Burberry hands back millions in tax relief

Fashion giant is first non-essential retailer to repay business rates – piling pressure on other big firms

LUXURY goods giant Burberry will voluntarily pay the Treasury tax it saved from an emergency business rates holiday – even though its stores remain shut.

The surprise move will make London-based Burberry the first ‘non-essential’ retailer to hand over tax on business premises forced to close under lockdown rules.

Until now, only a few firms that have traded throughout lockdown, including supermarkets Tesco and Sainsbury’s, have given up the business rates tax relief available to all retail and hospitality companies.

Other chains that have remained open will now come under mounting pressure to follow the luxury retailer’s example.

In recent days Burberry has also paid back a £300million taxpayer-backed loan a month early, suggesting that it has growing confidence in Britain’s economic recovery and its own prospects in the year ahead. The company said settling the loan early and opting to pay business rates – despite Chancellor Rishi Sunak’s 12-month relief package announced last March – was ‘the right thing to do’.

Burberry also declined to accept Government furlough money last year.

The loan was part of a Treasury-backed assistance package for large firms buffeted by the pandemic. About 50 firms still have more than £12 billion in Bank of England loans outstanding under the Covid Corporate Financing Facility – including a string of overseas companies.

Burberry’s London store has one of the highest rates bills in the country. It will hand over an estimated £6million for its six standalone stores and three outlet locations despite the 12-month business rates exemption for retail and hospitality until April.

The plan makes Burberry, famous for its tartan check, the highest profile retail operator outside the grocery and DIY sectors to return the rates money.

Analysis by Altus Group shows 14 retail groups have returned £2.2billion to the Treasury.

Joinery chain Howdens repaid £8 million in November alongside £22 million in furlough cash. That was followed by rates repayments from Tesco, Morrisons, Asda, Sainsbury’s, Aldi, Lidl and discount store B&M.

Others including Waitrose,

Co-op, M&S, Boots, Poundland, Iceland and The Range have not offered to pay business rates despite some or all of their stores remaining open.

There has been growing unease about the use of Government subsidies after blanket measures by the Treasury meant companies benefited from public generosity even after they continued to operate throughout.

The Mail on Sunday revealed last month that foreign giants paid £5billion in dividends to their investors after taking out cheap Covid loans, which are issued by the Bank of England and guaranteed by the taxpayer.

The US owner of Boots gave billionaire Italian boss Stefano Pessina a windfall of almost £50million just days after the chemist drew £300million from the loan scheme. Walgreens Boots Alliance will hand Pessina another £50 million in the coming weeks even though the debt remains unpaid.

A Whitehall source said at the time: ‘This may be acceptable [under the scheme’s rules], but it’s not exactly in the spirit of the scheme.’

High street campaigner Bill Grimsey said: ‘There has been a need to help businesses that have suffered. But there is no need to hand money to businesses that have traded throughout the crisis and in some cases traded better than they did before. These were blanket policies and those that don’t need it should now be paying the money back.’

Grimsey said all the firms that have handed back business rate holiday money are listed on the London Stock Exchange. Some will be keen to avoid the wrath of shareholders at annual meetings later this year – an issue that will not concern private firms.

The Range, owned by billionaire Chris Dawson, has been criticised for accepting about £36million from the business rates holiday despite keeping stores open and revealing in December that it made £47million in the previous year.

In September, Burberry raised £300million through a ‘sustainability’ bond to investors to fund ‘sustainable projects’ and help ‘drive social and environmental improvements’.

The company said: ‘We believe this is the right thing to do in the context of our improved thirdquarter trading performance and financial stability, secured through rigorous cash management and the introduction of long-term funding via our sustainability bond.’

THERE is a huge boom in asset prices, particularly in the US. And there is the prospect, once we escape from lockdown, of a huge burst of economic growth. There is a link, but it is tenuous, for the first phenomenon is a financial story while the second is an economic one. While finance and economics are bound together in the long run, they sometimes move in strange directions.

The boom in US asset prices is becoming profoundly worrying. Great if you own Tesla shares or have a few Bitcoin lurking on your computer. But we all know that financial bubbles sooner or later burst. They always have in the past, and they always will in the future. What we cannot know is when this one will pop.

However, since it is pretty obvious that this one has been inflated by free money – the zillions of dollars and other currencies created by the central banks – the warning signals will come when the money taps start to be turned off. The force that will prompt the banks to turn off those taps and put up interest rates will be inflation.

Already in the US there are signs of that starting to come through. One bit of evidence: oil prices are just about back to pre-Covid levels. Think what will happen to energy demand when the world is allowed to travel again. But things always take longer to happen than people expect.

So that moment when everyone suddenly realises that prices have got out of hand and are going to crash may be some way off. (If you are interested, the best book on this is Manias, Panics, And Crashes, by the US economist Charles Kindleberger. It is good, if scary, stuff.)

Here in the UK we have not had a mania on anything like the scale of the US, largely because we do not have a large high-tech sector.

That is one of the reasons why UK shares have lagged behind US ones. The S&P 500 index is around its all-time high while the FTSE 100 has partially recovered from the collapse a year ago, though it is only where it was in the spring of 2013. However, it would be naive to think that as and when the US bubble pops, we will not get caught in some of the backwash.

But there is going to be an economic rebound, isn’t there? Andy Haldane, chief economist at the Bank of England, has described the economy as ‘poised like a coiled spring’.

He believes when it is released ‘the recovery should be one to remember after a year to forget’.

I am sure he is right, which incidentally is a good reason for the Chancellor not to make any big tax decisions in the Budget on March 3. We don’t know what will happen to the nation’s finances until that coiled spring is unleashed. Better to wait until the numbers are clearer. The best way of closing the budget deficit will be the revenues from rapid growth.

One question this probability of a sharp economic rebound raises is what does this do for UK share prices? Companies will be growing well, improving earnings, and able to rebuild dividends. That would surely underpin current valuations, and maybe enable share prices to escape the range they are stuck in at the moment.

So there is the link between the financial story and the economic one. When central banks start raising interest rates the bubble will pop, and I’m afraid a lot of inexperienced investors will lose money.

But not all prices will fall, or at least they won’t collapse. Solid economic growth and solid company profits will underpin the value of sound enterprises on both sides of the Atlantic.

We will not escape unscathed from the popping of the bubble. I am a bit worried about what happens to UK house prices when interest rates rise. But it will be more like the end of the dotcom boom at the beginning of 2000 than the misery that followed the banking crash of 2008-09 – a difficult few months, but solid growth thereafter.

There is always a dilemma for investors at a time like this, when FOMO (fear of missing out) clashes with our innate caution.

It is particularly difficult now for three reasons. There is the contrast between the still dismal headlines and the fizzy news of some new high for Bitcoin or a new ‘unicorn’ flotation. There is the fact that a lot of people (not all) have spare cash having been unable to spend in the usual way. And many of us have time on our hands since we can’t go out and have fun.

That makes it all the more important to remember the two primary rules of investment: spread risk, and allow compound interest to build wealth over the long term.

It’ll be more like the dotcom boom than the banking crisis