Tesco’s chief executive Dave Lewis — once dubbed “Drastic Dave” — has had a go at the government, saying that the combination of high business taxes and the new National Living Wage will be a “potentially lethal cocktail” for retailers and customers.
Speaking to the CBI conference on Monday, Lewis argued that Tesco has faced falling property values, and falling profitability, but also increased business rates. That’s a combination the former chairman of Unilever UK says could cause serious problems, including increased prices and lost jobs.
Profitability in the supermarket sector has dropped substantially in the last five years, Lewis pointed out in his speech. He argued that in two years, food price inflation has dropped from 4% to -2.4%, and that as a result, profitability is now as low as 2%, down from 5% half a decade ago.
Business rates have played a big part in that, Lewis thinks. In the retail sector, business rates now total £8 billion ($US12.1 billion), which according to Lewis is more than a quarter of the total paid by all businesses in the UK, and far higher than in any other sector, he said.
“Our own business rates bill has increased by well over 35% in the last 5 years. It’s the biggest tax we pay and it is now three times OECD average. For every £1 ($US1.51) we pay in corporation tax large UK retailers pay £2.31 ($US3.49) in rates. It’s unsustainable and needs urgent reform.”
“That’s an enormous pressure. Shops have closed. Businesses lost. Jobs sacrificed.”
Lewis also pointed out the pay and benefits packages given to all employees by Tesco is equivalent to £8.80 ($US13.30) per hour outside of London — well above the National Living Wage of £7.20 ($US10.90). Lewis argued that the problem with the Living Wage is that it could force the company to raise basic salaries while cutting employee benefits.
“Our concern, and the concern of many colleagues, is that there is pressure to increase base pay at the expense of benefits. We don’t think this is the answer. We shouldn’t simply strip down employment to an hourly rate or draw arbitrary lines. It’s more complex than that. Benefits are hugely important to our colleagues. Valuable too. Our workforce is not homogeneous.”
To combat the potential for his “lethal cocktail” Lewis was eager to say that he wants the government to work more closely with the retail sector to ensure its success.
“The impact of the retail sector on our wider economy is absolutely massive. We need to be careful we don’t lose or damage some of that almost by accident.”
Lewis finished his speech by saying that close collaboration between government and retailers would be “good for people in Britain as a whole.”
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