Supermarket bosses hit back at Tesco tax plan

27-Jul-2014 - Last updated on 28-Jul-2014 at 11:16 GMT

A Tesco tax would raise food prices, warned the British Retail Consortium

Calls for a £400M levy on supermarkets – dubbed the Tesco tax – would lead to higher food prices, according to retail bosses.

Responding to the plan from 20 English councils headed by Derby City, John Rogers, chief financial officer of Sainsbury, said: “Any further increase in business rates paid by supermarkets would inevitably contribute to higher food prices for consumers.”

Rogers, who is also chairman of the British Retail Consortium’s (BRC’s) executive level group on business rates, said business rates already imposed “an enormous” burden on retailers who “contribute disproportionately to funding local services”.

Rather than raise tax rates, the system should be reformed to ensure a fair tax system for both retailers and councils, he added.

Tax rate on supermarkets

The local council plan urged government to boost the tax rate on supermarkets to pay for improvements to local shopping areas. Similar taxes are already in place in Scotland and Northern Ireland.

But for every £1 in corporation tax, retailers pay £2.31 in business rates compared with £1 to 44p for business as a whole, said the BRC.

It’s director general Helen Dickinson said: “Business rates is a tax which is no longer fit for purpose in the 21st century. Any form of onerous local taxation disincentivises investment and costs local jobs in our communities. What is needed is a fundamental reform of the entire system.”

The business rate was set in 1990 at 34.8% but the average of the rates set at each of the last revaluations is 42.1%, said the BRC. Between 2012–13, retailers contributed more than £16.4bn in corporation tax, employer national insurance contributions and business rates.

New powers to tax

The councils have made the request for new powers to tax supermarkets under the Sustainable Communities Act, which allows community groups to suggest ideas to solve local problems.

Ranjit Banwait, leader of Derby City Council, said the money raised could be used to improve public services and small businesses. “The revenue that we’ll be able to generate will mean that we can support local businesses – especially small businesses,” he told BBC Radio 4’s Today programme.

Meanwhile, the government has up to six months to respond to the suggestion. If accepted, the supermarket tax will apply to all English local authority areas.

But the proposal is unlikely to be adopted after the Department for Communities and Local Government expressed concern the proposals would hit hardest the poorest in society. A spokesman for the department said: “We ruled out such a bid for higher taxes under the last round of the Sustainable Communities Act proposals.”

There were more effective methods of supporting small-scale shops, said the department.