UPDATE 1-Britain's Co-op will not repay 65 mln stg in business rates relief

* Co-op says it took money on basis it wasn’t a loan

* Will pay back 15.5 mln stg of furlough money

* Will pay executive bonuses for 2020 (Adds detail)

LONDON, April 8 (Reuters) - British supermarket group Co-op said on Thursday it would not pay back 65 million pounds ($89 million) of COVID-19 business rates relief to the government as it took the money on the basis it was not a loan.

However, the group, which is owned by its members and also provides funeral and other services, will hand back 15.5 million pounds it claimed to pay furloughed employees’ wages during 2020.

“The pandemic turned our plans upside down and, while our revenues went up marginally, our costs rose disproportionately,” Co-op Group Chair Allan Leighton said in a statement.

“We welcomed money from the government on the basis that it was not a loan and we would not need to pay it back – and we took business decisions accordingly,” he said.

The Co-op’s revenue rose by 0.6 billion pounds to 11.5 billion pounds in its financial year to Jan. 2, while reported pretax profit, excluding a change in accounting policy for funeral plans, increased by just 25 million pounds to 92 million pounds.

Additional COVID-19 costs during the year were 84 million pounds.

The group owns Britain’s sixth largest supermarket chain with a market share of 6.2%.

Britain’s five biggest supermarket groups - Tesco, Sainsbury’s, Asda, Morrisons and Aldi - and the seventh-largest Lidl have all returned business rates relief.

Marks & Spencer, Waitrose and Iceland have not given it back.

A Co-op spokesman confirmed that CEO Steve Murrells and other senior executives will be awarded bonuses for 2020, with full details to be published in the group’s annual report next week.

He said the group’s remuneration committee did not take into account any government support in their determination of bonuses.

The group said the outlook for 2021 was uncertain and required financial prudence.

“The market remains highly competitive and, against the backdrop of a worsening consumer economy, the Co-op is planning for and dealing with continued lockdowns,” it said. ($1 = 0.7279 pounds) (Reporting by James Davey; editing by Sarah Young and Susan Fenton)