Parents have been “paying over the odds” for baby milk because of a lack of competition in the formula market, a government watchdog has said.

It stopped short of recommending price controls, but said they remain a possibility, adding parents have been “shouldering the costs” of price increases in the market for years.

The Competition and Markets Authority’s (CMA) interim report said the baby milk industry needed a shake-up to help parents struggling to afford it.

“We’re concerned many parents opt for more expensive products, equating higher costs with better quality for their baby,” CMA chief executive Sarah Cardell said.

Just two companies – Danone and Nestle – control the majority of the UK market.

A spokesperson for Danone said it “will engage with the CMA as it develops its final findings and recommendations”. Nestle has previously recommended the investigation.

Prices for baby formula in the UK have jumped between 18% and 36%, depending on the brand, over the two years between December 2021 and December 2023, the report found.

It added parents could make a saving of up to £500 over a baby’s first year of life by switching to a lower priced brand.

The market is currently regulated so that promotions, such as a loyalty points or discounts, are banned.

This is to encourage breastfeeding, but the CMA said it was concerned this stops firms competing on price, adding this “unintended consequence” could mean “consumers paying higher prices”.

It found there was “little pressure” on firms “to shelter customers from increases in manufacturing costs, which have largely been passed on quickly and in full”.

The rules also require all brands of baby milk formula, including supermarket own brands, not to differ too much in terms of core ingredients.

However, the CMA is worried the words companies use to make their products stand out, such as “advanced”, make it hard to judge their quality.

It said this “risks diluting the important public health message that all infant formula meets nutritional needs” regardless of brand or product.

To solve these concerns, the CMA has recommended an overhaul of the market.

As part of this, it recommended companies clearly separate their baby milk brands from their follow-on milk brands, for babies after six months, because it worried “brand reputation plays an outsized role in decision-making”.

It also recommended “permitting prices and price reductions to be publicised”, to encourage price competition.

Strengthening the existing rules so that they also apply online and making sure parents have access to the right information was also recommended.