Rishi Sunak asks supermarkets to limit prices of staples

The UK government is developing plans for supermarkets to voluntarily cap the prices of staples to alleviate the burden of soaring food prices on consumers.

Steve Barclay, health secretary, confirmed on Sunday that ministers are in talks with retailers on how to “tackle the very real problems” many households are experiencing with food. inflation and cost of living.

Speaking at the BBC Sunday with Laura Kuensberg program, he stressed that the proposals “do not involve any element of enforcement” and that the government is “working constructively” with supermarkets.

The idea for supermarkets to initiate voluntary price controls on basic foodstuffs came from a meeting between Chief Treasury Secretary John Glen and retailers earlier this month amid government worries about runaway food inflation.

Prime Minister Rishi Sunak also spoke to farmers and other food producers about supply chain challenges, and Chancellor Jeremy Hunt negotiated with food manufacturers in the last two weeks. Sunak is expected to make a public statement on the state of the economy during a regional visit on Wednesday.

Official data for April showed that annual inflation rate for food and non-alcoholic beverages remained consistently high at 19.1 percent. Food has now overtaken fuel as the biggest contributor to high inflation in the UK.

The Resolution Foundation think tank has estimated that by July, the average family’s annual food bills will be £1,000 higher than their pre-pandemic levels, hitting poorer families hard as they spend most of their budget on food.

But economists ridicule the idea of ​​combating this with voluntary price controls, saying it would be better to increase social benefits for the poorest households and rely on competition to drive prices down.

Barclay acknowledged that many of the suppliers were small, family-owned businesses that were themselves facing “considerable pressure” due to price increases. The government will monitor the impact of its plans and seek to “protect” vulnerable suppliers, he said.

Jonathan Ashworth, the Labor Party secretary for shadow work and pensions, derided the proposals as “extraordinary”, telling the BBC: “Rishi Sunak now looks like some sort of newcomer Edward Heath with price controls.” In the 1970s, Heath, then Prime Minister, introduced price controls to curb inflation.

While Ashworth acknowledged that the country was facing an “inflation problem”, he said it was the result of conservative administrations’ consistent failure to invest in sustainable energy and improve the labor supply.

A government official said he had no plans to forcefully cap food prices, telling the Financial Times: “The critical point is that any scheme will be voluntary and retailers will be able to accept it.”

The official added: “We understand that retailers operate on low margins. But we are acutely aware of the cost of living that people feel. So we’re 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 negotiate price caps on essentials such as bread and milk, as well as on private label products over which they have the most control.

The scheme may reflect a deal the French government struck with major supermarkets in March that asked retailers to make their own choices about which food items should be set aside for the freeze and price cuts.

Economists were skeptical on Sunday. Tony Yates, an independent economist and staff member at the Resolution Foundation, said the price caps would put pressure on the food distribution sector and not help reduce overall inflation, while voluntary imposition of the caps would lead to uncertainty about the extent of compliance.

“You can’t hide when the country is getting poor, but that’s what they are trying to do,” he wrote on Twitter.

Julian Jessop, a former chief economist at the Free Market Economics Institute, said supermarkets may be willing to view some core items as loss-makers, but may cut corners on quality or raise prices of other items to make up for it. They could also “carry the price to the limit” rather than cut prices as soon as cost reductions allow.

The Bank of England does not believe that so-called greed played a big role in UK food inflation. His latest monetary policy report noted that, if anything, profit margins across the entire food supply chain have been cut. But it says food price inflation will slowly decline as producers often bought inputs on fixed-term contracts and were tied to high costs.