Food sector reacts to 2024 Spring Budget

The UK Government has announced it will be extending the alcohol duty freeze from 1 August 2024 until 1 February 2025, resulting in 2p less duty on an average pint of beer than if the planned increase had gone ahead.

The reaction from industry was mostly positive although concerns were raised over Scotch Whisky, which is taxed at a higher rate per unit of alcohol than wine, beer and cider, alongside facing the highest spirits duty rate among G7 nations.

The chief executive of the Scotch Whisky Association (SWA) Mark Kent noted that the Chancellor’s decision to extend the freeze shows he recognises a rise would be detrimental to the sector, supply chain, consumers and wider economy.

Commenting he said: “The industry welcomes the Chancellor’s recognition of the benefits of continuing the duty freezes beyond August this year. That decision supports the Scotch Whisky industry, will incentivise investment and, as with previous cuts and freezes, boost Treasury revenue. With cost pressures hurting our bars and pubs, not to mention hard pressed consumers, the Treasury has provided some much-needed certainty and stability for the year ahead.​”

However, Kent added that the sector was still on the backfoot: “Despite this freeze, Scotch Whisky is still put at a disadvantage by the duty system, based on a fundamental misunderstanding of how people consume alcohol and modern drinking trends. ​

“With today’s freeze cider is still taxed four times less than a spirit like Scotch Whisky and responsible consumers who enjoy a Scotch are paying too much tax compared with a beer or cider. ​

Looking ahead, Kent said: “We will continue to work with the UK Government to ensure that our tax system is supporting the long-term success and prosperity of our iconic homegrown sectors such as Scotch Whisky, so that Scotch and other high-quality spirits are not put at a competitive disadvantage in the UK and other markets around the world.”​

Meanwhile, Paul Davis, CEO of Carlsberg Marston’s Brewing Company (CMBC) was very welcoming of the news: “We're pleased to see the Chancellor has listened to the beer and pub industry which has strongly made the case that any increase to duty for our sector and our customers would be hugely damaging.”

He added, that as the General Election approaches, the Government and opposition must continue to “show their support”​ in protecting the UK’s pub culture and “the crucial economic and social benefits that it brings to communities across the country”.​

Ed Baker, Kingsland Drinks’ managing director was also pleased to receive the news, but aired similar views to Davis, as he urged the Government to “tune into the reality facing all parts of the drinks industry and continue to listen”. ​

He continued: “e contiIt’s critical we all work to preserve the buoyancy of our innovative and hard-working sector that employs thousands of people nationwide - and brings in much needed revenue to the treasury.”​

And along with his suggestions to the future Government, he added that he was frustrated by the Chancellor’s decision to scrap the easement for wine duty.

“[This] will lead to costly red tape, added complexity and price uncertainty for consumers.  We urge the government to see sense and listen to the industry on this critical matter.”​

Miles Beale, chief executive of the Wine and Spirit Trade Association, agreed:

“The wine and spirit sector will be relieved that the Chancellor has spared them a further duty hike. This will help to keep price rises down for consumers for a period. Six months ago, alcohol duty was subjected to the largest increase in almost 50 years. Those tax increases fuelled inflation and had a negative impact on sales, which in turn has seen Treasury lose around £600 million in alcohol revenue. We are pleased that Government has now recognised that duty hikes are bad for businesses, bad for consumers and bad for the Exchequer.​

“However, the benefits of a freeze will be short lived for wine businesses who are fuming after confirmation that costly and fiendishly complex new taxation rules will come into force from 1 February 2025. The changes to taxing wine have been described as “un-administrable” and “sheer lunacy” by our members. Scrapping the easement for wine duty will see price increases for 75% of red wines sold in UK. The Chancellor and his Treasury colleagues should have listened to businesses and kept in place the sensible, simplified procedure for taxing wine. It’s going to be a very costly mistake.​

“The announcement that the freeze will last only until February is also a source of irritation for businesses. The recent pattern of raising alcohol duty at the Spring Budget and the Autumn statement is very unsettling for the industry. We need to go back to one announcement a year to give businesses certainty.”​

National insurance and employment

One of the key measures outlined in the Budget is the 2p cut to National Insurance in April, with the base rate dropping from 10p to 8p.

