264. Why the chair of Iceland Foods is not worried about their energy bills

0:00Steph McGovern:But why is it always us having to suffer pain? None of us can control whether the Strait of Hormuz opens or not, but yet we take the hit for it because in order to control inflation, interest rates go up. And that's people with mortgages and even people who pay rent. Donald Trump makes his truth social announcement, block capital letters, that he thinks there's going to be a peace deal with Iran. 15 minutes before that, there are these massive bets on the oil price falling and massive bets on share prices rising. We're all waiting to see whether America remotely still has, you know, functioning regulatory institutions such that a proper investigation takes place.

0:42But I mean, the great worry about America, you know, actually, as I said on ITV, it just isn't a functioning democracy anymore.

1:00hello and welcome to the rest is money with me robert perston and with me steph mcgovern now

1:04Steph McGovern:on the last podcast we were talking about richard walker who is the executive chairman of iceland foods he's also the government's cost of living champion which he started in february this year but we were talking about his suggestion to put a cap on the profits of energy and oil companies to stop them cashing in. So we thought, why not let's get him on to talk about this himself. So that's who we've got on the show today, Robert, isn't it? It is. And look, we've all got soaring or the potential for soaring cost of living on our minds because of Trump's war in Iran. Poor old Richard, he started when he thought the cost of living might be falling.

1:43Maybe it's easy. Maybe he thought it'd be easy to be our champion for the cost of living. But bloomin' hell, you know, it's a big job now. So we really want to know what Richard Walker is saying to the Prime Minister about how to protect our living standards.

1:59Steph McGovern:So here's our interview with Lord Richard Walker. Richard, great to have you back on the show. You're now, I think, something like the Prime Minister's cost of living champion, czar. I'm not quite sure what the title is. You can tell us what that is. But I suppose where we wanted to start, everybody's really anxious about the impact of Trump's Iran war on the economy, on our living standards. I suppose I just want to ask you, how anxious are you that the living standards, particularly of those on lower incomes, more vulnerable people, are really under threat? Yeah, it's interesting, like what a difference a month makes.

2:38And we've had inflation figures out this morning, which kind of showed stability, decline, but of course, they were measured in February. And I think up until this war, there was a bit of a tailwind in the UK economy that we were having forecast to have declining interest rates, declining inflation. And like I say, a bit of a tailwind. So that was the sort of context. And then, of course, the Middle East blew up. And I think everyone has rightly been concerned and alarmed. And it's taught lessons for all of us about how important places like the Strait of Hamus are, which, of course, was not discussed a lot in mainstream media beforehand.

3:25um what's my assessment um it's a bit of a it's a bit of a mixed bag i mean the main thing is um that there is no need for consumers for households to panic why is that um there's actually a very good support package at the moment for the lowest income households um with well for every household actually with regards to energy which of course is the the big concern that this crisis is driving. And that's because we've got things like the energy price cap, which is in place until July. The poorest households can access the warm home discount. We've got fuel duty frozen until September, at least.

4:08So there's a whole kind of package there of policies which do provide a short-term safety net. But of course, it's clear that there are concerns. We've seen the price of oil and other commodities bounce around. And I suppose the longer this war goes on, you know, the more we'll have to fasten our seatbelts. But at the moment, I'm not concerned. And then finally, I'm giving a very long answer. But from a business perspective, we are in quite a different place to 2022. We were caught out as a business, those fridges and freezers use a lot of electricity and energy. We were quite unhedged in a lot of our energy positions.

4:46Now we're pretty much fully hedged, actually, up until through to next year. So there's no impact on our business we're obviously a big business it's not the case for all businesses especially SMEs but I am quite confident that there won't be any near or medium term impacts on our business and therefore fed through to the consumer and also there's no supply chain issues because none of our product comes through the straight of hummus that's purely oil and a bit fertilizer.

5:18Steph McGovern:This episode is brought to you by Octopus Energy. Now, you know, we love talking to entrepreneurs on this show. So with us is the founder of Octopus Energy, Greg Jackson. Right. I'm going to start with this. If you could change one thing to help Britain's economy grow, what would it be? I'd love to see pension funds putting more money into British businesses. over the last 25 years, they've fallen from 40 % of their investments going to British businesses to 4%. That's bad for business here. It's bad for our stock market, but it's also bad for pensioners. In fact, a Canadian pensioner will get almost double the pension from the same amount invested as a British pensioner.

