Why the cost of living is so high


Executive summary 


  • The UK economy has performed reasonably well in recent years after a period of sluggish growth following the great recession. Unemployment is at its lowest point since early 1975. However, wage growth has remained slow, and many households are struggling to cope with the cost of living.
  • In response to this, a consensus has emerged among the major political parties that the government should intervene more to help those on modest incomes. 
  • However, the evidence reveals that far from ameliorating the financial burden placed on households, government policies are currently compounding it.
  • The common agriculture policy of the European Union has resulted in food prices being higher for consumers in the UK due to tariffs, subsidies, and overly restrictive regulations.
  • Stamp duty and planning regulations mean that buying a home is now unaffordable for many people, while expensive rents are taking up a significant proportion of take-home pay.
  • Increases to the minimum wage have led to higher prices for consumers in restaurants and hotels and decreased the employment opportunities of low skilled workers.
  • Despite being subsidised by taxpayers, childcare costs in the UK are very high compared to other major economies due to regulations.
  • Energy bills are high in the UK due to ‘green’ taxes to pay for renewable energy subsidies.
  • Transport is expensive in the UK due to fuel duty and government intervention in the railways.
  • The UK has one of the highest rates of air passenger duty making holidays more expensive.
  • Pigouvian taxes on tobacco and alcohol consumption increases their price and impacts those on low incomes the most. The revenue raised from taxes on alcohol and tobacco far exceed their externalities.
  • Income tax, national insurance contributions, and council tax all take a sizeable amount of money away from households.
  • VAT increases the price of goods significantly which results in further pressure being placed on household budgets.


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