Where markets work

To be clear, this report is not an argument for an old-fashioned, Soviet-style command economy where the state decides the price of a loaf of bread or the colour of your shoes.

Markets are spectacular tools for setting prices, driving genuine innovation, and allocating resources under the right conditions. If a market allows easy entry and exit for new businesses, encourages competition based on product quality rather than political lobbying, and is properly regulated to protect workers and consumers, it works beautifully. If.

Restaurants, as we saw, are the obvious case: the bad ones close. Food is the bigger case, and it points the same way. Britain has thousands of farms, dozens of processors, a dozen supermarket chains and a discounter opening somewhere every week. Entry is possible, competition is real, and it shows in the price: British households spend a smaller share of their income on food than almost anywhere in Europe.

That price is not costless, and it falls hardest on the people at the start of the chain. Farming margins are thin, volatile and heavily weather-exposed, and a farmer selling to four buyers is in a very different position from a supermarket buying from four hundred growers. That argument is not this report’s to settle. But one part of it is ours: the support system farmers plan against has been rebuilt twice in a decade, with the rules still moving. You cannot plan a crop rotation against that, let alone a barn or a herd. It is the same failure this report identifies everywhere else – long-lived assets, financed against short-lived promises.¹

Which is why this report has almost nothing else to say about food. Millions of people in this country cannot afford to eat properly, and that is a scandal. But it is not a scandal about the price of food. It is a scandal about wages, rents and energy bills — and those are what the rest of this report is for.

“A report claiming every market is broken is an ideology. Knowing which ones aren’t is the whole point.”

But privatised utilities – our water networks, energy grids, and regional transit systems – are not restaurants. You cannot choose a different water pipe if your current supplier fills your basement with filth. You cannot choose an alternative rail network if the local train to work is cancelled.

These are natural monopolies with inelastic demand. People cannot choose to stop using water or electricity when the price spikes.

When politicians try to force market mechanisms onto captive public infrastructure, it is not pragmatism, it is economic illiteracy. It creates a playground for corporate extraction, leading to high prices, underinvestment, and systemic decay. A pragmatic government knows the difference: it leaves consumer markets to innovate, but steps in to take sovereign ownership of the foundational utilities that make civilised life possible.

Finance sits awkwardly between the two, and deserves to be described accurately.

The City does real work. It moves money, prices risk, insures ships and buildings, runs the payments system, funds companies that need funding, employs a great many people and pays a great deal of tax. Strip that out and the country stops. Nothing in this report proposes to.

But a financial sector is a service to the productive economy, not a rival to it. Its job is to get capital to the firms that will do something with it. When it grows large enough to bid up the price of everything else — land, housing, companies, talent — it stops allocating capital and starts extracting it. And as we shall see, the rules we ourselves wrote made lending against a building that already exists more attractive than lending to a business that might build something.

That is not an argument for abolishing finance. It is an argument for pointing it at the real economy and setting boundaries that keep it there.²

We need affordable energy. We need affordable housing. We need to insulate our homes. We need to regenerate our high streets. We need reliable transport. We cannot sit back and hope that markets will take the lead and provide them. Governments must lead.