The cost of living crisis is back

Andy Mayer

July 19, 2021

Ed Miliband’s Labour Party are not universally remembered for their competence or electoral success. More a giant stone tombstone election stunt that marked the grave of their political ambition.  However, they did have one good slogan – the 2013-15 ‘Cost of Living Crisis’. A catchphrase that accurately captured a central challenge of life for many: how much things cost, particularly basics like housing, transport, energy, and food. Had Miliband followed through with a credible plan, who knows how that election might have turned out.

But he didn’t. Labour, despite understanding the problem, were wedded, even pre-Corbyn, to policies that made the basics of life even more expensive. On the demand side they wanted to increase benefits and welfare services. Both of these policies are redistributive. One increases the spending power of the target group, the other increases access to target services. Neither reduce the cost of living. In fact by increasing demand without improving productivity they do the reverse, by creating localised inflation in popular spending categories and wage inflation in public services.

On the supply side, Labour wanted to make life explicitly more expensive. Their food strategy could have been written by the NFU for Waitrose shoppers. Their energy strategy was about replacing cheap fossil fuels with expensive nuclear and renewables. This, while pretending it was cheaper with a ‘Marxist’ price freeze. Their housing strategy was to build 200,000 new affordable homes, but it dismissed the planning restrictions and building regulations that make building more difficult and expensive. In their transport strategy, they underestimated the cost of HS2 by 50 per cent, while promising to freeze fares.

Far too much of their plan was about cosmetic price reductions while failing to understand the central role of policy and government intervention in driving up costs. It seems likely a 2015 Labour administration would have made life substantially more expensive for the groups most targeted by the slogan.

This is relevant today with the ‘Levelling Up’ agenda and ideological incoherence from the Conservative administration. All of the problems of the 2015 Labour manifesto are problems with the 2019 Conservative agenda for Government. The ‘red’ energy price cap is a 2018 law. Net zero is a plan for redistributing money from the public to landowners and rent-seeking corporations through higher prices. There’s no serious difference between the parties on housing, both disingenuously want to avoid tough choices, and believe merely with more local control, inflationary quality standards, and better consultation more things will be built. They won’t. Nimbies don’t care, if they can stop new development they will. HS2 is plodding on, new airports are not being built, billions will be spent on kerbside charging ports for wealthy car owners who can afford to buy their own.

Possibly only on food is there a difference, and that’s as an accident of leaving the EU, enabling cheaper food imports from everywhere else. It remains to be seen whether the administration will hold their nerve and stand up for shoppers against the dirigiste farming lobby.

It is in every other respect a plan for a higher cost of living, to the advantage of interest groups and against the public interest. Economic and social progress relies on inventing new and better things, while the old things get cheaper, and unpredictably so. It does not rely on 25 year plans rooted in a delusion of perfect foresight.

Frustratingly, the simple truths of the past, that freer more competitive markets encourage lower prices, more choice and a lower cost of living, appear to allude Parliament. They remain addicted to tinkering follies like micro-taxes on doughnuts and banning boiling water for heat. Something useless must be done, lest something helpful happens by itself. If a tree grows in a forest and there is no Minister there for a photo-opportunity, was it really a good thing? This at least appears to be the thinking.

The recent Luntz poll shows the voters aren’t buying it. Massive increases in Government spending and interference in the last two decades have not resulted in people feeling more supported, either with each other or their country, quite the opposite. The parties that rediscover the cost of living crisis, and think more deeply about how to tackle it may stand a better chance of changing that.

Author

Written by Andy Mayer

Andy Mayer is Chief Operating Officer at the Institute of Economic Affairs.

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