Food sector may get £7bn boost from VAT cut

Two thirds of consumers would increase spending if the rate of VAT was cut in the Autumn Statement on Wednesday (November 30), according to research commissioned by the commercial insurer.

More than a third (36%) of people were likely to increase some spending on grocery shopping, for example at the supermarket, and 30% would spend more on eating out.

Cutting VAT by 5% could provide the average UK adult with extra spending power of £547 a year, said NFU Mutual. “More than two-thirds (67%) of consumers would increase some spend as a result of VAT savings and 36% of these increasing spending on food and drink,” it calculated.

‘Cash injection of up to £7bn’

“British food and drink manufacturers and retailers could look forward to a potential cash injection of up to £7bn.”

NFU Mutual’s food and drink sector specialist Paul Shattock said signs of consumer enthusiasm for increased spending on food and drink could indicate desire for high quality or luxury items.

“With consumer spending coming under some pressure from rising inflation, the chancellor’s decision to ‘reset’ fiscal policy could possibly include the option of cutting VAT by as much as 5% to support growth,” he said.

Even a lower, more likely, cut of 1% in the VAT rate could lead £1.4bn to be ploughed into British food and drink sector businesses.

But there was no guarantee that the spending power of consumers would be ploughed back into UK businesses, he warned.

Ploughed back into UK business

“Our research also showed increased online spending in 24% of people, which could include spending on imported goods from around the world. While the overall Autumn Statement is expected to support growth, any boosts such as a cut in VAT could also be offset by increases in other taxes, meaning that savings aren’t necessarily felt.”

Reductions on VAT could also be offset by increases in other tax, such as on the price of fuel or duty tax, meaning that savings aren’t felt.

The age group 18–24 year olds were the most likely to spend in general (78%), with 25% stating that the money would most likely be spent on food and drink shopping.

Meanwhile, the prime minister today revealed a new £2bn government investment plan for research and development – designed to “make Britain the go-to place for innovators and investors” – and a new industrial strategy.

In a speech to the Confederation of British Industry (CBI), May promised the additional £2bn government funding for research and development by the end of this Parliament, designed to ensure Britain remained at the cutting edge of scientific and technological discovery.

The new Industrial Strategy Challenge Fund was designed to back priority technologies – such as robotics and biotechnology.

The prime minister said: “It’s about government stepping up, not stepping back.”

The chancellor will reveal his Autumn Statement – setting out his plans for managing he economy – at 12.30pm on Wednesday, November 23 in the House of Commons.

Meanwhile, ahead of the Autumn Statement, the Campaign for Real Ale called for a freeze in beer duty.

The Freight Transport Association urged the chancellor to prioritise Britain’s ability to move goods around the world without additional cost or red tape. See details in the box below.