Should caps be introduced for some food items?
YES
THE Government’s plan to get supermarkets to subscribe to a voluntary price cap for basic food items is welcome.
Although it should not take government intervention for supermarkets to make basic and essential groceries affordable.
The latest food inflation tracker fromWhich? found that own-label budget-range groceries have soared in price by nearly 25 per cent, whereas branded and premium products have risen by 13.8 per cent.
This is much higher than the headline supermarket inflation rate and impacts those on low incomes the hardest.
Consumers have traded down to budget lines to save money, only for supermarkets to profit from this.
Supermarkets can and should do much more to help consumers. Sainsbury’s is forecast to enjoy profits of between £640-£700million in 2023-24, whileTesco made £2.49billion in the past financial year.
These supermarkets have a combined market share of roughly 42 per cent and immense buying power.
Consumers have suspected for quite some time that there is rampant profiteering going on with all supermarkets, which is evidenced by the Competition and Markets Authority launching an investigation amid concerns that consumers are paying more for groceries and fuel than they ought.
When was the last time we saw a petrol price war? Supermarkets used to lead the way on this, although declining forecourt competition has resulted in prices being kept artificially high with fuel prices roughly 5p more expensive per litre in 2022 than prepandemic levels.
Spiralling food prices are set to overtake energy prices as the cost-of-living crisis for households and action needs to be taken now.
Supermarkets have introduced two-tier pricing for those with and without loyalty cards on single and multiple buys. Consumers cannot easily make comparisons to get the best price as a result.
Supermarkets ought to make groceries cheaper for everyone.
NO
PRICE caps are again in the news, as the Government suggests their use not just for energy, but now also for food retail.
These are not new reactions to inflation and rising costs.
Both Heath in 1970s Britain, and Nixon in 1970s American experimented with price caps.
It is a knee-jerk reaction of politicians to deal with rising prices caused by inflation to try to place a ceiling on prices.
This has never succeeded in combatting inflation but it has sown the seeds of dangerously anti-competitive markets and structural impediments to economic growth in the medium and long term.
In the case of energy, where the UK, regrettably still operates a price cap (which has often acted as a price floor rather than a ceiling), this will cause energy producers to leave markets.
Less competition will drive up inefficiency, increasing the ultimate costs of energy production which the tax payer eventually has to pay.
Troubling
The fact that this is now being openly talked about in the context of food and supermarkets is very troubling.
Where the Government steps in to set prices, it is a textbook case of what my colleague Alden Abbott (former general counsel of the Federal Trade Commission in the US) and I have called Anti-Competitive Market Distortions.
These distortions ultimately lead to increased costs, more inefficiency and must be paid for by taxpayers.
There is a reason that human beings meeting each other’s needs in voluntary exchange has been the most efficient and cost effective way of uniting consumer demand with supply.
The cost of food is not high because of any type of market failure in the sector.
It is high because of massive energy cost increases caused by a price cap for consumers in that sector and through a lack of sufficient generation of power.
Government needs to start addressing the reasons for these inflationary pressures, not apply band-aids.