Two of the UK’s biggest supermarkets have bowed to pressure and are repaying more than £850m in business rates relief they accepted from the UK government to help the supermarkets deal with the coronavirus pandemic.
In a surprise move, Tesco announced its decision to repay £585m on Wednesday morning. Morrisons followed suit, saying it would repay its £274m of financial support on Wednesday evening.
The government introduced the 12-month business rates holiday in March because it feared the pandemic would strain retailers’ finances, potentially threatening their ability to feed the country. However, the reality proved very different, with big supermarkets enjoying a sales boost, albeit with higher costs.
They have been under growing pressure to return the cash to the government, especially when they have paid out big dividends to shareholders. Tesco paid its investors £315m in October .
Tesco said “every penny” of the rates relief had been spent on responding to the pandemic, but that in making the repayment it was “conscious of our responsibilities to society”. It has said the pandemic added £725m to its costs. Morrisons said its costs had risen by £270m.
In total, the big six supermarkets – Tesco, Sainsbury’s, Asda, Morrisons, Aldi and Lidl – were in line for £1.9bn in business tax relief during the current tax year, according to figures from Altus Group, a property adviser.
The discounter B&M received a £38m business rates holiday in the first half of its financial year, and has paid out a special dividend of £250m after doubling its profits during the pandemic. .
Tesco’s chairman, John Allan, said: “The board has agreed unanimously that we should repay the rates relief we have received. We are financially strong enough to be able to return this to the public and we are conscious of our responsibilities to society.”
He added: “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.”
The big supermarkets have been heavily criticised for taking the payouts amid concerns that taxpayer money could have been directed to sectors that really needed the financial support, such as entertainment and hospitality.
Even rival retail executives have weighed in. Last week the chief executive of online electrical retailer AO.com suggested supermarket executives “ask their mum” about whether they should repay their business rates relief.
He said AO had recorded bumper sales of freezers and TVs this year and had handed back its £300,000 of business rates and furlough support because he wanted to “be proud of the decisions we’ve taken”.
Tesco said the government made the right decision to offer the support at the beginning of the pandemic, when the supermarkets’ supply and delivery systems faced being overwhelmed by panic-buying and mass sick leave among staff.
“[There was a] real and immediate risk to the ability of supermarkets to feed the nation,” it added.
But Tesco’s new chief executive, Ken Murphy, said “some of the potential risks” were “now behind us” and that handing the money back was “absolutely the right thing to do”.
The other supermarket chains will now be under even more pressure to follow suit. Sainsbury’s and B&M declined to comment while Asda did not respond to a request for comment.
The Co-op said the amount it had spent on protecting staff and customers outweighed the savings it had made, but added that it would “consider the government support we’ve received at year end”.
A spokesman for the John Lewis Partnership, which owns Waitrose, said it was grateful for the financial support “because we have lost significant sales while our John Lewis shops have been closed, and have invested heavily to keep our partners and customers safe”.
He added: “The outlook remains incredibly uncertain and government support remains crucial to help us navigate the crisis.”
Shares in Sainsbury’s, Morrisons and B&M all fell on Wednesday as a result of the Tesco move. Morrisons’ announcement came after the market had closed.
The mayor of Greater Manchester, Andy Burnham, welcomed Tesco’s move on Twitter and called on other big supermarket chains to follow suit. He added: “The money should be earmarked for tier 3 areas and the 3 million people excluded from public support.”
The Scottish government welcomed Tesco’s move, saying the estimated £60m to be repaid in Scotland would now go to the businesses “hardest hit” by the pandemic.
The business rates holiday: how much is it worth*?
* In a full year. Source: Altus