Close examination of each of the policy campaigns suggests that politicians did not make decisions based solely, or even mostly, on the basis of evidence. Instead, the government of the day responded to political pressure whipped up by campaigners on issues that were not a priority for them. Most of the policies had not existed even as ideas until a few years earlier. None of them had appeared in the manifestos of any of the main parties, with the exception of minimum pricing which was mentioned by the Liberal Democrats in 2010 - and yet minimum pricing that was the only one of the four that was never introduced in England.

A handful of MPs felt strongly about some of these policies but they were low salience issues for the government. It was lobby groups such as Action on Sugar and the Campaign for Fairer Gambling who pushed them up the agenda, issued press releases, got celebrity endorsements and garnered media coverage. This all had an effect on public opinion and forced the government to make a decision. Since the politicians are rational actors who want to get re-elected, they gauged public opinion and asked themselves whether the political costs of doing nothing were greater than the political costs of acting. By the time the decisions were made, only 15% of the public were opposed to plain packaging and only 6% of the public were opposed to clamping down on fixed-odds betting terminals. Resistance to the sugar tax was more substantial, at 33%, but opponents were clearly in the minority and George Osborne needed to make an announcement at the Budget that would take the nation’s mind off the cuts he was making to disability benefits.

Public opinion was evenly split on minimum pricing, however, and it is telling that this was the only one of the four policies that was not introduced in Westminster. In Scotland, by contrast, only a third of the public were opposed and the SNP had nationalistic reasons to forge a different path and become a ‘world leader’ in public health.

It would be an exaggeration to call this government by opinion poll, but that would be a more accurate description than ‘evidence-based policy-making’. Evidence did serve a purpose. Modelling studies showed how the policy could work in theory. Evidence from other countries where similar policies were in place reassured politicians that the they were at least enforceable and would probably not create a public backlash. The regular publication of new research gave the pressure groups a way of keeping their campaign in the news.

Read the Book

But scientific evidence was only one part of the overall campaign and was never decisive. In the plain packaging campaign, there were far more references in the media to Lynton Crosby, a government advisor, and his alleged links to the tobacco industry than there was to all the peer-reviewed evidence on plain packaging combined. Similarly, Jamie Oliver’s support for the sugar tax was mentioned in more articles than all the evidence for the policy combined. It was the general climate of opinion, not the careful scrutiny of academic research, that mattered.

The four case studies in Inside the Sausage Factory suggest that politicians will succumb to pressure on low-salience issues unless they believe that the policy will be widely unpopular or conspicuously backfire. Once the public health interest groups had put their policies on the agenda, the government could not put off a decision forever. They became ‘barnacles on the boat’ that needed to be scraped off, either by implementing them or by rejecting them. With the exception of minimum pricing in England, which had significant public and political opposition, the government in Westminster concluded that the reputational risks of inaction were greater than the political, economic and legal risks of acting. This can be inferred from the results of opinion polls, the tone of media coverage and the fact that the policies had already been tolerated, if not embraced, by people in other countries. By and large, this judgement has been vindicated. Although the evidence that any of the policies achieved their objective is virtually non-existent, there has been no significant political blowback from introducing them.

Consistent with public choice theory, I find that everyone involved in these policy campaigns, from the voters up to the Prime Minister, was acting in their own rational self-interest. Most of the politicians didn’t care about the price of sugary drinks or what people get up to in betting shops, but they did want to get re-elected and they didn’t want to be on the wrong side of history. So long as they were confident that the policy wouldn’t backfire spectacularly, lose the government a lot of tax revenue or be very unpopular, siding with the nanny state was the path of least resistance. The decisions to introduce plain packaging and effectively ban FOBTs were particularly easy because only a small minority smoked, an even smaller minority played machines in bookmakers and there was limited public opposition.

The people who told pollsters that they supported these policies were acting in their own self-interest too. For those who didn’t consume the products in question, the rational response was either apathy or mild support for the nanny state cause. The sugar tax effectively transferred money from those who consumed sugary drinks to those who did not. A reduction in smoking and heavy drinking was widely assumed to cut NHS costs, thereby lowering taxes or providing better treatment to those who do not drink heavily or smoke. Cutting the stake on FOBTs was assumed to reduce the number of high street betting shops, thereby freeing up commercial property for shops that might be of more benefit to non-gamblers and, in the opinion of many, lifting the character of the high street.

Read the Book

Whether or not these assumptions were realistic is beside the point. The vast majority of the public were not actively involved in campaigning for or against any of the policies and their ‘support’ amounted to no more than expressing an opinion in a survey. The putative benefits of the policies to individuals who did not consume the products may have been negligible, but the cost of agreeing with the policies was zero (and since all the campaigns involved alleged social evils, social desirability bias encouraged support). Like the politicians, the public did not need to be convinced that the policy would work so long as they had no reason to believe that they would be adversely affected if the policy failed. So long as there was some chance that they would benefit, however indirectly, from fewer people using a product that they themselves did not consume, they could be persuaded that the policy was in their interest.

As for those who did consume the products, they mostly did nothing to defend themselves, but the was rational too. As Mancur Olson explained in The Logic of Collective Action, individuals know that their participation in an organised protest group will make virtually no difference to the outcome. The cost of taking action is typically greater than the cost that the policy will impose on them and so they do nothing. In my case studies, some consumers were prepared to voice their opposition in low-cost ways (more than 100,000 people signed a petition against plain packaging, for example), but they otherwise had little option but to free ride on whatever campaign the affected industry could muster up (the industry was also acting in its own self-interest, as the “public health” groups never failed to point out). As a result, there was no grassroots opposition to the nanny state campaigns.

But there was no grassroots activism for the campaigns either. All of the single-issue pressure groups were small, highly professional lobbying outfits funded either by the government or by a wealthy benefactor. It was completely rational for them to campaign for changes to the law because it was their job. Similarly, it was perfectly rational for activist-academics funded by the state to produce impactful, partisan research in high profile journals. The UK’s Research Excellence Framework (REF) defines impact as “the effect on, change or benefit to the economy, society, culture, public policy or services, health, the environment or quality of life, beyond academia.” Such a system positively encourages academics to engage in high profile, winnable policy campaigns in fields such as “public health” which are awash with money. Academics from Oxford University later filed a case study with the REF taking credit for ‘Creating a favourable policy environment for new sugary drinks taxes’ while academics from Cambridge University boasted about ‘Making the case for the sugar levy’ and ‘Fuelling sustained government action on sugary drinks’.

Everyone was acting in their rational self-interest and yet it led to a succession of policy duds. In politics, everyone acting rationally can lead to irrational policies being introduced. None of the policy decisions I studied were evidence-based. At best, they were evidence-decorated.

What happened next? There was more of the same from the same pressure groups, but with even less evidence. Action on Smoking and Health moved on to lobbying for a generational tobacco sales ban. Alcohol Focus Scotland shifted its attention to an alcohol advertising ban. Action on Sugar called for the sugar tax to be extended to food and milkshakes. The anti-smoking, anti-alcohol, anti-obesity and anti-gambling groups all called for a levy on the industries they saw themselves as being at war with.

The Obesity Health Alliance campaigned for a ban on ‘unhealthy food’ advertising and was the first to chalk up a win. In July 2020, a slew of anti-obesity laws was suddenly announced, including an online and pre-watershed television advertising ban, a ban on volume price discounts and restrictions on where HFSS (high in fat, sugar and salt) food can be placed in supermarkets. A familiar coalition of activists had been lobbying for these policies for years but since most of the policies had never been introduced in any other country, there was no ‘real world’ evidence to cite, and there were few relevant experimental studies in the academic literature.

When Boris Johnson became Prime Minister, they were assumed to be incompatible with his more libertarian instincts and yet they became part of a new obesity strategy a year after he took office. Evidence played no part in this. Two related events provide a better explanation. Firstly, Johnson was hospitalised with COVID-19 three months earlier and explicitly blamed this on him being ‘too fat’. Johnson’s hospitalisation became a focusing event which made the issue more salient for the nation and for the Prime Minister personally. Secondly, the UK had one of the world’s highest cumulative death rates from COVID-19 in July 2020 and obesity was a known risk factor for COVID-19 mortality. New anti-obesity policies were unlikely to have an impact before the pandemic subsided, but the new strategy signalled that the government was taking action and it helped shift attention away from its own policy failures in controlling the virus.

In October 2023, Rishi Sunak announced a permanent ban on the sale of tobacco products to anyone born after 2008, thereby introducing incremental prohibition. There was no ‘real world’ evidence to support this as it was untested, but it polled well, particularly with those who had voted Conservative in 2019. A survey conducted days before the announcement found that it was supported by over 70% of the public, with fewer than a quarter opposed.

The obvious risk of prohibition was that it would create a large and violent black market, but the government dismissed this as an industry scare story. As the legislation crawled through Parliament over the next two years, convenience stores in Australia started going up in flames and tobacco duty revenue fell by 75% as the country entered a ‘tobacco turf war’ driven by extremely high cigarette taxes and the prohibition of vapes. The British government paid no attention to this. The policy still polled well.

