Adam SPLIFF Institute: Legalising Cannabis Could Add £1 Billion to Treasury Tax Pot

cannabisAfter California voted to legalise cannabis, several MPs are backing the Adam Smith Institute’s new report calling for the same. It is a terrible tragedy that people get criminal records and go to jail for smoking something less harmful than alcohol…

Sam Bowman, the Executive Director, said making criminals of otherwise law-abiding  people “makes an ass of the law” and the only sensible approach is to legalise and regulate a product used regularly by millions of Britons. The ASI report: The Tide Effect says the tax revenue could add £1 billion to the Treasury pot and the £50m a year it costs dealing with cannabis offenders could be slashed. Worrying that the ASI is seeking new things for the government to tax…

Brexit Inflation and Interest Rate Signals

carney-cpi

The Bank of England’s inflation target is 2.0% – with the fall in the pound inflation is set to overshoot to between 2.5% and 4.5% depending which rune reading economist you believe. When the 2% target is missed by 1% or more Carney has to write to the Chancellor explaining why he has missed his target. He’s been writing those letters for most of his term…

Inflation has now crept up to 1% after knocking along at zero for a while. Even at the extreme end of forecasts inflation will not reach the levels seen before the great taming of inflation in the 80s. (Unless the QE unwinding is a disaster, which is not impossible.) Having read many papers on the subject Guido is none the wiser as to how the world’s Central Banks can go cold turkey from the QE opiate without a very bad come down. In any event, at these levels interest rate policy is now symbolic, market loan rates are increasingly detached from base rates. Firms are not going to make or break investment decisions because base rates are 0.25% or 0.5%.* May is right that we need to see rates rising, to head off inflation and to boost confidence.

Nothing would more clearly signal that the Brexit apocalypse is not upon us than the Bank raising base rates. Normalisation of monetary policy has to happen. Or at least the Bank should signal the beginning of normalisation…

*Fans of reflexivity and paradox will contemplate the post-referendum rate cut with joy. Carney implies it boosted the economy, critics say it was unnecessary. Did it boost confidence that the Bank of England was ready to do whatever or was it a way for Carney to claim credit for his gloomy predictions not coming true?

IEA LAUNCHES £50,000 PRIZE

The Institute of Economic Affairs has just launched the Richard Koch Breakthrough Prize.

First prize of £50,000 will be awarded to the best and most innovative entry outlining a ‘Free-Market Breakthrough’ policy to tackle poverty in the UK.

There will be runner up prizes of £7,500 each, and a student prize of £2,500. Judging panel includes former Liberal Democrat MP Jeremy Browne (chair) and the Rt Hon Iain Duncan Smith.

The deadline for entries is Monday, 9 January 2017.

To learn more about the Richard Koch Breakthrough Prize and the entry requirements, click here – and watch the video below!

OECD OMG GDP! Brexit Recession Forecast Reversed

oecd-omg

“Not a single serious economist does not think Brexit will be bad for the economy” was the message from George Osborne when he cited the OECD, IMF and the OBR to back up his arguments that Britain would require an emergency budget and that there would be a worldwide economic shock if Britain voted to Brexit. Yesterday the OECD said it got it got the recession forecast wrong and the ONS confirmed none of the latest data suggests the recession that was predicted by 71% of City economists after the referendum vote. That is worse than astrology hence the Sun’s cracked crystal ball. It is actually worse than just flipping a coin.

All this proves once again that economists are as prone to fashion as any other artists. Economic forecasting is not a mathematical hard science, despite the complicated formulas of which they are so fond. It is a question of judgement. Another area which similarly has too many variables to forecast with confidence yet has almost unanimity among those who claim expertise in the subject is “climate science”. The expert practioners in this area also predict doom and disaster. Do you think they could be related?

Centrist Think-Tank Concludes There’s No Progressive Majority

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This morning the centrist, cross-party Social Market Foundation held a well attended seminar headlined by Chuka Umunna, Nicky Morgan and Nick Clegg. It felt like a wake for the Labour Party. SMF claims – on the back of research from Opinium – that there’s no progressive left-leaning majority in the country – the majority of voters hold “traditionally right-wing views” that will guarantee a “healthy majority” in the future for the right-wing parties.

