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Proposals to freeze some dis­ability benefits are reportedly being scrapped after concerns from Labour politicians about the scale of planned welfare cuts.

The work and pensions secretary had been under pressure to cut the benefits bill and was expected to cancel an inflation-linked rise to the personal independence payment (PIP).

But it is reported those plans will be ditched by Liz Kendall, despite the Chancellor Rachel Reeves insisting “we do need to get a grip” on the welfare budget, saying the “current system is not working for anyone”.

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Welfare system ‘letting people down’

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Reforms to the welfare system are expected to be announced this week, ahead of the spring statement on 26 March.

Explainer: Where could welfare cuts be made?

Some MPs fear drastic cuts to support for the most vulnerable, but Ms Kendall may have attempted to partly address concerns from cabinet colleagues and Labour backbenchers about the scale of the reforms.

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Almost four million working-age adults in England and Wales currently claim incapacity or disability benefits, up from 2.8 million before the pandemic.

It is being widely reported that instead of scrapping a rise in PIP, savings could be achieved by changing the eligibility criteria along with cutting the top rate of incapacity benefit.

Ms Kendall told The Sunday Times it was an “absolute principle” to protect welfare payments for people unable to work. “For those who absolutely cannot work, this is not about that,” she said.

She said the number of people on PIP is set to more than double this decade, partly driven by younger people.

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‘Government’s plan to cut welfare is terrifying’

“Increasingly, there is lots of clear evidence that work is good for mental health and physical health too… social security alone for many people will never be the key to a better life. It should be a springboard and not trapping people,” she told the newspaper.

Ms Kendall has revealed plans to give disabled people the right to try employment without the risk of losing their benefits.

The so-called “right to try guarantee” aims to prevent those people who receive health-related benefits from having their entitlements automatically re-assessed if they enter employment.

The Observer said the details are due to be announced as part of a green paper on Tuesday.

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Research published in February by the Department for Work and Pensions (DWP) showed the number of 16 to 34 year-olds who are long-term sick with a mental health condition has reached 270,000, increasing by 60,000 (26%) in the last year alone.

Some on benefits ‘taking the mickey’

The figure for all working-age people is 790,000, an increase of 140,000 (22%) over the last year.

Responding at the time to those figures, Ms Kendall said some people on benefits were “taking the mickey”.

“I have no doubt, as there always have been, there are people who shouldn’t be on those benefits who are taking the mickey and that is not good enough – we have to end that,” she told ITV News.

The same survey found 200,000 people receiving health-related or disability benefits were ready to work if the right job or support was available.

Welfare cuts are supported by the Conservatives, albeit the party has accused Labour of “dithering, delay and division” on the issue.

Meanwhile, the SNP argues any planned cuts to disability payments should be “abandoned”, and disability charities have expressed a similar view.

Sky News’ Trevor Phillips will be looking at all the political headlines this week from 8.30am this morning. He will be joined by Health Secretary Wes Streeting, shadow education secretary Laura Trott and former national security adviser Lord Ricketts.

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Thames Water delays request for even more expensive bills as six offers of new investment received

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Thames Water delays request for even more expensive bills as six offers of new investment received

The UK’s biggest water provider has delayed its request for even higher customer bills.

Thames Water has deferred its appeal to the Competition and Markets Authority (CMA), the regulator tasked with deciding if the company can raise bills by even more than initially allowed.

Money blog: Supermarket values plummet after new Asda strategy

In December, water regulator Ofwat determined that bills could rise 35% to about £588 annually per household by 2030.

This was challenged by the firm serving 16 million people as being insufficient. It wanted a 53% rise.

The deferment comes as Thames Water said it received six offers of new investment and announced it would finalise a bidder by June and close the fundraising process by September.

This postponement will last 18 weeks and has been approved by Ofwat.

More on Thames Water

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Thames Water boss can ‘save’ company

Additional investment could result in a “market-led” solution to refinancing the company, Thames Water said.

It means its financial woes could be improved by investors rather than billpayers being charged more.

Read more:
Water bills to rise – Full list of what they cost now and how much they’re going up

The business was going to run out of money by 24 March, it said, but a £3bn loan from existing creditors was again given the green light on Monday.

Thames Water is struggling under a now £19bn debt pile.

It had been described as “uninvestable” by some shareholders when it failed to secure reduced fines for pollution incidents from Ofwat.

Five other water companies have challenged the amount they have been permitted to hike bills by.

