Is the proposed supermarket tax really a ‘job wrecker’?

There have been few better illustrations of the paranoid style in employer lobbying than the response to the large retailers levy or ‘supermarket tax’ proposed in the Scottish Government’s draft Budget.  The Scottish Government estimates that:

• more than 90 per cent of £30 million generated by the proposed large retail levy will come from the largest supermarket branches or out of town retail parks;
• of around 200 business properties listed on the valuation roll for Edinburgh's
  Princes Street
  , the retail levy would impact on 10. Another two properties nearby would also be affected;
• of 365 properties listed on the roll for Aberdeen's
  Union Street
  , the levy will impact on just two retailers;
• in Glasgow city centre's three main shopping streets - Sauchiehall, Argyle and Buchanan Streets - there are almost 1,200 properties on the roll. But just 17 of these will be affected;
• of 1,798 shops on the valuation roll for Dundee, it is estimated only one non-supermarket city centre retailer will be affected;
• of 739 shops listed on the valuation roll for Inverness, it is estimated only two properties in the centre will be affected; and,
• of 746 shops listed on the valuation roll for Stirling, it is estimated only four shops (three of which are large supermarkets) will be affected.

At a time when the Scottish Budget is severely constrained and when we’re all meant to be ‘in this together’, the levy doesn’t look too unreasonable does it? Apparently not. Here’s Fiona Moriarty, Director of the Scottish Retail Consortium speaking at the first gathering of the ludicrously named ‘Competitive Scotland’; an alliance formed to fight what they describe as a ‘job wrecking levy’:

“Preventing this unfair tax on successful businesses is at the top of the retail sector’s agenda, and we aim to place it at the top of the Government’s agenda as well…preventing this ill-conceived measure from going ahead will be crucial to Scotland’s economic security in the months and years ahead”.

‘Crucial to Scotland’s economic security’?! I fear they might actually believe it. And what I wonder, would the SRC regard as a fair tax? Perhaps they can tell us.

It’s hardly worth commenting on the activities of the more feral elements of the Scottish employer lobby. But, to be fair, the Scottish Government’s proposal does raise a number of questions that should be addressed:

• will the levy ‘wreck jobs’?
• are large retailers being unfairly targeted?
• what does ‘competitiveness’ mean in a retail context?

Will the levy wreck jobs?

The Telegraph reports that it is estimated the levy would result in Tesco paying an additional £9m a year; Asda £8.8m; Morrisons £4.4m; Sainsbury’s £3.5m and B&Q £2m. Marks and Spencer would pay £1.3m more, while the tax would also apply to big names such as Ikea, John Lewis, Primark, Debenhams, Next and one store operated by Harvey Nichols.

It is not made clear who provided these estimates but, given the context of the article, it is fair to assume that it was the companies or the SRC.

In a submission to the Scottish Parliament’s Economy Committee’s scrutiny of the draft Budget, the SRC provides the following examples of how rising business rates will affect its members. These examples, which I guess the SRC consider the most dramatic, are of course anonymous:

·        Company A estimated that applying a 1p increase in the poundage rate would cost its business around £260,000 from 1 April 2011. This cost would be even higher if the levy was to be applied to empty properties.

·        Company B estimated that every 1p increase in the poundage rate would increase its rates liability by around £360,000 in 2011/12. This will be in addition to any annual uplift resulting from RPI growth.

The Telegraph reported that for any property valued at more than £750k, the Scottish Government would set the levy at 15p in the pound. Wrong. Only the very largest properties (rateable value over £2.14m) will be subject to the 15p rate (actually 14.3p given that they would already have been paying 0.7p to help fund the Small Business Bonus Scheme). However, let’s for the sake of argument assume that companies A & B fall into this category.  Company A would pay at least an additional £3.9m and company B £5.4m.

Big numbers eh? Shame they’re completely meaningless. If the SRC wished to demonstrate an obvious negative impact on jobs then they would have to have shown this increase in context: what is the total business rate charge to the company? How does this increase look relative to total profits accrued from the company’s Scottish locations? How many people does the company employ in Scotland? What is the business rate increase per job and how does this sit in relation to total labour costs? What are current investment plans and are these affected by the levy?

