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6 hours ago
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“Completely preposterous,” said Stuart Machin, the chief executive of Marks & Spencer, about the Treasury’s proposal for voluntary price caps on food staples. He was outdone in the outrage stakes by City analyst Clive Black at Shore Capital, who thought the government “appears to be losing its mind in an orgy of neo-Soviet policy ideas”.
Both men can probably calm down. First, it’s not the first time a panicky administration, feeling the heat from cost-of-living pressures caused by rising energy costs, has flirted with the notion of limited and voluntary price caps in supermarkets. The last time was 2023 under the Tory premiership of Rishi Sunak, who is few people’s idea of a neo-Soviet apparatchik. Second, as with Sunak’s dalliance, it’s not going to happen. Treasury ministers on Wednesday barely bothered to defend their proposal and ruled out a mandatory scheme.
Thank goodness for that, because price caps are a genuine nonsense. Food inflation was 3% in April and, while the rate will go higher in coming months with rising energy, transport and fertiliser costs, the UK is not in a state of emergency. If you depress artificially the price of milk, bread, eggs and so forth, history says there will be knock-on consequences eventually for the supply of those items.
Indeed, prices are already depressed, in a sense, via everyday competition. Machin said M&S doesn’t make money on milk or bread, and its profit margins on eggs and sugar are skimpy. There is no reason to doubt him: the concept of a loss-leader is well understood by retailers and shoppers alike.
In any case, how would the Treasury’s idea work in practice? Since collusion between rivals is illegal, would the chancellor have to give weekly updates on the maximum price of bananas at participating supermarkets? Come on.
The government’s role surely extends only to ensuring competition is working. The Competition and Markets Authority last took a look in 2024 and did “not find evidence that groceries inflation is being driven at an aggregate level by weak competition between retailers”. Put another way, Aldi and Lidl are effective price police, especially on fresh produce. The evidence is the proliferation of “Aldi price match” ranges at other supermarkets.
UK food retailing is generally regarded as a more competitive place than continental Europe. Tesco’s operating profit margin in the UK and Ireland last year was 4.7%, which is roughly what you’d expect to see at the leader in a contested field. (And, yes, it is still possible to regard Tesco boss Ken Murphy’s £10.8m pay packet as ludicrous, but that’s a different story.) Others’ margins are lower.
The intriguing element in this saga is the force of the backlash. It is possible to understand, almost, what the Treasury’s policy wonks were trying to achieve: a feelgood announcement that would advertise ministers’ alertness to cost-of-living pressures in exchange for a delay to the companies’ packaging and other taxes.
Instead, the Treasury received a blast of frustration over policies the companies regard as government-inspired sources of inflation – the rise in employers’ national insurance contributions, business rates, policy costs on energy bills, bottle-return schemes and more.
The retailers’ response is understandable. Some of the inflationary stuff is indeed under government’s control. Alternatively, if ministers wish to protect the most vulnerable during a period of rising prices for basic goods, they would increase welfare payments. That would be a targeted response. Price-controlled milk and potatoes for all, whether in voluntary or mandatory form, is an idea that should have been binned as out of date.
