The UK Government is discussing plans for supermarkets to introduce a cap on the price of basic food items to help tackle the rising cost of living.

A voluntary agreement with major retailers could see price reductions on things such as bread and milk.

But Prime Minister Rishi Sunak has been warned his plan for “1970s-style” price caps will lead to food shortages.

The proposal has been condemned by the major supermarkets and has angered at least two Cabinet ministers, who said it would involve too much interference in the markets and could lead to shortages as suppliers take their goods abroad.

One cabinet minister told the Telegraph that price caps, last used in Britain in the 1970s, would not work “in this day and age” and that produce would be “sold elsewhere” if supermarkets refused to increase their prices.

Tesco, Sainsbury’s, Morrisons and Waitrose backed a statement by the British Retail Consortium that said the plan “will not make a jot of difference to prices”.

Hare-brained idea

One retail boss said: “It is a hare-brained idea and, instead of trying to intervene in supermarket pricing, the government would be better advised to address the root causes of inflation.”

Mr Sunak has set himself a target to halve inflation to 5% by the end of 2023 and has asked the Treasury to find ways of bringing prices down after a steep rise in the cost of living prompted by the war in Ukraine.

The pledge is seen as central to the Conservatives’ pitch to the public at the next general election and prompted Jeremy Hunt, the Chancellor, to admit he would accept a recession in the UK if it would reduce inflation.

The latest figures show inflation has fallen from 10.1% to 8.7% since Mr Sunak made his pledge, but ministers are concerned he has become a hostage to fortune.

Food prices rose 19.1% in the year to April, a near-record high.

“The problem is that inflation is out of our control,” a senior government figure said last night.

French scheme

Mr Sunak’s plan mimics a similar scheme in France, where retailers have pledged to freeze prices in a bid to create an “anti-inflation quarter” between April and June, and face spot checks to ensure they do not squeeze their suppliers.

E.Leclerc, a hypermarket chain, refused to participate in the scheme and argued it would lead to the perception that prices on other goods would increase to make up the shortfall.

Michel-Edouard Leclerc, its CEO, said he would “rather be cheaper across the board”.

Multiple government sources raised doubts over whether the policy would ever be implemented in the UK after the backlash from ministers and retailers.

A Cabinet minister said: “There is an international market for wheat, and it is quite expensive after what’s happened in Ukraine. If you drive down the price of bread, it can be sold elsewhere.

“You can’t interfere in markets, it doesn’t work in this day and age. We live in global markets and it’s very different to what happened in the 70s and after the war.”

Retailers' discretion

A government spokeswoman insisted it was “not considering imposing price caps” and that “any scheme to help bring down food prices for consumers would be voluntary and at retailers’ discretion”.

Steve Barclay, the Health Secretary, acknowledged small family-run businesses would themselves be under “significant pressure” and stressed the plans are “not about any element of compulsion”.

Bill Grimsey, the former boss of Iceland, told the Telegraph that price controls in the 1970s had been “very bureaucratic and did not work”.

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