UK childcare crisis can only be tackled by radical reform

New policy brief sets out vital steps to drive down childcare costs and improve quality

• The prohibitive cost of childcare disproportionately hurts women. Women are often financially punished for pursuing a career because the cost of childcare in the UK is the highest in the OECD.

• Many women must choose between becoming relatively poorer or putting their career aspirations on hold. But this need not be the case.

• Despite the recent Budget announcing an extra £4 billion a year to subsidise childcare, it remains in need of significant reform.

• The Adam Smith Institute has compiled the strongest arguments in favour of reforming childcare and complementary policies to bring down costs, provide better quality, and increase parental choice.

A new policy brief from the Adam Smith Institute’s proposes a variety of measures, including:

1. Ending the £100,000 tax cliff edge.

2. Easing informal childcare arrangements.

3. Providing tax credits for work-based creches.

4. Frontloading Universal Credit payments.

5. Restructuring the Free Early Education Entitlement Scheme.

6. Increasing training and qualifications subsidisation. 

Sofia Risino, Research Associate at the Adam Smith Institute, said:

“Whilst it is very encouraging to see the Chancellor take steps to adjust our childcare regime, there is still so much to do on the supply side. Simply dumping more cash onto parents solves some issues, but only in the short-run. Changing the cliff-edge, deregulating childminding, going further to encourage work-place creches, and opening accessibility to the Skills Fund are the longer-term solutions that the government should be pursuing.”

Notes to Editors:

For further comments please contact Director of Communications Connor Axiotes on connor@adamsmith.org, or 07584 778207.

The Bank of England’s Failure: baked in inflation is making us all poorer

The Adam Smith Institute on Bank of England rate rises amidst high inflation and excessive Quantitative Easing.

With CPI rising to 10.4%, inflation is more baked in than many imagined. Inflation is most hurtful to the poor and vulnerable in our society, who are least able to afford price rises or renegotiate their pay. The Adam Smith Institute wants to see:

1. The Bank of England answer for its abject failure in meeting its 2% target and recognition that they were too slow and timid in managing inflation.

2. Central bankers refocus on the core types of money (such as M1 and M2), which were neglected despite huge spikes, a key cause of current inflation.

3. Caution against overcompensating now (through excessive rate rises), needlessly risking financial stability, and prompting bank runs, and a recession.

4. The government helping to counter inflation, with supply side and planning reform - not further boosts to demand that distort the economy and fail to fix the root problems in the UK economy.

CPI rising to 10.4% shows that inflation is more baked in than many imagined. The rise prolongs our cost of living crisis, punishes savers, makes goods increasingly expensive, and encourages public sector strikes as workers seek higher wages to compensate.

Inflation is most hurtful to the poorest in our society - those least able to afford price rises or renegotiate their pay. It is a moral failing of policy and leadership that the most vulnerable take on a disproportionate share of the burden.

We cannot continue to sit idly by and expect the problem to fix itself. The ASI believes there has been an abject failure of monetary policy. Although the Bank of England has independence to make rate decisions, they have materially failed to meet their 2% target. This alone should prompt the resignation of the Governor, Andrew Bailey. However, with Number 10 redirecting flak to external supply side shocks, the Old Lady of Threadneedle Street has been cleared from blame in the press and politics.

Inflation was not a transitory problem, or simply the result of Ukraine and supply shocks, but a failing of central bankers. Monetary policy was too loose in the US and UK, with a huge spike in M2 money supply during Covid. The Federal Reserve and Bank of England were too slow and too timid to raise interest rates.

The Bank of England and its peers have serious questions to answer. Central banks must stop neglecting monetary theory and re-focus on money supply metrics. It is perhaps revealing that the Federal Reserve even discontinued weekly measures of money supply (M1 and M2) in January 2021, just after they spiked and provided a clear warning sign of the inflation which would follow. Likewise, the long-run pumping of M4 (broad money) propped the economy on credit-based stilts, meaning that it remained exposed across all sectors to external shocks.

