As Tony Blair sets out his stall for the general election, marketers are asking what a Labour victory will cost, Dominic Midgley reports
No one has ever played more effectively on the country’s distrust of
Labour governments than The Sun when, on election day in 1992, its front
page read: ‘If Kinnock wins today will the last person to leave the
country please turn out the lights.’
Now securities house Robert Fleming has come up with the broker’s
equivalent of that apocalyptic scenario. In its report, The General
Election and the UK Market, Fleming’s research outlines the radical
agenda it believes lurks behind Tony Blair’s unthreatening new image.
In the Labour manifesto according to Flemings, no one but the very
lowest paid escapes Blair’s hidden agenda to change the face of Britain
Such measures could cause a significant shift in the balance of power on
the high street and raise intriguing questions for marketers. With a
transfer of spending power from the better- to worse-off, some analysts
point to a rise in the fortunes of discount chains, like Kwik-Save, at
the expense of more up-market stores, like Sainsbury’s.
So, should relatively expensive household names, such as House of Fraser
and Next, be sharpening up their marketing in anticipation of challenges
ahead? Does a change in government affect the way they market their
brands? Can the DIY companies expect buoyant demand driven by a housing
boom funded from council house receipts? Should brown and white goods
manufacturers be preparing for a return of 80s-style consumption as
John Richards, retail analyst at NatWest Markets, is cautious: ‘There
has been no overt promise to soak the rich at this time, but one would
expect the policy mix to throw more money at the lower paid, and they
are more likely to spend any additional money they get,’ he says.
‘It will affect spending patterns to a relative extent, but I don’t
believe it will necessarily be measurable.’
He claims any prediction of a shift in spending from up-market to down-
market outlets is ‘simplistic and condescending’, arguing that there is
no reason why those with increased liquidity shouldn’t trade up, rather
than line the pockets of the discount sector. Would shoppers at Kwik-
Save stay loyal to the store even if they had an extra pounds 50 per
week to spend?
Potentially more significant is the introduction of a minimum wage.
‘This is an interesting one,’ says Don Corrie, senior economist with the
Institute of Policy Research. ‘I would have thought it would definitely
be introduced at the lower end of the pounds 3.50 to pounds 4 range,
partly because last year’s New Earnings Survey showed there were many
more low-paid people than we previously thought.
‘From the Labour angle, that would mean more people would benefit, but
it would have a bigger effect on the labour market.’
It is the latter point that the government is certain to attempt to
capitalise on during the election campaign, raising the spectre of
redundancies and inflationary pay rises as workers just above the
minimum rate fight to maintain their differentials.
In the retail sector, however, it could prove a boon for high street
chains. ‘Tesco would love a minimum wage because they already pay well
over pounds 4 an hour,’ says Corrie.
Officially, the supermarket giant has a more measured response. In a
carefully worded statement it says: ‘Tesco is not opposed in principle
to the concept of a minimum wage, provided that we are fully consulted
about how such a policy would be introduced.’
It is not hard to see why. Tesco boasts it has the best rates of pay in
the grocery retail industry. The majority of its checkout staff earn
pounds 4.27 per hour, while general assistants earn pounds 4.06.
The people who will feel the pinch are its competitors, the low-margin
discount chains who, some expect, will benefit from increased disposable
income among their customers.
Steve Boyfield is managing director of TJ Hughes, a16-strong retail
chain in the Midlands and north-west. ‘It won’t affect us greatly
because we are currently at the upper end of that range and by the time
legislation was introduced we’d probably be above it. But there are
quite a number of retailers paying below pounds 3.50 at the moment.
‘Independents tend to be at the lower end and a number of discount
chains are paying pounds 3.30 to pounds 3.40. Paying pounds 3.50 would
not be a problem, but pounds 4 would be a major increase on costs.’
Richards agrees: ‘If it comes in significantly above pounds 4 it would
be a major problem.’
Flemings says most retailers expect Labour to introduce a minimum wage
of around pounds 3.80 to appease the unions and suggests the companies
most likely to be affected are smaller outfits like Weston and Philip,
with Asda, Argyll, Iceland and Kwik-Save suffering only marginally.
Another potential blow for retailers, according to Flemings, is Labour’s
idea of a carbon tax - a levy on fuel to discourage car use. For an
industry so reliant on road transport for distribution this will mean an
unwelcome increase in overheads.
It is doubtful, however, that Labour could do much more in this
direction than the present government has done. Under Chancellor of the
Exchequer Kenneth Clarke, there have been successive rises in petrol
duty of 5% a year in real terms and, according to Don Corrie, further
increases on this scale are planned annually until the year 2000.
