Sainsbury’s, Morrisons, Aldi, and Asda have followed Tesco in pledging to repay the millions of pounds in business rates relief they have received during the pandemic.
Business rates relief was extended to all retailers in March as part of a package of government measures to support businesses during the crisis. Despite facing a spike in the costs this year, there has been mounting pressure on the major supermarkets to repay the money after they experienced strong sales whilst other hard-hit sectors, such as entertainment and hospitality, were pushed to the brink. The issue has been heightened by the supermarkets paying out large dividends to shareholders in recent months.
After Tesco’s move was widely applauded, pressure grew on its rivals to follow suit. Yesterday afternoon Morrisons made its commitment to pay business rates for the coronavirus period in full. It said the total amount to be paid will be £274m, of which £230m relates to its current financial year.
Morrisons also revealed that it now expects direct Covid-19 costs to be around £270m, about £40m more than the estimate in gave with its interim results in September. Excluding the business rates payment, the group still expects its 2020/21 underlying pre-tax profit in line with its expectations.
Morrisons said its business had weathered the “significant financial challenges of Covid-19 very well”, although it added that the rates announcement, cost increases, preparations for Brexit, lower demand for petrol, and the extension of a scheme to pay its smaller suppliers quicker will impact its debt position. As a result, any payment of a special dividend for this financial year has been ruled out.
Meanwhile, Sainsbury’s announced this morning that it would repay £440m of the £490m in rates relief it was eligible for. “Sainsbury’s sales and profits have been stronger than originally expected… and we have therefore taken the decision to forego the business rates relief on all Sainsbury’s stores,” it said.
The retailer stated that it would keep the remaining £50m of the financial support it received for its Argos stores that were forced to close during the lockdowns.
Taking account of the business rates it will now pay, Sainsbury’s expects to make an underlying pre-tax profit of at least £270m for the year to March 2021, rising to more than £586m the following year. This compares with a £586m profit in the year to March 2020.
The group’s Chief Executive Simon Roberts commented: “While we have incurred significant costs in keeping colleagues and customers safe, food and other essential retailers have benefited from being able to open throughout.
“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 that we have been given on all Sainsbury’s stores. We are very mindful that non-essential retailers and many other businesses have been forced to close again in the second lockdown and we hope that this goes some way towards helping them.”
In a brief statement this morning, Aldi also said it will return the full value of the business rates relief it has received during the pandemic. This equates to over £100m that will be paid back to the UK government and the devolved administrations.
Giles Hurley, Chief Executive of Aldi UK, said: “Thanks to our amazing colleagues, we have been able to remain open during lockdowns and despite the increased costs we have incurred during the pandemic, we believe returning the full value of our business rates relief is the right decision to help support the nation.”
Asda has also just announced that it will repay its business rates relief worth £340m. The chain’s CEO Roger Burnley said: “Throughout the pandemic we have always sought to do the right thing – fulfilling our role in feeding the nation, protecting our colleagues and supporting our communities. But, as the hope of a vaccine and a more ‘normal’ life returning in 2021 grows, we have confidence that we are in a strong position to again do the right thing for the communities we serve.
“Almost half our customers are telling us they expect their financial position to worsen in the next 12 months and we recognise that there are other industries and businesses for whom the effects of Covid-19 will be much more long-lasting and whose survival is essential to thousands of jobs. We will therefore be discussing with the Government and Devolved Authorities the best mechanism to ensure the relief we have received can go towards helping those that need it most.”
Recent figures from property adviser Altus Group showed the big six supermarkets – Tesco, Sainsbury’s, Asda, Morrisons, Aldi and Lidl – were in line for £1.9bn in relief payments during the current tax year. Including convenience stores and food warehouses, the food sector was in line for relief of £3.03bn.
News that the supermarkets are repaying the rates relief has been welcomed by the wholesale sector. The decision to grant the big chains with financial support while food and drink wholesalers’ pleas were snubbed has been one of the most contentious issues during the current crisis. It is hoped the government will recycle some of the money back into the supply chain.
“Any developments that may help the government direct support to the areas of industry that really need it is welcome,” said Unitas Wholesale Managing Director Darren Goldney, who has been one of the most outspoken about the business rates relief.
“The supply chain to hospitality is often the same as to schools, hospitals and care homes and it is creaking. It will be great to see the government with the benefit of hindsight, fully right the wrong of the original support that was often directed to the wrong places.
“This means guaranteed financial support measures for wholesale of an appropriate scale to our business size and not just the outlets we serve.”
NAM Implications:
- Whew!
- Now for an in-depth review of the business rates model…
- …and tied to sales, at least?
