“Some merchants are always eager to turn a profit. Therefore, we decree that the benefit of low prices is not hindered while greed, checked in advance, is restrained.” Not the words of left-wingers calling for price controls, but those of Emperor Diocletian’s Edict on Maximum Prices in 301AD. He failed; price (or rent) controls always do.

Alastair Stewart

Alastair Stewart

Prime minister Rishi Sunak’s inflationary challenges pale into insignificance, compared with those of Diocletian. He had inherited half a century of political and military anarchy, accompanied by financial collapse even more pressing than bequeathed by Theresa May, Boris Johnson and Liz Truss. Earlier rival leaders had repeatedly debased coinage (early quantitative easing) to pay increasingly factious legionaries. Inflation surged to as much as 15,000% and, like today, the blame was directed towards merchants.

Maximum prices were imposed under pain of death governing more than 1,000 commodities and services, with a corresponding doubling in the number of bureaucrats. Wheat was pegged at six denarii per litre; sausages 40 per kilogram. Painters and decorators vied with maths teachers among the top-paid trades, 75 per day; male slaves could not be sold for more than 30,000 (however, ‘lions, first class’ commanded 150,000; Diocletian was a particularly savage persecutor of Christians).

Diocletian discovered that economics trumped even death sentences: merchants simply stopped selling, spawning a booming black market. Prices continued to soar. He abdicated in 305AD.

Some things never change. Threatened by a cost-of-living crisis and double-digit (just) inflation, ministers have directed their scrutiny first on supermarkets, then housebuilders and most recently on landlords. A year ago, former shadow chancellor John McDonnell called for price controls on fuel, basic foods and rents. That was at odds with his successor Rachel Reeves, but even government ministers have attempted some light arm wrestling with supermarkets, suggesting voluntary caps for ‘essentials’.

shutterstock_297235109_cred Cesarz

Source: shutterstock / Cesarz

Emperor Diocletian: blamed inflation on merchants, as still happens today

More stridently, in March 2021 the government leaned on the Competition and Markets Authority (CMA) to probe potential ‘profiteering’ by the main chains, the second such study by the CMA in a few months. It concluded “high food-price inflation has not been driven by weak retail competition” and pointed out that average operating margins had fallen from 3.2% to 1.8% over the past year.

It seems the CMA has become the government’s go-to dogsbody whenever it tries to nobble the market. I’m told the authority was far from keen when tasked in February by levelling-up secretary Michael Gove to undertake the latest of umpteen studies down the years into land banking and other imagined dark arts by the largest housebuilders.

Economies of scale

Even Diocletian’s legions of civil servants steered clear of the housing market. Not so UK governments. Don’t hold your breath as to whether the CMA finds any smoking guns in terms of market abuse by the housebuilders. Prices of new homes are set by the larger secondhand market; any advantage big builders enjoy over smaller rivals supports their margins, not prices, and is largely gifted to them by planning policy that favours their economies of scale.

Rents are another matter, at least in social housing, where it seems ministers can’t resist trying to put a lid on charges. In his 2015 Budget, then chancellor George Osborne imposed four years of 1% cumulative cuts. This clobbered housing associations’ finances and investment in new homes. His successor, Jeremy Hunt, set a 7%-per-year ceiling on general affordable housing rents from this April, at a time when housing associations are struggling again. The cap did not apply to specialised social housing providers, but given funding challenges in the sector, Triple Point Social Housing REIT voluntarily accepted to adopt it in the rents it charges housing associations that lease its properties.

The Scottish government took a fundamental step further last September by imposing a six-month rent freeze on private landlords, followed in April by a 3% cap. The moves referred to sitting tenants. However, this seems to have encouraged landlords to hike rates at the end of their agreed tenancies – usually to new occupants, in a country where demand greatly exceeds supply. Can it be a coincidence that Scotland experienced the highest annual rental growth in Britain, 13.7%?

History, as ever, has a habit of repeating itself.

Alastair Stewart is an equities analyst and consultant