Why life is so unaffordable in Britain

Tim Wallace

Thu, February 12, 2026 at 3:00 PM GMT+9 12 min read

Energy bills did not used to be cripplingly high. Houses did not used to be this expensive. Childcare used to be more affordable.

Successive governments have promised time and again to rein in prices with controls and regulations, subsidies and edicts.

Yet inflation has only accelerated, worsening the cost of living crisis in ways families cannot avoid.

Why?

Prices rise for a bewildering array of reasons, from wars in foreign countries to shortages of widgets. But in Britain, too often it is government regulation and red tape that is driving prices higher.

Crucially, things like energy, housing and childcare are all heavily regulated. Despite policies supposed to help people, the cost of these essentials have increased substantially faster than the average pay packet since the turn of the millennium.

These precipitous increases are rewiring the entire economy and forcing Britain into an era of political turmoil. But it is a choice.

“Normal economic activity is slowly being squeezed to death by the state,” noted Lord Frost, director general of the Institute of Economic Affairs.

To understand how we got here, cast your mind back to the year 2000. Westlife, Britney Spears and Craig David ruled the music charts. Tony Blair was still in his first term of office. Peter Mandelson had only resigned once.

Inflation, that old economic scourge that had wrecked entire nations from Weimar Germany to 1970s Britain, had been conquered. Price rises were running at 0.8pc, less than half the Bank of England’s 2pc target.

Since then, the typical worker’s wages have risen by 143pc. Average weekly earnings now stand at £741, according to the Office for National Statistics, up from £305 in January 2000.

One would expect households to feel better off as a result. In many ways they are. Food prices have risen by 120pc over the past 26 years, for instance, so families can afford to spend more on the weekly shop.

On average, prices have almost doubled since the millennium – significantly slower than the increase in earnings.

But the problem is that energy and housing – costs that are hard to avoid – have risen precipitously.

Energy bills have risen by more than 360pc since 2000. (It is little comfort to note that this has dropped back a little since the worst of the crisis in 2022, when prices were up more than 500pc.)

House prices are up nearly 250pc, forcing first-time buyers to stretch their mortgages out for years into the future, far beyond the traditional 25-year loan.

All of this comes despite the energy price cap, which came into force in 2019, and an endless array of requirements to build affordable homes as part of new developments.

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Robert Colvile, at the Centre for Policy Studies (CPS), cites the housing market as a painful example where the cost of regulation was forgotten.

Cost of building soars

“[Politicians] just assume everyone will always want to build houses, so you can layer all kinds of costs and regulations on top of that and it would not make much difference in how many houses are built,” he says.

“But it always did. And at this point, where the cost of building has gone up hugely, the cost of labour has gone up hugely and the cost of finance has gone up hugely, suddenly all of the little ‘nice to haves’ on green space or windows or the supply chain mean it is not viable to build buildings.”

The Building Safety Regulator, established in response to the Grenfell Tower disaster, stands accused of crushing construction of flats, particularly in London. The requirement for a second staircase in tall buildings has been blamed by the CPS for driving up costs by limiting space available for living, for instance.

Low construction levels

Similarly regulations aimed at preventing people from falling out of windows have led to ugly homes with too little daylight.

The result is low construction levels – particularly in London – higher prices and, combined with frozen stamp duty thresholds, a crippling tax bill to buy a home.

Fewer people want to move as a result, stunting the jobs market and so the wider economy.

Frost, formerly a minister in the Conservative government, highlights energy as another industry where red tape has driven up costs.

He says that privatisation and competition under Margaret Thatcher and John Major “worked for a time. But with net zero and the sense that there would have to be a directed shift to wind and solar, government regulation has come back in”.

Frost adds: “You have got a lot of notionally independent companies, but in practice they have no real freedom to act, because so much of the system is set by government regulation and open price-fixing at times. It inevitably drives up costs.”

The result has been higher prices – and a scramble to try and regulate them away.

“The Conservative government brought in the price cap in the late 2010s and we have had various forms of subsidy and control since then which basically mitigated the increase, [but] they haven’t really stopped it,” Frost says.

“Government policy results in all sorts of higher costs or effects people did not foresee at the time, then you have another round of policies that correct the effects, until you have this fantastically complicated system which nobody really understands.”

Chris O’Shea, the chief executive of British Gas, warned this week that rising “system costs” mean that “by 2030 the electricity price will be higher than it was at the peak of the Russian invasion of Ukraine”.

Energy is so fundamental to every industry that high prices not only hammer household finances directly but force up prices across the board.

Electricity costs for Britain’s steel producers, for instance, are 14-25pc higher than those faced by European competitors, according to industry group UK Steel.

Wholesale prices alone are around one quarter higher than those in France and two thirds above those in Germany. Extra regulatory costs, including network charges and carbon costs, push the cost per megawatt hour up further from just over £50 to almost £60.

“Energy costs are probably the single biggest inhibitor of making our steel industry competitive,” says Jon Harrison, at industry group UK Steel. “We pay vastly higher costs than our continental competitors, let alone China or the US.”

Struggles to make such a fundamental product have knock on effects through the entire supply chain, ultimately undermining the nation’s ability to defend itself.

“We currently have issues with the steel mill in Scotland, because the operators do not have the cash on hand to make the plate to make the warships. It is gunking up the entire supply chain and making it uncompetitive to invest,” says Harrison.

Competition drives down prices

The contrast with the price of goods that come from globally competitive markets is stark.

