Independent retailers have urged Rishi Sunak to use the near £2billion of business rates relief returned by supermarkets to help struggling firms which have been hammered by the Covid-19 pandemic.
Companies want the Chancellor to extend business rates relief for 12 months to help struggling non-food retailers hit hard by lockdown restrictions and dramatically reduced consumer demand.
Andrew Goodacre, chief executive of the British Independent Retailers Association, said nearly all the money should be ‘used wisely’ to help struggling firms and the rest should help to ‘create new skills and jobs.’
Retailers have urged Rishi Sunak to use the near £2billion of business rates relief returned by supermarkets to help struggling firms which have been hammered by the Covid-19 pandemic
Chancellor Rishi Sunak introduced a 12-month freeze on business rates as part of a huge rescue package to stave off economic disaster at the height of the pandemic.
Under the freeze, businesses in the retail, hospitality and leisure sectors will not have to pay business rates for the 2020 to 2021 tax year.
Mr Goodacre said: ‘We challenge the large supermarkets and other large general retail chains to pay back the rates because it was obvious that they did not need the extra help.
‘This money should be used wisely by the government by using it to extend the existing rates holiday for a further 12 months for the smaller independent retailers.
‘This would cost £1.5bn. the remainder should be used to create new skills and new jobs in retail.’
The call comes after supermarkets Tesco, Asda, Morrisons, Sainsbury’s and Aldi said last week they would hand back a combined £1.7billion in rates relief. Tesco said it would return £585million
Sainsbury’s will hand back £440 million saved from the Government’s business rates holiday
The call adds to pressure on the Chancellor to overhaul the controversial business rates system.
The Federation of Small Businesses called for a revamp and warned the tax had become a ‘huge problem’.
What is the coronavirus business rate holiday?
Rishi Sunak unveiled an astonishing £350billion rescue package in March to try to stave off economic disaster at the height of the coronavirus outbreak.
Among the measures introduced by the Chancellor was a 12-month freeze on business rates.
Under the freeze, businesses in the retail, hospitality and leisure sectors will not have to pay business rates for the 2020 to 2021 tax year, until March 2021.
You’re eligible if your property is a:
- Shop, restaurant, café, bar or pub,
- Cinema or live music venue
- Assembly or leisure property – for example, a sports club, a gym or a spa
- Hospitality property – for example, a hotel, a guest house or self-catering accommodation
On Thursday, Asda was the latest supermarket to hand back £340million saved in business rates relief after similar moves by Tesco, Sainsbury’s, Morrisons and Aldi.
Sainsbury’s had earlier confirmed it would give back around £440million and Tesco and Morrisons respectively agreed to return £585million and £274million on Wednesday.
Aldi also announced on Thursday it would hand back around £100million it had saved, bringing the total across retailers to £1.7billion.
However, Marks & Spencer said it had no intention of returning its £83million of rates relief and a source said Co-op was ‘unlikely’ to hand back £70million.
Sainsbury’s said last month it had received a break worth £230million for the half-year to September in an update which also saw it reveal plans to axe 3,500 jobs.
But the company also came under fierce criticism as it also declared an interim dividend of 3.2p plus a special dividend of 7.3p for shareholders.
Tesco were the first to act after they enjoyed a sales surge during lockdown.
The decision was also informed by the fact they were able to pay a £315 million dividend to shareholders.
Chairman John Allan said the board ‘are conscious of our responsibilities to society’ and that the company did not need the saving due to remaining open and trading strongly throughout the pandemic.
In October, the retailer revealed it made a pre-tax profit of £551 million in the six months to August 29 – an almost 29 per cent increase compared with the same period in 2019.
Despite initially enjoying the rates relief, Tesco revealed it would be paying a significant dividend to its shareholders.
Mr Allan said: ‘The board has agreed unanimously that we should repay the rates relief we have received.
Asda announced it will hand back £340 million saved in business rates relief
Supermarket chain Aldi also announced they too will hand over around £100 million saved in business rates relief
‘We are financially strong enough to be able to return this to the public, and we are conscious of our responsibilities to society.
‘We firmly believe now that this is the right thing to do, and we hope this will enable additional support to those businesses and communities who need it.’
Tesco chief executive Ken Murphy said: ‘We have invested more than £725 million in supporting our colleagues, putting safety first, more than doubling our online capacity to support the most vulnerable customers in our communities, and hiring thousands of additional colleagues at a time of need.
