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22 per cent, 20 per cent and 19 per cent. These are last month's headline inflation figures from three eurozone countries experiencing the steepest rise in the cost of living. It is not only the United Kingdom that suffers from elevated price levels, but the rest of Europe too.
The reasons are plentiful, but the outcome is very much the same: a squeeze on living standards for all, hitting the poorest in our societies hardest who spend more as a proportion of their income on everyday items.
There are certainly many reasons for our current conundrum: lavishly loose monetary policy, Russian aggression, the post-Covid boom – all of which are contributing factors to high inflation. However, governments cannot be left off the hook and allowed to blame external factors.
As our recent paper ‘Out of Pocket: How governments fuelled the cost of living crisis’ shows, there are plenty of tax and regulatory reasons for elevated price levels, all within the prerogative of governments to change.
Our paper reviews five European countries and their policies, pointing out several regulatory restrictions and overtaxation in the energy, housing, and agricultural sectors that lead to high price levels overall – which are then exacerbated by the current inflationary pressure.
The EU and governments across Europe could decide tomorrow to allow for freer trade and more innovative production of agricultural products. They could lift bans on fracking or nuclear energy production. They could introduce lower tax rates on several consumer goods.
Lifting regulatory barriers to competition and easing the tax burden on consumers are all within the realm of possibility for European governments. With the current inflationary pressures across the continent, governments may be forced to do the right thing and reduce these burdens on their citizens sooner rather than later. Our paper, featuring in 150+ media outlets from across Europe, is a helpful guideline on how to achieve that.
Adam Bartha
Head of International Outreach & Director of EPICENTER
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POWERING UP
On Wednesday, the IEA published its latest research paper, authored by IEA Head of Regulatory Affairs Victoria Hewson and IEA Law and Economics Fellow Dr Cento Veljanovski.
The paper is part of the IEA's 'Who regulates the regulators?' series, and warns that proposals to introduce a new UK Digital Markets Unit (DMU) could have dire consequences for innovation, investment and dynamism in the digital sector.
The government is concerned that a small number of digital firms have gained an entrenched market position and are threatening competition. To remedy this, they have proposed a new DMU with substantial new powers to ‘promote competition’.
In certain cases, the DMU could force companies to obtain approval for changes to their business models and technologies. The authors fear such invasive powers will establish a precautionary mentality to regulation and restrict dynamism in the market.
The paper was reported in The Independent, City AM, and across the regional press.
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iN THE MEDIA
New dog old tricks... During a tense week in Westminster, IEA Senior Policy Advisor Sam Collins spoke to GB News about whether Nadhim Zahawi's instalment as Chancellor of the Exchequer could signal a change in direction for UK economic strategy.
Ahead of the news of the Prime Minister's resignation, Sam expressed his concern that little was likely to change in the short term. He said:
"I don't think a new Chancellor is really going to solve the problem here... It is quite clear that, for those of us who believe in free markets, our goals were not being stopped by the Chancellor, they were being stopped by No. 10 Downing Street."
The party's over... Later in the week, IEA Head of Lifestyle Economics Christopher Snowdon appeared on Talk TV to discuss the impact that Boris Johnson's resignation will have on the UK economy. Christopher urged the new leader to tackle the rising cost of living by implementing much-needed tax and spending cuts.
Cut costs... And with continued pressure on the government to lower taxes, IEA Senior Policy Advisor Sam Collins, was quoted in The Sunday Express.
Sam said: "If the Government intends to take any action to help the cost of living crisis, it would be significantly less economically harmful in the long term to leave more money in peoples’ wallets instead of increasing state spending."
Start drilling... Responding to strike action by Norwegian oil and gas workers, IEA Energy Analyst Andy Mayer encouraged the UK government to soften the impact by lifting the ban on fracking. At present, the UK receives approximately one third of its gas supplies from Norway.
Quoted in City AM, Andy advised:"Instead of encouraging domestic production as a hedge against these extreme but predictable risks, the UK is still dithering on lifting the ban on fracking, tinkering with expensive new climate regulations on the North Sea, and discouraging investment with a windfall tax."
Childcare conundrum... A new consultation on reducing the cost of childcare will look at increasing staff-to-child ratios from 1:4 to 1:5 for two-year-olds. IEA Editorial and Research Fellow Professor Len Shackleton appeared on BBC Radio Humberside to discuss the proposed reforms.
While Len welcomed proposals to cut the cost of childcare by increasing ratios, he said more needed to be done to rectify the country's broken childcare system.
For recommendations, you can read IEA report 'Getting the State out of Pre-School and Childcare' authored by Len and Ryan Bourne here, which was cited in a House of Commons Library article this week.
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IEA DIGITAL
How Woke Won... On Monday evening, the IEA Book Club hosted an event with Joanna Williams on her latest book, “How the Woke Won: The Elitist Movement That Threatens Democracy, Tolerance, and Reason”.
IEA Head of Cultural Affairs Marc Glendening chaired the event, which you can watch here. You can also purchase Joanna's thought-provoking book here.
Restoring confidence in the market... On Wednesday, the IEA and The Centre for Enterprise, Markets and Ethics (CEME) hosted a joint event to discuss the question of whether the UK public has lost faith in free markets, and if so, what might be done about it.
The panel included Reverend Dr Richard Turnbull, Dr John Kroencke and Lord Griffiths of Fforestfach of the CEME, and the IEA's Head of Regulatory Affairs Victoria Hewson. The panel discussion can be viewed here.
Markets and Morality... In this episode, IEA Head of International Outreach and Director of EPICENTER Adam Bartha welcomed Dalibor Rohac, Senior Fellow at the American Enterprise Institute, and freelance journalist William Nattrass, to discuss Ukraine’s EU candidacy status.
Dalibor argued that a fast track on Ukraine’s membership in the EU would not only benefit the Eastern European nation, but may also slow the notion of ever-closer union, which would be good news for many free market liberals. On the other hand, William argued that in the longer-term Ukraine may find itself unwilling to make the geopolitical compromises necessary for EU membership.
You can watch the full episode of Markets & Morality here, and read EPICENTER's recent briefing on Ukraine’s EU candidacy.
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INSPIRING FUTURE POLICY MAKERS
This week, The IEA welcomed parliamentary researchers to a three day workshop at the University of Buckingham. IEA experts, including Dr Steve Davies, Dr Kristian Niemietz and Professor Len Shackleton, delivered a series of informative lectures covering a variety of public policy issues ranging from energy policy, to healthcare and the labour market.
The event gave young ambitious parliamentary staffers the opportunity to engage with free market ideas and discuss the challenges facing Britain and the world today.
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CALLING ALL STUDENTS!
We are excited to launch the Economic Thought Leaders’ Symposium at the University of Buckingham from 7-9 September 2022.
The theme for this year’s programme is The Economics of War and Peace. We will discuss topics like trade not war, international institutions, diplomacy and game theory. To apply, please send a CV and cover letter explaining why you’d like to attend, as well as 500 words on promoting the reconstruction of an economy after a war to [email protected] by 17 June 2022. You can find out more here.
We have launched the 2022 Dorian Fisher Essay Competition. Named after the beloved wife of our founder Sir Antony Fisher, this is our biggest essay competition of the year, exclusively for A-Level and IB students.
First prize will receive £500, with a separate prize of £500 for the school with the highest number of entrants. The deadline for this year’s competition is Friday 29 July 2022. You can find out more here.
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