Price caps will create food shortages, Rishi Sunak warned

Rishi Sunak - Ben Stansall - WPA Pool/Getty Images
Rishi Sunak - Ben Stansall - WPA Pool/Getty Images

Rishi Sunak has been warned his plan for “1970s-style” price caps will lead to food shortages amid a backlash from cabinet ministers and supermarkets.

Downing Street is planning to ask retailers to agree to maximum prices for some basic goods such as bread and milk in an effort to lower food prices and tackle inflation.

But the proposal has been condemned by the major supermarkets and has angered at least two Cabinet ministers, who said it would involve too much interference in the markets and could lead to shortages as suppliers take their goods abroad.

One cabinet minister told The Telegraph that price caps, last used in Britain in the 1970s, would not work “in this day and age” and that produce would be “sold elsewhere” if supermarkets refused to increase their prices.

Tesco, Sainsbury’s, Morrisons and Waitrose backed a statement by the British Retail Consortium (BRC) that said the plan, first revealed in The Telegraph, “will not make a jot of difference to prices” and accused Mr Sunak of “recreating 1970s-style price controls”.

One retail boss said: “It is a hare-brained idea, and instead of trying to intervene in supermarket pricing, the Government would be better advised to address the root causes of inflation.”

Mr Sunak has set himself a target to halve inflation to five per cent by the end of 2023 and has asked the Treasury to find ways of bringing prices down after a steep rise in the cost of living prompted by the war in Ukraine.

The pledge is seen as central to the Conservatives’ pitch to the public at the next general election and prompted Jeremy Hunt, the Chancellor of the Exchequer, to admit he would accept a recession in the UK if it would reduce inflation.

‘You can’t interfere in markets’

The latest figures show inflation has fallen from 10.1 per cent to 8.7 per cent since Mr Sunak made his pledge, but ministers are concerned he has become a hostage to fortune.

Food prices rose 19.1 per cent in the year to April, a near-record high.

“The problem is that inflation is out of our control,” a senior government figure said on Sunday night.

Mr Sunak’s plan mimics a similar scheme in France, where retailers have pledged to freeze prices in a bid to create an “anti-inflation quarter” between April and June, and face spot checks to ensure they do not squeeze their suppliers.

E.Leclerc, a hypermarket chain, refused to participate in the scheme and argued it would lead to the perception that prices on other goods would increase to make up the shortfall.

Michel-Edouard Leclerc, its CEO, said he would “rather be cheaper across the board”.

Multiple government sources raised doubts over whether the policy would ever be implemented in the UK after backlash from ministers and retailers.

A Cabinet minister said: “There is an international market for wheat and it is quite expensive after what’s happened in Ukraine. If you drive down the price of bread, it can be sold elsewhere.

“You can’t interfere in markets, it doesn’t work in this day and age. We live in global markets and it’s very different to what happened in the 70s and after the war.”

A representative for a second Cabinet minister confirmed they opposed the policy.

A Government spokeswoman insisted it was “not considering imposing price caps” and that “any scheme to help bring down food prices for consumers would be voluntary and at retailers’ discretion”.

Steve Barclay, the Health Secretary, acknowledged small family-run businesses would themselves be under “significant pressure” and stressed the plans are “not about any element of compulsion”.

Bill Grimsey, the former boss of Iceland, told The Telegraph that price controls in the 1970s had been “very bureaucratic and did not work” but that ministers were right to be concerned about prices today because the market was “not competitive enough, at a real time of need for consumers”.

An industry source warned shelves of basic goods could be emptied by the policy, worsening the egg shortage caused by high energy prices and avian flu measures.

“If they can’t get fair prices for their products, farmers could just stop producing, which is what happened with eggs,” they said.

“Or they could switch production into something they could get a fair price for, which is not subject to a price cap.”

‘A latter-day Edward Heath’

In a statement on behalf of the industry, the BRC suggested supermarkets would reject any suggestion to lower their prices at the behest of ministers.

Andrew Opie, the organisation’s director of food and sustainability, said: “This will not make a jot of difference to prices. High food prices are a direct result of the soaring cost of energy, transport, and labour, as well as higher prices paid to food manufacturers and farmers.

“Yet despite this, the fiercely competitive grocery market in the UK has helped to keep British food among the most affordable of all the large European economies.

“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.”

Price controls were introduced in November 1972 by Edward Heath’s Conservative government in a bid to tackle spiralling inflation. His party lost the next election 15 months later.

Jonathan Ashworth, the shadow work and pensions secretary said: “It is extraordinary. Rishi Sunak is now like a sort of latter-day Edward Heath with price controls.”

Mr Barclay said: “My understanding is the Government is working constructively with supermarkets as to how we address the very real concerns around food inflation and the cost of living, and doing so in a way that is also very mindful of the impact on suppliers.”