Sainsbury’s is playing the long game by surrendering rates relief

Business

Sainsbury’s Christmas trading update was a demonstration of why the boards of all the big supermarket chains were obliged to come to their senses last month and concede that, yes, all that relief on business rates had to go back to the Treasury.

After surrendering relief worth £410m this financial year, Sainsbury’s expects to achieve pre-tax profits of £330m, an uncomfortable year-on-year decline of 44% from the previous £586m. But consider the alternative: if it had kept the money, Sainsbury’s would now be forecasting profits this year of £740m, a year-on-year increase of 26%, which would have guaranteed endless publicity about profiting from a pandemic.

That reputational gamble was never worth taking, especially when you are also in the business of lobbying government for permanent reform of the outdated rates system. The case for change was strong before Covid: the playing field, in the standard imagery, is tilted too far in favour of the online brigade. After Covid, the argument ought to be overwhelming. Just wait to see the boost to sales and profits that tax-shy Amazon will have enjoyed in the UK in 2020.

A fairer system would whack up rates on warehouses (by 30% and 50%, Next’s chief executive, Simon Wolfson, has suggested) to fund reductions for shops and give battered high streets a lift. Such a move would merely reflect market reality – warehouses have soared in value since the last rates rejig; shops haven’t. The overall tax take from an evened-up system could even emerge roughly neutral.

By playing fairly on relief (albeit only after some prodding), the supermarkets may have done themselves a favour in the long term. The need for a fundamental rewrite of the perverse business rates system is now crystal clear.