So you want a policy to reduce the cost of living? Here is one. It falls into three parts: the first is Keynesian in flavour, boosting wages, cutting taxes and raising benefits. The second is monetarist – namely, changing the Bank Rate. The third is action to increase supply.
For the Keynesian part, such a policy would raise the minimum wage, recycle the green levies on electricity bills or scrap them altogether, increase universal credit, cut VAT on energy bills, increase the availability of the Warm Homes Discount and cull the Health and Social Care Levy.
On the monetarist one, it would raise the Bank Rate and reduce quantitative easing.
On the supply side, it would aim for more consumer choice and lower prices. Liberalising the planning laws would produce more homes. Deregulating childcare provision would push costs downwards. Elsewhere, lower migration, all else being equal, would push wages upwards. New trade deals would put cheaper food on the market.
Now the merits or otherwise of this programme can be argued one way or the other. But I bet that each reader objects to at least one part of it.
The reasons for disagreement will vary.
Some will be short-term in nature. So for example, higher interest rates will mean higher mortage rates. Others, longer term: it would take time to build more houses, strike trade deals or deregulate the childcare sector – and so do nothing now for workers and families struggling with higher gas and electricity bills.
But the heart of the differences will be that other considerations can, when push comes to shove, prove to be more important than reducing the cost of living.
Planning is the most vivid example.
The ruined state of the Government’s plans are evidence of how strongly voters object to relaxed constraints. My heart is with the free marketeers who want to get a move on. My head is with those who argue that experience suggests we must make haste slowly.
It’s all a matter of priorities. Those who stress child safety will react with horror to plans to ease childminder ratios. Supporters of Net Zero will defend the green levies. Some firms will groan at the prospect of paying higher wages.
Some will challenge the premis of this programme, and argue that retired people now need special protection.
In the last resort, people will pick out bits of this menu that they like, or suggest other items for it altogether. I would start by agreeing with the monetarists that inflation is ultimately a monetary phenomenon, and that interest rates must rise further. (As the United States is already doing and the EU is expected to do.)
This will have profound consequences – elimating the attractive prospect of cutting tax rates without having to do the same to spending growth.
Ministers should then take a course which brings no sugar rush for voters, but will win their grudging respect.
Which is to admit candidly that as the world economy opens up in the wake of Covid, there will be bottlenecks and shortages, not to mention Vladmir Putin’s manipulation of the price of gas. This has the inestimable advantage of being true.
It’s tempting to look for someone to blame: avaricious petrol companies, greedy electricity suppliers – and slap them with new regulators and price caps.
But that many of those suppliers have recently gone bust recently should give pause for thought.
Consumers may win short-term from price caps, but they will lose long-term if their suppliers close down, and there’s a limited pool of replacements. Ed Birkett of Policy Exchange was right to suggest recently on this site that the cap should be curbed.
So instead of taking action that will cause more problems than it solves, the Government has no choice but to address the fundamentals, take the short-term factors on the chin – and help those who are losing out.
In the short-term, that will be the poorest, regardless of age.
To that end, Ministers should recycle money raised from green levies to poorer people, raise universal credit for at least some claimants, and increase the availability of the Warm Homes Discount. Boris Johnson was right to point out yesterday that a VAT cut would be poorly targeted, though it would certainly help larger families.
When it comes to helping working people more broadly, an immediate tax cut to hand would be the cancellation of the Health and Social Care Levy.
Surely, you may say, it makes no sense to put further strain on borrowing when there’s upward pressure on rates?
Up to a point. The Chancellor found £30 billion a year behind a sofa shortly before his last budget. The Health and Social Care Levy will cost £12 billion a year for the next three years. And almost no-one thinks much of it will find its way to social care.
As for the supply side proposals, never mind the gains, feel the politics: as we’ve seen, there is limited political room for manoeuvre when it comes to liberalising the planning laws.
No wonder Michael Gove is changing the subject, and focusing on mortgage lending restrictions.
One of the areas which the Government should certainly review actively is childcare regulation, especially in relation to the use of premises. But, again, reform comes slowly. Remember how Liz Truss’s plans to relax child-to-staff ratios, back in the days of the Coalition, ran into a mass of objections about child safety.
As for the future of the green levies which preoccupy some Conservative MPs and many party activists at present, the verdict should rest, as I implied yesterday, in a review of energy policy.
In the golden triangle of aims – greater security, fewer emissions and lower costs – the first has been neglected.
On which point, a hat-tip to Christopher Montgomery of The Critic. “We need a proper national resilience strategy across the board – some fat,” he tweeted recently. “In healthcare, mass transit, energy production, storage and distribution, and so on. A public requirement of private bodies, ideally.”
There are worse ways of thinking about how to get more out of Brexit, and the necessity for more resilience all round is a reminder of how much the political landscape has changed since the Thatcher era.
More of that later this week.
In the meantime, here are plenty of instruments at Ministers’ disposal to help cut the cost of living, or at least reduce the speed at which it is rising. But readers let alone voters will be unwilling to swallow all of them. Reducing those costs is less of a priority for many than some imagine.