HAMISH MCRAE: Chancellor has lost touch with the real world
Rachel Reeves’ plan last week to ease the squeeze on families through the summer was absurd. The Chancellor dropped the headline-grabbing scheme to put a cap on the price of essential foods in supermarkets, but the very fact she even thought of it shows how little she understands how the economy works.
As it is we have a bundle of temporary cuts in VAT for some summer attractions, costing £300 million, and a delay in the increase in tax on fuel prices.
There’s nothing wrong with that, though let’s remember that the Government is already getting much more VAT on fuel from higher prices at the pumps.
But in public finance terms £300 million is a rounding error. Last month, the first in the new financial year, the UK borrowed £24.3 billion, £4.9 billion more than in April 2025 and £3.4 billion more than the Office for Budget Responsibility forecast.
So what should she have done? Let’s focus on food prices. There are some things the Government cannot do anything about. We import nearly half our food and global prices will inevitably climb as a result of higher energy and fertiliser costs. The longer the Strait of Hormuz remains effectively closed, the more we will have to pay.
There’s a bit of help in that the Government is removing tariffs on some imported foods including pasta, oranges, peaches, and tuna, though why on earth it was taxing them in the first place seems pretty rum.
Absurd: Rachel Reeves’ plan to put a cap on the price of essential foods in supermarkets shows how little she understands how the economy works
Where the Government really could help would be to stop imposing more and more costs on the food industry.
Take packaging. There is going to be a new tax on any company that produces packaging that is bought and disposed of by households. It is called the Extended Producer Responsibility scheme and it is, surprise, surprise, a European Union plan to make firms pay for the collecting, recycling and disposing of packages in which they sell products.
It will, according to the Bank of England, add 0.5 per cent to food prices. Since a typical family spends upwards of £5,000 a year on food that’s at least £25 more just because we chose to apply EU directive 94/62/EC.
Maybe it’s worth sticking to European standards. Maybe producers should be made responsible for getting rid of packaging. For many people £25 is neither here nor there. But Reeves should not pretend she is trying to hold down food prices when she is deliberately pushing them up. Or take the new healthy food standards. The idea here is to make big supermarkets shift the balance of their sales so people are buying healthier products.
This isn’t just getting us to eat our five a day, but rather altering the formulation of processed foods so there is less salt, sugar, saturated fats and so on, in them.
It’s a reasonable idea because we probably could be nudged to eat better, but it costs money.
Last year Wes Streeting, then Health Secretary, was warned that it would cost tens of millions just to provide the data needed to set up and monitor the scheme. Then they would have to figure out how to improve their ‘sales-related average nutrient profile’, and of course the Government would have to set targets and enforce them.
Again, this may be worth doing, for obesity is a big problem. But it means food will be more costly, and governments have to be honest about this – just as Reeves should have been honest about the impact on inflation from the additional costs she imposed on employers with her notorious first Budget, which raised National Insurance Contributions, the minimum wage and business rates.
Supermarkets were particularly hard hit because they employ a lot of temporary and lower-waged staff and have limited ways of lifting productivity.
The frustrating thing is the stupidity of it all. Of course we need good regulation, but it is naive in the extreme to pretend that there are no costs to it.
The line that firms can adapt and absorb those costs doesn’t wash. We all end up paying more. It does rather stick in the craw to be lectured by the Chancellor that she ‘will continue to make the right choices, to protect households and businesses, and build a stronger and more secure Britain’, when she had to borrow another £24.3 billion in one month alone to cover the gap between revenue and spending.
I hope I am wrong, but she does seem to be losing control of the nation’s finances.
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