Would a Food Price Cap Actually Work? Lessons from the 1970s

SUMMARY

• There has been a recent revival of interest in controlling the price of essential goods to reduce the impact of inflation.
• The 1974–9 Labour government initiated voluntary schemes of price capping, where the cost of items such as bread, milk and toiletries could only increase by a maximum of five per cent.
• Although the scheme delivered the promised controls on prices, it was controversial, hard to implement and difficult to sustain.
• Overall, low-income groups may be better served by income support rather than price caps.

After a lapse of fifty years, price controls are back in the news. The Scottish National Party (SNP) government is proposing to introduce a compulsory price cap on basic groceries. This move could be illegal, and some analysts think it is a ploy to bring about such a ruling so that the SNP can complain that it cannot help Scottish consumers as much as it would like to.

The Westminster government also considered introducing price caps in 2026, but quickly discarded the idea after opposition from the supermarkets who pointed out that they already lose money on items like bread and milk, which are treated as loss leaders. Consumers are best served by intense competition between supermarkets. However, less-well-off or geographically isolated individuals do not benefit as much from this.

The 1974 Labour government attempted to restrain retail prices as part of its effort to bring down inflation and make wage restraint in the form of incomes policies more palatable. Can lessons for today be drawn from these efforts?

How the government tried to introduce price caps

In July 1975 the Labour government published The Attack on Inflation White Paper, which was based around a £6 limit on wage increases.

The initial reaction of the food industry had been ‘strongly hostile’ – a contemporary briefing referred to ‘the strong feelings of the food industry that they are being “picked on again”’. But discussions between civil servants and TUC officials were more positive: summarised as a willingness to cooperate in practice while sounding off in public.

Paragraph 33 of the White Paper stated: ‘Certain goods are of special importance in family expenditure. Large price increases bear especially harshly on low income families. Once it is clear that the pay limit is being effectively observed, the Government intend to ensure that the rate of price increases for a range of these goods will be held to about 10 per cent.’ The willingness of the CBI and the Retail Consortium to enter into negotiations on a price restraint scheme was acknowledged, but with the explicit rider that statutory measures would be taken if an agreement could not be reached.

Coming into operation in February 1976, it was now badged as the ‘red triangle’ scheme with this logo displayed in participating shops. One of the difficulties in devising the scheme had been its scope; fresh foods were not included, for example.

In the press statement launching the scheme, price secretary Shirley Williams claimed that 'it covered 15 to 20 per cent of consumers’ expenditure. She admitted ‘that a 5 per cent limit over six months is not as good as a standstill, but 'it is in line with our target of bringing the annual rate of inflation down to 10 per cent by next summer.’ Eleven categories were covered by the scheme:

• Food and drink, including bread and milk but also sweets and chocolates and beer and lager
• Clothing, footwear and textiles, including most items of clothing but also curtains, sheets and towels
• Furniture, including beds and mattresses
• Toiletries, including soap, toothpaste, some razor blades and women's sanitary protection
• A wide range of domestic appliances, including sewing machines but not dishwashers
• Fuel including domestic gas tariffs, central heating oil and paraffin (not coal or petrol)
• Do-it-yourself items including wallpaper (except vinyls) and a range of tools
• Tobacco, including cigarettes and most pipe and hand-rolling tobacco
• Out-of-doors and leisure items, including garden tools, cheaper cameras, most toys and games, some bicycles and budget-priced long-playing records
• Other goods, including light bulbs, matches, most popular weekly magazines and some monthly magazines, most books in publishers’ stocks
• Services, including inland letter post, laundry and dry cleaning of children's clothes and cinema charges for children's matinees

Negative reactions to price caps in the 1970s

The government spent nearly £1 million on publicising the scheme (nearly £7 million at today's prices). Nevertheless, negative media coverage meant that many people ‘were already doubtful of its success’ with members of the public suspicious of the motives of businesses or confused between a fall in the rate of inflation and an actual decline in prices.

Trade union members also regarded the scheme with some suspicion, seeing it as a political manoeuvre to prepare the ground for the next phase of incomes policy. For their part, a meeting of the CBI Council in 1976 revealed widespread concern on the business side, with concern that retailers and manufacturers were not being given identical treatment.

In May 1976 Mrs Williams gave her thanks to ‘Dear Joseph’ (Joseph Godber, now chairman of the Retail Consortium), nothing the success of the scheme. By this time Mrs Williams ‘had had quite a long stint in Canute's chair trying to order back the tide of inflation and I was ready to move somewhere else’ which she did in September 1976 with Roy Hattersley filling the position of prices secretary.

The price check scheme had come to an end on 15 August 1976. Roy Hattersley shared that ‘the prices of all scheme items increased by 2·8 per cent. during the six months of the scheme, well within the 5 per cent. target.’ Hattersley concluded: ‘It is manifest that the scheme substantially succeeded in its aims.’

In November 1976 Hattersley froze the retail price of bread by setting a maximum price for a standard loaf. The government ended the freeze in January 1977 to allow prices to adjust. The Retail Consortium was aggrieved by the use of mandatory price restraint while the government allowed gas prices to rise, overriding a Price Commission recommendation. In March 1977 it threatened to withdraw all cooperation other than that required by law.

Lessons from 1970s price controls

The lesson to be drawn is that voluntary price controls cannot be sustained for any length of time and mandatory controls are likely to be resisted. Those on low incomes are best helped by ensuring that their incomes are sufficient to support an adequate diet through the use of Universal Credit, Pension Credit and the minimum wage. However, such measures could be inflationary. Action on food deserts would also help.

Price controls are controversial, hard to implement and difficult to sustain. The government has removed VAT from domestic electricity prices, although the impact will be of the order of £1 a head. Arguments have been made that VAT should be increased on ‘luxury’ products and services, but these are difficult to define and would pose administrative costs. The hospitality industry has been lobbying for a cut in VAT to 10 per cent, but the foregone revenue would be considerable. As is so often the case with public policy, there are no easy solutions.