5:56We need to sort that.

5:58Steph McGovern:Nice one, Greg. Well, thanks to Octopus Energy for powering this episode of The Rest is Money.

6:06This podcast is brought to you by Carvana. Car shopping shouldn't feel like preparing for a marathon of paperwork. That's why Carvana makes buying and financing your car easy. From start to finish, search thousands of vehicles with great prices. All online, all on your time. And when you're ready, your new car shows up right at your door. It doesn't get better than that. Buy your car the easy way on Carvana. Delivery fees may apply. This episode is brought to you by Indeed. Stop waiting around for the perfect candidate.

6:42Steph McGovern:Instead, use Indeed Sponsored Jobs to find the right people with the right skills fast. It's a simple way to make sure your listing is the first candidate C. According to Indeed data, Sponsored Jobs have four times more applicants than non-sponsored jobs. So go build your dream team today with Indeed.

7:05Steph McGovern:Looking back at when we last spoke to you, Richard, and it was in February 2024. And at the time, we were talking about the Red Sea and how important that is as well as a waterway. And we've talked about that on the podcast before. So how does this compare in terms of your worries then about inflation? because you've said you've hedged your energy, which is great. And you've been able to do that as a large retailer. You've talked about some of those things in place at the moment. But as you point out, they are short term. What we're going to see, you know, already people are talking about this cap on energy going up 11 percent, probably even more than that by the time we get to the next iteration of it in July.

7:47Steph McGovern:And then, you know, you talked about the fuel duty. Well, the plans are that that's going to change again in September. So in the short term, yes, you're right. But most people now are thinking longer term than that, aren't they? And you're not worried at all then? Look, I'm not tone deaf to the to the pressures that could be coming down the track. I was just kind of explaining the position at the moment for our for our business. But of course, the food retail industry operates on razor thin margins and that there isn't a lot of wriggle room. that's for sure you know of course I'm uh I'm concerned and I'm monitoring this situation and I think that's why it's really important that the government does everything it possibly can do to protect its citizens otherwise what's what's the government for and um my my role within that is to try and inject a bit of pace and urgency um to make sure that that things are happening and moving as fast as they can.

8:46Steph McGovern:Now, Richard, we last had you on in February 2024 in your role as the Iceland boss, which, you know, you're still chair there. But since then, you've become the government's cost of living champion. That was, you were appointed to that in February this year. What does that job involve? What is it? My role is to bring an outside voice, a bit of critical thinking and ask uncomfortable questions to government. As a champion, I'm also there to try and bang the drum on the good policies that are happening, but also raise the agenda on issues that I think the government should look at as well. It's unpaid.

9:27I'm not a minister. I'm not bound by collective responsibility. And therefore, I am a bit of an outsider and I want to remain so. I don't want to be kind of subsumed and sucked into the group think of the centre. And it is a bit of an innovative relationship and role, to be honest, and we're finding our way with it. But I think it's important at times like this to have a bit of critical thinking, a critical friend and an outside opinion on stuff. In terms of who I report to, it's Director Keir. He's a busy man. I'm not pretending I see him every day. I did see him on Monday. um but that you know they're taking this role very seriously it's it's um it's not just a ceremonial thing um and i think that direct access to the top table is is really important to make sure that my ideas are heard but also people like my customers and and people around the country iceland's a a great barometer of britain because we we see and feel the hit and hear the issues uh across our our five million customers a week our 1 000 shops so we're sort of tapped into every community and I want to bring that voice to Westminster.

10:35Your customers and how they're feeling. What we did hear from the Chancellor of the Exchequer when she gave her statement of Parliament on how she is preparing for what could be quite a severe shock to the British economy and British living standards, and quite a long period of difficulty. And what she said was that if they have to create a subsidy to bring down household energy costs, you know, to help people pay their heating bills, pay their power bills, she will focus that, she will target that on those with lower incomes, that those with bigger incomes won't get help. Have you given some thought, because obviously this is a crucial issue, about how one would define, you know, essentially those who need the help?

