Taxed to oblivion
As supermarkets begin to close stores, a study by The Mail on Sunday reveals: Big four hit with £500m extra business rates bill over five years Retailers fear tax system is broken as online giant Amazon pays £10m a year
THE cost of business rates to Britain’s four biggest supermarkets has soared by half a billion pounds in the past five years, according to new research revealed exclusively in The Mail on Sunday, driving the retailers towards more closures.
The rise in bills has taken the annual demand handed to Tesco, Sainsbury’s, Asda and Morrisons to £1.8 billion a year, representing 7 per cent of the Government’s total haul in the property-based tax.
The huge sums stand in stark contrast to the bill faced by online retailer Amazon, which, without the need for physical stores, pays just £10million in business rates a year.
The figures, compiled from supermarket sources and business analysts, help explain a recent outburst from Tesco boss Dave Lewis on the issue and mounting demands by retailers for reform of the system.
One supermarket source said: ‘The prospect of store closures is not a threat, it’s a certainty. Business rates are a fact of life, but the unprecedented rises are tipping stores on the margins into losses.’
The Mail on Sunday has long campaigned for lower business rates, after successive rises heaped costs on independent shops, just as their customers were being drawn away from traditional high streets.
Ironically, the large, out-of-town supermarkets that were often blamed for the decline of the high street are themselves now being hit by the relentless rise in rates.
Retailers say the burden of rates, which are based on the value of properties such as stores, offices and warehouses, puts them at a disadvantage to digital operations.
The rates bills for supermarkets emerged from industry sources and analysis by City experts, including stockbroker Shore Capital. Amazon’s bill came from research by business rates consultant Paul Turner-Mitchell.
Turner-Mitchell said the total rates bill for Amazon, which has sales of £5.3 billion a year in the UK, was similar to that of just two stores – Tesco’s Brunton Lane in Newcastle upon Tyne and Sainsbury’s Bath Road in Reading, which have a combined bill of £9.8million. Sainsbury’s and Tesco run 4,700 stores in total.
A third of the extra revenue for the Treasury came from supermarkets adding stores in a bid for supremacy. But two thirds came from business rate rises. Pressure on them has been exacerbated by a price war and rapid expansion by German discounters Aldi and Lidl, which have undercut UK rivals.
Tesco and Morrisons have already closed stores and shelved plans to open others as they restructure their businesses to cope with intense competition and lower margins.
Clive Black, at Shore Capital, which also acts as an adviser to Morrisons, said: ‘Supermarkets have cut their opening programme depriving the UK construction trade of a large source of income. The Government should think carefully about how much the sector can now contribute in the increasingly digital age from the large store base.’
Prices and profits are falling while the Chancellor wants big firms to pay for more apprenticeships and raise wages to allow him to reduce tax credits and the deficit.
Prime Minister David Cameron has promised a ‘radical reform’ of the rates system. But supermarkets and other major retailers have been alarmed at suggestions the Government may renege on its promise.
Two weeks ago The Mail on Sunday revealed that the Valuation Office Agency is more than a quarter of the way through its latest revaluation of business rates, which will come into effect in 2017. This alarmed many of those hoping for wholesale reform of the rates system in the Chancellor’s Autumn statement on November 25.
Days after the revelation, Sainsbury’s finance chief John Rogers, John Lewis boss Andy Street and lobbyists from the British Retail Consortium met Treasury Secretary David Gauke in an effort to get clarity ahead of the Autumn statement. But the Treasury is understood to have been non-committal.
Tesco’s Dave Lewis described the effect of the Government’s new employment demands, rising rates and intense competition as a ‘lethal cocktail’.
He told the Confederation of British Industry’s annual conference last week: ‘In supermarkets, profitability has sunk from 5 to 2 per cent in five years and now we face significant new cost pressure.’
Speculation is mounting that the Government may cut small business rate relief by 50 per cent, which one retail source said would be an ‘absolute disaster’ for the high street.
The money saved could be used to cap rate rises for the sector as a whole, including supermarkets, but such a move is likely to be seen as offering little compensation.
Turner-Mitchell said: ‘Initially the Government promised a radical reform of rates, but last week David Cameron said the review will be about distribution and the total take from the tax will not change. The retail industry is feeling misled.’
Tesco pays £630million in business rates, Sainsbury’s £480million, Asda pays an estimated £400million and Morrisons about £300million. Their total bill is calculated to have increased by £470million in the past five years. The four have combined sales of £105billion a year.
A senior source close to the business rate campaign said: ‘We are not a bottomless pit. The Government wants to increase wages but there will come a time when coping with the total cost of doing business will begin to hamper retailers’ ability to create those jobs in the first place.’