Rachel Reeves’s impulse to meddle in supermarket pricing shows she is not seriously interested in growth at all, writes Eliot Wilson

Labour’s offer to the electorate at the 2024 general election depended for any chance of success on one overriding factor – making the British economy substantially more productive. If that could not be achieved, then Sir Keir Starmer and his Chancellor of the Exchequer, Rachel Reeves, would be unable to fulfil any of the party’s other promises, whether cutting NHS waiting lists, spending on major new infrastructure projects or enabling the police to reduce crime and make the streets feel safer.

It has hardly been a shining success. Most growth in 2024 came in the first two quarters, when the Conservative Party was still in office, the rate was a modest 1.4 per cent last year, and this year even the upgraded forecast from the International Monetary Fund was one per cent, raised from 0.8 per cent. With inflation hovering stubbornly around three per cent, Britain is in stasis.

Rachel Reeves’s reputation is now a burned-out shell, and she has provided much of the accelerant with a slew of tax increases, uneven public performances and, it transpires, a professional CV which at best could be classified as a docudrama. But she knows that the cost of living can make or break an incumbent government’s electoral fortunes, and her panic is increasingly obvious. Last week, the Treasury floated the idea of introducing price caps on essential products.

Rachel Reeves should not determine the price of milk

At first glance, the potential popularity of such a move seems overwhelming: which voter would not support a government which stands up for hard-pressed consumers by clipping the wings of fat-cat supermarket bosses? But let us be quite clear what it means: logically, it would involve the government somehow determining the price of a loaf of bread, a pint of milk or a box of eggs. That sum of money would not be calculated according to the costs of ingredients, production, labour or transport, because when those factors are used to determine the ultimate price of goods, it is called the free market.

Instead, a civil servant or regulator or, even worse, a minister would need to determine retail prices based on some alchemy of public opinion, historical data, comparison with income and a strange sense of what items ought to cost in a moral or ethical sense.

The disbelief and fury from retailers which this idea provoked caused the Chancellor quickly to reassure them that there would be no mandatory price-capping; but if the prices of essential items could be identified and capped, the government might in return offer retailers incentives, like relaxing regulations on packaging or delaying new legislation promoting healthy foods. At the same time, the Treasury wanted to be sure that British farmers would not lose income if price-capping was introduced.

This kind of impulse is not new. After Edward Heath met his Götterdämmerung at the hands of the trades unions in 1974, a weary and morose Harold Wilson returned to Downing Street and created a Department of Prices and Consumer Protection. It was put in the hands of the clever and popular but sometimes short-on-judgement Shirley Williams, who then oversaw the introduction of the Prices Act 1974.

The legislation was honest about its purpose and mechanism. It was designed “to authorise the payment of food subsidies”, “to regulate the price of food and certain other goods” and “to prevent price increases”. In other words, the government would use the law to set retail prices and, where necessary, spend public money to maintain them artificially below the market rate. Taxpayers would pay to ease the lives of consumers, as if these were two wholly separate groups.

The act now survives only for its provisions on the marking of prices, and the department was abolished by Margaret Thatcher in 1979. Price controls had failed in the face of runaway inflation, and it was increasingly obvious that for the government to attempt to manage supermarket prices was insane. But failure and insanity have not daunted Rachel Reeves.

Labour still believes it can regulate its way to growth

The Chancellor poses as the champion of “working people” (of which she has a very specific definition, readers will recall). Thankfully, when she made a statement to the House of Commons last Thursday on the government’s economic response to the war in Iran, price caps (other than on energy) did not feature.

Her mindset has not changed. Announcing the suspension of tariffs on some foods, she warned “I am clear that I expect supermarkets to pass those savings on in full to their customers”. 

She also promised “tough new powers” for the Competition and Markets Authority: “I will not tolerate anyone exploiting a crisis to make a quick buck off the back of hard working people.”

I have argued for the past two years that Starmer’s Labour Party is fundamentally dirigiste: it is driven by a belief that government can and should substantially direct the economy and is the principal engine of growth, and that growth will come through better regulation. In this context, attempting to set food prices is a logical next step. Reeves is also suspicious of private-sector success, always ready to see disreputable capitalists “making a quick buck” or enjoying “excess profits”.

The plan she floated last week was a fairy tale born of desperation. It succumbs to a basic logical test: if you regulate to stop prices rising, there is a cost being borne somewhere. Either the gap must be plugged by public expenditure through subsidies, or businesses must absorb the shortfall.

In that is revealed the government’s real Weltanschauung: the private sector, by definition morally defective and rapacious, can always be soaked for a little bit more. It is the childish, resentful economics of the fifth-form debating society, but it goes a long way to explaining the UK’s current plight.

Eliot Wilson is a writer and historian. He is a senior fellow for national security at the Coalition for Global Prosperity and a contributing editor at Defence on the Brink