From rent controls to energy caps: can the state run the market?

Government intervention in the market for all sorts of utilities and services has been around for decades. While many rail against modern society as ‘neoliberal’, the reality is that the government often sets the terms of trade – and even the price. But has that been beneficial for businesses and consumers?

The most high-profile example is domestic energy prices. Theresa May’s Conservative government passed the Domestic Gas and Electricity (Tariff Cap) Act 2018, which came into force in 2019. Since then, Ofgem has set a maximum unit price for gas and electricity. Then, during the energy-price crisis triggered by the end of lockdowns and the Ukraine war, an energy-price guarantee was introduced temporarily, subsidising household bills to the tune of billions of pounds. Defenders argued that soaring prices were an existential threat for poorer households. Critics argued that keeping prices down reduced the incentive to cut consumption, something that would have moderated prices in itself, while shifting the bill to government borrowing and running up even more interest on the national debt.

More recently, the idea of rent controls have come back into fashion. Rents have shot up in recent years. According to property website Zoopla, rents increased by double digits annual rates in 2022-23. The Green Party has now proposed capping rents at 35 per cent of local median incomes and eventually getting rid of private letting entirely. Labour has explicitly rejected rent controls, but new legislation now gives tenants the right to appeal against ‘excessive’ rent rises. Yet that same legislation is also encouraging private landlords to sell up or simply not put property out for rent, reducing the supply of private rental accommodation. The Scottish government’s post-Covid ‘in tenancy’ rent freeze was deemed a failure, encouraging landlords to bump up rents between tenancies.

The next battlefield is over ‘voluntary’ supermarket price controls, with both the Scottish and UK governments pressuring the big chains to offer a range of ultra-low-price items. But beyond that, government sets the prices of water supply, minimum wages and, in Scotland and Wales, a minimum unit price for alcohol.

In the midst of a cost-of-living crisis, isn’t it right for the government to keep a lid on the price of necessities and ensure a minimum wage for all? Or do such actions have perverse side effects, such as reducing supply of goods and jobs? For all that the UK is usually described as a ‘capitalist’ or ‘free-market’ economy, do such interventions – along with mountainous other regulations and taxes on business – mean that the UK is now a ‘state capitalist’ or ‘capitalist command’ economy?