The UK government is drawing up plans for supermarkets to voluntarily cap the price of staples, in an effort to ease the burden of rocketing food costs on consumers.
Steve Barclay, health secretary, confirmed on Sunday that ministers were in talks with retailers about how to “address the very real concerns” many households harbour about food inflation and the cost of living.
Speaking on the BBC’s Sunday with Laura Kuenssberg programme, he stressed that the proposals were “not about any element of compulsion” and that the government was “working constructively” with supermarkets.
The idea of supermarkets instigating voluntary price controls on essential foods resulted from a meeting between chief secretary to the Treasury John Glen and retail representatives earlier this month, amid alarm in government about rampant food inflation.
Prime Minister Rishi Sunak has also spoken with farmers and other food producers about supply chain issues, while chancellor Jeremy Hunt has held talks with food manufacturers in the past fortnight. Sunak is expected to make public remarks about the state of the economy during a regional visit on Wednesday.
Official data for April showed that the annual inflation rate for food and non-alcoholic drinks remained stubbornly high at 19.1 per cent. Food has now overtaken fuel as the single-biggest driver of the UK’s high inflation.
The Resolution Foundation think-tank calculates that annual food bills for the average family will be £1,000 higher than their pre-pandemic level by July — hitting poorer families hard, because they spend a higher proportion of their budgets on food.
But economists have poured scorn on the idea of fighting this through voluntary price controls, saying it would be better to increase welfare benefits for the poorest households and rely on competition to bring prices down.
Barclay acknowledged that many suppliers were small, family-run businesses that were facing “significant pressure” themselves from increasing prices. The government would monitor the impact of its plans and aim to “protect” vulnerable suppliers, he said.
Jonathan Ashworth, Labour’s shadow work and pensions secretary, derided the proposals as “extraordinary”, telling the BBC: “Rishi Sunak is now like a sort of latter-day Edward Heath with price controls.” In the 1970s Heath, then prime minister, introduced price controls in a bid to curb inflation.
While Ashworth acknowledged that the nation faced an “inflation problem”, he said it was the result of consecutive Conservative administrations’ failure to invest in sustainable energy and improve the supply of labour.
A government official said there were no plans to forcibly cap the price of food, telling the Financial Times: “The critical thing is any scheme would be voluntary and for retailers to take up.”
The official added: “We recognise retailers operate on low margins. But we are acutely aware of the cost of living squeeze people feel. So we are talking to retailers about what can be done to keep prices as low as possible.”
Under the proposals, first reported by The Sunday Telegraph newspaper, supermarkets could agree to cap prices for essentials such as bread and milk, as well as own-brand products over which they have the greatest control.
The scheme could mirror a deal the French government agreed with major supermarkets in March, under which retailers were asked to make their own choice about which food items to earmark for price freezes and reductions.
Economists were sceptical on Sunday. Tony Yates, an independent economist and associate at the Resolution Foundation, said price caps would pile pressure on the food distribution sector, and would not help bring overall inflation down — while making the cap voluntary would introduce uncertainty over the extent of compliance.
“You can’t hide when a nation gets poorer, but that’s what they are trying to do,” he said on Twitter.
Julian Jessop, former chief economist at the free market Institute of Economic Affairs, said supermarkets might be willing to regard some basic items as loss leaders, but might cut corners on quality or raise prices on other items to compensate. They could also “price to the cap” rather than cutting prices once falling costs allowed.
The Bank of England does not think so-called greedflation has played any big role in driving UK food inflation. Its last monetary policy report noted that if anything, profit margins had been squeezed along the food supply chain. But it said food price inflation would be slow to subside, as producers often bought inputs on fixed-term contracts and were locked into high costs.