Research

Cutting Through: How to address the cost of living crisis


https://iea.org.uk/wp-content/uploads/2022/07/DP111_Cutting-Through_web17389-1.pdf

Summary



  • The cost-of-living crisis has been worsened by longer-term structural factors, beyond the immediate issues posed by loose monetary policy and supply-side constraints. Indeed, there were discussions about a cost-of-living crisis over a decade ago, long before Covid, the Ukraine war or Brexit.

  • The British state intervenes heavily in various product markets through tax and regulatory measures, in ways which drive up costs. Some of those interventions may be justified (e.g. to correct externalities), but in many cases the costs imposed on consumers are substantial, while the benefits are either trivial or highly speculative.

  • Childcare costs in the UK have risen to one of the highest levels in the developed world. This is in large part due to stringent minimum staff-to-children ratios, the imposition of a ‘curriculum’, accreditation costs and, more generally, over-formalisation of the sector.

  • Relaxing childcare sector regulatory requirements does not have to mean complete deregulation. It could merely mean bringing them more into line with what is standard practice in many European neighbour countries. This could cut costs by around 40 per cent, or over £300 per child and per month.

  • The ratio of median house prices to median gross full-time annual earnings has gone up from under 4 in the late 1990s to over 9 today. Rents in UK towns and cities are among the highest in the developed world. Renting a flat in Oxford, for example, is more expensive than renting a comparable flat in Berlin, Vienna, Rome or Brussels.

  • There is a wealth of empirical evidence which shows that the severity of land use planning restrictions is a key determinant of housing costs. Easing restrictions in such a way that housing costs could fall back into line with the historic norm would imply a drop by at least 40 per cent. Median private sector rents in England could fall by over £250 per month.

  • Paternalistic ‘nanny-state’ taxes cost a moderate smoker and drinker about £140 a month. These taxes could be cut back to a realistic estimate of the external costs imposed on others by those activities.

  • Excessive occupational licensing rules and immigration restrictions raise consumer prices without a detectable increase in the safety or quality of the affected services.

  • The UK should unilaterally abolish tariffs, and automatically recognise regulatory standards from countries where those standards can be reasonably expected to be equivalent to domestic ones.

  • The UK has chosen an inefficient, unnecessarily costly decarbonisation strategy, which drives up energy costs for households and businesses by more than what is required in order to reduce CO2 emissions. The government should phase out renewable energy subsidies, bring carbon pricing into line with the EU average, allow the hydraulic fracturing (‘fracking’) of shale gas, and remove obstacles to investment in North Sea oil.


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Matthew Lesh is Head of Public Policy at the Institute of Economic Affairs. He regularly appears on television and radio, and has written dozens of opinion and feature pieces for print and online publications such as The Times, The Telegraph and The Spectator. He has provided extensive commentary and written various papers and submissions about the Online Safety Bill. He is also a Fellow of the Adam Smith Institute and Institute of Public Affairs.


Head of Political Economy

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).


Head of Lifestyle Economics, IEA

Christopher Snowdon is the Head of Lifestyle Economics at the IEA. He is the author of The Art of Suppression, The Spirit Level Delusion and Velvet Glove; Iron Fist. His work focuses on pleasure, prohibition and dodgy statistics. He has authored a number of papers, including "Sock Puppets", "Euro Puppets", "The Proof of the Pudding", "The Crack Cocaine of Gambling" and "Free Market Solutions in Health".


Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.


Head of Regulatory Affairs

Victoria joined the IEA’s International Trade and Competition Unit in Spring 2018. She is a lawyer and practiced for 12 years in the fields of technology and financial services, before joining the Legatum Institute Special Trade Commission to focus on trade and regulatory policy. She has published work on the implications and opportunities of Brexit in financial services and movement of goods and the issues in connection with the Irish border. Before entering the legal profession Victoria worked for Procter & Gamble in the UK and Germany.


Andy Mayer is Chief Operating Officer at the IEA. Andy worked as Head of Public Affairs, UK & Ireland at BASF plc for seven years. He has over 20 years of experience in strategic communications and the operations that support them in the business and think tank worlds.



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