Could Revoking Regressive Regulation Become Boris’s New Economic Agenda?

Yes, expansionary monetary policy combined with supply-crippling energy prices are driving our present inflation, but a host of longstanding mandates constrain the supply of products or services important to poor households, so raising consumer prices. For decades, these effects have been ignored by progressives, with governments compensating through redistribution. The inflation crisis should crystallise the backwardness of this approach, animating Conservatives toward a cost-busting, supply-side agenda to fill their economic policy void.

After sorting British households by income after taxes and benefits, the Office for National Statistics shows the poorest 20 per cent spend much more of their budgets than the richest on out-of-pocket housing costs (17.5 per cent v 14.5 per cent), food (14.7 per cent v 7.4 per cent), energy (6.9 per cent v 3 per cent), alcohol and tobacco (3.2 per cent v 1.9 per cent) and children’s clothes (0.6 per cent v 0.3 per cent).

Perhaps not coincidentally, government policies constrain supply and jack up prices for all these. Our restrictive planning system restrains housebuilding, raising housing costs and making it difficult for poor workers to move toward opportunities. Agricultural tariffs, subsidies and biofuel mandates elevate food prices, while bans on two-for-one promotions of “unhealthy” food curtail volume purchases for the thrifty.

Our politicians’ use of green industrial policies, rather than a carbon tax, breeds inefficiency, lifting fuel prices for a given level of carbon mitigation. Tariffs of 12 per cent and 16 per cent are imposed on children’s clothing and footwear imports from countries we don’t have trade agreements with, including the United States. Smokers and drinkers are treated as cash cows, with tariffs and excise duties much higher than justified by any genuine social harms of the products.

Campaigners for living wages demand higher pay for workers, ignoring that in driving up the cost of essentials, governments have shrunk the purchasing power of any wage or government benefit to begin with. Progressives say defensively that regulations trade-off higher costs for other worthy aims, such as guarding against sprawl, protecting rural ways of life, developing renewables, ensuring “high-quality” food or eliminating smoking and drinking that individuals will later regret. The knee-jerk defence of the present regulations on MOTs and childcare were that they improved safety and child development, too.

Some of these assertions are empirically contestable (there is no good evidence that tighter staff-child ratios improve child development, for example), but most are value judgments that emphasise the regressive point: regulation often imposes the wealthy’s tastes to the poor’s disproportionate cost.

Research examining Yelp reviews has found that lower-income families worry more about the price and availability of childcare, while richer households prioritise child “learning environments”. This sort of finding is common across markets: the poor seek affordability, the rich want enforced higher quality or for minor health and safety risks to be mitigated. Isn’t that intuitive? It’s easy to demand strict standards for housing, foreign imports or childcare credentials when you can afford the higher prices that your tastes impose on everyone.

This is damaging for many of these product markets, though, because the trade-off is illusory. Less-regulated markets offer product pluralism. Businesses have strong incentives to provide different safety or quality bundles tailored to the needs of various consumer tastes. What much regressive regulation does today is simply chop off access to cheap options to appease the sensibilities of wealthier customers, leaving poorer families dependent upon the whims of support for flinging taxpayer cash their way.