Sunday 7 February 2021 / 8:33 AM Anneliese Dodds / Economy

Labour calls for tax cuts for hardest-hit sectors to protect jobs and help businesses build Britain’s recovery

Labour calls for tax cuts for hardest-hit sectors to protect jobs and help businesses build Britain’s recovery

 

Labour has today urged Chancellor Rishi Sunak to act today to give stretched businesses much-needed certainty by extending the existing business rates holiday and reduction in VAT.

 

Anneliese Dodds, Labour’s Shadow Chancellor, has argued that uncertainty over the length of the business rates holiday is damaging business confidence – and that businesses can’t wait another month until the Budget to know whether the holiday will continue beyond the 2020-1 tax year.

 

Without an extension, businesses that have a vital role to play in powering Britain’s recovery will be hit with the additional sunk cost of business rates just when they are trying to get back on their feet.

 

Dodds is urging the Westminster Government to be smarter by following the example of Labour-run Wales and capping relief so that support is targeted to those that need it most.

 

The Shadow Chancellor is also calling for the temporary 5% reduced rate of VAT for the hospitality, tourism and culture sectors to continue for another six months or until three months after the lifting of health restrictions – whichever comes later. The reduced rate is set to expire on 31st March, when it will return to 20%.

 

These sectors have been among those hit hardest by the pandemic. Extending the VAT cut will boost demand for their services in the critical period after restrictions have been lifted, when consumer confidence is likely to still be relatively low.

 

Anneliese Dodds, Labour’s Shadow Chancellor, said:

 

“Labour is the party of work and business. We understand that businesses create the jobs and drive the growth that will build the recovery. That’s why they need breathing space, with a targeted business rates holiday and an extension of the reduced rate in VAT.

 

“The Chancellor has acted at the last minute time and again during this crisis – and that dither and delay has created uncertainty for businesses, cost jobs and threatened our recovery.

 

“Britain can’t afford the Chancellor to make the same irresponsible mistake all over again. He must announce these continued tax cuts now, not wait another month and risk even more job losses.”

 

Notes to editors

  • The latest ONS ‘Business insights and impact on the UK economy’ estimates that almost half (47%) of the hospitality and accommodation workforce and 56% of the arts and culture workforce were fully or partially furloughed in the two weeks to January 10th
  • A third of hospitality and accommodation businesses (33%) report low or no confidence that their business will survive the next three months. More than a third (35%) state their businesses faces a moderate or severe risk of insolvency. https://www.ons.gov.uk/economy/economicoutputandproductivity/output/datasets/businessinsightsandimpactontheukeconomy

 

Labour’s call for business rates relief

Timing

  • Labour is calling for the 100% business rates relief for retail, hospitality and leisure businesses to be extended for at least a further 6 months.
  • Local councils will need to issue rates letters in the next month, and so to provide certainty government should confirm that rates relief will remain in place until October 1st.
  • This can then be reviewed at a later date if restrictions are in place and there is still acute pressure on demand.

Introduction of a cap

  • The Welsh Labour Government has consistently offered more generous support for businesses by adopting a more targeted and responsible approach than the Chancellor.
  • The UK government should learn from the Labour Government in Wales and make the rates relief targeted by introducing a cap for essential retail businesses above a certain size, with the cap appropriately calibrated for England.
  • The Welsh Government applied a cap so that retail, hospitality and leisure businesses with properties with a rateable value of more than £500,000 were not eligible for the relief. By making this change, the Welsh Government freed up an additional £100 million to kickstart its Economic Resilience Fund, enabling grants to 2,000 SMEs. https://gov.wales/written-statement-response-covid-19-economic-crisis
  • By contrast, in England large supermarkets and other stores that have not suffered from a fall in demand during the crisis have handed back the money they had saved from rates relief to the Exchequer, amounting to around £2 billion. https://www.theguardian.com/business/2020/dec/03/sainsburys-hands-back-440m-in-covid-business-rates-relief

Cost

  • The Office of Budget Responsibility (OBR) has put the cost of business rate relief for 2020-21 at £9.6bn (including changes to the devolved administrations’ block grants as a result of Barnett consequentials).
  • An extension of six months would therefore cost £4.8bn, although if a cap were introduced along the lines of the Welsh model, this would be lower.

Longer term

  • Labour has long called for a root and branch review of business rates to help bricks and mortar retailers compete with online tech giants. It is important that the government takes that work forward and designs a new system that is fit for purpose.

 

Labour’s call for reduced VAT

Timing

  • The government should extend the temporary 5% reduced rate of VAT for the hospitality, tourism and culture sectors until October 1st or three months after restrictions have been lifted, whichever is later.
  • As with business rates, the extension should be reviewed closer to the expiry date there is still acute pressure on demand.

Cost

  • At the 2020 Summer Statement, the Government expected the cost of the temporary VAT reduction to be £4.1 bn for the six months from 15th July 2020 to 12th January 2021. Since then, the scheme has been extended to 31st March.
  • In November, the OBR revised down the expected cost of the scheme to £2.5bn for the full nine months, reflecting consumption levels being lower as the result of another lockdown.
  • Given there has been a third lockdown since then, the cost is likely to be lower still.