The UK government is drawing up plans for supermarkets to voluntarily reduce food prices, in a bid to ease the burden of rising food prices on consumers.
Steve Barclay, the health secretary, confirmed on Sunday that ministers are in talks with retailers on how to “address the very real concerns” that many families have about food inflation and the cost of living.
Speaking on BBC Sunday with Laura Kuenssberg programme, stressed that the proposals “do not involve any element of coercion” and that the government is “working constructively” with supermarkets.
The idea of supermarkets voluntarily adjusting prices for basic foodstuffs stemmed from a meeting between Chief Secretary of the Treasury John Glenn and retail representatives earlier this month, amid concern in government about rampant food price inflation.
Prime Minister Rishi Sunak has also been talking to farmers and other food producers on supply chain issues, while Chancellor Jeremy Hunt has held talks with food manufacturers in the past two weeks. Sunak is expected to make general remarks on 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 beverages remained high at 19.1 percent. Food has now overtaken fuel as the single biggest driver of high inflation in the UK.
The Resolution Foundation calculates that the average household’s annual food bills will be £1,000 higher than their pre-pandemic level by July – which will hit poorer families hardest, as they spend a higher proportion of their budgets on food.
But economists have poured their scorn on the idea of combating this with voluntary price controls, saying it would be better to increase welfare benefits for the poorest families and rely on competition to lower prices.
Barclay acknowledged that many of the suppliers were small, family-run businesses facing “significant pressure” from the price increase. He said the government would monitor the impact of its plans and aim to “protect” suppliers at risk.
Jonathan Ashworth, Labour’s shadow work and pensions secretary, derided the proposals as “extraordinary”, telling the BBC: “Rishi Sunak is now more like a sort of Edward Heath with price fixing”. In the 1970s, Heath, then Prime Minister, introduced price controls in an effort to curb inflation.
While Ashworth acknowledged that the nation faced an “inflation problem,” he said it was a result of the failure of successive conservative administrations to invest in sustainable energy and improve the labor supply.
A government official said there were no plans to put restrictions on food prices, telling the Financial Times: “The important thing is that any scheme will be voluntary and retailers will follow through.”
The official added, “We are aware that retailers operate on low margins. But we are very aware of the cost of living that people are feeling. 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, supermarkets could agree to set prices for essentials such as bread and milk, as well as private label products over which they have the most control.
The scheme could mirror a deal the French government agreed with major supermarkets in March, under which retailers were required to make their own choice about which food items to allocate to freeze and reduce prices.
Economists were skeptical on Sunday. Tony Yates, an independent economist and fellow at the Resolution Foundation, said capping prices would intensify pressure on the food distribution sector, and would not help reduce headline inflation — while making the cap voluntary would create uncertainty about the extent of compliance.
“You can’t hide when a nation gets poorer, but that’s what they’re trying to do,” he said on Twitter.
Supermarkets may be willing to regard some basic items as loss drivers, said Julian Jessop, former chief economist at the Free Market Institute for Economic Affairs, but may reduce quality or raise prices on other items to compensate. They can also “price to the cap” instead of cutting prices just by letting costs fall.
The Bank of England does not believe that so-called greedy inflation has played any significant role in driving UK food inflation. The recent monetary policy report indicated that if anything, profit margins along the food supply chain have contracted. But she said food price inflation would slowly recede because producers often buy inputs on fixed-term contracts and default on rising costs.
