Why has Iceland not followed some of the other grocers in returning our pandemic business rates relief to the Government?
First and most obviously, because Covid-related uncertainty and costs are by no means over. In the last two months alone we have seen the emergence of new and more virulent strains of Covid-19, tightening of the Tier system of regional Covid rules and regulations, the reimposition of a full national lockdown, and the closure of our nation’s borders to non-essential travel – as well as the roll-out of the vaccination programme.
Secondly, because we simply can’t afford to return it. In the face of this year’s truly exceptional challenges, we made all our plans and budgets on the assumption that we would retain the rates relief we had been given – and which the Government has not asked us to hand back. If we had been told to regard it as a loan, we would have acted differently.
The rates relief has been used, as the Government intended, to meet the very substantial direct costs we have incurred in safeguarding our colleagues and customers against Covid by creating a safe shopping environment in our stores: paying for PPE, sanitiser, signage, till screens, and employing additional staff to manage social distancing and to cover for those who are unwell or self-isolating. It is clear that all these Covid-related costs will continue to be incurred until at least the middle of 2021.
It is also a fact that the great majority of our business rates bill relates to our core Iceland stores, which are predominantly on the nation’s high streets and have shared in the dramatic decline in customer footfall in these locations, resulting in a serious loss of trade.
The growth in our market share during Covid reflects the continued growth of The Food Warehouse chain on retail parks, benefiting from 50 new store openings in the last two years, and the flexibility of our overall business model. This has enabled us to deliver at speed a ten-fold increase in our Online capacity since the start of the pandemic, though this incurs much higher operating costs than in-store sales.
We have protected the jobs of all our colleagues in the many core Iceland stores which have been adversely affected by the Covid-related loss of high street footfall. We have furloughed zero employees; created more than 6,000 new jobs by recruiting additional store assistants, pickers and home delivery drivers, enabling us to prioritise the vulnerable in our communities through the rapid expansion of our Online delivery service; paid no dividends to shareholders; donated £1m to good causes through our Charitable Foundation; and assured the long-term future of the business as a family-owned British company by buying out our majority external shareholder, Brait SE.
It is important to appreciate that Iceland is not Tesco, which kicked off the repayment of business rates relief by announcing that it would return £585m to the Government last December. It did so because it had received billions from the sale of a major overseas business, and was looking to avoid criticism when it handed that money to shareholders by paying a large special dividend. Tesco is more than ten times Iceland’s size and, crucially, much more profitable; as was widely reported in the press last July, Iceland made a pre-tax loss of £71.8m in its last financial year to March 2020. We will lose money at the pre-tax level again this year.
If we really care about social justice, I believe that we should stop fretting about business rates relief and start focusing on the fact that this is a broken system that is contributing hugely to the continuing decline of the British high street. Indeed, one of the most depressing features of the recent rush to hand back relief is that it may encourage politicians to think that business rates are affordable, and not a problem urgently in need of a solution.
In reality, business rates are an outdated tax mechanism designed for a completely different era, when ‘bricks and mortar’ shops were the only type of retailing that existed. The system takes no account of the rapidly changing environment that has seen online’s share of UK retail sales double over the five years to 2018, and grow massively again over the last year as a result of the pandemic.
While the online companies, including some of the biggest in the world, get a free ride, traditional retail has seen increases in rates year after year. Indeed, as central government funding has evaporated over the last decade, rates have become the principal revenue-raising lever for local authorities. This growing burden is simply killing traditional retailers, and it is high time that the Government came up with a new system that protects our town centres and ensures that the online giants pay their fair share of tax.
The wave of imminent store closures that now seems certain, as Debenhams and the Arcadia brands pass into the hands of online specialists, vividly underlines the scale of the high street’s current challenge.
Right now, considering our own business rates position, we are looking out towards the huge uncertainties of the continuing pandemic, developing our understanding of what our post-Brexit trading reality will be with the international markets we do business with daily, and facing strong economic headwinds and a looming recession. Clearly it would be crazy to be anything other than financially cautious about the future, and prudent with the financial resources at our disposal. Our customers and staff would expect nothing less.
As a family company, we remain completely focused on ensuring the welfare and job security of our 32,000 colleagues, and on providing great value and excellent service to our customers in the 1,000 communities across the UK where we have stores.