John McDonnell calls for strict price controls on fuel and food basics

The government should impose strict price controls on fuel and basic food items to help families struggling with soaring living costs, the former Labour shadow chancellor John McDonnell has said.

Calling for a radical response to the worst cost of living crisis in a generation, McDonnell said the government needed to take urgent steps to limit the impact from soaring inflationary pressures on workers and their families.

He said controlling prices was vital to reduce inflation, in an open letter backed by 12 leftwing economists, academics, and activists. They include the author Naomi Klein, the economist Ann Pettifor, who correctly predicted the 2007-08 financial crisis, and the social geographer Prof Danny Dorling.

McDonnell said: “At a time of economic crisis, it is time to think big and be radical in restructuring our economy so that never again do people endure a decade or more of falling real wages and rising poverty whilst the threat of climate crisis grows ever more pressing.”

The intervention comes as the government faces heavy criticism over its handling of the cost of living crisis, while also reflecting mounting frustrations among the Labour left and divisions within the party over Keir Starmer’s response.

The Labour leader angered the leftwing of his party by ordering his MPs not to join picket lines during last month’s rail strikes. He has also faced criticism for a perceived lack of ideas and second-guessing public opinion.

The open letter came as Starmer prepared to deliver a speech on how a Labour government would “make Brexit work”.

Drawing up a list of seven economic interventions to tackle the crisis, McDonnell said price controls could be used to regulate rents, energy prices, fuel and basic foodstuffs to help hard-pressed families catch a break.

The plan promoted by McDonnell, who was the key architect of Jeremy Corbyn’s plans for the economy before Labour slumped to its worst election defeat since 1935, is likely to draw comparisons with price control policies used in the 1960s and 1970s to curb soaring inflation.

Although such an intervention appears significantly out of step with modern convention, successive Labour and Conservative governments have used price controls to keep a lid on the soaring cost of living; with a national board and later a commission to impose limits for wages, rents, dividends and the price of basic foodstuffs and other essentials.

UK inflation reached 9.1% in May, the highest level since 1982, and is forecast to hit 11% later this year. Inflation peaked at a postwar high of 25% in August 1975.

Alongside price controls, McDonnell also said it would be sensible to cut VAT from the current historical high of 20%. Such a plan has significant support among rightwing backbench Conservatives, although has been dismissed by the chancellor, Rishi Sunak, as a move that would disproportionately help wealthier consumers and risk stoking inflation.

McDonnell, who describes his hobby as “fermenting [sic] the overthrow of capitalism”, said the government’s windfall tax on the energy sector – a policy first proposed by Labour – should be expanded to other sectors that have benefited from soaring prices. He added that companies that had “excessively wide pay ratios” between their top executives and workforce should be hit with an excessive pay levy.

To reduce inequality, the MP for Hayes and Harlington said greater taxation of wealth was required, and that a “serious programme of investment” was needed to create higher-skilled jobs, green the economy and improve productivity.

“We are in the midst of the worst cost of living crisis in a generation. Wages are falling and the economy is stagnating. Yet in many sectors corporate profits are booming and the number of billionaires in the UK is at record levels,” he said.

“This situation requires urgent action from the government to protect people from the cost of living crisis and to control inflation and bring it down.”