Councils should have the power NOT to tax supermarkets

There’s no shortage of reasons to dislike supermarkets generally and Tesco in particular – their flimsy carrier bags, their irritating BOGOFs and BOGOHOs (Buy One, Get One Half Off), their unpoliced disabled parking bays, their Everyday Value instant coffee granules. Then there are all the economic, environmental and social reasons – the ones understandably more emphasised in Derby City Council’s recent proposal that local authorities be given the power to introduce a levy of 8.5% of rateable value on large retail outlets: a supermarket or Tesco tax, as it was instantly labelled by the media.

Supermarkets, the council claims, cost local jobs, increase waste- and traffic-generated environmental pollution, damage British agriculture, undermine local economies and community life, underpay their staff, and damage public health through being the largest suppliers of tobacco and alcohol – among other things.

The council’s cabinet actually approved the policy last December, with the acknowledgment – unfortunate for an education authority – that costs could include sponsoring a Bill through Parliament to ‘Royal Ascent’ (p.3).  But, after the public were consulted and support mustered, it was only formally announced in late July, at the start of the holiday season, with the result that reaction, including from local government, has been both less voluble and less co-ordinated than might have been expected.

After all, it sounds a popular, even populist, proposal. Tesco’s sales and share price may have fallen recently, and likewise its CE and finance director – with, almost needless to add, humongous payoffs. But its tax haven use is notorious and its Fair Tax Mark of just 3 out of 15, while marginally better than the 2s of Sainsbury and WH Smith, is set in its true context by Greggs’ perfect 15.

In short, supermarkets could afford their own tailored levy – amounting to maybe 0.1% of their total income – without passing it straight on to customers. Moreover, the legislation would require that the proceeds go directly to help local economic activity and services. Certainly, most early reaction supported Derby’s initiative, in addition to the more than 60 councils from across the party spectrum that the bid claimed had already indicated their backing.

The proposal was submitted under the 2007 Sustainable Communities Act, which gives councils the opportunity to ask central government to remove legislative barriers currently preventing them optimising the economic, social and environmental wellbeing of their area. Though the Act was introduced under a Labour government, the roughly 200 proposals initially submitted were inherited by the Coalition. The nearly two-thirds judged broadly consistent with Coalition policy were grouped into Action Areas and implemented wholly or in part, and the remainder rejected. This latter group, importantly for the eventual fate of Derby’s supermarket levy, included all tax-related proposals, from chewing gum to plastic bags, on the grounds that tax decisions are the Chancellor’s responsibility and therefore made as part of the overall annual budget process.

Most of the proposals from my own local authority, Birmingham, on the other hand, were deemed less threatening, and have contributed, for example, to the introduction of Accelerated Development Zones to fund new infrastructure investment, extended financial incentives to promote renewable energy generation, the revision of legislation to enable councils to provide more allotments and community gardens, and the discretionary power to regulate vehicles parking on and damaging grass verges.

Which all sounds, for maybe three seconds, very localist and encouraging – until you wonder why on earth one of the largest local authorities in Europe should be grovelling to ministers to allow it to spend my money on providing allotments and protecting grass verges.

And so, back to the Tesco tax, which, however much it’s described as a rateable value-based levy, is to ministers going to look, swim and quack like a tax – and a tax they’ll undoubtedly claim will threaten investment, push up food prices, and hit the ‘hard-working families’ on low incomes that they’re electorally anxious to be seen protecting.

Business opinion is overwhelmingly hostile, and makes the reasonable point that most recent supermarket expansion has been through convenience stores, not highstreet-destructive, out-of-town sheds. Even local government, though, isn’t unitedly enthusiastic, particularly some of the bigger cities. Manchester quickly announced that it didn’t fit in with its economic vision for the city: “We work very hard to bring in big supermarkets because they provide much-needed regeneration. We want to encourage them, not put them off.”. Last week Kirklees took a similar view.

Levy supporters invariably mention knowingly that similar schemes are already in operation in Northern Ireland and Scotland, but neither are precisely the same as that proposed by Derby, and evidence of their success is, at best, mixed. The money raised by Northern Ireland’s Large Retail Levy on all outlets with a rateable value of over £500,000 goes directly to the relief of rates paid by small businesses, and its impact is therefore more immediately visible than would be the case in England.

And the Scottish Health Levy on ‘big shops selling alcohol and tobacco’ (otherwise known as supermarkets), threatening as it does Scotland’s boast to have the UK’s most competitive business rates regime, has become so bitterly unpopular that its axing next year has already been announced.

Scotland, though, has something else, something much more fundamental, to contribute on this topic – namely, the final report of its Commission on Strengthening Local Democracy, set up to consider “how we do democracy here in Scotland”, whatever the outcome of the independence referendum.

It defined its task as turning around 50 years of centralisation, and its many radical recommendations include tripling Scotland’s current 32 councils to around 100 of a more genuinely local, Scandinavian-style, size, with the freedom to raise more than 50% (instead of just 18%) of their income locally. To do so, they would have full local control of the whole range of local taxes – council tax, business rates, land and property transaction tax, and, if there were one, a supermarket levy.

And that, I suggest, is what English local authorities should have: the choice to tax, or NOT to tax, their own local supermarkets, without first having to beg for ministerial permission.


Chris Game is a Visiting Lecturer at INLOGOV interested in the politics of local government; local elections, electoral reform and other electoral behaviour; party politics; political leadership and management; member-officer relations; central-local relations; use of consumer and opinion research in local government; the modernisation agenda and the implementation of executive local government.

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