LABOUR accused the government last night of a “smash-and-grab raid” on struggling businesses over its rule that councils must hand back £1.3 billion of unspent emergency coronavirus grants.

At the start of the nationwide lockdown in March, funding was made available to local authorities to support small hospitality, leisure and retail businesses .

Of the £12.3bn allocated, £11bn has been distributed – but the fund operated on the basis that money not used by August 30 would need to be returned.

Labour said that the amount being clawed back by the Tory government includes £340 million from areas where further local restrictions have left firms fighting for survival.

Half a million hospitality jobs in areas under local restrictions could be lost before Christmas due to the effects of the partial lockdowns, the 10pm curfew for bars and restaurants and the furlough scheme ending on October 31 – to be replaced with a less comprehensive package of measures. 

Labour called again for Business Secretary Alok Sharma to turn the remaining grant funding into a hospitality and high-street fightback fund to help save jobs and businesses from going bust.

The demand coincided with Downing Street hinting that fresh restrictions could be imposed on pubs and restaurants in coronavirus hotspots, such as the north-east and north-west of England.

 A “range of options” was being considered, with preliminary data showing that there is “significant” exposure in hospitality settings, the Prime Minister’s official spokesman said.

Shadow business and consumers minister Lucy Powell said: “Businesses are in a fight for survival. The Business Secretary must stand up to the Treasury and demand they reverse this smash-and-grab raid on business support or risk the decimation of our high streets. 

“It makes zero sense to remove economic support while public health restrictions are tightening.

“It’s now clear that some places and some businesses are going to be acutely hard hit over a longer period than was first thought.

“Rather than clawing remaining funds back, the government should redeploy these funds and allow local areas to use them flexibly to support those businesses and town centres hardest hit, before we see waves of redundancies, shuttered high streets and viable businesses going bust.”