A maximum price for a carton of milk

‘If you see that oil and gas producers make record profits while consumers pay record prices, something has to be done,’ says FNV chairman and SP member Tuur Elzinga. “And if that does not happen automatically, through supply and demand, the government must intervene. The Prize Act has been specially designed for that purpose.”

The Prices Act gives the Minister of Economic Affairs the power to temporarily set maximum prices for products and services in special cases – but fell into disuse in the 1980s.

Yet the phenomenon that the government controls prices is as old as capitalism, says emeritus professor of economic history Jan Luiten van Zanden. “From the late Middle Ages, governments set maximum prices for bread and other basic necessities. The idea was that you should not profit disproportionately from emergencies. And governments feared riots and speculation. A certain fairness had to be brought into the market economy.”

In 1939 the Price Increase and Hamster Act came into effect, with which prices were frozen for a long time – even after the war. Sometimes a maximum price applied: in 1967 a liter bottle of milk was allowed to cost 0.58 guilders.

extortionate prices

While people wanted to combat extortionate prices in times of scarcity, after the 1950s it was all about preventing a wage-price spiral. Professor Van Zanden: “To strengthen the competitive position, wages were only allowed to rise in a controlled manner. Price control had to ensure that the cost of living did not get out of hand in the meantime.”

He said it worked well for a while. “But as the free-market economy began to flourish, companies increasingly sought to avoid price caps. They came up with a different brand or a slightly different product to get out of it. There was no support anymore and the government gradually released the prices.”

In 1961 a new Price Act was passed that only allowed unilateral intervention in the event of ‘irresponsible price increases’. Since 1982 there has even been an ’emergency of the national economy’.

That situation is now occurring, says FNV chairman Elzinga. “To combat the needs of the population, the legal minimum wage and other wages must be increased considerably. Income tax should be lowered, and profit and wealth tax should be raised.” In addition, he says, the Prices Act can temporarily limit inflation “very directly at the source”. “You then bridge the winter, and you ensure that the inflation pain partly falls on companies that are now taking a lot of profit. We do not say: turn back the energy price, because a high price is an incentive to live more energy-efficiently. But put a maximum on it, that also happens abroad.”

Also read: Central Planning Bureau: ‘dramatic’ decline in purchasing power

GroenLinks is also in favor of intervention in energy prices. The party already proposed this shortly after the start of the war in Ukraine. MP Tom van der Lee (GL): „You should very specifically maximize the rates for small consumers. If energy companies have to pay producers more than they can charge, the government should compensate them.”

The fact that energy companies will ask the government for compensation is an important disadvantage of the Prices Act, according to Member of Parliament Henri Bontenbal (CDA). A fixed price would also reward poorly performing energy companies. “So the use of the Prices Act is by no means a free option for the taxpayer or a quick solution to the problems in the energy market,” Bontenbal said.

MP Pieter Omtzigt is not enthusiastic about using the Prices Act because of the risk that energy sellers will fall over and customers will be left with a noose. “The government could also look at how you can make the Groningen natural gas that still comes out of the ground available to households in the Netherlands at an acceptable price.”

And what does the Minister of Economic Affairs, who is in charge of the Prices Act, think? Harald Hanemaaijer, spokesman for Minister Micky Adriaansens (VVD): „I dare not say whether the Prices Act is on the table. If there were indeed an emergency situation such as the law describes and there were to be a price measure, everyone would only hear about it once a decision has been made in the Council of Ministers.” That’s not surprising in itself – with a price stop, prices shouldn’t skyrocket in advance.

The spokesperson emphasizes that purchasing power-enhancing measures have already been taken, such as a reduction in energy excise duties, an energy surcharge for minimum wages and indexation of pensions. He also points out that the Prices Act dates from a very different time – then there were not that many different products, and they were made and sold much more than now in the Netherlands.

FNV leader Elzinga understands that it is impossible for the government to determine a price for every product, but in addition to energy, he also sees a role for price control in daily shopping. “In that case, research at least whether you can make a standard basket of, for example, twenty products with food, drinks, cleaning products and personal hygiene. If you freeze those prices, you prevent a lot of families from being unable to afford the most basic groceries.”

sympathetic idea

Professor Van Zanden thinks price caps are a sympathetic idea, but does not see it happening. “Which products do you choose? Bread, for example – used to be about thirty percent of the expenditure – now only makes up a very small percentage of the expenditure, that doesn’t make much sense. And the retail companies have to carry it out. Enforcement is very difficult. If supermarkets make excessive profits, you can also consider introducing an additional profit tax.”

However, that does not help the consumer in the short term. And freezing all prices in one fell swoop, isn’t that simple and clear? “I don’t think the government has the capacity for that,” says Van Zanden. “But in the case of petrol, gas and electricity, intervention through the Prices Act could be very effective. That is clear: a limited number of products, a transparent market and few players. And the prices are now shockingly high. I read that people have to pay 4,000 euros per year in energy, half of the population will not survive financially.”