In today’s newsletter:

Why stagnation is a choice
New York goes shopping
Burnham’s missed tax fix

Valentin Boboc is the Senior Economist at the Institute of Economic Affairs

The estimated £18 billion annual cost for free social care, on the NHS model, should be treated more like an opening bid. The final bill for the taxpayer will likely be much higher.

Whilst we don’t have enough details to judge the current proposals for social care, we should be very sceptical of early price tags mentioned in the media. These figures ignore the rising demand from unpaid family carers who will inevitably shift some responsibility to the state, and without whom meeting that demand will be impossible.

They ignore the fact that one of the main elements of cost – human labour – is rising faster than the general price level. And, most importantly, they fail to account for the growing size of the elderly population, which will inevitably push costs ever higher.

We should have grown accustomed by now to the fact that the government has a poor record of forecasting costs. HS2 was once estimated at a fraction of its current £100 billion price tag. The additional cost of the pension triple lock rose from £5.2 billion to £15.5 billion within 15 years, as a result of the double whammy of inflation and earnings swings.

Promising open-ended entitlements could quite easily spiral out of control even faster. Governments create entitlements easily and struggle to reduce or withdraw them later. Once social care is ‘free,’ no chancellor will dare charge for it again. We will likely end up with a situation where social care must be rationed through non-market means, such as bureaucratic decisions and waiting lists.

Free care, as the taxpayer keeps discovering, is the most expensive kind.

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IEA Podcast: Managing Editor Daniel Freeman is joined by Editorial Director Kristian Niemietz and Head of Lifestyle Economics Christopher Snowdon to discuss Mamdani's state-run grocery stores, Burnham's vocational schools plan, and the Farage guillotine T-shirt row, IEA YouTube

This week on Economic Affairs

News and Views from the IEA

Buildings: In defence of stupid growth

Britain is barely richer per person today than it was in 2007 — nearly two lost decades of stagnation
Britain’s Housing Affordability Ratio stands at 7.6, and tops 10 in Oxford, Cambridge, Bath, Brighton and London
England is short by 3.4 million homes to match the EU average, and by nearly 9 million to match France
Only around one tenth of England is developed; the green belt alone covers almost 13% of its land
New publication from the IEA by Editorial Director Kristian Niemietz lays out how planning restrictions have driven Britain’s Great Stagnation

Read the Report

Mamdani’s socialist grocery stunt won’t help poor New Yorkers. Kristian Niemietz’s analysis of New York Mayor Zohran Mamdani’s plan to open five city-owned grocery stores in City AM.

Mamdani has pledged one state-owned grocery store per borough, offering 30 per cent discounts on produce, meat, bread and milk once they open next year, a saving he claims could be worth around $1,000 a year per household. But the IEA’s Kristian Niemietz argues the scheme is less an economic policy than a communication device, one that reinforces the ‘greedflation’ narrative blaming inflation on corporate profiteering.
The discounts will be funded through subsidised rents and tax exemptions, meaning the benefit isn’t really free. An IEA poll found the average person believes retail profit margins sit around 50 per cent, when the true figure is two to four per cent, so even if every retailer gave up its profits entirely, shopping bills would barely move.
Dr Kristian Niemietz, Editorial Director and Head of Political Economy at the IEA, said: “What they gain in their role as grocery shoppers, they will lose in their role as taxpayers.”

Why Can't Britain Build Anything, Anywhere? Daniel Freeman interviews Kristian Niemietz on his IEA briefing on Britain's self-inflicted housing shortage, IEA YouTube

Kristian Niemietz debunks Gary Stevenson’s wealth tax on spiked:

Daniel Freeman says Andy Burnham missed his chance to fix Britain’s worst tax

Stamp Duty reform was shelved this week, but Daniel argues it’s the one tax that experts across the political spectrum agree should go.

“Stamp Duty is so bad that abolishing it is one of the few issues you will get tax experts on the left, right and centre, to agree on.”
“There is actually a broad degree of consensus among economists that well-designed property taxes are less economically harmful per pound raised than taxes on income, corporate profits or consumption.”

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Counting the cost of social care