Sure, they tell us that they are the true representatives of the poor and bleed their hearts out telling us how compassionate they are,  but in practice their proposals invariably make the poor worse off. Take this latest example from George Monbiot on CIF. In it he argues that the supermarkets are far too powerful and are beastly to their suppliers:

The supermarkets have used their buying power to shift the money that farmers might have made into their own accounts. Once farmers become dependent on them, they bring down the prices they pay, sometimes to below the cost of production. They demand that their suppliers carry all the expense of packaging, labelling and transporting their goods, and sometimes change the specifications without notice. The cost of any discounts the supermarket offers must be borne by the supplier, not the shop, and the supermarkets will suddenly alter the terms of the contract, knowing that the farmer’s only alternative is to let his crops rot in the field. Some chains demand a “rebate” from farmers at the end of the year: a tax that they must pay if they’re to get another contract. It’s the kind of predatory relationship you would expect between an Indian landlord and his tenants: total exploitation unimpeded by government.

Believe me, that is the way all successful organisations treat their suppliers (you should see what happens in telecoms with those mobiles we all like) as they try to get the best deal to pass on to their own customers and hopefully gain new customers. But let’s see what happens if he gets his way and supermarkets are forced to increase what they pay their suppliers.

Firstly, who does he think will pay? He would like to think that it is Tesco’s shareholders in reduced dividends but I think that we can be sure that it won’t be as we can see from what happens with tax incidence, which is essentially the same i.e. rising costs. As Tim Worstall keeps pointing out:

There are other papers which (purport) to show that these other important issues lead to the workers’ wages falling by more than the corporate tax raised. That over time, a £1 raised in corporation tax reduces wages by more than £1. That is, that the incidence upon the workers is more than 100%. (You can link to the papers on his site)

So we could find that Tesco’s employees will pay for those extra costs but as we are often told shop workers are hardly the highest paid employees in the country. But to help George out let’s assume that many of the supermarket workers are on minimum wage so can’t have their wages reduced further. This only leaves rising prices so, it is customers that pay.

So what many can afford them, can’t they? Well, let’s see.

From here we can see that UK households spent an average of £459 a week in 2007 compared to £449 in 2006. Of this it looks like about £50 (round up) is spent on food and non-alcoholic drinks, about £20 (round down) on clothing and footwear, £30 on household goods and services and £10 on alcoholic drinks and tobacco. A total of £110 or 24% of their spend. Not all this will be in supermarkets but given that supermarkets are dabbling in everything from food to clothes to houshold good to financial services a fair bit of it can be. For the sake of his argument let’s assume that 66% of all that spend is in supermarkets, so that would be around £75 or 16% of household expenditure.

We know that as a nation we have saved very little in the past so we’ll assume that in 1997 it was effectively zero that means the average household earned 52 x £459 = £23,868, which from here looks like about the average household income for a family so everything is stacking up. Form that same chart we can see that the bottom 20% of household have an average income of about £15k. If we assume that the £75 a week spent by the average household in supermarkets are essentials then the bottom 20% will be spending about the same or (52 x £75/£15k)*100% = 26% of household income in (My gut feel is that is a bit low biut I can’t find a decent reference as a sanity check).

Nearly there. Thanks to George and his muckers* the supermarkets have to put up their prices by, say,  10% so the supermarket basket for the bottom 20% of earners has just increased by £7.50 to £82.50. This means that the lower 20% are now paying (52 x £82.5/£15000) x 100% = 28.6% of income. This means that George’s new policy is effectively a 2.6% pay cut for the poorest 20% of the population. Thanks George.

PS Yes I know I have added non food items and George only talked about food but do you really think that once they’ve got their claws in to the supermarkets they’ll stop at farmers? Quite.

*squaddie for friend