UK supermarkets waive tax relief, giving back £1.74bn

London — Sainsbury’s, Asda and Aldi will forgo UK property tax relief during the pandemic, as did rivals Tesco and Morrisons, taking the total saved by the government from supermarket groups to £1.74bn.

Sainsbury’s said on Thursday it would now pay £440m of business rates, while Walmart owned Asda will pay £340m and German-owned Aldi will pay £100m.

In March, the British government and devolved administrations exempted all retailers from paying the tax on their stores for the 2020/2021 financial year to help them through the crisis.

Britain’s supermarket groups have seen sales soar during the pandemic, but have been criticised by lawmakers and media for paying shareholder dividends while receiving tax relief. However, on Wednesday, market leader Tesco said it would repay the £585m it had claimed because some of the risks of the crisis were now behind it, and returning the money is “the right thing to do”.

That stance put pressure on rivals to do the same. Morrisons followed, saying it would pay £274m.

Sainsbury’s said it had performed ahead of expectations, particularly since the start of the second national lockdown in England in November. “With regional restrictions likely to remain in place for some time, we believe it is now fair and right to forgo the business rates relief,” CEO Simon Roberts said.

Asda CEO Roger Burnley said the group recognised there were other industries for which the effects of Covid-19 would be much more long lasting.

Tesco CEO Ken Murphy denied its decision to pay was a calculated one to damage competitors who do not share its financial strength. “When we made the decision, we didn’t really think about the competition at all,” he told Sky News.

Murphy also said the move is unconnected to Tesco’s plan to pay shareholders a £5bn special dividend when the sale of its Asian business is completed.

Pressure on others

Analysts said the pressure is now on other food retailers to also forgo the relief. Discounters Lidl and B&M declined to comment.

The Co-operative Group said it plans to review its position at year-end. M&S and Waitrose owner, the John Lewis Partnership, have said they will not forgo it.

A spokesperson for British Prime Minister Boris Johnson told reporters the government welcomed any decision to repay support “where it is no longer needed”.

Taking account of the business rates it will now pay, Sainsbury’s forecast underlying pre-tax profit of at least £270m in its 2020/2021 year, and more than £586m in 2021/2022.

It will prioritise dividend payments to shareholders over cutting debt in 2020/2021, which will push back its timetable for debt reduction.

Shares in Sainsbury’s were up 4.1% at 1.08pm GMT. Morrisons was down 0.3% and Tesco was up 1%.

Sainsbury’s also repeated its call for the government to review the business rates system to create a more level playing field between physical and online retailers. 

Reuters