Businesses face £50bn “bombshell” in April with end of Covid aid, Labour warns

Elliot Chappell

Labour is warning that firms across the country will be hit by a £50bn “bombshell” when April brings tax deferral costs and VAT cuts alongside the end of the business rates holiday, furlough and other support packages.

Following the opposition’s call last week for a “smart” furlough scheme extension to protect jobs as long as Covid restrictions remain in place, Lucy Powell today urged the government to act now to support businesses.

The shadow business minister said: “The government’s failure to ensure economic support is adequate and goes hand in hand with public health measures has meant we’ve seen the worst recession of any major economy and the worst growth.

“The £50bn business bombshell firms face must be defused before it blows a hole in our economy. We need a smarter furlough scheme, and better support for businesses, to secure jobs and get Britain on the road to recovery.”

Labour has calculated the £50bn sum as the cumulative impact of a number of support measures coming to an end and payments now due on exemptions given over the past year to help businesses cope with the pandemic:

  • £34bn in VAT deferrals affecting over a quarter of businesses;
  • £3.3bn in monthly support through the furlough scheme;
  • £9.6bn in rate payments for 2021-22 when the business rate holiday ends;
  • An estimated £275m of interest payments on bounce-back and coronavirus business interruption loan scheme loans, when the government stops paying the first year of interest for firms;
  • Loan repayments on the £62bn in bounce-back loans, and CBILs loans taken out by companies since the start of the pandemic;
  • £4.1bn cost of the increase in VAT to 20%, from 5%, for the hospitality, accommodation and attractions sector; and
  • A £9bn gap caused by the Chancellor deciding to scrap the job retention bonus.

Based on recent Office for National Statistics survey data on the impact of the the virus on businesses, an estimated one million food and accommodation services businesses have reported having less cash reserves of less than three months.

53% of respondents in the sector reported that they had less than three months’ cash reserves. Replicating the numbers from the survey on a national basis suggests that this is the case for 1,047,280 businesses in the industry.

Labour has called for 100% business rates relief for retail, hospitality and leisure businesses to be extended for at least a further six months, to be reviewed at a later date if coronavirus restrictions are still in place.

UK Labour has also urged the Conservative government to learn from the Labour administration in Wales and make the rates relief more targeted by introducing a cap for essential retail businesses above a certain size.

The UK government initially announced in March last year that all retail, hospitality and leisure businesses would not be required to pay business rates in England for the year 2020-21 as a result of the implementation of Covid restrictions.

The Welsh government capped the relief, making those with properties with a rateable value over £500,000 ineligible. The move freed up £100m for its Economic Resilience Fund and enabled grants to 2,000 small businesses.

Labour also called on the government at the end of last year to use the billions recently returned to the government by supermarkets in business rates relief to subsidise small businesses and help them survive the crisis.

The demand from Shadow Chancellor Anneliese Dodds last week for the extension of the furlough scheme followed that of the TUC, which pointed out that unemployment has surged when furlough is under threat of being wound down.

Responding to figures published by the ONS last month, the trade union confederation highlighted that when the job retention scheme was scheduled to end completely on October 31st last year, unemployment rose sharply to 5%.

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