Anglian Water, Northumbrian Water, South East Water, Southern Water and Wessex Water all want customers to pay more.

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Supermarket price war could bring consumers some relief but only because the government is pushing up costs

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Supermarket price war could bring consumers some relief but only because the government is pushing up costs

The air is suddenly full of talk about supermarket price wars.

Some £4.4bn was wiped from the stock market valuations of Tesco, Sainsbury’s and Marks & Spencer on Monday following comments from Allan Leighton, the executive chairman of Asda, on Friday in which he promised the grocer was planning its biggest price cuts in 25 years.

Mr Leighton, who returned to Asda last November, said there was a “war chest” available to Asda and indicated he was prepared to “materially” forego profits in the short term to win back market share.

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He told The Times: “We have a long way to go. We’re three months into what is going to be three years of really getting the basics of the business right and getting the business to outperform the rest of the industry on a like-for-like basis.

“That’s what restores our market share and profitability. It ain’t going to happen overnight.”

Those remarks are rightly being taken seriously by investors – by the market close on Monday Tesco shares had fallen by nearly 15% since Friday morning and those of Marks & Spencer and Sainsbury’s by 10% and 9% apiece.

That is because nobody, arguably, knows Asda better than Mr Leighton.

What’s gone wrong at Asda?

It was he, along with current Marks & Spencer chairman Archie Norman, who rescued Asda from collapse in the early 1990s before selling the business to US giant Walmart in 1999.

Initially, that transaction appeared to go well, with Asda wresting the number two slot in the UK grocery market from Sainsbury’s in 2003.

But Walmart’s insistence on preserving margins gradually saw its share eroded and the number two slot recaptured by Sainsbury’s.

By 2019, it was clear Asda was no longer regarded as a core asset by Walmart. That was the year an attempt was made, blocked by competition regulators, to merge the business with Sainsbury’s.

Worse was to follow.

In October 2020, Walmart offloaded a majority stake in the grocer to the petrol forecourts billionaires Mohsin and Zuber Issa and the private equity firm TDR Capital.

The debt taken on during the takeover blunted Asda’s competitiveness and resulted in it losing market share – mainly to Tesco and Sainsbury’s but also to the German hard discounters Aldi and Lidl.

It went through a series of managers before TDR Capital bought out Zuber Issa in June last year to take a majority 67.5% stake while Mohsin Issa, who retains 22.5% of the business, relinquished the day-to-day running of the business.

A new era

Cue the return of Mr Leighton.

Within weeks, after Asda was the worst-performing supermarket over the Christmas period, he had announced a ‘Big Jan Price Drop’ price-cutting campaign which saw average price reductions of 26% on selected products.

That was dismissed by rivals, most notably Ken Murphy, the chief executive of market leader Tesco, as not representing a genuine price war.

Mr Leighton’s response has been to reintroduce the ‘Rollback’ price-cutting promotions he and Mr Norman introduced in the 1990s in a bid to revive the spirit of the old ‘That’s Asda Price’ campaigns, complete with shoppers patting their back pockets, backed by heavy newspaper and television advertising.

It is being seen by industry experts as a wider price-cutting initiative than the more limited campaign Asda had been running to ‘price match’ Aldi and Lidl.

While the price cuts are the most eye-catching initiatives, so far as consumers will be concerned, Mr Leighton has also spent £43m on extending opening hours for some stores and has also bolstered his management team.

The most important hire was David Lepley, the group retail director at Morrisons, who was appointed in February as chief supply chain officer – a recognition that Asda needed to sharpen up on its product availability.

Can the new boss work his magic again?

The big question many in the industry have is whether Mr Leighton – who has since leaving Asda in 2000 had a spell as chairman of the Co-op – can work his magic again.

The grocery market now is very different from the one in the 1990s when Tesco was only in the foothills of the explosive growth it was later to enjoy, first under Lord MacLaurin and then under Sir Terry Leahy, while Sainsbury’s was going through a fallow period.

Morrisons, which acquired the old Safeway chain in 2004, was also a much smaller business than it is today.

Moreover, in the 1990s, the hard discounters Aldi and Lidl – who entered the UK in 1990 and 1994 respectively – had a miniscule market presence.

Hard discounting in grocery retail was also less developed than today with the old Kwik-Save chain its leading exponent.

In other words, the climate was ripe for a player like Asda to seize share with big, well-targeted price cuts, snappy advertising and, crucially, excellent product availability.

