Business groups urge Swinney to scrap ‘ineffective’ food price cap plan

The genesis of this policy lies within the Scottish National Party’s recent election manifesto, where John Swinney explicitly pledged to compel large supermarkets operating within Scotland to limit the cost of "essential items." These staples, identified as crucial for daily household consumption, include basic necessities such as milk, eggs, cheese, and rice, with the stated aim of easing the relentless pressure of the cost of living crisis on Scottish households. Swinney has consistently articulated his rationale, emphasizing that many people are struggling to afford a basic grocery shop and asserting a "public health responsibility" to ensure access to an affordable, nutritious diet for all citizens. This commitment underscores a broader governmental ambition to directly address food poverty and make healthy eating more accessible, particularly for vulnerable families.

However, the joint letter from the business groups vehemently argues that a statutory price cap represents a superficial solution that fundamentally fails to address the "root causes of elevated food prices." Instead, the signatories highlight a complex web of underlying economic pressures driving up costs across the entire supply chain. These include, but are not limited to, surging energy prices impacting production and refrigeration, significant increases in labour costs, persistent supply chain disruptions exacerbated by global events, and the broader inflationary environment that has gripped economies worldwide. The letter, signed by prominent bodies such as the Scottish Retail Consortium (SRC), the Food and Drink Federation Scotland, Scottish Bakers, and Dairy UK, asserts that merely capping prices at the consumer end will not magically dissipate these upstream costs; rather, it will force them to be absorbed or displaced elsewhere within the system, potentially leading to more detrimental outcomes.

Ewan MacDonald-Russell, the outspoken deputy head of the Scottish Retail Consortium, articulated the industry’s profound concerns during an interview on BBC Radio Scotland Breakfast, labelling the proposed plans an "appallingly terrible idea." He emphatically stated, "Price caps don’t tackle food price inflation. They are not a solution, they are a gimmick that sounds quite effective, but it just displaces cost elsewhere. We can’t see a single example of where this has worked." MacDonald-Russell drew a stark comparison to Hungary, a nation that previously implemented a similar price cap policy. He detailed how this policy led to widespread shortages on supermarket shelves, a reduction in the availability of domestic products as they were replaced by "cheap imports" of potentially lower quality, and significantly heightened tensions between retailers and frustrated customers. Such a scenario, he warned, could easily replicate itself in Scotland, undermining consumer confidence and market stability.

The SRC further elaborated on the multi-faceted risks inherent in the policy. One significant concern is the potential for market distortion and unfair competition. If the legislation is designed to primarily target "large supermarkets," it could inadvertently disadvantage smaller, independent shops and local producers who might not be covered by the proposed cap. These smaller businesses, already operating on tighter margins, would be forced to compete with artificially low prices set for larger chains, potentially making them uncompetitive or even driving them out of business. This could lead to a reduction in consumer choice and a less diverse retail landscape, particularly in rural areas where smaller shops are often lifelines.

MacDonald-Russell stressed that "Scottish consumers benefit from the most affordable food prices in western Europe," a testament to the efficiency and competitiveness of the existing market. He conceded that "food price inflation is a problem," acknowledging the real struggles faced by households. However, he argued that "the best model to deal with it is the one we have right now and price caps are going to make that worse." He went on to warn against the dangers of offering "a false promise that it is going to be able to help with something," cautioning that "in reality, there is as good a chance it is going to make the overall cost of a shopping basket higher, because the cost of the scheme as well as the cap have to be absorbed by businesses." This absorption, he explained, could manifest as reduced investment in stores, fewer promotions on non-capped items, or even pressure on suppliers, ultimately impacting the entire food ecosystem.

Beyond the immediate economic ramifications, the implementation of such a policy faces significant legal and constitutional hurdles. Crucially, the proposals would likely necessitate changes to or an exemption from the UK Internal Markets Act of 2020. This landmark piece of legislation, introduced in the wake of Brexit, was specifically designed to prevent the creation of new trade barriers and regulatory divergence between England, Scotland, Wales, and Northern Ireland as powers repatriated from the European Union. Its primary function is to ensure a smooth, unfettered flow of goods and services across the entire UK market. For the Scottish government’s food price cap to legally take effect, it would almost certainly require the UK government to grant its proposals an exemption, a move that UK ministers have thus far not committed to, leaving a significant question mark over the viability of the plan.

Even if an exemption were granted, the legislative process itself would be protracted and fraught with potential challenges. John Swinney himself has acknowledged that the creation of such a law could involve a year-long process. Furthermore, should legislation eventually be approved by the Scottish Parliament at Holyrood, it would remain open to legal challenges from supermarkets and other affected businesses in court. Such legal battles would be costly, time-consuming, and could further delay or even derail the policy’s implementation, creating prolonged uncertainty for the industry. The interplay between devolved and reserved powers, particularly concerning internal market regulations, adds another layer of complexity to an already contentious policy.

In response to the mounting criticism, the Scottish Government has reaffirmed its commitment to tackling the cost of living crisis, with a spokesperson stating that helping people with rising costs remains a "top priority." The government spokesperson added: "Ministers have welcomed engagement with stakeholders, including retailers, food producers and farmers on proposals for food price controls. A consultation will launch shortly for further views." This indicates that while the government is pressing ahead with its plans, it is also attempting to maintain dialogue with the very sectors that oppose the policy. This engagement is crucial, as is the impending consultation, which will provide a formal platform for all interested parties to submit their detailed views and evidence.

Significantly, the Scottish government is also exploring alternative avenues alongside the legislative path. A "summit" with food producers and retailers has been scheduled for next week, aiming to foster collaborative discussions on strategies to address food affordability without necessarily resorting to statutory price caps. This suggests a recognition of the complexities involved and a willingness to explore a broader range of solutions, potentially including voluntary agreements, support for local producers, or targeted subsidies.

The debate surrounding the food price cap highlights a fundamental ideological divide between government intervention and free-market principles. While the Scottish government seeks to directly mitigate the immediate impact of high food prices on consumers, business groups argue that such intervention distorts markets, creates unintended consequences, and ultimately fails to address the underlying economic drivers of inflation. The success or failure of Swinney’s approach will hinge not only on its economic efficacy but also on its navigability through a complex legal and political landscape, with the livelihoods of Scottish businesses and the wallets of Scottish consumers hanging in the balance.