Chancellor must cut VAT on business energy bills | Glasgow Chamber of Commerce
Stuart Patrick, Glasgow Chamber of Commerce
Share the news...

Chancellor must cut VAT on business energy bills

By Stuart Patrick, Chief Executive of Glasgow Chamber of Commerce 

It has been three weeks since the lifting of our last legal coronavirus restriction on mask wearing and, with case numbers dropping, normal life is fast resuming. Turnover may be rising again for many of those businesses that struggled the most in hospitality, leisure and retail but the financial consequences will not be so quickly overcome. There is a long-term debt overhang that small business owners did not face before the crisis began. 

That was one of the topics covered at an Organisation for Economic Co-operation and Development (OECD) conference in Italy at the end of last month. It was my first opportunity since the crisis began to represent Glasgow Chamber of Commerce as a speaker at an overseas event that was not mainly online.   

The OECD gathered in northern Italy to explore the relationship between successful cities and their small business community, with a special emphasis on all that has been learned from the last two years of crisis.  The OECD is devoted to the sharing of policy ideas and practical problem solving amongst its 38 member countries.  Its members may be countries but the OECD has a long track record of helping more local regions and cities share their experiences too. 

Lucia Cusmano, the OECD’s Deputy Head of Entrepreneurship, SME’s and Tourism, captured the extraordinary scale of the burden that SMEs had to bear during the Covid-19 crisis.  Nearly three quarters of all jobs in the most affected sectors were in SMEs and globally over 70% of those SMEs saw drops in revenues of between 30 and 50%. That SMEs have small cash buffers, limited access to outside finance beyond traditional bank debt and gaps in their finance skills is a challenge faced across the world.  

It is equally true that the government response was remarkable with furlough schemes, enhanced access to credit for SMEs, grants, tax deferrals and support for digitalization - although the extent of that response varied widely.  Countries like Japan, Italy, Germany and the UK were significantly more generous than most and to be fair to the UK, its support reached one of the highest proportions of SMEs in the world. Across the OECD countries, there was a familiar gap in support for the youngest and smallest firms with start-ups almost three times less likely to be helped than those with at least five years of activity under their belts. 

There was though a heavy emphasis on debt and loan guarantees, and it is that debt that our SMEs must now repay.  The Bank of England reported last November that the share of SMEs with debt had more than doubled since the pandemic began and around 10% of SMEs have both high levels of debt to cash and high monthly debt repayments.  That there have been relatively few bankruptcies to date partly reflects the legal constraints that were placed on creditors at the height of the crisis. 

In Scotland the 50% rates relief for our hospitality, leisure and retail businesses comes to an end in June.  It does so as business costs increase rapidly, staff are hard to find and customers begin to reassess their budgets after tax increases and fast rising food, fuel and energy bills. That the Bank of England is now expecting growth next year to be -0.25% and has raised interest rates to 1% simply adds to the tension. The British Chambers of Commerce has now asked the Chancellor to consider an emergency budget to reverse the increase in National Insurance Contributions that he imposed in April and to make a temporary reduction of at least one year in VAT on business energy bills from 20% to 5%. 

Our small business owners in the hardest hit sectors were asked to accept more than their share of the crisis damage. It seems only fair that our governments think harder than ever about the policies that can now help them recover.

This article was first published in The Herald on Wednesday 11 May 2022

Our Partners

© Copyright 2017 Glasgow Chamber of Commerce. All Rights Reserved.
Glasgow Chamber of Commerce is British Chamber of Commerce Accredited.
Website by Beam Digital and Design. SEO by Boyd Digital