As is the norm with corporate lobbying, none of this is supplied. So we’re left to take it on faith that the levy will be bad for jobs; that some of the UK’s most profitable businesses will be unable to absorb this relatively small extra cost without sacking workers or postponing/cancelling future investment with a wider detrimental impact i.e. construction.

Interestingly, two supermarkets – Waitrose and Sainsbury’s – have announced major investments in Scotland since the levy was proposed….and let’s leave aside for the moment the longstanding question about how much employment generated by a new supermarket is genuinely new and how much displaced. Funnily enough, the Federation of Small Business (increasingly the only employer body with which it is possible to hold a grown-up discussion) supports the levy.

Are large retailers being unfairly targeted?

Well, you know, I’m not even going there. Forcing society’s most vulnerable to bear the brunt of brutal fiscal consolidation – that’s unfair. If large retailers wish to provoke a debate about fairness then let’s widen it to include their tax affairs, disparities between executive and shopfloor wages and pension arrangements and environmental impact.

What does ‘competitiveness’ mean in a retail context?

It is so amusing that the new alliance against the levy has chosen the name ‘Competitiveness Scotland’? They clearly have no conception of how ridiculous they make themselves look to…well…anyone who isn’t a business lobbyist.

Retail is not exposed to foreign competition. I really hope Competitiveness Scotland accepts this much. However, they also seem to suggest that Scotland will lose out over the rest of the UK given that the levy will result in a higher business rates ‘burden’ north of the border.

Again, this is quite meaningless without further context: what proportion of the total cost base of a large retailer will the levy account for? I don’t know but I’m guessing it will be minimal. Or less. Ok, even a minimal proportion of the cost base could still reach the millions of pounds. Could this possibly provide sufficient reason to cancel investment? I think the actions of Waitrose and Sainsbury’s speak louder than lobbyist puff.  Large retailers will go wherever the market is of sufficient size for them to generate profits. It’s hardly credible to argue that this levy will be the tipping point for cancelling investment.  

It’s telling that lobbyists for large retailers are so bullish about provoking discussions on competition related matters. Yes, we hear a lot of rhetoric about the benefits of competition between the supermarkets but the level of profits achieved year on year indicates that the market is much closer to oligopoly than perfect competition. Hardly surprising when four firms so dominate the market. Funny how lobbyists drop the neoclassical economics when it suits them.

Perhaps the really important issue arising from the proposed levy is how politicians will respond to the employer backlash. What are the consequences of Scotland’s politicians conceding further ground on taxation to big business?

Before answering this it’s worth emphasising that Scotland’s businesses are not over-taxed. The World Bank currently rates the UK at 4^th out of 183 nations in its ease of doing business rankings. On the ‘paying taxes’ component of this composite index, the rank is 16^th. This indicator considers the level of taxes and the administration ‘burden’ involved in complying with tax responsibilities. Scotland doesn’t appear separately on the rankings but if takes a Herculean feat of imagination to believe that the proposed levy would dramatically alter Scotland’s position.

Exaggeration and distortion of the nature and scale of business taxation is endemic and the positive case for business taxation is hardly ever promoted in the public realm. It used to be generally understood that corporations earn their “social license to operate” insofar as they contribute to the general good of the societies in which they exist. This now appears to be a quaint and unrealistic ambition.

The consistent inability of politicians to take on the employer lobby on tax leads to very damaging outcomes:

·        An inability to collect taxation due – the success of corporations in avoiding and evading taxation continues to be prodigious. (Incidentally, one of the advantages of property based taxes such as the levy is that they can’t be avoided). This increases corporate profits and shifts taxation responsibilities increasingly onto workers thereby reducing final demand, increasing inequality and rendering the economy more unstable;

·        Bad policy – for instance, the Scottish Government’s Small Business Bonus Scheme an expensive, pointless exercise that hasn’t led to the creation of a single extra job. The focus on taxation also shifts the focus and resources from areas that will make a genuine difference to Scotland’s ‘future economic security’ such as industrial policy, infrastructure, skills, R&D and investment support and so on.

 With unemployment high and a range of factors conflating to ensure that it will remain so for at least a couple of years and probably much longer, it is thoroughly depressing that so much political capital is being expended on a non-issue such as the large retailers levy. Let’s hope that the Parliament will pass this measure and quickly move on to discussing those aspects of economic development that really can make a difference to Scotland’s workers and communities.

Stephen Boyd - STUC