Worryingly, central bankers now risk over compensating, with rates increasing and therefore monetary policy tightening too aggressively - a key historical cause of self-inflicted bank runs and recessions. One US measure of money supply (DM4) recently declined year-on-year, its largest fall in over a decade, a worrying omen: such declines have been followed by bank runs and recessions in the past Without a proper focus on money supply, the Bank of England risks needlessly damaging financial stability, prompting avoidable bank runs or causing a recession.

Our government can help counter inflation too, by revisiting supply-side and planning reforms. For example, if the UK builds more houses, creates more childcare capacity in nurseries, and rapidly approves and builds more nuclear energy, the price of these goods will come down. Some measures in the recent budget were targeted at the right areas (e.g. childcare), but by focusing on demand not supply, failed to fix the root issues.

END

For further comments, please contact Director of Communications Connor Axiotes on connor@adamsmith.org, or 07584 778207.

Simplify the Tax System - Maxwell Marlow on BBC's Sunday Morning Live

Our Director of Research, Maxwell Marlow, debates the ethics of taxation on the BBC’s Sunday Morning Live.

UK about to fall behind Poland - tax and red-tape is killing us

Our Director of Research, Maxwell Marlow, writes in the Express about the UK’s woeful economic performance and how even Poland is out-growing us. But Max explains there is a path back to economic vigour, and it lies in sound economic policy:

UK about to fall behind Poland - tax and red-tape is killing us, says MAXWELL MARLOW

As the Chancellor pores over his papers ahead of the budget, British businesses are concerned that they will be left in the cold.

Our Forgotten Medium event in Westminster was a hit

Duncan Simpson, Minister Kevin Hollinrake MP, Saqib Bhatti MP and Richard Harpin provided great analyses of our new report Forgotten Medium: Helping Mid-Sized Businesses to Scale Up.

The Forgotten Medium: Helping Mid-Sized Businesses to Scale Up

A new report from the Adam Smith Institute co-authored by our Executive Director, Duncan Simpson; Director of Research, Maxwell Marlow; and Head of Research, Daniel Pryor, finds that medium-sized businesses (MSBs) and their size-specific challenges are often neglected in public policy debates. MSBs are the “Forgotten Medium”.

• Focus is skewed towards both the smallest and largest companies in the UK, who benefit from support not offered to the “Forgotten Medium.”

• Scaling up MSBs would boost the UK’s growth prospects, in particular in areas of ‘levelling up’ concern. 

• Over 83% of MSBs are outside London and the South East. Their products are overwhelmingly in non-services sectors such as retail, wholesale, and transport.

• The following policy changes can alleviate these problems:

  • Implement a recommendation of the 2019 Augar Review for a lifelong loan entitlement. This would allow for 4 years of post-18 education over the course of a lifetime, allowing individuals (especially in MSBs) to re-skill. 

  • Enterprise Investment Allowance & Venture Capital Trust schemes should be modified to remove the cliff-edges facing MSBs who partake in them. To keep current and potential investors, the number of employees allowed should be raised to 999 from 249, as well as increasing the turnover and balance sheet totals.

  • High Potential Individual visas should have a widened list of elite universities and a lower application fee to attract more high-skilled foreign labour. 

  • The Annual Investment Allowance should be made unlimited from its current level of £1 million. This would improve the growth prospects of MSBs, especially in capital intensive industries.

Richard Harpin, entrepreneur and founder of HomeServe, said of the Adam Smith Institute’s new report:

“Successive governments’ growth policies have overly focused on the biggest corporates or the smallest start-ups.  Yet it’s Britain’s tens of thousands of medium-sized businesses that are the lifeblood of the economy and key to more jobs, productivity, and growth.

“Growing HomeServe from an idea into a FTSE 100 company took 27 years but making the jump from medium to large was by far the biggest challenge. Just when businesses are on the cusp of something great, the policy support plug gets pulled.

“The Adam Smith Institute is spot on: if we want to catch up with the rest of Europe, Britain needs to rethink how it supports this crucial yet neglected segment of the economy.”

-ENDS-

Notes to editors:

• For further comments or to arrange an interview, contact Connor Axiotes, connor@adamsmith.org | 0758 477 8207.

