Despite posting surging profits and sales at the half year, Sainsbury’s boss Simon Roberts became the latest retail boss to warn that Labour’s all stick and no carrot approach to business will lead to higher prices.
Sainsbury’s boss Simon Roberts could have been forgiven for being in high spirits today, having led the grocery giant through another stellar half of growth.
The supermarket chain reported a 3.7% jump in underlying profits to £503m and a 3.1% hike in total sales to over £16.2bn. Despite a dip in general merchandise and apparel sales and a weak first half for Argos, Roberts’ relentless focus on food reaped dividends, with Sainsbury’s reporting a 5% jump in grocery sales.
But despite all the numbers heading in the right direction, and the grocer anticipating what he called “our biggest ever Black Friday to come” and in a “strong position” heading into the crucial Christmas period, Roberts wasn’t all smiles.
He gave his withering view of the impact of the Budget and what it will mean for the grocery giant in the future.
Inflationary impact
The Sainsbury’s boss became the latest retailer to express his frustrations with the new government and what he considers its all stick, no carrot approach to business taxation as outlined in the Budget.
Roberts spelled out in no uncertain terms that the government’s decision to hike employer’s contributions to national insurance and lower the threshold when firms pay it, combined with the increase in the minimum wage, would lead to increased prices for consumers – as it would mean a direct cost increase both for Sainsbury’s and its suppliers.
“As the Office for Budget Responsibility has said it will feed through into inflation.”
“We’ll do everything we can to mitigate this, but given the margins of the industry - this is a 3% margin industry - there just isn’t the capacity to absorb this level of unexpected cost inflation coming at us as fast as it is”
Simon Roberts, Sainsbury’s
Roberts said the increase in national insurance payments alone will cost Sainsbury’s an extra £140m when they come into effect next April, an added burden the grocer could do without given it already “pays nearly £1bn of tax a year”.
While Roberts didn’t say directly whether the changes in national insurance contributions would lead to the grocer potentially hiring less staff, or even making some redundant, he didn’t rule it out either.
The Sainsbury’s boss was just the latest high-profile retailer to add his voice to the chorus of businesses criticising the government’s Budget decisions.
Yesterday, Marks & Spencer boss Stuart Machin described the increase in national insurance contributions and reduction in payment thresholds as a “double whammy” for the retailer.
To avoid passing those added costs onto the consumer, Machin said M&S would look to “offset” these “extra headwinds” from the Budget with further “cost reductions”.
Primark owner ABF boss George Weston called the decisions made by chancellor Rachel Reeves “disappointing”, warning it will add “millions of pounds” to the retailer’s cost base.
Another senior business leader told Retail Week the changes to national insurance meant he would be looking to hire less staff than he otherwise might have next year.
“It came as a shock,” he said. “Now I’m already looking at our plans for next year and asking my team if we really need this new role or that one. Or whether we even need two people to work jobs that could be done by one person.”
Let’s get down to business rates
Roberts also criticised the government for effectively kicking any fundamental reform of business rates down the road.
Having been in conversation with Reeves ahead of the budget, Roberts insisted he and Sainsbury’s were “all for making work pay” for staff. However, he seemed sure the retail sector had been promised immediate action from the new Labour government on business rates ahead of the rates rise in April next year.
“Our clear expectation was reform of business rates as a priority,” he said. “We have been, and continue to be, very supportive of the expectation that fundamental business rates reform will happen.
“It’s a tax that really penalises physical retailers with stores. It means that the playing field just isn’t level or consistent at all”
Simon Roberts, Sainsbury’s
“So, we would really urge the government to move more quickly on business rates, because we all share this ambition for growth. We share this ambition to invest in our public services. But, in order to do that, we’ve got to enable high street retailers across the UK to be able to really invest in the things that are really important to grow the success of the economy.”
Along with tax and business rates, Roberts also issued the government with a salutary warning over its treatment of farmers. Reeves and Labour courted backlash from the UK’s food producers after she announced changes to inheritance tax laws on farming land.
Roberts urged the government to “work closely with farmers and to make sure they listen to their concerns because we need a resilient, successful, productive food system to make sure that we produce what we need”.
Discontentment in the retail sector with the budget will only climb as we get closer to April 2025 when many of the changes come into effect.
The government may feel it can live with the business sector grumbling about increased taxes. But it need only look to its Democratic compatriots across the Atlantic for a warning about what may happen if inflation begins to spiral out of control again because of its actions.
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