Never has such a straightforward question carried more weight to it. As the independence referendum gets ever closer SLR examines how local retailers will be impacted by the decision – whatever way it goes.
by Kevin Scott
On 18th September, residents of Scotland will take to the polls in the most significant vote in the country’s history. That’s not hyperbole; the independence referendum will ask a fundamental question about our destiny as a nation, whether that be one that exists within the United Kingdom or one which becomes independent for the first time since 1707, when the Act of Union came into being.
For many, the question of ‘should Scotland be an independent country?’ is an ideological one and many minds were therefore made up before the date of the referendum was announced. For many others the decision is more pragmatic, one which requires analysis of a number of factors, mostly financial ones. National debt, taxation, oil revenue, currency, pensions: these are major questions that will have a bearing on our way of life, our economy and therefore the fortunes of local retailers. For the convenience sector in Scotland there will be far-reaching consequences should Scotland vote for independence.
Many great unknowns, such as currency and cross border trading, directly affect the supply chain of FMCG goods. The Yes campaign claims that Scotland is a wealthy country and that not only can it afford to be independent, but it would be better off. There is the assumption that by backing the Better Together campaign and voting no, there will be no real change to the way things are at the moment. It could be argued that this will simply not be the case, that no matter how the country votes the status quo has been shattered and change is coming to Scotland regardless. The 2012 Scotland Act will see new powers being guaranteed to the Scottish Parliament in the event of a no vote. Among these will be a new Scottish rate of income tax, new borrowing powers of up to £5bn for Holyrood, and stamp duty becoming a devolved issue. Some may consider these significant concessions, others not so much (with the changes Scotland will still only be responsible for 15% of its receipts) – and they would perhaps argue that only full independence would give Scotland the power to define its own future.
‘More dynamic business environment’
The Scottish Government claims that with full control of economic levers such as taxation, business regulation, infrastructure and investment it would be in a position to “create a more supportive, competitive and dynamic business environment”. The list of ways in which future Scottish Governments will achieve this is listed in detail in the White Paper, a 650-page tome that details the SNP’s vision for independence. The White Paper, though undeniably thorough, has been accused of relying on many assumptions that are outwith the control of the Scottish Government (such as highly publicised debates over currency and EU membership).
The Scottish Government already controls business rates, though despite pressure it has not altered this from the rate set by Westminster. In its White Paper the Scottish Government says that its policy is to ensure that taxes are competitive to create an attractive business environment, while ensuring companies pay their fair share of tax. When it comes to earnings, the Scottish Government has stated it will continue to support the living wage, while in an independent Scotland it would commit to increasing the National Minimum Wage “at least” in line with inflation. The SNP’s White Paper says: “Scotland is already a wealthy nation, but the full benefit of that wealth is not felt by people across the country. With independence, we can turn our rich country into a prosperous society.” A compelling argument, but for many, the unknowns of independence stack up too highly. For example, the Yes campaign has insisted Scotland will retain Sterling as its currency, and use the Bank of England as its central bank. The UK Government has insisted this is not an option. Someone will yield, but not before polling day.
Sensitive subject
Given the sensitive political nature of the independence referendum, none of the major symbol groups were willing to discuss their thoughts on how their business may be affected by Scottish independence, however there are undeniable changes that would affect the industry, and the way in which retailers buy – and possibly sell – their goods. The Scottish Grocers’ Federation has taken a strictly neutral stance on the independence referendum but agrees that there significant changes ahead whatever the outcome. Chief Executive John Drummond told SLR: “Clearly if the Scottish government had full control over all aspects of taxation, regulation and interest rates the knock-on effect on the economy could have a big impact on the convenience store industry. Importantly we don’t know how the suppliers and symbol groups who currently operate across the UK would react. But if it is a no vote we will still see big changes. The Scotland Act of 2012 means that even if Scotland remains in the UK, the Scottish government will have to set a separate Scottish rate of income tax – this will be the biggest financial change since devolution.
Whatever the outcome convenience retailers will have to be ready to meet new challenges.” What we are voting for is the extent of challenges that we will face. The ultimate question – if you’re not voting for ideological reasons – is: will independence be worth it? In a speech at the University of Glasgow in July 2013 Better Together leader and former Chancellor Alistair Darling said that “inside the UK, Scotland is the third richest part of the UK – ahead of the whole country apart from London and the south east.” When it comes to Gross Disposable Income per head, we’re not doing to badly either. Figures for 2011 show Scotland’s figure north of £15,000, fifth overall for UK regions, and the percentage change in gross disposable income between 2006 and 2010 was over +50%, higher than anywhere else in the country. As a straight business decision, why gamble on a new path when the one you’re on doesn’t seem to need improvement? If we strip the emotion from the debate and look at it purely as a business decision, how does independence shape up in due diligence? If the UK was a company looking to break into two, would potential shareholders of the smaller company think it worth the risk? Well, 65% of 32 FTSE 100 company chairmen reckon that independence would be bad for Britain, while 24% said it would good or very good. The picture is brought into sharper focus when we look at the retail sector. Global recruitment giant Korn Ferry and the BRC conducted interviews with the chairmen of 39 companies that represent 44% of all retail sales in the UK. 33 of them were minded to say they were “consistently negative” about the prospect of Scottish independence, citing concerns over supply chain cost increases along with administrative costs. There were also issues over the ‘general uncertainty’ of retail, the vagueness of which is symptomatic of the challenges voters face when trying to establish clear facts in the debate. It is this uncertainty which the Scottish Government has tried to look beyond with its White Paper. The SNP claims that if Scotland’s rate of growth had matched that of other small European nations between 1977-2007 then GDP would be 3.8% higher, equivalent to £900 per person. “Independence will provide an opportunity to grow the economy more quickly, provide more opportunities for young people to stay and build careers in Scotland and to attract skilled workers,” it claims.
