Andrew Bailey joins retail bosses in opposing the Chancellor’s ‘unsustainable’ plans
Daily Telegraph 20/05/26
Andrew Bailey has warned Rachel Reeves against capping supermarket food prices.
The governor of the Bank of England said freezing the price of essentials would be “unsustainable” and risked backfiring.
The intervention comes after grocers were asked to cap how much they charge shoppers for staple items such as bread, eggs and milk amid growing alarm in Government about soaring prices.
Addressing MPs on the Treasury select committee, Mr Bailey conceded that there could be reasons in the “short run” to control prices.
However, he added: “I think the question you have to think through with this sort of thing is: are you doing it for some well-grounded, very temporary reason?
“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.”
Another official at the Bank warned Ms Reeves’s idea of asking supermarkets to hold prices risked creating a “highly distorted” economy.
The Chancellor has asked grocers to cap how much they charge shoppers for staple items such as bread, eggs and milk in return for relaxing red tape.
Rachel Reeves’s call for a price cap reflects a similar proposal put forward by the Scottish National Party Credit: Jacob King/PA Wire
The idea has been floated as ministers scramble to find ways to protect businesses and households from soaring inflation, triggered by the war in Iran.
However, the plan has provoked a fierce backlash from supermarket bosses. Stuart Machin, the chief executive of Marks & Spencer, called it “completely preposterous” on Wednesday, while Lord Rose, the former boss of Asda, warned the proposal would “backfire”.
Lord Rose told the BBC: “We go back to the ’70s, to Edward Heath ... to Harold Wilson. Fundamentally [these things] don’t work. We have no better system than a free market economy. A free market economy does work.”
The idea has been suggested amid rising concerns in the Government about the cost of living. Inflation fell from 3.3 per cent in March to 2.8 per cent in April, official statistics show.
However, the Bank has warned it could climb as high as 6pc in the coming months.
In an effort to combat the problem, Sir Keir Starmer has controversially relaxed sanctions on Russian oil and scrapped plans for a 5p rise in fuel duty from September.
Ms Reeves will deliver a major speech on Thursday outlining the Government’s plans to support people with the cost of living.
Her “Great British Summer Savings Scheme” will include free travel for under-16s on selected local buses in August. More than £100m has been earmarked to fund travel in the school holidays and to support the bus network.
The Chancellor will also cut tariffs on imports including chocolate, biscuits, dried fruit and nuts, with the aim of reducing pressure on shop-shelf prices.
Swati Dhingra, another Bank of England official, warned of the consequences of trying to control prices.
‘Dampening the price signal’
Ms Dhingra, who grew up in India, told MPs: “Lots of countries have tried it, not necessarily successfully, and the biggest problem with these sorts of controls is you’re dampening the price signal, precisely what you want people to react to.
“As a market economy, you can do that for a little bit, but how long can you let it go on?”
She added: “I grew up with price controls on food all my life, and that story to some degree was very successful in being able to cure famine and poverty and various things like that, but at the same time, what it’s ended up creating is a highly distorted agricultural sector in India.”
Andrew Griffith, the shadow business secretary, said the scheme represents a failure of basic economics.
“As any economics undergraduate could explain to the Chancellor, price caps don’t work. Instead, Labour could slash some of the taxes they’ve imposed that jack up the cost of the weekly shop,” he said.
Robert Jenrick, of Reform UK, said: “Turns out we didn’t have to wait for Ed Miliband to be Chancellor to get Marxist economics. This economically illiterate policy is a new low even for Rachel Reeves.”
Government officials appeared to back away from the plan to cap supermarket prices. Lord Livermore, the financial secretary to the Treasury, said the Government would not “tell supermarkets how to do their job” after being pressed on the Chancellor’s proposals for food price caps.
“Of course we are having discussions with supermarkets. It’s right we discuss ways we can work together to ease the cost of living on households.”
However, Lord Livermore said: “This isn’t about price caps, we would never advocate for that.”
Ms Reeves is not expected to announce anything about price caps in her speech on Thursday.
Mr Machin, the M&S chief, said: “It’s completely prosperous, you know, I don’t think the Government should be trying to run business. I think they should try to probably understand business better.
“Food retailers are taking a big responsibility to try and minimise passing through prices ... There is so much in the Government’s control. So my advice to Government is to reduce some of the tax and regulatory burdens and free us up in a very competitive market.”
In a move designed to ease the impact of the war in Iran, the Treasury scrapped a planned 5p fuel duty increase set to take effect from September.
The temporary 5p-a-litre cut to fuel duty was introduced in 2022 by the Conservatives to help motorists cope with the cost pressures as a result of the Russian invasion of Ukraine.
This week, petrol prices hit their highest level since the beginning of the war in Iran. A litre of unleaded petrol cost drivers an average of 158.52p on Tuesday.
The Prime Minister has also controversially allowed the UK to import some diesel and jet fuel derived from Russian crude.
A trade licence issued on Tuesday night allowed the import of Russian jet fuel and diesel refined in third countries, despite a pledge in October to crack down on its use.
In a blistering exchange at Prime Minister’s Questions, Kemi Badenoch said Sir Keir should be “ashamed” for “choosing to buy dirty Russian oil, that money will be used to fund the killing of Ukrainian soldiers”.
‘This is a morally bankrupt move’
Ben Wallace told The Telegraph: “For Putin, any weakening of resolve only emboldens him. Today’s messaging is all wrong and will only encourage him that Europe is weak in the face of his bullying.”
Gen Lord Richard Dannatt, the former head of the Army, told The Telegraph: “This is a morally bankrupt move by a Government focused much more on short-term popularity and not on issues of greater significance, namely the lives of Ukrainian soldiers and civilians. Shameful is the word that comes to mind.”
Ukraine has not officially responded to the change in British policy, but The Telegraph understands that Volodymyr Zelensky plans to address the issue in a statement.
Gulf refineries supplied up to 65pc of UK jet fuel before the war, with the fuel travelling through the Strait of Hormuz. Since the conflict started at the end of February, jet fuel prices have increased by 103pc to about $150 (£112) per barrel.
The Food and Drink Federation said the Chancellor “needs to focus on the root causes of rising food inflation, not the symptom”.
“Too much regulation is too complex and too costly to implement, which is taking up businesses’ time, resources and focus, while they’re also grappling with a global energy shock,” the industry group said.
“We need this to protect the long-term resilience of the food sector, to ensure we can attract investment and to help us keep a lid on food inflation.”
Richard Lim, the chief executive of Retail Economics, said artificially holding down the price of some products was likely to force up prices of other supermarket items.
He also suggested that the quality of products could fall as producers attempt to cut costs.
“I am sure they would think about re-engineering ingredients, product size and packaging to try to make the economics work for them,” he said.
Comments
Post a Comment