Having a Cost of Living Tsar Is Just Tinkering at the Margins

Much of Labour’s response to the affordability squeeze has been a cabinet of small remedies. We have seen rail fares frozen, prescription charges capped — and now we have a cost-of-living tsar to attack unpopular fee structures.

The government has quietly appointed Lord Walker of Broxton, executive chairman of Iceland supermarket, to work with a Downing Street “sprint team” to reform unpopular charges without needing much parliamentary action. Walker appears to have overdraft charges, credit-card penalty interest rates, auto-renewing contracts and components of energy bills in his sights.

Few will moan about the state fiddling with small print “junk fees”. But nor should we expect messing with pricing structures that burn inattentive or time-poor customers to ease public discontent. Consumer prices have risen about 28 per cent in five years. Regulating certain charges and fees will not change the fact that everything feels expensive. What it will do is cause profit-seeking businesses to adjust base prices, trim perks, or tighten eligibility to manage new risks imposed upon them.

Walker’s instinct is to go after what he deems “unfair” banking charges, such as late fees, overdraft charges, and punishing credit-card late payment interest rates. The Financial Conduct Authority, the City regulator, ran a similar experiment with overdrafts already. Its rules that took effect in April 2020 banned fixed fees for overdraft borrowing and required a single annual interest rate for overdrafts (advertised as a representative APR). Crucially, banks could no longer charge more for going into “unarranged” territory. The old penalty-fee model largely disappeared.

But the economics did not. Many banks responded by pushing headline overdraft rates up towards 40 per cent (and higher for certain customers). Banks also retained other ways to manage risk, such as tightening limits and eligibility, and declining payments that would take accounts beyond agreed facilities. The FCA itself acknowledged that, in isolation, heavier users of arranged overdrafts could end up worse off, even as others benefited.

There’s a general point here. In competitive markets, fee income is commonly competed away in lower headline prices and “free” accounts. Cap credit-card interest rates, say, and you will most likely get repricing via higher fees, stricter minimum balances, or less credit available for high-risk borrowers. When the UK government capped payday loan rates, loan volumes fell far beyond those accessed by the “problematic” borrowers the price control aimed to protect. Regulated prices hugely curbed access.

Similar analysis applies to subscription charges. Walker worries about subscription terms leaving customers out of pocket. Government estimates suggest that, outside regulated sectors, there are roughly 155 million active subscriptions and about 5.8 per cent — 9.7 million — are “unwanted,” costing consumers about £1.6 billion a year. That sounds a big deal, until you realise that even if the government could regulate to perfectly eliminate these charges, it would save households just over £1 per week, on average.

Yet even this is not “pure profit.” For most subscription markets, this back-end revenue would be competed away in front-end products, such as free trials and teaser rates. Clamp down on renewal income and you’ll get rebalancing towards higher headline prices and fewer promotions. There’s no free lunch here. Just a shuffling of costs and cross-subsidies from some customers to others.

That is why this consumer-watchdog-style approach to living costs will ultimately disappoint. Voters are peeved about much bigger forces that are driving up prices. Inflation being above target for so long reflects that the Bank of England has allowed nominal spending to outrun the economy’s supply potential. No tsar can affect that.

And in core markets that households care about, prices reflect the product’s relative scarcity. Wholesale gas prices have now jumped to their highest level since early 2023 because of the war in Iran, for example. That threatens a far bigger impact on living costs than anything Walker is discussing.

So, punish outright deception, by all means. But let’s not pretend you can regulate Britain into being cheap.