UK retail shares rise on Reeves' commercial property tax reforms

By James Davey

LONDON (Reuters) -Shares in Britain's major retailers climbed on Wednesday after changes to commercial property tax, or business rates, announced in finance minister Rachel Reeves' budget statement were not as bad as feared.

Reeves said she would introduce permanently lower tax rates for over 750,000 retail, hospitality and leisure properties, paid for through higher rates on properties with rateable values worth 500,000 pounds ($659,350) or more.

She also introduced over 4.3 billion pounds of support over the next three years for a property of any size seeing a large increase in its bill.

BIG RETAILERS FEARED CHANGES COULD FUEL INFLATION

Major retailers, including industry leader Tesco, had warned the government not to include their superstores in a top band of business rates. They argued the move could make some unprofitable and fuel still high inflation, particularly in food.

"The announced permanent reduction in retail business rates is an important step to reduce the industry's burden from this broken tax," said Helen Dickinson, CEO of the British Retail Consortium, which represents the UK's major retailers.

"Yet the decision to include larger retail premises in the new surtax does little to support retail investment and job creation."

She called the new surtax a "retrograde step" that would do little to mitigate the rising cost of food and essentials.

However, Simon Roberts, CEO of supermarket group Sainsbury's, welcomed the government's decisions on business rates, saying that "industry concerns have been heard".

Shares in Tesco, Britain's biggest food retailer, closed up 1.9%, while Sainsbury's, the number two player, closed up 1.6%.

Clothing and food retailer Marks & Spencer was up 4.5%, while Primark owner Associated British Foods and Next both closed up 1.4%.

Analysts at Jefferies said Reeves' move was "a small positive for some retailers but ... could present a cost headwind for others, such as supermarkets, department stores, and those with flagship locations."

Britain's major supermarket groups have drawn a direct line between Reeves' first budget last year, which raised employer taxes and hiked the national minimum wage, and stubbornly high food inflation, which was 4.9% in October, according to official data, and is forecast to hit 5.3% in December.

When a new packaging tax is also taken into account, the retail industry says it has faced a rise of 7 billion pounds in annual costs.

($1 = 0.7583 pounds)

(Reporting by James Davey, Editing by Paul Sandle)