Inflation plan

Proposed price cap dubbed a ‘pointless gimmick’

Supermarkets say a price cap will make no difference

Retailers have expressed concern over UK Government plans to encourage supermarkets to impose voluntary price caps on basic food items.

Downing Street has been accused of trying to introduce 1970s-style price controls by limiting prices on products such as bread and milk to help those struggling with the cost of living.

Although inflation fell to 8.7% in April, food remains more than double that rate.

The opt-in scheme, modelled on a similar agreement in France, would allow supermarkets to select which items they would cap, the Sunday Telegraph reported.

But Andrew Opie, director of food and sustainability at the British Retail Consortium, said: “This will not make a jot of difference to prices.

“As commodity prices drop, many of the costs keeping inflation high are now arising from the muddle of new regulation coming from government.

“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.”

His comments echo the reaction of retailers following a meeting between Chancellor Jeremy Hunt with supermarkets groups last week. He was told that the best way to cut food prices would be to reduce the volume of regulation imposed on the sector.

Julian Jessop, economics fellow at the Institute of Economic Affairs, said: “Caps on food prices are at best a pointless gimmick and, at worst, harmful to the very people they are supposed to help.

“Despite hype about ‘greedflation’ driving up food costs, UK supermarkets work on tiny profit margins. While they might be willing to regard some basic foods as ‘loss leaders’ for positive publicity, they may also compensate for price controls by reducing quantity or quality, and by raising prices for ‘uncapped’ goods.” 

He added: “It is not even certain that the prices of capped goods would end up lower than if there were no cap. Supermarkets may simply price to the cap, and not cut prices further even if falling costs allowed it. 

“Strong competition should prevent this, but it would incentivise supermarkets to cut their prices anyway, making price controls pointless. 

“The government will hope that this is enough to show that it is ‘doing something’ about food inflation. But it could just encourage calls for more intervention, including making the caps legally mandated as with the energy price cap.”

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