The wonks categorised voters’ attitudes into eight political tribes/parties that share very distinctive political views. Despite the majority of voters self-describing as “centrist“, most voters actually identified with centre-right and right-wing political attitudes.

From the report:

On the whole, our analysis makes more cheerful reading for those on the right, than on the centre or the left. The two largest tribes, making up around 50% of the population, hold a range of traditionally right wing views, ofering a solid foundation on which to aim for the 40-42% of the vote which normally guarantees a healthy majority under our electoral system. These groups share a desire to see immigration reduced to below 100k a year and were both solidly pro-Leave in the EU referendum.

The progressive tribes are fragmented, disagreeing on openness to the world and attitudes towards the welfare state and taxation. This is bad news for the current Labour Party as the think-tank finds massive differences between so-called “Democratic Socialists” and “Community” party voter blocs – traditionally known as Labour supporters – while both tribes agree on socialist policies towards capitalism, they diverge on supporting the EU or having an internationalist approach.

SMF also implies that the centre-ground is now being occupied by traditional right-wing politics. So did Cameron succeed in occupying the centre-ground or did the Conservative Party’s modernisers end up pulling the centre-ground rightwards?

City Boys Staying in London

surprise

Mark Carney is up in front of the Treasury Select Committee this afternoon where he is going to have to explain why he cut rates and re-started QE prematurely to Jacob Rees Mogg, who thinks “He acted too early in my view. There was not sufficient evidence at that point that further monetary stimulus was needed and there are adverse consequences of abnormally low interest rates as well as beneficial consequences.” As the Citigroup surprise index (above) shows, most City expert economists got it wrong on a Brexit recession. In the last week alone Morgan Stanley, JP Morgan and Credit Suisse have reverse-ferreted on their Brexit recession predictions. None have accepted Guido’s £1,000 wager offer…

fundmanagers-staying

On a similar theme it is worth reading the Centre for Policy Studies analysis out today on the pros and cons of Brexit for the financial services. Just as the consensus on a Brexit recession was misplaced (even Remain campaign financing investment bank JP Morgan has now conceded they were wrong) so too will the “City will lose out to Paris / Frankfurt / Dublin” consensus soon dissolve.  The above chart from Prequin shows that not many Masters of the Universe are keen to enjoy the Frankfurt nightlife…

What the City does want is “passporting”, assurance that the Square Mile’s firms will still be able to trade across the EU. The majority of the City’s exports in financial services (60%) go to countries outside the EU – not surprising when not one of the top 10 financial centres is in the EU. China and India are already choosing to do their capital market transactions in London, these are the growth markets of the future. In reality it is likely that if “passporting” obstacles were to be deliberately constructed, they could if necessary be circumvented by booking trades through EU based subsidaries. Zurich is the biggest financial centre on mainland Europe, it has bilateral deals with the EU, the City will want the same…  

IEA: Osborne’s Living Wage Hits Poor, Young, Minorities, Consumers, Taxpayers

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George Osborne’s Living Wage is likely to see those it is supposed to help lose out, according to a new report from the Institute of Economic Affairs. The IEA finds that modest minimum wage increases may not cause higher unemployment, but large increases will. Who are the losers? The young, unskilled, minorities and those in the regions:

“Minimum wage increases are always potentially a trade-off, between raising pay for those fortunate enough to keep their jobs and hours against the potential reduction in labour demand. Any significant reduction in demand will hit young and unskilled workers, particularly those from minority groups, hardest. It is also likely to have a bigger impact in some parts of the country than others… the ‘bite’ of the National Minimum Wage has been considerably deeper in Northern Ireland and the East Midlands than in London.”

