Price Controls Are Not The Solution To Food Inflation

15 mins. to read
Price Controls Are Not The Solution To Food Inflation

More Bad News

We all know that Britain is suffering from a wave of inflation not experienced since the 1970s, and that food prices have been rising faster than almost anything else.

In March the figure was 19.2 percent, year on year according to the ONS – the highest since 1977. In April the rate was 19.1 percent, even though overall inflation rate in the UK dipped from 10.1 percent to 8.7 percent. The latter number was higher than expected by the markets and resulted in a spike in gilt yields – and the main reason why it was above the Bank of England’s forecast was persistently high food price inflation. In fact, food price inflation has been in double digits every month since July last yeari.

The price of chocolate and coffee rose in line with another upswing in commodity prices. The price of ambient food – that’s food that can be stored at room temperature – rose somewhat less. The impact of a more expensive shopping trolley is that food sales volumes are down by 2.7 percent relative to pre-Covid levels. The ONS reports that 48 percent of British shoppers are buying less food in their weekly shop in recent weeks. Shoppers, apparently, have become keener on seasonal promotions and are making better use of supermarket loyalty scheme offers. In response, the big supermarket chains are reducing the number of product lines available – a strategy that discounters LIDL and ALDI have pursued for years.

As I have explained previously, the main inputs in food production are the “three Fs” – fuel (food production is highly energy intensive), fertiliser (particularly nitrogen) and feedstock (mainly grain and cereals). These three inputs have rocketed in cost since the start of Russia’s war on Ukraine. Russia is the largest producer of fertiliser (in the form of potash) and Ukraine is – or rather was – one of the world’s largest exporters of grain.

Higher food prices, just like higher mortgage payments, are unpopular with people who will vote in a general election most likely in the fourth quarter of next year – as the Sunak government is painfully aware. That was why last weekend the government floated a policy balloon: they would ask the leading UK supermarkets to cap the prices of “essential” foodstuffs such as bread, milk and potatoes. I’m not sure about cheese which is up nearly 30 percent on the year – but is cheese essential? Quaker Oats at Ocado have gone up from 94 pence one year ago to £1.56 – an increase of 66 percent. Vegetable oil is up by a similar amount.

Price controls have not been a policy tool in the UK since the 1970s – though they are still fairly common in developing countries – Venezuela being a case study in how disastrous they can be. Admittedly, France has imposed supermarket price controls for the second quarter of this year, though the leading French supermarket chain Leclerc (a subsidiary of Visiomed Group) dissented. Has Rishi been talking to his new friend Emmanuel?

The UK supermarkets reacted as one, pointing out that price caps would inevitably result in shortages (and very probably a thriving black market too). It’s basic economics: reduce prices artificially and demand will increase faster than supply. Tesco, Sainsbury’s, Morrisons (private) and Waitrose (part of the John Lewis Partnership) endorsed a statement released by the British Retail Consortium (BRC) which accused the prime minister of “re-creating 1970s-style price controls”. The BRC later added that the initiative “will not make a jot of difference to prices”. One supermarket boss told the Sunday Telegraph that it was a “hare-brained idea”. Steve Barclay MP, the health secretary, emphasised that any scheme would be “voluntary and at the retailers’ discretion”. Bill Grimsey, a former CEO of Iceland (private), observed that price controls in the 1970s had been “very bureaucratic and did not work”.

In fact, the UK supermarket sector is highly competitive – a fact reflected by its wafer-thin margins which seemed to have tightened even further during the cost of living crisis. If prices were to be driven down further then producers – farmers – might halt production. That has already happened in the case of eggs because some poultry farmers have called for a buyers’ strike in protest against the low prices that supermarkets pay for eggs.

Farmers blame an endless price war between the established supermarket giants and the two discounters – ALDI and LIDL, which have both built market share in the UK at an astonishing pace. The two German brands now account for about 17 percent of UK food sales – ALDI has even overtaken Morison’s in the number five slot. Tesco explicitly matches ALDI on price for over 600 products.

Lord Rose, the Chairman of privately-held ASDA who was previously chairman of Marks & Spencer, warned the government this week to be careful of the “unintended consequences” of price controls. He said that ASDA had kept prices for food as well as clothing and electrical goods constant in real terms and was doing a “very good job for consumers”. “Let the shopkeepers do what they do well – shopkeep”, he added.

