Labour is calling for immediate action from chancellor Rishi Sunak to fend off a £50bn “bombshell” facing UK businesses as coronavirus support packages end in April.
Shadow business minister Lucy Powell said businesses cannot afford for Mr Sunak to wait until his 3 March Budget to save them from the looming financial hit.
She warned that the planned end of the furlough scheme, along with rates holidays, tax deferrals, VAT cuts and other support packages will “blow a massive hole in the recovery” and cost thousands of jobs.
With many businesses now expecting to be closed through the spring and beyond, she called for the immediate announcement of an extension to the furlough scheme, which pays up to 80 per cent of the wages of workers unable to do their jobs, which is currently due to run to the end of April.
She also said the chancellor should extend for at least six months the 100 per cent business rates relief offered to retail, hospitality and leisure businesses and continue the temporary 5 per cent reduced rate of VAT for hospitality, tourism and culture.
Ms Powell 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.”
According to government data, around 600,000 firms – a quarter of the UK’s businesses – between them deferred VAT payments totalling £34bn between March and June 2020, which will have to be repaid within the 12 months from the end of March.
Labour said that high street firms will also face paying £9.6bn in business rates in 2021-22 when the current holiday ends in April.
Companies will also lose £3.3bn a month in furlough payments if the job retention scheme is wound down as planned at the end of April.
Meanwhile, companies which have taken out bounce back loans and coronavirus business loans (CIBLs) worth a total of £62bn will have to start paying interest calculated at an estimated £275m after the government’s offer to cover interest for the first 12 months expires.
Labour said that moving back from the emergency 5 per cent rate of VAT to the standard 20 per cent at the end of March will cost businesses in hospitality, accommodation and culture £4.1bn.
And Ms Powell said businesses will also have to account for a £9bn hole in their finances after Mr Sunak withdrew the promise of a £1,000 job retention bonus when he extended furlough at the end of last year.
Boris Johnson has said he aims to reopen English schools to all pupils on 8 March, and classrooms are set to return on 22 February in Scotland and Wales.
But there is no date yet for the relaxation of other lockdown measures, such as the closure of non-essential shops, pubs and restaurants. Mr Johnson has promised a “roadmap” towards normal life in the week of 22 February, leaving only days for Mr Sunak to adjust his Budget to take account of new plans.
A HM Treasury spokesperson said: “We’ve invested more than £280bn throughout the pandemic to protect millions of jobs and businesses – and extended our self-employed and furlough schemes through to April so that people have certainty that help is in place.
“At the upcoming Budget we’ll outline the next stages of our Plan for Jobs to support businesses and families across the UK. That has been our priority throughout the past year and it will be the priority for the year to come.”