Bulletin: The Spring Budget and the food industry

The Spring Budget

The Chancellor has announced the Spring Budget, based on the OBR report (see below).

Some of the key measures impacting consumers included:

• A 2p reduction in National Insurance contributions for both employees and the self-employed

• A new duty will be introduced for vaping products, starting in October 2026. Initial levels will be from £1 per 10ml of liquid for nicotine-free products, with levels increasing for products with nicotine

• Tobacco duty will also be increased to ensure that a price differential between vapes and tobacco remains in place

• Fuel duty will be held at the current level

• Alcohol duty will also remain frozen

The Resolution Foundation has reported that the budget will benefit those on the lowest incomes more. “Typical households are set to gain £420 a year on average, while the poorest fifth gain £840 and the richest fifth lose an average £1,500.”

The Institute for Fiscal Studies has said that with the overall tax burden increasing, “the picture on living standards remains dismal. On average, households will be worse off at the time of the next election than they were the last.”

See IGD’s full analysis here.

IGD Viewpoint:

The measures announced in the Spring Budget will help to address the recognised weaknesses of the UK economy, but the task is huge.

Rebuilding the economy and paying down the sovereign debt will be a very slow process, probably taking several Parliaments.

Impact on businesses

• The turnover threshold for VAT registration will rise from £85k per year to £90k per year from April 2024, to simplify operations for SMEs

• Employer NI payments will remain unchanged

• The Autumn Statement included a new provision for permanent “full expensing” of capital investment by businesses. The Budget suggests that this might be extended to leased as well as purchased capital equipment, although not until the fiscal situation improves.

• More detail is provided on the planned Carbon Border Adjustment Mechanism. This will be introduced from 1 January 2027 and will apply to goods imported in the aluminium, cement, ceramics, fertiliser, glass, hydrogen and iron & steel sectors. The details will be subject to public consultation later in 2024.

IGD Viewpoint:

As in previous statements, the government seems to be preoccupied with other areas of the economy. The food and drink industry receives limited attention. Other than measures to support BWS and ongoing support for hospitality, there are only two specific items.

Economic outlook

The Office for Budget Responsibility has issued its latest Economic and Fiscal Outlook report. Some of the key findings include:

• Real GDP will return to growth in 2024 and real GDP per-capita will return to growth in 2025.

• Inflation has fallen slightly faster than previously expected – the CPI now stands at 4.0% year on year. Inflation is expected to fall to around the 2.0% target rate by Q2 2024, then level off.

• Food price inflation is expected to decline, reaching about 2.0% by the end of 2024, then level off, hovering at 2-3% through the rest of the forecast. These views are in line with IGD’s forecasts from January 2024.

• Labour force participation has been revised downwards. Poor health is still a key reason for non-participation in the workforce.

• Average earnings growth will fall from a record 7.0% in 2023 to 3.6% in 2024. This will still exceed anticipated inflation, so real earnings growth will continue.

The outlook for real household disposable incomes has improved compared to the previous forecast in November. This is mainly driven by lower inflation and tax changes rather than better wages and benefits.

IGD Viewpoint:

News that household finances may turn out better than previously expected is clearly good news for any consumer-facing business, including food and drink.

However, households remain under pressure and have lost a lot of ground, financially, over recent years.