www.adamsmith.org

There is no question that the

emergency budget delivered

by George Osborne, the

Chancellor of the Exchequer,

on Tuesday 22 June marked a turning

point in British politics. Out went

profligacy and fiscal stimulus, and in

came austerity and fiscal responsibility.

Public spending would be savagely cut,

and the budget deficit eliminated by the

end of the Parliament.

At least, that was the spin the

government put on it, and the

media took the same line with great

enthusiasm. There’s nothing like a good

headline, after all. But was it true? Was

this really the beginning of a once-in-a-

lifetime attempt to re-think the role of

the state?

Perhaps not. Most of the cuts that

we’ve read about in the newspapers

aren’t really cuts at all. Rather, they are

reductions in the increases planned

by the previous government. Public

spending will still go up over the course

of this parliament, from £647bn this year

to £711bn in 2015-16.

But that’s in nominal terms. If you

assume 2% a year inflation, it works out

as a real terms cut of £16bn. Strip out

the government’s debt interest payments

(which are on the up no matter what we

do) and you get more than £30bn of cuts

– equivalent to a 5% fall in spending.

Brave new world?Downsizing government is necessary and desirable. But it won’t be easy...

ADAM SMITHINSTITUTE

SUMMER 2010

2 3

Accomplishing that would undoubtedly be an achievement in itself. It is worth remembering that Margaret Thatcher’s government, though frequently reviled for implementing brutal cuts, actually oversaw an average 1% a year real terms increase in public expenditure. None of us should expect what George Osborne has proposed to be easy.

But this just underlines the great challenge that advocates of liberty, free markets and limited government face. The Blair and Brown administrations found it all too easy to massively expand the size and scope of the state, facing little opposition as they increased public spending by almost 60% between 1997 and 2010. Now their successors will have to fight tooth and nail for even the most modest reversal of this trend.

Frédéric Bastiat, the great 19th Century liberal, put the problem more succinctly: “Government, a vast, organized, living body, naturally tends to grow. It feels cramped within its supervisory mission. By now, its growth is hardly possible without a succession of encroachments upon the field of individual rights.” Just imagine if he could see us now!

But the fact that reducing the size of the public sector is difficult doesn’t mean it isn’t desirable or necessary. It just means that those of us who believe in individual freedom are going to have to fight harder than those who believe in state coercion. It means we need to be smarter, better

organized, and more appealing than our opponents. It means, above all, that we must win the battle of ideas.

That is the task that we set ourselves here at the Adam Smith Institute. We’re not in the business of producing weighty academic texts that will sit on shelves and gather dust. Our goal is to change events; to engineer policies that will advance the cause of liberty and then do everything we can to see them implemented.

Sometimes it’s a case of fighting a rearguard action, as in our recent campaign against the rise in Capital Gains Tax. But it is also about being constructive. It’s about coming up with plans to fundamentally overhaul Whitehall, or designing an Economic Responsibility Act that would bind the hands of future governments. And it’s about working out how the ‘Big Society’ – an idea that suggests replacing big government with voluntary co-operation – can be turned from rhetoric to reality.

Things have been all go at the Adam Smith Institute for the last few months, and I don’t see that changing any time soon. We have already hired a new communications manager, Sally Thompson, to make sure our ideas get the attention they deserve in the press and media, and we are now in the process of bolstering our research and political outreach programmes.

But the more we do, the more important it is to keep our friends and supporters updated. That’s why we’ve decided to start producing this quarterly newsletter – I do hope you enjoy it!

Tom Clougherty Executive Director

Irwin Stelzer, business economist and columnist for The Guardian and The Sunday Times, delivered the Adam Smith annual lecture on 3rd June. The

topic of the speech was the relevance of Adam Smith’s teachings for modern economic policy.

Mikheil Saakashvili, President of Georgia, spoke at an evening seminar in February on his administration’s ‘Liberty Act’. Most memorably, when asked why he wanted to bind the hands of his successors, the President replied, “I don’t trust any government, including my own”. British politicians, please take note!

