Tag: IEA

The press release issued by the IEA on 11 November 2022.

Commenting on the ongoing NHS nurses’ pay dispute, Professor Len Shackleton, labour market expert at free market think tank the Institute of Economic Affairs, said:

“Excessive union pay demands backed with strike threats are a staple of collective bargaining. So is initial employer intransigence. Disputes are, however, usually settled somewhere between the extremes as both sides learn more about their counterparts’ real position.

“This is an elaborate game, played out for more than a century in countless disputes. The RCN, however, is new to the game, and seems to be relying on public gratitude for the care which nurses provide to shift the final settlement closer to its own position than that of a government which has plumbed new depths of unpopularity.

“They may have got this wrong, however. If a strike actually occurs, and hundreds of thousands of patients find their treatment postponed and waiting lists expand beyond the seven million or so we already have, that gratitude could disappear pretty quickly.

“On the other side, the government knows that offering even half of what the nurses are asking for would be difficult at a time when belts are being tightened right across the public sector.

“As nurses constitute only about a third of the workers covered by the recent NHS Pay Review, there would be pressure from everybody from doctors, to radiographers, to porters for an equivalent pay hike. There are also many in the wider public sector doing vitally important jobs – the police, the fire service and so on – who would feel aggrieved. These were people who suffered from the public sector pay freeze last year and didn’t get the special uplift which NHS workers received. At the same time, there are very many private sector workers who may have lost jobs and pay during lockdown and furlough, while NHS workers did not.

“There is room for some minor improvements in the government’s offer, perhaps around the detail of pension contributions, but nurses expecting their new-found militancy to lead to anything like a 17 per cent pay increase are surely going to be disappointed.”

The press release issued by the IEA on 11 November 2022.

Commenting on the latest UK GDP figures published today, Julian Jessop, Economics Fellow at free market think tank the Institute of Economic Affairs, said:

“The latest UK GDP figures were not as bad as many had expected, but the downward trajectory is clear. The Chancellor needs to tread very carefully in his Budget next week.

“The 0.2 per cent fall in GDP in the three months to September was smaller than the 0.5 per cent pencilled in by the Bank of England, partly due to upward revisions to monthly GDP in both July and August. The economy might not have shrunk at all without the extra Bank Holiday for the Queen’s funeral.

“Nonetheless, the data for the third quarter were also flattered by large positive contributions from government spending and from net exports. Household spending and business investment were both much weaker, and the more timely consumer and business surveys point to further declines in the fourth quarter.

“Whatever the official numbers say, this will feel like a recession to those struggling to pay their bills over the winter. There are early signs too that the labour market is softening.

“The Chancellor should therefore take a more flexible approach to the Budget. The pendulum appears to be swinging too far from the botched ‘pro-growth’ strategy of Truss and Kwarteng back to the old ‘doom loop’ of tighter fiscal policy and a deeper recession. The Chancellor is also in danger of fetishising estimates for the size of the fiscal ‘black hole’, which is highly uncertain.

“If the Chancellor is determined to press ahead with austerity, whether through tax increases or spending cuts, he should at least time the measures carefully. It would make no sense to slam the brakes on straightaway when the economy is so fragile.

“Instead, he should delay the bulk of the hit until the back end of the five-year horizon. This should still allow him to present a credible medium-term plan to keep the financial markets on board, and therefore reduce the upward pressure on interest rates, without tipping the economy over now.”

The press release issued by the IEA on 2 November 2022.

Ahead of this Thursday’s (3 November) parliamentary debate on the independent review of smokefree 2030 policies, the IEA publishes today The Alternative Smoke-Free 2030 Plan.

• • Government should prioritise alternatives to smoking, like e-cigarettes and snus, over prohibitionist policies.

• • Alternative nicotine products are far less harmful than cigarettes, and the surge in vaping has corresponded with a falling smoking rate.

• • ‘The Alternative Smoke-Free 2030 Plan’ recommends twelve simple, low-cost policies, including raising awareness of low-risk nicotine products and cutting burdensome red tape, including the EU Tobacco Products Directive (TPD).