Read the Book

In December 2025, the Australian government tried to ban children aged under 16 from accessing social media. It didn’t work. Months later, 70% of kids still accessed at least one banned website and several children’s charities warned that a similar ban in the UK would lead to ‘serious unintended consequences that could put children at greater risk’. On 15 June 2026, Keir Starmer announced that he would be banning children aged under 16 from social media. Polls showed that over 70% of the public were in favour.

Only the most ardent advocates of these policy decisions were driven by evidence. In 2020, Boris Johnson was in a tight spot politically and, like George Osborne in 2016, found obesity to be a useful distraction. In 2023, Rishi Sunak was staring down the barrel of crushing general election defeat and clearly wanted a policy to be remembered by. Keir Starmer announced the social media ban in the week of the Makerfield by-election which could be the beginning of the end for his time in Downing Street. He, too, is looking for a legacy.

In the campaigns I write about in Inside the Sausage Factory, several studies were referenced again and again by politicians, journalists and activists. The policies didn’t work and the evidence wasn’t very good, but at least evidence was cited from time to time. The evidence for banning ‘junk food’ adverts and social media for the under-16s is negligible and the evidence from the generational tobacco ban is non-existent. Scientific evidence was not a decisive factor in any of the campaigns I studied from the 2010s. Today, it seems to be entirely optional.

The patterns identified in this book may not apply to policymaking in general, but they may be generalisable to a sub-set of policy-making that could be described as paternalistic lifestyle regulation. There is no reason, in principle, why they should not apply to any committed group of activists that has the opportunity and resources to apply pressure on government. For those who are of a liberal disposition, this is not a happy conclusion to reach. It implies that politicians can be hostages to small pressure groups manipulating public opinion almost without end. It suggests that minorities can expect to suffer at the hands of the majority if most people have no self-interested reason to defend the activities in question.

It is always possible that more far-sighted voters will become concerned that if they allow a succession of special interest groups to restrict or ban the pleasures of other people, it will not be long before their own pleasures are under attack. Since individuals are sometimes in the majority and sometimes in the minority, it may be in the long-term interest of the majority to defend minorities on principle. This is why defenders of free speech defend the right of people to say things that they personally find objectionable. Fearing that a precedent is being set, an individual may feel that the surest way to avoid a ban on X is to prevent a ban on Y, despite disapproving of Y themselves. In Britain, alas, there is little to suggest that the majority is prepared to take a principled stand against illiberal policies. Even those who are directly affected by coercive paternalism lack the time and resources to stand up against pressure groups that are often funded by the state.

And in case you’re wondering about the title of the book, it is a reference to a comment reputedly made by Otto Von Bismarck who said that laws are like sausages insofar as you don’t want to see how they are made. He had a point.

On Morality, Human Behaviour and Economics, edited by Professor Juan Castañeda, Director of the Vinson Centre, and Lord Kamall, brings together eleven leading economists, philosophers and theologians to make the moral case for free markets at a moment when consecutive governments have presided over more than a decade of stagnant growth and rising public scepticism of capitalism.

Subscribe now

The book is the first volume in the new Vinson Centre Series and emerges from a joint conference between the IEA and the Vinson Centre for the Public Understanding of Economics and Entrepreneurship at the University of Buckingham, held in November 2024.

Drawing on philosophy, theology, economic history, sociology and political science, the contributors argue that classical liberals have allowed their opponents a clear run of the moral terrain. The volume sets out to redress the balance, returning to the foundational arguments of thinkers from Adam Smith and Bernard Mandeville to Friedrich Hayek and reapplying them to contemporary questions of inequality, welfare, business culture, religious ethics and the relationship between markets and the state.

Read the Book

Read the Book

Across twelve chapters, the volume addresses:

• The Revd Dr Richard Turnbull on why those making the case for the market are failing to do so — and what an intellectual defence of market principles should look like

• Mikko Arevuo (Cranfield) on Adam Smith’s moral philosophy and his implicit theory of distributive justice

• Pedro Schwartz (Universidad Camilo José Cela) on Bernard Mandeville, spontaneous order, and the division of labour

• Elena Leontjeva (Lithuanian Free Market Institute) on capitalism, scarcity and the moral significance of “lack”

• Benedikt Koehler (IEA) on profit, wealth and private property in Islam, Christianity and Judaism

• Philip Booth (St Mary’s University) on the economics of Pope Francis, and why his concern for the poor transcends the conventional left–right divide

• Billy Christmas (West Virginia University) on the economic teachings of the early Church Fathers and private property

• Paul Dragos Aligica (Mercatus Center) on Hayek’s concept of catallaxy as a solution to the problem of value pluralism

• Martin Vander Weyer (Business Editor, The Spectator) on why Britain has never truly embraced capitalism, and the lessons of nineteenth-century Manchester and Birmingham

• Lord Elliott of Mickle Fell (President of the Jobs Foundation) on the practical, theological and historical case for business

• Dr Chris O’Leary (Manchester Metropolitan University) on a classical liberal vision for a limited welfare state, based on a negative income tax and voluntary mutual aid associations

“All over the world, we face many serious economic and social challenges. Apart from the immediate effects of cycles of boom and bust, we experience problems that are much more long-term and appear almost incurable. We are suffering from ballooning budget deficits, underfunded social security and pension schemes, ever-falling standards in schools, healthcare sectors in constant states of crisis and drug wars. Since the mid-1970s, much of Western Europe has experienced about 10% chronic unemployment and twice that for the young. If we look back, we see that the best and brightest in all political parties have been struggling in vain to fix these and similar problems for the best part of a century.

“We are also adding regulation after regulation, ban after ban, environmental protection measure after environmental protection measure and safety measure after safety measure, much of the time with the best of intentions and commonly with the approval of the general public. The overall result is that we become less and less capable. It took one year and 45 days to build the Empire State Building. Today, it takes 4.5 years just to carry out the required environmental impact report. Are we better off because of all this caution and bureaucracy? Hardly.”

In a new paper, academic Dr Erik Lidström argues that there is a fundamental mismatch between the world our brains evolved in to, and the society we operate in today.

Read the Paper

Read the Paper

Human beings evolved over roughly two million years to live in small hunter-gatherer tribes of around 500 people. In that world, instincts around face-to-face exchange, equal sharing of collectively hunted resources, and wariness of outsiders were rational and adaptive.

The extended order of modern capitalism — anonymous, spontaneous, governed by price signals involving millions of strangers — is, in evolutionary terms, a very recent and alien environment. No one has had time to adapt to it.

Drawing on Hayek’s concept of the “extended order”, Lidström argues that large societies self-organise through voluntary exchange, property rights and contract — without anyone designing the outcome. Hunter-gatherer psychology struggles to process this: our minds handle direct, face-to-face interactions well, but not the second and third-order effects of interventions in complex, interconnected systems. Price controls, from Diocletian’s in 301 AD to modern rent regulations, illustrate the pattern: each is an instinctively appealing direct intervention that produces the opposite of its intended effect.

Government expenditure in major industrialised economies rose from around 10.7% of GDP in 1870 to 45.6% by 1996 — a trajectory the paper connects to the repeated human impulse to “do something”, where each intervention tends to generate new problems requiring further intervention in turn. The paper concludes that allowing economies to flourish requires accepting what will always feel counterintuitive: that prosperity emerges from the self-organisation of markets, not from conscious direction.

Share

Read the Report

Britain already levies more as a share of GDP in wealth and wealth-related taxes than any other OECD country, making the case for a new wealth tax weaker here than anywhere else in the developed world, according to a new paper from the Institute of Economic Affairs.

Fool’s Gold: The case against the wealth tax, and suggestions for alternatives by Dr Kristian Niemietz makes the comprehensive case against a new wealth tax. It finds that when property taxes, inheritance tax, stamp duty and capital gains tax are combined into a single category of ‘wealth and wealth-related taxes’, the UK raises more revenue from them as a share of GDP than any other OECD economy — including Spain, Norway and Switzerland, the only three European countries that retain a formal wealth tax. Wealth tax campaigners are, in effect, demanding that Britain layer an additional tax on top of a system that already taxes wealth more heavily than its peers.

Subscribe now

Read the Report

Summary

• Wealth taxes have been tried many times. In the early 1990s, about half of Western Europe still had wealth taxes. In the meantime, all but three of these countries have given up on them, including, in some cases, under left-wing governments, and even the three remaining ones have scaled back their wealth taxes.

• Governments that abolished wealth taxes justified this by pointing to their high administrative and compliance costs, adverse behavioural responses (especially negative effects on investment) and limited revenue-raising potential. These are also the reasons why previous attempts to introduce wealth taxes in Britain were abandoned.

• This paper mostly draws on the work of economists who are broadly sympathetic to the idea of wealth taxes, as opposed to ideologically hostile critics. Even a lot of their sympathisers concede that wealth taxes have major drawbacks.

