Tesco's repayment of pandemic tax relief puts pressure on rivals

By James Davey
·2-min read
FILE PHOTO: An information sign requesting to wear masks is seen at the entrance to a Tesco supermarket in Hatfield

By James Davey

LONDON (Reuters) - Tesco, Britain's biggest retailer, said on Wednesday it will repay 585 million pounds ($782 million) of COVID-19 business rates relief, putting pressure on smaller rivals Sainsbury's, Asda and Morrisons to do the same.

In March the British government exempted all retailers from paying this tax on their store networks for the 2020/21 year to help them get through the pandemic.

Tesco said some of the risks of the crisis were now behind it, enabling it to pay the tax.

Britain's supermarket groups have performed well during the pandemic but have been criticised by lawmakers and media for paying shareholders dividends whilst receiving taxpayer money in the form of property tax relief.

They justified taking the money because of the huge costs they incurred in feeding the nation during the crisis.

Tesco has estimated the pandemic would cost it 725 million pounds in its 2020/21 financial year - well in excess of the rates relief received.

But the group said its business had proved resilient during the crisis and had been able to continue trading throughout, unlike many other companies.

"While business rates relief was a critical support at a time of significant uncertainty, some of the potential risks we faced are now behind us," said Tesco Chief Executive Ken Murphy, who succeeded Dave Lewis in October.

"Giving this money back to the public is absolutely the right thing to do by our customers, colleagues and all of our stakeholders."

Chairman John Allan added that Tesco was "financially strong enough" to return the money.

Tesco said it will work with the government and devolved administrations on the best means of repayment.

Shares in Tesco were down 1.6% at 1029 GMT, as returning the business rates relief means a direct hit to profit.

Excluding the repayment, Tesco said its guidance for retail operating profit before exceptional items for 2020/21 was unchanged - at least the same level as 2019/20's on a continuing operations basis.

"Tesco’s decision will likely create significant political and media pressure for other retailers to return the BRR that they would otherwise have claimed," said analysts at Barclays.

Sainsbury's can claim about 500 million pounds of business rates relief and Morrisons about 275 million pounds. Walmart owned Asda has not disclosed figures. All had no immediate comment.

Shares in Sainsbury's were down 3.4%, while Morrisons shares were down 1.8%.

Analysts said other retailers that have proved resilient during the crisis, such as home improvement group Kingfisher and discounter B&M, could also face pressure to return the tax relief.

($1 = 0.7484 pounds)

(Reporting by James Davey; Editing by Edmund Blair and Louise Heavens/Kirsten Donovan/Jane Merriman)