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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
Benefits of decreases in corporation tax rates
Answer
If corporation tax rates are reduced from 19% (the rate in 2019), this could allow restaurant chains like Jamie Oliver’s to retain more profits. This retention of profits could enable businesses to invest more in their operations, potentially offering better staff training and improving their service standards.
Additionally, having extra revenue could help restaurants mitigate the financial impacts caused by the pandemic. For instance, it could allow them to cover higher costs for quality ingredients, which could enhance customer satisfaction and loyalty.
Step 2
Potential counter-balance
Answer
However, a critical point to consider is that if these businesses are not making a profit, a decrease in corporation tax will have limited positive effects. Many restaurants, including those similar to Jamie Oliver’s, struggled significantly during the pandemic. If they have already closed down due to low customer numbers, then tax reductions may not facilitate their recovery, as the essential factor is generating revenue.
Step 3
Possible judgement
Answer
The UK government's commitment to support the hospitality sector is evident, and lower tax rates could theoretically boost investment in this area. However, for the investment to translate into actual improvements, businesses must first stabilize and attract customers. Thus, while the reduction in corporation tax may provide some financial relief, its effectiveness largely depends on the overall economic environment and consumer demand, which are crucial for sustainable recovery.