Bulletin: Tax pledges and higher shipping costs

General election watch

The Conservative and Labour parties have ruled out increases to VAT, income tax and National Insurance rates after the election. However, the Chancellor confirmed that income tax thresholds will “stay for their allotted time period (until 2028).”

The Prime Minister has stated that some university courses would be scrapped to help fund 100,000 apprenticeships per year.

The Shadow Chancellor, Rachel Reeves, has announced a “closer relationship with our nearest neighbours in the EU” to ease bureaucracy and red tape. This includes a new veterinary agreement. She also announced plans to reform the planning system.

IGD opinion

Income tax, national insurance and VAT will make up about 59% of total public sector income in 2024-25 (source: Budget, March 2024) so, by pledging not to increase rates for these, both parties have made the task of managing future government finances much more complex.

Any increase in public sector income would have to be sought through other taxes levied centrally (e.g. corporation tax, excise duty), local taxes (e.g. council tax) or alternative sources of income (e.g. sales of government assets).

Some additional income might also be generated by “tweaking” the tax system (e.g. adjusting income tax bands, disallowing certain write-offs) or by introducing new taxes.

Gradual economic recovery will help too, since economic growth tends to deliver higher receipts, although much of this has already been accounted for in current government plans. Further borrowing has already been ruled out by both parties.

In summary, it seems unlikely that either party will be in a position to make big increases in government spending in the aftermath of the general election.

Better availability

Our latest consumer research reveals that just 46% of respondents reported poorer availability of some food and groceries in-store or online recently. Consumers in Northern Ireland (60%) continue to report the poorest availability overall (vs 34% in Eastern England).

Shipping costs

Global freight costs (measured with the Shanghai Containerised Freight Index) jumped when the Red Sea crisis began but fell back in the spring. However, they have now risen sharply again. The only time it has been higher was during the Covid pandemic.

IGD Opinion

Global shipping costs and disruption in key shipping routes have, so far, had limited impacts on the UK food market, but they may prove to be inflationary across the economy as a whole if prices for imported non-food goods rise. A more important issue is that problems in shipping may be one aspect of a wider issue – the structure that supports international trade is under pressure, not just physically but also politically. Peace, stability, and a commitment to free trade can no longer be taken for granted.

Lower energy bills

Ofgem has announced that the energy price cap will be £1,568 per year between 1 July and 30 September 2024. This is for a typical household that uses electricity and gas and pays by Direct Debit. This compares with £1,690 in the previous quarter.

IGD Opinion

The decision to lower the energy price cap will come as welcome news to many hard-pressed households. The price cap has declined steadily compared to a high of over £4,000 in January 2023. However, this good news may be short-lived. Predictions from Cornwall Insight suggest the cap will rise again by as much as 12 per cent from 1 October.