A Global Minimum Corporate Tax could derail Levelling Up

The Adam Smith Institute’s new report Levelling Down reveals why A Global Minimum Corporate Tax could derail Levelling Up

• A new report by the Adam Smith Institute’s Senior Fellow, Dr. Tyler Goodspeed, finds that the UK’s decision to rush the implementation of a global minimum corporate tax rate will undermine the Government’s Levelling Up agenda.

• Proposals undermine key areas of UK tax policy including investment zones and free ports, business tax credits, and accelerated cost recovery for new capital investments - which makes up over one-third of all UK investment.

• The UK’s early implementation of global minimum tax rules is fraught with risk and the Government should carefully scrutinise current proposals to limit potential economic damage. 

• It will result in the Levelling Down of the UK rather than the Levelling Up.

A new report from the Adam Smith Institute (ASI) and authored by Dr. Tyler Goodspeed finds that the Government's Levelling Up agenda is at serious risk of being derailed by the decision to rush the implementation of a Global Minimum Corporate Tax rate.

There are two important weapons for the UK's Levelling Up agenda: freeports and investment zones. The Prime Minister wants to use these to incentivise firms to set up shop in run-down regions and coasts in the UK that could use the investment and jobs. Incentives include tax credits and breaks, subsidies, tariff-free zones for imports, the lowering of national insurance contributions when hiring new staff, among other attractive levers.

This report finds clear evidence that the structure of this global tax agreement directly undermines the Levelling Up agenda and hurts the competitiveness of key UK industries by tying the hands of the Government.

Former Secretary of State, the Rt. Hon. Jacob Rees-Mogg MP, in reaction to the Adam Smith Institute’s new report:

“Tax competition between countries keeps rates low and increases prosperity. Agreeing high rates among a cabal of developed nations will keep the world poorer.” 

The paper recommends the following:

1. The UK’s early implementation of global minimum tax rules is fraught with risk, and with limited upside. Policymakers should carefully scrutinise current proposals to limit their potential economic damage, damage which will disproportionately impact the poorest regions at most need of Levelling Up, not Levelling Down.

-ENDS- 

Notes to editors:  

• For further comments or to arrange an interview, contact Connor Axiotes, connor@adamsmith.org | 0758 477 8207.

• Dr. Tyler Goodspeed is the Kleinheinz Fellow at the Hoover Institution at Stanford University, and a Senior Fellow at the Adam Smith Institute. From 2020 to 2021 he served as Acting Chairman of the U.S. Council of Economic Advisers, having been appointed by the President as a Member of the Council in 2019. Before joining the Council, Dr. Goodspeed was on the Faculty of Economics at the University of Oxford and was a lecturer in economics at King’s College London. He received his B.A., M.A., and Ph.D. from Harvard University; and he received his M.Phil from the University of Cambridge, where he was a Gates Scholar.

Talk of British declinism may be unhelpful politically but it is our economic reality

Our Director of Communications, Connor Axiotes, on the day of the Chancellor’s Growth Speech in the Telegraph:

“Talk of British declinism may be unhelpful politically but it is our economic reality. We have expensive, inefficient public services funded by record high taxation, a chronic undersupply of housing, and a productivity crisis.

“The Chancellor was right when he said a decade of black swan events have impeded British economic progress. But there are measures which are in our control and policy changes can improve our lot.

“This government needs to go further by using the levers at their disposal to turn British declinism around: tackling childcare costs, building houses, lowering the tax burden and increasing private investment in the UK.”

Tame Inflation, Cut Taxes - Connor Axiotes on TalkTV

Our Director of Communications, Connor Axiotes, talks to Peter Cardwell of TalkTV.

Realign Economic Incentives to Improve Young Britons' Prospects

Drastic reforms to planning, tax welfare and education are needed to reduce intergenerational inequality and boost economic growth, says think-tank

• An increasingly large divide has opened up in British society between generations in which the young lose out, while the elderly benefit;

• Intergenerational inequality is not just an issue of fairness between the young and the elderly — the ways in which it is expressed are a drag anchor on the productivity and economic growth that Britain desperately needs;

• Drastic reforms to planning, tax, welfare and education are needed to boost productivity, wages and prosperity, and lower taxes from a postwar high.

