In the space of a few days, a wave of essential retailers has voluntarily returned the best part of £2bn in business rates relief to the government. In doing so they have won the public relations battle, but have they lost the long-term rates reform war?

“It’s absolutely the right thing to do.” They were the words of Tesco chief executive Ken Murphy when Britain’s largest grocer said it would be voluntarily waiving £585m in rates relief, which was implemented across the retail sector by the government at the start of the coronavirus crisis in the UK.

The line has since been parroted by a number of other essential retail chief executives as many scrambled to follow Tesco’s lead.

Within 72 hours of the supermarket titan’s decision, the Government pocketed almost £2bn in tax from retailers ranging from fellow big-four grocers Sainsbury’s, Asda and Morrisons to other essential retailers Pets at Home and B&M.

It is ironic that having led the rush to repay the relief, Tesco was previously among the staunchest voices in defending the tax breaks. Only two months ago, at its full-year results, Murphy was eager to point out that the grocer had already racked up £533m in Covid-related costs – a bill he expected to eventually exceed £700m. 

Regardless, the great business rates rebate repayment has been well received in the court of public opinion. The move has also gone down well in certain media and political circles. 

Yet, for all the PR glow, some essential retailers, such as the Co-op, Poundland and Waitrose, have either outright refused to return rates relief or have vacillated.

With the pandemic set to continue until spring at the earliest, and with the risks of a disorderly Brexit growing by the day, waiting until the end of the financial year to make a decision on repaying rates seems prudent, if not popular. 

Despite the acclaim, the optics of handing back all of this money, at this particular time, are not all rosy. 

“In the teeth of the worst economic gale in a generation, retailers have voluntarily put their hands in their pockets and handed back £2bn they have been saying for years they cannot afford”

For years now, the industry as a whole has argued that the business rates system is fundamentally no longer fit for purpose and in urgent need of root-and-branch reform. 

Yet, in the teeth of the worst economic gale in a generation, retailers have voluntarily put their hands in their pockets and handed back £2bn they have been saying for years they cannot afford and should not be reasonably expected to pay.

What kind of message does that send to chancellor Rishi Sunak and the Treasury? This government has shown time and again that it doesn’t necessarily think granularly about issues. While the likes of Tesco may well be able to afford to give back hundreds of millions of pounds in relief, the lion’s share of the industry simply can’t. 

Even as they have been handing their tax breaks back, the majority of essential retailers have been loudly banging the business rates reform drum. It is an issue that Sunak and the Treasury will find increasingly hard to ignore. 

The chancellor may also decide that one good turn deserves another and look to reward an industry that has stood tall in the most challenging of times with the kind of reforms it has been clamouring for.

“On paper at least, the mooted online tax is a winner for bricks-and-mortar and multichannel retailers. But it could well end up becoming a poisoned chalice” 

However, this government is notoriously revenue-neutral and removing or reducing a £9.5bn tax revenue stream in one area will need to be replaced in another. 

This is where the mooted online tax might come into play. As any retailer will tell you, the playing field needs to be levelled and the likes of Amazon need to start paying their way. 

On paper at least, this argument is a winner for bricks-and-mortar and multichannel retailers. But it could well end up becoming a poisoned chalice. 

The Covid-19 pandemic has seen many retailers’ online channels grow exponentially, not least the likes of Tesco and other essential retailers rushing to hand back billions in tax breaks. 

Any online retail tax would, by its nature, need to be applied to multichannel retailers, too. Given the growth many have seen in ecommerce, that might prove more onerous now than it would have done five, three or even one year ago. 

The sector must be careful what it wishes for. Otherwise, it could end up shifting one taxation millstone from around its neck, only to replace it with another.