Bosses at Tesco have new headaches this week. Just as everyone was grabbing for the calculator as industries reeled from the announcement on 7 September 2021 of the creation of a new Health and Social Care Levy to commence from 6 April 2022 giving employers only six months to do their sums on the increased cost, lorry drivers and warehouse operatives at four of their sites rejected a proposed pay increase.

The HSC levy heralds an increased cost of 1.25% per employee which Tesco no doubt factored in when offering the 2.5% increase to the workers. With this additional cost looming, this week’s failed pay talks, and an announcement today of some serious competition to their Brakes and Bookers businesses as Morrisons will expand its wholesale business, September is proving to be a challenging month…

Unite’s position is that 2.5% is lower than the RPI rate of inflation (currently 4.8%) and therefore the offer is, effectively, a pay cut. Tesco share prices have held well throughout the pandemic however the bigger picture is the Company’s plan to generate around £1.4bn a year in free cash flow from operations to provide additional capital to invest in growth and potentially increase shareholder returns. Unite wants Tesco to sharpen its pencil. Profits last year were about £3.17bn, however in the world of food and food distribution at the moment there is a lot of uncertainty.

Around 3500 workers are reported to be covered in the dispute and Tesco has set its position out as their ‘best and final’ offer. Clearly, bosses feel they have a few levers to pull in order to get Unite back to the negotiating table, having stated they have a waiting list of circa 400 drivers waiting to come on board. As household incomes prepare to absorb the shock of increased NICs from April 2022 and the phasing out of universal credit top-ups in October 2021, which will affect low-paid and part-time workers, a strike is probably the last thing anyone wants.

Morrisons meanwhile is subject to a £7bn battle for ownership by private equity which will go to auction next month and will be competing for a stake in the £5 billion market against Brakes and Bookers. Ironically, the Morrisions announcement today may be both good and bad news for Tesco as it could whet appetites for everyone to get back around the negotiating table to come up with a workable solution to the pay dispute. Every little helps, as they say…