UK food price caps “will not make a difference,” warn retailers

29 May 2023 --- With food inflation in the UK reaching some of the highest rates in Europe, the prime minister Rishi Sunak is keen to bring figures to a sustainable level. He has outlined a plan to encourage supermarkets to cap prices of everyday staples such as milk and bread, however, the British Retail Consortium (BRC) believes measures would not make a “jot of difference” and could thwart efforts to slash inflation.

While there are no plans for a mandatory price cap on food items, Downing Street is understood to be drawing up an opt-in scheme, such as the initiative used in France, which could see retailers charge the lowest possible amount for some basic household food items. 

But retailers are reluctant that price capping will not help tackle the rising cost of living. The idea of a cap or freeze on basic food items, is said to be at the “drawing board stage.”

“High food prices are a direct result of the soaring cost of energy, transport, and labor, as well as higher prices paid to food manufacturers and farmers,” says Andrew Opie, director of food and sustainability at the BRC. “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.”

“Supermarkets have always run on very slim margins, especially when compared with other parts of the food supply chain, but profits have fallen significantly in the last year.”

“Even so, retailers continue to invest heavily in lower prices for the future, expanding their affordable food ranges, locking the price of many essentials, and raising pay for staff,” Opie notes in a statement.

Experts have predicted that expensive food is set to overtake energy bills as the “epicenter” of the cost-of-living crisis.“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.”

Opposition on price caps
There has been some doubt cast over what impact a price cap might have, with the scheme facing criticism from retailers and opposition MPs.

Health secretary Steve Barclay says the government is keen to protect “suppliers who themselves face considerable pressures.”

Meanwhile, the boss of Sainsbury’s Simon Roberts denied that his supermarket had been profiteering.

He said his business was “absolutely not” putting prices up to bolster profits – known as “greedflation.”

He told the BBC that Sainsbury’s and other grocery chains had spent money to “battle inflation” and avoid passing all of the rising costs onto consumers.

The UK competition watchdog, the Competition and Markets Authority, has said it will look at how the grocery market is operating.

At a meeting with food manufacturers last week the chancellor Jeremy Hunt stressed widespread concern about prices and agreed to engage with the industry on possible measures to ease pressure on household budgets.

Hunt has said he would back an increase in interest rates if it curbed higher prices and soaring inflation – even if that risked plunging the UK into recession.

“Businesses don't have a price cap like consumers do and yet some smaller businesses buy energy like consumers do so it's been really hard for them to keep going,” Shevaun Haviland, director general of the British Chamber of Commerce, stressed. 

Spotlight on food prices 
The Consumer Prices Index of inflation was 8.7% in the year to April, with food prices rising by 19.1% in the same 12-month period – its second highest rate in 45 years, compared to 19.1% last month, as falls in bread, cereals, fish, milk, cheese, eggs, sugar, jam and honey helped stabilize the country’s food basket costs.

Soaring prices of some food products have meant inflation has not come down by as much as many predicted.

Experts have predicted that expensive food is set to overtake energy bills as the “epicenter” of the cost-of-living crisis.

Responding to the latest ONS Retail Sales Index figures, Helen Dickinson, chief executive of the BRC, says: “Despite households still feeling the squeeze from the high cost of living, sales growth improved in April. Nonetheless, consumers continued to adjust their spending patterns, looking for lower price alternatives on many key products, leading to falling sales volumes.”

“Sales should improve further as we enter the summer months, especially with inflation starting to ease and consumer confidence slowly stabilizing. Government must ensure it does not sabotage this momentum by adding cost pressures onto retailers from new policies, as these will mainly serve to push prices back up for people up and down the country.”

Edited by Elizabeth Green