Supermarkets Enjoy Success From The Pandemic: Should they pay back their business relief rates?

November 28, 2020

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3 min read

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What's going on here?

Supermarkets in the UK have come under an increasing amount of pressure to pay back the sum of £1.9bn of business relief rates after supermarkets see a rise in profits and shareholders being rewarded with higher dividends because of the pandemic.

What does this mean?

Due to the outbreak of Covid-19 in March 2020 the government introduced a 12 month break on business rates in England and Wales. Business rates are a form of tax imposed by the government on business properties (i.e. shops / pubs) which are classed as non-domestic properties. In March 2020 the government wanted to ensure that supermarkets could provide the country with food over the course of the pandemic. Now, this has now come under criticism because supermarkets have seen an astronomical increase in profit given their status as essential shops. A result of this is that supermarkets are rewarding shareholders with higher dividends which has caused some political outcry for supermarkets to repay the £1.9bn worth of business rates. Tesco is expected to receive relief worth £585m during the 12 month break, while Sainsbury’s will receive £498m, Asda will receive £297m and Morrisons will receive £279m. These figures are hard to comprehend considering that the money saved by the supermarkets would have funded “free school meals through the winter more than 10 times over”.

What's the big picture effect?

This story raises a number of issues, but it will especially impact the government and supermarkets. Supermarkets have provided an essential service during the course of the pandemic, but arguably supermarkets have been so successful they do not need the business rates relief scheme. This argument is supported by Esther McVey, a Conservative MP, who stated “they don’t need it”. Supermarkets have increased the amount shareholders have received through dividends, which are a mechanism to distribute profits to shareholders. Tesco, Sainsbury’s and Morrisons have paid dividends to shareholders even while receiving the relief for business rates. Sainsbury’s disclosed paying £231m in dividends to shareholders, and in October 2020 Tesco announced a £315m dividend. From these figures alone it is very easy to see why supermarkets should pay back the business relief rates.

The government could put the £1.9bn worth of business rates towards the financing of fighting the pandemic or as already discussed they could have financed free school meals for children over the winter. The argument for supermarkets to pay their business rates back has been raised across the political spectrum, including Lucy Powell MP, Labour’s Shadow Business Minister, who stated that “ministers must ensure taxpayers money supports British jobs”. This is in relation to growing unemployment, which according to the Office of National Statistics unemployment is at 4.8% which is over 1.6 million people. It is clear that the £1.9bn could be used in an effort to further support those who have been disadvantaged by the pandemic, especially smaller businesses who may not be eligible for any coronavirus support.

There is the further issue that smaller businesses who are not eligible for the business relief rate have refused to pay the business rates during the pandemic. This has now led to local authorities pursuing claims through the courts, which undoubtedly will increase work for law firms in bringing or defending these claims. Supermarkets have provided an overwhelming and essential role during the course of the pandemic and their hard work should be recognised. However, this may not be a strong enough reason to allow them to further profit from the pandemic.  

Report written by Harry Grice

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