Under-pressure government looks at food price cap to bring down rising costs
Having made tackling inflation a key policy aim, ministers are under pressure to get a grip on food prices, which are still rising at a robust pace.
Among the proposals being considered is a cap on the price of basic food items.
The British government is not the first to weigh up such a policy. Hungary and Croatia have already implemented a cap and their counterparts in Italy are also coming under pressure to do the same.
However, supermarkets in Britain are adamant that it won’t work here.
They point to weakening profits and tight margins. Speaking to Sky News, Stuart Rose, the chairman of Asda, described it as a “backward-looking idea”.
Instead, he said supermarkets offered “massive choice and, in real terms, fantastic value for money”.
In many respects he is right. Food prices have been falling, in real terms for decades.
In the 1960s, households devoted a third of the family budget on groceries. By 2008, that had fallen to 15%
However, that is not even across income groups.
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Could food prices be capped?
Poorest effectively facing higher inflation
Poorer households spend a higher proportion of their disposable income on essentials, such as food and energy. It means they are bearing the brunt of inflation.
According to a report by the Resolution Foundation, high food and energy inflation mean low-income households are experiencing effective inflation rates more than three percentage points higher than high-income households.
It found that around one-in-five people are eating less or skipping meals. People on the lowest incomes, receiving benefits, and larger families are the most likely to have to do this.
The case for targeted support
Instead of implementing a price cap that benefits everyone – including the wealthy – economists have suggested that the government bolster welfare payments to the poorest families instead.
This is a more targeted form of support and eliminates the risk that supermarkets increase prices of non-capped items to compensate for losses under the cap.
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Jagjit Chadha, director of the National Institute of Economic and Social Research, said: “[It’s] much better to think about the households that are having difficulty in paying their household bills and targeting support to them through universal credit.
“If we can get some cash in the hands of those who need it most – those who have lost their jobs – or are without enough income to meet their food bills, that’s a much more appropriate way of government policy being designed rather than distorting the price mechanism.”
A VAT cut?
Among the other policies that have been discussed is a cut to VAT.
The Spanish government has already cut VAT on food and it’s a policy that was discussed by Boris Johnson’s government.
Slashing the 20% tax would lower food bills but it also poses problems because, once again, it is an untargeted measure. Everyone would benefit from it, including better off households, which means they would have more money to spend on other things.
This risks overstimulating demand and fuelling inflation, making it a self-defeating measure.
Thousands of job cuts at the NHS will go ahead after the £1bn needed to fund the redundancies was approved by the Treasury.
The government had already announced its intention to slash the headcount across both NHS England and the Department of Health by around 18,000 administrative staff and managers, including on local health boards.
The move is designed to remove “unnecessary bureaucracy” and raise £1bn a year by the end of the parliament to improve services for patients by freeing up more cash for operations.
NHS England, the Department of Health and Social Care, and the Treasury had been in talks over how to pay for the £1bn one-off bill for redundancies.
It is understood the Treasury has not granted additional funding for the departures over and above the NHS’s current cash settlement, but the NHS will be permitted to overspend its budget this year to pay for redundancies, recouping the costs further down the line.
‘Every penny will be spent wisely’
Chancellor Rachel Reeves is set to make further announcements regarding the health service in the budget on 26 November.
And addressing the NHS providers’ annual conference in Manchester today, Mr Streeting is expected to say the government will be “protecting investment in the NHS”.
He will add: “I want to reassure taxpayers that every penny they are being asked to pay will be spent wisely.
“Our investment to offer more services at evenings and weekends, arm staff with modern technology, and improving staff retention is working.
“At the same time, cuts to wasteful spending on things like recruitment agencies saw productivity grow by 2.4% in the most recent figures – we are getting better bang for our buck.”
Health Secretary Wes Streeting during a visit to the NHS National Operations Centre in London earlier this year. Pic: PA
Mr Streeting’s speech is due to be given just hours after he became entrenched in rumours of a possible coup attempt against Sir Keir Starmer, whose poll ratings have plummeted ahead of what’s set to be a tough budget.
Mr Streeting’s spokesperson was forced to deny he was doing anything other than concentrating on the health service.
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He is also expected on Wednesday to give NHS leaders the go-ahead for a 50% cut to headcounts in Integrated Care Boards, which plan health services for specific regions.
They have been tasked with transforming the NHS into a neighbourhood health service – as set down in the government’s long-term plans for the NHS.
Those include abolishing NHS England, which will be brought back into the health department within two years.
Watch Wes Streeting on Mornings With Ridge And Frost from 7am on Sky News.
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