Food manufacturers’ mixed reaction to budget

21-Mar-2012 - Last updated on 22-Mar-2012 at 09:49 GMT

A case of mixed reaction. Food manufacturers welcomed plans to simply the carbon reduction commitment but regretted that it was not scrapped altogether

Food and drink manufacturers have given a mixed reception to Chancellor George Osborne’s budget after he introduced measures affecting energy, red tape for small businesses and introduced VAT on sports nutrition drinks and takeaway hot food.

Melanie Leech, director of the Food and Drink Federation (FDF), said: “At best, this budget is a mixed bag on energy. We had hoped for greater clarity around future energy and emissions policies to enable better business and investment planning.

“Although plans to simplify the carbon reduction commitment are welcome, it is regrettable that the Chancellor did not go further and scrap it altogether.”

Also the positive effect of not applying carbon price support charges to fuels used for combined heat and power was offset by the decision to remove the associated Climate Change Levy exemption certificates, she said.

Difficult trading

“Continuing with the doubling of the carbon price support charge itself will hit many food manufacturers hard in difficult trading conditions.”

But the FDF welcomed the proposed review of regulation of small businesses in food manufacturing. “The cumulative burden of over 160 employment regulations is having a negative impact on sustainable growth and jobs. This action could move us much closer to developing a more flexible UK labour market and accelerating growth in the food industry,” said Leech.

The Chancellor’ plans to invest in non-bank finance schemes and the new National Loan Guarantee Scheme, should help small- to medium-sized enterprises (SMEs) reach their growth potential. Leech noted: “The SMEs, which are the backbone of the food and drink industry, need working capital to grow their businesses and capitalise on opportunities in foreign markets.”

On research and development tax credits, the FDF also welcomed the change from a deduction to an above the line tax credit.

On corporation tax and capital allowances, Leech said: “We are pleased that the Chancellor has accelerated the rate at which corporation tax will be reduced. We are, however, disappointed to see no change to the main capital allowances scheme, which is a major barrier to investment in manufacturing in the UK.”

The Chancellor also introduced VAT on sports nutrition drinks and hot takeaway foods.

Osborne said: “At present, soft drinks and sports drinks are charged VAT; sports nutrition drinks are not. Hot takeaway food on high streets has been charged VAT for more than 20 years; but some new hot takeaway products in supermarkets are not.

Broad exemptions

“We're publishing our plans today to remove loopholes and anomalies, but we keep the broad exemptions on food, children's clothes, printed books and newspapers.”

Grocery think tank IGD said: “The debate on what should and shouldn’t be zero rated is raging again. It is possible, but unlikely, that some items might have VAT removed in this review. The concern for the food and drink sector is that zero ratings will be gradually chipped away year by year.”

A statement from accountant firm Grant Thornton noted:“Following a recent European Court of Justice judgement, the Treasury has come under increasing pressure as various taxpayers have submitted substantial claims for VAT overpaid on the supply of hot take-away food.

“While the Chancellor has announced a consultation, his intention is to ensure that all hot food, with the exception of freshly baked bread, is taxed at the standard rate of 20%.”

Meanwhile, the retail value sales of sports nutrition products grew by 14% to reach £200M in 2010, according to Euromonitor.

The sector is expected to achieve a compound annual growth rate of 9% to reach £312M by 2015, predicted the research group.