Just days after it was revealed that food inflation had hit 3.9 per cent – its highest level for six years – a consumer watchdog has said it is ‘really concerned’ about further price hikes as businesses face reduced profit margins as a result of the new tax.
Mark Cox, chief operating officer of the Channel Islands Co-operative Society, said supermarkets would have to choose between further price increases on food or reducing investment in their business.
And Waitrose confirmed that it intended to ‘conduct a full review’ of the impact of the new levy to determine the ‘next steps’ which they would need to take. Last week charities voiced concerns at the number of struggling Islanders who were resorting to using food banks as the cost of essential items increased.
Under the new regime, businesses with annual profits greater than £500,000 will be subject to the tax on a sliding scale, with those earning over £750,000 taxed at the top rate of 20 per cent. The new tax was approved in the Budget for 2018 last November.
Mr Cox, who strongly opposed its introduction, said it would cause damage either to customers or the industry.
‘There’s two things that supermarkets will have to do – they will either need to cut back on their investment, which means less training and less spending on infrastructure.
‘Or they will have to look at increasing prices. No businesses are making large enough profits so that they can just hand over that amount of tax without making changes to their business.
‘We always try not to pass on costs such as these but this makes it harder,’ he said.
Anne King, executive officer of the Jersey Consumer Council, said that potential increases in the price of food were one of their biggest concerns.
‘Looking at the lifestyle survey last year, we identified that there are a lot of people in Jersey living in poverty,’ she said.
‘We have seen increases in the price of food with Brexit putting prices up with its effect on the exchange rate and we have had GST.
‘And now we have the retail tax, which we are concerned will have a further impact on food costs. The only real victims of this are going to be those on lower incomes, who are already struggling. Clearly we are very concerned about this.
‘The government said that they did a consultation on the retail tax but I think a lot of questions need to be asked, as they do not seem to have done their research properly.
She added that the tax could also affect market competitiveness, as retailers would be more reluctant to locate in the Island.
Andrew Bagot, managing director of Alliance, which sells Tesco products in the Channel Islands, said that his company had ‘no intention’ of raising prices because of a retail tax but was concerned about food inflation.
‘We are working hard with Tesco to mitigate this [food inflation] and hope to have further news on this soon,’ he said.