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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
Assessing the benefits of decreases in corporation tax rates
Answer
The reduction in corporation tax rates from 19% in March 2020 could lead to increased profits for UK restaurant chains, including Jamie Oliver’s establishments. This could allow restaurants to retain more profits, which can be vital for survival in times of financial instability. Higher retained profits might enable business owners to invest in their operations, enhancing staff training and maintaining quality service to regain customer trust.
Additionally, lower taxes could free up resources to counteract losses incurred due to the pandemic's impact on trading conditions.
Step 2
Potential counter-balance effects
Answer
It's crucial to note that if restaurant chains are not profitable, then merely lowering taxes will not yield significant benefits. Many establishments, including Jamie Oliver’s, have already faced operational shutdowns. Thus, without a customer base, the financial relief from tax cuts may not effectively stimulate growth or recovery.
Furthermore, the hospitality industry’s reliance on customer footfall means that any tax benefits would be moot unless demand rebounds alongside such tax changes.
Step 3
Possible government trends and their implications
Answer
The UK Government seems inclined to support the hospitality sector to alleviate unemployment and related social issues. While tax cuts could encourage investment in the restaurant industry, it is contingent upon the businesses being operational and generating revenue.
Investing in marketing and quality assurance could become necessary if the economic climate remains tough. However, the level of investment in the hospitality sector may be less likely to escalate in light of continuing uncertainties surrounding consumer behavior and economic recovery.