Take cameras. No longer do we have to wind the film forward between photos, and take the canister down to the shop to be developed. The rise of digital cameras and then smartphones, alongside the emergence of Asian manufacturing powerhouses, decimated old manufacturers, sending quality soaring and prices plunging.

Adjusted for quality, the price of photographic, cinematographic and optical equipment has fallen almost 95pc over the last 26 years, according to the ONS.

Games and toys cost almost 30pc less than they did 26 years ago. Clothing prices are down by around one quarter.

It is no coincidence that over the same period China has gone from a minor vendor to the UK to vying with Germany for the title of Britain’s top supplier, exporting close to £70bn per year into Britain.

Cheap imports from China for years helped to mask the inflation crisis brewing in Britain. But the reality was brutally exposed by the energy crisis and geopolitical instability.

Ironically, cheap imports from China may even have stoked higher costs at home. Successive Governments thought inflation was under control, giving them free rein to implement whichever rules they wanted without fear of the cost.

On top of red tape come higher taxes – another government intervention.

Some apply to households: income tax thresholds will be frozen into the 2030s, meaning anyone who receives a pay rise – even if it is below inflation – will see more of their income subject to tax.

Others apply to businesses: the £25bn raid on National Insurance and the upcoming jump in business rates are particularly painful for high street and hospitality businesses.

But all add grit in the mill of the economy.

Even when the Government thinks it is helping by intervening, it can prompt more price rises.

For instance, pushing up the minimum wage is notionally meant to help low earners but this feeds into companies’ costs and prompts price increases. At around two thirds of the average income, our minimum wage is among the highest in the world.

Similarly, the Employment Rights Act will further add to companies’ costs. The Government’s own estimate is that the reforms will cost companies as much as £5bn.

Ashwin Prasad, Tesco’s UK chief, said this week it is increasingly tough to keep a lid on groceries prices when companies are beset by costs imposed from above.

“Our biggest expenditure today and throughout our history is always the salaries and wages of our employees. We employ around 300,000 people in the UK, and so any changes here are inevitably of a large scale,” he said.

“Each time you add a new cost, money has to come from somewhere. In the past five years we have already seen all sorts of new costs for labour, costs for energy and costs for regulation.”

Red tape and taxes hold back growth and stifle job creation but these interventions also reshape the country in more fundamental ways.

Take that family.

Higher house prices mean Britons are buying homes later and getting less for their money when they do.

The typical first-time buyer in 2005 was aged 31, borrowed three times their income and bought a home for just under £130,000, according to UK Finance.

By the end of 2024, the average first time buyer was 33, borrowed 3.5 times their income and paid £275,000.

The delay in buying homes in turn contributes to families having children later. The average age at which a woman has her first child has risen from 23 in the 1970s to almost 30 today.

Labour-intensive Britain

It’s not just housing: childcare costs are up by more than 40pc in the past decade, in part reflecting sharp rises in the minimum wage and taxes on workers in what is a labour-intensive industry.

Britain is more labour intensive than most: the UK has some of Europe’s tightest rules governing the maximum ratio of children to staff, restricting supply and driving up costs.

Elsewhere, strict rules on car seats for babies and children mean parents with three little ones typically need to buy a bigger vehicle, such as a large SUV, or a minibus-style people carrier.

That means ditching a perfectly good family car to buy a more expensive one – or simply choosing not to have any more children.

“The Government needs to be much more aware of the consequences of its own actions,” says Martin Beck, the chief economist at WPI Strategy.

Frost blames a groupthink that took hold in Westminster, leaving Labour and the Conservatives convinced that the Government could always step in to solve any economic problem.

“Both parties got captured by a collectivist mentality. At some point, probably under Blair, everyone came to believe we had solved our economic problem under Thatcher and Major and growth would happen without worrying too much about it, so we could focus on all of the other stuff we wanted to have.

“That is where things started to go wrong,” he says. “David Cameron started talking about spreading the proceeds of growth. Everyone was captured by the net zero mentality. The memory of how bad nationalised industries [fared] started to fade.”

At least some elements of the Government are waking up to the damaging effects of this blizzard of regulation.

Rachel Reeves, the Chancellor, has called red tape a “boot on the neck of businesses” and sought to weed out bad rules, calling on watchdogs to do more to promote growth.

But there is limited sign of action so far.

Instead, more regulations are often piled on in the hope of dealing with costs which arose largely because of older rules.

More regulation

Worse is to come. The near-death experience for Sir Keir Starmer’s premiership has raised fears that he will be forced further to the Left. Labour backbenchers, who already enjoyed flexing their political muscle to force about-turns on crucial policies since the general election, feel further empowered.

Andy Burnham’s influence is growing, and the Mayor of Greater Manchester is calling for a fresh era of regulation, yet again with the promise that this is the way to solve the cost of living crisis.

“Following recent events, I think the time has come to call an end to this era in British politics when politicians got too close to wealth, too seduced by the notion that deregulated markets would provide the solution when in fact they have been the problem for those on the lowest incomes,” he said in a speech to the Resolution Foundation think tank.

There is little reason to think it will work, and every reason to think Labour will pay the price. Support for the Conservatives collapsed amid a heavy borrowing mini-Budget in 2022 that revolved around expensive plans to cap energy bills.

In the US, Democrats were brought down by Donald Trump in 2024 as voters expressed their rage over the cost of living.

Governments across Europe have tumbled or face defeat soon amid widespread economic problems that mounting regulations have failed to assuage.

It is just the latest episode throughout history when leaders have been torn down or forced to abandon their plans as rising prices and a loss of prosperity.

But for now at least, Britain’s leaders seem set to double down on red tape as the answer.

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