A shock plan to persuade supermarkets to agree to cap food prices to ward off inflation caused by the war in the Middle East came direct from No 10, industry sources have revealed.
A leading source told The Grocer several supermarkets had been approached by the prime minister’s officials, as the government looks to find solutions to a worsening cost of living crisis, amid predictions of double-digit inflation of food prices by Christmas.
The proposals have been met with huge opposition from industry leaders, who said the idea drove a coach and horses through the tradition of competition between supermarkets and would not work.
The idea follows plans announced in the run-up to the elections by the SNP government in Scotland.
Whilst the plans mooted by Westminster are voluntary, unlike the SNP’s proposal for mandatory caps, it has strong echoes of SNP policy. The government is understood to have asked retailers to consider capping prices for a raft of staple products such as bread, eggs and milk, with suggestions that in return the government would consider relaxing some of the regulatory costs faced by retailers.
It is believed that could include slowing down net zero policies, or possibly agreeing to postpone the introduction of the new nutrient profiling model, as has been called for by retail and manufacturing bosses in previous talks with Chancellor Rachel Reeves.
However, a leading retail source told The Grocer word began spreading yesterday that No 10 itself was in talks with supermarket bosses about the possible dramatic intervention.
“No 10 has spoken to a few retailers and it looks like a case of desperate times calling for desperate measures,” they said.
“This idea is simply not going to fly, however. Price caps are proven not to be a successful measure in keeping down prices and in fact if anything they push up the rate of inflation.
“It also seems completely barmy that No 10 should come up with this idea when the industry has already given the Treasury a long list of ideas on how the government could help the industry tackle inflation and they simply haven’t acted.”
A perfect storm of supply chain challenges
Earlier in the day FDF CEO Karen Betts told MPs the government had shown a “chronic lack of prioritisation” by pushing ahead with a swathe of regulation on packaging and obesity, as well as major regulatory change due to its SPS EU realignment programme, whilst failing to lift a finger to help food companies tackle energy prices.
A senior supplier source said news of the government’s plans, first reported by the FT, had sent shockwaves through the supply chain.
“We’re trying to get more detail from the government as there is huge concern over this,” they said..
“Food manufacturers are already under significant strain and fear that a price cap would be passed along the supply chain, when they are already under so much pressure.”
The retail source added: “Everybody knows the government hasn’t got much money so perhaps that’s why they see supermarkets as a way out.
“But if they are really serious about helping, then there are things they could do – such as freezing the plastic packaging tax or shelving the introduction of the new nutrient profiling model.
“I suppose this does show at least that the government recognises the threat of inflation that is facing retailers and consumers and wants to do something about it, but it needs to listen to what the industry actually wants.”
Phil Pluck, CEO of the Cold Chain Federation, said he was “incredulous” at the government’s suggestion.
He told the Today programme: “Every single week I meet with government officials and tell them that food inflation is a very serious risk that will risk yet more food poverty.
“But the food inflation is down to the fact that prices in fuel since the Ukraine invasion have gone through the roof. We now have the Middle East crisis, fuel, energy, the living wage are all issues that have effected food inflation.
“For the government to say ‘can you identify eight or 10 goods where we can can cap the price on a voluntary basis’ is like trying to put a plaster over what is quite a deep wound and it simply wouldn’t work.
“The consequences would be almost negligible to the UK consumer.”
BRC CEO Helen Dickinson said: “The UK has the most affordable grocery prices in western Europe thanks to the fierce competition between supermarkets.
“The challenge facing retailers is a combination of higher energy and commodity costs resulting from the Middle East conflict, and the soaring cost of the government’s domestic policies.
“Rather than introduce 1970s-style price controls and trying to force retailers to sell goods at a loss, the government must focus on how it will reduce the public policy costs which are pushing up food prices in the first place.”
One retailer described the idea as “crazy” and the act of a “desperate” government. Another told the BBC: “Ultimately what [the government] should do is stop all the other tax burdens and the prices will come down.”
An FDF spokeswoman said: “Government needs to focus on the root causes of rising food inflation, not the symptom. We don’t believe the answer is a price cap and it’s not clear to us how those proposals would work in practice.
“For food and drink manufacturers, we need government to prioritise regulation so it doesn’t all come at once, and ensure it’s going to have the intended outcome. Too much regulation is too complex and too costly to implement, which is taking up businesses’ time, resources and focus while they’re also grappling with a global energy shock.
”We need this to protect the long-term resilience of the food sector, to ensure we can attract investment, and to help us keep a lid on food inflation.”
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