People shop at a grocery store in London in May, 2023. The war in Iran, which has driven up energy prices, has hit food production particularly hard.EMILIE MADI/Reuters
Grocery stores across Britain are coming under increasing government pressure to cap the prices of milk, bread and other items in order to alleviate soaring food inflation driven by the war in Iran.
Treasury Department officials have urged supermarkets to introduce voluntary price caps on a basket of 20 items in return for an easing of regulations on packaging, according to several media reports. The Scottish government plans to go further and introduce mandatory price ceilings on as many as 50 food staples.
“What I’m doing is trying to help people who are struggling with the cost of their shopping,” said Scottish First Minister John Swinney.
The conflict in Iran and the closing of the Strait of Hormuz have pushed up energy prices, which has rippled through economies around the world. Food production has been particularly hard hit, and this week, British Foreign Secretary Yvette Cooper told an international conference on foreign aid that “the world risks sleepwalking into a global food crisis.”
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Some governments have responded with subsidies or have cut taxes on energy. Egypt has capped the price of bread, while China banned the export of industrial chemicals used to produce fertilizer.
In Britain, prices for beef, fish and fresh fruit have climbed as much as 13 per cent on an annualized basis since the war started in February. While overall inflation cooled slightly last month, falling to 2.8 per cent from 3.3 per cent in March, most economists say the relief will be short-lived and that inflation could hit 4 per cent by the end of the year.
The Food & Drink Federation, which represents manufacturers, recently revised its 2026 forecast for food inflation in the U.K. to 9 per cent from 3 per cent.
Government attempts to control food prices have been met with fierce opposition from retailers and farmers − and skepticism from economists.
Supermarket bosses say competition has cut profit margins to as low as 2.7 per cent for some retailers and that price caps would only lead to shortages.
“Rather than introduce 1970s-style price controls and trying to force retailers to sell goods at a loss, the government must focus on how it will reduce the public policy costs which are pushing up food prices in the first place,” said Helen Dickinson, chief executive of the British Retail Council.
The National Farmers’ Union said price controls would pile more pressure on its members who are already struggling with rising costs. “We cannot absorb these costs at a farm level and continue to run profitable farming and growing businesses,” said NFU president Tom Bradshaw.
The Institute of Fiscal Studies, a London-based think tank, called Scotland’s plan “very radical and risky.” Price limits could lead to a lack of supply and a reduction in quality as producers move to cut production costs, the IFS said in a report.
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During a parliamentary committee hearing Wednesday, Bank of England Governor Andrew Bailey said price controls were not sustainable.
“I think the question you have to think through in this sort of thing is: Are you doing it for some very well grounded, very, very temporary reason?” he told MPs on the Treasury Select Committee. “If you start doing it as a matter of course, then you’re artificially moving prices relative to costs, and that’s not a sustainable thing in the long run.”
Mr. Swinney announced the price ceiling during Scotland’s recent election campaign, which his Scottish National Party won for the fifth straight time on May 7. The SNP platform said the proposal would require supermarkets to “make one example line of the listed essential food items available at the capped price.” If one of the price-controlled items sold out, a more expensive product would have to be reduced to the cap level.
Mr. Swinney has yet to provide details on how the plan would work or what products would be included. He has promised to consult with retailers and farmers before introducing legislation.
Dan Tomlinson, a junior Treasury minister, said the U.K. government was not planning to introduce price controls. “Of course, the government is going to be having conversations with supermarkets about what more we can do to support households, but no, we are not going to be implementing a mandatory price cap,” he told the BBC Wednesday.
The Chancellor of the Exchequer, Rachel Reeves, has vowed to crack down on price gouging by retailers and said she was looking at other ways to help consumers.
On Wednesday, the government extended a temporary reduction in the tax on gasoline − amounting to five pence per litre − which was set to expire in September. However, drivers are still paying £1.58 ($2.92) per litre, the highest price since the start of the war in Iran.