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Using the data in Extracts B and C, assess the likely effects of decreases in UK corporation tax rates in March 2020 on UK restaurant chains, such as Jamie Oliver's - Edexcel - A-Level Business - Question 1 - 2022 - Paper 3
Question 1
Using the data in Extracts B and C, assess the likely effects of decreases in UK corporation tax rates in March 2020 on UK restaurant chains, such as Jamie Oliver's.... show full transcript
Worked Solution & Example Answer:Using the data in Extracts B and C, assess the likely effects of decreases in UK corporation tax rates in March 2020 on UK restaurant chains, such as Jamie Oliver's - Edexcel - A-Level Business - Question 1 - 2022 - Paper 3
Step 1
Effects of decreases in corporation tax rates
Answer
If corporation tax rates are decreased, particularly from the previous rate of 19% in 2019, restaurants like Jamie Oliver's could potentially retain more profits. This would enable them to invest in their operations, helping to sustain staff, improve service quality, and possibly reopen locations that were shut down due to the pandemic.
By retaining more profits, these businesses could also afford to cover their operational costs better, leading to improved employee welfare and service standards. Additionally, lower tax rates allow for reinvestment in business strategies to attract customers back post-pandemic.
Step 2
Potential counter-balance
Answer
However, it is essential to note that merely reducing corporation tax will not necessarily translate into benefits for businesses struggling to make a profit. If a restaurant, like those in Jamie Oliver's chain, is already facing closures and diminished customer bases, the impact of reduced tax may be minimal. The primary concern for their survival is customer footfall. The revenue must be sufficient to cover operational costs. Therefore, if patronage does not increase, the decreased tax rates will have little effect on the overall financial health of these businesses.
Step 3
Possible judgement on government support
Answer
Additionally, the UK Government’s trend to support the hospitality sector through grants and tax cuts indicates an acknowledgment of the industry's struggles. If businesses have already closed, the likelihood of boosting investment in the hospitality sector may reduce, as confidence in the consumers returning remains uncertain. A significant economic stimulus is required to ensure that establishments like Jamie Oliver's can bounce back effectively after facing the challenges posed by the pandemic.