In March we held our biannual Independent Seminar on the Open Society for 200 sixth-form students. An excellent debate was staged on the value of government, which pitted Mark Littlewood (Institute of Economic Affairs) against Tim Horton (Fabian Society), with the help of some champion debaters. We also had talks on entrepreneurship by Luke Johnson (Chairman, Risk Capital Partners), on the economy by Allister Heath (Editor, City AM), and on finance by Roger Nightingale (Economist, RDN Associates), while Peter Facey (Director, Unlock Democracy) discussed cleaning up Westminster.

In March, Dr Eamonn Butler and Dr Madsen Pirie won the 2010 National Free Enterprise Award. The award was

presented by Andrew Neil at a reception at the St Stephen’s Club.

The Next Generation have been treated to a number of interesting guest speakers this year. Luke Johnson (whose business ventures include Pizza Express) gave a talk entitled ‘The Unrepentant Capitalist’ in February. Jamie Whyte, philosopher and journalist, talked to TNG in March, whilst James Delingpole, Spectator and Daily Telegraph columnist, gave a solid defence of classical liberalism in his speech in May. At the most recent TNG, Steve Baker MP, talked about moral markets and honest money.

ABOVE: Dr Eamonn Butler and Dr Madsen Pirie receiving the 2010 National Free Enterprise Award

BELOW: Mikheil Saakashvili speaking at an ASI evening seminar

“ Government, a vast, organized, living body, naturally tends to grow. It feels cramped within its supervisory mission. By now, its growth is hardly possible without a succession of encroachments upon the field of individual rights”

EventsAdam Smith Institute

ASI Events

4 5

CGT campaignOne of our most successful campaigns this year was against the plans to raise Capital Gains Tax to the same level as income tax. ConservativeHome identified us as a key player in watering down the increase, with the release of two reports ahead of the budget. Madsen warned against the CGT rise in a detailed piece in The Mail on Sunday, whilst Eamonn appeared on the BBC News to explain our report, Tom on Sky News and Sally on ITV News. Both John Redwood and Steve Baker MP mentioned our reports on their blogs and campaigned against the tax hike. Over the course of our campaign, our reports and comments appeared in the papers at least 32 times – there were

also 82 online articles and 11 broadcast hits. Comments from Peter Young on CGT were included in a Sky News Radio bulletin that was used by more than 300 regional radio stations.

Tax Freedom DayThis year Tax Freedom Day fell on 30th May – meaning that for the first 149 days of the year every penny earned by UK residents was taken to pay for government spending. To mark the occasion we made a fun widget for our website which was picked up by a number of bloggers. The story was also covered across the national papers, including a detailed piece in The Times, and in a number of regionals. >>

ABOVE: Dr Eamonn Butler on BBC News and Tom Clougherty on the Politics Show, also coverage in The Sunday Times and Daily Express

In March, ASI fellow James Stanfield released his report ‘The Broken University’, examining what is seen and what is not seen in the UK higher education sector. He found no compelling evidence to suggest that public subsidies to higher education have any economic benefit. Stanfield also argued that taking into account hidden costs and unintended consequences, government intervention is doing far more harm than good and is holding back the development of the higher education sector.

A report by David Rawcliffe, ‘Arts Funding: A new approach’ was also released in March. The paper proposed a new system for arts funding: consumer-side subsidies delivered as vouchers to all citizens.

In April, ASI fellow Miles Saltiel wrote a briefing paper entitled ‘The Lesson of

a Levy on Banks’. He argued that a bank levy would do little to correct the problems in the banking sector while distracting from other, more pressing reforms.

Sam Bowman produced a briefing ahead of the general election on ‘An international development policy that works’, arguing that the Conservatives should radically overhaul DFID.

In another briefing paper, Dr Eamonn Butler proposed that Britain needs an Economic Responsibility Act. He also explained his view in detail in both The Sunday Times and The Wall Street Journal.

After the coalition agreement, the ASI released a paper on ‘The Effect of Capital Gains Tax Rises on Revenues’, arguing that the proposed increase in CGT would result in less revenue. This was then followed up with another report prepared by ASI fellows Richard Teather and Peter Young, who argued that the rise in CGT would result in a £2.48 billion loss of revenue. Both reports examined international evidence to back up their claims, and received widespread media coverage.

