The chief executive of Britain’s biggest supermarket has warned that the retail sector could come under intolerable pressure unless George Osborne pledges to reform business rates.
Dave Lewis, who heads Tesco, said that there was a real risk of increasing pressure on employment in traditional retail if Britain’s business rate regime, which “disproportionately” affects bricks-and-mortar retailers, was not fundamentally reformed.
The executive was speaking in advance of the budget on Wednesday, when the retail industry will be hoping that the chancellor, George Osborne, introduces a host of measures to ease their tax burdens.
Mr Lewis said: “We understand how important business rates are but we have asked for fundamental reform of the system. Business rates cost nearly £700 million a year for Tesco alone in taxes and this is in an industry that is already under enormous pressure. If we are not careful, it [business rates] will keep piling on the burden for retailers.”
His remarks follow a report by the British Retail Consortium last month that warned that nearly one million jobs could be lost in Britain’s struggling retail sector by 2025 as shops closed and businesses struggled to meet higher wage bills and taxes.
The industry organisation said that at a time of unprecedented structural change, the business rates burden coupled with the new national living wage and apprenticeship levy initiatives could have a far greater than expected adverse effect in poorer parts of the country.
Although some criticised the BRC for doom-mongering, Mr Lewis, who took part in generating the report, said that he stood by its findings: “We supported the report as we feel that it is a fair reflection of the situation. You have to think that if we did nothing to mitigate the cost of all these new changes coming in, that would be an extra £14 billion. That is a huge surge of costs into the sector and where does that pressure go?” Mr Lewis said that it could lead to businesses failing if they could not improve their productivity levels to offset higher costs.
It was revealed last month in a leaked document that Tesco had been running its own “modelling exercise” and was considering reducing its staff numbers by 39,000 by 2019. The move could potentially remove £500 million in payroll costs for the grocer, which is in the middle of a turnaround as it struggles to deal with increasing competition.
Mr Lewis said: “We have looked at lots of different scenarios as we have made an awful lot of changes in our business but we are not on the verge of any major announcement [on job cuts].”
Mr Lewis said that the pressures faced by the retail sector were aggravated in the grocery sector by the food price war and said that it could continue for the foreseeable future. “Not since the early 1970s has the UK market experienced such food price deflation, and I don’t see that is going to change in the next year or so,” he said.
Tesco will report its full year results next month and, after a Christmas trading period that was surprisingly better than expected, the City will be looking for real signs that the grocer is back on track.
Mr Lewis said that the retailer was “building momentum”, adding: “We have been saying for a while that we can feel that what we are doing is increasingly appreciated by the customers we serve. Volume has returned to our business and that is why you saw a positive performance at Christmas. What we are constantly doing is trying to put ourselves in the shoes of the customers coming through the doors and I am pleased at the progress, but there is much more that we need to do.”