Tax Rises Deferred In Budget For New Covid Support

Government sources have confirmed Rishi Sunak’s March budget will feature a new Covid rescue support package involving the deferral of plans for significant tax increases in favour of a cautious approach to reopening the economy.

The prime minister indicated on Wednesday that the Government would adopt a measured plan of action towards reopening hospitality, which could mean pubs and restaurants being unable to serve customers without restrictions on groups until June or July. Even so, venues are likely to need to continue using social distancing measures.

The main thrust of the budget will instead feature proposals to shore up support for closed sectors and protect jobs. As the vaccination programme proceeds apace, Sunak had hoped to focus on rebuilding the economy for the long run, helping businesses to expand and employ more workers.

But No 10 and the Treasury agree that easing lockdown restrictions must be irreversible, which Johnson has emphasised time and again means taking baby steps towards reopening, with schools being first in line. Treasury modelling experts have been assisting Cabinet Office officials with the analysis of the potential impact of various reopening plans.

Allies of Sunak, who was among those keenest to push for key sectors to be reopened last year, say he now believes the best course of action for the economy is the avoidance of a stop-start. Accordingly, a Whitehall source said that sustainability would make the greatest impact on the economy.

Sources say the budget is likely to restate Sunak’s autumn ‘plan for jobs’, extending major support schemes such as furlough and the business interruption loans, which are planned to close at the end of March.

Sunak’s priority ‘to protect jobs’

With the Treasury now prepared to allow more time for international efforts to agree how to tax tech giants more fairly, proposals for an online sales tax to penalise firms that have prospered during the pandemic are unlikely to feature.

Donald Trump’s White House had previously blocked progress by the Paris-based Organisation for Economic Co-operation and Development (OECD) on the development of a common approach. But a government source said the budget would focus on protecting jobs, not taxing the tech giants.

Last week, when sombre GDP figures were announced, Sunak stated that his priority throughout this crisis had always been to protect people’s jobs ‘first and foremost’ and provide support to families and businesses in what has been a hugely difficult time. Although he added that this ‘very difficult time’ is not going to end anytime soon.

By contrast, he also pointed to the need to tackle the deficit, warning that he wanted to ensure that if and when the next shock hits the country, he can respond in a way that will require public finances to be restored to health.

Shadow chancellor Anneliese Dodds has been urging Sunak to announce early the extension of the business support schemes in order to avoid a ‘cliff-edge’ for firms next month.

Support packages to be needed ‘for some time’

The PM angered the hospitality industry last week by suggesting that venues were the last to open up last year because of the extra risk of transmission from the sector. Exasperated pub bosses criticised Johnson’s description of the industry as unsafe.

The row risks deteriorating relations between Downing Street and the pubs sector days after the industry broke off weekly talks with the Government, with the Young’s boss Patrick Dardis citing a ‘lack of interest and respect’.

Chris Jowsey, CEO of the 1,000-strong pub chain Admiral Taverns, commented that if Johnson is ‘data-driven’, as he claims, he would know there is no increased risk of transmission from hospitality, and all the data from last summer proved that.

Senior sources have chosen May as the most likely reopening date for hospitality, although the prospect of pubs being allowed to serve customers outdoors from April has been discussed but not decided on.

Once hospitality is allowed to reopen, there will still be significant restrictions on who can meet, which means support packages for the industry are likely to be needed for some time.

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