11:38Because, you know, the risk when you're saying means testing, targeting in this way, is quite a lot of people who don't think of themselves as wealthy will be in trouble. I mean, I saw Capital Economics today said they expected energy costs to go up 30%. Now, we're in territory where it's very difficult to make a scientific prediction. It is. Because, you know, on any given day, we're seeing 20 percentage points swings in the oil price, right? Iran have said non-hostile vessels can now pass through the straits. So you never know. Things might actually improve as well. A bit, yeah. But on this question of, because it's your job to advise them on the cost of living, so what would you say to them about which cohort, which group of people need to be supported?

12:32Yeah, there's obviously choices that need to be made. I don't directly have my hand on any lever and certainly I'm not writing policy in that regard, fiscal policy. But as a broad concept, I do think it's right that given the limited wriggle room, headroom we have as a country, any intervention in government money that has to be spent needs to be spent wisely. And what we saw in 2022 with the trust government was a very blunt instrument approach where everyone, including people like me, got support, which doesn't seem right. And I think it cost the taxpayer north of£40 billion. So I think it's right as a concept to look at targeting the most vulnerable households and those who need it most.

13:30Now, of course, being cognisant of the squeeze middle and exactly how that looks needs to be worked out by the policy teams and the Treasury.

13:41Steph McGovern:But as you say, Richard, your business, as you describe it as the barometer of Britain, you will see from your customers that there are a lot of people who are working poor, who don't qualify for any benefits, who, you know, quite often I see in our local food bank, a lot of the people there have jobs, don't qualify for benefits and are really, really struggling. so how you know how are we going to work this out in any meaningful way because i know what you're saying about rich people shouldn't get you know any help or any subsidy but how do you define who is who is rich and who isn't these days because if it's based on benefits that is going to push a lot of people into trouble who are at you know they're not even middle to be honest they're just above the threshold for benefits they're still struggling on low incomes and having to use food banks yeah i think i think you make some really important points there staff because the cost of living is not just about the cost of stuff and the the very poorest households it is also a sense and a feeling that life is a grind and actually life can be a grind and a struggle um for people who do have jobs or multiple jobs and they've got no time and they feel like they've got a government that isn't on their side so um the i think it was the economist amirata sen um talked about um poverty also comes from a sense of injustice and a feeling that a system isn't on your side so um you're you're right there and um it is it is very difficult to choose what i would say is there is already a package of support in place let's not forget so people everyone including me um and and those struggling um uh with with jobs and not just those on welfare do get support at the moment through the energy price cap um that's going to drop uh i think 150 quid from from april through to july um so there is support there there is also targeted support for the poorest households through the warm home discount which is about 150 quid as well and then of course we've got the fuel duty freeze to september at least so there there are kind of protections and a safety net currently in place that is helping everyone above and beyond the discussion about what what more we might have to do in a targeted way i mean richard of course you're absolutely right but you will also know that what kills economies is uncertainty um you know i'd be very very surprised if iceland your business given the outlook is so uncertain was currently planning some massive program of expansion it's the rational thing to do in a period of uncertainty is to we are actually right as soon as you mention it we're only 25 30 shops a year and creating 30 jobs in every shop and paying i'm thrilled i'm thrilled that you haven't paused that i'm genuinely throw the elbows down but i you know i i'm afraid that you know that that won't be universal uh lots of um households will be thinking oh my goodness this looks really bad in the gulf that big purchase i was thinking of making well maybe i'll hold off a bit and and um yeah and just see how things pan out similarly with businesses businesses haven't signed a contract many of them will be delaying quite substantial investments um so i i unfortunately um i fear we're already in the grips of what will turn out to be an economic slowdown funnily enough our we've got a pretty good real-time read on stuff our sales last week were a bit slow and food is um is obviously an essential item but some of it is discretionary and i think you're absolutely right to point towards consumers and businesses being a bit hesitant because every time you turn on the news you're seeing the Middle East on fire so of course that's going to affect sentiment and instability causes worry.