• Britain does not currently have a tax which meets the strict textbook definition of ‘a wealth tax’, but it does have several wealth-related taxes, which can be considered close-enough substitutes, and it already raises more revenue from such taxes than any other OECD economy.

• For its supporters, the wealth tax has become an all-purpose tool. They are trying to achieve too many different things, and often mutually incompatible things, with it. The ‘wish list’ of things that a wealth tax has been promised to finance is simply implausibly long, and then it is also supposed to do many things beyond raising revenue on top of that.

• Wealth inequality in the UK is not especially high, and it is not rising. The top 1% of the wealth distribution account for about 22% of the total wealth, which is less than the EU average and much less than it used to be for most of the 20th century.

• Wealth taxes have rarely raised more than 1% of GDP in revenue, with typical figures being much lower than that. Where wealth taxes have existed for long periods, revenue has often tended to decline over time.

• In recent years, empirical evidence on behavioural responses to wealth taxes has largely confirmed the suspicions of sceptics. Wealth taxes really do reduce and distort investment in a number of ways. None of these effects are catastrophic, but they keep adding up and they tend to get worse over time.

• There are vastly superior alternatives to wealth taxes, which are based on creating wealth rather than penalising it. In the 20th century, Britain had long periods of falling wealth inequality, which was not explained by the government expropriating the wealthy but simply by more people acquiring pension wealth and housing wealth.

• Britain could move to a pension system more like the Australian one, where people pay contributions into their own pension fund rather than to a state pension programme. In such a system, the vast majority of people have the opportunity to build up considerable amounts of wealth over time.

• Wealth inequality in Britain was at its lowest when housing was relatively affordable and home ownership rates were at peak levels. Britain needs a ‘YIMBY’ revolution to unleash a building boom. This would give millions of people the opportunity to build up housing wealth.

  Leave a comment

Dr Kristian Niemietz, Editorial Director and Head of Political Economy at the Institute of Economic Affairs, said:

“The current hype around wealth taxes is entirely vibes-based, and completely undeserved. Wealth taxes have been tried many times before, and no actually existing wealth tax has ever come close to delivering what its keenest supporters are promising today.

“Among economists, even those who are sympathetic to wealth taxes in principle concede that it comes with a myriad of practical problems and harmful side-effects.

“Everything wealth tax campaigners are trying can be better achieved in other ways. There are vastly superior alternatives to wealth taxes.”

Dan Neidle, Founder of Tax Policy Associates said:

“The UK’s greatest problems are anaemic economic growth and a lack of supply of housing. An annual wealth tax offers no solution to either, and risks actively hindering the growth we desperately need. This paper does an important job of shifting the debate: if we want to tackle inequality, the answer isn’t an unworkable new tax; it’s building homes and letting more people build wealth of their own.”

The Rt Hon Lord Frost, Senior Policy Fellow at the Institute of Economic Affairs, said:

“Wealth taxes are panacea policies, fantasy solutions advocated by those who don’t want to face up to the task of implementing an economic strategy that will genuinely make us richer and more prosperous. What Britain needs is less spending and lower taxes, not another effort to extract even more from hard-pressed businesses and voters.”

See the Results

After an average growth of just 1.5% since 2008, Brits are extremely pessimistic about the state of the UK economy. Two-thirds think Britain is going in the wrong direction and rate the economy as poor, while two-fifths don’t think Britain’s economy has any major strengths. One respondent asked “Why is everything getting more expensive when my pay isn’t going up?”.

The new polling and focus groups, conducted by Freshwater Strategy for the IEA, is one of the largest and most comprehensive research projects on British attitudes to economic growth. It found strong support for many market-led explanations of Britain’s lack of growth, including high energy costs (85%), high taxes (75%), trade barriers (74%), too much red tape (74%), employment laws (64%) and strict planning laws (55%).

But there is also agreement among voters on alternative explanations, such as wages being too low (78%), lack of investment in public services (77%), companies prioritising profit (73%) and the political system being rigged in favour of the wealthy (72%).

To fix the problem, there is strong underlying support for market-oriented reform, including reducing energy costs (77%), cutting taxes on workers (72%), and 66% support cutting taxes on businesses.

However, the study found that understanding of growth is weak and people are sceptical about who will benefit. When asked what GDP growth means, one-third (32%) of respondents said they were unsure or did not know, and more thought that the government and big business were likely to benefit from growth than they or their families would. One young respondent said “I don’t think I’ve ever seen real economic growth to know what it actually feels like or looks like”.

Read the Report

See the Results

There is also a striking gap between perception and reality when comparing the UK internationally. A majority of Brits wrongly believe that the average person in the UK is as rich, or richer, than those in Singapore, Germany, Australia, and much of Western Europe, when the opposite is true.

Britons place the UK 7th among US states, on average, in terms of GDP per capita, believing it is richer than 43 of them. In reality, the UK ranks last, behind every single US state. When told this, 27% of respondents said they felt shocked, with a further 15% expressing disappointment or embarrassment. Focus group participants similarly responded with anger and frustration – “it suggests that there needs to be change in the UK because we can’t be fifty-first, there’s no way” said one focus group participant.

The research highlights that when growth is linked to tangible personal benefits – higher wages, lower bills, more homes, better public services – support for pro-growth policies strengthens further.

Read the Report

Summary

• Britain is experiencing a prolonged period of economic stagnation, if not decline. Most people believe living standards have declined and that the country is heading in the wrong direction.

• Support for economic growth is broad and deep, spanning all age groups, regions and political affiliations, with most Britons believing the UK should place greater priority on growth. There is no public appetite for ‘degrowth’ narratives.

• However, many voters do not clearly grasp what economic growth means, what drives it, or why it matters. Younger voters in particular often struggle to connect growth with the benefits of productivity, business investment, and rising living standards.

• The public also remains sceptical about who benefits. While most people believe growth matters in principle, many worry that much of the gain will go to someone else – namely, government, big business and higher earners – rather than to themselves, their families and their communities.

• Although voters recognise that the economy is weak, they underestimate the scale of Britain’s relative decline compared to peer economies and the United States. When confronted with the true picture, they react with shock and embarrassment, creating an emotional jolt that increases openness to change.

• Public opinion on the causes of stagnation is often confused and contradictory. Voters support market-orientated explanations for low growth, such as too-high taxes, too- 8 high energy costs, and excessive red tape, but they also endorse more interventionist strategies for achieving high levels of growth.

• This reflects a broader ‘kitchen sink’ mindset: wanting to throw everything at the problem. People distrust politicians and government, often blaming them for economic decline, yet still instinctively look to the state to fix the problem. This leads to frustration without a coherent diagnosis.

• Even so, there is real openness to pro-growth reform. A majority of Brits support measures such as reducing energy costs, cutting taxes, and easing regulation, especially when framed as resulting in lower bills, higher wages, more homes, and better public services.

• The biggest political obstacles to support for pro-growth measures are perceptions around fairness. Anti-growth arguments gain traction when people believe growth will deliver greater benefits to others, especially the wealthy, while imposing potential costs or greater risks on ordinary workers and families.

• Voters distrust big business and significantly overestimate profits, holding the belief that economic growth benefits corporations at the expense of consumers. Bridging this gap by emphasising the role of businesses in creating jobs, delivering prosperity, and boosting innovation, is key to building a credible case for economic growth.

• The central strategic lesson is that the case for growth must be practical rather than abstract, grounded in tangible benefits. To build a durable mandate for reform, growth must be linked directly to personal and local benefits, while it is made clear that Britain’s stagnation is the result of barriers that can be removed, failures that can be reversed and political choices that can be changed.

This project was made possible through the support of grant [#63661] from the John Templeton Foundation. The opinions expressed in this publication are those of the author(s) and do not necessarily reflect the views of the John Templeton Foundation.

The book provides an accessible introduction to Hayek’s Law, Legislation and Liberty, making one of the twentieth century’s most important works of political philosophy available to a wider audience

Hayek’s warnings about the expansion of government power, the hollowness of ‘social justice’ and the erosion of the rule of law anticipated many of today’s most pressing political debates

The book argues that cultural evolution — not top-down design — produced the institutions on which our freedom and prosperity depend, and that attempts to redesign them wholesale risk profound damage

Read the Book

Subscribe now

Why this book is needed

F. A. Hayek (1899–1992) was one of the most important social thinkers of the last hundred years. Law, Legislation and Liberty (1973–79) is one of his most important books. A polymath with doctorates in both law and political science, and with a keen interest in psychology and evolutionary theory, Hayek received the Nobel Prize for his work on economics and social organisation. Alongside his economic contributions on trade cycles and inflation, he published influential books on political philosophy, including The Road to Serfdom, The Constitution of Liberty and The Fatal Conceit.

Law, Legislation and Liberty is a significant and innovative part of this output. It draws on Hayek’s lifetime study of economics, political theory, philosophy, the history of ideas and information science, weaving them into a new understanding of how society, law and politics function. It presents a hugely original view of the foundation of our social institutions, criticises the very idea of ‘social justice’, rejects all visionary attempts to reshape society, explains our present discontents with democracy and proposes a new constitution to protect our freedom and institutions for the future.

