Those on the American right so preoccupied by the damage caused by “market fundamentalists” (whoever and wherever they may be) must find a lot to admire in Britain’s Tory party, which, at different times and in one way or another, has been in retreat from free markets (and the idea of a state that knows its place) for close to two decades now.
Even so, to read this in the Sunday Telegraph was, well, quite something:
Downing Street is drawing up plans for retailers to introduce price caps on basic food items such as bread and milk to help tackle the rising cost of living, The Telegraph can disclose.
[Prime Minister] Rishi Sunak’s aides have started work on a deal with supermarkets akin to an agreement in France in which the country’s major retailers charge the “lowest possible amount” for some essential food products.
The move would amount to the biggest attempt to manage supermarket prices since controls established by Edward Heath in 1973. However, No 10 insists that any action by retailers would be voluntary.
For those unfamiliar with British political history, Heath was a Tory prime minister in the early 1970s, remembered mainly for having taken the U.K. into the forerunner of the EU. In addition to price (and wage) controls, Heath’s government also embraced industrial policy. His government was thrown out after less than four years, and both his defeat and the failure of his economic interventionism did a great deal to provoke the rethink within the Tory party that led first to the election of Mrs. Thatcher as its leader and, somewhat later, its adoption of Thatcherism. There’s a lesson there.
The proposed Sunak price caps are a product of the government’s fear of the political damage caused by persistent inflation. One inspiration for the scheme, which is still said to be at the drawing-board stage, is the regime that now operates in France, a country long known for its suspicion of free enterprise.
Anyway, back to the Telegraph:
The French government’s deal with retailers was announced in March, when Bruno Le Maire, the finance minister, said that a deal in which retail groups had agreed to cut prices would turn the period between April and June into an “anti-inflation quarter”.
Earlier this month, Mr Le Maire said the initiative was being extended for another quarter, with food inflation running at a record 15 per cent. He later threatened to raise taxes on retailers “to recover profits unfairly made on the back of consumers” if they refused to lower prices further.
Oh.
We have, of course, yet to see how truly voluntary the British scheme, if it is implemented, will really turn out to be.
What we do know is that such schemes have no effect on underlying inflation, and that, if they become uneconomic enough for the supermarkets involved, they will lead to shortages. Even before then, price caps would be bad news for smaller retailers who are not participants in the scheme. Their ability to charge a market price for the goods it covers will be undercut by supermarkets able to absorb (at least for a while) the hit to their profits from the price caps in a way that smaller retailers cannot.
We can also see from the French example that the Sunak price cap is likely to reinforce the myth of greedflation.
Worse still, this Conservative government is setting yet another precedent (take a look, for example, at its war on landlords) for government to intervene in the marketplace, a precedent that will be seized upon and extended when the Labour Party, either alone or in coalition, wins the next general election.
Heckuva job, Tories.