26 July 2014
Last updated at 03:39
A group of local councils in England is formally asking the government for new powers to tax large supermarkets.
BBC News has learnt that Derby City Council has called for the right to bring in a new levy as a “modest” effort to ensure supermarket spending “re-circulates” in local communities.
Some 19 other local authorities back the so-called “Tesco tax”, which could raise up to £400m a year.
The government said additional taxes on supermarkets would push up food prices.
A similar tax already operates in Northern Ireland and Scotland.
Derby City Council has made the suggestion under the Sustainable Communities Act, which allows communities and councils to put forward ideas to government to solve local problems.
In its lengthy submission, the council says that while supermarkets bring some benefits, they have an overall detrimental impact on the sustainability of local communities.
“Research has shown that 95% of all the money spent in any large supermarket leaves the local economy for good, compared to just 50% from local independent retailers; this levy is a modest attempt to ensure more of that money re-circulates within and continues to contribute to local jobs and local trade,” its report states.
Derby City Council wants the right to impose a levy on large supermarkets, retain the money raised, and use it to help the likes of small businesses.
The extra business rates levy, of up to 8.5%, would affect any large retail outlet with a rateable value of more than £500,000.
Ranjit Banwait, leader of Derby City Council, said communities in Scotland and Northern Ireland were “already benefiting” from the scheme.
“The revenue that we’ll be able to generate will mean that we can support local businesses – especially small businesses,” he said.
“We’ll be able to improve public services.”
The government will have six months to give a response. If agreed, the levy wouldn’t just apply to the 20 councils seeking change but all local authorities in England.
And if every one of them took it up, it could cost the big supermarkets alone an extra £190m in tax.
But the government has already given an indication of how the idea will be received.
The move would hit low-income families the hardest, said the Department for Communities and Local Government (DCLG).
“We ruled out such a bid for higher taxes under the last round of the Sustainable Communities Act proposals,” it said in a statement.
“There are much better ways to support small shops.”
However, the move has been given a cautious welcome by the former retail boss and High Street campaigner Bill Grimsey. He proposed the idea of a levy in his independent review of the High Street last year.
He called for a one-off levy on retailers and pub groups with a turnover of more than £10m to help finance plans to allow struggling town centres to rebuild themselves for the future.
Mr Grimsey said it was right that the biggest retailers put something back into their high streets:
“Used wisely, it could leave a lasting and powerful legacy. But I don’t want this introduced as an annual levy that essentially becomes another tax,” he said.
“If it’s used simply to plug council budget shortfalls, it won’t be fair and it’ll be anti-business. This has to be about the High Street, not clobbering big business.”
Supporters of the move believe the supermarkets can afford it, saying it’s just a fraction of the costs that supermarkets had to swallow when VAT was raised in 2011.
But retailers are likely to strongly resist the move arguing that they are taxed enough already. They pay more in business rates, a property-based tax, than any other form of taxation and have been urging the government for a complete rethink on the system.
They will also raise concerns about fresh investment and jobs being put at risk.
The levy imposed by the Scottish government on larger shops selling alcohol and tobacco is set to end next year. The aim of the scheme was to make them contribute to public health measures.
It is clear Derby City Council’s idea for an additional tax on retailers south of the border will spark even more heated debate.