UK must lead fight against financial red tape

·      Other EU countries aim to strangle the City with regulation

·      UK should push for global market regulation instead

·      Global regulation must boost competition at low cost

Envious EU countries are out to tie the City of London up in regulatory knots, says a report today from the Adam Smith Institute. The independent economic think-tank says the UK needs to act now to preserve the future of its most important international earner.

Instead of submitting to onerous regulations inspired by our competitors in Paris and Frankfurt, the UK should call for simple and fair regulations that apply across the world. That, it says, would create a world market in which London could excel, rather seeing business move to Singapore and other low-cost centres.

“The UK should campaign for global rules that promote competition and innovation, rather than loading Europe and the UK with costs,” said the report’s author, regulation expert Tim Ambler. Those rules should focus on protecting consumers and promoting trade, not creating larger and larger rule-books that nobody can possibly read.”

Ambler says that thousands of pages of EU regulation could be replaced with just eight key principles to promote honest trading. [See 4-pager.]

“Regulation is already strangling the financial sector and there are just two ways to correct this,” he continued. “One is for the UK unilaterally to cut out the red tape and hope others will follow. But a better way is to recognise that finance is a global industry, needing global regulation, and for the UK to campaign to make this regulation as light as is needed to protect customers.”

Noting that only one new retail bank has been set up in the UK in the last 130 years, the Institute argues that the complexity and cost of financial regulation now seriously discourages competition in the UK and Europe. Increasingly, City firms will see their business by competitors in Asia and elsewhere. It argues that the new City regulator, the Financial Conduct Authority, should be “strangled at birth,” with the Bank of England regulating providers and the Financial Ombudsman Service looking out for customers.

Dr Eamonn Butler, Director of the Institute, added: “Not content with drowning our main industry in red tape, we are letting our competitors in Paris and Frankfurt pile on more. The UK government needs to come out, fists flailing, to campaign for effective but low-cost regulation across the world, rather than allowing us to become an uncompetitive backwater.”

Sam on BBC 3's Free Speech

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Sam on Radio 4 PM Show on austerity & Italy

Summary

Sam Bowman appears on Radio 4's PM show talking on the Italian economy and the election results. He argues that Ireland has implemented much greater austerity measures than Italy, but because it has combined the measures with a liberalising of it's business environment, it has experienced much greater growth than Italy and many other Eurozone countries. 

You can listen to Sam here (from 9mins in) 

Osborne's Capital Gains increase cut his 'tax take'

The report was featured in the following outlets:

Daily Mail: Osborne's Capital Gains increase cut his 'tax take'

Daily Mail: Is a tax cut for buy-to-let landlords on the cards? Calls for Capital Gains Tax to be slashed after hike lowers revenues

The Sun: George's flagship levy hike is a loser

ConservativeHome: The Chancellor should cut CGT in his budget. Higher rates have been counterproductive. 

Spectator Coffee House: The government must cut or even scrap capital gains tax

Daily Telegraph

Summary

Our press release revealing that Capital Gains Tax revenues fell after the increase in the tax rate received both print and online coverage. 

Capital Gains Tax hike led to falling revenues

• Think tank tells Chancellor to slash CGT rates in Budget

The Adam Smith Institute is calling on the government today (TUESDAY) to slash CGT rates in next month’s Budget in order to boost revenue and economic growth. 2010-11 figures now released by HM Revenue & Customs (HMRC)[1] show that the rise in Capital Gains Tax (CGT) was a failure. It meant to raise more revenue, in fact it raised less.

CGT was raised from 18% to 28% for most taxpayers (entrepreneurs’ relief stayed at 10%) in June 2010, nearly three months deep into the tax year. This unusual timing allows economists to see the impact of the rate changes during the year.

Comparing the 78 days from 6th April 2010 to 22nd June 2010, and the 287 days from 23rd June 2010 to 5th April 2011, shows a marked fall in revenues. The annual equivalent CGT revenues under each system are[2]:

There was a 76% drop in normal disposals (taking 18% and 28% together for post-23rd June figures, because figures are not available for the equivalent split for pre-June). Clearly, many people sought to realise gains before the rate increased, knowing that the Coalition Agreement committed the Government to a sharp increase in CGT rate.[3] There was also a 34% drop in 10% ER disposals, probably because entrepreneurs feared further tightening.

However, this highlights the fact that CGT is effectively a voluntary tax, paid only when people choose to dispose of assets. If they perceive rates to be too high, they choose to keep assets rather than dispose of them. Only a few people are forced to sell assets – many of them elderly people who build up assets throughout their lives and then cash them in to live on.

High CGT rates depress economic activity and prevent the flow of capital to where it can be most productively used. This lowers both economic growth and government revenue.  This is why the Adam Smith Institute is urging the government to slash CGT rates to their pre-2010 levels, which would raise more revenue for the Treasury and also stimulate growth. 

For example, if someone owns a buy-to-let flat and is thinking about selling it to raise seed money for a new business, the fact that a large chunk of the proceeds has to be paid in tax will deter them.  They may well decide to keep the flat and not start the business, thus depriving the state not only of the CGT revenue, but also the taxes that would be paid by the new business and its employees.

People’s reluctance to pay a large cheque to the state is increased by the knowledge that much of their capital gain is actually due to inflation. Indeed, roughly half of taxable gains are attributable to inflation[4].

Dr Eamonn Butler, Director of the Adam Smith Institute says: “The coalition policy of a sharp increase in CGT rates has failed.  Not only has it raised less revenue, it has also reduced the available capital in the economy. That is the last thing businesses need at a time when bank loans are so difficult to get.”

Lib-Dems to let 1.3m low earners avoid paying tax

You can read the full article, including Dr Eamonn Butler's views on the policy, here. 

Summary

Following on from the Adam Smith Institute's call to raise the personal allowance to minimum wage level, Danny Alexander MP tells the Evening Standard he wants this policy to be a Lib Dem pledge for the next election. 

Tax avoidance

 He argues that we shouldn't name and claim tax avoiders - the blame lies with politicians. Tax rates are too high, meaning that people will seek ways of avoiding paying their tax and the tax system is too complex, offering so many tax loopholes.

You can listen to his interview here (from 4.50mins in)

Summary

Dr Eamonn Butler talks about tax avoidance on BBC Radio WM.

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Social care reforms

He argues that the if people choose to save through their homes they should be prepared to expiate it into cash to pay for care in a residential care home rather than expect taxpayers' to foot the bill. 

 

You can listen to him on Radio Five here (from 42mins in). 

Summary

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Gay or straight, marriage should be out of the hands of the state

You can read his full article on Guardian.co.uk here. 

Summary

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