Ministers must focus on impact of Brexit on customers and retailers
THE performance of Scotland’s retail industry since June’s decision to leave the EU has proved better than many would have expected. The Scottish Retail Consortium’s survey shows retail sales edged up again last month for a third successive month, albeit over the past year as a whole retail sales have been flat.
Little has materially changed for consumers in the wake of the Brexit vote. Policy-makers should be mindful of this and the implications for consumer confidence and spending. There are 252,000 jobs in Scottish retail and many more in other consumer-facing sectors.
Some argued Brexit could mean cheaper food but, in the short to medium term, upward pressures on the cost of imported goods – reflecting recent changes in the value of the pound and the potential of tariffs – could lead to higher food bills. The cost of our weekly grocery shop is linked to the outcomes of the UK’s negotiations with Brussels and there is no guarantee that Brexit will save us money at the tills.
For 41 months we’ve witnessed shop-price deflation, driven by competition and lower commodity prices, meaning that, in real terms, our purchases in shops have gone down in price. This has been great news for households especially those on tight budgets. Retailers want to continue keeping prices down for customers. If, after Brexit, we fell back on World Trade Organisation rules, the new tariff rates the UK almost certainly would have to apply to EU imports would be highest for staple products such as food and clothing.
For instance, the average duty on meat imports could be as high as 27 per cent while clothing and footwear would attract tariffs of 11-16 per cent. At present there is a zero-rating for all EU imports.The principle of tariff escalation means that the higher duty rates are reserved for finished products, many of which are household staples.
Retailers and domestic consumers are most likely to bear the brunt in absorbing extra costs from tariffs.The Scottish Government is right to pursue friction-free trade with the rest of the EU. Ministers should press their UK counterparts to ensure that Brexit will not lead to the imposition of additional customs duties.
We can’t produce all of our food and drink domestically and we need decisive action from the Brexit negotiations to ensure we don’t all end up paying more for our shopping. It would also be a smart move to take early steps to create a national system of lower tariffs for developing nations such as Kenya and Bangladesh, so that they can continue to enjoy preferential access to the UK market after we leave the EU. Scotland has deep relations with Malawi and the Scottish Government may wish to reflect on its potential involvement in such preferential arrangements.
It’s a nice idea to think we might be able to adopt a kind of “Good Life” approach to food production, becoming totally self-sufficient. As Tom and Barbara discovered in the TV series, in practice this isn’t straightforward. We don’t produce enough food to feed everyone here and that’s before we start analysing whether or not we want to commit to only eating produce that is in season and is produced here. In other cases, we are reliant on imported food because we simply do not have the right climate to grow, for example, rice, citrus fruit or coffee.
What will happen if the Brexit negotiation doesn’t secure a fair deal for customers? “Marmitegate” was perhaps a taste of what’s to come. That was a response to the recent drop in value of the pound. If we are faced with costly tariffs on imported goods, retailers will have a choice. They could refuse to stock the goods or seek to negotiate better terms with suppliers. They could pass the costs on to customers, difficult when Scots face higher statutory pension contributions and higher council tax.
Retailers could seek to absorb some of the cost themselves, challenging at a time when margins are thin and they are already confronting upward cost pressures due to domestic public policy; for example, the new apprenticeship levy and the large business rates surcharge.
Nobody wants their local stores to stop selling their favourite products; nor do we want to pay more for them just to cover the costs of tariffs. It’s essential that we don’t end up in a situation where that happens. There are often calls for governments to focus on “bread-and-butter issues”. In this case that is literally the approach both the UK and Scottish governments need to take.
David Lonsdale, Director, Scottish Retail Consortium.