Meanwhile, there are at least two Labour policies which promise to
promote spending. The first is the release of up to pounds 6bn in
receipts from council house sales, which are largely ring-fenced under
If local authorities ploughed this into social housing it would provide
a valuable fillip for the construction industry and, with the extra jobs
and increase in consumer spending that would accompany them, this could
only be a boost for retailers. Flemings concedes that DIY and home
furnishing stores could expect to do well.
A second possible benefit of a Labour government might be an improvement
in the elusive ‘feel-good factor’. This could come from two directions:
improved job security and increased trust in the welfare state.
If Labour is able to re-assure consumers that the state will help
protect their futures, then they may spend more confidently. In the
current climate, more consumers feel secure putting disposable income
into pension schemes and health insurance than buying high street goods.
Labour has drawn up plans to tighten up on the rules surrounding unfair
dismissal and intends to do more for part-time workers, who represent
the biggest growth area in the employment market but who have little
protection at present.
‘People are worried by job insecurity,’ says Corrie. ‘If you introduce a
bit of regulation you make people feel more secure and spend more.’
Consumer trends consultant and style guru Peter York says Conservative
policies that actively make it easier to dismiss staff are at the root
of employee unease: ‘If people thought they were not vulnerable to
swingeing cost cuts then they may well spend more freely. That would
have a far greater impact than any changes in tax levels.’
In the short term, this could lead to a mini-sales boom, with emboldened
consumers splashing out on high-ticket items like brown and white goods,
making purchases they have been delaying for years. In the long run, it
could even help revive the housing market as those that have been scared
off by high interest rates and plunging prices gain confidence.
But don’t get too excited - consumer confidence will never get back to
where it was in the 80s. ‘Nothing could bring it back’, says York,
explaining that the sales boom was fuelled by two factors: ‘an
exceptional wall of credit and incredibly innovative retailers’.
Retailing in the 90s is characterised by cutting costs and streamlining
distribution. ‘There’s no inventiveness, no glamour - we have become a
nation of boring shopkeepers giving no inspiration to spend’, he says.
It would be ironic if it is a Labour Government that puts the glamour
back into retailing, and clearly, Flemings takes a highly sceptical view
of Blair’s good intentions. As one analyst says: ‘It has made reasonable
assumptions if you don’t trust politicians but, if you believe New
Labour is different from Old Labour, it hasn’t.’
Additional research by James Curtis
Britain in the pink
What would the consumer society look like under Labour?
* Middle England could be hit by a steep rise in the standard rate of
Income Tax, from 25p to 30p in the pound, in return for a 2.5% cut in
VAT to 15%, as Labour seeks to shift the tax burden from indirect to
* The existing top rate of 40% would take effect at around the current
level but a new top rate of 50% would be introduced at around pounds
* Labour would sign up to the Social Chapter and a national minimum wage
of between pounds 3.50 and pounds 4 per hour would be introduced.
* The introduction of a carbon tax on fuel, to discourage car use, would
hit out-of-town retailers hard. But would these draconian measures have
more impact than anything done or planned by the Tories?
* Labour would release up to pounds 6m in receipts from council-house
sales, ring-fenced under current legislation. If it results in more
house-building, this could promote spending and benefit DIY retailers.
* Tighter rules under Labour concerning unfair dismissal and greater
security for part-time workers could create a ‘feel-good factor’.
Emboldened consumers may spend more on high-ticket goods and gain
confidence in the housing market.
Source Robert Fleming
Winners and losers under Labour
Tony Blair has everything to prove in the run up to the general election
according to research conducted for Marketing by Audience Selection.
Better or worse off under Labour?
Of the 1009 people questioned, one-third were undecided whether they
would be financially better or worse off under a Labour Government.
Better off overall?
Labour can take heart from the fact that 37% thought they would be
better off, with 29% thinking they would have less to spend.
Men vs women
More men think they will be better off than women and there is most
confidence amongst the youngest and oldest age groups. In the 15- to 24-
year-old group, 41% said they would be better off, compared with 19% who
thought the opposite. Just over a third of pensioners think they will
have more to spend, but 40% are undecided.
Blair is not achieving a marked social revolution, with the richest
showing least confidence of wealth under Labour and the poorer bullish
at having more money. In the AB group 29% said they would be better off,
compared with 44% who thought the opposite. The inverse is true for DEs:
44% think they will have more cash and 23% say not.
There is a mixed perception that Labour may boost job security
better off worse off undecided
Full-time workers 35% 37% 28%
Part-time workers 45% 20% 35%
Unemployed 38% 24% 38%