17:44I think before this we were in a better place and we talked about the inflation figures in February which was showing inflation coming down and we were starting to feel like we do have a bit more fiscal headroom and credibility and that stability obviously leads to investment. Now what's going on at the moment is a fax and outside of our control to a large extent but that's why the absolute best resolution here is to push for peace and to try and get as swift as end as possible to this conflict so that we can get back to what I think was a green shoots of a trajectory that through this year were it not for the Middle East crisis um there

18:36Steph McGovern:were reasons to be more cheerful we have very little control over that I mean I agree it would be great to get peace but you know there's not much control we have over that but can I ask then in your when you are talking to government and you know you mentioned seeing Keir on Monday what did you say to him like what I know you obviously might not tell us everything but like what are you saying to them when they say Richard what should we do I think they're they're obviously very busy on the big questions. And they're putting together response packages to that. But also, it shouldn't deter and detract all of the work streams and the policies that were percolating, which I think will also help with the cost of living.

19:15So, you know, for me, what's happened, and it just redoubles the efforts and the focus on making sure that we're looking at everything and we've talked mostly about energy um but but of course the cost of living is is everything and a whole range of consumer harms and costs and i think that's why they still need to do the big and small interventions yesterday vet bills capped at um at a level um there are there are they're looking at sort of midterm price hikes or loyalty uh traps or um auto renewals where you you can opt in, but it's very difficult to opt out of something. Now, this all seems trivial compared to what's going on in the Middle East.

19:59But I go back to what I said about the cost of living also being a sense and a feeling. I think it's really important to stay focused on all of those interventions that actually the government can and should be doing. And I'm pushing them to and putting more pressure on the regulators to call out bad practice and to push through when businesses are not doing the right thing. You talked over the weekend about wanting to see responsible behavior from big energy companies. You didn't want to see them making excessive profits out of the current crisis. I suppose, A, what did you mean by that? And what would you, I mean, it sounded as though you wanted another tax imposed, a sort of super, what you did say, a sort of temporary super tax on these companies.

20:48Just talk us through what you had in mind and And what do you think is likely to happen? Yeah, I made some comments on price gouging and temporary profit caps. Probably more accurate would be a temporary sort of crisis driven margin cap. How would that work? Well, countries like Greece have adopted it where they go across the supply chain from the refinery price to the wholesale price through to the retailer's margin through to the pump price. And we know the input costs on these things. And obviously, we know the sale price. So they're looking at how that can be policed to make sure that there isn't excessive profiteering.

21:30um we all talk about the pump price of course because it's very visual and affects our daily lives but there are there are some interesting odd market behaviors um without getting too technical you know the spot price of polythene jumped 30 percent last week that was an industry that uh had very sluggish demand and overstocks and and and there was no justification for that and I think that's happening across a range of petrochemicals so I think you're right you know the government have clearly signaled that's not an idea under current consideration but I think it is right in my role and I can add value by injecting a bit of pace and urgency and a bit of mischief to call things out and to put people on on companies on notice and to say that we the government but also the CMA with their enhanced powers they've recently been giving will be watching and taking action if required.

22:30Steph McGovern:Do you get any kind of reaction from other retailers and things when you say stuff like that like are any other businesses coming at you going hang on Richard what are you doing why are you talking how to curb our profits? Yes but I think it's very important in life Steph to get up the the right noses. Can you tell us whose noses you've Well, I think it's all out there in the public domain. You know, I've been called a lot of things the last couple of days, from totally uneducated through to much worse, unrepeatable things. But, you know, I've started a debate and I have hopefully injected some discussion and urgency around the issue.

23:11And I am fully aware that not all of my ideas will be implemented by the government. But I do passionately believe that change needs to start happening quickly. And that's why I was appointed to this role. Can I ask you, because we had Jürgen Mayer on the podcast comparatively recently. He's great. He runs GB Energy for the government. And I was quite struck that he has said publicly that he thinks it would be helpful for the government to allow more development of North Sea oil and gas. I mean, Ed Miliband's position is basically, even if we did that, it wouldn't bring the price of oil and gas down very much for UK consumers because that is the world.