Also this week, the Competition and Markets Authority (CMA) announced that it will assess how suppliers and supermarkets price their wares. In an open letter to supermarket leaders the CMA said it will consider whether a lack of suppliers for certain grocery items is pushing prices higher.

Greedflation” – Really?

The idea has gained currency that the supermarket chains are profiting from food price rises and indeed that they are partly responsible for it. We are already familiar with the neologism “shrinkflation” – whereby food manufacturers offer smaller portion sizes for the same price; and we are now hearing about “greedflation” on the part of the big food and supermarket chains. Sir Ed Davey, leader of the Liberal Democrats, has even called for a public inquiry into “greedflation” – which would no doubt compete for resources with the already farcical public inquiry into the pandemic.

While it is legitimate to accuse banks of widening their lending margins by not passing on increases in interest rates to savers (as I discussed two weeks ago), I don’t see much evidence that supermarkets are increasing their gross margins on food sales. Their profits are static, and are probably declining in real terms, along with everyone else’s. Last year, Tesco’s profits fell by 51 percent to £1 billion, while ASDA’s profits fell by nearly a quarter to £886 million. Morison’s made a loss. Sainsbury’s profits fell by five percent. Manufacturers of consumer staples like Unilever – which makes, amongst other things, Marmite – also recorded reduced margins.

On the other hand, Marks & Spencer on 24 May announced unexpectedly strong results for the year ending 1 April 2023. Of course, M&S is a grocer and a clothing and household product retailer, but food sales were up 8.7 percent (less than inflation, be it noted) to £7.22 billion. M&S’s share price has performed well this year – up from 126 pence at the beginning of the year to 182 pence at close yesterday, or 44 percent year to date. Sainsbury’s preliminary results announced on 27 April were also upbeat. Its share are up by about 21 percent year to date. The UK supermarket sector is thriving in difficult times.

By the way, the cost of eating a meal in a restaurant, again according to the ONS, has increased by 9.4 percent in the year to the end of April, while food prices increased by the 19.1 percent figure already quoted. That suggests that margins must be under huge downward pressure across the entire hospitality sector.


It is a common trope that food in the UK is more “affordable” than in other equivalent countries. This is something touted by both supermarket chiefs and food producers and farmers whose champion is Minette Batters, president of the National Farmers’ Union (NFU).

It turns out – as discussed by “undercover economist” Tim Harford on Wednesday in his always informative More or Less broadcast on BBC Radio 4 – that “affordability” is normally measured by the percentage of their disposable incomes that people spend on food and non-alcoholic beverages. On this metric, the UK ranks well behind many of its peers. According to data available from the website of the US Department of Agriculture, UK households spend less of their income on food than almost any other nation in Europe. OK, Ireland, Switzerland and Luxembourg spend even less on food than we do.

The problem is – one that, as a foodie, I have been struggling with for some time – the fact that people spend relatively little on food in a country does not necessarily reflect the relative cheapness or otherwise of food there. The fact that the typical British family spends less on food than the typical French family might well suggest that the French place a higher priority on food than we do – and particularly on communal cooking and eating which is regarded as an important social activity. They generally prefer to buy more expensive cuts of meat and better quality fruit and vegetables. Obviously, some people choose to spend more than others.

Moreover, this food and spending data does not reflect how much people spend on restaurant meals, take-aways and visits to the kebab shop – which, anecdotally, is higher in Britain than elsewhere in Europe. There is evidence that the least well off spend the most on cheap kebab-style meals because they lack skills and time to prepare and cook food at home. A study by the Washington-based Center on Budget and Policy Priorities (CBBP) found that low income families spend an average of 35 percent of their food budget outside the home, compared to 25 percent for middle income families and 15 percent for high income families. It is regrettable – and revealing – that this phenomenon has been widely researched in the USA and yet relatively little on this side of the Pond.

Personally, I would be more inclined to invest in a country where people spent more of their disposable incomes on food than less – and where the public health metrics such as obesity were more positive than in the UK.