Read the Book

Dr Eamonn Butler, Director of the Adam Smith Institute and author of Hayek’s Law, Legislation and Liberty: A Guide, said:

“Hayek’s Law, Legislation and Liberty is a great book, but it’s not a good book. It’s great because it completely revolutionised thinking on the sources of human values, arguing that our evolved institutions and ideas of justice are far more important and more durable than any we could think up ourselves. But it’s not a good book because it was written over a long period when Hayek was beset by illness, making it uneven and hard to follow. So I hope my straightforward, no-jargon guide will make Hayek’s important ideas widely available to new generations of readers.”

Read the Report

Summary

• Since the 2008 financial crisis, environmental policy has shifted away from simply managing negative externalities and gradually converged with regular industrial policy. Various ‘green deals’ have been launched around the world with the aim of achieving a combination of economic and environmental development.

• Economists, such as Mariana Mazzucato, have gained traction among European policymakers, arguing that governments should not only focus on correcting potential market failures but should also formulate and finance comprehensive public missions to steer innovation towards proposed solutions and technologies.

• In 2020, the European Union launched its Green Deal. Six years later, investments in hydrogen-based projects have collapsed, and electricity prices are twice as high as in the U.S. and China.

• The United Kingdom has followed a similar trajectory, with comparable results in terms of declining industrial competitiveness and soaring electricity prices.

• So far, the EU Green Deal has proved to be expensive, fragmented and ineffective. However, this does not mean that there are no alternative ways to reconcile economic development with environmental considerations.

• The green transition should be guided by market price signals rather than by directional industrial policy. Such a framework could be achieved with a) a uniform and comprehensive emissions trading system that in principle covers the entire economy, and b) technology neutrality on the part of government without sector targets, industry support, or industry-specific subsidies.

Britain’s inheritancetax (IHT) is far more punishing than headline comparisons suggest, and should be scrapped entirely, according to a new paper published today by the Institute of Economic Affairs.

The report, A Taxing Inheritance by Rory Meakin, finds that measured on what parents can actually leave their children, the UK has the fifth highest inheritance tax in the OECD. Almost half of OECD members, 18 out of 38, levy no tax on such transfers whatsoever, and a further 10 charge preferential rates.

While Britain’s 40% headline rate sits only moderately above the OECD median, this flatters the UK‘s true position. Most countries treat transfers from parents to their own children as a special category, taxing them at lower rates or not at all. Britain makes no such distinction.

Read the Report

Summary

• Inheritance tax is levied on the estates of the deceased, including on lifetime gifts made up to seven years prior to death. Roman emperors levied taxes on inheritances, and the British history goes back to the Stamp Act 1694, later modernised by the Finance Act 1894 with the introduction of the estate duty. Rates were initially low with a top rate of 8% on estates worth over £1 million (£116 million in 2025 prices). But they rose precipitously over the 20th century to reach 85% before being renamed as capital transfer tax, applying to lifetime gifts, before reverting back to a tax on death estates only in the mid-1980s and being renamed again as today’s inheritance tax at a single headline rate of 40%.

• Britain’s top headline rate of 40% is only moderately above the median rate among OECD countries which levy a tax, Czechia’s 35%. But 18 out of the 38 OECD countries, almost half, do not levy a tax on bequests to adult children of the deceased, and 10 charge preferential rates. Including these countries and those without a tax at all, Britain ranks fifth highest and is in a small group of high-tax outliers.

• Much policy-expert commentary on the question of inheritance tax being a ‘double’ tax is mistaken, and the general public are closer to the truth. It may strictly speaking not be a ‘double’ tax given all the others that apply, but it is arbitrary, additional and distortionary. The correct lens to consider the question is the value chain from creation to consumption; inheritance tax somewhat arbitrarily introduces an additional point of taxation into the chain. The only way to make an inheritance tax neutral would be to implement a retrospective matching tax rebate for taxed income originally received by the benefactor.

• Inheritance tax is particularly complex and costly to administer, but its effects on savings and investment and redistribution are more ambiguous, as is public opinion on the question of how to reform it. The public considers it to be unfair, and there is a large majority in favour of reducing it, and sometimes of abolishing it. But that opinion appears to weaken significantly when set against alternative taxes to cut instead.

• There is a good case for abolishing inheritance tax entirely due to its arbitrary and distortionary nature, its complexity, its effect on savings and investment, its effect on Britain’s international competitiveness in attracting entrepreneurs and the very rich, and satisfying public opinion. But it is harder to make the case for abolition as a policy priority above other alternative tax cuts which might deliver greater effects on incentives when governments are unwilling to restrain spending enough to allow both.

• More incremental reforms offer significantly weaker tax simplification, neutrality and efficiency benefits but come with smaller foregone revenues for the exchequer and represent a smaller opportunity cost in terms of alternative potential tax reforms.

It argues that The Wealth of Nations remains one of the most important guides to prosperity ever written, and that Smith’s core model has been vindicated by modern evidence Governments today, with their high taxes, sprawling regulation and pandering to special interests, would have horrified Smith as a return to the mercantilism he spent his career dismantling.

Read the Report

Subscribe now

• In the Wealth of Nations, Adam Smith argues that individuals pursuing their own self-interest can promote the public good when channelled through his ‘system of natural liberty.’

• Smith’s ‘system of natural liberty’ depends on three pillars — maximum individual liberty, tempered by justice (rule of law) and robust competition.

• Competition acts as a moral regulator by disciplining greed and channelling self-interest into socially beneficial outcomes.

• Smith strongly opposed mercantilism and governmentgranted monopolies, arguing that economic freedom and free trade generate greater prosperity.

• Modern evidence, such as the Economic Freedom Index, supports Smith’s prediction that societies with greater economic liberty achieve faster growth and higher living standards.

• The Scottish philosopher’s model achieves a hat trick: maximum liberty, individual improvement, and public benefit, all at the same time.

Mark Skousen, PhD, is a presidential fellow at Chapman University, where he holds the Doti-Spogli Chair of Free Enterprise. He is also the Macroeconomist Strategist at the Oxford Club, and author of over 25 books, including The Making of Modern Economics, which makes Adam Smith the hero of modern economics.

• No credible forecast shows UK oil and gas demand falling to zero by 2050, even under net zero scenarios – oil and gas are essential ingredients in plastics, fertilisers, medicines and modern technology

• The 78% headline tax rate is forcing a decline in North Sea production and driving investment overseas, with the workforce forecast to halve to as low as 57,000 by the early 2030s – losing up to 1,000 jobs a month

• Replacing domestic production with imports increases overall emissions by around 50% and risks gas shortages on cold winter days as early as 2026/27

Full Publication

Full Publication

Protest groups such as Just Stop Oil have agitated for an end to oil and gas production in the UK, arguing that the ‘climate emergency’ makes this a necessity. Even those not clamouring for an end to domestic hydrocarbon production have supported windfall taxes, which may ultimately have the same effect.

But how realistic is it to ‘just stop oil’? Oil and gas are essential, not just as fuels but for everyday life. Most of the things that make modern life (and, in particular, modern medicine, agriculture and technology) possible rely on oil and gas. Oil is particularly useful since it is the raw ingredient for plastics and a whole range of chemicals, from paint to chemotherapy drugs. Oil and gas are also extensively used in agriculture, in everything from fertilisers and pesticides to polytunnels.

Although campaigners argue that a transition to renewable energy will mean oil and gas are no longer needed as a fuel, there are no credible forecasts that do not show some demand for oil and gas in the UK in 2050, even under net zero-compliant scenarios. It is far from straightforward to replace oil and gas in the energy sector, primarily because the main alternative – renewable generation – is for the most part reliant on weather, and this creates a range of challenges that are difficult and expensive to solve. It is deeply misleading to suggest that renewables are cheap. It is necessary to build and maintain equivalent amounts of backup generation or storage to be available when wind and sun are not.

Even in sunny countries it is very difficult to build a viable energy system based on renewables, as the Bihar experiment (described later in this report) demonstrated. More recently, Spain has experienced grid stability problems associated with too much solar generation and not enough conventional synchronous generation to provide voltage control. Replacing oil and gas in the rest of the economy will be even harder since they are integral to modern life. Again, this has been tried, and shown to be easier said than done, as evidenced by Sri Lanka’s disastrous attempt to move away from the use of methane in fertilisers. The Sri Lankan economy contracted sharply when synthetic fertilisers were briefly banned.

Subscribe now

But the UK does not only still need oil and gas, it needs to recover as much as possible from domestic resources. Forcing a premature decline in North Sea production means we must increase imports, which have higher emissions than domestic production. It means the associated tax revenues are lost. It means that supply chain companies close or relocate faster than would otherwise be the case, costing jobs and further tax revenues. And it puts security of supply at risk because the integrated nature of the offshore pipeline infrastructure, which requires certain levels of throughput to be maintained, may be pushed into early closure, stranding viable producing fields, and creating peaks of decommissioning which may be beyond the ability of supply chains to cope with, as well as threatening gas shortages on cold winter days unless new import infrastructure is built.

