By Karen Peattie

SUPERMARKET group Tesco has become the first major retailer to bow to growing pressure to repay millions of pounds of business rates relief received during the coronavirus pandemic having previously defended keeping the windfall as it paid shareholders a hefty dividend.

Tesco received £585 million in rates relief yet benefited from increased consumer spending during the first lockdown when pubs and restaurants were forced to close, leading many to question why resilient retailers should benefit from rates relief when smaller businesses were unable to trade.

In March, Chancellor Rishi Sunak introduced a 12-month freeze on business rates as part of a coronavirus rescue package to help protect the economy as the pandemic took hold. Under the freeze, businesses in the retail, hospitality and leisure sectors will not have to pay business rates for the tax year 2020-21.

However, in October, Tesco – the UK’s biggest retailer – revealed it made a pre-tax profit of £551m in the six months to August 29 – an increase of nearly 29 per cent compared with the same period in 2019. It also defended paying a £315m dividend to shareholders.

Retail veteran Bill Grimsey, the former chief executive of Iceland and Wickes, was among those to question why Tesco and other supermarkets including Sainsbury’s, Morrisons and Asda should be given a “business rates holiday” and called for a targeted approach to ensure smaller businesses are getting the financial help they need.

Last month, he told a meeting of the UK Housing, Communities and Local Government committee that the big supermarket chains were reaping the rewards of Government help “when they didn’t need it”.

Other businesses have said they plan to pay back furlough cash to the UK Government, including Glasgow packaging company Macfarlane Group. It had furloughed around 30% of its 1,000 staff under the coronavirus job retention scheme but pledged to pay back about £1.3m it received in the second half.

Its chief executive, Peter Atkinson, said that with the company operating within its “cash constraints” and “remaining profitable”, repaying the furlough money “seems the right thing to do”. He added: “Clearly, there are some parts of the economy and the world that need it more than we do.”

Yesterday, Tesco insisted that “every penny” of the rates relief had been spent on its response to the pandemic to make stores and staff safe. Ken Murphy, group chief executive, said the group had invested more than £725m in ramping up safety measures as well as more than doubling its online capacity and hiring staff to meeting growing demand.

Mr Murphy said: “While business rates relief was a critical support at a time of significant uncertainty, some of the potential risks we faced are now behind us. In that same spirit, giving this money back to the public is absolutely the right thing to do by our customers, colleagues and all of our stakeholders.”

The group said it was “immensely grateful for the financial and policy support”, describing it as a “game-changer”. It added: “The decision at the time to provide rates relief to all retailers was hugely important. These funds meant that we had the immediate confidence, in the face of significant uncertainty, to invest in colleagues, and support our customers and suppliers.

“Every penny of the rates relief we have received has been spent on our response to the pandemic. Our latest estimate at our interim results in October was that Covid would cost Tesco about £725m this year – well in excess of the £585m rates relief received.”

Tesco admitted that “10 months into the pandemic, our business has proven resilient in the most challenging of circumstances” and confirmed: “We are therefore announcing that we will return to the public the business rates relief received in full. We will work with the UK Government and devolved administrations on the best means of doing that.”

As The Herald went to press, it was reported that Morrisons intends to pay back £274m in business rates relief received.

Shares in Tesco closed at 224.50p.