Just one thing: legalise and tax drugs

The Adam Smith Institute tells George Osborne what it wants to hear in the 2012 Budget.

The Adam Smith Institute tells George Osborne what it wants to hear in the 2012 Budget.

If George Osborne does one thing, he should think outside the box. The government should legalize and tax the sale of drugs like cannabis, ecstasy, and cocaine, using the Netherlands as a model, and decriminalize stronger drugs like heroin and crack cocaine to reduce the cost of legal enforcement.

According to 2004 Home Office estimates, the market for cannabis, ecstasy and powder cocaine is worth approximately £2.6bn.

As a low-range estimate, let us assume a total effective tax (VAT + excise duty) of £3 per 500mg cannabis joint, 250mg per ecstasy pill and 50mg per line of cocaine. This is a far lower rate than current effective tax rates on tobacco and alcohol. If consumption did not change, this would mean revenues of approximately £2.16bn from cannabis, £624m from ecstasy and £942m from cocaine, or £3.73bn in total. Use of cannabis, ecstasy and cocaine would probably rise with legalization, making this sum higher still. I would favour a Dutch-style regulated market approach, but a system where the government maintains a monopoly on the production and supply of these drugs could also work.

The potential tax revenue is much higher than this, though. The total effective tax rate on cigarettes is over 500 per cent. This produces significant revenues for the government, in large part because the demand for cigarettes is relatively price-inelastic. Demand for drugs is similarly inelastic.

The savings that would be made from drugs legalization are harder to estimate than the tax benefits, but are no less significant. One in ten people in prison are there for specific drug offenses (such as possession and dealing). The drugs charity Transform estimates that 54 per cent of robberies and 70-80 per cent of burglaries take place to fund drug habits.

Allowing addicts to get medical treatment instead of treating them as criminals would reduce imprisonment rates, especially among poor people who are most vulnerable to imprisonment. Transform estimates that the net savings from the decriminalization of cocaine and heroin could be around £10bn per annum.

A legal market in drugs would also make drugs themselves much safer, with consumer protections forcing suppliers to provide pure drugs. Space constraints preclude me from discussing the benefits to countries like Columbia and Guinea-Bissau, which the developed world's war on drugs does significant harm to.

As a libertarian, I would prefer drugs to be legalized and untaxed. However, most governments care most about the bottom line of taxes and expenditures. If taxation is the political price we have to pay for the benefits of drug legalization, so be it. As George Osborne searches for new sources of revenue that won't hurt the economy, he could do a lot worse than to call for drugs to be brought into the open: safe, legal and taxable.

Sam Bowman is the head of research at the Adam Smith Institute

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The Tories' aim is to put Labour out of business for good

Rather than merely winning again, the Conservatives are seeking to inflict permanent damage on the opposition. 

The Conservatives are numerically weak but politically strong – that is the peculiarity of their position. Their majority is the smallest of any single-party government since October 1974. Yet, to MPs at the Tory conference in Manchester, it felt like “2001 in reverse”: the year of Tony Blair’s second election victory. Then, as now, the opposition responded to defeat by selecting a leader, Iain Duncan Smith, who was immediately derided as unelectable. Just as Labour knew then that it would win in 2005, so the Conservatives believe that they have been gifted victory in 2020. David Cameron has predicted that the party’s vote share could rise from 37 per cent to a Thatcherite 43 per cent.

For Cameron and George Osborne, who entered parliament in 2001, this moment is revenge for New Labour’s electoral hegemony. They believe that by applying Blair’s lessons better than his internal successors, they can emulate his achievements. The former Labour prime minister once spoke of his party as “the political wing of the British people”. In Manchester, Cameron and Osborne displayed similarly imperial ambitions. They regard Jeremy Corbyn’s election as a chance to realign the political landscape permanently.

Seen from one perspective, the Tories underperformed on 7 May. They consistently led by roughly 20 points on the defining issues of the economy and leadership but defeated Labour by just 6.5 overall. It was their enduring reputation as the party of the plutocracy that produced this disparity. Those who voted for Labour in spite of their doubts about Ed Miliband and the party’s economic competence may not be similarly forgiving of Corbyn. To maximise their gains, however, the Tories need to minimise their weaknesses, rather than merely exploit Labour’s.

This process began at conference. At a dinner organised by the modernising group the Good Right, Duncan Smith, Michael Gove and the Scottish Tory leader, Ruth Davidson, affirmed their belief that, contrary to Thatcherite orthodoxy, inequality is a problem. Only the Business Secretary, Sajid Javid, an admirer of the libertarian heroine Ayn Rand, insisted that equality of opportunity was the defining metric.

George Osborne’s assured speech was most notable for his sustained appeal to Labour voters. Several opposition MPs told me how unsettled they were by the Chancellor’s declaration that Labour’s new leadership calls “anyone who believes in strong national defence, a market economy and the country living within its means” a Tory. He added, “It’s our job to make sure they’re absolutely right. Because we’re now the party of work, the only true party of labour.” The shadow minister Jonathan Reynolds told me: “We’ve got to be extremely clear that this is not business as usual. This is a real attempt by the Tories to put us out of business – possibly for ever.”

The Conservatives’ aim is to contaminate Labour to the point where, even if Jeremy Corbyn were deposed, the toxin would endure. For those opposition MPs who emphasise being a government-in-waiting, rather than a protest movement, the contrast between the high politics of the Tory conference and Corbyn’s rally appearance in Manchester was painfully sharp. They fear guilt by association with the demonstrators who spat at and abused journalists and Tory delegates. The declaration by a rally speaker, Terry Pullinger, the deputy general secretary of the Communication Workers Union, that Corbyn’s election “almost makes you want to celebrate the fact that Labour lost” was regarded as confirmation that some on the left merely desire to run the party, not the country.

But few Tory MPs I spoke to greeted Corbyn’s victory with simple jubilation. “It’s a great shame, what’s happened to Labour,” one said. “We need a credible opposition.” In the absence of this, some fear the Conservatives’ self-destructive tendencies will reassert themselves. The forthcoming EU referendum and leadership contest are rich in cannibalistic potential. Tories spoke forebodingly of the inevitable schism between European Inners and Outers. As the Scottish experience demonstrated, referendums are almost never definitive. In the event of a close result, the party’s anti-EU wing will swiftly identify grounds for a second vote.

Several cabinet ministers, however, spoke of their confidence in Cameron’s ability to navigate the rapids of the referendum and his pre-announced departure. “More than ever, he’s the right man for these times,” one told me. By this December, Cameron will have led his party for ten years, a reign exceeded in recent history only by Stanley Baldwin, Winston Churchill and Margaret Thatcher. That the Conservatives have so far avoided cataclysm is an underappreciated achievement.

Yet there are landmines ahead. An increasing number of MPs fear that the planned cuts to tax credits could be a foul-up comparable to Gordon Brown’s abolition of the 10p tax rate. Despite the appeals of Boris Johnson and the Sun, Cameron and Osborne have signalled that there will be no backtracking. At such moments of reflection, the Tories console themselves with the belief that, although voters may use Corbyn as a receptacle for protest (as they did Michael Foot, Neil Kinnock and Ed Miliband), they will not elect him. They also acknowledge that the current Labour leader may not be their opponent in 2020. The former paratrooper Dan Jarvis is most often cited as the successor they fear. As with Cameron and Blair, his relative lack of ideological definition may prove to be a strength, one MP suggested.

William Hague is fond of joking that the Tories have only two modes: panic and complacency. If the danger before the general election was of the former, the danger now is of the latter. 

George Eaton is political editor of the New Statesman.