Let the living costs debate be radical
Unfortunately, politicians seem to have no real ambition to resolve the problems faced by so many families in Britain today. The importance of the cost of living debate in contemporary politics cannot be under-estimated. At heart, much of the discussion about the welfare state, triggered by various churches two weeks ago, is a debate about how the poorest struggle to get by. When we worry about productivity we are concerned that prices will rise faster than wages. And the debate about the living wage is – by definition – a debate about whether the incomes of the less-well-off are sufficient to provide for a family.
Discussion around these issues has long been sterile. Lobby groups argue that income transfers to the poor should be increased and opponents then suggest reasons why that should not happen. Similarly, campaigners propose that employers increase the amount they pay employees, regardless of whether pay increases can be justified by productivity.
Politicians do nothing to improve the quality of these debates. Both the Labour and Conservative parties suggest that living standards can be increased through a series of price caps and controls and by raising the statutory floor underneath wages. Energy prices, rail fares, pensions, rents and consumer credit have all been subject to proposals and it was suggested in the Guardian over the weekend that the Conservative Party might now propose capping water bills for large families. Not only would such proposals reduce investment and competition and distort markets still further, in the long run they would exacerbate the problem they are designed to solve by reducing productivity and wage growth.
Politicians and campaigners are arguing over minutiae and over policies that are doomed to failure when radical and clear thinking is needed.
There are four reasons why the cost of living is so high in the UK, especially for the poor.
The first is our planning system. House prices have risen over and above inflation by about 3 per cent per annum in the last 40 years and housing now takes up around one third of the budget of the country’s poorest people. There is simply nowhere else in the Western world that compares with the UK in this respect.
The knock-on effects of restrictive planning policies are huge: high business rents lead to higher childcare and food costs; the increased housing benefit bill leads to higher taxes for all of us; restrictions on business development lead to lower productivity and hence lower wage growth – economists at the LSE calculate that planning policies since 1980 have reduced retail productivity by about 20 per cent. Furthermore, high house prices in the south-east prevent people from moving to more productive employment opportunities.
Perhaps those in churches concerned about poverty should see the inability to build houses because of restrictive planning policies as a matter of justice – after all, they are quick to throw that word around in debates about much less important causes.
We also have an energy policy that is designed to cut carbon emissions at the maximum possible cost, as a result of policy being captured by vested interests. Some of the renewable sources of energy that have to be exploited as a result of government policy cost over three times as much as conventional energy sources.
Food costs are raised not just because planning policy increases retail costs, but also by the Common Agricultural Policy. Abolition of this should be top of the UK’s European Union renegotiation list. Agriculture is 50 per cent more productive in New Zealand where farm support programmes have been eliminated.
Finally, the level of taxes paid by those at the bottom of the scale is higher than most people would expect. The reason for this is the regressive nature of so-called ‘sin taxes’. As revealed by Chris Snowdon, the poorest fifth of the population pay over 11 per cent of their income in taxes on betting, motoring, air travel, tobacco and alcohol. This should be a cause close to the heart of Catholics, even if not Methodists.
In their recent intervention, church leaders argued that food markets are ‘failing’. They are not; there is no evidence for that assertion whatsoever: markets are not allowed to operate. There are also questions that the churches need to ask themselves about the way they have surrendered their belief in charity to a belief in the all-providing state. However, when it comes to the working poor, we should not have an economy where people who are working also need welfare. The only reason they do is because, in the last thirty years, we have taken actions that constrain the economy and load burdens on those least able to afford them. Changing this should be the battleground on which the next election is fought.
This article was originally published by the Daily Telegraph.