Asda has vowed to end the below-cost selling of alcohol in its stores.

The retailer has unveiled a new commitment not to sell alcohol below cost including VAT and duty and has pledged to offset any potential increase in the cost of shopping by cutting prices elsewhere.

CEO Andy Clarke has written to home secretary Theresa May to explain Asda's position. "I see this as an important first step in the process towards creating a new way of selling alcohol in the UK," he said.

The pledge to introduce a 'floor price' marks an attempt by Asda to seize the initiative on the below-cost, which hit the top of the political agenda under the coalition.

Asda is cutting the price of milk this week from £1.53 for four pints to £1.25. It stressed this was not at the expense of dairy farmers and would balance any alcohol price increases.