Tax and Fiscal Policy

£50,000 IEA Breakthrough Prize awarded to entry calling for local tax competition


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IEA announces Richard Koch Breakthrough Prize winner

Two recent Cambridge graduates, Mark Feldner and Mathew Bonnon, will tonight be announced as winners of the £50,000 IEA Breakthrough Prize.

The prize, supported by entrepreneur Richard Koch, sought to find the best free-market solution to tackle poverty among the least fortunate third of the UK population. It was judged by a panel including the Rt Hon Iain Duncan Smith and former MP Jeremy Browne.

The winning entry, Fiscal Liberalisation, calls for the decentralisation of the UK tax system to help the most disadvantaged reach their full economic potential. In the UK, stark regional inequality is a major obstruction to economic freedom. The submission makes the case for local tax freedom, outlining a radical vision of regional tax competition based on the devolution of significant tax powers to sub-national and regional bodies. By handing tax-raising powers back to local bodies, the tax system would become responsive to local needs as opposed to a one-size-fits-all approach.

Their proposal argues that liberalisation of fiscal policy would empower workers and jobseekers in under-performing areas. Through locally determined taxes, regions would be able to develop their own competitive advantage and therefore attract companies, investment and talent. As a consequence, high-paying jobs would no longer be centralised in a small area of the UK.

There are several international examples of where this type of fiscal federalism has worked successfully. Switzerland is divided into 26 independent regions, all with significant tax-raising power, and is regularly ranked one of the wealthiest and economically free countries in the world.

How fiscal liberalisation will help the bottom third of the UK population:

  • Flexibility to tailor fiscal policies for each city or county will result in more efficient and targeted taxes that respond to regional needs, taking into account local views on public spending and competitiveness.

  • Regional autonomy would also result in local bodies competing for tax revenues, empowering residents to vote with their feet and move if taxes are too high or public services are failing.

  • Declining regions will be able to raise their economic profile, allowing them to attract talent and new businesses to the area with low tax rates, for example. High-paying jobs would no longer be concentrated in a small area of the UK, resulting in real income gains for the least well-off.

  • With competition comes lower average rates of taxation – which is good news for those with little disposable income.

  • It would prompt a move away from the cluster-building we have seen in a small number of cities at which current tax policies are targeted.

  • The recent rise in populism demonstrates voters’ desire for greater involvement in the political process – limiting central tax powers and handing them back to regionally elected representatives would be a sign that these concerns are taken seriously. Regional tax sovereignty offers real exit opportunities should people feel satisfied with local politics.


Commenting on the winning submission, member of the judging panel, Jeremy Browne, said: 

“Many of the submissions contained innovative ideas for reducing welfare dependency, fostering entrepreneurialism or improving educational outcomes. These are all fundamental to the future prosperity and harmony of our country and some of the best suggestions are featured in the final short-list of prize winners.

“On balance, however, the judges decided to award the overall prize to an essay on the topic of tax devolution and competition. It was felt that the creation of a dynamic market place in fiscal policy could both stimulate wealth creation and help to address the big geographic disparities of wealth in Britain. Instead of a passive centralism we were enthused by the potential for all parts of the country to attract new investment and shape their own destiny. The judges wanted to reward a ‘Big Idea’ with the capacity to stimulate a powerful debate and were delighted to select ‘Fiscal Liberalisation’ as the winner of the Breakthrough Prize.”

Mark Littlewood, Director General at the Institute of Economic Affairs, said: 

“While capitalism has lifted millions out of poverty in recent years, there is still more to be done for those who are living in impoverished circumstances. The radical proposal to devolve tax-raising powers put forward by Mark and Mathew is bold enough to trigger the beginning of the fundamental realignment of power and re-imagining of the state that is needed to help those in our society who have been left behind.”

Notes to editors:

  1. MEDIA ENQUIRIES


To arrange an interview with the winners, or for any other media enquiries, please call Stephanie Lis, Director of Communications on 07766 221 268 or Nerissa Chesterfield, Communications Officer on 07791 390 268.

