Supermarket giant Asda warned its shoppers will be hit with higher prices because of a £100million Budget tax raid - declaring “we don’t have a magic money tree”.
Bosses cautioned that Chancellor Rachel Reeves’ tax blow could also impact on staff numbers and wages. Leeds-based Asda, which employs 130,000 people, became the latest in a wave of firms to put a bill on Ms Reeves’ decision to raise national insurance rates and lower the threshold on which it is paid as she bids to plug a black hole in the public finances.
Stuart Rose, Asda’s chairman, said national insurance made up the bulk of the £100million in added costs from the Budget. He explained: “It has taxed more heavily than we thought and in more places which may not give them the resources they want. We are a very heavily taxed industry and retail is the largest employer in the private sector, three million people. They are taxing us right the way through and that will affect our ability to compete and our ability to give our customers the same prices this year as they had last year.
"We will have to look at what we can afford, how much we can’t afford and in which case how much we have to pass to the customers and that will go right through to the numbers of people we employ and salaries we pay and all the rest of it. “It is inflationary. You cannot absorb £100milion of cost. We don’t have a magic money tree in Leeds.” Asked bluntly if it will lead to price rises, Lord Rose said: “yes”.
Michael Gleeson, Asda’s finance director, echoed that, saying: “It will undoubtedly lead to some price rises.” Lord Rose went on: “Our industry is very efficient but we work on incredibly tight margins. You are dealing with very large numbers and very high sensitivity.”
Arch rival Sainsbury’s also warned of price rises to come after its national insurance bill jumps by £140million from next April. Primark and BT are among others that have spelt out the hit, and the possibility of higher prices.
Asda recently revealed plans to axe 475 head office staff.
Lord Rose, a former boss at Marks & Spencer, called on the government to bring forward Labour’s promised shake-up of business rates, which has been earmarked for 2026, in the hope it lower Asda’s currently more than £300million a year bill for the property tax. “Come on fellas, get on with it,” was his message to ministers. “Someone has got to get a grip.”
His comments came as the struggling chain revealed another sharp fall in sales. Takings, excluding fuel, fell 2.5% to £5.3billion in the three months to the end of September. Sales in stores open at least a year plunged by 4.8%.
Lord Rose said: “We have undergone the largest transformation in our history during the last three years – doubling our store footprint, expanding into the strategically important growth markets of convenience and food-to-go, and overhauling our digital capabilities.
“We have laid solid foundations to drive long term growth, but the unprecedented scale of these changes has absorbed a huge amount of the leadership’s time with a temporary impact on Asda’s customer experience in stores.”
It comes as Asda enters the crucial Christmas period, when competition between supermarkets is even more ferocious. Asda has seen its market share tumble since its £6.8billion sale to the billionaire Issa brothers and private equity firm TDR Capital in February 2021. The latest update showed it was still lumbered with £3.8billion of debt.
It is also without a chief executive after Mohsin Issa stepped down from running the business in September. Lord Rose has taken interim charge but ruled himself out of the job on a permanent basis, saying: “It’s a no.” He said the search for a new CEO was “actively in place”, adding: “I am confident we will have an answer sooner rather than later. That doesn’t mean in weeks, it means in months.”