Food prices in an independent Scotland

 
Haggis

It is a statement of the bloomin' obvious that businesses behave differently in different countries.

It is equally obvious that if Scotland becomes a separate nation, businesses that straddle the borders of Scotland and the rest of the UK will - over time - assess questions such as where they invest and how they price on the basis of national conditions.

So far, so uncontentious.

The problem is that almost anything that a company says in public about the nitty gritty of all this becomes stunningly contentious - because emotions in the political class are running high about the merits or disadvantages of Scottish independence.

As an illustration, here is what the boss of a very big FTSE company told me about a recent meeting with representatives of the Scottish government:

"I made the obvious point that we cannot make investment decisions in Scotland at the moment because of the uncertainty about the tax regime. The mood of the meeting immediately became very dark, they became very aggressive."

Start Quote

Lots of companies [are worried] to state merely what they think are the basic facts of what independence would mean for them”

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I repeat this not because I have any particular sympathy for this business. It is big enough and brassy enough to look after itself.

But it is a refrain I hear from lots of companies, that they are worried about sticking their heads above the parapet, even to state merely what they think are the basic facts of what independence would mean for them - for fear of being accused of tendentiously trying to influence the debate.

For the avoidance of doubt, the point here is that the basic facts - as seen by these big stock-market-listed companies, I stress - would frequently pose more questions to those in favour of independence than those against.

There is a resonant example of this in today's FT, which reports that bosses of three of the four biggest supermarket chains are warning that food prices in an independent Scotland might well be higher than in the rest of the UK.

It is striking that none of the supermarket groups cited had the confidence to say this on the record, in the name of their respective individual businesses. They were hiding in the herd, presumably hoping that Alex Salmond will be less cross with them.

But, while they might not quite have the courage of their convictions, it is what they believe.

Here is the logic, according to the chief executive of one of them.

Scotland has a large dispersed population, so transport costs - logistics - tend to be higher in Scotland than in England.

Scottish people eat relatively less fresh food than the English, and fresh food is much more expensive to transport and store (the logistics of supplying fresh food are highest). So it is relatively more costly to provide fresh food in Scotland.

Scots eat relatively more branded products, where profit margins for the supermarket chains are slimmer.

The biggest Scottish supermarkets, those with a rateable value of more than £300,000, and which sell both cigarettes and alcohol, pay a 28% "health" increment on business rates - which costs them collectively around £30m a year.

There are national Scottish restrictions on how they can market alcohol.

All of these represent current national differences between the costs of doing business in Scotland and in England for the supermarkets.

But at the moment, the big four supermarket groups - Tesco, Sainsbury, Asda, Wm Morrison - absorb these differential costs in a pan-UK pricing policy. They take on the chin that the intrinsic profitability of doing business in Scotland is less than for England.

Which is reasonable, because there are some cost advantages of doing so. It would be expensive to change IT systems, marketing, point-of-sale literature and advertising to facilitate differential pricing in Scotland and England.

So if Scotland were to vote for independence, it is very unlikely that food prices in Scotland would rise immediately.

But to return to statements of the bleedin' obvious, over time - and as it became settled in the minds of the boards of these companies that Scotland had become a foreign country - these differential costs would probably be manifested in differential prices.

To be clear, this would not necessarily be to the disadvantage of the Scots. If, for example, a future Scottish government decided to cut business rates relative to their level in England, that might lead to lower food prices in Scotland.

However, the supermarket groups tell me that the Scottish government's promise to cut the headline rate of corporation tax by up to three percentage points would be of little benefit to them. The boss of one says the health increment on the rates currently costs them more than four times what that cut in corporation tax would shave off their tax bills.

What would trigger a sudden and immediate implementation of differential pricing? Any decision to ditch sterling would do so. Which is presumably one important reason why Alex Salmond is so insistent that the pound will be retained.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +2

    Comment number 1003.

    Everyone is missing the point. it is not the what the CEO's of these companies said - It is how they are reported.
    We were told yesterday in the headlines and on 'The One Show' that 'Food prices Will rise". - That is not what they said they also alluded that food prices may also fall - it depends on the policies of the government of an Independent Scotland. I expected better from the BBC

  • rate this
    +1

    Comment number 1002.

    The grindingly depressing thing about this is that once the Yes vote has been beaten at the referendum,
    ---------
    You can go back to supporting Labour mannequins in every constituency hand-picked by Ed..stirring up the usual apathy:)

  • rate this
    +1

    Comment number 1001.

    This article seems to have been toned down and rewritten since this morning.
    Poor old ASDA must have lost a few customers from how this looked earlier.
    It was the usual "project fear" fodder, insulting the readers intelligence and destroying the writers credibility.

  • rate this
    0

    Comment number 1000.

    997.duracell

    Tesco and Aldi operate throughout the EU, with only minor local price differences
    =--------

    you talk about Europe, my friend was trying to see if he could make some money sending items to the newly booming economies in india & Pakistan etc. he was shocked to discover that items such as mobile phones or even cans of coke are sold at the same price to the penny,
    Global economy!