This report will explore the uses of oil and gas, where they come from, and how much we are likely to need in the future. It will also look at the impact of the new annual North Sea licensing rounds, political pledges to stop issuing new drilling licences, and the impact of the windfall tax.

Meeting our oil and gas needs through imports will almost certainly be more environmentally harmful than domestic production, but the prospects for that production are limited by adverse political rhetoric and the highly damaging impact of the windfall tax. Unless we change course rapidly by repealing the windfall tax and committing to continue developing domestic oil and gas resources, we will be increasingly reliant on potentially dirty imports in the decades to come.

• Governments are constantly tempted to push flexible working because it allows them to support a popular social change without having to pay for it themselves.

• The new, stronger “right to request” flexible working in the Employment Rights Act will be much harder for managers to resist, and even dealing with such requests will impose costs on companies.

• While private businesses may be able to control some of these costs, the widespread strengthening of flexible working rights is likely to damage productivity, slow growth, and undermine wages and employment

• This will be all the more true if unions or workplace rules stop wages adjusting, for example to reflect whether particular jobs can in practice be done remotely. This is likely to be a particular problem in the public sector, reinforcing its existing poor productivity record.

Full Publication

Changes to our way of life during the Covid lockdown accelerated an existing drive for more flexible working opportunities.

However, the costs of flexible working requirements have rarely been properly assessed and could extend to undermining growth, increasing unemployment and the rise in post-Covid withdrawal from the workforce.

UK employers already offer a wide variety of non-traditional work options. Where this is the result of employers voluntarily offering such options and workers voluntarily accepting them, this is compatible with classical liberal approaches to the employment contract and economic efficiency.

The rationale for the ‘right to request’ flexible working has expanded from concern for economically disadvantaged workers with health issues or caring responsibilities to a belief that all employees should be able to request a change to their working arrangements.

The Employment Rights Act strengthens the ‘right to request’ flexible working arrangements and will make it very difficult for organisations to resist such requests.

Subscribe now

Flexible working arrangements advocated by pressure groups and trade unions include the right to work at home, to work compressed hours or a four-day week, a ‘right to disconnect’ and extended and more generously funded parental leave.

All of these arrangements have bene ts for some employees, and a monetary value can be attached to them. However, as other employees cannot bene t from these opportunities because of the nature of their jobs, pay relativities may need to adjust, and this could present difficulties where pay structures are rigid as a result of union pressures.

Despite claims that flexible working is virtually costless to employers, this is not generally true; otherwise, flexible options would be offered voluntarily. Where employers face significant extra costs, these will be passed on to consumers in the form of higher prices and to workers in terms of lower wages and/or fewer job opportunities.

Share

A concern is the way in which effective employment mandates arising from tribunal decisions or further regulatory interventions may particularly benefit already privileged public sector employees. The costs fall on the taxpayer, and such mandates may undermine attempts to improve poor productivity performance. They will also make it still more difficult for private employers to compete.

We are not in a position to evaluate the benefits and costs of particular working arrangements. But neither are politicians and civil servants. Employers and employees, negotiating in the ‘particular circumstances of time and place’, are better suited to undertake these evaluations. Government should take its hand from the tiller and allow businesses and employees to come to arrangements that best suit their own needs and requirements.

Full Publication

• New analysis suggests gross costs of net zero could exceed even the highest official predictions of £7.6 trillion

• Official estimates of the cost of net zero are often driven by “fantasy assumptions”

• Public bodies have consistently underestimated the cost of renewables, heat pumps and electric vehicles, while assuming implausibly low borrowing costs

• New analysis warns that misleadingly low figures risk shutting down serious democratic debate over one of the most expensive policies in British history

  Full Publication

The true cost of the UK’s net zero commitment has been systematically understated, according to a major new briefing paper from the Institute of Economic Affairs.

In The Cost of Net Zero, energy analyst David Turver examines official costings from the Climate Change Committee (CCC), the National Energy System Operator (NESO), the Treasury and the Office for Budget Responsibility. He finds that headline figures have fallen dramatically not because net zero has become cheaper, but because public bodies have changed methodologies and relied on increasingly unrealistic assumptions.

The CCC now claims that achieving net zero between 2025 and 2050 will cost just £108 billion – down from earlier estimates of over £1 trillion. Turver shows this is done by moving the goalposts from measuring gross costs to comparing against a notional baseline scenario. It also relies on implausibly low projections for the cost of offshore wind, solar power, heat pumps and electric vehicles, alongside borrowing costs well below market rates.

By contrast, NESO’s own modelling implies gross cash costs of £7.6 trillion for the transition, or more than £9 trillion once the carbon costs of emissions are included. Even these figures, the paper argues, are likely to be underestimates given recent failures of offshore wind projects and rising financing costs.

The paper concludes that Britain has embarked on one of the most expensive economic transformations in its history without honest accounting or proper scrutiny. If net zero is to command lasting public support, Turver argues, voters must be told the true scale of the costs and trade-offs involved.

Full Publication

Some of the overly optimistic assumptions made include:

- The CCC expect offshore wind to cost £1,500/kW of capacity for projects delivering in 2030. However, Hornsea 3 (2.9GW) expected to come online in 2028 is forecast to cost between £10 billion and £11billion, for a mid-point cost of £3,682/kW, more than double the CCC’s estimate.

- The CCC also expect solar power plants to cost £564/kW in 2025, falling to £403/kW by 2030. However, the recently delivered solar farms of Stokeford and Alfreton spent £952/kW and £995/kW, respectively, nearly double the CCC’s 2025 estimate and more than double their 2030 estimate.

- NESO calculate the cost of offshore wind as £70.10/MWh in 2025, falling to just £53.20/MWh in 2035. In the same 2025 prices, Hornsea 4 won a contract last year at £85/MWh, which was cancelled as uneconomic. Allocation Round 7 (AR7) is offering £118/MWh in September 2025 prices for index-linked 20-year contracts, some 121% above NESO’s estimate for 2035.

- NESO assume Floating Offshore wind will cost £109/MWh in 2035 despite contracts being awarded at £202/MWh in AR6 and £282/MWh being on offer in AR7. They also assume solar will cost just £31/MWh in 2035 despite AR6 contract awards at ~£72/MWh and £78/MWh being on offer in AR7.

- NESO assume the cost of capital for solar and onshore wind to be 5.0% and 5.2% respectively for projects delivering in 2035, which is below 30-year gilt yields around 5.3%.

Full Publication

David Turver, author of the paper, said:

“The various public bodies responsible for working out the costs of net zero have not been entirely truthful in their analysis. They have made fantasy assumptions about the cost of renewables and low-carbon technologies. The true cost of net zero is much higher than we have been led to believe. If we are to have a serious debate about net zero, the various public bodies need to be more transparent and frankly more honest.”

The Rt Hon Lord Frost, Director General of the Institute of Economic Affairs said:

“Net Zero is already one of the most economically damaging policies in modern British history. We can now see it was sold to the public on the basis of fantasy numbers. This research shows that official bodies have consistently downplayed the true costs by relying on heroic assumptions about the cost of renewables, heat pumps, and electric vehicles, predicting future savings that bear little resemblance to reality. The whole of Net Zero badly needs a proper rethink before it kills off more of British industry and leaves British households permanently subject to unreliable supply and higher bills.”

The Rt Hon Claire Coutinho MP, Shadow Energy Secretary, said:

“It beggars belief that none of our ‘independent’ energy bodies can publish an accurate figure for what Net Zero is going to cost this country. Wildly optimistic assumptions and crippling groupthink in our institutions means we’re flying blind – and the result is the highest electricity prices in the world and our industry fleeing overseas.

“When I was Energy Secretary I had to pull teeth to make the Energy Department carry out an accurate costing of wind and solar – one which factors in all the extra costs of building the grid, paying wind farms to switch off when it’s too windy, and paying for gas backup for when it’s not windy enough. Ed Miliband has since cancelled that work, which tells you all you need to know about how little this Government cares about the cost of Net Zero.”

Andy Mayer, Energy Analyst at the Institute of Economic Affairs said:

“This paper cuts through the fog surrounding net zero costs. It shows that wildly optimistic assumptions and creative accounting have obscured serious economic scrutiny - and that the real price tag of the race to net zero is far higher than the public has been led to believe.”

Full Publication

• Spontaneous orders – from language to markets – emerge without central coordination and handle complexity better than government planning

• Empirical studies show that spontaneous order outperforms coercive regulation in economic growth, natural resource management, and public service provision

• New report challenges government intervention in climate change, public health, transport, and economic policy, arguing that complex problems require maximum freedom to solve

Full Publication

A new briefing paper from the Institute of Economic Affairs argues that spontaneous order – the emergence of complex systems without central coordination – provides strong grounds for resisting Government action, especially when proposed to correct market failures or promote efficiency.

