From Institute of Economic Affairs <[email protected]>
Subject Taxing times
Date September 12, 2021 8:00 AM
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Although Covid is still with us, it’s been great to get back to something approaching normal. Over the period of the pandemic, the IEA has used Zoom and YouTube ([link removed]) to great effect and we have reached many thousands more people than we would have done if we’d relied just on old-fashioned "bricks and mortar" events.

However, there is something about meeting face-to-face that simply can’t be fully replicated in online fora. Although this is true for all sorts of enterprises, it is probably especially true for think tanks.

Communicating and exploring ideas certainly benefits from being in the same physical room. It’s been fantastic to be able to host so many students in the IEA offices again this summer as part of our extensive summer school programme for sixth-formers and undergraduates.

In the weeks ahead, we will continue to produce a high quantity and quality of online content – we have reached many hundreds of thousands of people through YouTube since the pandemic began – while complementing this with meeting in person again.

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Of course, the return to normality means that just around the corner from our offices, there is now a full Parliament again. Unfortunately, the "new normal" in government policy seems to be very much like the "old normal". We find ourselves in a situation where the solution to every problem – real or perceived – seems to be to increase taxes or state interference (or both) in our lives.

So we have seen this past week with the government’s ill-judged hike in national insurance to help fund the NHS and social care. I discussed the proposals on Adam Boulton’s Sky News programme, The View, and found myself in the unusual position of agreeing with left-wing commentator Polly Toynbee – at least on the issue of how bad the proposals are. I also talked about the policy with Kevin O’Sullivan on his TalkRadio ([link removed]) show (from 1:23:00), where we agreed that there’s a danger that on health and social care the state is simply motivated by spending more money – often to a remarkable lack of effect.

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Ronald Reagan once observed that there is nothing so permanent as a temporary government programme. The £20 weekly uplift in Universal Credit does, however, look like it’s coming to an end, but not without a large range of voices who seem determined to retain it. I discussed the topic with Jeremy Vine on BBC Radio 2 ([link removed]) on Thursday (from 1:06:00).

With government spending at such astronomical levels, the highest tax burden since the Attlee administration and a serious budget deficit, we at least need to consider trade-offs when it comes to state spending. Almost everything seems to be an "absolute priority," whereas we are now surely in a position where arguing for enhanced spending in one area should oblige you to suggest other areas where it can be cut?

This "new normal" in government policy is going to need a free market analysis and critique as intense as the IEA has ever provided. Thanks to all of you who help us spread that message. I hope to see many of you in person before too long.

Mark Littlewood
Director General and Ralph Harris Fellow, Institute of Economic Affairs

We are delighted to announce the winner and runners up of this year’s 2021 Dorian Fisher Memorial Prize. Named after the wife of IEA Founder Sir Antony Fisher, this is one of our most popular essay competitions of the year.

The first prize of £500 went to Marcella Impelliziere Licastro from Curitiba International School in Brazil, while the three runner-up prizes of £250 each went to Melinda Zhu (Westminster School), Max Foden-Ellis (Royal Grammar School, High Wycombe), and Adi Mehrotra (The Latymer School). Among those who just missed out on one of the top prizes were Yike Grace Li, Syed Mustangs, Laiba Muhammad Ali, Shrey Kakkar, Vidal Kamath, Theo Sivyer, Max Sears, Kayan Intwala, Chloe Fangiono, Hannah Shiohara.

The prize of £500 for the school with the highest number of entries went to Queen Elizabeth, Barnet. Congratulations to all the winners!

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And we are thrilled to be opening up this year's Budget Challenge – a joint competition between the Institute of Economic Affairs and the Vinson Centre for the Public Understanding of Economics and Entrepreneurship at the University of Buckingham.

Students... For a chance to win £1,000 for you and your school – enter a team for the national competition that will help you learn more about economics, develop your writing, research, and analytical skills, and give you a better understanding of the policy issues and challenges facing national decision makers.

For further details, click here ([link removed]) .

On Tuesday, Boris Johnson announced he would be breaking a manifesto commitment and raising National Insurance Contributions (NICs). The new "health and social care levy" of 1.25 per cent was presented as the least bad way to fund about £12bn a year in additional spending. But IEA staff were quick to question whether it amounted to much more than a piece of political jiggery-pokery.

