Rishi Sunak was likened to a ‘latter-day Edward Heath with price controls’ amid talks to persuade retailers to charge the lowest possible amount for basics like bread and milk
Supermarkets have warned that Government proposals for them to voluntarily cap the price of food basics could prolong high food inflation, we understand
They are understood to believe the France-style plan could slow the rate at which prices fall at a time when food inflation remains stubbornly high.
Retail and food industry chiefs have also warned that prices are high due to soaring costs for energy, labour and transport and that a cap “will not make a jot of difference to prices”.
However, a former boss of Iceland suggested the so-called “big four” were not competing as they should be on price.
Rishi Sunak was likened to a “latter-day Edward Heath with price controls” amid talks with supermarkets in an effort to get them to charge the lowest possible amount for basic products like bread and milk.
Although headline inflation has begun falling, food prices are expected to keep rising, having already increased by 19.1 per cent in the year to March.
Food price inflation is expected to drop in figures announced on Tuesday, but at around 15 per cent will mean costs for families are still rapidly increasing.
A Government source stressed that the talks on price capping were at a very early stage, with an industry insider saying officials were currently taking the lead in talking to supermarket chiefs and suppliers.
Ministers have not yet formally discussed the proposals with retailers and the idea did not come up during Chancellor Jeremy Hunt’s roundtable with supermarkets last week.
If price caps are introduced, it will be on a voluntary rather than compulsory basis, the Government made clear. The opt-in scheme could be modelled on a similar agreement in France, which allowed supermarkets to select which items to cap.
The idea has been compared to price controls introduced by Mr Heath when he was prime minister in the 1970s to curb inflation.
But a Government spokeswoman stressed: “The Government is not considering imposing price caps. “Any scheme to help bring down food prices for consumers would be voluntary and at retailers’ discretion.”
The source said officials were looking to bring together retailers and suppliers to ensure the best price for consumers. “We recognise retailers operate on low margins,” the source said.
“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… and other parts of the supply chain such as manufacturers to understand the drivers and what we can do to help consumers.”
Supermarkets are understood to be sceptical about the Government’s plans and believe it could slow any reduction in prices.
They believe it would be better to wait for a Competitions and Markets Authority report on competition between supermarkets, i understand.
Bill Grimsey, the former CEO of Iceland, said a price cap may not work. But he appeared to acknowledge that supermarkets could compete harder to bring down prices.
He told i: “It’s not a good idea for the Government to get involved in the markets in this way.
“I do think there is a need for some action at this point because I don’t think the market is working as well as it should. I don’t see the supermarkets fighting each other [for customers] as much as they should. I think it is all a bit cosy at the moment.”
Mr Grimsey said any Government arrangement, voluntary or otherwise, was likely to be bureaucratic. “I believe the Government do believe in free markets.
“I think the question they should have asked [the big 4] is ‘Why aren’t you fighting each other as hard as you should be?’
“They are quick at raising prices as a result of the pandemic and Ukraine but they are less quick at lowering them.”
The Food and Drink Federation said it was difficult for manufacturers to bring down prices as “their costs have gone up so much – for ingredients, energy, labour, packaging, logistics and so on – that it simply is not possible not to pass some prices rises on”.
A spokesman also appeared to blame Brexit-related factors, saying “friction at the UK’s borders and persistent labour shortages” were partly to blame, alongside “expensive and inefficient recycling regulation”.
Andrew Opie, director of food and sustainability at the British Retail Consortium, said a voluntary cap “will not make a jot of difference to prices” as high food prices are being driven by “the soaring cost of energy, transport, and labour, as well as higher prices paid to food manufacturers and farmers”.
“Rather than recreating 1970s-style price controls, the Government should focus on cutting red tape so that resources can be directed to keeping prices as low as possible.”
Commenting on the Government plans, shadow Work and Pensions Secretary, Jonathan Ashworth, said: “It is extraordinary. Rishi Sunak is now like a sort of latter-day Edward Heath with price controls.
“We’ve got an inflation problem and the reason why we’ve got such an inflation problem in this country is because of 13 years of failure where we’ve not invested in sustainable energy, we cut our gas storage and we’re not improving the labour supply.”
The right-wing think-tank, the Institute of Economic Affairs (IEA), branded the move a “pointless gimmick” at best and a “harmful” measure at worst.
IEA economics fellow Julian Jessop said: “It is not even certain that the prices of capped goods would end up lower than if there were no cap.”