The search for facts
Of course, both these sides present conjecture; facts remain thin on the ground. This is illustrated perfectly by the numbers 1,000 and 1,400. The UK treasury has claimed that each and every person in Scotland would be £1,400 better off per year in the UK. The Scottish Government meanwhile claims that people in Scotland would be £1,000 better off in an independent Scotland. These figures were once £1,000 and £600 respectively, which illustrates the uncertainly and general feeling that both sides of the debate are blighted by myopia through a desperation to win votes. The problem voters face is who to believe. We are not economists. As for what we do know, Scotland’s position within the union is undoubtedly a healthy one. Looking to our own industry, total grocery sales grew 2.3% year-on-year and 0.4% in volume – though granted this is behind overall UK growth. Of course, should independence achieve the richer nation promised by the Yes campaign, then of course you could expect that growth to accelerate – the problem for retailers, and everyone else, is that there are no guarantees with independence. With the union, there is a comfort, a security of the perceived known – and for all that opinion polls have the No camp firmly in front, victory is far from certain. Having narrowed the gap at the turn of the year, the Yes vote is faltering somewhat with the polls at time of press showing the No camp with 54% of the vote, compared with 35% for Yes and just 12% left undecided.
Making borders
If the Yes camp can turn these numbers into victory, a national border will be created, and that means the vast majority of wares sold in c-stores being exported from England, which supermarkets have claimed would see costs increase. It costs more to move a product from southern England to northern Scotland than to another part of England, but these costs are currently divided equally, which is why goods cost the same across the country. It has been inferred by Morrisons CEO Dalton Philips that this would change in an independent Scotland. He said: “Why should the English and Welsh consumer subsidise this increased cost of doing business in Scotland?” Writing in The Herald in December Asda CEO Andy Clarke said: “Already it costs more money to get groceries to people in Scotland, our taxes are higher and our margins are lower. Our systems are set up for one single UK market. These are not arguments for or against independence, but a simple recognition of the costs that change would bring.” So, there is a chance that food prices would rise in an independent Scotland. This is something backed by the Better Together campaign – as it would be. It claims that a basket of shopping in Tesco in Ireland costs 16% more than an identical basket in the UK (£30.75 vs £26.62). “In the UK, the average cost of a weekly shop is the same in Dundee as it is in Dover,” says Alistair Darling. “The only thing putting this at risk is breaking up the UK.” It goes without saying that if costs do rise then margins will be squeezed, and retailers will have to work harder to maintain comparable levels of profitability. If wealth is created in an independent Scotland though, then this could offset any price rises. Ultimately, like many aspects of Scottish independence, we simply can’t answer the question of how it will affect Scottish retailers, so retailers have to make the decision that they think will best serve them in the future. Many will make that decision based on what they believe to be best for their business. Many others will make the decision based on personal political beliefs. All we can say for certain is that the duty which is being placed on Scottish voters is a great one, which everyone should appreciate the gravity of. Whatever the future brings, after years of discourse, and months of increasingly inharmonious campaigning, things are about to get interesting.
Yes – Richard Lochhead, Rural Affairs and Food Secretary
Our global reputation for top quality food and drink with unrivalled provenance is driving up sales of iconic Scottish brands and products at home and further afield. This continued growth in these markets – especially in the past year as we get closer to the referendum – shows that consumers across these islands purchase our produce on the basis of taste and quality above all else. With independence, food and drink exports will continue to be a priority area for Scotland’s international trade efforts. With our overseas representation dedicated solely to Scotland’s own priorities we can promote our products to the world and tackle barriers to trade. We remain firmly committed to maintaining the most supportive business environment in the UK and are delivering the most competitive business tax environment through our business rates policies. This includes a package of business rates reliefs worth more than an estimated £590m. As part of this, almost two-thirds of all retail outlets in Scotland currently pay zero or substantially reduced business rates. With independence the Scottish Government will have full control over the full suite of economic levers, including taxation, business regulation, infrastructure and investment to boost innovation and exports and support food and drink retailers.
No – David Sands, Nisa retailer
I was born in Perth , I was educated in Scotland and having helped to build one of the most successful retail businesses in Scotland, I am now building several more businesses in Scotland. I am not a politician; I am a fiercely proud Scot. I am a patriot not a nationalist. I do not for a minute think we cannot be independent, I simply believe that our future is better within the UK. A best of both worlds. Nationalists believe in a “for richer or for poorer” type of separation. They want independence regardless of the costs or consequences. If we vote for independence then there is no going back. And yet, we are being asked to make this momentous decision without fully understanding our position after the vote. We don’t know what our share of the considerable UK national debt would be. We don’t know what interest rate a Scottish government would pay on that debt, or what our share of the UK assets would be. We don’t even know what currency we would be using. The supporters of independence claim that these arguments are negative. I would argue that it is perfectly reasonable, indeed crucial, to ask these awkward questions. The UK has changed over the years, we have become a beacon for people’s in troubled countries across the globe. We should celebrate that we are open, and tolerant, fair and diverse, successful and inventive. We are better together.
