Yesterday I saw a post on Linkedin from Andy Burnham (The Prime Minister of the UK) bragging about how hes fixing the cost of living.
I am quite clueless on how he ends up on my Linkedin feed, when he is the exact opposite of what I am interested in, but hey ho, he does, and therefore I am writing this blogpost.
Lets first analyse what he wrote, before I tear it apart.
Too many people who work hard every day dread the bills coming in.
I don’t think that’s right.
This is nothing new, and no politician before has ever believed it was right, so what makes him any different?
Food. Energy. Getting to work. Everything costs more, and there’s less left
at the end of the month.
Food is a weird one as there is so many small things which have tagged on a few extra pence, that its hard to point towards one problem. But lets not forget, the government has a track record of tariffing food and then blaming it on others (source). I will cover food more later on.
Energy is entirely self induced. Instead of letting the market produce cheaper energy, we have had non-stop attempts from the government to remedy the problem itself. From endless issues with planning permission to build new nuclear power stations in the 1980s to windfall taxes on oil and gas companies, blocking expansions of gas production in the North Sea, and instead importing it from countries across the world at a premium, which all inevitably is passed onto you, the consumer. High prices make it harder to develop and scale the production of renewable energy affordably, so instead the government subisidies this, yet again passing more cost onto the consumer, to pay for energy which is produced at a loss.
You have websites such as Wasted Wind making it out that its simply the government's fault for not improving the national grid to be able to deal with the unstable supply of energy that wind produces. To avoid a scientific rant, let me point out the obvious here, energy produced from chemical stores, such as natural gas, or increasingly hydrogen gas produced from renewables, are far more stable at storing and being converted into energy when required, and in the example of hydrogen, could be pumped into existing infrastructure. Storage of electricity in batteries are expensive, unstable and dangerous. (why do you think airlines are strict about electronic devices and batteries, those lithium fires are hard to put out). Not to mention that the mining of such lithium often comes at massive ecological harm, you know that thing green energy is meant to solve?
There is no denying green energy is the future, but its when the market can produce it at a profit, and competition can drive down the cost of that green energy to a price which consumers are willing to pay. Guilt tripping consumers into paying more for their energy by telling them to "think of the planet" is not only a blatent lie, due to the aforementioned ecological harm pushing battery storage causes, but increases everyones cost of living to make a few rich people feel good about their carbon footprint.
Getting to work, so you mean transport?
Lets take London, if you are a driver, and you work in central London, you will have to pay the Congestion charge and for some, you will also have to pay the ULEZ fees. With the current cost of petrol so high, and the premium you pay to buy an electric car, driving within London to get to and from work is not economically viable, unless of course, you are rich... or a politician, such as the one who wrote this exact post. Shocking eh?
If you take public transport, you have ever increasing tube and rail fares, which forces the poorest of people onto the buses, which inevitably get trapped in the traffic. TfL, which is ran by the Major of London, who appears to be a good friend of Burnham's, controls the transport infrastructure in London, when it comes to the tube network, it is direct, when it comes to the bus and rail links, they appoint monopolies for specific routes, and if you would like a example of this, take a look at the Arriva bus strike which has pretty much destroyed a substancial part of the bus network in North London, wheres the competition? Oh right, TfL ensures there is none! Before you blame the unionists, they aren't doing anything exotic here, they are unhappy with their working conditions, and thus they are striking, the issue is not that people are allowed to strike (as of course, preventing this is a violation of freedom of association, and speech), but the lack of any competition which provides better working conditions, and which competes with Arriva on these North London routes.
For too long, people have been told that’s just how it is.
Because that is how the market works, especially when politicians stick their hands in the market and rig it for their corporate buddies to profit and force their competition out of business.
I don’t accept that. So I’m fighting to change it.
So you are going to stop interfering with the market, right... right?!?!? ah dammit!
We’re cutting tax on your electricity bills.
Not an entirely bad idea, but for a bankrupt government I do ask where the money will come from, inflation I presume? I don't see any funding cuts to back the tax cuts.
We’re capping bus fares at £2, and giving disabled people 24/7 free bus
travel.
Again, where is the money coming from? If not taxation, then you must either borrow it, or print more money (monetary inflation). In other words, the price is hidden behind your increase cost of living instead of directly when boarding the bus, nothing gets cheaper, in fact, it makes it more expensive overrall.
We’re making subscriptions as easy to cancel as they are to sign up to, and
cracking down on fake discounts. If it says half price, it should be half
price.
Sorry to break it to you, but this is already illegal, if someone agrees to a transaction (such as half price) and then the other party doesn't follow through, this is fraud, which is a fancy term for theft. Isn't stealing already illegal?
