United Kingdom

Pub bosses call for £1.8billion Covid refund cash from supermarkets to be handed to industry

Pub bosses have called for £1.8billion of Covid refund cash from supermarkets to be handed to their devastated industry.

UKHospitality wants the money to act as a life line for 'wet pubs' that are closed in Tier 2 and Tier 3 areas because they do not serve food.

Pressure is piling on stores to 'do the right thing' and hand back cash from the business rates holiday.

Tesco, Morrisons, Sainsbury's, Aldi, Asda and Pets at Home all committed to return savings, analysts have said.

Lidl, Waitrose and Iceland are among essential retailers who have not yet agreed to return millions of pounds from the Government's business rates break.

UKHospitality wants the money to act as a life line for 'wet pubs' that are closed in Tier 2 and Tier 3 areas because they do not serve food. Pictured: A pub in Mayfair, London

Pets at Home became the latest to join the move, as the pet supplies company said today it would repay £28.9million

Chief executive of UKHospitality Kate Nicholls (pictured) said: 'It would deliver a huge boost to businesses that are only just clinging on to life right when they need it most'

Asda yesterday announced that it will hand back £340 million saved in business rates relief

Sainsbury's will hand back £440 million saved from the Government's business rates holiday

Supermarket chain Aldi also announced it too will hand over around £100million saved in business rates relief

Chief executive of UKHospitality Kate Nicholls told the Mirror: 'It would deliver a huge boost to businesses that are only just clinging on to life right when they need it most.'

On Wednesday morning, Tesco was the first to reveal plans to hand back cash, saying it will return its £585 million rates holiday.

Now, more than £1.7 billion in total has been pledged to be returned following similar commitments by Morrisons, Sainsbury's, Aldi and Asda.

Pets at Home became the latest to join the move, as the pet supplies company said today it would repay £28.9million.

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: 

Retail analyst Richard Hyman said essential retailers will now be expected to follow their example.

'I think one has to give a huge well done for Tesco for doing the right thing and sparking this knock-on effect,' he said.

'Now companies who haven't done the same thing will be pushed into a corner to do the right thing themselves.

'On the other hand, one does have to question why this has taken so long and whether Tesco will benefit from the others following suit.

'B&M is one company whose stance could face criticism in comparison so may have to review this.'

A spokesman for B&M declined to comment when approached on Wednesday.

Fellow analyst Nick Bubb said Sainsbury's decision to return rates for its supermarket business but not its Argos arm could provide a 'possible route' for retailers with a mix of food and non-essential products, such as Marks & Spencer and Waitrose-owner John Lewis Partnership (JLP).

On Wednesday, a spokesman for JLP said: 'The outlook remains incredibly uncertain and Government support remains crucial to help us navigate the crisis.'

Data compiled last month by real estate adviser Altus Group projected the UK's four largest grocers - Tesco, Sainsbury's, Asda and Morrisons, plus German rivals Aldi and Lidl - would save about £1.87 billion as a result of the rates holiday.

The total saving for all 'essential' retailers, which have been allowed to remain open, is about £3.03 billion, Altus added, from a total rates bill of £10.1 billion.

Michael Hewson, chief market analyst at CMC Markets UK, said the actions of the four grocers should not impact the need for business rates reform.

He said: 'While the move is welcome, it doesn't change the fact that the Government needs to look at a business rates model that is outdated and penalises bricks and mortar retailers in a way that online retailers don't have to contend with.

'It's all very well criticising the supermarkets for taking taxpayers' money, but let's not forget that the retail sector wouldn't be in anywhere near as much trouble if it wasn't for Government procrastination over reforming business rates policy.'

Tesco is to repay £585 million it saved from the coronavirus business rates holiday after seeing its profits surge

Tesco chief executive Ken Murphy said: 'Giving this money back to the public is absolutely the right thing to do by our customers, colleagues and all of our stakeholders'

HSBC analyst Andrew Porteous said Tesco's move may prove to be an 'astute strategic move' as its less profitable rivals follow its decision to return savings.

'If done only because Tesco feels it should, it is hard to justify the move to pay business rates of £585 million,' he said.

'However, strategically, it could be smart.

'In moving first, Tesco will get the credit for 'repaying' business rates while incurring less cost as rates relief is only around one third of its profits vs competitors at 60-70%.

'Competitors face a choice of either following and incurring the cost, or resisting and weighing the cost of public 'ire' with the benefit of holding onto cash.'

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.

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