The paper, Spontaneous Order: Analysis and Implications, published today by the Institute of Economic Affairs, examines how fundamental human institutions like language, law, morals, markets and money all emerged without deliberate centralised design. Written by Elaine Sternberg, the report argues that these spontaneously ordered systems can integrate dispersed, dynamic and tacit knowledge far more effectively than deliberately constructed orders.

Full Publication

According to the paper, spontaneous orders are “self-generating, self-organising complex adaptive systems” that emerge from the unintended coordination of intentional action. They exist when a pattern emerges from multiple dispersed individual elements without any coordinator arranging that pattern.

The paper demonstrates that spontaneous order supports individual liberty in three crucial ways:

• First, by their nature, spontaneous orders cannot be coercive, as they emerge from independent individual choices.

• Second, their very existence proves that deliberate organisation is not the only way order can be established, undermining the basic presumption that government regulation is necessary.

• Third, spontaneous orders require freedom to operate properly – their individual components must be free to react to changing circumstances for the system to be adaptive and self-correcting.

The paper draws on empirical evidence and British examples to demonstrate how spontaneous order outperforms government regulation across key policy areas:

• Natural resource management and climate change: Nobel laureate Elinor Ostrom’s research proved that common-pool natural resources like pastures, fishing waters and forests are conserved better by emergent community systems than by state regulation. Her findings on polycentric governance challenge the assumption that complex environmental problems require centralised government control.

• Transport and urban planning: A real-world British experiment on London’s Exhibition Road demonstrated spontaneous order in action. When physical traffic barriers were removed from the major Kensington thoroughfare, road users were required to exercise personal care. Despite car speeds increasing by 21%, no accidents were observed during the subsequent survey. The removal of top-down control improved both safety and traffic flow.

• Economic growth and public services: Ostrom’s research extended beyond environmental issues, showing that polycentric governance proved better at providing public goods and services than centralised government, including in metropolitan police forces. Studies have confirmed spontaneous order works better than coercive regulation at generating economic growth and providing key services.

• Technology and innovation: Advanced examples include AlphaZero’s self-taught mastery of chess in just nine hours through reinforcement learning, without any programmed rules or human instruction. Similar spontaneous deep learning has been used effectively for medical breakthroughs, fraud and disease detection, and translation services.

Sternberg argues that these findings should challenge government intervention particularly in areas where politicians claim extreme complexity requires central control. She contends that in domains like climate change, public health and economic growth, the dispersed and dynamic nature of knowledge actually makes spontaneous order superior to government planning.

The paper concludes that recognising the potential and advantages of spontaneous order should encourage scepticism about popular public policy proposals, as government projects based on command and control cannot benefit from experience or quickly adapt and adjust in the way spontaneous orders can.

Full Publication

Elaine Sternberg, author of Spontaneous Order: Analysis and Implications, said:

“The possibility of spontaneous order should highlight large arenas where government action is unnecessary and may well be actively counterproductive. Significantly, these are areas - like climate change, public health and welfare, and economic growth - where government is most likely to claim that extreme complexity requires coercive regulation. Recognising the potential and advantages of spontaneous order should encourage scepticism about, and opposition to, such popular public proposals.”

Read here!

• Chancellor Rachel Reeves will likely fill the gap with broad-based income tax increases and a ‘dog’s breakfast’ of smaller measures

• Root cause is spiralling public spending – not productivity downgrades or economic shocks

• Tax revenues from multiple small changes are unreliable compared to simpler increases in income tax or VAT

New analysis published today by the Institute of Economic Affairs reveals Chancellor Rachel Reeves faces a financial hole of up to £30 billion ahead of Wednesday’s Autumn Budget, which she will probably attempt to fill through broad-based increases in taxes on income alongside numerous smaller tax changes.

The briefing paper, ‘2025 Budget Briefing: Tax Policy Preview – Options and Possible Impacts’ by Julian Jessop, explains how this gap has opened up since the March 2025 forecast and assesses the Chancellor’s options for closing it.

The single largest component of the £30 billion hole – approximately £20 billion – reflects a long overdue downgrade to the OBR’s forecasts for productivity growth. However, the remainder results directly from policy decisions made by the current government, including abandoning the £5 billion welfare savings package announced in Spring and spending any favourable economic assumptions rather than banking them to reduce borrowing.

Read here!

The Chancellor is expected to extend the freeze on personal tax thresholds beyond 2028, raising £8-10 billion through the effects of fiscal drag. The remaining £20 billion would come from what Jessop describes as a “dog’s breakfast” of smaller measures – potentially including increased Council Tax on higher-value properties, closing Capital Gains Tax loopholes, new taxes on partnerships (LLPs), levying National Insurance on rental income, and increased ‘sin taxes’ on gambling and sugary drinks.

The analysis warns that revenues from such a patchwork of smaller tax increases are inherently unreliable. Behavioural responses mean the actual revenues raised would be much less dependable than those from simpler increases in broad-based taxes like income tax or VAT. The taxation of wealth is particularly difficult because assets are harder to value than cash payments, while ‘sin taxes’ that aim to discourage activities whilst raising revenue from them often end up doing neither.

More positively, the Chancellor is likely to increase fiscal headroom to provide a larger buffer against future shocks, and many tax increases would be ‘backloaded’ towards the end of the forecast period rather than taking effect immediately.

Read here!

Julian Jessop, Economics Fellow at the Institute of Economic Affairs and author of the briefing, said:

“This year’s Budget is set to be just as painful as the last. The Chancellor will attempt to fill a new hole of perhaps £30 billion with broad-based increases in taxes on income and from a dog’s breakfast of many smaller measures.

“This hole is not entirely of the Chancellor’s making. Most of the shortfall reflects a downgrade to the OBR’s projections for trend productivity growth, which is arguably long overdue. She will also want to increase the buffer against future shocks by raising the fiscal headroom above the low levels inherited from the previous government.

“Nonetheless, this should have been done by curbing the growth of spending, rather than by increasing the tax burden even further. Relying on a dog’s breakfast of many smaller tax changes is also more likely to backfire.”

• Chancellor Rachel Reeves faces £30 billion ‘fiscal black hole’ by 2029-30, requiring tax rises or spending cuts to meet fiscal rules

• Taxing the rich cannot bridge the gap – each 1p rise in the top income tax rate raises just £145 million in the next year, and capital gains tax hikes would be economically self-destructive

• Public spending has grown 2.5% per year in real terms since 1997, far outstripping population growth of 1% per year and economic growth of 1.8% per year

• Without policy change, public spending on over-65s would increase by 11 percentage points of GDP

Read here!

A new briefing paper published by the Institute of Economic Affairs today reveals that Britain’s long-term fiscal crisis is driven by spending growth that has consistently outstripped both demographic demand and economic expansion. The state has grown from approximately 35% of GDP in the late 1990s to 45% today, pushing the tax burden from 32% to 37.5% of GDP whilst still leaving persistent deficits.

In this briefing, 2025 Budget Briefing: The Fiscal Context, Tom Clougherty examines the wider fiscal landscape surrounding the Autumn Budget 2025. It shows that Chancellor Rachel Reeves faces a significant ‘fiscal black hole’ of around £30 billion by 2029-30, driven largely by an expected downgrade in productivity growth forecasts from the Office for Budget Responsibility.

Public spending has grown by 2.5% per year in real terms since 1997, significantly exceeding the 1% annual increase required to keep pace with population growth after accounting for demographic shifts. Over the same period, real economic growth averaged just 1.8% per year. The result is a state that has consumed an ever-larger share of national income whilst delivering persistently unaffordable levels of borrowing.

The research finds that spending restraint is both plausible and necessary. Simply keeping overall spending increases in line with inflation until 2029-30 could improve the fiscal outlook by £40 billion relative to current plans. However, if cuts are focused on departmental spending whilst NHS funding continues to grow at recent rates of 4% per year in real terms, cuts of 14% to non-NHS departmental spending would be required by 2029-30.

Read here!

The briefing challenges the notion that simply taxing the rich can bridge the fiscal gap. According to HMRC figures, each 1p increase in the additional rate of income tax only yields £145m in 2026–27, £265m in 2027–28, and £230m in 2028–29. Even dramatically increasing rates would not generate the tens of billions needed. The paper warns that significant hikes to capital gains tax would constitute economic self-harm, particularly given Britain’s already uncompetitive position – nine OECD countries do not tax capital gains at all, and no other OECD country levies a rate as high as 45%.

The report emphasises the looming demographic challenge. The OBR’s 2022 projections suggested that without policy change, public spending on the over-65s would increase by 11 percentage points of GDP over 50 years – equivalent to £260 billion in 2021-22 terms, more than all income tax and capital gains tax revenue combined that year.

Economic crises have played a key role in driving step changes in public spending that prove difficult to reverse. Both the financial crisis and the COVID-19 pandemic saw dramatic spending increases, but whilst the 2010s saw a decade-long effort to return spending to pre-crisis levels, spending post-pandemic has settled at a permanently elevated level. On current plans, Total Managed Expenditure will average 44.5% of GDP from the pandemic to the end of the decade.

