development during the past decade," it said.

Brick Lane by Bangladesh-born British author Monica Ali, that deals with a young woman who speaks no English coming to London, has arguably "contributed to wider public understandings of global development issues in ways that no academic writing ever has," it concluded.

The report's title - The Fiction of Development: Literary Representation as a Source of Authoritative Knowledge - may give a hint about its authors' political leanings.

But co-author Dr David Lewis, an international development specialist at LSE, defended their argument.

He said: "Storytelling is one of humanity's oldest methods of possessing information and representing reality. The stories, poems and plays we categorise as literary fiction were once accepted in much the same way that scientific discourse is received as authoritative today."

Professor Michael Woolcock, director of the Brooks World Poverty Institute, said they were "not arguing that poets should replace finance ministers."

He said: "Fiction is important because it is often concerned with the basic subject matter of development. This includes things like the promises and perils of encounters between different peoples; the tragic mix of courage, desperation, humour, and deprivation characterising the lives of the down-trodden."

Tom Clougherty, policy director of the Adam Smith Institute, said fiction was "a useful tool in aiding people's understanding, sparking their interest, and humanising issues".

But he warned: "There's a problem. Fiction works by appealing to people's emotions, not their intellect or rationality."

He said issues like poverty and international development were "emotionally charged" and consequently solutions often failed to take into account hard, unpalatable facts.

"Years of aid won't sort out fundamental problems," he said, concluding: "Fiction absolutely can't replace factual, evidence-based analysis."

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The Metro: Credit crisis 'is God punishing us'

October 29, 2008

Published in The Metro here

An Anglican bishop says the credit crunch is God's way of punishing Britain for being too materialistic.

The Rt Rev Wallace Benn, Bishop of Lewes, thinks the country is obsessed with cash, which has a 'stranglehold' over our lives.

The credit crisis has been caused by greed and 'God has allowed it for good', he writes in a newsletter.

The Adam Smith Institute think-tank criticised the comments, saying: 'Many people who have not worshipped materialism have seen their lives made poorer.'

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Business Standard: The mechanics of the Chinese miracle

By Deepak Lal, Senior Fellow in Globalization, Adam Smith Institute (October 29, 2008)

Published in the Business Standard here

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Telegraph.co.uk: Credit crunch is 'God's punishment' for nations 'consumed with materialism'

By Richard Savill

Published in The Telegraph here

An Anglican bishop has claimed the credit crunch is God's way of punishing Britain and other western nations for being too materialistic.
 
The Bishop of Lewes, the Rt Rev Wallace Benn, has written in a church newsletter that materialism has a "stranglehold over our lives" and that some good may therefore emerge from the crisis.

In the November 2008 newsletter the bishop said: "I believe that God ultimately has allowed this crisis for good.

"Our nation, like all the western nations, has become consumed with materialism. It has a stranglehold on our lives.

"We have found our security in 'securities' and have failed to grasp that nothing is permanent other than God.

"Our confidence has been misplaced. Something was needed to shake that and that is what we are experiencing.

"If this shakes our confidence in mammon (money) and forces us back to our creator and redeemer it will have been worth it!"

"That should be our prayers as Christians. We may all have to suffer a bit, but God is an expert at bringing good out of sad, difficult, even evil situations."

But Eamonn Butler, director at the Adam Smith Institute, said many people who were not materialistic had lost their entire savings.

He said: "The Bishop of Lewes is right that the present crisis has shaken people's faith in financial securities, but it has also shaken their financial security.

"We should remember that it is people's homes, savings and pensions that are under threat. Many people, who have not worshipped money or materialism, have seen their savings disappear and their lives made poorer.

"I find little comfort in this. The spiritual world may be important to people, but they also need to feed and shelter themselves and their families."

Steve Wheeler, 34, an electrician, from Chichester, West Sussex, who has lost his job in the last month, said: "When church leaders come up with something like this it is no wonder less people go to churches on a Sunday.

"You have to ask yourself what sort of world these bishops are living in when they say the credit crunch could be a good thing."

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The Guardian: A waste of time

by Tim Worstall, Adam Smith Fellw (October 13, 2008)

published in The Guardian here

We need a proper cost analysis of the time we are now required to spend recycling, compared with its benefits: is it worth it?

The government thinks that your time is worth nothing. At least, that's the implication of this written answer in the Commons last week.

The UKip MP, Dr Bob Spink, asked the environment secretary "what estimate he has made of the average time per year spent by a household in sorting and recycling rubbish." An important question of course, for that time spent sorting items to be recycled is obviously a cost of such recycling schemes. The answer came back from Jane Kennedy, minister of state in the department, "No such estimate has been made".

