Prices could rise in independent Scotland say supermarkets
Asda and Morrisons say they would be unwilling to absorb the extra costs of doing business in a separate Scotland.
Two of the UK’s largest supermarkets have said food prices would rise in Scotland after independence if the costs of cross-border trade and new Scottish regulations increased.
Asda and Morrisons said they would be unwilling to absorb the extra costs of doing business in a separate Scotland or to pass on any additional costs to customers elsewhere in the UK.
The retailers argue they already have lower margins in Scotland due to higher distribution costs and the Scottish government’s policies on increasing alcohol prices and tougher tobacco control, and the higher business rate levy imposed on the largest stores. They say these costs are absorbed within their UK-wide businesses to ensure uniform prices across all stores.
While Tesco and Sainsbury’s stepped back from the controversy, a source at one of the big four supermarkets said they believed the Scottish National party approach of targeting large retailers, including a £30m levy on the biggest branches, would continue after independence.
The source stressed that his company’s reaction would depend on future Scottish government policy and on the response of other retailers, since some stores could hold or cut prices to stay competitive.
But he said: “The direction of travel seems to be established. [It] would certainly be difficult and more expensive to trade there and we’re in an industry which works on relatively low margins anyway.
“We would do everything we can to avoid passing increased costs on to consumers, but it’s something that might have to happen. It’s simply commercial reality.”
Dalton Philips, chief executive of Bradford-based Morrisons, which has 63 stores in Scotland and a 15% share of the market – more than it does across the UK – told the Financial Times: “If the regulatory environment was to increase the burden of the cost structure on business, that would potentially have to be passed on to consumer pricing. Why should the English and Welsh consumer subsidise this increased cost of doing business in Scotland?”
Andy Clarke, chief executive of Asda, which is based in Leeds and also has a larger share of the Scottish market, at 20%, than it does in the UK as a whole, indicated that his company said he was also worried about new powers to raise or cut income tax rates which will come into force in Scotland in 2016 if there is a no vote in next year’s referendum.
“At Asda we believe in fairness, so the price customers pay for a pint of milk or loaf of bread is the same regardless of where they live in the UK,” he said. “However, the cost of doing business in different parts of the UK does vary and the powers given to the Scottish parliament in the 2012 Scotland Act and any yes vote in 2014 could result in Scotland being a less attractive investment proposition for businesses and put further pressure on our costs”.
The FT reported that another of the top four retailers, either Tesco or Sainsbury’s, supported the stance of Morrisons and Asda. It quoted a senior executive at the unnamed firm as saying: “We would treat it as an international market and act accordingly by putting up our prices. The costs of distribution are much higher in Scotland but at the moment that gets absorbed by the UK business.”
Tesco, Scotland’s largest retailer with more than 30% of the UK market, and Sainsbury’s, which has only about half the level of its UK sales in Scotland, at 8%, refused to be drawn into the controversy on Monday. A Tesco spokeswoman said: “We’ve got a great business in Scotland and our job is to create the best offer for customers whatever the outcome of the referendum.” Sainsbury’s declined to comment.
The Scottish government has put great stress on its support for small shopkeepers, introducing zero business rates for small and medium-sized firms, yet has also given tax breaks to major retailers such as Amazon, to attract investment.
A government spokeswoman said the supermarkets’ anxieties were misplaced. “There is no reason why retail prices in an independent Scotland would be any higher than at the moment. The Scottish government is already delivering the most competitive business rates regime in the UK, and our plans for an independent Scotland include proposals for lower corporation tax and for a fuel duty regulator to cut transport costs, meaning Scotland would be more competitive and less costly than at present.”
A spokesman for Yes Scotland, the pro-independence campaign, said it would make little sense for retailers to raise prices in a competitive market. “A yes vote will give Scotland the opportunity to tailor policies that will encourage businesses to invest and grow. The notion that highly profitable businesses would deliberately make themselves less competitive and therefore less profitable defies all logic.”