Britain must fundamentally reduce public spending, or face a future of perpetually rising taxes. With demographic pressures set to intensify and the state already consuming 45% of GDP, the country faces a stark choice: meaningful reform of public services and the welfare state now, or an ever-growing tax burden that will strangle economic growth and leave future generations significantly poorer.

Read here!

Tom Clougherty, author of “2025 Budget Briefing: The Fiscal Context”, said:

“Ultimately, in both tax and spending, we ought to take a long-term view. For tax, that means a genuine effort to simplify and rationalise the system while making it more pro-growth. Our highly politicised budget process makes that kind of policymaking difficult. On the spending side, we need to recognise that our fiscal problems did not appear overnight and will not be solved at a single budget.

“Indeed, putting Britain on a sound fiscal footing – not just for 2029–30 but for the next generation – is a mission that could and probably should occupy a whole government across an entire Parliament. We can put off that day of reckoning, but we cannot avoid it forever.”

Full Publication

• Low-tax countries now dominate welfare quality rankings while high-tax nations struggle, new analysis shows

• Britain has suffered a catastrophic decline in welfare performance, falling to 22^nd place in life expectancy and ranking just 15^th overall despite a record tax burden and ballooning welfare spending

• The Nordic model has collapsed as a welfare benchmark with Sweden plummeting from 1^st to 8^th in life expectancy as its tax burden soared to 43% of GDP

• Shadow Chancellor Sir Mel Stride: “This report offers a timely reminder that higher taxes, higher spending and higher welfare are not the route to a fairer, more prosperous economy.”

• Richard Tice: “This research confirms what we’ve known all along.”

• The top-performing countries on welfare outcomes are low-tax Switzerland, Japan, and South Korea

  Full Publication

New analysis published today by the Institute of Economic Affairs busts the myth of Nordic-model high-tax welfare superiority that has dominated political discourse for decades, and delivers a devastating verdict on Britain’s welfare performance as the tax burden and welfare budgets have ballooned.

The study compares welfare outcomes across 23 OECD nations using measures covering health, education, unemployment, and social exclusion. The findings present a radical challenge to the common idea that improving welfare outcomes requires higher taxes and more spending. It suggests that ‘welfare state crowding out’ is an increasing problem, where high-tax and spend approaches waste resources and crowds out some of the most essential welfare state tasks, market welfare services, precautionary saving and insurances as well as the role of the family.

“The Welfare State Myth” by Nima Sanandaji and Stefan Fölster, reveals that Britain is failing its citizens across virtually every measure of welfare quality despite a record high tax burden. Britain’s welfare crisis is starkest in healthcare, where the country ranks 20^th, despite the NHS being Europe’s largest single employer. With over 7 million people on hospital waiting lists, the UK’s health system delivers outcomes that would be scandalous in successful low-tax countries. Switzerland, with a 27% tax burden compared to Britain’s 33%, achieves dramatically superior health outcomes through efficient private insurance models.

For decades, UK policymakers have looked enviously at Nordic welfare states. Yet Sweden, long held up as the gold standard, now ranks 12^th overall despite a 43% tax burden. Sweden’s decline coincides precisely with its transformation into a high-tax state - it topped life expectancy rankings in 1970 when it had a 35% tax burden.

The research arrives as the government grapples with an unsustainable welfare spending crisis, with Universal Credit and PIP costs continuing to rise and parliamentary rebellions against the welfare bill making reform difficult.

Today’s analysis demonstrates what Britain could achieve. Japan leads global rankings with a 30% tax burden, followed by South Korea (26%) and Switzerland (27%). Australia, Ireland and New Zealand all achieve better welfare outcomes than the UK with similar or lower tax burdens.

Full Publication

Sir Mel Stride, Shadow Chancellor and former Secretary of State for Work and Pensions, said:

“This report offers a timely reminder that higher taxes, higher spending and higher welfare are not the route to a fairer, more prosperous economy.

“We have to get away from the idea that every problem can be fixed simply by pouring more money into public services or welfare.

“We don’t need bigger government. We need a more efficient state that can deliver both better outcomes and better value for taxpayers.”

Richard Tice, Deputy Leader of Reform UK, said:

“This research confirms what we’ve known all along. Successive Labour and Conservative governments have bloated public spending and burdened us with ever higher taxes, yet we get less and less in return.

Nima Sanandaji, Director ECEPR and co-author of the report said:

“On basic measures of health, Britain is underperforming compared to its rich-world peers. Our data clearly show that in order for the UK to excel in welfare it should shift to a lower tax model. Countries with lower taxes have the same or sometimes better health outcomes, and systematically better outcomes in terms of school results and lower unemployment. High-tax models create poverty traps of welfare dependency, particularly amongst those with immigrant backgrounds.”

Stefan Fölster, Director Better Future Economics and co-author of the report said:

“The idea that the ‘Nordic model’ of higher taxes to deliver better welfare no longer stacks up. Nordic social and economic success was built during periods of low taxes, and stagnated in relative terms after shifting to high taxes.

“Instead, the countries that do better in terms of welfare outcomes are increasingly those with lower tax burdens. Politicians must consider this as they try to address the twin problems of a faltering welfare state and a generational-high tax burden.”

• British women are falling at least 0.4 children short of their own stated family goals, according to fertility data through 2011, with this gap likely widening as fertility now hits record lows of 1.44 while desired family size remains stable at 2.2

• New report shows how pro-natal policies that focus on cash incentives, such as baby bonuses, subsidies, and maternity pay, may have some short-term effect but are often found wanting and prohibitively expensive

• Evidence shows policies affecting economic freedom, including labour market, childcare and housing liberalisation, can have profound effects on fertility through their impact on work-family compatibility

Full Publication

A new paper, published today by the Institute of Economic Affairs, shows that while the total fertility rate hit a record low of 1.44 children per woman in 2023, women’s intended fertility has remained remarkably stable at around 2.2 children since 1979, suggesting that the ‘fertility gap’ may have grown since it was last measured in 2011.

The report, ‘Mind the Fertility Gap: Why people stopped having babies and how economic freedom can help’, examines the evidence on the best way to close the fertility gap and tackle falling birth rates. It finds that while ostensibly pro-natal policies focused on cash transfers can result in more children, financial incentives have limited success, do not address the root causes of birth rate declines, and are prohibitively costly for most governments.

Instead, research shows traditional pro-natal policies, such as baby bonuses and parental leave, yield near-zero effects on long-run fertility decisions. Instead, evidence from the United States shows that states with greater economic freedom - especially in labour market regulation - tend to have smaller fertility gaps. Work-family compatibility emerges as a crucial constraint, with flexible labour markets naturally providing parents with more options to customise work schedules around family goals.

Full Publication

Economic freedom shows strong associations with smaller fertility gaps. New research analysing US state-level data reveals that housing and land use regulation significantly impacts family formation. Spacious, affordable housing with multiple bedrooms is what economists call a “child-complement” - couples have higher fertility when they can achieve these conditions.

Yet extensive land use regulations dampen housing supply responses and keep prices artificially high, making the costs of raising children higher than necessary. Studies show a significant negative relationship between land use restrictions and fertility rates, with effects especially concentrated among women in their twenties. Similarly, seemingly minor regulations can have outsized anti-natal effects - stringent car seat requirements in the US reduced total births by 145,000 since 1980 by indirectly requiring families to purchase larger vehicles when going from two to three children.

Dr Clara E. Piano, report author and Visiting Assistant Professor of Economics at the University of Mississippi, argues that the fertility gap represents a growing failure to achieve family goals rather than a decline in the desire for children. If women achieved their stated fertility intentions, the UK’s fertility rate would rise well above the United States (1.62) and nearly every other high-income country.

Full Publication

Piano makes the following key recommendations to help close the fertility gap:

• Labour market deregulation: Remove rigid regulations that prevent flexible working arrangements, remote work, and independent contracting. Evidence from US states shows that more flexible labour markets are strongly associated with smaller fertility gaps, allowing parents to balance careers with family life rather than being forced to choose between them.

• Housing and planning reform: Reduce land use and housing regulations that keep prices artificially high and restrict housing supply. Spacious, affordable housing with multiple bedrooms enables couples to achieve higher fertility, yet current planning restrictions make the costs of raising children unnecessarily expensive.

• Reform anti-natal public programmes: Audit and reform public pension systems and other welfare programmes that inadvertently punish parents. Parents currently bear all the costs of raising the next generation of taxpayers while the benefits are spread across society.

• Support religious liberty: Allow religious organisations to freely promote pro-natal messages and create supportive communities around parenthood, rather than attempting ineffective and often expensive Government campaigns. International evidence shows this approach can increase fertility at virtually no cost.

• Avoid ineffective policies: Resist calls for expensive baby bonuses, cash incentives, and subsidized childcare schemes, which research shows have minimal long-run impact on fertility decisions and fail to address the root causes of declining birth rates.

