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Politicians are not supposed to meddle with prices. Even though much of politics is about whether voters can afford things – especially in an era of recurring inflationary shocks – ever since the collapse of the Soviet Union’s planned economy four decades ago, the orthodoxy across much of the world has been that only markets should decide what things cost.
As the hugely influential Austrian economist Friedrich Hayek argued, in a complex modern society, information is too dispersed among potential sellers and buyers of goods or services for government to make informed and correct decisions about the prices of those goods. Hence, his disciples say, the inefficiency of state-run economies, from post-colonial Africa to the eastern bloc.
Yet as the 21st century has gone on, and market economies have proved ever less able to provide essentials such as energy and housing at an affordable cost – while also generating their own huge inefficiencies, such as soaring salaries for failing executives, and privatised utilities that don’t provide a functional service – so interest in the state regulating and even setting prices has started to grow again. Sudden bursts of inflation from wars, the pandemic and agriculture’s disruption by the climate crisis have prompted governments to make economic interventions that would until recently have been considered hopelessly old-fashioned, unnatural and even immoral. Even the Tories, one of the most stubbornly pro-market parties in the world, introduced the energy price cap, having previously called this Labour policy “Marxist”.
Few elected governments have survived long in the feverish climate created by this decade’s high prices. Inflation may have complex global causes, but its consequences are often brutally simple, and blamed on national politicians, as Keir Starmer may soon find out, despite not being responsible for the war with Iran. Even after decades of pro-market propaganda, many voters across the world still believe that protecting living standards is the first duty of government: maintaining national security in an everyday, economic sense rather than the rarer, military one.
Strikingly, two democracies with large economies have managed to avoid much of the inflation-driven, anti-incumbency rage of recent years, and have seen their governments re-elected. In Mexico, the leftwing president Andrés Manuel López Obrador and his successor, Claudia Sheinbaum, have capped the total price of a basket of two dozen essential goods, such as chicken, rice and toilet paper. At weekly televised press conferences, they have praised or criticised specific companies for cooperating or not cooperating with the scheme: an unsubtle but effective form of commercial and political pressure. At the 2024 presidential election, Obrador and Sheinbaum’s party, Morena, raised its vote share from 55% to 61%.
Meanwhile in Spain, the more centre-left government of Pedro Sánchez has responded to the Iran war with a national rent freeze. During the previous cost of living crisis, his government imposed an energy price cap, temporarily made many train tickets free and created a state body, the Business Margins Observatory, to watch for and deter profiteering, since some companies use inflation panics to smuggle through extra price rises alongside unavoidable ones. These assertive policies have helped keep Sánchez in office for eight years so far, through three general elections. Other centre-left premiers would love such a lifespan.
This week, Zack Polanski said Starmer’s government “should follow the example set by Spain”, and freeze rents. The Green party leader also advocates a wider price reset. “We live in rip-off Britain,” he said in a typically populist recent speech about reforming the economy. “The things we rely on to build the foundations of a good life [have] been … sold for profit – and then sold or rented back to us at crushing rates … Let’s stop paying the privatisation penalty and lining the pockets of shareholders – starting with [nationalising] the water companies.”
Polanski sceptics may think that he is unlikely ever to be in the position to do these things. However, there is an unnoticed similarity between his economic critique and that of a possible Labour leadership candidate, whom Polanski has suggested he could work with in a coalition government: Andy Burnham. “Thatcher’s deregulation and privatisation,” wrote Burnham in January, “left people and businesses paying way over the odds for the essentials and are the root cause of today’s cost of living crisis.” Like Polanski, he wants more state involvement in the economy in order to reduce prices.
Supporting Burnham’s increasingly ambitious arguments are his experiences as mayor of Greater Manchester, where he has brought buses back under public control, lowering fares while raising usage and punctuality; and also a growing body of evidence about the inflationary business models of Britain’s privatised utilities, much of it gathered and publicised by the leftwing thinktank Common Wealth. Last year, it calculated that almost £200bn had been paid by these utilities to shareholders, foreign owners and private equity companies since most of this country’s uniquely extensive privatisation programme was completed in the early 1990s.
From the Thatcher government onwards, Britain has been a leading laboratory for the experiment by modern capitalism and its political enablers in maximising profits and prices, regardless of the wider social and economic consequences. With the coming wave of inflation, on top of the seemingly endless cost of living surge since the early 2020s, it’s possible that the pressure for Britain to finally pull out of that experiment, and imitate the broad price caps of countries such as Spain and Mexico instead, will become too strong to resist. A majority of British voters have long shared the view of Burnham, Polanski and Common Wealth that nationalisations are needed to get prices under control.
For now, Starmer’s government is characteristically trying to cope with the energy crisis with modest measures and stern rhetoric – “This government will not tolerate any company exploiting this crisis,” says the chancellor, Rachel Reeves – rather than more aggressive interventions or systemic reforms. But many Labour MP’s and some ministers, such as the energy secretary, Ed Miliband, are more critical of the economic status quo. With Starmer’s leadership an uncertain prospect beyond the May elections, by which point inflation could be rising fast, any successor may be less instinctively cautious, and under even more voter pressure. It’s easy to caricature price controls as crude politics, until the cruder politics of cost of living protests begins.
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Andy Beckett is a Guardian columnist
