Our cost-of-living crisis is homegrown, and self-inflicted
24 August 2022
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The Telegraph attracted a bit of social media flak last week for publishing an article on the cost-of-living crisis with the hilariously tone-deaf headline ‘Why spending winter abroad could be the answer to your soaring utility bills’.
In the author’s defence, the headline was somewhat out of sync with the actual article. It is not that Marie Antoinette is now writing for the Telegraph, wondering why poor families don’t simply go and spend half a year in their holiday homes in Spain, if they think Britain is too expensive. The article was more about documenting what some people are already doing:
“[I]n April, [Google] searches for ‘move abroad’ soared to record levels. […] Belvin Franks, a financial advisor for expats, has reported a “considerable” rise in the number of Britons looking to leave.
“People […] know they will have a much cheaper life abroad,” said the firm’s Jason Porter.”
For the majority of the population, it is not a realistic option. But for those who can do it, it can make a lot of sense:
“In […] Malaga, […] two-bed apartments are listed for circa €600 (£507) a month. […] This is all before you factor in the lower price of groceries, eating out and boozing. Of course, inflation is also pushing up prices overseas, but as Porter said: “Countries like France, Spain and Portugal are starting from a much lower point because the cost of living was so much cheaper – and it still will be even if they have strong inflation.””
Whether we really will see an uptick in the number of people leaving the country remains to be seen. But to me, the article raises a rather different question: if it is so widely known that the cost-of-living tends to be much lower abroad – why do we simply accept that, as if it were an immutable iron law of nature? Why do we just treat it as an ‘obvious’ fact of life that living in Britain is much more expensive than living elsewhere? Because there is nothing obvious about this, and it does not have to be that way. There is nothing in the British soil, air or water which somehow makes things expensive.
Granted, the Telegraph article starts with a discussion of heating costs, which are, of course, less of an issue in countries with milder winters. Fair enough. But it then quickly moves on to areas where there is no such logical reason for large variations in costs, such as housing, retail, and the hospitality industry.
In these and many other sectors, variation in costs is largely driven by variation in policy. If housing costs in, for example, Spain are lower than in the UK, then that is because they build a lot more houses than we do. If we wanted to match the Spanish housing stock in population-size-adjusted terms, we would have to build another 6.6 million homes. And this is just the residential housing stock. If you permit more building overall, you will also lower prices in sectors like retail and hospitality, because supermarkets, restaurants, pubs, hotels, sports venues etc will also face lower property costs.
In addition, Spain’s beer duty is less than one tenth of the British level, spirits duty is less than one third, and wine duty does not exist there at all.
It is not that Spain is exceptionally cheap: Britain is exceptionally expensive. On housebuilding and urban planning, Britain has one of the most restrictive systems in the world, which colossally inflates housing costs. On ‘nanny state’ lifestyle regulations, Britain is at the more restrictive end of the spectrum (although not exceptionally so: there are even worse examples), which drives up the cost of leisure activities the government disapproves of. Childcare costs in the UK are among the highest in the world, which is, again, largely driven by government policy. In areas like energy, trade and occupational licensing, Britain is no worse than most of its peers, but still needlessly drives up costs in a variety of ways.
Britain’s high cost of living is a result of political choices. As my colleagues and I have shown in our paper ‘Cutting Through: How to address the cost of living crisis’, it would be entirely feasible to turn Britain into a place where the basics of life are easily affordable (although admittedly, there are no quick fixes). We cannot all move abroad, but we should look abroad for inspiration for cost-slashing supply-side reforms, and import the best of those.
This article was first published on CapX.
In the author’s defence, the headline was somewhat out of sync with the actual article. It is not that Marie Antoinette is now writing for the Telegraph, wondering why poor families don’t simply go and spend half a year in their holiday homes in Spain, if they think Britain is too expensive. The article was more about documenting what some people are already doing:
“[I]n April, [Google] searches for ‘move abroad’ soared to record levels. […] Belvin Franks, a financial advisor for expats, has reported a “considerable” rise in the number of Britons looking to leave.
“People […] know they will have a much cheaper life abroad,” said the firm’s Jason Porter.”
For the majority of the population, it is not a realistic option. But for those who can do it, it can make a lot of sense:
“In […] Malaga, […] two-bed apartments are listed for circa €600 (£507) a month. […] This is all before you factor in the lower price of groceries, eating out and boozing. Of course, inflation is also pushing up prices overseas, but as Porter said: “Countries like France, Spain and Portugal are starting from a much lower point because the cost of living was so much cheaper – and it still will be even if they have strong inflation.””
