Chancellor Rishi Sunak is to offer 700,000 shops, pubs, hotels, restaurants and other businesses, grants of up to £18,000 each as part of a £5bn rescue scheme to prevent mass bankruptcies.
As companies struggle to withstand the latest Covid19 lockdown in a strong enough position to reopen, the plan to be announced in Wednesday’s budget comes as Sunak faces rising pressure to reject or postpone significant corporation tax increases.
Although there are questions as to whether the grants are extensions to schemes due to finish at the end of March or are new ramped-up plans, the move reflects growing alarm in government that many small firms on the high streets and elsewhere are now on the brink of collapse.
Around 400 leaders of SMEs from the ‘Fighting Back for Business‘ campaign wrote to the chancellor last week calling for debts amassed through government-backed loans to be written off entirely to prevent tens of thousands of companies from falling into insolvency.
According to the budget plans, non-essential retail businesses will be eligible for direct cash grants of up to £6,000 per site to help them restart trading when allowed to do so.
Hospitality, leisure, accommodation, personal care and gym businesses in England, which will remain closed for longer under the Government’s roadmap out of lockdown, will be entitled to apply for grants of £18,000 per site.
Robust lobbying by Tory MPs
Sunak said on Friday the multibillion pound package of support has been created to support businesses that have been knocked back by the pandemic. Now there is light at the end of the tunnel, this £5bn of extra cash grants will enable high street shops to reopen their doors with confidence.
Local authorities in England will also receive an extra £425m to benefit businesses ineligible for the restart grants but experiencing a detrimental impact due to public health restrictions. The administrations in Scotland, Wales and Northern Ireland will receive £794m of extra funding to give to firms, as business grants are devolved matters.
Sunak’s budget is expected to see the total cost of Covid-related business, employment and other support strategies top £300bn.
Despite rumours circulating that the chancellor has been toying with the possibility of a sharp increase in corporation tax to offset money spent during the pandemic, there has been strong lobbying by Tory MPs, especially in red wall seats, to avoid inflicting any more pain on businesses.
Sunak is also expected to announce plans to support house purchase, including a brief extension to the stamp duty holiday on sales, as well as help for would-be home buyers.
Businesses welcome cash injection
Last week, business leaders said the £5bn in grants to help small firms would be crucial in helping those that have suffered as a result of factors beyond their control. Kate Nicholls, CEO of UKHospitality, believes as the costs of closure are still mounting up, the money will go a long way to meeting these expenses and preparing firms for a successful restart.
Craig Beaumont, Chief of External Affairs at the Federation of Small Businesses (FSB), welcomes the ‘significant cash injection’, which will ‘help thousands of businesses survive through these final restrictions, and then help drive the vaccine-enabled recovery’.
As Sunak wrestles to find ways to rebuild funds in the exchequer, the independent Resolution Foundation (RF) has suggested freezing tax thresholds would raise £6bn a year by 2024-25, a substantial contribution that will be required for the post-crisis financial reconstruction.
The organisation added that a staggered rise in corporation tax, from 19pc to 22pc by the end of the parliament, would raise £10bn a year by 2024-25.
Even delaying the start of the freeze until next year would raise similar amounts, as low inflation means tax thresholds are not due to rise by much this year in any case.