A new report, Boomer and Bust: Realigning Incentives to Reduce Intergenerational Inequality, from the Adam Smith Institute (ASI), draws attention to the increasingly large divide between the generations, in which the young lose out, while the elderly benefit. This divide is reflected across diverse policy areas with profound implications for society, covering access to asset wealth and housing affordability, benefit and pension spending, the national debt, Covid-19 lockdowns, and the cost of education. 

The report’s authors highlight that many of the root causes of intergenerational inequality are intimately linked to Britain’s lacklustre productivity growth. The incentive structures that drive this inequality have led to an unacceptably low standard of living and have forced the country to pay higher taxes for worsening public services. These fundamental problems will only be exacerbated as Britain’s population ages. 

While it is not the case that the elderly have been purposefully robbing the young of their future, they have benefited from the unintended consequences of our current political incentive structures. The answer to some of these challenges does not lie in intergenerational conflict, but in policy changes that create mutually beneficial outcomes. 

As part of the paper’s research, public opinion polling of Brits was commissioned, aiming to gauge which changes would be supported and politically viable. The polling found that:

• The majority of people (52%) support more development in their area, at least in principle. This has increased from 38% in 2021.

• There is an overwhelming acceptance (84%) that it is much harder today for young people to buy a home than it was for their parents. 

• There is significant support (70%) for unfreezing income tax thresholds. This suggests that the income tax freeze until 27/28 deserves its moniker as a ‘stealth tax.’ The vast majority of people do not support the policy when it is made clear how it works and how it affects them.

• There is very strong support (66%) for school leavers, who do not go onto university, to get access to a similarly sized loan, to help with professional development and setting themselves up for a career without having to go to university (i.e. to buy tools, tech, courses or a vehicle).

• There is majority support (50%) for a specific proposal of up to £6,000 per annum for three years being loaned to school leavers who do not go on to university. 

The paper recommends the following:

1. See through Street Votes, which would allow local residents to set design rules and financially benefit from densification;

2. Replace the triple lock on pensions with a smoothed earning link;

3. Unfreeze income tax thresholds;

4. Abolish stamp duty;

5. Remove the bias towards the university system by offering personal development loans to school leavers who do not attend university of £6,000 per annum over three years.

John Macdonald, Director of Strategy at the Adam Smith Institute and report co-author said:

“The country’s political incentive structures are in urgent need of reform. Politicians too often shy away from taking this challenge on, certain it will lose them votes, and are willing to kick the can down the road for the sake of electoral expediency. 

“This kind of thinking is not only holding the country back, but is politically disastrous in the long term. It is not just that younger generations are crying out for new homes, better infrastructure, more opportunities and higher wages. Continuing to fail in any of these areas will have immense consequences for the entire country — including the current beneficiaries of intergenerational inequality. Without a growing economy and a productive working population, we will be forced into paying ever higher taxes for decaying public services. The best time for these reforms was yesterday. The next best time is today.”

METHODOLOGY:

Research Lead

Polling was conducted by Dr Michael Turner, Director at Freshwater Strategy, and Fellow of the Adam Smith Institute.

Fieldwork Dates

21-25 September 2022.

Data Collection Method

The survey was conducted online. 

Population Sampled

Adult residents living in Great Britain.

Sample Size

n = 1,001

Weighting

Data are weighted to match the profile of the adult population living in Great Britain. 

Margin of Error

The maximum margin of error for this poll is +/- 3.6% when analysing topline results.

-ENDS- 

Notes to editors:  

For further comments or to arrange an interview, contact Emily Fielder, emily@adamsmith.org | 0758 477 8207.

John Macdonald is Director of Strategy at the Adam Smith Institute.

James Dickson is an independent researcher and commentator and author of the Himbonomics substack newsletter.

Dr Michael Turner is Director at Freshwater Strategy and a Fellow at the Adam Smith Institute.

The Adam Smith Institute is a free market, neoliberal think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

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