A huge number of companies have benefitted from government financial support in the pandemic. This has come in a variety of ways, from furlough and job support schemes to business rates relief. The reliefs that were introduced when lockdown started were inevitably rushed through without the time for the preparation that would normally accompany government support schemes. Such schemes would normally involve intensive consultation and the formulation of detailed rules before coming into effect. The urgency of the situation when the pandemic first struck meant that there was no time for detailed planning. It is easy to be wise after the event and say that this and that should been thought through in more detail before being implemented: at the time businesses faced with the sudden lockdown of their operations would not have taken kindly to being told to wait for several months before any help came and a number may well have folded in the interim. Hindsight is a wonderful thing but unfortunately ignores some basic realities from time to time.
The problem with introducing such schemes quickly though is that there is not sufficient time to think about the unintended consequences that might arise. One of the features of business rates relief in particular is that everyone is given the opportunity to benefit from it regardless of whether they need to do so or not. Whilst many businesses have seriously struggled because of the lockdown and its financial knock-on effects, some have proved to be exceptions to the rule. Supermarkets in particular have done well; as a small piece of anecdotal personal evidence I abandoned my planned visit to my local store this weekend when I saw how long the queue to get in to it was. Sales of both in-store and home delivery goods have been extremely high during the pandemic; with eating out or going to the local pub for example becoming very difficult, consumers have in many cases turned to self-entertaining at home. As a result supermarket profits in particular have been maintained despite the general economic slowdown.
The question is should businesses that do well despite the pandemic be paying dividends when they have taken advantage of government support schemes? An interesting survey was reported in the media this week undertaken by Altus, a consultancy. It concluded that large supermarkets such as Tesco, J Sainsbury and Wm Morrison have declared dividends of £1.35 billion. On the other hand, throw Asda into the mix £1 in every £6 of business rates relief has gone to big supermarkets. The survey concludes that the collective benefit gained by the large supermarkets as a result of business rates relief has amounted to £1.36 billion, which has a rather neat symmetry about it when you look at the value of dividends paid by major supermarkets. This has inevitably led to comment about whether or not dividends should be being paid when such a large amount of government financial support has been accessed.
The situation is not however quite as clear-cut as it might initially seem to be. First of all, the supermarkets are not doing anything legally wrong with their approach. This comes across when you look at the statements of various politicians on the subject. Shadow business minister Lucy Powell said that supermarkets 'should do the socially and morally responsible thing'. Kevin Hollinrake, a Conservative MP who co-chairs an all-party parliamentary group on fair business banking said that it would be 'a brilliant gesture' if the supermarkets were to pay the business rates support money back. The carefully-chosen vocabulary demonstrates that any move by the supermarkets would be a voluntary one.
Supermarkets would argue that they have had to absorb extra costs on the back of the pandemic particularly higher staffing costs as they have taken on extra workers. It is also easy to forget that it is not just big institutions that benefit from dividend pay-outs. Millions of pensioners for example rely indirectly on dividends to fund their retirement. If dividend payments were reduced or withdrawn then that would potentially have an effect on the funds which finance their pensions; and with interest rates at historic lows returns from other directions are already under pressure. With the business rates relief scheme now due to run until March 2021, this particular discussion still has some way to run.
Wayne Bartlett is an author for accountingcpd. To see his courses, click here.
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