The Covid Inquiry has given a peek into how public policy is sometimes formulated at the upper echelons of government. It might be argued not every decision seems based on the most rigorous analysis.

That may help explain the backdrop to the Scottish Government’s shock plan, announced in December’s Budget, to consider raising taxes on grocers to “sustain the public finances”.

Seven weeks on and the reverberations from this announcement are still being felt. It has knocked confidence and risks seriously souring the relationship which the industry in good faith - along with previous ministers - has sought to nurture through the development of the Scottish Government’s retail strategy, the creation of the Retail Industry Leadership Group, and subsequent New Deal for Business.

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A new tax also risks breaching promises made on business rates contained in the SNP manifesto and the Government’s Framework for Tax and New Deal. It would mark a decisive departure away from the pledge to restore rates parity with England.

The reason for ministers considering the new tax is clear - to help fund the public sector. However, why part of retail alone has been singled out - for now at least - as a potential milch cow remains a mystery.

Ministers seem interested in regurgitating the euphemistically titled “public health supplement” which was in place from 2012 to 2015. The name of this surtax was a misnomer as the receipts - £96 million - went into the Scottish Government’s general kitty and wasn’t hypothecated.

For now, other detail on the proposed surtax remains scant. Myriad questions to ministers from the Scottish Retail Consortium and from MSPs have elicited next to no information. This Baldrick-esque cunning plan for a new tax appears to have come forward with next to no thinking about the implications for those affected nor for the administration’s broader agenda. That tax policy is apparently being made in such a cack-handed way is worrying.

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For one thing, today’s circumstances and trading conditions are substantially different to 12 years ago.

The nature of the grocery retail market has changed significantly in recent years with competition intensifying, more eating out of home, and a greater prevalence of online shopping.

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Over and above this, the value of grocery retail sales in Scotland reduced in real terms in 2023, down by 1.2%. Meanwhile, the Competition and Markets Authority found that food retailers’ profits had shrunk to just 1.8% of revenues, reflecting cost increases but also their efforts to keep down prices for customers. Retail is one of the few sectors to have seen a significant reduction in profitability since the onset of the cost-of-living crunch. Official data shows profitability in other sectors such as financial services, energy, professional services, and manufacturing is significantly higher than food retailing which is historically a low profit margin business.

Indeed, a low profit margin suggests that the level of additional sales required to offset any levy would be enormous, potentially £1 billion, if the tax rates which applied in 2012-15 were applicable now.

Government-mandated costs are higher now too. Scotland’s business rate in 2012-15 was 45.8p in the pound for larger commercial premises. From April it will be 55.9p in the pound. A surtax comparable to the 2012-15 levy would see stores in Scotland facing the highest business rate in the UK.

Meanwhile, the UK Government’s apprenticeship levy and two increases in employers’ statutory minimum pension contributions have added to the statutory cost burden. More UK regulations are in the pipeline.

Over and above this, shackling stores with a new rates levy could hinder rather than help retailers’ ability to keep down shop prices. If shop prices were to rise that would be most keenly felt by lower-income households who spend proportionally more of their incomes on groceries and essentials.

Any new rates levy also risks unintended consequences. It could lead those firms which are affected to put under the microscope existing discretionary spending, for example local sourcing programmes, investment in net zero decarbonisation and sustainability, and community initiatives. This would be contrary to what government says it wants to encourage.

There are multiple risks arising from this threatened new tax. The sooner ministers get back to evidence-based policy making and shelve the surtax the better.

David Lonsdale is director of the Scottish Retail Consortium