Whether we really will see an uptick in the number of people leaving the country remains to be seen. But to me, the article raises a rather different question: if it is so widely known that the cost-of-living tends to be much lower abroad – why do we simply accept that, as if it were an immutable iron law of nature? Why do we just treat it as an ‘obvious’ fact of life that living in Britain is much more expensive than living elsewhere? Because there is nothing obvious about this, and it does not have to be that way. There is nothing in the British soil, air or water which somehow makes things expensive.
Granted, the Telegraph article starts with a discussion of heating costs, which are, of course, less of an issue in countries with milder winters. Fair enough. But it then quickly moves on to areas where there is no such logical reason for large variations in costs, such as housing, retail, and the hospitality industry.
In these and many other sectors, variation in costs is largely driven by variation in policy. If housing costs in, for example, Spain are lower than in the UK, then that is because they build a lot more houses than we do. If we wanted to match the Spanish housing stock in population-size-adjusted terms, we would have to build another 6.6 million homes. And this is just the residential housing stock. If you permit more building overall, you will also lower prices in sectors like retail and hospitality, because supermarkets, restaurants, pubs, hotels, sports venues etc will also face lower property costs.
In addition, Spain’s beer duty is less than one tenth of the British level, spirits duty is less than one third, and wine duty does not exist there at all.
It is not that Spain is exceptionally cheap: Britain is exceptionally expensive. On housebuilding and urban planning, Britain has one of the most restrictive systems in the world, which colossally inflates housing costs. On ‘nanny state’ lifestyle regulations, Britain is at the more restrictive end of the spectrum (although not exceptionally so: there are even worse examples), which drives up the cost of leisure activities the government disapproves of. Childcare costs in the UK are among the highest in the world, which is, again, largely driven by government policy. In areas like energy, trade and occupational licensing, Britain is no worse than most of its peers, but still needlessly drives up costs in a variety of ways.
Britain’s high cost of living is a result of political choices. As my colleagues and I have shown in our paper ‘Cutting Through: How to address the cost of living crisis’, it would be entirely feasible to turn Britain into a place where the basics of life are easily affordable (although admittedly, there are no quick fixes). We cannot all move abroad, but we should look abroad for inspiration for cost-slashing supply-side reforms, and import the best of those.
This article was first published on CapX.
5 thoughts on “Our cost-of-living crisis is homegrown, and self-inflicted”
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The UK ‘Cost of Living’ crisis is not founded in economic reality; but largely in a distorted, Media version of economic reality … which is enhanced and employed by the print, Web and broadcast Media, in order to fuel an hysterical firestorm of juicy copy, to sell media product. If these tricks continue, there will certainly be a destructive effect on the real economy of the UK: namely, a crisis of economic confidence. That would be a true ‘Cost of Living Crisis’; and its main begetters would be the current disregard for objective proportion and truth in reportage, and the disingenuous actions of UK Media and politicals, in hard selling a spurious and masochistically negative version of present and future economic reality in the UK. The Economy of the UK is fundamentally sound and her People are as brave, resilient and resourceful as ever.
So…basically the recommendation is deregulation. There probably is some merit to it in the U.K. But we’ve heard that story before in the States during the Reagan years, and it sometimes worked. But often at the cost of proper governmental oversight, busting of unions (specifically the air traffic controllers’ union, but most others) and workers rights, etc.
For a free market think-tank, I’m surprised that I’m not seeing mentions on how cost of living concerns are being compounded by Brexit. The Economist has done some pretty detailed (and rather fair) reporting of the economic consequences of completely dropping out of the EU, just so that the U.K. could retain more “sovereignty” over it’s own economy…yet not paying attention to the increased cost in business that the U.K. has effectively imposted upon itself. Has this been properly addressed in IEA published works since Brexit was passed and implemented?
Supply and demand? No mention of mass immigration – the population is up by 10 million in the past ten years. Many from third-world countries who cannot afford to buy and who are competing at the bottom of the jobs market for stagnant wages. And opposition from the elites to building more homes.
Go figure.
Neoliberalism is dead. It’s effectively become a plutocracy for the benefit of the one percenters. Wages don’t pay capital accumulation does. The property owning democracy is dead, you rival have a generation renting who will buy the house they’re in three times over but retire with nothing. So whilst the property owners reap the rewards of capital accumulation working people face a bleak future. Wealth needs to be taxed far more and wages for working people need to increase massively and the economy will benefit hugely. Neoliberalism has created a monster. A massive rebalance is required or face the elite face some pretty devastating social political and economic consequences.
There’s really no point moving abroad to avoid the cost of living crisis. Every developed western nation that’s signed onto the UN Open Border agreements has the same cost of living crisis. Too many immigrants in a short span of time has blown out the cost of living in Australia, New Zealand and Canada. Unless you want to migrate to the US with all its problems, the only other choice is dubious tinpot economies like Spain, Greece or Thailand.