Maybe enforce the existing law, and you wouldn't need to keep writing new legislation. Problem solved!
As for subscriptions, these are done based on consent, so again, if the company is intentionally preventing you or making it too difficult for you to cancel, then its once again fraud, you are not consenting to the transaction as initially agreed in the contract, and thus the contract is voided, the court can easily uphold this without any new legislation.
We’ve changed the rules so, if your train is cancelled, you can
automatically and immediately use your ticket on other operators, free of
charge.
Well this is only possible because the majority of the franchises have been nationalised. It sounds cool on paper, but it simply will result in further delays, and cancellations, because the UK government is world class at running things poorly.
So we can pretend this is a good thing, but its just hiding the reality that rail is going to be as reliable as getting an NHS appointment.
And we’re cutting business rates by 20% for pubs, clubs and live music
venues - helping the places that bring communities together.
As someone who enjoys going out for drinks, and has friends who are into live music, I still must oppose this out of principle.
By reducing the taxation on one sector (or group of companies), and not the others, you are distorting the market, you are encouraging people to spend more money on drinking and partying rather than going to the gym, or going for that backpacking trip across Europe.
If you want to help the hospitality industry, then stop driving up the cost of energy, the cost of labour and lower tax on ALL business. You can drop the cost of living today by dropping VAT from 20% down to say 15%.
None of this fixes everything. I won’t pretend it does.
I would argue it fixes nothing at all really... in fact, I would argue in many cases, its making things worse.
But these changes add up. They put money back in your pocket and give you a
bit more room to breathe.
So, more money in your pocket, but the buying power of that money drops, so that in reality, you are poorer. Aren't you meant to be trying to make people better off?
That’s what a government on your side should do. And that’s what I’m
focused on every day.
Government has never been on the side of the people, not for a very long time. I am keeping this blogpost purely economics, but if I was to go into the social side of things, specifically peoples liberty, it would only reinforce the idea that Government is the enemy, not an ally.
I touched upon inflation a few times within the analysis, and I feel it is important to explain this because it is often misunderstood due to government distorting the truth to its own benefit.
When we discuss inflation, there is actually two types, price inflation, and monetary inflation. Inflation throughout history has always meant the latter, but today, governments across the world like to heap the two terms into the same box, to distort and hide the real causes.
This is simple, the price of a good or service goes up. Nothing really more to it. The thing which separates price inflation and monetary inflation is that price inflation will increase a single, or a group of goods or services, not the entire market.
Price inflation is usually caused by supply chain issues, for example the cost of petrol going up is due to the lower supply of oil, since Trump blew a lot of it sky high with his pointless war with Iran.
This is the big one, and the most significant. Monetary inflation is simply the increase in the supply of money, which outweighs the increase in the supply of goods. This causes the price of all goods to go up. Government will blame the war in Iran, for the increase price of all goods, and will instead, totally ignore the Bank of England increasing the supply of money within the market.
What we must ask ourselves is if we know that flooding the market with more money will increase the cost of living (and thus make us all poorer), why would the Bank of England do something so evil, aren't they meant to prevent such financial instability?
On paper yes, the Bank of England's role is to prevent large fluctuations within the market, but as with all of us, we are all vulnerable to power. The Bank of England directors are not elected, they are appointed, and they are obviously loyal to who appoints them, and therfore when government can not tax anymore, and the bond guilts are horrific, which is the exact situation we are in right now, the only way the government can continue spending is by lobbying the Bank of England to increase the supply of cash, which they obviously will do, but pretend that they made the decision impartially. The government then spends this cash while its buying power is higher, and in doing so, the buying power of our cash in our pockets, decreases. In other words, we get poorer, and we have been "taxed" without ever realising.
Because Burnham has not provided any source on how he will fund these expenses hes promised, he will either not go through with it, or if he does, he needs to find money somewhere, and increases taxes requires a lot of hard work (the next budget, or an emergency budget in Reeve's case), borrowing more money is currently infeasible in the current bond market, so this leaves Burnham with only one option really, inflation.
Monetary inflation is the same reason why everything is always getting more expensive, its the same reason why unions cause so much havoc, because they don't tend to react quickly to inflation, it takes time for their members to suffer from the lower buying power of their salary, to then bring it up within union meetings, and by the same the union is aware, inflation is already much higher than before, and thus unions try desperately hard to increase the wages of their workers to match inflation, which many employers simply can't afford.
So the person proclaiming to be solving the problems in reality is likely to cause more harm than good.
Food is an interesting one, but I am going to be the unpopular one here and say, no, it is not the supermarkets which are causing the problem.
