Amazing, isn’t it? All those supermarkets, it turns out, had been pondering a U-turn on business rates relief for simply ages. Morrisons says it had been on the case “for some time”. The board of Sainsbury’s had deliberated “since the announcement of a second national lockdown in England”, so more than a month ago. If only they’d given us a clue, instead of banging on about the extra costs involved in “feeding the nation” during a pandemic.
Still, we must take them at their word, just as we must accept the assurances of Ken Murphy, Tesco’s chief executive, that his board’s decision to break ranks was in no way influenced by the looming, and possibly socially awkward, £5bn special dividend for shareholders from the proceeds of the sale of the Thailand operation.
Too cynical? Possibly. At least the firms above arrived at the right position. One can also say this: Murphy and Simon Roberts, his counterpart at Sainsbury’s, are correct when they say the business rates system itself needs urgent reform.
Successive governments have offered tweaks, such as the switch in 2018 from RPI to CPI indexation. None has cut to the heart of problem: the growth of online retailing, now accelerated by Covid and the battered state of so many high streets. Tesco’s rates bill has risen by 80% in 10 years, says Murphy, while sales in some stores are flat or lower.
Treasury timidity is not perverse, it should be said. “Business rates provide a relatively stable source of revenue to fund local services, are easy to collect and difficult to avoid,” said the government in its response in February to a critical select committee report. The system also raises serious money, as demonstrated by the size of the relief sums being returned.
But the basic unfairness is now glaring: the clunky mechanics haven’t caught up with huge shifts in property values, which form the basis of the calculations. Simon Wolfson, the chief executive of Next, put it this way in a BBC interview a couple of months ago: “Over the last six or seven years the price of warehousing has gone up dramatically, and the price of shops have come down dramatically, but both of their rates have remained exactly the same.”
Wolfson thought a fair system would raise rates on warehousing between 30% and 50% to fund reductions for shops. Since Next generates half its turnover online, he can’t be accused of talking his book.
For his part, Murphy at Tesco would opt for an online sales tax. Yes, that’s a popular idea. And, as he pointed on Sky News on Thursday, many of the high streets affected most severely by the rates system are those at the centre of the government’s “levelling up” plans. If regeneration is to happen, it’ll take more than tweaks.
The supermarkets’ progress towards a honourable position on pandemic relief has been slightly farcical. We’ve enjoyed the verbal gymnastics. But if they’ve also boosted the case for reform of the rotten rates system, good luck to them. Rishi Sunak is a busy chancellor but he needs to act.
Will Paddy Power’s entry into US market live up to the hype?
Paddy Power conquers the US. Well, it’s not there yet, but the company now known as Flutter Entertainments has put itself in a promising position.
Thursday’s deal saw it agree to pay $4.2bn (£3.1bn) for a 37% stake in top US betting company FanDuel, thereby taking its ownership to 95%. Given the potential for growth in the newly liberalising US market, it still seems odd that the locals have allowed a UK-listed, Dublin-based company to challenge for leadership. The trick, perhaps, was to get a few locals onboard: Rupert Murdoch’s Fox Corporation is a 2.6% owner of Flutter.
The terms on the cash-plus-shares deal look excellent, which Flutter explained by saying the seller, Fastball Holdings (great name for a private equity-backed firm), is happy to take a discount for “certainty and liquidity”.
Flutter’s shares rose 7%, despite a £1.1bn share placing. The company is now worth £22bn, about the same as Tesco. What could go wrong? Easy: the “fast growing US opportunity”, as Flutter’s chief executive, Peter Jackson, puts it, may not quite live up to the expectations. The market will clearly be big, but the hype is stratospheric.