Bank of England's top brass warn Rachel Reeves against 'unsustainable' supermarket price caps
Supermarket bosses had said any price caps on the cost of essential food would be “completely preposterous” and “idiotic”
The Bank of England's top brass have warned Rachel Reeves against bringing in supermarket price controls, after retailers were reportedly asked by the Treasury to cap the cost of essential goods.
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Proposals from the Treasury allegedly asked major retailers to limit prices on the likes of eggs, bread and milk in return for the lifting of some regulations.
The Treasury had said it would in return offer supermarkets “incentives” which may include easing packaging policies and delay potentially costly changes to healthy food rules, according to the Financial Times.
Speaking during a meeting of the Treasury select committee, Andrew Bailey warned capping the cost of household staples was not sustainable and could backfire.
“I think if you start doing it as a matter of course, then you’re effectively artificially moving prices relative to costs, and that’s not a sustainable thing in the long run," the Bank of England chief told MPs.
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Fellow Monetary Policy Committee member Swati Dhingra echoed Mr Bailey's remarks, claiming that price caps imposed by other countries "rarely worked" and required a "a lot of caution and a lot of thinking".
“I grew up with price controls on food all my life,” she told the committee. “That story to some degree was very successful in being able to cure famine and poverty. But at the same time it has ended up creating a highly distorted agricultural sector in India.
"Do it with a lot of caution and a lot of thinking behind what it is trying to target.”
It comes as a government minister was forced to deny there were plans for price caps but confirmed that it is holding talks with supermarkets amid concerns over rising inflation. UK food inflation rose to 3.7% in April.
Treasury minister Dan Tomlinson said “this isn’t something we’re looking at” when asked if there had been conversations with supermarkets about bringing in price caps.
He told Sky News: “The Government is not looking at doing this.
“Instead, what we’re doing is looking across the economy at what are the different ways that we can help households.”
But he later appeared to muddy the waters as he explicitly ruled out a “mandatory price cap” on supermarket essential
Supermarket bosses have said any price caps on the cost of essential food would be “completely preposterous” and “idiotic”.
The chief of M&S Stuart Machin told reporters: “I don’t think the Government should be trying to run business.
“My advice is that the Government should reduce some of the tax and regulatory burden and free us up in a very competitive market.
“With food inflation at 3%, I think it actually demonstrates that food retailers are taking a big responsibility to try and minimise passing through prices.”
Helen Dickinson, the chief executive of the British Retail Consortium (BRC), the leading trade association for retailers, said: “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.”
A spokesperson for the Treasury said: “The Chancellor has been clear we want to do more to help keep costs down for families, and will set out more detail in due course.”
The Treasury asked supermarkets for guarantees that British farmers would not lose income from price caps, according to the FT.
Some measures, including the packaging regulations, generate revenue for the Treasury, it reported.The Government has also recommended supermarkets reinvest the savings from the regulation changes to freeze grocery prices, it added.This comes after UK food inflation rose to 3.7% in April.
The Foreign Secretary on Tuesday told an aid summit of the risk of “sleepwalking into a global food crisis” as a result of Iran’s blockade of the Strait of Hormuz.Chancellor Rachel Reeves is to set out measures to help households with the cost of living on Thursday.