As Tesco becomes the first UK retailer to announce profits of more than £2 billion, the debate about whether increasing supermarket domination is squeezing independent shops out of the market continues unabated.
Many argue that the growth in sales has come at a cost to farmers, who receive just 8p of every £1 spent on supermarket food. The industry Code of Practice has proved ineffective in tackling the increasing distortion between prices consumers pay for supermarket goods and the amount suppliers receive for produce, with many too scared to blow the whistle on uncompetitive practices for fear of losing business.
Tesco directors deny that this is the case and say that their increasing profits come largely from growing sales in non-food areas, such as CDs and clothes. For consumers, this has resulted in access to an increasing range of goods and services at competitive prices, something that should be welcomed in a free market.
But, although consumers are currently benefiting from supermarket expansion into new product lines, many analysts fear that competition will be restricted in the long term, with smaller shops unable to compete.
The burden of business rates falls disproportionately on the shoulders of small shops, who often pay a higher proportion of their turnover in business rates than the largest supermarkets. Complying with regulation is also more costly and time consuming for small retailers as, unlike larger stores, they cannot rely on the services of in-house legal teams.
There is also increasing concern that supermarket consolidation of the convenience store market and the development of out-of-town stores is forcing local shops out of business, creating clone-like high streets increasingly bereft of the vibrancy offered by independent retailers.
The New Economics Foundation estimates that between 1997 and 2002, 50 small shops went out of business each week. If closures have continued at this rate, more than 20,000 specialist shops would have closed in the past eight years. Analysts are predicting that by 2010 Britain will have lost a third of its neighbourhood stores.
Consumers want to benefit from the choice and convenience offered by supermarkets, but shoppers are becoming increasingly concerned about the loss of
independent retailers in their communities. A study conducted by the Association of Convenience Stores showed that 63% of people thought the growth of the supermarket-owned convenience stores gave consumers less choice about where to shop.
Small shops are at the very heart of our communities, providing local employment opportunities and a range of goods and services, particularly in poorer or isolated locations. It is therefore vital that regulators ensure that independent retailers can compete on a level playing field.
The Liberal Democrats would introduce a duty to trade fairly and create a Food Trade Inspector within the Office of Fair Trading to ensure farmers receive a fair price for the food they supply to supermarkets. We would also provide rate relief for small businesses in the form of an allowance, so that businesses with a rateable value of less than £25,000 would not pay rates on the first £1,500 of their rateable value. The shortfall would be made up by larger businesses.
In the long term, we would move to a rates system based on site value rating, thus widening the tax base and addressing the anomaly under the current system where rateable value increases when a business has improved its premises, effectively acting as a tax on business improvement.
The LibDems would address the burden of red tape by reforming the way legislation is made - making wider use of sunset clauses and ensuring that no new regulation is passed without a full and independent assessment of its need. We would also consult with businesses on creating a simpler and fairer taxation system, giving priority to helping small business.