Labour is pushing major supermarkets to limit the price of everyday essentials in return for easing regulations, it emerged on Tuesday night.
The price of eggs, bread and milk would be voluntarily capped under the proposals in return for easing packaging policies and delaying rule changes around healthy food.
The Government has suggested to supermarkets that they reinvest any savings from scrapping regulations into freezing food prices.
Supermarkets are said to have reacted to the proposals with fury and the British Retail Consortium (BRC) said it would 'force retailers to sell goods at a loss'.
In Scotland, supermarkets recently condemned a similar plan by the Scottish National Party (SNP) – which would not have been voluntary – as a '1970s-style' gimmick.
The rate of food price rises rose to 3.7 per cent in April and industry groups have warned it could hit almost 10 per cent by the end of the year due to the blockade of the Strait of Hormuz.
Chancellor Rachel Reeves is due to announce measures to help households with the cost of living on Wednesday and the Treasury is said to be pushing for her to announce the price cap policy.
Officials said more detail would be set out 'in due course' but people close to the talks said there was no agreement yet on whether it would be confirmed, according to the Financial Times.
Chancellor Rachel Reeves (pictured) is set to announce measures to help households with the cost of living on Wednesday
The rate of food price rises rose to 3.7 per cent in April and industry groups have warned it could hit almost 10 per cent by the end of the year due to the blockade of the Strait of Hormuz
The Government has also reportedly told supermarkets that it would like guarantees that British farmers would not lose income from any price caps.
'It is a completely ill-thought-out, last-minute idea... the idea that the Government can set prices better than the market is for the birds,' an industry source said.
It is understood that the Government is engaging with supermarkets but has not considered compulsory caps.
An HM Treasury spokesman said: 'The Chancellor has been clear we want to do more to help keep costs down for families, and will set out more detail in due course.'
Chancellor Rachel Reeves is also expected to announce on Wednesday that her plans to increase fuel duty by 5p from September will be scrapped, in a move that would cost £2.4billion.
The plan for the supermarket price freeze will reportedly not be included in the package and one senior Government source questioned whether it would come into effect at all, according to The Times.
'If the Government is trying to pursue a growth agenda it seems extraordinary that they could be trying to control what businesses like ours are charging. The cost of regulation is enormous,' a supermarket source said.
Last month Ms Reeves met with supermarket bosses to discuss the cost of living, following industry warnings that food inflation could rise as high as 10 per cent by the end of the year.
The meeting initially had to be rescheduled after bosses reportedly balked at being summoned by the Treasury.
When it did take place retailers are said to have asked ministers to address Labour policies they blamed for contributing to inflation.