Supermarkets in the UK are being encouraged by the government to introduce price caps on key products, such as eggs, bread and milk, in return for the easing of some regulations, it has been reported.
The Treasury has proposed relaxing some new packaging rules, and possibly delaying changes to rules around healthy food, in exchange for price caps, two sources told Reuters.
They said the supermarkets had reacted with anger, and are pushing back. The story was first reported by the Financial Times.
Sky News understands the government is not considering imposing supermarket price caps.
It comes as the government faces a cost of living crisis, and after the Scottish National Party proposed a price cap for "essential" foods.
"If this happened, nobody would invest in the UK," one of the sources told Reuters.
"If you want food price inflation to decline, you need to start looking at the cost of regulation on business," they added, going on to highlight the government's moves to raise employer taxes, the national minimum wage, introduce new packaging levies and propose the reformulation of thousands of food lines.
A spokesperson for the Treasury said: "The Chancellor [Rachel Reeves] has been clear we want to do more to help keep costs down for families, and will set out more detail in due course."
UK grocery inflation sat at 3.8% in the four weeks to 19 April, according to researcher Worldpanel by Numerator.
The Bank of England said businesses it had spoken to last month expected food price inflation to reach 6 or 7% later this year on the back of the economic fallout from the Iran war.
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The British Retail Consortium (BRC), which represents UK's major supermarket groups including Tesco and Sainsbury's, said it opposed price caps.
"Rather than introduce 1970s-style price controls, and trying to force retailers to sell goods at a loss, the government must focus on how it will reduce the public policy costs which are pushing up food prices in the first place," BRC CEO Helen Dickinson said.
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