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, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +1

    Comment number 23.

    I suppose that we can expect numerous planning applications for superstores in Berwick, then.

  • rate this
    +19

    Comment number 22.

    Another day - another scare story. Hen's eggs will be smaller - and see hen's teeth - they'll be scarcer!

  • rate this
    +2

    Comment number 21.

    The Scots must be decide between national pride and mothers pride. Easy for a Englishman to know what to do. You can't cook a flag.

  • rate this
    -1

    Comment number 20.

    Wouldn't the cost be offset against the price of bailing out banks in London?

    It's just a shame the rest of the UK can't opt out of our serfdom.

  • rate this
    +1

    Comment number 19.

    Says it all about the utter stupidity of legislators that a "health" tax on supermarkets even exists.

    If adults by so called unhealthy items then that is their business not the governments. Why the hell can legislators not stay out of peoples lives? I repeat - it is none of your bloody business what people buy with their money at a supermarket. And punishing the supermarkets for this is stupid !!

  • rate this
    +47

    Comment number 18.

    Sounds to me like the Scots will have to revert back to locally grown, harvested, and produced goods sold by local shops in the community, if they vote for independence. Gone will be the out of town super stores... Sorry, I’m struggling to find a negative.

  • rate this
    +1

    Comment number 17.

    They shoot up because they'd be charged extra duty

  • rate this
    +11

    Comment number 16.

    A quite laughable article.

    The idea that the big 4 supermarkets currently have constant prices for items across the UK is utter nonsense. The big 4 are annoyed with the Scot Gov for the increased health related tax related to alcohol sales and is using the cover of the indyref debate to sound off (anonymously). This is almost as bad as the 'your mobile phone will cost more' story BBC.

  • rate this
    +3

    Comment number 15.

    1. What currency with Scotland use? - UNKNOWN!

    2. What will be the exchange rate of this currency - as most food is imported? - UNKNOWN!

    Without these caveats it make no sense at all to talk of food prices. So it is reasonable to concluded that these stories are silly season scare stories worthy of the gutter press and the Tory Party.

    Why has the FT written such incomplete nonsense?

  • rate this
    +29

    Comment number 14.

    you only have to look at postal rates to see this already happens and not just in Scotland, where ever possible business adds in its costs or do you think we pay the same for fuel in cumbria as in liverpool ?

    Its been a long time since there was universal pricing in the UK its now what they can get away with,and the cartel supermarkets are no different to any others.

  • rate this
    +6

    Comment number 13.

    In the age of ubiquitous propaganda, everything is a lie.

  • rate this
    0

    Comment number 12.

    All a total smokescreen. Following a 'Yes' vote there will be an explosion of people on the expenses gravy train - all funded by the taxpayer. For years Eric Joyce was the highest claiming Westminster MP - claiming in excess of £200,000 per year in addition to his salary.
    We need less politicians in the UK not more.

  • rate this
    +5

    Comment number 11.

    The really important point here is not whether beans will be 2p more, but that businesses are afraid to speak out. I operate a small business, but I have dealings with Scottish Government and local authorities. It is made very clear from SNP and their apparatchiks that you cannot say anything other than separation is a Good Thing, or don't expect to win any contracts.

  • rate this
    +1

    Comment number 10.

    This relatively small referendum already seems to be hurting Scotland what damage will the UK in Europe referendum have. It makes no sense to have all this trouble unless the likely outcome is yes.

  • rate this
    +12

    Comment number 9.

    This could quite easily go the other way too, prices for certain things in an independent Scotland could be less than other parts of the rUK.

    But then that wouldn't have made for a headline grabbing news story.

    No denying 'things would change' in an Independent Scotland, but do we have to have the extremes of either 'Doom and Gloom' from one side, or 'Eternal Happiness' from the other side?

  • rate this
    +27

    Comment number 8.

    For gods sake. Firstly why is it necessary to illustrate this with haggis?

    Secondly and FAR more importantly certain fresh items (especially fruit) are already higher in Scotland. Tescos don't operate a Barnett formula where England subsidises the prices in Scotland. Fuel prices are up to 20p a L more than England for the same reason. English pump prices don't subsidise Scottish ones.

  • rate this
    +4

    Comment number 7.

    "businesses that straddle the borders of Scotland and the rest of the UK will - over time - assess questions such as where they invest"

    It's happening. A colleague has moved her business premises from Dumfries to Carlisle, a precautionary move ahead of the uncertainties of the referendum. She will recruit employees locally and fund the additional mileage costs. Only a handful, but symptomatic?

  • rate this
    +3

    Comment number 6.

    Prices in Ireland are higher than in NI - It's a no brainer that taxes and prices will rise in Scotland if we ry to follow the Nordic model . The other thing to remember is that Scotland doesn't have a national supermarke of it's own. The Big 4 are English/ American while the discounters are all German.

  • rate this
    +11

    Comment number 5.

    Expect these independence downside stories to regularly flow out from the No campaign. I dont think the Scots are inherently big risk takers so a few 'frighteners' will have a negative effect on SNP's case. I wonder if Cameron secretly wishes the vote is Yes and all those irritating Labour M.P.'s north of the border are disappeared at a stroke?

  • rate this
    +4

    Comment number 4.

    Alternatively the Scots could just use local grocers, butchers etc wherever possible & as soon as the big chain supermarkets start noticing the drop in trade watch the prices come down. I doubt a slight reduction in margin will force ASDA/Tesco/Sainsbury to go under.

 

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