ALEX BRUMMER: Plans to cap price of milk, eggs and bread are dangerous

Of all the crass ideas to emerge from HM Treasury under the stewardship of Rachel Reeves, few are as wrongheaded as the Chancellor’s proposal for a socialist ‘price cap’ on groceries.

Reeves seems obsessed by the idea that Britain’s supermarkets are evil capitalists deliberately seeking to punish customers.

One of her first responses to the outbreak of the war against Iran was to summon supermarket bosses to Downing Street and warn them against ‘price gouging’ – profiteering during a crisis at the expense of working people.

Now that the impact of the conflict in the Persian Gulf is starting to feed through to prices on the shelves, Reeves is at it again.

Taking a leaf out of the Scottish National Party playbook, which is proposing to force supermarkets to cap the price of milk, eggs and other vital foodstuffs, the Chancellor is seeking to bully Britain’s grocers into doing the same.

Under her plan, the supermarkets would voluntarily limit prices of staples in return for the Government easing packaging and healthy food regulations.

It is nothing less than a Soviet-style intervention and, if history is any guide, it is a recipe for disaster – price controls actually led to rampant inflation in the 1960s and 70s.

Moreover, it shows no recognition that the UK has one of the most competitive grocery markets in the world, where the main players compete on wafer-thin profit margins.

Under Rachel Reeves’ plan, supermarkets would voluntarily limit prices of staples in return for the Government easing packaging and healthy food regulations

It ignores, too, the elephant in the room. Labour’s tax and employment policies – the National Insurance hike, the rise in the minimum wage, the imposition of new employment rights and of high green energy tariffs – are the real barrier to supermarkets selling food at more affordable prices.

In seeking to shift the blame for surging food prices to the supermarkets, Reeves and the dying government of Keir Starmer are demonstrating again that, when it comes to how business and entrepreneurship operate, they are entirely out of touch.

The arrival of German- owned supermarkets Aldi and Lidl have transformed shopping in Britain.

By offering a narrow range of groceries at cheap prices, these discount supermarkets from overseas have become a huge force in UK shopping, grabbing 18.5 per cent of the UK grocery market.

In turn, our homegrown chains have been forced to dig deep. Sainsbury’s has chosen to invest hundreds of millions of pounds in matching Aldi’s and Lidl’s prices on a core range of food basics without sacrificing quality.

The strategy has paid off, helping Sainsbury’s become the second largest supermarket in the UK with a 16 percent share only outgunned by Tesco with a vast 28 per cent.

Tesco’s success is itself fuelled by tough price-matching and bargain ‘Clubcard’ deals for loyal customers.

Supermarket bosses argue rightly that margins – often as low as 2 per cent – are already cut to the bone. And that if they are now forced to cap prices of basic goods, costs will have to be cut elsewhere to compensate.

Chancellor Rachel Reeves and the Government have demonstrated that when it comes to business, they are ‘entirely out of touch’, writes Alex Brummer

This could mean a reduction in the quality of own-brand items. And those goods that are not capped – the vast majority – would be subject to price rises which would fuel inflation.

This, of course, will hurt those who can least afford them, the very people Reeves claims she wants to help.

It is astonishing that the Treasury, supposedly stuffed with economic expertise, does not appear to understand this. And that it thinks price controls are any form of solution given the utter failure of such policies in the UK in the 1960s and 1970s.

Labour Prime Minister Harold Wilson’s Board for National Prices and Incomes was created in 1965 to control the cost of living and wages, and was initially tasked with dealing with the price of soap, bread and haulage. Its interventions triggered huge labour unrest and ended in a catastrophic wages spiral which helped push consumer prices up still further.

Both Wilson and Conservative prime minister Edward Heath continued to try to control prices and wages in the 1970s, only to stoke long- term inflation and disrupt business investment.

The point is that a competitive market – rather than the heavy fist and regulatory tendency of government – is the key to affordability.

It is true that the cost of the weekly shop falls far more heavily on Britain’s less well-off families who spend some 16 per cent of their disposable after tax income on food. For higher income households, groceries represent around 5 per cent of income.

But Britain’s unsustainably generous and ever-rising welfare budgets, which subsidise those who are on lower incomes or out of employment, are surely designed to address such disparities.

Former M&S boss Lord Stuart Rose said the plans are ‘idiotic, dangerous and will never work’

Indeed, among Labour’s boasts ahead of the recent calamitous local and devolved government elections was how it had found money to support families, despite the nation’s financial problems.

Labour seems to have a short memory when it comes to our supermarkets. When the country was locked down by Covid-19 in March 2020 it was Tesco, Sainsbury’s, Morrisons and Asda which kept their doors open, their online delivery networks running and kept the nation fed throughout the pandemic.

It was a feat of public service brilliantly delivered by private sector companies.

That is not to say that the behaviour of Britain’s grocers is always to be admired.

The timing was poor when Tesco last week revealed its chief executive, Ken Murphy, got a £1 million pay rise last year bringing his total earnings to a record £10.84 million.

Doubtless the deal was put in place some years ago – and designed to ensure that the Tesco chief was not enticed away by rivals at home and overseas.

Nevertheless, it was not the best of looks at a time when a food price surge of 5 per cent to 7 per cent is being forecast by market analysts.

All the same, there is genuine outrage in the City of London at the attempts by the Scottish Nationalists and Labour to cap food prices.

The respected supermarket analyst Clive Black, of Shore Capital, accused the Government of ‘losing its mind in an orgy of neo-Soviet policy ideas, seemingly popular with elements of the electorate in Camden [Starmer’s home patch], but also displaying extensive naivety, ideology and stupidity’.

Seeking to interfere in the pricing behaviour of supermarkets when it comes to key foods such as dairy produce, eggs and poultry, could also have a cataclysmic impact on British farming which the Government claims to support as part of its determination to improve food security.

Higher costs since Labour came to office have already led supermarket chain Morrisons, which buys almost exclusively from British farms and operates its own abattoirs and factories, to consider whether it can afford to keep all its UK facilities open.

And the more pressure that Reeves and Labour places on the supermarket, the more it will struggle to pay UK farmers and suppliers who are rightly proud of higher food standards than their global competitors.

Price caps would therefore almost certainly lead supermarkets to substitute British farm goods for cheaper, lower quality options such as imported poultry from Thailand and beef from Poland, the US and elsewhere.

No one welcomes a cost-of-living crisis stemming from foreign conflicts beyond our control. But the idea that the Government can resolve the problem by interfering in a highly efficient, competitive market such as grocery is farcical.

Or, as former M&S boss Lord (Stuart) Rose put it yesterday, ‘idiotic, dangerous and will never work’.