A new report, The Alternative Smoke-Free 2030 Plan, from the Institute of Economic Affairs, outlines an alternative strategy to prohibition, a proven failure, to reduce  the smoking rate in England.

This approach stands in contrast with the Khan Review (2022), which recommended banning the sale of cigarettes over time. Report author, Christopher Snowdon, argues that as long as demand exists (only 53 per cent of British smokers say they want to quit), neo-prohibitionist policies will result in endemic black market activity, crime and secondary poverty without coming close to eradicating smoking.

The alternative twelve-point plan emphasises the resounding success of vaping and other safer alternatives in getting people off cigarettes. In Britain, where 9.3 per cent of adults now vape, the smoking rate has dropped from 20 per cent to 14 per cent since 2012. In the EU, where only 2 per cent of adults vape, smoking prevalence fell by just 1 per cent between 2014 and 2020. As of this year, 28 per cent of smokers have never even tried an e-cigarette. Removing barriers to consumers accessing low risk nicotine alternatives is vital.

Snowdon, the IEA’s Head of Lifestyle Economics, recommends that the government tackles pervasive misinformation about the risks of e-cigarettes. Currently, 40 per cent of English smokers falsely believe that nicotine causes cancer and the number of smokers who wrongly think that vaping is as or more dangerous than smoking rose from 36 per cent to 53 per cent between 2014 and 2020. This is despite the fact that the Royal College of Physicians concluded that the long-term risks are ‘unlikely to exceed 5 per cent of the harm from smoking tobacco’ (RCP 2019).The government should ensure that public health bodies promote the benefits of vaping relative to smoking.

Snowdon also proposes that the government embrace the freedom provided by Brexit to reform the Tobacco Products Directive (TPD). Article 20 of the TPD exacts punitive regulations on e-cigarettes, covering everything from advertising to the size of refillable vape tanks. Cutting this red tape will lift powerful barriers to access.

Smokers could also be encouraged to quit by reducing the red tape burdens on  other low-risk tobacco alternatives such as snus, heated tobacco and nicotine pouches. These products are subjected to over-zealous regulation, with snus outlawed in the UK.

The UK has generally regulated e-cigarettes sensibly. But with a greater focus on articulating the benefits of switching to low-risk tobacco alternatives and relaxing the associated regulatory regime, smoking may truly become obsolete.

Commenting on the The Alternative Smoke-Free 2030 Plan, author and IEA Head of Lifestyle Economics Christopher Snowdon, said:

“The government’s plan to slash the smoking rate to five per cent by 2030 is wholly unrealistic unless smokers switch to low-risk alternatives in large numbers. Fortunately, a growing range of alternatives exist. All the government needs to do is create a regulatory environment in which they can flourish and ensure that smokers are not misled by fake news. There are a dozen simple, low cost reforms that could be implemented that would help the government meet its health objectives without persecuting smokers.”  

The press release issued by the IEA on 1 November 2022.

Shadow Monetary Policy Committee votes to increase Bank Rate to 3 per cent

The Committee were split on the size of the rate rise and on whether to continue with quantitative tightening

• • The IEA’s Shadow Monetary Policy Committee (SMPC) has recommended that interest rates be raised by 75 basis points (0.75 per cent) to 3 per cent.

• • Members were split five ways on the size of the rate rise, ranging from leaving rates unchanged to raising Bank rate by 1.0 per cent.

• • There was also no consensus on the operation of quantitative tightening (QT), with two members advocating actively reversing QT and undertaking quantitative easing.

During the quarterly SPMC meeting, members noted that monetary growth is now consistent with a return of inflation to target. They differed mainly in their sense of how much need there is to re-establish Bank of England credibility and the extent to which one needs, at this point, to run with market expectations as opposed to provide the market with surprises to have an impact.

More hawkish members emphasised how far the Bank of England has been behind the curve over the past eighteen months and consider it urgent for the Bank to get ahead of inflation now, both to ensure that high inflation expectations do not become embedded in wage-setting and other economic agent decisions and to control market volatility.