However, Andrew Barnett, client services director for Randstad Inhouse Services has cautioned it may not be as good as it sounds.

“On the one hand, hard-working employees in the food and drink manufacturing industry will see more money in their pockets every month. This will ease the pressure from the highest tax burden in decades. Cutting the National Insurance rate by two percentage points is worth almost £250 to someone on a yearly salary of £25,000, with a maximum saving of £754.  It’s better than nothing and it helps make work pay.​

"But I don’t think this was as big a deal as some people are suggesting. First, Labour is likely to win an election in October or November. So the National Insurance cut may be only valid for around nine months before it’s torn up by the next Chancellor. Nothing is certain in politics. ​

Second, the real issue is fiscal drag. The rate itself is something of a side issue for lower-paid workers; many workers are still being dragged into paying income tax, or paying it at the higher rate, due to the freeze on income tax thresholds, despite rising pay. Remember, the threshold at which people start paying National Insurance — £12,570 — is frozen until 2028. Low earners would lose out more from frozen tax thresholds than they would gain from National Insurance cuts. Even with the cut to National Insurance, by 2029 Britons will be paying almost £20 billion extra in taxes because more workers are being pushed into the higher tax brackets. That makes the whole thing somewhat underwhelming.​

"The truth is, even with the extra cash raised from abolishing the current tax system for non-doms — those who are resident in the UK but not domiciled here for tax purposes — I don't think the Government had the fiscal headroom to make the Budget a big deal. Abolishing non-doms will only raise £2.7 billion while the National Insurance cut is already worth £11bn. So the scope for any sizable tax, spending, borrowing, or regulatory changes was just too limited. Debt’s too high. Growth is too weak.” ​

Overall, he said, a difficult focus in the Budget would have been better.

"As a big, open economy, we need to make the best use of talent,” ​he contended. “Now more than ever before. We wanted to see the Chancellor reduce the costs of sponsoring work visas — while extending them from two to five years, ideally. This would allow employers to see a return on their investment. We were hoping the Chancellor might rethink the higher salary threshold for the Skilled Worker Visa, too: the threshold is set to rise from 4 April by 50 per cent — from £26,200 to £38,700. It's denying the UK of key people during a massive talent shortage. ​

"This feels particularly odd given that the Chancellor is partly paying for National Insurance tax cuts on the back of a much higher population, which — thanks to net migration — is now one million higher than predictions made in the autumn. Immigration will add about 350,000 people a year to the population over the next five years, according to upgraded forecasts from the government’s spending watchdog. This is 60,000 a year higher than the Office for Budget Responsibility estimated in its last publication in November.​

"That’s a good thing. Successful modern economies are international and we should be introducing immigration policies that support the food and beverage processing industry.​

“This Budget, therefore, represents a missed opportunity to support Britain's biggest manufacturing sector."​

Support for smaller businesses lacking

While the alcoholic drinks sector breathed a sigh of relief over the duty freezes, many – like Barnett suggested – in the food and drink space were left feeling dejected at the amount of support manufacturing SMEs would be receiving.

Johnathan Dudley, Crowe’s national head of manufacturing, explained: “There were a number of initiatives around the edges, such as the fuel duty freeze, that will benefit manufacturers and the SME sector but little direct assistance unless you are in the technology sector, which saw the majority of investment announcements.​

“But, despite the new tax reliefs and investments intended to help establish the UK as a world leader in high growth industries, including the creative sector, advanced manufacturing and life sciences, I question where this money is going to be delivered.​

“If it mainly ends up with large, listed companies and original equipment manufacturers, how is this going to benefit the supply chain and SMEs who make up the vast majority of suppliers?”​

Svott Dixon, The Flava People’s managing director, shared similar thoughts: Scott Dixon, Managing Director, The Flava People: “There’s no silver bullet when it comes to growth. But what I do know is that we, as a country and our policies, need to incentivise growth. Not just investment for big business, but incentivise productivity, incentivise people getting back to work, and to incentivise businesses to set up shop, sell, and acquire in the UK. ​

“SMEs account for 99.9% of businesses in the UK and an estimated £2.4 trillion in turnover, an astonishing stat and yet so many policies are aimed at or tailor to big business. An example of this was seen today, as the Chancellor’s focus continues in creating opportunity for companies like Nissan, Google and Microsoft. ​

