Britain Pressures Supermarkets To Cap Food Prices
· Reason
The British government is preparing to ask supermarkets to freeze prices on certain products in exchange for easing regulations, which politicians hope will keep prices down for consumers. The price cap would apply to essential foods such as eggs, bread, and milk, reports the Financial Times.
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Chancellor of the Exchequer Rachel Reeves, who oversees the Treasury and the government's economic policy, is expected to announce the policy on Thursday as part of a package of measures to help ease the cost of living. Food and nonalcoholic beverage prices rose 3.7 percent annually in March—the most recent month for which government data are available—a jump from 3.3 percent in February. The rising cost of living is of particular concern to the British public, with 62 percent of voters saying it was the top issue that decided their vote at the last local elections, according to Ipsos.
While the price cap would technically be voluntary, Reeves is bringing forward measures to directly pressure businesses to control prices. In a Wednesday press release, touting Reeves' use of "new anti-profiteering powers" to fight back on "rising bills," the chancellor committed to cracking down on "anyone exploiting a crisis to make a quick buck." This includes giving new powers to the Competition and Markets Authority, the U.K.'s main competition and consumer protection regulator, allowing them to "name and shame" firms that have allegedly "changed their margins." It will also get new investigatory powers to identify firms that are "taking advantage of crises to unfairly raise costs."
Supermarkets aren't happy about the proposed policies.
"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," Helen Dickinson, chief executive of the trade association for the British Retail Consortium, tells Reason.
"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," Dickinson adds.
Interestingly, Brits think supermarkets have far larger profit margins than they actually do. According to a poll of over 3,000 British voters, most estimate supermarket profits to be around 50 percent, when in reality, these margins are far lower, usually around 2 percent to 4 percent.
"The British government's war on supermarket prices is what happens when inflation after years of relative price stability destroy economic seriousness," Ryan Bourne, author of The War on Prices, tells Reason. Bourne argues that groceries in the U.K. feel especially expensive because "bigger ticket items like housing and energy costs" affect the prices of all goods. He says that this policy will "hide scarcity, distort competition and further entrench the idea that governments can just mandate inflation through such price fixing."
Julian Jessop, economics fellow at the free market think tank the Institute of Economic Affairs, described the move as a policy "based on vibes rather than evidence."
"Crucially, the supermarket sector is already highly competitive, and retailers work on tiny margins. Price caps are only likely to reduce both the supply and quality of the items that are capped, while raising the prices of others," he added in a post on X. "The government should focus on freeing up the supply side of the economy and easing the constraints that are contributing to higher prices, rather than distorting markets further."
Price controls do not change economic reality; they merely relocate the problem. If larger retailers are leaned on to suppress prices on politically sensitive goods, the real costs do not disappear. Instead, they are shifted onto other products, firms, and consumers. When this happens, British politicians probably won't denounce the very price rises their own interventions have helped produce. Instead, they will likely go after the next alleged "gouger" with equally draconian measures.
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