Tesco and Morrisons to repay £859m of business rates relief

Tesco and Morrisons handed back almost £1bn of Covid tax breaks on Wednesday amid growing fears of a raid on businesses whose profits were boosted by Government support during lockdown.

The grocers' decision to repay business rates relief will pile pressure on Sainsbury's, Asda and other rivals to follow suit, analysts warned, as industry insiders raised concerns over a possible windfall tax on profits made during the crisis.

Supermarkets have faced months of criticism for claiming business rates relief offered to all retailers to help them survive lockdown. Unlike almost all the rest of the industry, the grocers were allowed to stay open and enjoyed bumper sales.

Tesco announced it would repay £585m of relief on Wednesday morning, catching rivals by surprise. Morrisons then responded after markets closed by pledging to hand back £274m.

Market watchers now expect a host of other firms to do the same. James Anstead, a retail analyst at Barclays, said: “It likely creates significant pressure for other retailers to return the relief that they would otherwise have claimed.

“Attention will now shift to other retailers and whether they may feel they have to follow Tesco’s lead."

The cash returned by the pair is roughly equal to the cost of the Eat Out to Help Out meal subsidy scheme which ran over summer. Tesco's tax rebate alone could pay each ailing pub and  brewery in the country up to £14,000 in the run-up to Christmas.

The move thrusts listed rival Sainsbury’s into the spotlight - as well as Asda, which is about to be bought by the billionaire Issa brothers.

Budget chain B&M Bargains and B&Q's owner Kingfisher were also allowed to keep trading during lockdown and are likely to come under scrutiny too.

Campaigners have criticised the firms for taking state support, and have also turned their fire on digital players such as Amazon which were boosted by the stampede into online retail. Some in the industry fear that ministers could impose a windfall tax on firms which are thought to have behaved irresponsibly during the pandemic.

Clive Black, a retail analyst at Shore Capital, said: “Clearly, the decision will have a direct read across to the other retailers that have remained open and received business rate relief in this challenging time.

“While Sainsbury’s may be at the forefront of the debate today as to the next steps for the industry, particular focus may also fall upon Asda, B&Q [Kingfisher] and B&M, the latter of which has declared a recent special dividend.”

Waitrose owner John Lewis and Marks & Spencer were both forced to shut parts of their operations and have already said they will not repay the business rates relief.

Aldi, Lidl and Iceland declined to comment, while Co-op said it will consider its approach but is unlikely to pay the money back.

The 12-month rates relief holiday comes to an end in March. It was introduced at the start of the pandemic by the Government to ease the financial pressure on retailers after hundreds of thousands of stores were forced to shut.

One senior retail executive said: “What happened was the Government made a mistake bringing a blanket relief for all retailers.

“It does signal the fact that although they’ve [supermarkets] tried to minimise it, their demand has been elevated and they’re making money. And looking at the year end forecast their old arguments don’t stack up.”

Although grocers experienced a massive sales boost during lockdown, the pandemic has also forced them to spend hundreds of millions of pounds on buying PPE for staff and expanding online delivery services.

Supermarkets also hired thousands of workers at the height of the crisis, and have been widely praised for keeping food flowing despite a massive wave of panic buying.

They have nonetheless come under fire for accepting a tax break while at the same time paying dividends to shareholders.

Tesco said in August that it would pay out £900m to investors, but insisted this reflected its strong performance in the previous financial year.

Last month, Sainsbury's unveiled a £231m interim dividend - almost the same as the £230m in rates relief it pocketed during the same six-month period.

Simon Roberts, the new chief executive, defended the payout at the time by saying small shareholders depend on dividend income.

Tesco admitted the company had “proven resilient in the most challenging of circumstances” and added that it is financially strong enough to pay the money back.

Morrisons said it had a very strong balance sheet and a pension surplus.

Robert Hayton at Altus, the property firm, said: “It should have been obvious from the outset that not all businesses would need the same level of taxpayer support through the pandemic.

"It is great that Tesco has taken the lead and repaid this relief. The Government must now redeploy that revenue to where it is most needed.”