Tesco has announced that it will be returning the business rates relief that it was entitled to as a consequence of government support for retailers during the course of the coronavirus crisis. The payment, which can only be described as voluntary, will amount to something like £585 million.
The press release that Tesco has issued on this voluntary payment is confused, to put it politely. It says that initially taking the relief was vital to it, because it was claimed that it could not have continued to invest in its business without it. At the same time, it makes very clear that its profit expectations for the current year, after making the repayment, will be consistent with the previous year. And, of course, it continued to make payment of dividends to shareholders during 2020, and by approximate coincidence, that payment was broadly equivalent to the business rates rebate when the anticipated final dividend is taken into account.
Cutting through the waffle (whether own brand, or not), what is apparent is that this rebate would have flowed straight through to an increased bottom-line profit if Tesco had kept it. And what Tesco obviously sensed was that this would have given rise to significant customer backlash, which they presumably think a price not worth paying. It is notable that Morrison's have already suggested that they too will be making voluntary business rates payments, totalling £274 million, as a consequence. There will be considerable pressure on Sainsbury's, Asda, Lidl and Waitrose / John Lewis as a result.
Tesco's justification for the payment is that they ‘remain absolutely committed to doing the right thing by our customers, colleagues and all our stakeholders.' Three thoughts follow.
First, it is good to see stakeholder responsibility knowledged. It would be welcome if it was more explicit in other areas as well.
Second, this somewhat blows the concept of profit maximisation above all else. Milton Friedman will be turning in his grave.
Third, a voluntary payment of tax also upsets the myth that businesses have an obligation to minimise the tax liabilities on behalf of their shareholders: Tesco clearly does not agree any more. It is only a decade or so go ago when the company's behaviour was interpreted as suggesting otherwise. It is now apparent that tax compliance is seen as a price worth paying. The tax justice moment can take some considerable credit for that.
Tesco has done the right thing. The implications are, however, much bigger, and it sets a precedent that it must follow. Others would do well to follow in its footsteps.
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It has been refreshing to see for sure, personally though I think they should go further. Instead of paying shareholders a dividend all major retailers should be paying a bonus to their staff, who have worked throughout the crisis, putting their health/lives on the line, to keep the nation fed. Shareholders who sat at home safe should not begrudge the gesture.
Great idea. I wish we lived in a world with leaders that routinely behaved in humanistic terms.
As you say, this is effectively a voluntary donation: welcome of course, but hardly tax compliance. How much of this money will be retained by local authorities, who desperately need it, and how much will flow back to the Treasury?
Call me a cynic, but I suspect Tesco have done a cold, hard calculation of the risk of bad publicity (receiving a subsidy, and then paying roughly that amount to shareholders is a bad look) and consequent lower sales and profits, and the possibility of good publicity for doing this first. How much would it otherwise have cost to buy the positive press coverage they have received?
There are some other example of coronavirus payments being returned. Some businesses have been repaying furlough payments, as contrary to expectation their businesses have continued performing well throughout.
It’s good to see the other supermarket chains falling into line behind Tesco and returning the business rate relief.
Since it’s been ‘shareholder value’ that has posed enormous problems for managers and the like, let’s hope that the obligations of companies are increasingly widened as a result on a more permanent basis.
I worked for Tesco in the 1990’s under Sir Ian McLauren and I had a great time – they really looked after their staff and you felt like a stakeholder.
However, when Terry Leahy got in (and after one too many recessions) as well as Tesco starting to try to expand into Europe and elsewhere the company got meaner and meaner (by this time I’d left to go back to University). Friends told me I would not recognise it if I’d come back.
Surely there should be a public list of all businesses that benefitted from covid help and whether they paid it back or not so consumers can make an informed choice on where they choose to shop?
There are many businesses who haven’t taken any relief but who aren’t getting this sort of publicity
Glad to hear this, because Tesco has been getting a lot of my money this year!
Tesco is a weird one – it does evil corporate things, like PSR says above, and in Scotland there have been issues with it buying land, promising to develop on it, but then not doing anything with it (probably just denying the land to competitors) – we have huge problems with land ownership as it is, and hopefully we’ll get reform so any land left unused gets compulsory purchase on it,,, I digress –
Tesco: my local big one is a good public service, provides jobs (most staff seem happy enough, and are always good for a natter) and has developed the shopping centre well in a slightly deprived area. Not all their shops are like that though. Then it also seems to quietly make positive changes – like its own brand boxes of hankies, it stopped putting in the stupid plastic inserts (an easy thing to do, and they save money, and a little bit of the planet has been saved – what’s not to like?) – small things like that actually affect my buying choices, and where I shop – why wouldn’t you at least do some local advertising for it? I know it’s not a big thing, but it needs to start somewhere, and this shows they’ve started thinking about it.
I still think it’s a big evil corporation, as all supermarket chains are, but I’m certainly softened up by things like volunteering to pay their taxes, removal of unnecessary plastic packaging, and seeing a relatively happy work force.
B&Q returns £130 million plus stops dividends
https://www.bbc.co.uk/news/business-55212840