YES, says Scott Dixon, Consumer rights expert
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 for everyone.
Consumers will view any initiative by the supermarkets with suspicion and will think that any price reductions will simply be loaded onto other groceries instead.
Everyone should have access to affordable food and supermarkets have a moral duty to do so for consumers.
Which?’s latest food inflation tracker found that own-label budget-range groceries have soared in price by nearly 25 percent.
The cheapest products have been rising in price the most, whereas branded and premium products have risen by 13.8 percent.
This is much higher than the headline supermarket inflation rate, and impacts those on low incomes the hardest as they have less disposable income to absorb it.
Consumers have traded down to budget lines to save money, only for supermarkets to instinctively profit from this.
Rocket and feather pricing is evident, with supermarkets increasing prices on budget lines and basic groceries over the headline inflation rate knowing that consumers will pay regardless. Supermarkets can and should do much more to help consumers.
Sainsbury’s made £690million profits, with forecasts for 2023-24 of between £640million – £700million, whilst Tesco made £2.49 billion profits in the last financial year.
These supermarkets have a combined market share of roughly 42 percent 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 to be.
NO, says Shanker Singham, Trade fellow, Institute of Economic Affairs
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 America 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.
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, this is a text book 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.
The Government needs to start addressing the reasons for these inflationary pressures, not apply band-aids.