Higher unemployment is a long-term consequence:

“the longer-run impact of the minimum wage might be to generate larger reductions in employment”

And low-paid earners don’t actually benefit as they lose out in other ways:

“firms such as B&Q and Waitrose have been accused of lowering premium pay for weekends and other ‘unsocial hours’, while Caffe Nero staff seem to have lost the perk of free paninis – showing that minimum wage increases are no ‘free lunch’. Those gaining from pay increases therefore lose out in other ways than jobs or hours lost”

The report concludes that someone ultimately has to pay for any sharp minimum wage increase:

“the cost can only be borne by consumers paying more, shareholders getting reduced dividends, or taxpayers paying more”

The Living Wage might make political sense – it leaves Labour with nowhere to go – but the evidence is it hinders those it is supposed to help…

Vote Leave Chief Launching New Brexit Site, Taxpayers’ Alliance Reshuffles

Vote Leave chief Matthew Elliott is back at Business for Britain post-referendum, and Guido hears he will be setting up a new website called BrexitCentral. Former Lobby journalist Jonathan Isaby is leaving the Taxpayers’ Alliance to join as editor. It sounds like the site will offer plenty of comment and analysis – there is a gap in the market for some proper wonkish insight making sure Brexit means Brexit. It launches in September and Guido wishes them well, readers of this site will no doubt await with interest…

Isaby’s departure from the TPA means a reshuffle in wonk world. Tufton Street veteran John O’Connell, who has been at the TPA since 2009, will be the new CEO, another well-deserved appointment. They’ve also hired Tom Banks, who ran Vote Leave’s ground operation in Yorkshire, as their new grassroots campaign manager. More jobs created by voting to Leave…

May Hires Top IoD Wonk

SPADS

Theresa May has hired Institute of Directors wonk Jimmy McLoughlin to lead Downing Street’s business relations. McLoughlin, who worked on May’s leadership campaign, will replace Cameron’s arch-Remain SpAd Dan Korski. It’s a smart hire – May’s ‘reforming capitalism’ shtick means she’ll need help bolstering relations and McLoughlin is one of the most likeable people in SW1.[…] Read the rest

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Long-Term Rise of Anti-Politics

This morning in Portcullis House researchers from the University of Southampton are presenting findings from a project funded by the Economic and Social Research Council on the rise of anti-politics, Tristram Hunt and Isabel Hardman are going to stick their tuppence in during an audience discussion.[…] Read the rest

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Owen Jones’ Think Tank Helps Pay Off Deficit

The union funded CLASS think tank Owen Jones helped found has been fined £1,000 by the Electoral Commission. Unite veteran Steve Hart was stung with the bill after the Centre for Labour and Social Studies failed to deliver not one but two donation reports on time.[…] Read the rest

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Brexit Debate Live Streaming

Tonight’s debate at the Institute of Economic Affairs (above) is an example of the civil war on the right – two IEA wonks Ryan Bourne and Diego Zuluaga are on opposite sides of the argument, Douglas Carswell and former Tory MEP John Stevens are bolstering the wonks.[…] Read the rest

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More EU Sockpuppetry From IPPR

GDFS

The Institute for Public Policy Research (IPPR) has today released a pro-European briefing outlining the minor renegotiations on Britain’s EU membership that it thinks would warrant staying in the EU. Titled “Unlocking the EU Free Movement Debate”, the document suggests small reforms in EU policy in five key areas are more than enough to stave off Brexit.[…] Read the rest

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Glottal Mobility is Social Mobility

cut-glass

Clare Foges, “the woman who put words in David Cameron’s mouth” when she was his speechwriter, reckons if we all spoke like the Prime Minister the problem of declining social mobility would be solved. Like a modern day Professor Henry Higgins she thinks a veneer of gentility will do more for social mobility than tax credits.[…] Read the rest

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Osborne Jokes About Leadership Coup

The Chancellor has been caught joking about bringing down the PM.

Steady on Gideon…[…] Read the rest

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IFS: Osborne Has Deviated From His Long Term Plan

OSBORNE-TODAY-PORKIE

This morning Guido highlighted several of the Chancellor’s Budget porkies, this afternoon the IFS twists the knife. Osborne told the House that “we shouldn’t go faster, we shouldn’t go slower” on the rate of deficit reduction. Yet Paul Johnson from the IFS confirms we are indeed now going slower:

“the long term plan did change again.

[…] Read the rest

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