Chancellor John Healey’s warning that shoppers must not be “taken for a ride at the pump or the till” was designed to show households that the government is ready to confront businesses.
Politically, the intervention is understandable. Economically, it risks identifying the wrong culprit.
Healey simultaneously acknowledged that there was “no significant evidence” of price gouging during the current cost-of-living crisis, and told major retailers that ministers were watching closely for signs of profiteering.
That contradiction allows the government to appear tough on prices, before establishing that retailers are doing anything wrong, while quietly preparing voters for an inflationary shock principally being driven by energy, transport and commodity costs.
The message to retailers is equally uncomfortable – absorb another wave of external cost increases or risk being publicly accused of exploiting shoppers when prices, inevitably, eventually rise.
A warning searching for evidence
There’s a legitimate role for government and regulators in monitoring how businesses behave during a crisis.
Sudden increases in wholesale costs can provide cover for companies to widen margins, while volatile markets make it harder for consumers to judge whether individual price rises are justified.
That case is particularly strong in road fuel, where the Competition and Markets Authority has previously found that average retail margins remain above historic levels and that competition in parts of the market is weak.
However, the evidence against supermarkets is considerably less convincing.
The CMA’s work on grocery competition found no widespread evidence that weak competition between supermarkets was driving food inflation. It said grocery margins were historically low and that the cheapest retailers had continued taking market share, putting pressure on rivals to remain competitive.
That doesn’t prove that every future price rise will be fair. But it does mean ministers should be cautious about implying that supermarket pricing is inherently suspect.
Supermarkets operate in a market where shoppers compare the prices of milk, bread, eggs and other essentials closely. These products are frequently used to communicate value and, in some cases, are sold at extremely low margins or as loss leaders.
A retailer that moves too quickly on price risks handing customers to a rival. The commercial incentive is therefore often to delay rises, negotiate with suppliers or absorb part of the increase, not to pass every cost directly to shoppers.
Retail does not control the shock
The inflationary pressure now facing the UK didn’t originate in supermarket boardrooms.
The Bank of England expects inflation to rise again during the second half of 2026 because of higher energy prices and their knock-on effects across the economy. Its latest forecast puts CPI inflation at around 3.2 per cent in October and November.
Those effects travel rapidly through retail.
Higher oil prices increase the cost of moving products between factories, warehouses and stores. Gas and electricity affect refrigeration, manufacturing and distribution centres. Energy-intensive materials become more expensive, while suppliers eventually seek to renegotiate their prices.
The pressure is already visible further up the supply chain. UK producer input prices were 7.3 per cent higher year on year in June, with crude oil costs up 42.3 per cent, while factory-gate prices rose 3.5 per cent.
By contrast, headline consumer inflation eased to 2.6 per cent in June, with food and transport among the categories pulling the rate down. That suggests some of the upstream shock has not yet reached shoppers, or is being absorbed before it reaches them.
The danger for the government is that it begins accusing retailers of profiteering precisely when the delayed impact of higher input costs starts appearing on shelves.
The government cannot ignore its own role
The row also throws into contention a wider frustration across the retail industry.
Retailers have spent the past two years warning that government policy is raising the cost of employing people, operating stores and bringing products to market.
The British Retail Consortium estimates that increases to employer National Insurance and above-inflation rises in the National Living Wage added £6.5bn to retail employment costs over two years. Retailers have also faced packaging charges and changes to business rates.
The BRC is not a neutral observer, and its forecasts should be treated as industry advocacy. But the underlying point is difficult to dismiss. Ministers cannot continually add costs to a low-margin sector and then react with suspicion when some of those costs appear in prices.
The government wants retailers to increase wages, invest in stores and technology, improve packaging, protect jobs, support suppliers and shield customers from inflation.
Individually, each ambition may be defensible. Collectively, they require money.
When costs rise, retailers have only a limited number of options. They can increase prices, accept lower profits, cut investment, reduce staffing, pressure suppliers or close weaker stores. None is painless.
Price controls would treat the symptom, not the cause
The government must also avoid reviving the idea of supermarket price caps.
Rachel Reeves considered measures to restrain the cost of staple foods earlier this year, prompting Marks & Spencer boss Stuart Machin to describe the proposal as “completely preposterous”.
Artificially suppressing prices doesn’t make underlying costs disappear.
It may instead lead retailers to raise prices elsewhere, reduce promotions, remove unprofitable products, squeeze suppliers more aggressively or scale back investment.
The strongest protection for consumers remains competition. That means ensuring shoppers can compare prices, challenging local markets where competition is weak and acting against demonstrable abuse, not asking retailers to sell goods below an economically sustainable level.
The warning is political insurance
Healey’s intervention ultimately looks like an attempt to establish the government’s position before inflation rises.
Should household bills climb during the autumn, ministers will be able to say that they warned businesses and stood ready to protect consumers.
That may be useful politically. But it doesn’t amount to an inflation strategy.
The government should continue monitoring margins and make clear that opportunistic pricing will bring swift regulatory attention. At the same time, it must acknowledge that legitimate price rises are likely when energy, transport, labour and regulatory costs all increase together.
By warning retailers before presenting evidence, Healey risks turning the sector into a convenient scapegoat for a global energy shock and a domestic cost base partly shaped by government policy.
The real test is whether ministers can distinguish profiteering from unavoidable cost pass-through, and act on evidence, rather than political expediency.
Click here to sign up to Retail Gazette‘s free daily email newsletter