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Writing for CapX ([link removed]) , IEA Economics Fellow Julian Jessop concluded that the idea of a 'ringfenced' health levy is a total mirage – but it will be much easier to sell to voters. Read here ([link removed]) . On Reaction, IEA Editorial and Research Fellow Professor Len Shackleton described the NICs hike as a "smoke and mirrors" policy that was doomed to fail. The government is "storing up trouble" by bringing us the highest rate of taxation since the Second World War. Read here ([link removed]) .

Both Len and Julian told the Daily Mail that we may not see much for this additional investment.

Julian argued: "There is a risk that a temporary increase in spending on the NHS, to fix a temporary problem, becomes baked into the system, particularly via higher pay."

Len added: “The NHS is a huge employer, and any move to increase pay above the level already budgeted for will eat into the new funds made available."

Read the article here ([link removed]) .

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And in an opinion piece for the Daily Mail, IEA Head of Lifestyle Economics Christopher Snowdon argued that we are deluded to think the NHS is a world beating health service. Data suggests we lag behind on key indicators, such as numbers of doctors and cancer survival rates, compared to many other European nations. Pouring more money into the NHS will fail to make any difference; we need major structural reform to ensure a truly world class health service. Read the full article here ([link removed]) .

Christopher also wrote a letter ([link removed]) to the Editor of The Times, saying: "The NHS will swallow this cash and demand more, as it always does. The idea that the government will cut the health budget on the eve of an election after this 'temporary' boost is fanciful."

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Christopher's thoughts were echoed in a Daily Telegraph piece authored by Madeline Grant – the paper's Parliamentary Sketchwriter, who is formerly of this parish. Madeline wrote:

"As [IEA Head of Political Economy] Dr Kristian Niemietz noted in a recent report, the NHS now ranks in the upper-middle among OECD countries for total healthcare spending, ahead of such countries as Denmark and the Netherlands, yet remains 'consistently below-average in terms of outcomes'."

Read the piece in full here ([link removed]) , or Kristian's latest paper, which compares the NHS to the Australian healthcare system, here ([link removed]) .

Lastly, our Director of Communications Annabel Denham lamented that the debate centred on "which tax is worse" rather than whether we should be looking to increase them at all in an article for The Telegraph ([link removed]) . Annabel also told the Daily Mail ([link removed]) that the tax rise will damage businesses and the wider economy: "Higher taxes will reduce demand, discouraging investment and hiring. They will deter entrepreneurship and innovation by reducing the potential gains for risk takers," she said.

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Adapt or die... In his bi-weekly column for The Times, Mark Littlewood argued that trade unions and legislators have failed to adapt to the UK’s dynamic and flexible labour market.

Mark wrote: "Amazingly, two thirds of those in the labour market say they would like to start their own business to run alongside their present job. Those that do so are likely to find themselves as a worker for some part of the week and a boss for the rest, which is not a mix that fits neatly into the trade unions’ rather binary approach to employment."

Read the article in full here ([link removed]) .

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No to NI?...
On BBC Politics Live this week, Annabel Denham debated the social care bill with Conservative MP Laura Farris, Commentator Paul Mason and Labour MP Thangam Debbonaire. Annabel's view was that, while the government may have lost all credibility on tax promises, this probably won't "break" Boris Johnson. She also insisted that hiking NI to fund social care was not the only option on the table. Catch up here ([link removed]) .

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Universities challenged... It is not widely realised that universities are private institutions even though they are regulated and subsidised by the state, wrote IEA Senior Academic Fellow Professor Philip Booth on the IEA blog. "They are responsible for their own management, and they must be held to account if that management fails... The message needs to go out loudly and clearly from government: no university has a right to exist forever."

Read his piece in full here ([link removed]) .

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Foot off the gas... According to the latest data from the Office for National Statistics, the UK economy grew by just 0.1 per cent in July as the last Covid restrictions were lifted in England.

