Food price hikes will become baked in if we can’t choose a fiscal policy and stick with it
Yesterday marked a grim milestone. Food and drink price inflation hit its highest recorded level since the 1980s. In the year to September, it has jumped to 14.6 per cent and the rise in food prices has helped push overall inflation over 10 per cent. What’s more, it hasn’t peaked yet – prices will certainly go higher. This is bad news for everyone, particularly for those facing invidious choices between heating and eating.
The UK’s hard-working food and drink industry is in the eye of a powerful storm. Companies are battling to contain inflation and bear down on price rises for shoppers. We know we have a huge responsibility to keep food affordable, as well as delicious, nutritious and safe. But we’re being swamped with rapidly rising bills of our own.
Government support to businesses on energy costs is very welcome. It’s helping us manage massive rises in our energy bills and it’s a lifeline for many manufacturers, especially small businesses. Although it hasn’t stopped energy suppliers putting through big rises in standing charges or demanding sizable security deposits to guarantee supply.
But energy support isn’t enough on its own to help food and drink businesses weather the storm and keep fighting inflation. Government policy needs to look further ahead.
We need to know whether the package of energy support will extend beyond six months. Our businesses won’t suddenly start to use less energy in April, as is the case with households. We bake, chill and freeze food and drink all year round. We need to know what the plan is as soon as possible.
Our industry needs to understand quickly what the government’s economic policies will be. These provide a framework for business planning. Our companies need to invest – in innovation, technology and in the skills of our people – or we won’t stay competitive. But, just as households are finding, this is a risky time to be borrowing more or making commitments to new investors. It’s hard to overstate how much the huge uncertainty in government right now matters – with tax cuts made and then reversed, and tax incentives left hanging. You can’t see it like a price rise on a product in a shop, but it’s there and it’s undermining our economy and prosperity in a very real way.
Finally, the government needs to tackle regulation. Our sector is highly regulated, and for good reason. But ministers and civil servants aren’t consulting industry properly on improving new and existing regulation, and as a result it’s pushing up costs and fuelling inflation.
An example is the government’s proposed policy for recycling household plastics and packaging. These materials are critical for keeping food and drink fresh and safe until it’s ready to be consumed and companies in our sector want to be able to reclaim and reuse them. But the government’s plans are flawed. They’ll cost us all – companies and shoppers – more, without guaranteeing valuable materials will be properly sorted and turned back into packaging. Soaring inflation should be motivation enough for government to return to the drawing board, partner with industry, and come up with much better plans.
If government can’t do these three things, opportunities for growth will quickly recede and food and drink price rises – and inflation more broadly – will start to be baked in. Government needs to act now.