Supermarkets get a lot of hate, mainly due to the fact they are the point of contact with the consumer. People have long argued that if we got rid of supermarkets and bought directly from the supplier we would all be better off. Unfortunately its not that simple.
Supermarkets buy up large amounts of goods from a wide range of suppliers, and then adjust their prices dynamically to sell off these goods with a tiny profit margin added. In some cases, supermarkets make a loss, and cut ties with the supplier they can't profit from, other goods sell well and they have a surplus of, so they cut their profit margin even more with deals as more goods sold at a lower margin provides greater profits.
Translating this to English, the consumer gets cheaper prices than they could otherwise get if they went directly to a farm, or the milk factory and bought it from them.
No, this was spread mainly during covid by people who did not understand the fundamentals of economics. When there is an overwhelming demand, in the case of covid it was for toilet paper, and disinfectants, there is not enough supply for all, so supermarkets increase their prices to match the demand. This will obviously generate greater revenue, but heres the catch, it doesn't always mean the shareholders get more profit as the profits usually need to be spent/reinvested into the supply chain, otherwise they would run out of that good to sell.
Now, to prove that they literally cant price gouge. Why do we go to supermarkets? Why not a local store/supermarket? Well its simple, its cheaper and we have more choice. None of us like queuing in a big, loud supermarket and would likely prefer to go to a local shop where we get a more premium service, however few of us have money to roll up and burn. If supermarkets were taking the p*ss with their pricing, then other shops or other supermarket chains would become more appealing to shop at.
In the case of covid yet again, everyone increased their prices, even the competition, clearly signifying a supply chain shortage.
Yes, the market can be brutal, the same market which provides us cheap and affordable goods, can the next day bankrupt us for a loaf of bread. There is yet to be a system which can allocate finite resources better.
In the UK, there is an ever growing hostility to importing food. You walk down the aisles of the supermarket, seeing the union jack plastered over the milk, the meats and random other assorted goods. On the surface you might think this is good, investing in the UK economy, we don't want money leaving the economy do we?
Unfortunately, this assumes there is a limited amount of wealth, or "value", which is not true. When two people exchange goods or services we both become wealthier from it. When you buy a loaf of bread for £1, it is because the loaf of bread is worth MORE than that £1 to you, to the supermarket the bread is worth less than that £1, and thus they also profited. Such exchanges are positive sum, both sides benefit. The assumption that financial exchanges are zero-sum is illogical, as why would anyone choose to exchange if one side had to lose to benefit the other.
In the same way, international trade is the same, when we import food from elsewhere for cheaper than we can produce it in the UK, the other country grows richer, and so do we. So by providing subsidies to artifically make UK produced food cheaper than foreign, we grow poorer, and the cost of living increases.
Don't get me wrong, theres benefits to buying British produce, British cheeses taste different to foreign, so do the sausages. But this then comes down to opportunity cost, what you are willing to pay for it, but if there is a block of cheese which is imported, does it hurt to give it a try? Who knows, it could be better and cheaper! Win win!
Labour is required across the entire supply chain, when minimum wage goes up, or a tax on employment (such as employers national insurance contributions), so does the cost of employing someone. The company therefore looks to either lay redundant workers off, replace humans with machines (like the god awful self serve machines which I hate with a passion) or increase the cost of their goods to compensate for the more expensive labour, which means more expensive food on the shelf.
The Conservative party, and Labour party have both hiked minimum wage over the years, providing neither have a clue that a higher salary means nothing unless the price of goods remain the same, which they don't.
Labour went further and increased employers national insurance contribution. A move which was devestated the job market. How can we trust that Burnham will be any different?
GMOs are often hated on, I personally do not sway either side when it comes to the GMO argument. However, in a time where the climate in many parts of the world is changing, causing a large increase in crop failures, it is hard to solidify the supply chain for food without them.
GMOs promise weather, and disease resistant crops, allowing farmers to better protect their crops from the climate. Disease resistance is also another important factor, today we completely forget that scarcity exists in the western world, but if potato blight took out the majority of the potatoes in the world, millions could starve to death, and the western world wouldn't be immune to this. Rest assure, those who are wealthy will be fine, they will buy up the finite supply of food, and those who are poorest, as usual, will starve to death.
Governments across the world heavily regulate the food and drug markets, adding lengthly and expensive legal paperwork to get new products onto the shelf, they say it is to protect the consumer, but when the consumer has to pay the cost of this paperwork, and potentially starve from choices the government made on their behalf, is that really protecting the consumer? Or is it simply controlling them?
Food is complicated, almost every decision the government makes indirectly affects the supply of food. It is very hard to point your finger to a specific piece of legislation, or a specific decision a government made to cause the the cost of food to increase.