Responding to the data, Julian Jessop said:

"Overall, the July GDP data were disappointing, but should only be a pause before a renewed acceleration. The UK labour market is still bouncing back strongly, and there’s plenty of scope for more spending by both consumers and businesses. The relative flexibility of the UK economy should help too.

"Nonetheless, now is clearly a bad time to be ramping up the tax burden even further. The Bank of England also urgently needs to rethink whether it should be adding to inflation risks by continuing to pump more money into an economy which is already running into supply constraints."

Read his response in full here ([link removed]) .

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Helping the Aged... Last weekend, our Head of Public Affairs Emma Revell wrote a piece for The Sunday Telegraph ([link removed]) arguing that Britain appears to be run for the benefit of the elderly at the expense of the young. She said that the social care decision outlined above forms part of a long-term pattern, and criticised the failure by successive governments to tackle our housing crisis.

Emma asked: "Is it really right that so many homeowners deny their children and grandchildren the opportunity to buy a home by objecting to any housing development that dares enter their postcode?

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But IEA staff don't always see eye-to-eye. Annabel Denham took a slightly different view in her column in The Spectator ([link removed]) this week, arguing that variations in circumstances within different age groups "preclude simple assumptions — or answers".

Annabel wrote: "Many of today’s young face difficult circumstances, but that doesn’t mean, in the words of Lord Willetts, that boomers 'took their future and should give it back'. Yes, some policies favour older generations and delay the young’s graduation into adulthood... But government benefits are not confined to the over-65s."

Read the piece in full here ([link removed]) .

The IEA, in partnership with the Vinson Centre, hosted two events at the University of Buckingham over the course of this week.

Our Young Scholars Conference was aimed at those interested in a career in academia. The theme was 'Globalisation, World Order and Cosmopolitanism,' and it explored both the question of international order and political economy in the liberal political tradition, and the ways in which the rules-governed international order created after World War II is coming under increasing pressure. IEA Head of Education Dr Steve Davies was discussion leader.

Our Economic Thought Leaders Symposium explored the Future of Economic Thinking. Participants were given the opportunity to hear from some of the top classical liberal academics in the UK, and to discuss new frontiers in education, trade policy, money, and technology. There was also an in-depth discussion on the history of economic thought as well as the opportunity to meet like-minded students. Speakers included Professor James Tooley, Vice-Chancellor of the University of Buckingham, Lord Hannan of Kingsclere, and Dr Steve Davies.

Thank you to all of you who have already signed up to become an IEA Online Patron. Becoming a Patron grants you VIP access to our latest videos, priority invites to our virtual events, and the opportunity to engage directly with IEA Director General Mark Littlewood and the IEA team. For just a small donation you can get all these benefits and more.

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To visit the page and find out more about the IEA’s Patreon, follow the link here ([link removed]) or watch our trailer here ([link removed]) .

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Join us at 5pm this Tuesday, 14th September, for a panel discussion titled: 'OECD Global Minimum Corporation Tax: The Challenges for the UK'.

Audience are welcome at our offices to watch the event in person, and it will also be livestreamed on the IEA YouTube channel here ([link removed]) .

On 5th June 2021, the G7 reached a landmark agreement to support the creation of a global minimum corporate tax rate of at least 15 per cent on multinational companies. This feeds into the existing efforts of the Organization for Economic Cooperation and Development (OECD).

What are the challenges that this suggested accord poses on the UK? Are there any practical problems with this new proposal? Considering the pandemic, is this the right approach to ensure economic recovery, both in the short and long term?

On the panel:

Kate Andrews (Chair), Economics Correspondent, The Spectator
Brendan Clarke-Smith, Conservative Member of Parliament for Bassetlaw
The Lord Kamall, Conservative Life Peer; IEA Academic and Research Consultant
Richard Teather, Former Senior Lecturer in Tax Law at Bournemouth University; Author of 'The Benefits of Tax Competition ([link removed]) '

For further details, please click here ([link removed]) .

The Institute of International Monetary Research at the University of Buckingham will be kicking off its Autumn Money Webinar Series at 6pm on Wednesday 13th October, with a discussion with James Ferguson, Founding Partner of MacroStrategy. Please click here ([link removed]) to register, and here ([link removed]) for further details on forthcoming IIMR events.



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