Price controls: when politicians get desperate for something to say
From the SNP offering low-cost groceries to Labour in Westminster flirting with rent controls, state-mandated prices are a bad idea that governments just can’t shake.
An urgent question for the Labour government: does your left hand know what the right is doing?
Yesterday, the Guardian reported that: ‘Rachel Reeves is considering imposing a one-year rent freeze on private sector homes amid growing alarm in government about the impact of the Iran war on voters’ budgets.’ Under pressure from the Greens, who have been banging the drum for rent freezes, is the government using this as a last resort to shore up support, particularly with younger voters who are flocking to the Greens en masse? As recent polling from YouGov shows, that 36 per cent of 18- to 24-year-olds intend to vote for the Greens, compared to 24 per cent who intend to vote Labour.
Yet Labour briefings about a rent freeze seem rather odd considering that just last week, the housing minister, Matthew Pennycook, told parliament that there were no such plans. ‘The government does not support the introduction of rent controls, which we believe could make life more difficult for renters. There is sufficient international evidence from countries such as Sweden and Germany, and from individual cities such as San Francisco, as well as the recent Scottish experience, to attest to the potential detrimental impacts of rent controls on tenants.’
Indeed, just yesterday morning, Bridget Phillipson, the education secretary, told Times Radio: ‘That isn’t something that we are actively considering, just to be completely clear, that is not the approach we will be taking.’ But the chancellor is concerned, as we all are, about the impact of the conflict in the Middle East on family finances and is looking at what more might be required to help get through this.’ By the afternoon, the ‘kite-flying’ exercise was being disowned by Downing Street.
Whatever is going on with rent controls, the government is doing its level best to make rental accommodation more expensive and less available, thanks to the Renters’ Rights Act. The law will make it harder for landlords to evict tenants, unless they are selling the property or moving into it. The idea of signing a fixed-term contract to rent your house out is now dead. And whatever the plans for rent freezes turn out to be, an independent tribunal will now decide if a rent rise is beyond the ‘market price’.
Along with other measures, these changes will certainly encourage many landlords to sell up, leaving renters fighting over a smaller pool of properties.
Pennycook is quite right to point to the voluminous evidence showing that rent controls aren’t in the best interest of renters – and that the Green Party’s housing policy – which seems to go beyond rent controls to abolishing private landlords altogether – is, frankly, boneheaded. The best way to reduce the price of something is to increase the supply. If we want to cut the cost of housing, we need to build more homes – yet another thing the Labour government has failed to do.
Yet all this talk of rent freezes isn’t the daftest announcement of a price control of late. The SNP’s manifesto for the Scottish Parliament elections next month promises to cap prices for essential foods: ‘The system would require large supermarkets to make one example line of the listed essential food items available at the capped price and would not require them to make every variation of that type of food they stock available at that price.’
Hmmm… price controls don’t seem to be within the Scottish government’s remit. Never mind, it will be pushed through, the SNP says, as a public-health measure like minimum unit pricing for alcohol. But even if this ruse were to succeed, the groceries sector is probably the most competitive market sector in the UK, so the idea that prices can be significantly lowered by government diktat seems to be for the birds.
If the Scottish government attempts to push prices down below cost, supply will dry up or other prices will be increased to compensate. And if the UK government tells the SNP that they are acting beyond their powers? Well, it’s another excuse for the SNP to blame Westminster for something. One thing is for sure: Scots won’t be benefiting from lower grocery bills.
Meanwhile the Greens have another big idea: to regulate the price of labour. They want to impose a maximum differential on company pay, so the best-paid staff can’t be paid more than 10 times what the lowest-paid staff get. As many have pointed out, this would destroy football’s Premier League in a stroke. A top player can earn 10 times in a week what an average person earns in a year. Big corporations would struggle to recruit the best staff for their top jobs.
As Dominic Lawson pointed out in The Sunday Times on Sunday, price controls have been around since the Emperor Diocletian in 310 AD. Like a turd from a blocked sewage pipe, the idea floats up from time to time – and every time it is a failure. When prices are set too low, suppliers stop supplying. Rather than benefiting ordinary people, price controls end up hurting them. Pay less, queue more for the limited supplies.
Politicians should know this. But when the economy is moribund, with GDP per person currently flatlining – substantially because of other stupid government policies, like planning restrictions on building, higher employment taxes or Net Zero targets for climate change – then Something Must Be Done. That ‘something’ all too often makes things even worse. Rather than sticking one Band Aid on top of another, perhaps it would be better for governments to promise to get out of the way and let the market get on with it.