“Of course, there have been positive changes today. The increase in threshold for VAT registration to £90,000 will help every SME. The freeze on fuel duty will help those who have their own vehicle fleets, and the changes to the childcare benefits and National Insurance will, we hope, encourage more people back into the workforce.  ​

“But as a country we need to go further in order to encourage entrepreneurs and business leaders so go further and invest more. Reduction in corporate tax, or capital gains tax for businesses, would have gone a long way to help SMEs, giving people the space and the incentive to invest and scale in the UK.”​

Food security

The UK economy – and much of the world – has suffered a series of shocks as a result of Covid, high energy prices, globally high inflation, and shipping delays.

Actions around food security and resilience were therefore high on the agenda for many – but, unfortunately, many were disappointed with what they got.

“This Budget failed to offer support to all those families across the UK who are still in food insecurity and are unable to afford the food they need to live healthily,”​ commented Anna Taylor, executive director of The Food Foundation.

“In January 2024, 15% of UK households experienced food insecurity, skipping meals and unable to afford groceries. That is equivalent to approximately eight million adults and three million children. There was very little in this Budget for them.” ​

She added that while taxes for vaping will have a good impact on health, it was unfortunate that food had not been considered.  

“Policymakers are failing to also act on other factors contributing to the deteriorating health of the nation’s children. If policymakers can raise tax on vapes, they should also introduce a levy for salt and sugar in food to help to tackle diet related diseases that are currently on the rise in the UK. This is especially significant in light of OBR analysis yesterday recognising the impact that long-term sickness is having on the workforce.”​

Food and Drink Federation, CEO, Karen Betts, added that while it was great to see the Chancellor’s acknowledgement on inflation’s impact through National Insurance cuts, the support for F&B manufacturing to help keep consumers fed was neglected.  

“The food and drink manufacturing sector continues to keep prices as low as possible, conscious that many families’ budgets are now close to breaking point. But the costs of recent turbulence to our sector are real, and are illustrated in stark terms by a steep fall in investment in food and drink manufacturing, which declined by a third last year compared to 2019. ​

“Our country needs a strong food and drink sector – which underpins our food security, as well as hundreds of thousands of jobs and forward-looking science and innovation. For this we need joined-up, constructive government policies to shore up our strength and to create the conditions for investment. This was in short supply in this Budget.  ​

“Instead, our sector is still held back by a muddle of poor regulation – the latest example of which is ‘Not for EU’ labelling, which will have a chilling effect on investment and exports while tying UK food labelling once again to EU rules.” ​

Mark Lumsden Taylor head of food at MHA, added: “The PM referenced food security in PMQ before the budget – backing farmers with the new £125k grants for equipment and technology. [There was] no aligned reference or focus on agrifood today other than the agrifood launch pad in mid Wales. Full expensing on leased assets and releasing more workers into the industry are the two major takeaways. ​

“Food manufacturers lease huge sways of equipment and this will be most welcome as a result, however, support should focus on strengthening local food systems and identifying matching needs for the national need. Collation of food business with an economic incentive to shift, grow and apply sustainable principles.  ​

“Yet again - opportunity missed for the national approach to sustainable food industry and a vibrant food and beverage sector.”​

The National Farmers Union (NFU) president ,Tom Bradshaw, agreed opportunities were missed.

“Where some of the headline announcements, such as an extension to agricultural property relief (APR) and a reduction of National Insurance for the self-employed, could offer some benefits to agricultural businesses, the Chancellor has missed an opportunity to deliver resilience for food producers,”​ he commented.

And although NFU were pleased that its call to extend Agricultural Property Relief (APR) to land in the Environmental Land Management (ELM) schemes, Bradshaw said the Government’s approach may cause issues.  

“It will remove a barrier of entry for a number of farm businesses and give farmers more choice about how to use their land. But the extension of this beyond ELMs may have an adverse impact on food production and farm tenancies and we will work with Treasury to assess those implications.​

“Agricultural businesses are facing a challenging economic backdrop, with input costs at persistently high levels and at least a 50% reduction in direct farm payment support due this year. The announcement on the abolition of the Furnished Housing Letting regime is a significant concern as it’s an important source of diversification for farm businesses which underpins resilience. We will be looking to engage further with Treasury on this announcement.”​