Sainsbury's boss Justin King spells out why he is backing The Grocer's Push Back The Tax campaign


Implementing the government's 2.5 percentage point reduction in VAT just before Christmas last year was a logistical nightmare for retailers. As an industry we rose to the challenge of altering millions of barcodes, individual price tickets and shelf-edge PoS. Mostly the reductions were implemented ahead of the government's target date so customers could take advantage of the cheaper prices as quickly as possible.

Of course it necessitated a huge investment in additional hours and overtime costs at a time when retailers are trying to run their businesses efficiently and keep costs down. To give retailers this amount of extra work at a few days' notice at the most demanding time of the trading year was little short of madness.

One-sixth of all retail sales in the UK are accounted for in the short Christmas and post-Christmas sales period. We made it clear to the government that the timing of last year's VAT cut put an untenable burden on retailers when when we were all focusing foremost on our customers. The government seemed to totally underestimate the work and cost involved, and now despite the protestations of major retailers it is proposing to raise VAT back to 17.5% on 31 December probably the worst possible date in the year to do so. To move VAT back to 17.5% then will create significant disruption during key trading weeks.

It's true that the date for the increase has been widely publicised in advance and therefore allows a certain amount of planning before Christmas is upon us, but there is still a significant amount of resource that we will need to divert to implement the rise overnight. The cost burden will be significantly higher than the already substantial costs incurred when VAT was reduced.

To put the issue in context at Sainsbury's we sell some 30,000 food products. Some of these lines incur VAT. In addition we sell thousands of non-food items, all liable for VAT. Add to that about 400 million items somewhere in the supply chain at any one time and you get an idea of the scale of the operation the government wants us to implement.

There are also specific issues associated with increasing rather than decreasing VAT. For example, if a shelf-edge label states the price of a product is £1, but a customer is charged more at the checkout because of the VAT increase, not only do we run the risk that the customer may feel misled, but we could also be guilty of an offence under the Unfair Trading Regulations 2008.

I ask once again that the government listens to the valid concerns of the retail industry. Retailers do, after all, make a major contribution to the economy and, as a sector, we are the UK's second-biggest employer. We help regenerate local communities. We create sustainable careers, offering our colleagues training and flexible working. We have kept prices down at a time when household budgets are under enormous strain. As the Competition Commission noted only last year, the grocery sector operates in a way that is beneficial for the consumer.

We know and understand our businesses. I believe we have earned the right to have our views heard. Given all of the operational problems I have outlined, I call on government to heed The Grocer's Push Back the Tax! campaign and delay the VAT rise to 31 January 2010.


Justin King is the chief executive of Sainsbury's.

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