British companies have been giving their initial reactions to the chancellor’s budget, which have a number of implications for the food and beverage industry. The headline-grabbing story was the introduction of a sugar levy, which will impose a charge of £0.018 per 100ml of product containing above 5g of sugar or £0.024 per 100ml of product containing above 8g of sugar. But there were also changes to corporation tax and the duty on beer, wine and spirits was frozen.
FoodBev has chosen some of the industry’s best insights into the key talking points of the budget 2016.
Sugar tax
Ian Wright Food & Drink Federation
“We are extremely disappointed by today’s announcement of a new tax on some of the UK’s most successful and innovative companies. For nearly a year we have waited for an holistic strategy to tackle obesity. What we’ve got today instead is a piece of political theatre.
“The imposition of this tax will, sadly, result in less innovation and product reformulation, and for some manufacturers is certain to cost jobs. Nor will it make a difference to obesity. Many of those singled out today by the chancellor have been at the forefront of efforts to provide consumers with healthy choices. The industry will now ask whether such efforts are still affordable.”
“The sugar tax has been in the works for some time now, so it shouldn’t come as complete surprise to soft drink manufacturers. Over the next two years we expect to see a surge in investment in innovation as soft drink manufacturers look to achieve the same level of taste whilst reducing the sugar content of their drinks below the taxable threshold.”
Justin Arnesen, Ayming
“The sugar tax is great news in the fight against obesity, but unless the prices of the products themselves rise as a result it may not have the desired effect. The power of British retailers will no doubt ensure that suppliers are reluctant to increase their prices for fear of delisting, so it seems likely that the manufacturers will be the main casualties.”
Maurice Newton, CBL Drinks
”The debate continues with the news of a sugar tax in today’s budget…
“George Osborne is right to prioritise the long-term health of our children; however, in isolation, this levy is not the entire solution. The industry needs to encourage greater nutritional awareness and education about healthy and balanced diets.”
Steve Kearns Cawston Press
“Sugared drinks are the largest source of sugar in the diets of children in the UK and we know that current high sugar intakes are contributing to obesity and tooth decay. Our research has revealed that, when fewer than 5% of calories in the diet come from free sugars, there are much lower levels of tooth decay.
“The announcement by George Osborne to introduce a tax on sugared soft drinks is a welcome step towards tackling childhood obesity and lowering the amount of sugar consumed in drinks. Evidence from other countries where a tax on sugared drinks has been introduced indicates taxing is effective in reducing the amount purchased and it is now up to the rest of the world to follow the example being set by the UK and others to tackle obesity on a global scale.”
Prof Paula Moynihan, Newcastle University
Richard Hall Zenith International
“Although the soft drinks tax’s target is current obesity, it won’t come into effect until April 2018. It’s not part of a long-awaited childhood obesity strategy, because the government postponed that just three weeks ago.
“I very much doubt it will raise £520 million. I also doubt the tax will make a material contribution to reducing obesity. My great worry is that the semblance of action will distract attention from developing a proper plan for addressing obesity, which does need tackling – but with all-round action.”
Yesterday’s news led to a sharp drop in the share price of companies such as AG Barr, Coca-Cola HBC and Tate & Lyle – but the prospects of reformulation spell good news for the stock market in the long-term, according to Duff & Phelps’ managing director in the valuations practice.
“The introduction of the sugar tax is very likely to have implications for more businesses than just listed soft drinks producers such as AG Barr or Britvic in the long term. The valuations of suppliers to the industry such as sugar manufacturers have already been affected by the move toward more healthy eating, and the sugar tax is expected to accelerate the trend, as it provides a reason for soft drinks producers to lower the sugar content of their drinks and thus buy less sugar from their suppliers.
“On the other hand, companies with a significant presence in sugar subsidies like Tate & Lyle, which was initially hit by the announcement, could see their prices increase in the long-term if more soft drinks manufacturers switch to sugar subsidies.”
Mike Weaver, Duff & Phelps
Alcohol duty
David Frost Scotch Whisky Association
“We welcome the freeze in excise duty on spirits. We hope that this will sustain continued growth in the UK market for Scotch Whisky and thus help improve the public finances.
But tax is still 76% of the price of an average bottle of Scotch and the majority of the British public think that is unfairly high. We will continue to call for fairer taxation of Scotch, a vital UK industry, and we urge duty reductions in future years.”
It’s very good news for the UK’s independent craft brewers that the chancellor has frozen beer duty. The end of the duty escalator and three cuts in beer duty since 2013 have helped to revitalise British beer and around 300 new craft breweries have opened since 2013 bringing thousands of new local beers for consumers to enjoy. Our members are typically confident about the future of their businesses and this move will help reinforce that and encourage greater investment.”
Mike Benner, Society of Independent Brewers (SIBA)
“This budget statement feels like lots of froth and not enough body. I’m not sure there’s much in this for the team at Bath Ales or our customers.
“Beer duty hasn’t increased but it’s not enough. We’re still not on a level playing field with cider on duty. The freeze is not enough to benefit consumers and I think the chancellor should be doing more to champion the British brewing industry.
“Freezes on fuel duty and cuts to corporation tax are small steps to help businesses like ours. Though bigger steps are needed to support businesses that have lots of employees in very different roles.”
Roger Jones Bath Ales
“The announcements from the chancellor to freeze beer duty and make meaningful changes to the business rates system are very welcome. The cost burden on the thousands of small, independently operated pubs across the UK has been too high for too long. Our industry creates jobs and is vital to local economies as well as to the communities which they serve. Whilst these changes are welcome as a move in the right direction, we would urge the chancellor to continue to ensure that the tax burden on pubs is further reduced in order to create a level playing field and make sure that our Great British pubs can compete and prosper.”
Kevin Georgel, Admiral Taverns
Living wage
Paul Connelly Beacon
“This is a disappointing and potentially damaging budget for the hospitality industry. The chancellor doesn’t seem to hear what hospitality bodies and businesses are telling him, the concerns we raise and solutions we provide. My fear now is that 2016 could be the year that the industry is forced to change for good but not for the better.
“We are already seeing price increases from suppliers in order to offset the impact of the National Living Wage coming into effect next month, as well as the anticipated increase to £9 per hour by 2020. Add to this the uncertainty around the Drink Drive Legislation that could be introduced in England in the near future, as well as the current rate of tourism VAT in Britain, and the scale of the challenges the industry is facing becomes clear.
“We are certain that these government changes affect our industry disproportionately, but this isn’t reflected in the amount of government support the industry receives. We welcome the business tax relief, which will alleviate some pressure, but it is not enough. Similarly, a token freeze in duty is simply not sufficient to support the hospitality industry.”
Fuel duty
And, with the last word, NFU Mutual’s manufacturing insurance specialist Darren Seward, who preferred to concentrate on the benefits of a freeze on fuel duty.
“Food and drink manufacturers who are already struggling to compete in challenging and increasingly competitive markets will be relieved that the chancellor has not increased fuel duty as fleet and transportation costs remain a huge overhead.”
Darren Seward, National Farmers’ Union (NFU)
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