Food Industry Responds to UK Budget, Hopeful New R&D Tax Credits Will Assist Innovation

She was pleased with the announcement of new tax credits for R&D: “R&D is vital for to the growth of our industry and we welcome the change from a deduction to an above the line tax credit. We hope that the Chancellor's commitment to increase funding for the scheme will broaden its reach and allow more manufacturers to increase their investment in R&D, thus driving innovation in the industry.”

22 Mar 2012 --- Responding to UK Chancellor George Osborne’s third Budget, the Food and Drink Federation (FDF)'s Director General Melanie Leech evaluated the key areas of interest to the food industry.

She was pleased with the announcement of new tax credits for R&D: “R&D is vital for to the growth of our industry and we welcome the change from a deduction to an above the line tax credit. We hope that the Chancellor's commitment to increase funding for the scheme will broaden its reach and allow more manufacturers to increase their investment in R&D, thus driving innovation in the industry.”

She was less pleased with the government’s energy proposals:“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 (CRC) are welcome, it is regrettable that the Chancellor did not go further and scrap it altogether.

“Furthermore, the positive effect of not applying carbon price support charges to fuels used for Combined Heat and Power (CHP) is offset by the decision to remove the associated Climate Change Levy (CCL) exemption certificates. And continuing with the doubling of the carbon price support charge itself will hit many food manufacturers hard in difficult trading conditions.”

With regards to regulation she did welcome: “the proposed review of regulation of small businesses in food manufacturing. As a major employer in the UK we also welcome the Chancellor's plans to significantly deregulate employment law. 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.”

On the subject of access to finance she stated: “The SMEs which are the backbone of the food and drink industry need working capital to grow their businesses and capitalize on opportunities in foreign markets. The Chancellor's plans to invest in non-bank finance schemes, as well as the new National Loan Guarantee Scheme, should provide welcome support to SMEs to realise their growth potential.”

Lastly on corporation tax and capital allowances she stated the Federation was: “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 budget measures that have the greatest long term impact are not always the ones that capture the initial headlines. James Walton, IGD’s Chief Economist, here considers five potential game changers for the food and grocery sector.

1.    Changing VAT rules
Another review of ‘VAT anomalies’ is promised. Sports drinks and hot food in particular are in the Chancellor’s sights. 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.

2.    A boost for the middle market
Recent conditions seem to have helped both the premium and value ends of the food and grocery market to prosper. However, the higher tax threshold will support the ‘squeezed middle’ income earners which should boost mainstream retailers and brands, particularly if this signals a trend for future budgets.

3.    Could this be the end of Sunday trading restrictions?
Owing to the Sunday trading rules, the retail industry and its supply chain has never quite evolved to a 24x7 basis. It has been more akin to 24x6.5. However, if the temporary lifting on these restrictions for the Olympics proves popular enough, the last step could be in sight, although it would be highly contentious. Throughout the trial, the impact on spending will be very closely scrutinised.

4.    A further stimulus for online shopping
The Chancellor announced new investment in broadband including ultra-fast speeds for 10 big cities. On the day that Game has called in the administrators, this will give even greater momentum to online retailers, particularly in those chosen cities. IGD predicts that the online market for food and grocery will reach £11.6bn by 2016.

5.    Rising retirement age
The state pension age is about to be linked automatically to life expectancy. Private sector employers are likely to follow suit. This could be the one measure in this budget remembered for decades ahead.