24:01It's the sort of world energy price that matters. But, you know, the counter argument to that is if there is more oil and gas supply in the European market, prices will come down a bit. And secondly, that would generate really a lot of tax revenue. I mean, I'm assuming that if you had a super tax on your energy companies, your idea would be the proceeds, that revenue would help subsidize bills. Similarly, if you open up the North Sea, quite apart from the increased supply of oil and gas, there would be a significant increased tax revenue, which again could be used to lower consumer bills. So I just wondered if, like Jürgen, you think that Ed Miliband should be a bit more flexible, a bit more open to more North Sea oil and gas production?

24:47So obviously the crisis is right now. And I don't know how long it would take for this oil and gas to come on stream. I presume it would be quite a long term investment program. But all of the points you make are right. and you know there's two sides to this coin because if there's uh supply issues then um what you know we've we've we've got an untapped supply uh right right in the water next to us um but also i think the middle east conflict and russia and and and highlights the absolute necessity as a nation that we need to as ed would say get off the fossil fuel roller coaster and have domestic energy security and that to me is patently clear but we're not doing that fast

25:39Steph McGovern:enough are we you can't just like kind of switch off you know as jürgen said to us you know you can't just switch off one and expect the other to work we're not there yet are we and we're too dependent on on energy from other sources yeah we'll be producing gas to 2050 i mean you say we're not going too fast enough but the bill pair is currently sucking up um all the pain to to get to clean power by 2030 which is a very aggressive fast timescale um in other countries it's put more into general taxation and i do uh want to um push the treasury and desna's the uh miliband's department about looking at um green transition bonds and how we might be able to bring in a third route if you've got the bill payer general general taxation but why not try and use the power of private finance to to help with this transition and with regard so anyway with regards to the ultimate question should we drill more in the in the north sea um it is right to say that we're um a price taker not maker but do you know why because because i don't i mean yes it goes on to the global market but but why i mean i think there's this presence in in other countries where you can carve out um local um oil and gas at a local price for local consumption i mean certainly it is the case as you say that you know we do have a price setting mechanism which many people just think is irrational the fact that the the the price is broadly set by the marginal price on the world market of gas, many people say is completely mad, given that we have domestic wind, we have domestic renewables, we have our own oil and gas in the North Sea.

27:27And, you know, it is a bit crazy that they haven't given more thought to how you reform the price-setting mechanism. um a part of the reason for that is just we have very very powerful energy supply companies who are pretty comfortable with the status quo and in the end for reasons that are slightly beyond me the government won't stand up to them um it is odd the extent to which mechanism will reset won't it once we once we transition out of fossil fuels it has to right yeah it has to but but that is years away, as you said. And just on your point about it'll take years to tap or to develop new fields, of course, that is true.

28:12But on the Secretary of State's desk at the moment is a proposal to exploit two fields, Rosebank and Jackdaw, which were he to give permission, they would come online with very substantial resources within a matter of months if he gave permission. So, you know, So it's not just about the medium term. It is also about now. I know they're looking and considering all these options. And you're right. We do have fields that could come online very quickly. Richard, tons more to talk about, but we've just got to go for a quick break and then we'll be back.

28:48Steph McGovern:This episode is brought to you by Hargreaves Lansdowne. Now, if the last four decades have shown us anything, it's that change keeps coming. There have been so many huge economic events that have shaped our thinking today. Back in the 80s, we had Margaret Thatcher's deregulation of the stock markets. Then there was the dot-com bubble of the 90s, followed by the credit crunch of the noughties and the pandemic in the decade after that. Plus lots of other significant developments too. For over 40 years, though, Hargreaves Lansdowne has helped Britain invest through it all confidently, whatever is going on in the world.

29:27Steph McGovern:Join over 2 million Brits using the UK's number one investment and savings platform. Learn more at hl.co.uk. Investment returns vary. For claim verification, visit hl.co.uk slash platform.

29:46Steph McGovern:We're the Hartford, with decades of experience insuring millions of unique small businesses. When it comes to your small business insurance, one size absolutely does not fit all. Get a quote or find an agent today at thehartford.com slash small business. In a classroom of sodas, most stay quiet. Then there's Mr. Pibb, sweet cherry, bold outbursts, the kind of flavor that gets attention.