Comment: it's hazardous, morally, but Tesco should pay its dividend

Evening Standard / eyevine

When Treasury officials were devising Rishi Sunak’s welter of measures to save British businesses from coronavirus, one factor was playing high in their minds: moral hazard.

This is the economists’ buzzphrase referring to the risk that government handouts can inadvertently reward the undeserving and incentivise bad behaviour.

Rightly, Sunak’s team decided the need of the country was so great, and so urgent, that such considerations need to be relegated for the greater good. They would have to trust businesses to behave themselves.

There’s a nasty streak in many businesses, encouraged by management consultants and accountancy firms, to push every loophole and game every regulation.

They excuse such behaviour by citing their fiduciary duties to shareholders. That was dubious at the best of times; in an era of national crisis, it certainly doesn’t wash.

Milton Friedman — the king of such philosophy — was shown the door when the Chancellor unleashed 15% of GDP in taxpayer handouts to business.

So, while wealthy Premier League football clubs with billionaire owners are legally allowed to exploit the Government furlough scheme aimed at struggling companies, they shouldn’t. Lest we forget, Liverpool FC, which is taking taxpayers’ money to fund furloughed staff’s pay, made £42 million profit last year and spent £43.8 million on agents’ fees.

While shopping malls group Intu may qualify for bailout funding despite its own shareholders refusing to rescue it prior to the crisis, it shouldn’t. Other property firms who have diligently paid down their debts over the years should get the money instead. Let the banks who lent to Intu sort the mess out themselves.

Other moral hazard cases are less clear cut.

With the whole nation being forced to eat three meals a day at home, Tesco is one of the few beneficiaries of the crisis. It has also just stuffed its coffers with the sale of its Thailand chain. It can well afford to pay a £550 million dividend. Yet it has just received, courtesy of taxpayers, an undeserved £700 million coronavirus business rates holiday.

Clearly, it looks bad to welcome in the windfall through one door while channelling a dividend out through another. But PR aside, who benefits from Tesco not paying out? Nobody.

In fact, it only hurts pensioners whose returns are already being damaged by justifiable cuts in divis from almost every other company.

It’s a tough call for the board, but on balance, it should probably ignore the stinking headlines and pay the dividend.

To soften the PR blow, why not give the undeserved business rates bailout dosh to staff risking their health on the shopfloor?