June was a particularly busy month. Eamonn wrote another briefing called ‘Re-booting Government: How to deal with the deficit without cutting vital services’. In the paper he called for a complete rethink of the role of the state, what it does and how it does it.

Meanwhile City economist and ASI fellow Nigel Hawkins also produced a report called ‘The Party is Over – A Blueprint for Fiscal Stability’ in which he argued the government needs to cut spending by 3% a year to balance the books by 2015. This would mean over £90bn of cuts in the course of this parliament with no ring-fenced departments (or tax rises). Unfortunately the coalition government’s targets are nowhere near so ambitious – as Tom Clougherty’s post-budget briefing paper pointed out.

PublicationsWe have already produced 10 reports this year, looking topics ranging from public spending to university funding and the need to re-boot government.

ASI in the newsThe release of so many reports, coupled with the formation of a new coalition government and widespread controversy about spending cuts and tax changes, has meant that the ASI has been all over the media. In May we welcomed Sally Thompson as our new Communications Manager; she arrived just in time for all the post-election activity. Here are some of our highlights from the last couple of months:

Adam Smith Institute in the newsPublications

6 Coming soon

Op-ed piecesTo tie in with the launch of the report ‘The Broken University’, ASI fellow James Stanfield wrote an article for The Times Higher Education supplement. This was then picked up by The Independent and Guardian, who responded to James’s proposals on changing university funding.

Madsen and Eamonn have both written a number of comment articles for the national and regional papers. Eamonn outlined two of his reports in separate articles in The Sunday Times. He also wrote for The Financial Times on the Queen and the constitution, in The Sunday Post about the budget and in The Scotsman about Scottish Tories. Meanwhile Madsen wrote in The Sunday Post about coalition politics

and Tom explained to readers of The Yorkshire Post why the NHS should not be exempt from spending cuts.

BroadcastWe’ve also been on TV and radio discussing a wide range of issues this year. Tom regularly appears on CNBC to comment on current political news, while Madsen recently appeared on the same channel to analyse the Queen’s speech and to comment on the emergency budget. Our spokespeople and fellows have been on a variety of broadcast shows including BBC World Service, Sky News, BBC News Channel, the Today Programme, LBC, Radio Five Live and many others in the past couple of months.

• Eamonn will be releasing his latest book ‘Austrian Economics – A Primer’

• Madsen will also be launching his new book ‘Understanding Economics: Economics for non-economists’. A launch reception will be held in July. More information to follow…

• The Liberty Lectures for students will take place on 4th August. It’s free to attend and brings together some of the top thinkers on liberty in the country. It will take place at the Cass Business School.

• Lib Dem conference: The ASI will be present at the Liberal Democrat conference in September, and will be holding a joint event with the IEA and Liberal Vision on Sunday 19th.

• Power Lunches: Hugh Hendry from Eclectica will be talking on 13th July, Bernard Gray from TSL Education on 22nd July and Douglas Carswell MP on 7th September.

• Publications: We will be busy releasing reports throughout the summer on issues such as decentralisation and localism, reforming local government finance, devolution, the planning system and social care for the elderly.

Coming soon

>>

For more information on our events please contact Philip: philip@adamsmith.org or check our website for further details www.adamsmith.org

Name:

Job title & Company:

Address:

Email:

Telephone no:

I would like to make a one-off donation of…

£150 £500 £1000

Other: £

I enclose a cheque payable to ‘Adam Smith Institute’

Please invoice me

I would like to set up a recurring subscription…

To (name of bank)

Please debit my account

Sort code: - - .

Account no:

starting (date) / and annually thereafter, the sum of £ in favour of the Adam Smith Research Trust, account no. 13180754, National Westminster Bank, 208 Piccadilly, London W1J 9HE. Sort code 56-00-03

Signature:

Please Gift Aid my donation

Yes, I’d like to support the Adam Smith Institute!

Please send this newsletter, free of charge, to my friends:

Please send your completed form to:Adam Smith Institute, 23 Great Smith Street, London SW1P 3BL

Name:

Address:

Email:

Name:

Address:

Email:

Adam Smith Institute23 Great Smith Street London SW1P 3BL www.adamsmith.org