Others emphasised that the mistakes of the past are in the past and that, starting from here, the position is that monetary growth does not need to be curtailed further. It was also noted that with the change of government fiscal policy is now likely to be excessively tight, meaning that recession does much of the work in returning inflation to target, so monetary policy needs to do less.

It should be noted that this is amongst the largest splits in voting that the Shadow MPC has ever experienced, and illustrates the very considerable uncertainty that currently exists as to the best way forward for UK economic policy.

The press release issued by the IEA on 28 October 2022.

A new approach to university funding, contingent on student earnings, could save taxpayers £60 billion, says new research

This would also stop the scandal whereby students are encouraged to take on debt in return for poor quality, unhelpful university degree courses.

The Higher Education funding system is failing students and taxpayers and is not sustainable.

Public funding is at risk from the large taxpayer losses on student loans (ca. £10.5 billion per year).

Meanwhile, the proposed tuition fee freeze until 2024-5, in the context of high inflation, will put universities under severe financial stress.

Universities are paid for enrolling as many students as possible, rather than on the basis of the outcomes they deliver for graduates. This has resulted in abuses of the system such as the mismatch of students and courses, an explosion in the number of unconditional offers and the launch of courses with poor academic and economic value.

Many students are getting a poor deal, and a large proportion will suffer an effective earnings loss from attending university due to low earnings and increasing loan costs, with a liability that can last 40 years and a capital repayment value that grows with inflation.

The author’s proposal would allow universities to raise tuition fees above the frozen levels while requiring them to lend the difference to their students by means of risk and income sharing schemes. This would secure the extra resources they need while creating incentives for institutions to improve graduate outcomes and ensure courses are relevant.

This would be a win-win all-round. Freezing the state loan at current levels could save taxpayers £60bn over twenty years. Universities new freedom to set tuition fee levels ensures they have the resources they need to teach and compete internationally. Students will gain from better courses now the interests of the institution are aligned with theirs.

The IEA’s new paper, Setting Universities Free: How to deliver a sustainable student funding system, by Peter Ainsworth, Managing Director at Consulting AM and Tom McKenzie, Professor of Economics at CBS International Business School, argues that the university funding model is broken and needs fundamental reform.

Students are experiencing a declining earnings premium, higher borrowing costs and, for many, poor quality courses. Universities are struggling with reduced revenues while academics complain about poor pay and working arrangements. The government has consistently sought to minimise the growing student debt that will be written off – and essentially funded by the taxpayer.

The central problem, according to Ainsworth and McKenzie, is that universities are remunerated on the basis of how many students they can enrol, rather than on the basis of graduate outcomes. This incentivises the expansion of mass-market, low-quality courses that fail to prepare students for the workforce.

The paper proposes an alternative funding model in which the university’s income is contingent on future earnings, thus marrying the long-term interests of students with those of the university. This will make universities more responsive to student demands, while forcing them to consider the suitability of the courses they offer and the students they enrol.

The authors also propose lifting the tuition fee cap, to help universities prosper and compete both domestically and internationally allowing for new investment and higher productivity to ensure better value for money in the long-term.

Freezing state support for higher education would also save taxpayers £60bn over 20 years and slowly phase out universities’ reliance on the state as inflation erodes the government’s contribution to tuition fee loans.

Overhauling our current system is necessary to ensure that universities can match their foreign competitors, that they are accountable to students, that taxpayers are given value for money, and that universities’ success is tied to the success of its students rather than the number of students they can recruit. Implementing Ainsworth and McKenzie’s recommendations would be a strong first step in such an overhaul.

Commenting on the report, author Peter Ainsworth, said:

“In his first major speech as Chancellor Jeremy Hunt referred to our universities as one of the country’s great strengths. They will not stay that way without more money. Our scheme secures for them the extra resources they need without a single extra penny being required of the taxpayer. Students gain from the partnership this system ensures, so the institution will be invested in their success. It’s good for all parties and is the sustainable funding system that thus far has eluded the UK.”

Co-author Tom McKenzie, said:

“Discussion of higher-education funding tends to centre around access to university rather than what a university education actually does for a student. The system we propose both encourages access based on merit and incentivises institutions to consider employability as more than just another league-table statistic.”

