Nick Farrant is Head of PKF Francis Clark’s food and drink sector group, working with a number of sector specialists across the services and the region.
Increased input costs, squeezed profit margins and uncertainty over Brexit have all been identified by the businesses we speak to and, more broadly, by the Food and Drink Federation as key limiting factors felt across the UK. However businesses within the sector, and in particular many of the excellent South West brands, also have opportunities ahead –and the Chancellor has it in his power to provide further encouragement.
The Chancellor’s Budget, to be announced on 22 November, is anticipated by some commentators in the media to see a move, or at least a shuffle, away from austerity, to give further encouragement to borrowing and investment, and to offer some concessions to consumers (particularly those in public sector jobs) – all in an effort to shore up public opinion of the Conservative Government whilst still having deficit reduction as a core policy…..This complex backdrop makes this budget one of the most highly anticipated for some time.
The hope, from a food and drink business perspective, is that the Government retains its broadly pro-business stance, including protection or even enhancement of Corporation Tax, R&D credits and capital allowances and that restraint is shown with business rate increases planned for April 2018, especially in the face of widespread increases in commodity and production costs. This would nicely lend itself to consumer confidence levels growing and their spending habits with them, and reassurance being given to entrepreneurs and family investors that they can protect the value they have created upon business succession, thereby reducing the risk of inertia and business stagnation.
This is, of course, all very high level;
Looking at some sub sectors within the food and drink sector, it is clear that the detailed priorities vary from business to business.
For example the pub, brewery and cider sectors are perhaps hardest hit, despite transitional relief, by business rate increases and would want some dispensation. I am sure they would desperately love to see the Chancellor reverse the pegging of Beer Duty to RPI (A policy implemented as part of the Spring Budget last March) and freeze Beer Duty at least for the duration of this Parliament, whilst there has already been lobbying for a cider duty cut of 2p per pint.
For manufacturers in general, we are keen to see measures announced to drive food and drink exports, on the back of the weaker Pound and to support innovation investment whether through R&D tax credits or an improved/extended capital allowances regime, thereby enhancing productivity and helping secure long-term sustainable growth. This, combined with further encouragement of the banks by the Chancellor, would provide much needed confidence to manufacturers.
The food and drink sector is, of course, interwoven with agriculture and it was no surprise that NFU President Meurig Raymond has spoken out in an open letter to Philip Hammond calling for support in securing a bold, ambitious future for British farming; and reminding him that British farming meets 61% of the nation’s food needs and forms the bedrock of the UK food and drink sector which contributes £109bn to the UK economy and provides 3.8million jobs. My colleague Brian Harvey’s blog looking forward to the budget from a farming perspective can be found here.
On a broader political level, some clarity on what Brexit might look like from a trade tariff and access to workforce perspective would be welcome (to say the least….!). The UK is generally accepted to be in a trade deficit in terms of the food consumed by our population, giving rise to warnings of sparse supermarket shelves come April 2019, if international trade deals remain in a state of flux. Whilst at the same time and perhaps contrary to that, export of high margin quality products is still seen as a relatively untapped economic growth driver for the South West – but with all of the uncertainty over tariffs no one can be entirely sure of the costs and thus the margins that would be achievable.
In reality fiscal pressures created by Brexit and the resulting downgrading of the UK’s economic forecast may make any tax cuts difficult to achieve and perhaps the most likely outcome, in terms of big news, is a small increase in the personal income tax allowance in April 2018 – which, of itself, is no bad thing, IF that places more income in the hands of British consumers, their weekly grocery budget and ability to spend on high quality British produce and dining.