An answer that means that, quite simply, we do not know whether recycling is a good idea or not. For we don't in fact know whether it costs us more to do it than we save by doing it ... for those who have imposed it upon us have not considered one of the major costs associated with doing it.

Starting from the very beginning: your time has a value. This isn't restricted to your working hours either: the time you spend cuddling your inamorata, building a model railway or in contemplation of a pint of Old Wallop has a value to you. That is why you do these things, because you value them. If, by law, we are going to insist that you give up some of that time, to do something we tell you to do, we need to value the time you're being forced to give up. Quite what value we can put on it is a little fraught. It might be that £10 an hour, something like the average wage across the country, is the right number. It might be £5.73 an hour, for that is the minimum wage, the figure below which it is illegal for you to sell your time. But it is some cash amount per hour, for you yourself have already decided that you'd prefer the cuddling, modelling or contemplation rather than working that extra hour for such a sum.

We'd also like to know how many hours you are being asked to give up to aid in the recycling effort, thus the question asked above. I've received a similar response when asking the same department directly: they don't know because they've never bothered to consider the point. There's almost no academic research on this either, the amount of time it takes to prepare to recycle. The best I've been able to find is something from Seattle, showing that it takes a household 16 minutes per week for a simple programme and 45 minutes for one including food and garden waste. We have some 24 million households in the UK, so for a simple system we're asking everyone to give up 6 million hours a week or around 300 million a year. At minimum wage this is a £1.8bn minimum cost of such a system. At the longer estimate of hours for a more complex system and using the average wage, we have a cost of £9bn. These are the numbers we now need to plug into our cost benefit analysis of whether we should in fact be recycling.

Now don't get me wrong, I'm not against all recycling: no one who has bought and sold scrap metal for a living would be so stupid as to say that none of it makes sense. But we do need distinguish between things it is sensible to recycle and things that it is not. Steel, aluminium, copper, yes, clearly so, these make profits even when all of the costs are included and profit is the market's way of working out whether you are in fact adding value in a process. There are also other factors that we might want to include on our benefits side, things that aren't taken account of in market pricing. Say, perhaps, the methane given off from landfills, even the aesthetics of landfills themselves. Fine, add away: then we can work out whether recycling a particular product in a particular way actually makes sense or not. We assign values to all of the costs and to all of the benefits, tot them up and if B is higher than C then it's a good idea. If C is higher than B then it's a bad one for it makes us poorer by doing it.

It's also true that wittering on about "saving resources" doesn't get around this point. For time itself is a resource, one with a value as above. Indeed, it's not a difficult argument to make that time is the only truly non-renewable resource that we have and thus one that we really don't want to waste.

Now I agree that there's a little of tilting at windmills to all of this. Our targets for recycling aren't actually something in the power of our own government to alter. They are fed to us from Brussels, for matters environmental are a sole competence of the European Union. Local councils will be fined if they don't meet the targets and there's an end to the matter.

However, a few more numbers. We were told in the Waste Not, Want Not report that waste disposal was costing us £1.6bn a year and that if we didn't do something this could rise to £3.2bn. We thus needed to recycle more and reduce this cost … but hang on; recycling more also imposes this huge cost of our time. So are we in fact saving resources at all by pushing out our plans to recycle ever more of our waste? Or are we in fact consuming more resources than we're saving?

Here at Cif there are enough environmental and green type authors whose knowledge and brains we can pick. I'm perfectly happy to agree that the numbers I've used for the valuation of our time are back-of-the envelope stuff: however, they're the only attempt so far that anyone has made at all for the UK, as above, even the government hasn't tried to calculate them. So the labour cost alone of a simple recycling scheme is some £1.8bn a year and of a more extensive one, of the type being rolled out, is perhaps £9bn a year. I would say that this is vastly more than any benefits that we receive from that process. It's greater than the resources saved, it's greater than any environmental benefit, greater than any reduction in transport or emissions, greater than any rational calculation of what we get back for what we're being forced to put in.

So how about it? Caroline Lucas, George Monbiot, Oliver Tickell, Mark Lynas, Tony Juniper – there are enough people around here who should be able to prove me wrong. How much time is required to recycle, how should that time be valued, what are the benefits (valued in money please, so that we can compare costs with benefits), whether those benefits are environmental or more direct and, finally, show us that the benefits are greater than the costs. Please do add in CO2 savings for example, using the Stern review's estimate of social cost.

And no, saying that we've a new state religion and that we should all be required to worship Gaia for an appropriate time each week won't cut it. Anyway, it should be easy to provide these numbers – even though the government clearly hasn't done a proper cost benefit analysis, surely those urging us all to recycle more will have done so – won't they?

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