  • rate this
    +2

    Comment number 999.

    Dear BBC, why not report the latest revelation in this story? http://www.newsnetscotland.com/index.php/referendum/8448-food-prices-could-fall-in-independent-scotland-says-supermarket-giant

    Quote: "...the story was soon being challenged with Tesco denying they had spoken to the Financial Times and Asda joining Morrisons in saying they had no plans to increase prices."

  • rate this
    -1

    Comment number 998.

    Geography! It matters!

    Scotland is furthest from the wealthiest European markets.
    Transporting physical goods to and from Europe is more expensive. Which is why our largest employing industry is financial services - relying on IT sales into England.
    And needing our special access to The City.
    It's also more profitable to sell oil products to our nearest neighbours than across seas.

  • rate this
    +3

    Comment number 997.

    Tesco and Aldi operate throughout the EU, with only minor local price differences.Don't see why they would increase prices to stores in Scotland should independence be achieved. If it was so bad for their profits to operate in Scotland, they wouldn't have opened so many stores.

  • rate this
    +3

    Comment number 996.

    Robert you are picking selectively to meet an agenda here. For example, structural and wages costs are significantly lower for the big supermarkets in Scotland than in much of the rest of the UK, which more than balances out the slightly higher distribution costs and even with the rates levy for alcohol and tobacco, their business rates are lower than or on a par with anywhere else in the UK.

  • rate this
    0

    Comment number 995.

    I have a strong feeling that the SNP could run the country, even the supermarkets (given a chance). But as a Conservative voter who has lost faith, I must admit that the future health issues in England's NHS the immigration problems, the road congestion, an ageing population etc, I would want Scotland to stay with the Union to be stronger and help us to pay these future bills.

  • rate this
    -1

    Comment number 994.

    993- yes, it's indicative of a sense of humour- sadly lacking in the separation debate, I fear. Unlike the yes camp, though, I don't deny them the right to their opinions, just to creating their own "facts".

  • rate this
    0

    Comment number 993.

    992 hew-and-cry

    You do understand irony... dont you?

  • rate this
    -1

    Comment number 992.

    Oh dear veryoddjob, you really don't like debate , do you? Every time an SNP assertion is questioned, their supporters resort to insults. BTW, I'm not a member of any political party, and I'm very glad to say I'd NEVER support Eck's Nationalist Socialists or Project Hate.

  • rate this
    -2

    Comment number 991.

    The grindingly depressing thing about this is that once the Yes vote has been beaten at the referendum, we can go back to the griping and groaning (which is much safer than independence) with the "Son of Alex", whoever that is, mobilising his Bravehearts for another referendum in 2020...and in 2026...and in 2032.

    Put up or shut up? Not a chance!

  • rate this
    +3

    Comment number 990.

    'So if Scotland were to vote for independence, it is very unlikely that food prices in Scotland would rise immediately'

    'these differential costs would probably be manifested in differential prices.'

    'this would not necessarily be to the disadvantage of the Scots

    In other words no-one knows if prices would go up or down. But why let that get in the way of a scary headline

  • rate this
    0

    Comment number 989.

    @988 They won't. It disputes the case the BBC is trying to build against salmonds policies. The BBC is an interested party and is therefore prejudicing opinion in favour of the no campaign.

  • rate this
    +2

    Comment number 988.

    @986 Grangemouth - already sorted. Renationalise the post office, by buying it back with the £900 per capita that goes to the UK Treasury every year. Housing tax and Income tax reforms are not yet specified. Give the transition period a chance, then you can vote for a prty suggesting an improvement. It's all there in the White Paper. Stop messing around.

  • rate this
    -1

    Comment number 987.

    So Labour MSPs voted against extra funding to help levitate the bedroom tax?

    http://wingsoverscotland.com/politics-and-platitudes/#more-45697

    Why is the BBC not reporting on it?

  • rate this
    -1

    Comment number 986.

    More Questions for the yes camp.
    How will they re-nationalize the Post office, how will we pay for it.
    Given the recent problems and potential catastrophe to Scotland of Grangemouth potentially closing how will they secure our refining & petrol production in Scotland (privatization ?) for the future.
    Will our Income tax and Housing taxes be reformed, how will they be set.
    Salmonds a bit too vague.

  • rate this
    -2

    Comment number 985.

    956, Living in the North of England, I have no wish to join a independent Scotland and may have to move south if forced to.

    I do hope wish however that Scotland says yes, I doubt it though.

  • rate this
    0

    Comment number 984.

    Scottish independence: Ministers quizzed on White Paper

    "More than 300 Scottish organisations are quizzing the Scottish government on its White Paper."

    Perhaps some of the supermarkets will have representatives there!

    http://bbc.in/18yR32B

    Live stream Scottish Government

    http://bit.ly/19yFhWf

 

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