2. ANNOUNCEMENT OF WINNER

The announcement of the prize will be at an event in central London tonight, 6.30pm – 10.00pm. Prizes will be awarded at approximately 20.50 by Richard Koch. For more details, contact Stephanie Lis as above.

3. ABOUT THE WINNERS

Mark Feldner is a recent graduate, attaining degrees in Law from Cambridge and Political Theory from LSE. He has worked at several commercial law firms and for the Cato Institute in Washington D.C., as well as for the Austrian Trade Commission in London. Mark is currently completing the Legal Practice Course at BPP University and will start working as a trainee solicitor in August 2017.

Mathew Bonnon is in his final year studying Asian and Middle Eastern Studies at the University of Cambridge. He has gained professional experience in law and consulting and has worked in various countries including Japan, South Korea, Malaysia and Germany.

4. WINNING ENTRY

To download the winning entry, Fiscal Liberalisation,  please click here.

5. RUNNERS-UP

James Tooley’s entry suggests that the key to prosperity for the poorest third in the UK is improvement in educational competition and innovation through a chain of low-cost, affordable schools. He also argues that such a policy would encourage government to revisit educational financing. His initiative was inspired by the ubiquity of private education for the poor in developing countries and the success of emerging chains of low-cost schools.

To download James Tooley’s entry, A chain of low-cost private schools for the UK, please click here.

Syed Kamall’s entry makes the case for “Friendly Lending”, a new kind of tax relief which encourages direct lending by taxpayers to both social entrepreneurs and those on low incomes in the UK. He argues that the scheme would provide a new source of finance to a sector of the population where both financial access and entrepreneurial activity are low. In return, Friendly Lenders would get more control over how their tax is spent.

To download Syed Kamall MEP’s entry, Friendly Lending, please click here.

Ben Clements also sees reform of education policy as the key to tackling poverty among the poorest third in the UK. In his proposal, Ben assesses how the private tuition “industry” is changing education in the UK and proposes the ‘Every Child Counts’ policy: a widespread and sustained provision of a means-tested voucher system, funded through the Pupil Premium. This would empower the families of the bottom third of the income distribution to purchase additional educational support.

To download Ben Clements’s entry, Every Child Counts, please click here.

All three runners up will receive the Highly Commended Prize of £2,500 each.

6. STUDENT PRIZE WINNER

Ryan Khurana proposes that reform of planning regulations in the UK would greatly improve prosperity for the bottom third of the UK income distribution by bringing down house prices, improving access to property for the poor and freeing up more disposable income. He argues that the two planning acts that legislate permissions for building have limited the ability of the UK housing market to meet demand, should be replaced by a Freedom of Housing Act. This would serve to free up land while protecting areas of natural beauty, as well as re-working the incentives to build.

To download Ryan Khurana’s entry, Towards Freer Housing, please click here.

Ryan will receive the student prize of £2,500.

7. ABOUT THE RICHARD KOCH BREAKTHROUGH PRIZE

The IEA believes that we need to give serious consideration to how poverty can be alleviated in the UK. Competitors were asked to propose a single anti-poverty policy initiative which would have a major impact on:

Increasing economic prosperity and/or improving social outcomes for a substantial segment of the bottom third of the income distribution in the UK and other advanced economies.

Increasing the economic freedom of the population as a whole.

Submissions were requested of between 2,000 and 3,000 words.

For more detailed information about the remit and entry criteria please visit: www.breakthroughprize.org.uk

Richard Koch – who is supporting the Prize – is a British author, speaker, investor, and a former management consultant and entrepreneur. He has written over twenty books on business and ideas, including The 80/20 Principle, which is about how to apply the Pareto principle in management and life.

8. ABOUT THE IEA

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The IEA is a registered educational charity and independent of all political parties.

 



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