There is no doubt that the single-most pressing issue for the Bermuda Government is getting a handle on the cost of living.

In common with much of the Western world, Bermuda has seen prices soar since the Covid-19 pandemic, while incomes for many people have not kept pace.

For Bermuda, this has been a bigger problem than other countries because the island was already an expensive place to live.

In part that is because importing almost everything that is consumed here inevitably adds to cost. So, too, is that for decades Bermuda has depended on tariffs for much of its government revenue.

Over time, this has been exacerbated simply by Bermuda being more expensive than other countries, meaning price increases are compounded over time. As prices have risen, wages and salaries have inevitably followed suit, and this creates an inflationary spiral that is difficult to get out of.

Bermuda’s small size also contributes to the problem. As the supply of land shrinks, its value rises, adding to the cost of having a home before factoring in the high cost of imported materials and labour.

Many businesses do not have scale and the economies that go with that to pay for the fixed costs they face. Some costs will be the same regardless of the size of the business. A company with ten customers will charge each of them a tenth of that cost, but a company with 100 customers can charge each of them one hundredth.

Getting the cost of living under control is therefore complex and the answers to the problem are not simple.

Despite that, there is a desire, especially from populist governments, to find a scapegoat and to wave the magic wand of government regulation as a solution.

Examples of that can be found in the Cost of Living Commission Amendment (No 2) Act, which was passed by the House of Assembly before Cup Match and then hit a roadblock in the Senate, which delayed taking a vote on the Bill until its return today.

The senators were right to delay. The Upper House is a revising chamber, meaning it cannot outright reject legislation, but it can suggest changes to laws passed by the House and it can delay legislation for up to a year, giving lawmakers a breathing space to think again about problematic legislation.

The Senate should do just that in this case.

The legislation would require vendors of goods determined to be critical to provide price breakdowns of the goods. In addition, where a vendor planned to increase the price of a good by more than 5 per cent, the Government would have the ability to freeze the price of the good and would have 30 days to approve or reject it.

The Bermuda Chamber has released a detailed critique of the proposals, which illuminates the problems with this law.

But it is worth looking at the broad principles at question.

The first is that, generally speaking, price controls do not work. By and large, government efforts to control prices for goods such as food and fuel have failed. Rather than making items more affordable, it has led to shortages, hoarding and the growth of black markets.

That is because artificially setting a price without regard to the drivers of that price leads to sellers withdrawing the product from the shelves — that is the only choice when following the rules would lead to financial losses.

It is true that some prices in Bermuda are controlled. The most notable one is Belco, whose rates are approved by the Regulatory Authority, apart from fuel costs which are subject to market changes.

But there are significant differences between a virtual monopoly such as Belco and, for example, grocery stores, where there is significantly more competition.

Even if price controls for grocery stores made economic sense, and they don’t, they are impractical for other reasons, especially for fresh produce. The 30-day freeze means, as was stated in the Senate debate in July, that perishable goods would perish in that time.

But if price controls don’t work, what can be done to reduce the cost of living in Bermuda, or simply to slow the rate of growth?

The best thing that the Government can do is to encourage broad-based economic growth and competition.

It has begun to do this through its consultation on a Competition Act, which would discourage cartel-like behaviour and price fixing, but it can do more by making it easier to do business in Bermuda.

Like many other Western countries, Bermuda has become stodgy and over-regulated. Compliance often feels like the only growth industry in the island but it is a cost of doing business, not an income producer, even when the Bermuda Monetary Authority, for example, draws praise from the reinsurers it regulates.

Finding ways to encourage businesses to start up and compete helps to keep prices down and should be encouraged.

The problem of scale can be resolved to some extent if the Government genuinely embraces a growth agenda rather than a protectionist one for everything from tariffs to overly protective immigration controls. The goal should be to encourage businesses to base more jobs here, not simply to protect the jobs that Bermudians hold.

There is, of course, a risk that that will put pressure on the very prices the Government hopes to hold down, but the magic of free markets will find a way, provided compliance and regulation are used to encourage competition and not to stifle it.