Landmark European study finds high taxes and harsh regulation worsen cost-of-living crisis
Prof. Len Shackleton writes for CapX
– Major study across eight European countries finds state intervention is driving up living costs;
– Energy, housing, lifestyle products, telecommunications and pharmaceuticals are more expensive due to state interventions that often deliver only trivial benefits;
– Low-income households are hardest-hit by high prices as they spend a larger proportion of their income on everyday products and services;
– Evidence from Europe underscores the importance of encouraging competition and reducing certain taxes here in Britain.
New research from a cross-national free market think tank network, the European Policy Information Center (Epicenter) finds that state interventions are driving up the cost of living. This is in addition to expansionary monetary policy and Russia’s invasion of Ukraine driving inflationary pressures.
Excessive taxation and red tape are worsening inflationary pressures in eight European countries: France, Germany, Sweden, Greece, Poland, Romania, Italy and the Czech Republic. As a result of state interference, European citizens are facing higher living costs, which are being felt most acutely by the poorest households.
Berlin’s rent cap led to a drastic fall in the availability of new accommodation, by up to 60 per cent. This also led to an increase in prices for newer housing not included in the cap.
Swedes are facing higher food prices as permitting requirements and excessive inspection fees curtail new lower-price grocery stores.
Czech businesses spend hundreds of hours every year filling out state-mandated paperwork. This increases operating costs and consequently prices for consumers.
Germans, and Europeans more broadly, are facing higher energy prices as a result of the mandated shutdown of nuclear plants.
Italians are paying more for transport, particularly long-distance rail, as a result of a lack of competition, as four-fifths of transport companies are publicly owned or controlled. They are also paying more for medicine as a result of restrictions on the establishment and operation of private pharmacies.
Poland’s decision to increase pensions, over 500 benefits, and the minimum wage, has contributed to inflationary pressures.
Romania is even increasing consumption taxes in 2023, despite inflationary pressures on consumers.
The Epicenter research not only identifies problems, but also provides clear remedies for policymakers to mitigate the cost of living: reducing burdensome taxes and cutting unnecessary red tape. The current inflation crisis can be used as an opportunity to boost Europe’s prosperity, but only if the potential is grasped.
The findings from across Europe align with research in July last year from the Institute of Economic Affairs, which found that cutting red tape could save families £9,000 a year across housing, childcare, and energy.
Adam Bartha, Director of Epicenter – a network of ten European free market think tanks – said:
“Inflation is still raging across Europe, cutting deep into the family budgets across the continent. As this Epicenter paper proves, governments could do much more than sitting on their hands and waiting for the inflationary pressures to ease. By implementing liberalising reforms and cutting certain taxes to boost supply and increase competitiveness – especially in the energy, housing, and lifestyle sectors – average Europe could save hundreds of euros a year.
“While the UK may be out of the EU, the mindset of our government is the same as the one of our continental peers. The high tax, high regulatory economy of the UK outside of the Single Market makes Brexit a futile exercise of self-harm. The government must pursue a high growth economy not just in words, but in action.”
Notes to Editors
Contact: Harrison Griffiths, [email protected], 07875 942858
Tackling Europe’s cost of living crisis is under embargo until 00.01 Wednesday 1 February 2023. An embargoed copy of the paper can be found here: https://iea.org.uk/wp-content/uploads/2023/01/Epicenter_Tackling-Europes-cost-of-living-crisis_approval-1.pdf
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.
Epicenter, the European Policy Information Center, is a network of ten leading think tanks from across Europe. It seeks to inform the European policy debate and promote the principles of a free society by bringing together the expertise of its members. Like its members, Epicenter is politically independent and does not accept taxpayer funding.