The huge strides it made in improving product quality, ranging and customer service means that Tesco is delivering the promises made by its marketing.”The battle between Tesco and Sainsbury will be one of the most significant events on the high street this year, with the grocery sector estimated to represent 38p of every pound spent in Britain’s shops.The sector has taken on a significance well beyond the size of the food market – total grocers’ sales of pounds 64bn are 25 per cent more than the total amount spent on food.The renaissance of value for money as the driving force of the supermarkets’ sales efforts marks a shift away from the use of loyalty cards that has dominated the past year.The cards have proved expensive to run and the jury remains out on whether they can retain shoppers’ loyalty in the absence of product innovation and good service.Asda has already said it sees the cards, which were first launched by Tesco, as a distraction from its core retailing skills. The cost of Sainsbury’s Reward scheme was put at pounds 10m last week and although the cards provide the company with valuable information about its customers, they are not generating sufficient new revenue to cover their cost.As well as facing a threat from the majors slashing prices, the plight of the traditional high street grocers has been exacerbated by a second squeeze from hard discounters, led by Aldi, which has made a determined play for the lower end of the market. According to Verdict, it is seen as providing a better service to the poorest end of the market than Kwik Save and could become even more of a force if a merger of Aldi, Netto and Lidl were effected.Another issue affecting many food retailers is management succession, with Asda, Safeway, Sainsbury and Tesco all seeing changes at the top.. Labour’s plans to raise up to pounds 10bn from a one-off windfall tax on the privatised utilities is only “the tip of the iceberg” and could be levied on an annual basis, a leading institutional investor warns today in a downbeat analysis of the sector. And an even bigger threat to the utilities comes from the prospect of tighter regulation and increased competition, regardless of the outcome of the general election, leading to “severe downward pressure” on the share prices of the utilities.
“Labour is likely to inherit a high public sector borrowing requirement [PSBR] if it forms the next government, with pressure to reduce it to meet the convergence criteria for European monetary union [EMU],” argues the report’s author, Julian Fosh, investment director with Scottish Amicable Investment Managers.”It is difficult to see how this, or any possible recipient for the cash raised by a windfall tax, could effectively be addressed by a single levy.”Instead, a one-off tax raising up to pounds 10bn, divided into a pounds 2.5bn levy over four years, would provide Labour with a steady income stream.

“From there it is only a short step to make it an annual levy,” Mr Fosh continues, noting that the targets for the one-off tax – training, education, and youth unemployment – are by their very nature medium- or long-term commitments.”The motive for making a one-off tax an annual levy is, therefore, strong,” he concludes.Mr Fosh also claims that the impact of an ongoing tax on utilities has been underestimated by investors. “With strong balance sheets, utilities could relatively easily withstand a one-off tax, raising up to pounds 5bn. By contrast, an ongoing tax, even if a lesser sum were raised each year, would reduce future revenues at a time when these are already threatened by limited growth prospects and tighter regulation.”But it is the introduction of full competition that will hit the utilities hardest. “The effects of competition may be sudden and dramatic,” Mr Fosh warns. “In gas and electricity, for example, there could be a significant and damaging overnight drop in margins as the regulator hands power to the market.”The regulatory outlook was clouded last week when Professor Stephen Littlechild, the electricity regulator, signalled he might be prepared to loosen price controls on power companies if they were hit by Labour’s windfall tax. Labour has consistently denied the tax would have any effect on consumers’ bills..

The German government will publish a new report tomorrow sticking to its forecast that the economy will pick up this year. Its optimism contrasts with growing fears among economists that growth will be too sluggish for the government to keep its deficit low enough to qualify for the single currency. The report will predict growth of 2.5 per cent this year, up from only 1.4 per cent last year. This will be enough, the government forecasts, for the gap between its revenues and spending to shrink to 2.9 per cent of GDP, just below the 3 per cent ceiling set in the Maastricht Treaty.
The tax reform package announced last week will, according to the forecast, boost growth by 0.5 per cent. Finance minister Theo Waigel said tax reform would boost competitiveness and job creation.Yet the report is also due to admit that the unemployment rate will average 11 per cent for the year.