Compare that with today.

A different time

Tesco’s market position is as dominant as it has ever been while Sainsbury’s is a strongly entrenched number two in the market and a revived Morrisons, under Rami Baitiéh, has also returned to growth.

Aldi and Lidl, although the former has recently seen its market share slipping, also remain formidable competitors.

Tesco and Sainsbury’s, who have benefited more than anyone from Asda’s travails, have the most to lose in the event of a turnaround. But they are also better placed than anyone else to withstand one: Tesco’s Clubcard is arguably the world’s most successful supermarket loyalty and rewards scheme and provides the grocer with data and insights that no one else has, enabling it to react rapidly to changes in the market or to shopper habits.

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Sainsbury’s is trying to do something similar with Nectar, while both schemes are increasingly able to personalise offers to individual customers, entrenching loyalty.

That may become even more important if, as Simon Roberts, Sainsbury’s chief executive, asserts, the ‘big weekly shop’ is becoming more important as working from home becomes less common.

Tesco and Sainsbury’s sharper than they used to be

As the renowned sector watcher Clive Black, analyst at investment bank Shore Capital puts it: “We need to remember that the listed players are better grocers than Asda with a broader customer set, stronger balance sheets and a will to remain competitive”.

He points out that, apart from the advantages bestowed by their loyalty programmes, Tesco and Sainsbury’s are sharper on price than they used to be, are able to price-match Aldi meaningfully and offer better ranges and more choice than both the German pair and Asda.

That view is shared by the retail team at brokerage Jefferies which has questioned whether Asda’s price cuts can deliver the increase in grocery volumes in the time it requires without a fresh injection of capital from shareholders.

What about consumers?

Will this be good news for consumers? Possibly.

But the grocery sector will be hit hard by the forthcoming increase in the national living wage and, more especially, the rise in employer’s national insurance contributions announced by Rachel Reeves, the chancellor, in her autumn budget.

Those measures will not only push up the costs of supermarkets but also those of their suppliers. Those higher costs will at least be partly passed on to customers.

So too will be the cost of implementing new recycling regulations due in October.

And, all the while, food price inflation is picking up in staples such as eggs, milk and butter. The British Retail Consortium is expecting food price inflation to be north of 4% during the second half of this year.

Accordingly, while Asda’s price war may bring some relief, it feels more likely at present as if it will merely result in lower price rises than British shoppers would otherwise have experienced rather than an outright drop in prices across the board.

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New TOFS owner plots store closures and rent talks with landlords

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New TOFS owner plots store closures and rent talks with landlords

The new owner of The Original Factory Shop (TOFS) is drawing up plans for a radical restructuring of the discount retailer just weeks after taking control.

Sky News has learnt that Modella Capital – one of two remaining bidders for WH Smith’s high street arm – has drafted in advisers to explore options for TOFS including a company voluntary arrangement (CVA).

City sources said on Tuesday that Interpath had been engaged to work on the plans.

Money blog: Supermarkets values plummet

Modella is said to be examining a CVA with a view to closing underperforming stores and forcing through rent cuts on others.

A major distribution centre is also thought to feature in potential proposals for a restructuring.

It is not thought to be focused on compromising other classes of creditors.

Any so-called ‘landlord-led’ CVA which triggered store closures would inevitably lead to job losses among TOFS’ workforce, which was said to number about 1,800 people at the time of last month’s takeover.

Further details of the plans, including the timetable for launching a CVA – which requires court and creditor approval – were unclear on Tuesday.

TOFS, which sells beauty brands such as L’Oreal, the sportswear label Adidas and DIY tools made by Black & Decker, trades from about 180 stores.

The chain, which was founded in 1969, was bought by the private equity firm Duke Street in 2007.

Duke Street had tried to sell the business before, having supported it through the COVID-19 pandemic with a cash injection of more than £10m.

It sold the company to Modella with no remaining bank debt.

The possible CVA at TOFS comes amid a frenetic period of dealmaking for Modella.

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In addition to vying with Alteri Investors for the historic WH Smith high street chain, it is pursuing a restructuring of the Hobbycraft chain it acquired last summer, Sky News reported last week.

Rival bidders for TOFS are said to have included family office Baaj Capital, Mike Ashley’s Frasers Group and Poundstretcher, which is owned by the investment group Fortress.

Modella and Interpath declined to comment.

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