Piano also suggests some creative solutions to closing the fertility gap, including giving children political representation by allowing parents to cast proxy votes on behalf of their minor children. This would ensure children’s interests are represented in policy decisions and create a sustainable feedback mechanism where parents themselves signal which barriers to family formation matter most.

The paper warns that without action, the UK faces mounting fiscal pressures, labour shortages, and a growing population of people unable to achieve their stated family goals.

Dr Clara E. Piano, report author and Visiting Assistant Professor of Economics at the University of Mississippi, said:

“Restricting the term pro-natal to explicit transfer policies obscures the broader policy landscape that shapes family decisions. Policies affecting economic and religious freedom, in particular, have profound effects on fertility through their impact on work–family compatibility and personal beliefs.”

Full Publication

• Expansion of EDI bureaucracy has been fuelled by government regulation, not by market forces or rising prejudice

• Growth of EDI undermines meritocracy, replacing fairness and talent with group quotas and targets

• Previous estimates suggest direct public sector EDI costs of £557m a year, with wider costs to the economy potentially in the tens of billions

• New paper calls for rolling back EDI, including scrapping procurement requirements and outlawing quotas

Read here!

The rapid rise of Equality, Diversity and Inclusion (EDI) roles, strategies and mandates is the product of state intervention and government action, rather than consumer or business demand or rising prejudice, according to a new paper published by the Institute of Economic Affairs today.

“EDI Nation: The growth of the equality, diversity and inclusion bureaucracy and its costs, by Alex Morton, argues that legislation such as the Equality Act’s concept of “indirect discrimination”, the Public Sector Equality Duty, and the purchasing power of the state have pushed organisations into EDI bureaucracy regardless of its value.

Quangos such as the Financial Conduct Authority and UK Research and Innovation have embedded EDI requirements far beyond their original remit, pressuring businesses, universities, and charities to follow suit. Companies have been forced to expand EDI by Government mandate rather than choosing to do this to boost productivity or as part of a meritocratic strategy.

Read here!

Morton warns that this state-sponsored expansion is damaging productivity, creating division, and eroding meritocracy. While past research has estimated the direct cost of EDI roles and training in the public sector at £557 million a year, with wider costs to the economy potentially in the tens of billions, the paper stresses that the bigger danger is the replacement of merit-based hiring with identity-based quotas and targets.

One assessment found that the number of diversity and inclusion managers grew by 71% from 2015 to 2020 globally.

The paper recommends a reset, including:

• Removing the legal concept of indirect discrimination

• Ending EDI mandates within the public sector and procurement

• Outlawing quotas and targets in hiring

• Reform or abolition of the public sector equality duty

• Clarifying that aims to hire more or less of specific groups is direct discrimination

• Clarifying what charged topics such as racism and bullying consist of

Read here!

Alex Morton, author of the report, said:

“Far from reflecting market demand or rising intolerance, EDI has been driven by government policy and quango activism. It is costly, divisive, and undermines meritocracy - one of the pillars of modern economic success. Rolling back state-imposed EDI is essential if Britain is to restore fairness, efficiency, and economic dynamism.”

By Stephen Dnes

• Recent years have seen sharp growth in the number and scale of class actions filed before the UK Competition

• Appeal Tribunal (‘Tribunal’). Pending claims are worth an estimated £134 billion. There are 655 million claimants, that is, ten claims per person. On average, there is roughly one new class action every week.

• The sudden increase in the scope of claims raises questions about their quality. The strong economic case against hardcore cartels applies equally to private litigation, but there are also some more adventuresome cases which stray from true cases of economic harm. Such cases increase costs and could harm innovation.

• Three specific concerns arise: (1) Cases are not getting much money, even against hardcore cartels; (2) Some low-quality cases have crept in, but they are mixed up with stronger ones which ought not to be undermined by reform; (3) Cases are very slow.

• This paper explores five related policy options to address these three issues. They can be used together or in isolation to focus cases onto the stronger ones and away from the weaker ones. The proposals span several major aspects of the cases and would significantly focus their remit.

• There are ten class action claims per person pending in the UK today, with a total valuation of approximately £134bn

• They can provide important recourse to justice, but some cases reward funders and lawyers, not consumers

• Proliferation of cases could cost UK economy up to £18bn, diverting resources away from innovation and undermining growth

• As the Government reviews the system, new proposals are published today that would force funders to make early payouts to claimants, consolidate losses, and focus on economically sound cases

Read the Report

Britain’s class action regime risks becoming a drag on growth, imposing billions in costs while delivering little for consumers, according to a new paper published by the Institute of Economic Affairs today.

The report – Class Act: The case for reforming Britain’s class action regime by competition lawyer Stephen Dnes – warns that the UK’s opt-out system introduced in 2015 has seen an explosion of speculative lawsuits. Pending claims are valued at £134 billion, with around one new class action filed each week.

Cases often deliver little compensation to consumers but offer big returns for funders and lawyers. In Merricks v Mastercard, at one point a funder tried to offer just 48p each so that funders and lawyers could have £179m of the final £200m settlement.

While strong cases against cartels are justified, the incentives between the parties - including claimants, law firms, and funders - don’t always align under the current system, which can lead to perverse outcomes. There has reportedly been an 'exodus of key lawyers' from the law firm Pogust Goodhead suing in the Fundao dam case, one of the biggest class action cases in the UK, after clashes with third-party funders. Perverse incentives can also lead to weak and speculative claims proliferating alongside stronger ones, and cases dragging on for years.

This is carrying a substantial economic cost by slowing innovation, driving up business costs, and undermining growth. A recent analysis by the European Centre for International Political Economy suggests such litigation could cost the economy as much as £18 billion, including £11 billion in lost market capitalisation for innovative firms. Money that would otherwise go towards innovation, lower prices, or returns on investment for shareholders, is instead set aside for legal costs.

The Government currently has an open call for evidence to look at potential reforms. Today's report proposes a package of tangible proposals to focus the regime on strong, economically justified cases:

• Seed payouts to claimants before certification – filtering out weak cases by requiring funders to put money into claimants’ hands upfront.

• A market for claims – letting rival funders compete to deliver better payouts.

• Sharper economic tests at certification – ensuring only cases that show real market harm proceed.

• Consolidation of losses – preventing wasteful supply chain disputes.

• Hands-off approach to funder returns – avoiding perverse incentives to delay and ensuring money flows to claimants, not lawyers.

Subscribe now

These changes would sharply reduce speculative litigation and ensure class actions deter anti-competitive behaviour without stifling innovation or burdening the economy with unnecessary costs.

Leading competition lawyer and author of the report Stephen Dnes said:

“Class actions can play a vital role in detering anti-competitive behaviour and protecting consumers, but the UK’s regime has gone off course. There is a real risk of friendly fire especially when innovative companies are sued. It is time for a course correction.”

“The system can be fixed, by fixing the misaligned incentives built into the system, to restore focus on genuine harm, speed up justice, and support growth.”

Full Publication

• Public health academics openly advocate overthrowing capitalism while presenting radical views as neutral scientific research, including claims that COVID lockdowns saved 77,000 lives by "switching off capitalism"

• Influential WHO advisors smuggle anti-business activism into health policy, targeting "social media, banking, insurance, education, transportation, real estate and utilities" as health threats

• Their anti-capitalist agenda demands "fundamental restructuring of the global political and socio-economic system" rather than addressing actual health issues

• Modern public health is a fundamentally political movement, and the hardening of its anti-capitalist stance should be taken seriously, a new IEA paper argues

A new paper from the Institute of Economic Affairs exposes how influential public health academics are using their scientific credentials to promote radical anti-capitalist policies while disguising their activism as objective research.

The discussion paper, "Anti-Capitalism and Public Health", published today by the IEA, reveals that leading figures in the public health establishment openly advocate for the overthrow of the market economy. Author Dr Christopher Snowdon shows how researchers have expanded their focus from traditional health concerns to attacking the entire economic system.

Full Publication

The research documents how WHO-backed academics describe capitalism as a "pathological system" and argue that addressing health issues "requires nothing short of a fundamental restructure of the global political and socio-economic system."

Professor Gerard Hastings OBE, a former WHO advisor, claimed in May 2020 that China's COVID-19 lockdown saved 77,000 lives - "twenty times more than were taken by the virus" - proving that "switching off capitalism" protects us "from ourselves."

The study shows how these academics have evolved from targeting a few “unhealthy commodity industries” to attacking all "commercial entities" - including small businesses and cooperatives. The list of supposedly health-harming industries now encompasses everything from fossil fuels to social media platforms and food delivery services.

Although it is difficult to find a coherent alternative to “neoliberalism” in the work of public health academics, Snowdon shows that they are consistently opposed to free trade and economic growth. He concludes that they may see costs to business, employment and growth as features, not bugs, of public health regulation.

Dr Christopher Snowdon, Head of Lifestyle Economics at the Institute of Economic Affairs, said:

“Anti-capitalist rhetoric is far from uncommon in academia, but the field of public health has become rabidly opposed to free markets and free trade in the last decade. Public health has become more of a militant political enterprise than an evidence-based, scientific movement.”

Full Publication