The chairman of Asda has delivered a blunt warning to Chancellor Rachel Reeves, urging her to “stop taxing everything” and start investing in Britain ahead of an autumn budget that could require £50 billion in tax rises or spending cuts.
Allan Leighton, who returned to lead the struggling supermarket chain in November, cautioned that the government’s approach to growth risks creating economic stagnation. His intervention comes as the National Institute of Economic and Social Research (NIESR) warned the Chancellor faces filling a massive fiscal hole whilst honouring manifesto pledges.
“Growth isn’t driven by government. Growth is driven by organisations and companies and people. And if they can’t invest, then we will not grow, no matter what the government says or does,” Leighton told reporters, calling for a fundamental shift in Treasury thinking.
Warning Over Retail Tax Plans
The Asda boss expressed particular concern about reports the government is considering hiking business rates for larger retail units, which could significantly impact supermarket chains already grappling with tight margins.
“All these things don’t make life easier. They are contributing to inflation, and inflation is hitting the pocket of the consumer,” Leighton warned, describing potential business rate increases as “very unhelpful” for the sector.
His comments reflect growing anxiety in the retail industry about the Chancellor’s autumn budget plans. Reeves must find £50 billion through tax rises or spending cuts to balance the books, according to NIESR’s latest assessment – a figure that has grown from initial estimates of a £22 billion black hole inherited from the Conservatives.
Manifesto Pledges Constrain Options
The Chancellor has vowed to stick to Labour’s election pledge not to raise income tax, National Insurance or VAT on working people, whilst fiscal rules prevent additional borrowing. This leaves her exploring alternative revenue sources, with property and business taxation emerging as prime targets.
The Telegraph reports Reeves is considering extending the freeze on income tax thresholds beyond 2028, potentially raising £8.2 billion annually. A “mansion tax” on expensive homes and raids on the gambling industry are also under consideration, alongside the business rate changes that have alarmed retailers.
Leighton called on the government to abandon its taxation-focused approach in favour of investment. “Instead of taxing everything in some way, shape or form, the government should start investing in Britain,” he said, warning that current policies risk undermining the economic growth Labour has promised to deliver.
Asda’s Own Struggles Intensify
The timing of Leighton’s intervention is significant, coming as Asda battles its worst performance among major supermarkets. Sales fell 2.6 per cent to £4.22 billion in the three months to August 10, making it the only major grocer besides Co-op to see revenues decline.
Market share has slumped from 12.7 per cent to 11.8 per cent over the past year, according to market researcher Kantar Worldpanel. The chain’s own data reveals middle-class families’ disposable income has fallen for the first time in two years, adding to pressure on the retailer.
Leighton, who previously led Asda’s turnaround in the 1990s before its sale to Walmart, acknowledged the chain is “struggling.” He admitted it was “quite obvious” that changes were needed, stating: “It’s pretty difficult to say the business isn’t struggling when its sales are down five per cent.”
Pressure Mounts on Suppliers
In response to declining performance, Asda has intensified pressure on suppliers to cut prices, attempting to win back customers through aggressive pricing strategies. This approach risks straining relationships across the supply chain as margins tighten throughout the industry.
“We try to do the right thing for the customer and if the suppliers want to come with us, and a lot of them do, then we take that support,” Leighton explained. “But if we think it’s the right thing to do for the customer, we’re going to do it anyway.”
The supermarket warned that sales could face further pressure as it completes a long-delayed IT system upgrade, with Leighton cautioning that profits will fall amid investment to improve stores. Despite challenges, the chain reported its best quarterly performance of 2024 in recent results, with sales down just 0.2 per cent in the three months to June.
Treasury’s £50 Billion Challenge
NIESR’s analysis paints a stark picture of the Chancellor’s options. The think tank warns Reeves faces an “impossible trilemma” of breaking manifesto pledges, cutting spending or changing fiscal rules she has declared “ironclad.”
Stephen Millard, NIESR’s deputy director, said: “Fiddling at the edges won’t do the job. If the Chancellor wants to maintain even a wafer-thin buffer, she needs to consider sustained and moderate tax increases.”
The institute estimates the fiscal gap has grown to £41.2 billion, with an additional £9.9 billion needed to restore the headroom maintained in previous budgets. Weaker economic growth, lower tax receipts and Labour’s failure to deliver promised welfare savings have all contributed to the deteriorating position.
Business Confidence Crumbles
Leighton’s comments reflect broader business concerns about Labour’s economic management. The Confederation of British Industry’s monthly survey shows business owners have planned for declining activity in each of the past 10 months since Reeves’ first budget.
Earlier this month, a coalition of retailers including Asda wrote to the Chancellor warning that government tax policies could undermine Labour’s core promise to raise living standards. They argued additional taxes would accelerate food price inflation at a time when costs are already climbing.
A Treasury spokesperson responded to criticism by stating: “As set out in the Plan for Change, the best way to strengthen public finances is by growing the economy, which is our focus. We are committed to keeping taxes for working people as low as possible.”
Investment Versus Taxation Debate
Leighton’s call for investment over taxation echoes concerns across the business community about Labour’s approach to generating growth. His philosophy is simple: “If you want growth, you have to invest.”
The veteran retail executive, who also served as president of Canadian grocer Loblaw and chairman of Royal Mail, brings significant weight to the debate. His return to Asda after more than two decades was seen as a vote of confidence in the chain’s potential recovery.
However, with inflation concerns mounting and consumer spending under pressure, the retail sector faces a challenging period regardless of government policy. Asda’s struggles reflect broader industry trends as shoppers increasingly turn to discounters and online options.
As the autumn budget approaches, the tension between Labour’s spending ambitions, manifesto commitments and economic reality continues to grow. For retailers like Asda, already battling fierce competition and changing consumer habits, the prospect of additional tax burdens could prove the tipping point in an increasingly difficult market.
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Image Credit:
Allan Leighton (2015) — photo by The Co-op Group, originally posted to Flickr on 29 May 2007. Licensed under Creative Commons Attribution 2.0 Generic (CC BY 2.0)
