Wm Morrison's

From the BBC:

Morrisons sees surge in profits

The UK's fourth-largest supermarket, Morrisons saw half-year pre-tax profits rise 45%, saying new customers had been drawn in by its prices in the downturn...

OK. Stop right there. The 45% figure is vastly inflated by a one-off £91 million paper gain which arose because they changed the rules of their pension scheme, which is now based on 'Career Average Revalued Earnings' instead of final salary. Let's strip it down to its basics and and compare the twenty-six week period ending 2 August 2009 with the period ending 3 August 2008, figures from here:

Staff numbers: 131,000 (124,000) up 5.6%
Net selling space: 11.4 million (11.1 million) up 2.7%
Sales (net of VAT): £7,548 million (£7,105 million) up 5.0%
Gross profit: £518 million (£436 million) up 18.8%
Gross profit margin: 6.9% (6.1%) up 0.8%

The increases in staff numbers, net selling space and sales are pretty much in line, but isn't there one figure there that sticks out like a sore thumb - the increase in gross profit? In these straitened times, how did they manage to improve their gross profit margin from 6.1% to 6.9%?

No doubt a large part of the difference arose from the VAT cut. VAT was 14.9% of total selling prices in the previous period and 13% in the later one*, which would improve the gross margin on sales of VAT-able items by 1.9%. Their fuel sales account for a fifth of total sales by value and let's assume another fifth for alcoholic drinks, sweets and biscuits and so on, so assuming they kept the benefit of the VAT cut, we'd expect to see gross margins improve by two-fifths of 1.9% = 0.8%, which is pretty much what happened.

So the Big Fat Lie that politicians like to perpetrate, that "VAT is borne by the consumer and doesn't hurt the producer" is exposed yet again as a Big Fat Lie. Even it it were true, then so what? Every extra £1 we are forced to pay in VAT in one shop reduces the amount that we can spend, save or invest elsewhere, so to suggest that "it doesn't hurt the producer" is laughable - because a reduction in VAT clearly benefits the producer - even if the first part of that statement were true (which it isn't).

* They used to have to hand over £17.50 for every £117.50 gross sales = 14.89% and now they only have to hand over £15.00 for every £115.00 gross sales = 13.04%. Of course, they 'reclaim' the input VAT that they've already paid to their suppliers, but their suppliers then just hand it over to the taxman - whichever way you look at it, the total VAT payable to the taxman (whether directly or indirectly) stays the same.