Food and drink industry reacts to Spring Budget

Yesterday (March 15) saw Councillor of the Exchequer Jeremy Hunt announce the budget, which promised – among other things – a £27bn tax cut for business through a ‘radical full expensing’ policy, measures to ease the cost of living burden and reforms to get people back into work.

Food and Drink Federation chief executive Karen Betts said the announcement of full expensing was a welcome boost to businesses investing in technology across the sector and would support increased productivity.

“We also welcome the decision to extend the current climate change agreements for two years,”​ she continued. “This provides certainty for businesses as they invest in energy efficiencies, and time to design a smart replacement scheme.​

“Likewise, the measures announced to encourage people back into work are timely, but with vacancies in food and drink manufacturing double the national average, our sector needs more help – for example hands-on apprenticeship support for SMEs – to ensure labour shortages aren’t a drag on growth nor a risk to the resilience of the UK’s food and drink supply chain.”​

Reforms needed for Apprenticeship Levy

Betts also said it was disappointing that the Chancellor passed up the opportunity to reform the Apprenticeship Levy, which would have enabled companies in the food and drink sector to use levy funds in more flexible ways to help “ensure they have the right workforce they need to succeed”.​

“It’s also vital the Chancellor ensures our sector’s future resilience is supported through good regulation, which creates investment opportunities and jobs,”​ she added. “Here we need government to match our industry’s ambition to reform recycling for everyday plastics and packaging. ​

“Current government plans for the introduction of Extended Producer Responsibility and a Deposit Return Scheme fall a long way short of international standards, and do not dovetail with the troubled Plastics Packaging Tax. If they are not careful, government action is about to force avoidable additional costs onto consumers right at the time we’re all working to bring down inflation.”​

Provision Trade Federation director general Rod Addy said details of the Spring Budget were overshadowed by Office of Budget Responsibility (OBR) predictions of a steep fall in inflation across the rest of this year.

“This is good news for the food industry and the wider economy​,” said Addy. “News that the UK could avoid a technical recession will also bolster business certainty and encourage investment, as will the regional investment announced across the UK.​

Labour crisis a mountain to climb

“The Government still has a mountain to climb to address the labour crisis. On the surface, childcare support measures and the new Returnership Apprenticeship scheme for the over 50s make it easier for more parents and older recruits to fill labour gaps in the food industry. ​

“The £400m plan to increase the availability of mental health and musculoskeletal resources and greater aid for disabled jobseekers will also assist employers to find and retain workers. However, these measures barely scratch the surface of a huge issue and while this challenge remains, productivity will be held back.”​

Addy welcomed support for consumers on energy bills for the next three months but drew attention to OBR predictions that real household disposable income will fall by 6% over the next two financial years – the largest two-year fall in living standards since records began in the 1950s.

“It’s also worth remembering that economic benefits will take a while to filter through to consumers and producers,”​ Addy continued. “While wholesale energy costs are in decline, they are still at record high levels. And while food inflation may have peaked, it will likely prove slower to reverse than general inflation, particularly while supply chain disruption remains as a result of war in Europe and post-Brexit barriers to trade.​

“Overall, these announcements are more upbeat than expected in some ways, but, set as they are in the context of global economic and supply side crises, do not signal the UK food sector is out of the woods yet.”​

‘Limit regulatory burdens’

British Retail Consortium chief executive Helen Dickinson welcomed measures to support households with the cost of living but urged the Government to do more to limit oncoming regulatory burdens or risk a crash in business investment and further inflationary pressures.

“The Chancellor understands the need to train people to re-enter the workforce, yet he missed a key opportunity to fix the issues with the Apprenticeship Levy system that would support this very goal,”​ she added. “Over the last three years, businesses have lost £3.5bn in unused Levy funds. ​

“To break this cycle of wasted investment, it is vital that Government allows businesses to use their hard-earned Levy funds for a wider array of skills courses. Without spending a penny, the Chancellor would increase investment in our workforce, helping businesses to prepare the UK economy for the skills it needs.”​

Dickinson acknowledged that the Autumn budget brought in some welcome changes to the Business Rates system, she called for further reform.

“The broken Business Rates system remains a drag on business investment, jobs, and economic growth,”​ Dickinson continued. “Rates must be paid in full whether firms are making a profit or a loss.​

‘Final nail in the coffin’

“This makes Business Rates the final nail in the coffin for many struggling stores – shutting shops, costing jobs and preventing new stores openings. The Chancellor should make good on the Conservative 2019 pledge to reform Rates and lay out a clear roadmap for future reforms.”​

Meanwhile, The Scotch Whisky Association (SWA) slammed the decision by the Chancellor to raise duty on Scotch Whisky by 10.1% – one of the largest tax hikes in recent decades – breaking the UK government’s pledge to review alcohol duty to ‘ensure our tax system is supporting Scottish whisky’.

The SWA previously called on the Government to continue the freeze announced back in December. It claimed this rise would fuel inflation, further dent consumer confidence and add pressure to the hospitality industry.

Chief executive Mark Kent said: “This is an historic blow to the Scotch Whisky industry. The largest tax increase for decades means that 75% of the average priced bottle of Scotch Whisky will be collected in tax, reducing already tight margins for an industry which employs tens of thousands of people and invests hundreds of millions annually across the UK.​  

“We have been clear with the UK Government that increasing duty would be the wrong decision at the wrong time, so it is deeply disappointing that one of Scotland’s largest and longest-standing industries has been treated in this way. ​

Tax hike

“The industry continues to grapple with significant domestic headwinds, including the soaring cost of energy, intense pressure on the hospitality sector and increasing regulatory burdens like the Deposit Return Scheme. This tax hike just adds to the pressures on the sector and breaks the UK government’s commitment to support Scotch.”​

Kent called on all MPs to reject the ‘unjustifiable’ tax hike in the Finance Bill and demonstrate their support for Scotch whisky.

Alongside the Spring Budget, the Government also announced it was launching a consultation into an extension to the current Climate Change Agreement scheme. This would result in the another certification period ending on 31 March 2027, providing further reduction in the Climate Change Levy for participants.

Cold Chain federation chief executive Shane Brennan said the continuation of a successful Climate Change Agreement scheme was is vital in supporting the investment needed to maintain momentum towards a net zero cold chain, despite the challenging economic environment.

“We have been calling for the Climate Change Agreement scheme to be extended past 2025 and the consultation launched today is a really positive step towards that,”​ he added.

“We will be studying the details of the proposed extension and engaging with Cold Chain Federation members to help ensure the scheme continues to provide strong incentives and supports investment in energy efficiency for cold storage facilities.”​