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Business is booming for supermarkets – they don’t need government handouts | George Turner | Opinion


The financial package put together by the Treasury is enormous and unprecedented, with the government setting aside an additional £250bn in contingency this year. Although the sudden switch to large-scale deficit spending has caused anxiety among some conservatives, so far the policies have enjoyed widespread support.

However, government should not lose sight of the need for its policies to be seen to be fair. A good start would be to avoid handing out significant amounts of money to companies that simply don’t need the cash – especially when so many smaller firms are struggling to get access to government support and going out of business.

One clear example of an industry not needing a bailoutis the supermarkets, which are set to receive a £3bn business rates holiday this year as a result of the government’s support package. Shortly after the rates holiday was announced, Sainsbury’s put out a stock market announcement welcoming the news and highlighting that the company paid more than £500m in business rates last year. The company’s share price surged – the rates holiday is worth more than twice the company’s annual profit. Tesco has a business rates bill of £700m – equal to 50% of its profits for 2019. On Wednesday, the company increased its dividend by 60% – proposing a payout to shareholders of £637m. What possible argument does the company have that it needs a government subsidy?

No one can deny that the supermarkets are doing an amazing job of keeping the nation supplied. Their workers are putting themselves at risk every day, many earning less than those who are being paid to stay at home. The enormous shift in social habits that has taken place in a matter of days will be putting huge pressure on management, supply teams and other core functions. According to this week’s stock market update, Tesco has recruited 45,000 new staff in thepast two weeks. Rightly, we need to thank all working in the industry. Their work really is key.

But despite the difficulties, there can be no doubt that for supermarkets, the crisis is good for business. Households stocking up on food and essentials in advance of the lockdown meant that March was the biggest month in history in terms of sales. With pubs closed, alcohol sales have surged by 22%.

Last week people were outraged by the fact that businesses owned by billionaires such as Philip and Tina Green were seeking government support, even though they have been forced to reduce operations. A £3bn handout to companies seeing booming trade could be even harder to justify.

To some extent, these kinds of outcomes will be unavoidable. The scale and speed of the response demanded by the crisis means that the government simply doesn’t have the time to think through all the consequences of its actions. But as the facts emerge, it should be able to refine policy choices to ensure fair outcomes.

In Wales, where the administration does not have unlimited powers to borrow or print money, the government has reversed its decision to match business rates relief in England and is excluding the largest premises from accessing the relief. It plans to divert the savings (which it claims will amount to £120m) to help smaller businesses and charities. It has been reported that Tesco has launched a “huge lobbying operation” in order to get the Welsh government’s decision overturned – an effort described as “disproportionate” by officials.

The government’s efforts to keep businesses afloat should be welcomed. But some of the oversights, such as handouts to companies who have not been detrimentally affected, should be addressed. At a minimum, companies that do well could be asked to do more to support their staff or their communities though diverting any government support they receive to food banks or to increases in staff pay.

There is no doubt that companies are making efforts in these areas. Most supermarkets have increased pay for hours worked during the crisis by about 10%. Tesco has committed to ongoing donations of £3m a month to its food collection scheme, and a further £22m in one-off donations to various programmes. But if business rates relief is worth £700m to the company and it can afford to pay a dividend of more than £600m, it can probably afford to do more.

An alternative approach could be for the government to introduce an excess profit tax to claw back any exceptional gains made by companies during the crisis.

What businesses should not be doing is complaining about having support removed when there appears to be no reasonable justification for subsidy – particularly at a time that the public sector is experiencing a significant amount of pressure. Corporate lobbyists seeking handouts for the few companies set to do well from the crisis is one sector that could do with a period of furlough right now.

George Turner is director of the thinktank Tax Watch UK



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