Updated 05/09/2014 with an I told you so: Tesco Tweeted this morning in response to No camp renewed claims about prices going up:
@JimTorranceSNP Hi, we have a great business in Scotland and will continue to offer the best prices whatever the outcome of the referendum.
Well thats the obvious stated here is what we wrote when they fort brought up this ridiculous scare story.
The London centric media are at it again – chasing business people to make completely innocuous comments on independence and then twisting them out of context to create a negative headline but the story has no real credibility!
The Financial Times claimed today: “Scottish consumers will pay more for food if they vote for independence in next year’s referendum because Britain’s big supermarket chains plan to raise their prices north of the border, senior executives have warned”.
Let’s be absolutely clear: no supermarket has said that prices will rise in an independent Scotland. The FT headline is entirely inaccurate. In fact, it has been reported on the BBC website that:
“Neither Asda nor Morrisons said they had any plans to raise prices in an independent Scotland”. Meantime, Tesco and Sainsbury’s have distanced themselves from the report.
The FT article claims that “top executives” representing three of the Big Four supermarket groups told the Financial Times that they currently absorbed the extra costs of doing business in Scotland into their UK operation. But the article does not say that there are any plans to change pricing from any of the supermarkets in response to a change from Westminster to Holyrood Government.
The reality of retail
I spent several years selling both branded products (whilst at P&G) and own label food products (whilst at Northern Foods PLC) to the major retailers and had a specific specialism in ASDA and Morrisons. I also spent several years helping Scottish food companies to deal with the multiple retailers whilst in the Food Sector development team of Scottish Enterprise.
As such I have an insight into – you might even say expertise in- the retail sector. The only bit of truth in the whole story is that there is a higher distribution cost for supermarkets of doing business in Scotland. To get food and branded products made in the rest of the UK to Kirkwall or even Aberdeen does cost more, but it also costs more to distribute these goods to Cornwall, Northumberland and Cumbria, in fact it is cheaper for ASDA who are Leeds based to distribute goods to Leeds than to Portsmouth. Distance not borders is the source of additional cost. So are the supermarkets planning on new pricing strategy based on distribution costs within England?
Is Asda planning a new advertising campaign where they say “that’s the Asda price, unless you live in Scotland or Cornwall where we are more expensive than the retailers who wanted to take our market share in your area by keeping their costs down”? It’s not a very snappy slogan, or a wise marketing strategy.
In truth, of course, market competition sets prices and if one supermarket decides to raise its prices only in Scotland its competition is very likely to respond with a commitment to keep prices the same for Scots. Imagine the market share they would take, especially from firms which are already seen as South-East of England brands.
As I say, the one element of truth in the story is that it does cost more to distribute goods to Scotland. But it costs more now whilst Scotland is part of the UK, the supermarkets know this, and they also know that if they differentiate prices then consumers will go to the supermarkets that keep their prices down to gain market share and show loyalty to Scottish customers no matter the way they choose to vote. Markets not geo-political boundaries set supermarket prices. Devolution didn’t raise prices so why should more political autonomy when it includes the retention of a currency union and common market?
A key outcome of independence will be more growth for Scotland’s economy though the use of all the appropriate levers of powers tailored to Scottish circumstances. A growing Scottish economy with a population that has more money to spend, a more business friendly tax environment and a growing population will consume more goods not less so the cost of doing businesses in Scotland will look more attractive to some supermarkets after independence.
Let’s remember though that this is a scare story and go back to the core truth that is that as reported: “Neither Asda nor Morrisons said they had any plans to raise prices in an independent Scotland”.
Today’s article has also led to counter-claims that food prices may either rise or fall after independence. Both Robert Peston, BBC Economics Editor, and the Scottish Government have highlighted that a reformed Scottish tax system could mean lower prices for shoppers in Scottish stores. The opportunity of these savings are compounded when considering the wider context of the food market in Scotland.
The basis of a scare story
The No Campaign has claimed that doing business in Scotland may require higher costs and therefore may lead to higher prices at the till. This, they claim, is due to the more dispersed nature of Scotland’s population and geography in comparison to the UK as a whole. It’s difficult to tell who actually supports this view. Tesco has already distanced itself from the story and not a single supermarket chain has backed it up today.
There is, however, a wealth of publicly available information which demonstrates that food prices in Scotland are likely to be reduced in the long term.
Six facts: Prices are more likely to fall in the long run
1) It is not in company’s interest to immediately break up their pricing structure
As Robert Peston explains in response to today’s story, there are “cost advantages” of maintaining an equal pricing system. “It would be expensive to change IT systems, marketing, point-of-sale literature and advertising to facilitate differential pricing in Scotland and England.” There is no immediate incentive to break-up the pricing system within the retailing network or to disinvest in Scotland. Supermarkets operate in Scotland as it is profitable.
