Comment: Was this the moment Labour began to panic? Lifting sanctions on Russian oil and putting price caps on supermarkets — two truly terrible new policies in one day suggest that Keir Starmer’s government has finally lost the plot, says John Rentoul.
Dame Emily Thornberry strong on the oil sanctions. How we mocked when the Scottish government proposed to dictate to supermarkets how much they should charge for “essentials”! It was a policy that seemed to be a desperate ploy to win votes in the Scottish parliament elections by appearing to do something about the cost of living. Never mind that the UK learned the hard way in the 1970s that price controls do not work. Hard to believe now that the Labour governments of Harold Wilson and James Callaghan actually had a secretary of state for prices – Shirley Williams, followed by Roy Hattersley. Those were the days when inflation ran up to 20 per cent, and before Margaret Thatcher taught us that “you can’t buck the market”. Since then, Labour was back in government for 13 years when Tony Blair and Gordon Brown understood the need for a “dynamic market economy” – so much so that they wrote it into Clause IV of the party’s constitution, and formally gave up the idea that a state-planned economy can deliver the prosperity that people want. But now price controls are back.
Rachel Reeves, an otherwise sensible and modern social democrat, has become so fearful of the cost-of-living crisis that she is prepared to embrace foolish and discredited ideas to try to appease public opinion. Her plan is merely to ask the supermarkets nicely if they would consider a “voluntary” freeze on the price of staple foods. But it has provoked a puzzled and irritated response from several of the companies. They can spot a lose-lose proposition when they see one. If they agree to freeze the price of, say, bread, milk and eggs, they would draw negative attention to themselves when they remove the cap. Of course, public opinion is not well informed about the economics of retailing. A recent survey found that most people over-estimate profit margins hugely – and margins in food retailing are extremely low. (Another shocking thing about that survey was that it found that many people think that the NHS makes a profit.) But one of the roles of a leader is to lead, and to explain to people that price controls do not work. Competition is what keeps prices as low as possible, and attempts to fix prices at below-market levels lead to shortages and rationing.
Reeves and Keir Starmer ought to explain to people that, despite an unexpected dip in the inflation rate published today, a global inflation shock is on its way, rippling out from the Strait of Hormuz. They need to explain that the government will do its best to protect people, especially the poorest, from the effects, but that dictating prices is not the answer. Instead, they have panicked – and not only have they entertained the idea of telling supermarkets how to run their businesses, but it seems that the prime minister has eased sanctions on Russian oil and gas in order to try to soften the blow inflicted by the shutting down of supplies from the Gulf. Just when it seemed that Ukraine is finally turning the tide of the war against Vladimir Putin’s forces, Starmer has relaxed restrictions on oil refined in “third countries”, knowing full well that this means Russian oil. Britain’s solidarity with the Ukrainian people in their fight for survival against Putin’s aggression is one of the proudest claims of Starmer’s time in No 10. To throw that away because of the marginal cost to the British consumer is cynical in the extreme. Again, this shows a lack of leadership. People are willing to make some sacrifice for the Ukrainian cause, as was shown by the generous response to accommodating refugees. But they need to be led. And they need a prime minister and a chancellor who will explain that there are no easy answers – and who will not react to difficult times by clutching at the straws of one bad policy after another.
