Another early measure taken by the government to help businesses survive the economic fallout arising from lockdown was a range of business rate reliefs which were varied somewhat depending on the size of the entities involved. Some of the biggest beneficiaries of this were the UK's major supermarkets, amongst the largest rate-payers in the country. To be fair, at the time that the reliefs were announced no one was clear what the economic fallout of Covid would be; and all of the supermarkets incurred substantial extra costs on the back of the measures they were forced to take. However, as time passed it became clear that despite these costs business was holding up relatively well. Customers continued to flock into supermarkets and online sales for home delivery or click and collect were substantially boosted. As a result of this there has been increasing political pressure for them to pay back the rates reliefs as a matter of conscience.
Initially supermarkets were reluctant to do so but resistance broke this week. First out of the blocks was Tesco which announced that it was planning to repay £585 million of rate reliefs. The company made clear in accompanying announcements that Covid-related additional costs they have incurred - which they estimate to be in the region of £725 million for the full year - are more than the rate reliefs they had benefitted from; but they also stated that the board had unanimously decided that it was their societal duty to repay the grants. There is a bit of extra context here which is relevant; the company has recently sold off its Asian operations and as a result was planning to return a whopping £5 billion to its shareholders. This would be a difficult thing to do from a PR perspective whilst hanging on to the business rate reliefs which also perhaps helps to explain their reasons for the move, though their new chief executive Ken Murphy in an interview with Sky insisted that the two events were unconnected.
Tesco's move opened the floodgates though. Within 24 hours most other major supermarkets had followed suit. Sainsburys announced that they would pay back £440 million and Morrisons £265 million. Aldi then followed suit as at the end of the week did Lidl. In all about £1.8 billion is due to be repaid collectively, a welcome boost for Rishi Sunak’s much depleted coffers where money tends to be flowing out more than in these days. Sainsburys and Aldi both noted that they were fortunate to have been allowed to stay open to trade whilst at one time or another non-essential shops have not been. This is all good news.
However this is not the end of the story. Long before the pandemic was even a distant unwelcome possibility supermarkets were complaining at the UK rates system. Tesco chair John Allan called it unintelligible at a conference back in 2019. And Mr Murphy in his interview noted that Tesco’s rates bill has rocketed by 80% in the past decade. He welcomed a suggestion that there should be an additional sales tax levied on online sales, even though his new company would have to pay this as they have a significant online presence in addition to their supermarkets and local Tesco Express outlets. This is another example of a common problem with current tax laws, around the world as well as just in the UK. They are based on the physical presence of the business rather than its real regions of economic activity. In our increasingly globalised and online economy such tax laws are in urgent need of a revamp. But discussions have been going on at what seems like a desultory pace for years. Whether or not it is right to reshape tax laws – including but not limited to business rates – to make them relevant to the economic structure of the 21st Century, given current political resistance to the very idea of doing so do not expect anything to happen any time soon.
Wayne Bartlett is an author for accountingcpd. To see his courses, click here.
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