UK Treasury pushes supermarkets to cap food prices

The UK Treasury is pushing large supermarkets to introduce voluntary price caps on key groceries in return for lifting some regulations, according to four people familiar with the situation.

Supermarkets have reacted furiously to the proposals, under which grocers would agree to identify and cap the prices of essential goods such as eggs, bread and milk.

In return, the government has said it would offer “incentives” to the supermarkets, which the people said could include easing packaging policies and potentially delaying costly changes to rules around healthy food. Some of these measures, such as the packaging regulations, generate revenue for the Treasury.

The Treasury has suggested to the supermarkets that they reinvest the savings to freeze grocery prices. One person close to the situation said that officials were working with retailers to keep prices down.

The proposals come as Sir Keir Starmer’s government is battling to address public concern over the cost of living.

Scottish retailers recently condemned a similar policy by the Scottish National Party as a “1970s-style” gimmick.

One person close to a supermarket said the Treasury’s initiative was “a rubbish, knee-jerk reaction to the SNP”. Unlike the SNP policy, the UK government’s proposed price caps would be voluntary.

The Treasury declined to comment.

UK food inflation rose to 3.7 per cent in April, and the foreign secretary, Yvette Cooper, has warned the world is “sleepwalking into a global food crisis”, with the Middle East war throttling supply chains.

The Treasury has also told supermarkets that it would like guarantees that British farmers would not lose income from shop price caps.

Chancellor Rachel Reeves is scheduled to announce measures to help households with the cost of living on Thursday, and the Treasury is pushing for her to be in a position to announce the policy. However, people close to the talks said there had yet to be any agreement.

“It is a completely ill-thought-out, last-minute idea . . . The idea that the government can set prices better than the market is for the birds,” one person familiar with the discussions told the FT.

Reeves last month met supermarket bosses following industry warnings that food inflation could rise as high as 10 per cent as a result of the Middle East war.

The meeting initially had to be rescheduled after bosses balked at being summoned by the Treasury. When it took place, retailers asked ministers to address government policies that they blamed for contributing to inflation.

Large supermarkets typically stock between 30,000 and 60,000 individual products. Basic items such as milk, bread, eggs, potatoes, butter and bananas are the most frequently bought.

Supermarkets have long complained about operating on tight profit margins in the UK. However, Tesco, Britain’s biggest supermarket, recently posted an 8.5 per cent rise in annual pre-tax profits to £2.4bn on revenues of £66.6bn.

In Scotland, SNP leader John Swinney responded to industry criticism of his party’s price cap proposal by hinting that it could be implemented voluntarily. He has since hardened his position again to insist that he would legislate for a cap this parliamentary session.

Swinney, who was re-elected as Scotland’s first minister on Tuesday, previously acknowledged that the UK government could block the proposal. That would create a constitutional dispute.

Additional reporting by Jim Pickard and Simeon Kerr