It has been a miserable few years for our quality of life. People have gotten used to that sinking feeling every time you read a price tag at the supermarket, receive an electricity bill or – particularly for younger generations – think about someday buying a house.This squeeze comes from prices rising faster than wages, and has resulted in the biggest slump in living standards since records began. According to the Office for Budget Responsibility’s latest forecasts, household incomes will still be 3.5 per cent below pre-pandemic levels over the coming year.

The immediate causes of this crisis are well-known. The Bank of England printed too much money during Covid, pushing up inflation while Russia’s invasion of Ukraine disrupted global energy markets. But there are also deeper and longer-running structural factors at the core of Britain’s woes. This longer-term picture can be better understood by looking at what prices have – and have not – been rising over recent decades.

Overall inflation has been 80 per cent since the turn of the century, but as I highlight in a new briefing paper for the Institute of Economic Affairs, this has been unevenly distributed across the economy. The prices of many products in highly competitive and innovative sectors have experienced significant declines, from cameras (down 94 per cent) and televisions (down 76 per cent) to clothing (down 29 per cent) and toys (down 25 per cent). By contrast, the prices of goods and services in sectors where the government has intervened the most through regulation and subsidies have seen the biggest increases: electricity (up 425 per cent), housing (up 254 per cent), and childcare (up 193 per cent).

There is entirely justifiable regulation that tackles specific harms – traffic regulation, obviously – but the ratcheting up of rules over time can have bad consequences. Regulation imposes significant direct compliance costs on businesses. Regulation also creates often unseen barriers to entry for newer and smaller firms that cannot afford to comply, reducing competition and innovation. This together means higher prices for consumers and weaker economic growth. One study found that a 10 per cent increase in regulation is associated with price increase of around 0.7 per cent, while a World Bank assessment found that it decreases economic growth per capita by 0.5 per cent.

The impact is particularly felt by lower-income households, who tend to spend a greater proportion of their incomes on highly-regulated goods like housing and electricity. Studies have also found that more regulation leads to higher poverty levels and income inequality. So those who care most about the poor should be advocates for cutting red tape. Regulation has also combined with subsidies to create spiralling prices. The government gives handouts to people so they can afford goods which are in low supply – increasing demand even more and increasing the goods’ price further.

The housing market perfectly demonstrates this point. The government spends billions of taxpayer pounds on housing benefits and ‘help to buy,’ and may soon introduce 99 per cent mortgages to reduce deposit requirements. This spending increases demand in the market that is unable to increase construction due to a restrictive planning system. It’s the same for childcare, where huge subsidies in the form of ‘free’ childcare have not compensated for complex and costly regulatory requirements. It’s a similar story for electricity, too. Privatisation and liberalisation in the 1990s saw prices for consumers decline (by 26 per cent over the decade), but subsequent fiddly state interventions to promote decarbonisation have ruined the market. There are undoubtedly other factors at play – many of the goods that have gone down in price are open to international trade, for example.

The story is not entirely bleak. The power of trade, competition, and innovation to deliver lower price and higher-quality products has been on stark display in recent decades. Apply these successful principles to the heavily regulated parts of our economy – cut red tape and end subsidies – and Britain will be much better off.