11 January 2022

Forget tinkering with tariffs – here are five ways to ease the cost of living crisis

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With prices rising, there is no shortage of commentators proffering solutions to the cost of living. Take James Forsyth, who argues in The Times that the UK should scrap all tariffs apart from those on certain sensitive agricultural goods in order to bring costs down for consumers.

While talk of trade liberalisation is always welcome, it’s difficult to see what difference this proposal would actually make. This is because, thankfully, we are no longer in the 1970’s – thankfully high tariffs on most (non-agricultural) goods died out with disco, and have been decreasing for decades, largely due to the success of the rules based trading system.

Our trade agreements with the EU and many countries around the world eliminate tariffs on the majority of goods. We also have arrangements with less developed countries to allow their goods in tariff-free under the Generalised Scheme of Preferences. What’s more, the UK Global Tariff (UKGT), which applies to nations with whom the UK does not have trade agreements, levies low duties on non-agricultural goods. In fact, the UKGT has been a positive development in the UK’s trade policy by streamlining and simplifying thousands of tariff lines.

That doesn’t mean cutting tariffs on the remaining goods wouldn’t be a good idea, but the benefits are unlikely to be passed on to consumers in the short term, and will do little to ease inflationary pressures.

If the Government did want to use the lever of tariffs to help ease the burden on household budgets, then it should do the opposite of what Forsyth suggests. The UK, like many of other nations, takes a relatively protectionist stance to agriculture compared to other industries. There is a strategic argument for using such tariffs as a bargaining chip in free trade negotiations.  However, there’s no escaping that high tariffs mean higher food prices. So if the Government really wants to help consumers during what is set to be a difficult period, it should consider reducing tariffs on agricultural goods.

In fact, though, tariffs are not really where the main action is here. The biggest obstacles to trade now are non-tariff barriers such as regulations, quotas, and rules of origin requirements. These non-tariff barriers increase costs for businesses which are ultimately passed on to consumers. If the Government is going to use trade policy to alleviate the cost of living then liberalising trade in these areas would be a better way to go about it.

Outside of trade policy there is plenty more the Government could do to tackle the cost of living crisis. As I pointed out for CapX last week, rather than a regressive VAT cut, it could tackle high energy prices by redistributing the revenue from energy taxes to poorer households and investing in reliable and green sources of energy such as nuclear power.

Then there is childcare. Parents and carers spend an absolute fortune on paying other people to look after their children. Many parents have to choose between spending a significant chunk of their income on paying for childcare, working fewer hours, or leaving the labour market completely – with women being disproportionately impacted by this. Either way, childcare costs significantly increase the cost of living for parents and carers. 

One of the reasons why childcare is so expensive is because child-to-staff ratios in the UK are much higher than in many other countries. What is more, childcare providers have to hold certain qualifications in order to work. There is a great deal of evidence showing that regulations relating to qualification requirements and staff-to-child ratios have pushed up the price of childcare. The Government should take a more liberal approach to these requirements in order to bring the cost of childcare down.

Most households’ biggest outgoing is, of course, the roof over their head, be it rent or a mortgage. Liberalising the planning system to allow more homes to be built where people need them is therefore arguably the most powerful lever at the Government’s disposal when it comes to reducing the cost of living, especially for younger people.

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Ben Ramanauskas is a Research Economist at Oxford University and a former adviser to a government minister.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.