Sainsbury’s has called on the UK government to reform business rates, pointing to findings that suggest a 20% cut in rates could result in the creation of over 17,000 retail jobs.
The research, carried out by Development Economics, argues that a lower rate bill would shore up businesses to invest the money into recruitment of new staff. Minimum wage rises have led to supermarkets such as Sainsbury’s raising pay multiple times this year to stay competitive.
In June, Labour announced plans to reform business rates and revive the struggling UK high street if it won the election. Now the party is in power, Sainsbury’s is the first major retail chain to ramp up pressure in its report named “The jeopardy of inaction”.
Save our high street
Business rates are a tax paid by brick-and-mortar stores on their commercial properties. They are calculated using a ‘multiplier rate’, which is adjusted each year in line with inflation.
The small business multiplier rate has been frozen since 2019. However, the standard business rate was unfrozen for the 2024/2025 financial year.
The Sainsbury’s and Development Economics research estimates that the new increase will cost all businesses a total of £1.6bn in the first year. In ten years, these profit losses could result in 17,300 UK shops closing, the report states.
The change could have a potentially devastating impact on the UK’s 5.5m SMEs, many of which rely on the pull of big retailers to entice consumers into towns and cities.
Simon Roberts, Chief Executive of Sainsburys, said the current business rates system is “no longer fit for purpose”, adding “It has failed to keep pace with changes in how customers are shopping and how much our retail industry has changed over the last decade.”
Retail hell
The retail sector would be particularly hard hit by a business rate rise. 4,300 retail jobs are set to be lost in 2024/25 as firms are forced to let staff go to cover the hike in business overheads, the data suggests.
Rising staffing bills have already led some chains to make layoffs. This April, both the National Living Wage (NLW) and National Minimum Wage (for 16 to 21-year-olds) rose by record amounts. The NLW surged by over £1 for the first time ever.
As a result, the owners of John Lewis and Waitrose cut 3,500 jobs in order to reduce its payroll from £1.82bn down to £1.79bn.
Paddy Lillis, General Secretary of Sainsbury’s union, USDAW, said that job losses and store closures are “scarring our high streets and communities”.
“A robust plan is needed [that] addresses both the immediate and urgent priorities facing the industry and staff, as well as wider measures to help deliver better jobs”, added Lillis.
Rival supermarkets have meanwhile become locked in a talent war for the few staff who can afford to stay in the industry. This year six major UK grocers, including Sainsbury’s, raised retail pay for shop floor assistants to over £12.00 per hour.
Sainsbury’s has stopped short of cutting CEO salaries to fund wage rises, however. Annual reports show that Simon Roberts took home £4.91m in the last financial year.
20% cut would boost investment
When the Labour party first pledged to reform business rates last year it stopped short of declaring any specific policies. Shadow chancellor Rachel Reeves only said that Labour “want to reform the system in a way that reduces the costs for small businesses.”
Likely, the government would have planned to keep its reform to SME-focused policies, such as overhauling the business rates discount scheme, known as Small Business Rates Relief.
However, Sainsbury’s is arguing for broader support. It suggests a 20% cut for all-sized businesses to enable larger companies to reinvest back into the UK high street.
The retailer estimates this would generate £70m per year in additional revenue within ten years. It says it would also boost retail Gross Value Added (GVA) by £400 million per year.
CEO Roberts added, “We welcome the new Government’s manifesto commitment to reform business rates and hope that it will move quickly to deliver on this promise, which would deliver real benefits for communities, employees and businesses alike.”