‘While business rates relief was a critical support at a time of significant uncertainty, some of the potential risks we faced are now behind us.
‘Every decision we’ve taken through the crisis has been guided by our values and a commitment to playing our part.
‘In that same spirit, giving this money back to the public is absolutely the right thing to do by our customers, colleagues and all of our stakeholders.’
Q&A: How business rates work and what happens next?
Several supermarkets have agreed to waive the business rates holiday and hand over the money saved. Here, we take a look at what it means:
– What are business rates?
Business rates are paid by every commercial property in the UK. They are similar to council tax for residential properties and are collected by local authorities to fund services. They are calculated using a complex system based on the value of each property.
The system has been heavily criticised for several years by retailers who say it leaves those with physical stores at a disadvantage because online-only retailers only pay rates on their warehouses, which cost a fraction of prime retail locations.
Bosses have warned governments this is helping speed up the demise of the high street.
Rates help push the UK to the top of the Organisation for Economic Co-operation and Development’s league table for the highest property taxes of developed nations as a percentage of gross domestic product and of taxation.
– How are business rates calculated?
The bills are calculated on estimates of open market rents typically on a five-year basis – although this has been tweaked in recent years. Current bills are based on a valuation from 2015.
The next revaluation will take place in April and come into effect in April 2023, reflecting the pandemic’s impact.
The revaluation system has been criticised because it fails to take into account when a commercial property falls in value, which should mean the rates bill falls too.
The 2008 financial crisis sent property prices and rents falling but the slow speed of the rates system meant many businesses were paying over the odds, leading to a huge spike in appeals. To combat this, the Government made the appeals process harder.
– What happened to rates during Covid?
One of the first acts by Chancellor Rishi Sunak was to introduce a 100% business rates holiday for all occupied retail, leisure and hospitality premises. All other premises, including offices, have had to keep paying.
High street stores saved an estimated £10.1 billion, according to rates specialists Altus Group, including £3.03 billion for ‘essential’ retailers which were allowed to continue trading during the various national lockdowns.
– Why are some supermarkets handing over the savings they made from business rates?
Grocers have been some of the biggest winners financially during the pandemic. They have remained open throughout, websites have been overwhelmed with home delivery orders, and pub closures have seen a spike in alcohol sales at supermarkets.
According to supermarket sources, the second national lockdown in England was the tipping point. They all spent big doing up their stores and making them Covid-safe, while also covering the costs of staff sickness and absence due to self-isolation.
Sainsbury’s said on Thursday that it had spent £290 million, including £110 million on social distancing and PPE for staff.
But most of those costs were one-offs and the profits generated from the second series of lockdowns made it clear some payment was needed.
The stock market-listed supermarkets – Tesco, Morrisons and Sainsbury’s – were already under pressure to make a payment, having handed out dividends to shareholders while taking the tax-free holiday.
– What happens to rates next year?
The Treasury is conducting a fundamental review of business rates with findings due to be published in the spring, although there have already been several reviews over the last decade with no major changes.
As things stand, the rates holiday comes to an end on March 31. However, at the Spending Review the Government said it would be looking at further ways to support businesses with rates bills during the next financial year. Details are expected in the new year.
The Treasury has already confirmed there will be no increase in rates next year – previously the bills would have gone up in line with inflation.
– Will the supermarkets’ actions undermine the review?
If anything, it could make their case stronger. Currently, online players like Amazon only pay rates on their warehouses – which are far lower due to their locations.
Tesco’s former chief executive, Dave Lewis, called for a 2% online sales tax and Sports Direct owner Mike Ashley also wants rates to be overhauled with online players charged more. However, other retailers have suggested this could stifle their own efforts to increase online traffic alongside high street operations.
With Tesco, Sainsbury’s, Morrisons and Aldi stumping up cash – with others likely to follow – the pressure will be on the Government to listen more closely to their concerns as ‘responsible’ retailers.
However, rates remain an important cash cow for the Government – the annual bill is around £40 billion – and because it is a tax on property it is far harder to avoid through tax avoidance strategies.
– What will happen to the money the supermarkets are handing over?
It is expected to go to HMRC in the first instance and then to the Treasury. The Government has declined to say what the cash will be used for, but there have been calls for it to be distributed to the leisure sector after the Prime Minister’s one-off £1,000 grant announced this week for ‘wet pubs’ was widely condemned as being too small to help save the industry from mass closures and redundancies.