In any case, food prices are closely correlated with labour costs. Although, during the years of our EU membership, the UK agricultural sector became dependent on immigrant labour from the (then) relatively low income countries of south and then eastern Europe, the flow of fruit-pickers and vegetable-pluckers from Romania and elsewhere has now dried up, with the result that agricultural output is now falling. Polish workers would mostly have returned to their homeland anyway by now because wage rates there are catching up with ours – and indeed might exceed ours in the next decade at the present rate of knots.

The rise in food prices is not a purely UK phenomenon. Since the beginning of 2021, food prices in the UK have soared by 27 percent – and across the EU by 25 percent. That suggests that the “Brexit effect” has been marginal in so far as food is concerned – German food price inflation was actually higher than ours in March. Much of our food (and indeed the wine in my trolley) is imported from our European neighbours, so we should not be surprised that our food costs rise in lockstep with theirs.

After the Second World War, successive UK governments became obsessed with the need for “cheap food” – long after the country became a relatively prosperous one. Cheapness or “affordability” is not the key variable. What is important is that people – and particularly children – eat well (sufficiently and appetisingly) and healthily. And yet, despite the efforts of well-intentioned food campaigners like Jamie Oliver, Britain, as a nation, continues to eat poorly. And then there are the issues – previously flagged in these pages – of food waste and the non-recyclability of food packaging, for which the supermarket barons should take ownership.

Many of us are eating chemicals such as non-sugar sweeteners. Dr Chris van Tulleken, in his book Ultra-Processed Peopleii describes how our society has become hooked on ultra-processed food. In the UK, the average person ingests about eight kilograms of food additives such as stabilisers and flavourings a year. And what is bad for your waistline is probably harmful to the environment too. I have often noted that when I go to Italy I see slim people who cook with copious quantities of olive oil, butter and wine. But the Italians eat real sugars, real fats and real carbs that are less processed, and which don’t override the body’s hormonal tendency to regulate intake.

Ultimately, our poor eating habits are not entirely the government’s fault. They’re not the supermarkets’ fault either. They’re not even the BBC’s fault. The problem is cultural.

Rishi Sunak – Edward Heath II

The Tory government of June 1970 to February 1974, under the leadership of (later Sir) Edward Heath (1916-2005), introduced a prices and incomes policy in response to the wave of inflation unleashed by the 1973 oil crisis. OPEC imposed an embargo on oil exports to states which it judged had supported Israel in the Yom Kippur War – including the USA and the UK.

It took Mrs Thatcher to rescue the Conservative Party from Heathite proto-socialism. But now Rishi wants to outdo Labour in the undermining of the market economy. In contemporary Britain – just as in the 1970s – there are shrieking voices all the time demanding governments to “do something” – even if the something proposed is economically illiterate. That is why Mrs May (PM 2016-19) felt impelled to introduce the Energy Price Cap – borrowed from former Labour leader Ed Miliband’s policy playbook – which then morphed into the Energy Price Guarantee under Truss-Sunak.

As a Conservative-inclined pro-marketeer, I had never understood that it was the role of the state to pay people’s gas bills – especially regardless of their income bracket. In my book, the more the government intervenes, the more the market is mis-calibrated and ceases to generate “real” prices.

Many commentators have observed that, if the objective of food price controls was to ensure that low-income families do not fall into fuel poverty, a better way to achieve that would be to expand the scope of the free school meals scheme. At present, children in England only qualify for free school meals if their parents receive Income Support, income-based Jobseeker’s Allowance or income-related Employment and Support Allowance. That still leaves a large number of hard-up families who do not qualify. And families which rely on free school meals are particularly vulnerable during school holidays.

More economists from a variety of stables including Bank of America, Citi and on Thursday (1 June) former US Treasury Secretary Larry Summers, are now saying that inflation in the UK is “entrenched” – meaning that it is likely to persist for some years, with an incessant wage-price spiral that will be difficulty to allay. Unless, that is, inflation is tamed by a pronounced economic downturn – something that has eluded us, despite predictions to the contrary, thus far. Chancellor Jeremy Hunt came close to saying last weekend that a recession might be a price worth paying if it could dislodge inflation. His words may come back to haunt him.

