Housing and Planning

The red herrings which distort the cost of living debate


Housing and Planning
Since the publication of Kristian Niemietz’s seminal work Redefining the Poverty Debate in 2012, many of us have been arguing for a new approach to the perceived problem of poverty and low pay. Our contention has always been that there are numerous areas where existing government policies drive up the cost of living, particularly for those on modest incomes. Reversing many of these damaging distortions, we believe, would be an effective means of improving living standards.

Unfortunately, in areas from housing to childcare, energy to food, welfare to rail fares, the politicians and anti-poverty campaigners tend to take a different approach. Advocating rent controls, price controls in energy, renationalising parts of the railways, offering up new demand side subsidies for housing or childcare, or pushing for higher minimum wage rates, their belief seems to be that markets don’t work effectively and are the cause of high prices – requiring governments to step in.

How have we reached such a degree of anti-market sentiment for these challenges? What doesn’t help here is that the debate in many of these areas is polluted with a host of myths, half-truths, straw men and red herrings which shape the views of the public, commentators and politicians towards anti-market solutions.

Some of these are more common or important than others. But in a new paper called Smoking Out Red Herrings: The Cost of Living Debate, Kristian Niemietz and I assess 14 of them. That’s 14 claims or lines of argument that we hear often in the debate surrounding the cost of living and low pay which would lead to bad policymaking.

Many of these have been things we’ve touched on before on this blog. When discussing housing, for example, it’s common to hear that ‘brownfield development is the solution to our housing shortage’ or that ‘we have enough housing, it’s just badly distributed’. Pinning the blame for high energy prices or high rail fares on ‘privatisation’ is a line of argument also increasingly prevalent. There’s the argument for more government subsidies for childcare on the basis that it will ‘be good for maternal employment and the economy’ and it will help ‘lower living costs for working families’. And on welfare, how often do we hear people claiming that ‘most people in poverty are in work’ or ‘tax credits subsidise employers’?

Our paper examines all of these claims and more (the full list is below), using economic logic and evidence to assess how true they are. We hope that the paper will provide a useful reference point for those concerned with the cost of living and the effects of policy-induced high prices on living standards and welfare policy.

To access the paper, click here.

The full list of claims assessed is listed below:

– Housing: ‘We do not need more homes’

– Housing: ‘Brownfield development can solve our housing crisis’

– Housing: ‘The market has failed to build, we need a public house building programme’

– Housing: ‘Greedy landlords are to blame for high rents, we need rent controls’

– Energy: ‘Privatisation of the energy market is to blame for high energy bills’

– Rail: ‘Privatisation of the railways is to blame for high fares’

– Food: ‘Food banks are a sign of food being too expensive. The food industry needs to take more responsibility’

– Childcare: ‘Subsidies are good for the economy because they get women back to work’

– Childcare: ‘Childcare subsidies reduce the cost of childcare’

– Sin Taxes: ‘Sin Taxes merely reflect the externalities of certain activities’

– Sin Taxes: ‘Sin Taxes are voluntary taxes’

– Welfare: ‘Higher benefits and more government spending are needed to reduce poverty’

– Welfare: ‘Most people in poverty are in work’

– Welfare: ‘The taxpayer subsidises employers through tax credits, so we need a higher minimum wage’

Head of Public Policy and Director, Paragon Initiative

Ryan Bourne is Head of Public Policy at the IEA and Director of The Paragon Initiative. Ryan was educated at Magdalene College, Cambridge where he achieved a double-first in Economics at undergraduate level and later an MPhil qualification. Prior to joining the IEA, Ryan worked for a year at the economic consultancy firm Frontier Economics on competition and public policy issues. After leaving Frontier in 2010, Ryan joined the Centre for Policy Studies think tank in Westminster, first as an Economics Researcher and subsequently as Head of Economic Research. There, he was responsible for writing, editing and commissioning economic reports across a broad range of areas, as well as organisation of economic-themed events and roundtables. Ryan appears regularly in the national media, including writing for The Times, the Daily Telegraph, ConservativeHome and Spectator Coffee House, and appearing on broadcast, including BBC News, Newsnight, Sky News, Jeff Randall Live, Reuters and LBC radio. He is currently a weekly columnist for CityAM.