Why Rachel Reeves should pay attention to Mr Asda

A supermarket bang in the middle of Labour’s heartland has sounded a warning on tax – and the chancellor would do well to listen, writes Chris Blackhurst

The chair of Asda has urged the chancellor to cease ‘taxing everything in some way, shape or form’ (PA)

In the run-up to the last election, Labour devoted considerable time and effort to wooing business and the City. Ministers wanted to convince them that the government could be relied upon, that it understood and appreciated the concerns of the private sector, that it could be trusted with the economy, with other people’s money.

The party has since done everything to undermine that faith – so much so that you wonder what its previous efforts were really for. Were they merely a cynical exercise in silencing potential critics and winning votes?

The clincher was the hike in employers’ national insurance contributions, announced by Rachel Reeves in her first Budget. But there have been other missteps that have led to the draining away of the commercial community’s confidence in the government. Key, and weighing increasingly heavily, has been the failure to get to grips with inflation and the rising cost of living, coupled with an unwillingness to tackle public spending. The debacle over welfare reform caused boardroom heads to shake in bafflement and frustration.

Businesses simply do not behave in such a fashion. They aim to balance the books, leaving something over for a healthy profit. They know how to operate within their means – and yes, sometimes that requires making difficult decisions. They also invest to grow; to put money into new products, marketing, staff, sites, equipment and supply lines; to improve efficiency and expand sales. Wisely, of course, but they are aware that this is what it takes.

Equally, they are at one with their audience. They have a good idea of how far they can go, of where the elastic limit lies.

No one is better at this than Allan Leighton. He was one of the original duo, along with Archie Norman (another proven star with a similar track record of success, now chairing Marks & Spencer), that built Asda into such a formidable retail force. The chain has since lost its mojo, which is why Leighton was recalled recently to serve as executive chair.

So, when Leighton warns the chancellor to cease “taxing everything in some way, shape or form”, she should listen. He said that if Reeves wants to push economic growth, as she claims to with her repeated insistence on going “further and faster” in pursuit of that aim, she should stop raising taxes and start investing in Britain.

Of course, Leighton has a vested interest. There is speculation that the chancellor is ready to increase business rates for larger premises. This would be “very unhelpful”, he said, echoing the dismay among rivals Tesco and Sainsbury’s.

But the cost of that rise would ultimately be borne by the consumer, as was the rise in employers’ national insurance. Leighton also said this: “All these things don’t make life easier. They are contributing to inflation, and inflation is hitting the pocket of the consumer.”

It would be easy for Reeves and her Treasury and Labour colleagues to dismiss his intervention; to say that he is only interested in the size of his financial returns. That would be extremely short-sighted. Asda caters to the most price-conscious end of the grocery market, supplying groceries to hardworking families, precisely the folks that Labour says it cares so much about. Those, incidentally, that Reeves has pledged will not be subjected to tax increases.

It is no coincidence that Asda reported this week that middle-class families’ disposable income has fallen for the first time in two years. Similarly, the British Retail Consortium said that food inflation stands at 4.2 per cent (above that of the EU, where the rate is 2.9 per cent). The Office for National Statistics reports that those on lower incomes endured a 4.1 per cent rise in living costs in the year to June. What’s more, this was the steepest increase in any income group.

Those people, in the middle and lower income brackets, are Leighton’s public. They represent his target market. He added that supermarkets are fighting to “find a way through” and to avoid higher prices for their shoppers. Supermarket customers are cutting back. Adding to that pain is not the correct path, Leighton is saying. It’s a fool’s game that will be counterproductive. It will not make any difference to Reeves’s desire to secure economic growth – quite the reverse.

There is another reason why the chancellor should pay attention. Asda is smack bang in the centre of Labour’s heartland. Its roots are firmly in the north of England, in Leeds, and its stores are predominant in the region. It serves the very supporters that Labour so wants to impress – the supporters it must persuade again if it is to have any hope of landing a second term.

Increasingly, there is a sense of these voters being seduced by Nigel Farage. He is connecting with them, and not solely on immigration, in a manner that Labour is not.

Reeves’s party may be talking the talk locally, but it should not lose sight of the fact that it is in office, and that whatever the administration does lies at its door. It is in great danger of being heard to say one thing and seen to do quite another.

Coincidentally, Leeds is where Reeves’s constituency is, and she is fond of citing her knowledge of the city and its inhabitants as justification for her policies and measures. Asda’s headquarters are also in Leeds. Leighton’s office is there. She ought to go and sit with him and take on board what he is saying, before it is too late.