The public is paying the price for big companies ‘exploiting markets’

Powerful companies serving markets that don’t function efficiently have worsened the cost of living crisis for most people, according to the report.

The report calls for stricter and more proactive competition policies to curb excessive profit-seeking by large, dominant companies.

It says the Bank of England and other international financial institutions need to better understand the impact of “windfall profits” on the economy, meaning ordinary households and small businesses are hit harder by economic crises.

Researchers from think tanks the Institute for Public Policy Research (IPPR) and Common Wealth found that if companies accepted lower profits in the same way as consumers and stopped passing on higher costs entirely to others, widespread inflation would set in. reject.

Bank of England research found that pass-through inflation accounted for around three-quarters of UK inflation at the end of 2022.

“If all companies and workers can fully catch up with the inflation of the previous period, package inflation will continue for a long time. “In reality, those with market power are likely to benefit from a full inflation adjustment (delaying a return to inflation targeting), while those with little market power will lose out at the expense of others,” the report said.

“A fairer and more effective way to deal with inflation pass-through is to ensure that the costs of inflation are distributed more evenly. This could be achieved through excessive income taxes on the part of companies and perhaps even through excessive payroll taxes on the part of employees.”

The report calls for a renewed competition policy to prevent overly powerful companies – especially in key commodity markets such as oil and gas – from exploiting economic difficulties, and to help stabilize markets.

Greater market intervention in the form of price caps, windfall profits or windfall taxes would also help stabilize markets in crisis.

A global approach to taxing excess profits and challenging the market power of dominant companies is required to reduce the economic costs resulting from such dysfunctional markets.

Carsten Jung, an economist at IPPR, said: “Our research shows that markets are not functioning efficiently to allow large companies to make profits, which has likely led to higher inflation.” throughout the economy.

“The initial rise in inflation was driven by the drying up of global supply chains following the pandemic and then by the energy price shock following the invasion of Ukraine. Nowadays, economists, when considering the consequences of “domestic” inflation, pay too much attention to the labor market.

“In fact, most employees suffered real losses, while many companies protected or even increased their profits.

“We need to examine what role profits have played in exacerbating inflation. We must now think about how we can further expand our policy tools to better prepare for the next economic emergency.”

Common Wealth’s Chris Hayes, co-author of the report, said: “Inflation shocks are unavoidable, but they don’t have to last this long.”

“Many large companies use their power to protect their profits. This spreads shocks to workers, consumers and labor-intensive industries that are less able to absorb them.

“Not only is this unfair, but it will also destabilize the economy. We need a new set of targeted and strategic macroeconomic policies to encourage companies to behave differently and reduce inflation, both now and in the future.”