In Defence of Liberty

Driven by data; ridden with liberty.

Tesco Taxes

English local councils seek the power to tax large supermarkets. (Edited: LoopZilla)

English local councils seek the power to tax large supermarkets. (Edited: LoopZilla)

A group of English local councils has requested that the government endow new powers to tax large supermarkets, dubbed the ‘Tesco Tax’. Derby City Council formally made this request under the Sustainable Communities Act. Upon publication of their report, proposing the extra 8.5% business rates levy on supermarkets with rateable value over £500,000, Derby City Council stated:

Research has shown that 95% of all the money spent in any large supermarket leaves the local economy for good, compared to just 50% from local independent retailers; this levy is a modest attempt to ensure more of that money re-circulates within and continues to contribute to local jobs and local trade.

A similar levy already operates in Scotland, affecting any retailer with a property value over £300,000 which sells alcohol and tobacco. In 2013, only 5% of all supermarkets constructed in the UK were built in Scotland. An incomplete dataset from the BBC suggests this figure was around 10% in 2010. Sainsbury’s have confirmed slowly their Scottish expansion due to the “combination of the downturn in the economy and the levy on supermarkets”. Andy Clarke, the chief executive of Asda, said:

The cost of doing business in Scotland is bigger than the cost in England and Wales and has put pressure on our cost base.

Balance of Payments

The English local councils’ claim that “95% of all the money spent in any large supermarket leaves the local economy for good” is based upon the Federation of Small Businesses’ Keep Trade Local Manifesto, from 2008:

Over 50% of the turnover of independent retailers goes back into the local community, compared to just 5% from supermarkets.

It does not say the money “leaves the local economy for good”. Moreover, such a claim is incorrect. Money sent out of the local economy must – eventually – return. The expenditure on local consumption and non-local exports must be equal to the income from local sales and exports. Trade should occur where people have comparative advantage – the best place at producing a good or service relative to everyone else – rather than focussing upon local retailers. Otherwise, customers will be spending more money on the same goods or services that they could have gotten cheaper elsewhere. This is wealth destruction.

Whilst the Derby City Council report says the evidence on pollution levels and environmental concerns “speaks for itself”, it does not. Their collection of evidence ignores the extra trips customers would make to purchase the same products, if they were not available in one place.

The report also cites “supermarkets have misled customers with deceptive discount pricing techniques” and people working in supermarket pack-houses “were being paid just above half the minimum wage”. In the former case, the report notes that: “This is a criminal offence.” It is not explained how a supermarket levy would prevent such practices, or why illegal behaviour should not simply be prosecuted without this extra tax.

This levy overrides customer choice, taxing to “promote small businesses and local shops” people no longer choose to attend with their custom.

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This entry was posted on August 8, 2014 by in Economics and tagged .
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