Asda, John Lewis Say Independence Will Hurt Scot WalletsGabi Thesing
British retailers Asda, John Lewis Partnership Plc and Next Plc said Scottish consumers face higher prices if the country quits the U.K., dragging the debate about the economic case for independence into the real world for local households.
“If we were no longer to operate in one state with one market and -– broadly –- one set of rules, our business model would inevitably become more complex,” Andy Clarke, chief executive officer of the U.K.’s second-largest supermarket chain Asda, said today. “We would have to reflect our cost to operate here.” Asda, owned by Wal-Mart Stores Inc., operates 61 stores and depots in Scotland and employs 22,000 people there.
While clothing retailer Next would continue to trade in Scotland whatever the outcome of the referendum on Sept. 18, “if they get a new currency and that devalues, that pushes up the prices of imported goods,” said Chief Executive Officer Simon Wolfson, a member of the U.K.’s ruling Conservative party, which opposes a split.
Their view was backed by economists. “Companies are not going to absorb the higher costs of doing business in their margins -- so it will either go into higher prices or lower wages,” said Rob Wood, a former Bank of England official who is now Berenberg’s chief U.K. economist.
Asda’s and Next’s comments echo those of John Lewis Chairman Charlie Mayfield, who told the BBC today that “it does cost more money to trade in parts of Scotland, and therefore those higher costs in the event of a Yes vote are more likely to be passed on.” John Lewis operates department stores and the upscale grocer Waitrose.
Business leaders have become more vocal about the perils of breaking up the U.K. after a poll this week gave a slight lead to the pro-independence camp.
Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc said they would move many of their operations to England, while BP Plc said North Sea oil production would be better served by sticking with the U.K.
The most recent poll, published on Wednesday, showed the anti-independence vote had a 6 percentage point lead.
Supermarkets have raised concerns that a Scottish breakaway may curtail their use of “national pricing,” which keeps food prices at the same level across the U.K. even though distribution costs are higher in Scotland.
“We believe in national pricing, we have it today, it’s important in this market,” Dalton Philips, CEO of Wm Morrison Supermarkets Plc, said today. Morrison has a 17 percent market share in Scotland.
Ian Cheshire, CEO of Kingfisher Plc, owner of Britain’s largest home-improvement chain B&Q, said yesterday that a Yes vote may mean higher prices for Scottish shoppers on more than 35,000 of his company’s products.
The biggest threat to prices would be if Scotland had to introduce a new currency, with the associated transaction costs of doing business with the rest of the U.K., said Andrew Goodwin, senior U.K. economist at Oxford Economics in London.
Independence campaigners say a sovereign Scotland will keep using the pound and enter a formal currency agreement with the remnant U.K., making many of the pricing arguments invalid, though the government in London insists it will not allow this.
“If your biggest export market is just the other side of the border and has a different currency, you are introducing those costs on a fair amount of your business,” Goodwin said.
A new currency would also push up the cost of bank loans and mortgages for households, Oxford Economics said in a study prepared for engineer Weir Group Plc, because banks in the new currency area will face higher funding costs.
“The impact on prices is very much dependent on the finer details of the establishment of an independent Scotland. For instance a final decision on the currency, membership of the EU, monetary and fiscal policy,” said Sarah Boumphrey, head of Strategic, Economic and Consumer Insight at Euromonitor in London. “What seems clear is that business confidence will be negatively affected and this will have ramifications in the short term for economic growth.”