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Government has power to tackle rising living costs (Financial Times)

    CPS Head of Economic Research and Ruth Porter of the IEA write in the Financial Times on the burden of regulation on wages.

    Sir, There is much truth in Janan Ganesh’s opinion (“Living standards are too big a problem for politics”, August 27) that global forces are largely responsible for trends in UK wages, and that government-led attempts to raise wages are undesirable. But the idea that the government is powerless to tackle rising living costs is contrary to the evidence. Both the Institute of Economic Affairs and the Centre for Policy Studies have published research showing how government distortions are partly to blame for pushing up the cost of living.

    Planning restrictions have maintained elevated house prices and rents to such an extent that liberalisation could reduce costs by up to 40 per cent. The Common Agricultural Policy means food prices are artificially high. Green energy subsidies and the UK’s unilateral carbon price floor increase energy costs and utility bills. Excessive childcare regulation introduced by New Labour substantially pushed up childcare costs by driving out providers. Fuel and air passenger duties and VAT increases add to the cost of driving and flying.

    In all of these areas, government taxes and regulations have contributed to squeezing the purchasing power of wages. Market reforms in these areas, rather than yet more controls and subsidies, could therefore make a substantial positive difference in the long term.

    Ruth Porter, Institute of Economic Affairs, London SW1, UK

    Ryan Bourne, Centre for Policy Studies, London SW1, UK

    Date added: Thursday 29th August 2013