How supermarket and fuel price-gouging can actually be stopped – and the risks

The Chancellor has promised to clamp down on firms exploiting the war in Iran to raise prices at the pump and in supermarkets, as petrol hit its highest level since 2022. John Healey made the pledge in The Daily Telegraph on Saturday, claiming regulators have “the powers to clamp down on it if it happens.”. Healey has not set out a plan of his own, but his pledge echoes one made by his predecessor, Rachel Reeves, in May, much of which has not yet been used. It comes as petrol prices climbed to 160p a litre, the highest its been since November 2022 when it hit 162.78p, according to the RAC, after Iran renewed disruption to shipping through the Strait of Hormuz. Food price inflation, by contrast, slowed to 1.7 per cent in the year to June – its lowest rate in nearly two years, according to the Office for National Statistics. But food prices typically take up to 13 months to reflect supply shocks, and supermarkets have told the Bank of England they now expect food inflation to peak at 4 to 5 per cent later this year, down from the 6 to 7 per cent they were forecasting before a ceasefire collapsed last month. What can the regulators do? The Competition and Markets Authority, or CMA, already has the power to stop firms breaking competition law. This includes blocking mergers that harm shoppers, punishing firms that secretly fix prices together, and stopping big chains blocking rival stores from opening nearby. It also has the power, since last year, to fine firms directly, without going to court, up to 10 per cent of their worldwide earnings for unfair selling practices, such as hidden fees or misleading claims. But it does not have the power to intervene simply because a price is high or a firm’s margin has grown. Unless a firm has broken one of the rules above, raising prices during a crisis is not, on its own, against the law. What is Healey actually promising? Healey said he would be watching closely for any sign that customers were “being taken for a ride at the pump or the till.” He also said there had been “no significant evidence of so-called price gouging” so far, but that he wanted to reassure the public that regulators could act if it happened. Although Healey has not detailed what steps he might take next, he could follow the same path Reeves set out when she announced action on this in May. Reeves said the watchdog could publish data showing how a firm’s profits have changed during the crisis, publicly naming firms whose margins have grown sharply. Secondly, regulators would work together and share information faster, so problems are spotted sooner. Andy Burnham and John Healey during a visit to a family centre in Sheffield, Photo credit should read: Annabel Lee-Ellis/PA Wire Third, ministers said they could bring in a reserve power made up of time-limited powers to order a firm to stop a price rise and fine it, if needed. None of these steps have yet been taken, and, and it is unclear whether Healey will carry them forward. Another proposal the Treasury put forward earlier this year was to set a price cap on essential items such as milk or bread. A similar proposal was put pledged by the SNP for Scotland while in Croatia, where there is a maximum price on 100 essential food and hygiene products and retailers must offer at least one product at a capped price within certain categories. Is price gouging illegal? Price gouging is the general term for a company raising prices to an unfair, unjustifiably high level to take advantage of a crisis. It is not currently illegal in the UK. There is no law that defines price gouging as an offence, in the way price-fixing or fraud are defined and can be prosecuted. The Government could change that by passing new legislation that specifically bans the practice and gives regulators power to enforce it. But nothing like that currently exists, and ministers have not said what such a law might look like or when it could be introduced. What could go wrong? Writing in The Times in May, Justin King, the former boss of Sainsbury’s, warned that colluding on prices, whether to raise them or hold them down, is illegal under UK competition law. Andrew Bailey, the Governor of the Bank of England, also told the Treasury select committee the same month that holding prices artificially below cost was “not a sustainable thing in the long run.” In 2023, the watchdog investigated whether supermarkets were profiteering during the last major cost of living crisis, when food price inflation was running far higher than it is now, and found no evidence that they were. That could be used as an argument for why intervention may not be necessary this time around. Another risk for Healey is that focusing on rising prices could raise questions about Government policies. Many retailers have already warned profits on common items are small and could hurt business investment in the UK. The British Retail Consortium said in May that supermarkets were already absorbing higher staff costs, higher business rates and a new packaging charge, which it estimated added around £10bn a year to the industry’s costs. In Venezuela, price controls first implemented in 2003 severely backfired, leading to shortages, empty shelves, rationing and a black market.