One thing is for certain, the ever increasing tax and labour bill has only helped rise food prices. If this is meant to be the solution to the cost of living, it is clear it is a failure, and we should abandon it.
I am not selling the idea that we will have some utopia if government stands back and lets the market function more autonomously, but its better than going around in circles, increasing tax, and wages, cost of living goes up, thus tax/wages increase, and so on. The spiral must end.
Again, I am going to have to take the unpopular opinion here and say landlords and landowners are not the problem here. The cost of rent and the price to buy is determined by the market, not the landlord or landowner.
Currently the housing market has a very low supply of housing, and a very VERY high demand, so its quite clear to see this will result in sky high rent, and property prices. If you are a landlord or landowner, you are going to be really happy about this, you pretty much cannot lose, your property is going to keep going up in value.
For those who do not own their own home and rent, well, your rent will continue to go up year on year. You might be tempted to vote/support a policy similar to Zohran Mandami's Rent Control but this will not create affordable housing, only further restrict the supply of housing, and thus, increase prices over a longer period of time.
Well, its simple, we either increase the supply of housing, or we decrease the demand.
A lot of people will be tempted to sway to this side, its the easier option, instead of doing the hard task of figuring out why there is a shortage of supply of housing, its easier to blame the demand, and thus seek to limit it.
Reform will tell you that all these migrants are the issue, that if we simply have a hard border, the cost of living will improve. There is some economic backing to this sure, if we have less people entering the country to work the limited number of homes go further. But what you must ask is "what is not seen?".
In this case, what is not seen is the loss of potential startups, the loss of cheaper labour, to help produce goods and services for less (as competition drives down prices). Such a policy would likely indirectly increase the cost of living much more than the increased demand for housing.
Therefore, trying to tackle the demand instead of the supply will simply lead to you shooting yourself in the foot. That is ignoring the social aspect of the problem, which it is clear that harsh borders trample on individual liberty.
When talking about the supply of housing, it gets confusing, many people state that its an example of where the market fails to function properly. But there is nothing exotic about the supply shortages of housing, its simply that the cause is misrepresented by government.
With high demand, there is high prices, which provides the investment but also the financial appeal for firms to build more homes. So why is the market not providing these homes?
The UK has some of the most complex planning and zoning laws in the world, along with green belt legislation, every single construction project boils down to stacks of paperwork. Local councils are notoriously slow with planning permission, and commonly let their personal views get in the way of progress.
Your want to put up a shed yeah your local council will likely have something to say about that. But its your property? pfft, since when has the government ever respected property rights.
In the same way developers have the same legal battles, how the building should look, how tall, what type of housing is built, they even demand that a percentage of the new built housing goes to social housing (aka the government).
In the end, little to nothing gets built, property developers drop out mid-planning because its simply not economically viable to fight with the local council to get approval, others get approved, but usually it is small, poorly built flat blocks which look like what you would find during the times of the USSR in the eastern bloc. That isn't because the property developer is trying to extort the customer, but because the only way to make the housing profitable is to build well... rubbish.
New housing, especially within London, is often flats. High density, poorly built, designed to fit the government figures of providing more homes, but not what people actually want.
Families need a home, not a flat, with enough room for their family to grow over time, somewhere outdoors for the kid(s) to play safely (Garden), and for some families, room to store their car, especially in areas with poor public transport.
What is instead being built, is what the government wants people to live in, 30 floor tower blocks built out of concrete, little to no green space, and if there is, its some communal space which is often subject to gangs loitering, not a safe place to bring up a family is it?
Don't get me wrong, flats have their market, but its limited, usually to students, single workers, or the first home of many people who move out of their parents. However, later in life, people need room to grow, to form a family, to raise kids, and being crammed into a 1 or 2 bedroom flat on the 40th floor of some tower block is inhumane.
The market provides what is required based on the buying habits of others, if you want bread, shops will provide you bread, if many people want bread, shops will stock a lot of bread, and likely for cheap.
In this government controlled housing market, the government is centrally planning what is being built, and then blaming the market for failing, when in reality the failure is the government.
If we want more affordable housing, it is time for a complete reform of the planning and zoning laws, quite frankly, they have little to no benefit, so you could pretty much repeal them all and call it a day. Problem solved.
The only people who suffer are those who use government legislation to force their views on others, and to those, you should mind your own business :)
I hope in this very long blogpost I have explained how the issue with the cost of living is not the government doing too little, but them doing too much. Burnham will change nothing, he will put his own biases into the market, rig it to his own gain, just like every PM before him, and he will leave government like the rest, with more debt, more inflation, and an ever increasing cost of living.
Thank you for reading.