Mr Sunak may well succeed in halving inflation by the end of 2023, thus bringing it down to around the five percent mark. But Goldman Sachs thinks that it is unlikely that UK inflation will be brought down to the Bank of England’s official target rate of just two percent before 2025, if then. And given Britain’s vulnerability to external food price shocks, it is probable that food price inflation will continue to run faster than overall inflation, meaning that the cost of the weekly shop as a proportion of household disposable income will continue to rise.

Not that it’s entirely the politicians’ fault. I fear that it will take many years of pain to recover from the era of near-zero interest rates – the preponderant cause of the current persistent inflation – inflicted on us by the priestly caste of central bankers with no democratic accountability whatsoever.

The incoming Labour-led government in late 2024 will face still deteriorating living standards and probably falling tax revenues too; and it will be unable to turn around the ship of state finances, no matter how vicious its tax assault on “the rich”. I’ll outline soon why it will not likely survive long. The question is what comes after.


Afterword: A Modest Proposal

During the Second World War, prime minister Winston Churchill and Food Minister Lord Woolton (famous for the Woolton Pie) set up British Restaurants which were places where anybody could go to enjoy a simple meal at a modest price – especially people who had been bombed out of their homes by the Nazi onslaught.

Today, schools offer social hubs, often equipped with decent kitchens which are underutilised assets as they normally only serve one meal – lunch – per day. But schools could become a much more efficient source of both public health and social inclusion.

Let school kitchens and dining rooms become the British Restaurants of the third decade of the 21st Century. Let kids eat a decent and wholesome breakfast at school (porridge with milk and honey, say I – inexpensive and sustaining). Let them make sure the young ingest sufficient healthy calories at lunchtime. And – more controversially – let schools serve supper to their pupils and their parents or guardians after school, all at state expense. And served around communal tables.

So, let’s massively ramp up the flow of funds to school kitchens. If this might be costly, then take the finance needed out of less accurately targeted benefits, or even out of the foreign aid budget since many of the recipients of these meals would be immigrants who have chosen to come to these shores.

Eating a wholesome meal together communally was understood almost universally to be the foundation stone of civilisation until very recently. Nowadays, I am told, many kids “graze” in their bedrooms while parents access Deliveroo on their smartphones. Not surprising then that cooking skills are in decline – as well as social skills. School-based hospitality would also redress the alarming fall in school attendance observed since the pandemic lockdowns.

Such a transformative social policy could even win the Tories the next election – though they look too jaded to entertain new thinking these days.

Listed Companies Cited In This Article Which Merit Analysis:

  • Ocado (LON:OCDO)
  • Visiomed Group SA (EPA: ALVMG)
  • J Sainsbury PLC (LON:SBRY)
  • Marks & Spencer PLV (LON:MKS)
  • Tesco PLC (LON:TSCO)

i The ONS provides a spreadsheet on this data available for download at:

ii To be published 04 January, 2024.

Comments (4)

  • richard mumford says:

    I just think calling ‘it’ inflation is a misnomer. ‘It’ should be known as devaluation.
    People would then understand what a B****up Westminster has made of keeping
    the four home nations safe.
    The headlong rush to be carbon neutral is a world class vanity project that Vladimir Putin has shown to be untenable and certainly unfunded.
    The trouble is that governments don’t pay tax, they recycle money from a dwindling base of real tax payers to prop up their hubris and crazy ideas.
    Where are we ever going to someone with some common sense to look after the interests of (once) Great Britain?
    I may have stayed of the trail a bit, and if so apologies

  • Elizabeth Mary Balsom says:

    Aldi and Lidl are not quoted companies with shareholders to worry about, so can afford to under cut UK listed supermarkets to gain market share and put pressure on our listed companies’ profits and margins. I guess most Brits’ pension funds are invested in Sainsbury’s and Tesco.

    I couldn’t believe it when I heard Sunak’s brilliant idea of coercing (?) supermarkets into reducing prices. He’s too young to have experienced Heath’s Prices and Incomes policy. Look where that got him.

  • Richard Thornley says:

    Our village hall has a kitchen and carpark already in place.
    What about every individual’s claim to allergies?

  • Nicholas Lewis says:

    Fabulous article and to an even well informed reader as myself you exposed a fair things i wasn’t aware of.

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