Rishi keeps spending to rescue UK from Omicron: But Chancellor is warned that his £1bn business bailout ‘does not go far enough’
The £1billion bailout for business announced yesterday was just the latest package of support in almost two years of unprecedented government spending.
The measures from Chancellor Rishi Sunak, which include sick pay cover for small business staff and a fresh round of grants for struggling firms, were largely welcomed by the beleaguered hospitality sector, though many warn they do not go far enough.
Restaurants, pubs and clubs were crying out for help as Omicron ravaged their industry and Christmas bookings.
Support: New measures from Chancellor Rishi Sunak (pictured) include sick pay cover for small business staff and a fresh round of grants for struggling firms
Many of the biggest support schemes, such as furlough payments and the taxpayer-backed Bounce Back Loans, were withdrawn as Britain broke free of its pandemic shackles over the summer.
But plenty of help remained. Even before yesterday, the Treasury was supporting companies to the tune of hundreds of millions of pounds a month.
Measures such as business rates relief, reduced VAT and a ‘super-deduction’ tax break to encourage investment, were already weighing on the public purse.
The latest data yesterday showed nowhere near enough tax revenue is flowing into the Treasury to cover outgoings.
November’s deficit – the gap between how much money the Government spent and the money coming in – hit £17.4billion.
Julian Jessop, economics fellow at the Institute of Economic Affairs, warned against reining in spending too tightly.
He said: ‘Borrowing costs remain near historic lows. A stronger economy is still the best way to reduce the burden of debt over time.’
One of the more expensive schemes still in operation is business rates relief, set to cost almost £18billion in total.
In the 2020-21 tax year, Sunak waived all business rates for retail, hospitality and leisure firms.
Their bill for the current financial year was cut by 75 per cent, and in just those two years the emergency measures cost the Treasury £16billion.
The rates were already controversial – the tax is levied on commercial properties, meaning bricks-and-mortar retailers pay more than their online rivals.
Next financial year, as the Government reforms the entire system, business rates bills will be reduced again by 50 per cent. This will cause another £1.7billion to slip out of the Treasury’s grasp.
Some groups were still disappointed that the bill wasn’t written down to zero again. Richard Burge, chief executive of the London Chamber of Commerce and Industry, said: ‘We urge the Government once again to reinstate 100 per cent business rates relief for retail and hospitality.’
Companies were also dissatisfied Sunak made no announcements on VAT. In normal times, VAT is 20 per cent. That was slashed to 5 per cent in 2020, to lure tourists back to hotels and attractions.
From October, VAT was bumped up to 12.5 per cent, a rate set to end in March. But Russell Nathan, senior partner at accountancy firm HW Fisher, said: ‘I would urge the Government to consider extending the VAT cut beyond 2022 to give all the pubs, hotels, and restaurants a better fighting chance in the year ahead.’
Nathan, who advises restaurants, hotels, private members’ clubs and luxury brands in London, said Sunak’s proposals would not prevent the loss of ‘some of the best of British hospitality’.
Another measure – the ‘super-deduction’ – lets companies claim 25p off their tax bill for every £1 they invest. But over the two years it is running, Treasury coffers will have missed out on £20billion.
All of these relief measures should be helping canny businesses stay on their feet, albeit at a cost to the public.
And there are more protections which have a less direct bearing on the Treasury’s income – a ban on landlords being allowed to kick out business tenants until March 2022, and extensions to the repayment schedules of Government-backed Covid loans.
Firms face a tough few months – but there are still measures to see them through another choppy winter.