How would a supermarket tax work in England and Wales?

A number of councils and campaigners would like to see the introduction of a ‘supermarket levy’, also dubbed the ‘Tesco tax’ by the media. The tax would allow an additional levy to be imposed on large retailers by local councils. How does the tax work and would it be possible?

There are currently no legal powers to impose such a levy in England and Wales. A group of some 19 councils is reported to have submitted a request to the Government to introduce a power to allow them to do so. The aim would be to discourage the building of more out-of-town superstores and to raise money to support small business locally.

The idea derives from the Scottish Government’s ‘public health supplement’ and the Northern Ireland Executive’s ‘large retail levy’. Both of these operate as part of the business rates system.

Business rates: the basics

The business rate liability of a property is calculated by multiplying the rateable value (RV) of the property by the national multiplier.

Rateable values in England and Wales are assessed on a five-yearly basis by the Valuation Office Agency (VOA). Normally the RV of a property reflects the annual rent that it could have been let for on the open market. The multiplier is set annually by the UK Government for England, and the National Assembly for Wales. For 2014-15 the multiplier in England is 48.2p, and that for Wales is 47.3p.

Therefore, a property in England with a rateable value of £20,000 would see its business rate bill for 2014-15 calculated as follows:

£20,000 x 48.2p = £9,640 per annum

Further detail is available in the Library’s general briefing on Business rates.

How the levy works elsewhere

The levies used in Scotland and Northern Ireland operate via an additional multiplier within the business rates system, set by the devolved government and applying only to specified properties.

In Scotland, properties with a rateable value of over £300,000 and which sell both alcohol and tobacco must pay an additional 13p in the pound on the amount by which their rateable value exceeds £300,000. Therefore, a property with a rateable value of £400,000 will pay an additional £13,000 i.e. 13p on £100,000 of rateable value.

In Northern Ireland, the large retail levy applies to all retail properties with a rateable value of £500,000 or more; and it applies to the whole rateable value, not just the amount by which it exceeds £500,000. The Northern Ireland supplement is an additional 8.52p in the pound.

Both of these supplements were introduced in 2012-13 for a three-year period. The Scottish Government has announced that it will not renew the supplement after 2014-15.

By comparison, the group of English councils noted above is reported to be proposing a levy of 8.5p in the pound on retail outlets with a rateable value of over £500,000.

Options in England and Wales

In the England and Wales business rates legislation, there is no legal power to introduce an additional levy. Schedule 7 of the Local Government Finance Act 1988 permits the setting of two multipliers: the small business multiplier and the standard multiplier. The Scottish and Northern Irish business rates legislation allows multipliers to be set as the devolved governments see fit.[1]

The Business Rate (Supplements) Act 2009 permits councils in England and Wales to set a supplement of up to 2p in the pound in their area, subject to a majority of rate-payers (by number and by rateable value) voting in favour.[2] However, supplements cannot be imposed only on specific types of property (such as retailers or shops over a certain floor area): hence this could not be used as a route to a ‘levy’ on supermarkets alone.

To achieve the outcome sought by the campaigners, new primary legislation would be needed. This could allow councils to choose to set an additional multiplier, and to choose what type of properties it should cover. Alternatively, the additional multiplier and the coverage could be fixed across England (or Wales), and councils could choose to impose it or not.

[1]     See section 153 of the Local Government etc. (Scotland) Act 1994; and the Rates (Northern Ireland) Order 1977.

[2]     Section 68 of the Localism Act 2011 provided that a referendum must take place for all proposals for a business rate supplement: the 2009 Act required it only in specified circumstances. The only business rate supplement scheme in existence, introduced by the Greater London Authority in 2009, was established without a referendum.

Author: Mark Sandford