2) Certain business costs are lower in Scotland than in the rest of the UK
While transport and storage costs may be higher in Scotland’s rural communities, certain costs are lower across Scotland than in the UK as a whole. This includes the price of rent and property; and the cost of wages. When taken in tandem, the cost of doing business in Scotland also includes variables which can reduce overall costs.
3) A distinctive Scottish tax system can help reduce prices and costs for retailers
Two of the key costs in doing business raised by the supermarkets are taxation and cost of fuel. The Scottish Government proposes a reduction in corporation tax following independence which would reduce the costs of food production within the company supply chains. The Government has also proposed extra support for fuel and travel costs to rural communities through an extensive transport development program. These developments can reduce the costs of doing business in Scotland for companies.
4) Investment support for agricultural production will be increased following independence
Recent figures revealed that Scotland receives the lowest agricultural funding support of any nation in the whole European Union. Member states of the EU are entitled to ‘uplifts’ in their funding allocations within the Common Agricultural Policy. As an independent country Scotland would have been entitled to €1 billion worth of extra funding over the 2013-20 period to support farming and agriculture. This extra investment and support can reduce the costs of food production in Scotland and can lead to lower prices at point of sale retailers.
5) Scotland has strengths in production and export of food and drink
Domestically, Scotland has an abundance of domestic food and drink produce. In 2011 the turnover within this sector was £13.1 billion. These goods form a crucial link between agriculture and retail providers in Scotland. These goods form 18% of Scotland’s overseas exports compared to the 1.5% of UK exports from the same sector. Food and drink production is a great strength in Scotland’s economy. Indeed the opportunity to support this sector and develop more locally sourced food can reduce costs and prices in the long term.
6) Food cost increases, wage stagnation and food bank poverty are marks of Westminster policy not independence
It is inconceivable to claim that the current system of food pricing within the UK is operating in Scotland’s favour. Not only are food prices continuing to increase faster than wages, but thousands of families are being dragged into poverty and dependence upon food hand outs.
As previously argued on Business for Scotland, this is the result of Westminster’s dysfunctional economic and social policy which has failed to mobilise Scotland’s resources and wealth for the people who live in Scotland.
According to the Consumer Price Index, prices are rising at a rate 3 times higher than wages. In September and October the rate of food price increases was 4.8% and 4.3% respectively at the 12-month rate. The overall index has consistently measures towards 3% since late 2011 and was previously much higher for the two years before. This compares poorly to the low rate of wage increases which has been below 1%. James Plunkett, of the thinktank the Resolution Foundation previously remarked that “The fall in real wages we’ve seen has been unprecedented. But perhaps most worrying today is that there’s still no sign of the wage squeeze ending”.
It is this increasing gap between the cost of living and earnings that is leading to stress and strain for consumers in Scotland. Without an economic policy that provides investment, quality employment and support for key business sectors in Scotland, such inequality will continue to harm business.
For these reasons it is clear that the opportunity to reduce supermarket prices is greater than vague assertions concerning Scotland’s geographical or the UK’s political make-up. The business incentives go both ways and many are in Scotland’s favour. The opportunity of developing a tax and business system can reduce costs. A re-allocation of CAP funding will provide greater support for agriculture in Scotland and therefore reduce production barriers. Scotland’s strong food and drink industry provides a home grown produce to benefit the Scottish market. And, finally, it is the current Westminster economic combination of inflation and wage reductions in real terms that is contributing to food poverty across the UK and especially in Scotland.
In contrast, this scare story ran in the FT, a venerable London centric newspaper. The concept of Scottish self-governance is a challenge for all such London centric institutions. I have challenged them before on the need to think outside the London bubble. To their credit the FT printed my letter last time. But some of those working as part of or in proximity to the failed Westminster system and the City of London fail to comprehend the prospect of Scotland succeeding as a competitive force in the global economy.The Scottish Government’s White Paper – “Scotland’s Future” is a visionary forward thinking, fully costed and detailed document that points the way to building a better Scotland. The No Campaign has no answer to Scotland’s Future. In desperation they try to spin nonsensical scare stories like this that simply do not stand up to intelligent investigation. With independence there is the opportunity to develop a more competitive and fairly priced food market utilising Scotland’s strong economic advantages in food, drink and agriculture. This can reduce prices and leave families and consumers and Scottish suppliers better off as a result.
Join Business for Scotland – Read More
You also like this article which has 19,000 likes > Where does Scotland’s wealth go?