The press release issued by the IEA on 27 October 2022.

Commenting on demands for further windfall taxes on oil and gas companies, Andy Mayer, Chief Operating Officer and Energy Analyst at free market think tank the Institute of Economic Affairs, said:

“Demanding a new windfall tax every time a company posts a profit is the politics of a banana republic. Few companies will invest where politicians are hostile to development before it happens, then punish success after the event.

“Meanwhile we have a global energy crisis. The only near-term solution is to increase supply. The UK response has been to slap three windfall taxes on the North Sea, ban fracking, and promote ‘fairytale’ energy plans for alternatives, all of which still rely on 20-30 years further supplies of fossil fuels.

“These policies drive away investment, increase our reliance on expensive dirtier imports, and undermine the tax base needed to fund a low carbon transition. If the imports are disrupted, with all countries chasing the same resources, the situation is perilous, with an elevated winter risk of the lights going out and elderly freezing to death in their homes.

“This is not a situation in which Parliament should be prioritising juvenile anti-business posing and cowardly virtue signalling to nimbies.”

The press release issued by the IEA on 26 October 2022.

Commenting on the Prime Minister’s decision to reinstate the fracking ban in England, Andy Mayer, Chief Operating Officer and Energy Analyst at free market think tank the Institute of Economic Affairs:

“Restoring the fracking moratorium would be an error.

“To rely on imported gas when we have 50-100 years supply under our feet is not a stance rooted in science or economics, but political weakness in the face of militant protest groups and anti-development campaigns.

“This decision will not help the planet; the UK will become more dependent on gas imports, with higher emissions than local production.

“It will not help the growth plan; we will be borrowing to pay Qatari and US taxes rather than building an industry.

“It will not help the low carbon transition; there will be fewer fossil fuel taxes to fund it and the cost of all energy sources will rise.

“It will not help our allies in the EU or Ukraine; surrendering further dominance of regional gas markets to Russian tyranny.

“It seems the Government and Opposition are determined to risk blackouts and freezeouts before taking hard decisions rooted in reality.”

The press release issued by the IEA on 25 October 2022.

Commenting on the speech made by Rishi Sunak, Mark Littlewood, Director General at free market think tank the Institute of Economic Affairs, said:

“The Prime Minister is right to recognise the scale of the economic challenges facing the country. While mistakes were made by the last administration, those mistakes were largely made in delivering the economic medicine, not in diagnosing the illness.

“The Prime Minister must resist calls for more of the same high-tax, low-growth, cheap money economics responsible for our long-term, low-growth economic malaise. I hope he shares his predecessors’ analysis of the many underlying structural problems in the UK economy and wish him every success in delivering the necessary remedies.”

The press release issued by the IEA on 21 October 2022.

Commenting on the Labour Party’s proposal to ban fracking, Andy Mayer, Energy Analyst at free market think tank the Institute of Economic Affairs, said:

“Banning fracking means risking freezeouts.

“The UK has more than enough gas under our feet to last 50 to 100 years. Gas currently supports 40 per cent of our power system, 85 per cent of domestic heating and most heavy industry. Without affordable alternatives or storage, fracking remains essential for our energy security, and this will remain true for the next 20-30 years.

“The Opposition’s proposal to ban it means substituting expensive, dirtier imports, and losing any tax revenues from development. It increases the risk of the most vulnerable freezing to death next winter. It destroys a potential source of funding for the low carbon transition and increases the national debt and our exposure to volatile international energy prices.

“Advocating this policy during an energy and debt crisis for short-term advantage in marginal seats with a vocal minority opposed to development of any kind, is exactly the kind of politics that have led to the current mess.”

The press release issued by the IEA on 20 October 2022.

Mark Littlewood, Director General at free market think tank the Institute of Economic Affairs, said:

“I’m very sorry the PM’s efforts to move the U.K. in a pro-growth, low-tax, pro-enterprise direction has failed. She had a difficult hand to play, but she also played the hand badly. However, her successor will face the same problems she did. I hope they share her analysis, but they will also need to display an ability to deliver on serious reform”