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Another day, another shameless corporate bluff

Does the CBI have a grasp of basic market economics? Its stance on the Tesco Tax suggests not. Unless of course it’s bluffing…

It is with its usual certainty and assumed gravitas that the CBI today warns us not to introduce a levy on large retailers which sell alcohol and tobacco (the Tesco Tax). We shouldn’t consider such a move because it will scupper the economy and leave us all in penury. But let’s just work our way through these claims for a moment.

First, we are told that the Tesco Tax sends out an anti-business message and will deter investment. This is a hard sell intellectually, it seems to me. This is targeted very specifically at a tiny group of super-profitable companies who get much, much more out of their relationship with Scotland than they put back. This point will be picked up below, but is important to mention here because the intentional blurring and extension of something that happens to one business to all businesses is a rather predictable ploy. It is like saying ‘we can’t fine these two plumbers for negligence because that will send out the message that we don’t like plumbers’. Do hi-tech companies not invest in the UK because we have a differential tax rate for petrol and alcohol than for televisions and computer? Do clothes retailers avoid Britain because we tax computers and TVs higher than clothes? If the CBI’s members can’t work out the differential impact of varying rates of tax we’ve got a bigger problem than unhappy supermarkets. A tax targeting a single industry sector affects that sector. If this happened every second day it might start to look capricious, but the CBI well knows it doesn’t.

The truth is the businesses invest according to the economic conditions it will face which it is capable of assessing with a high degree of accuracy. They do not walk away from profitable opportunities in a generalised huff. So this is only about supermarkets and should be argued on that basis.

Which is where it starts to get dafter still. The CBI now claims that supermarkets are ‘highly mobile’. This is economic illiteracy. If ever there is a market which is non-mobile it is domestic groceries. Indeed, this is the next best thing to a zero-sum game; people can only eat and drink so much and they can’t choose not to. It is a captive, utterly non-mobile market. Every supermarket could leave the UK and we’d still end up buying and selling roughly the same amount of groceries.

The supermarket business model is to strip out of local economies as much profitable activity as they can cram under their giant roofs. The model is much more parasitic and monopolistic than it is ‘entrepreneurial’ or ‘wealth-creating’. They close down local businesses which are very often locally owned. They convert jobs into routine, low-pay jobs. They take operating surpluses that used to be recycled into local economies and whisk them straight off to the City of London where they boost the wealth of institutional shareholders. The kinds of profits they report from operating in Scotland simply dwarf the revenue which will be raised by a levy. They cannot take their market with them so they won’t be going anywhere.

The CBI seems not to understand the difference between unrelated industry sectors. It seems to think that business leaders are like startled sheep. It doesn’t seem to understand the difference between a mobile and a immobile market. It seems to think businesses predicate their strategies not on profit but on whim. It also seems to think that only corporation-sized businesses are of any benefit to the Scottish economy.

In brief, either the CBI has no grasp of the basics of investment and market economics or it is just blowing off yet another bluff in its war against the public. This time, though, their bluff is going to be called. Just as well for them that their strategy is based on intimidation and insinuation rather than sound economics.

Robin McAlpine