Many retailers will be happy to see a Tory settling in at Number 10 but, as tax hikes loom, could it be a case of be careful what you wish for, asks Ronan Hegarty
As the dust settles on one of the most dramatic weeks in British political history, grocery businesses and lobbyists have been left trying to work out what a coalition government will mean for them and who they now need to be lobbying.
While the new government will be making many decisions that will have a massive impact on the grocery industry, there are issues that both the Tories and Lib Dems have campaigned on in the run-up to the election that will be shelved while they figure out what to do about the £166bn hole in the country’s finances.
This week the governor of the Bank of England gave Cameron and Clegg the green light to make £6bn of spending cuts during this fiscal year.
That puts quangos clearly in the firing line. But how many? And which ones? The Conservatives have identified almost 50 in food and agriculture alone, but the most high-profile cuts are likely to come at the Food Standards Agency.
New health secretary Andrew Lansley has already stated the government’s intention to go further than Labour’s planned £20bn of health spending cuts over the next three years.
And in March he told The Grocer that the FSA would be scaled back to focus simply on food safety, having become “a conflicting voice in government” (The Grocer, 13 March). At the time, Lansley indicated that work on health and nutrition would pass back to the Department of Health, and a lobbyist told The Grocer this week that another document coming out next week would detail policy areas not already discussed that allude more specifically to plans for the FSA.
“From what I’ve heard, the Lib Dems would go along with that,” said the lobbyist, “since this is an area in which they have had no stated policy.”
Cuts are also likely to impact on a number of foodservice suppliers, though contract caterer Compass Group this week claimed it would benefit, and was targeting healthcare and education services.
“There are going to be expenditure cuts and more outsourcing,” said CEO Richard Cousins, claiming that only 25%-30% of public sector catering was currently outsourced. “There probably won’t be opportunities in the short-term, but over the next couple of years,” he added.
But it’s the spectre of tax hikes that looms most ominously for many in the industry, with fears that the proposed emergency budget will contain a range of tax increases, as most leading economists believe a VAT hike is now inevitable.
Increasing VAT from 17.5% to 20% is expected to raise £11.5bn a year, but the British Retail Consortium fears such a measure would be counterproductive.
“We would strongly urge the new government not to introduce any move that would undermine the economic recovery. Retail is set to play a key role in the economy and an increase in VAT would clearly undermine consumer and retailer confidence,” said a BRC spokesman.
However, while Justin King said this week that the extension of VAT to food would be “bizarre”, the Sainsbury’s CEO admitted a VAT increase was now “more likely than not”, though he urged the new government to “give lots of notice” and to introduce the new rate “at a sensible time of year”. When VAT returned to 17.5% on 1 January this year, the timing caused chaos for retailers.
In the meantime, King applauded the government’s move to stop Labour’s proposed 1% increase in national insurance contributions for employers.
King was one of several leading grocery figures including Marks & Spencer’s Sir Stuart Rose, Northern Foods’ Stefan Barden and FDF chairman and bakery boss Ross Warburton who came out in favour of Tory plans to scrap the proposals, as National Insurance became a key battleground during the election campaign.
“It’s a good sign they are listening,” said King. “We don’t want to discourage any company, not just Sainsbury’s, from creating jobs.”
A spokesman for the BRC added: “We’ve long campaigned against the increase in NI. This is a step in the right direction, although we are obviously disappointed about the decision to go ahead with the increase for employees.”
The Federation of Wholesale Distributors was also warning that Capital Gains Tax may be increased significantly for non-business assets, a move FWD chief executive James Bielby argued could add further cost and bureaucracy to its members’ businesses.
But, with the emergency budget set to dominate the political agenda over the next weeks, the most immediate impact is likely to fall on the alcohol and tobacco trade. Imperial Tobacco head of distribution & vending Mike Laney said “excise duty” was always the first port of call for Chancellors.
“Given the economic circumstances, it is possible politicians will use excise duty as a way of raising revenue,” added Wine and Spirit Trade Association head of communications Gavin Partington. On the other hand, cider makers are breathing easier this week as the chances of the government carrying through Labour’s proposed 10p hike in duty seems slim.
Since the Lib Dems have yet to declare a formal policy on the introduction of a supermarket ombudsman, this is likely to follow the Tory path of a new watchdog working under the auspices of the Office of Fair Trading a plan many supplier organisations feel does not go far enough and is too similar to the current situation.
However, many in the food and drink industry feel it will not be near the top of the legislative agenda, as it is not a policy designed to save money.
“It wasn’t part of the deal set out this week by the two parties,” said one source. “So I’d be shocked if they tried to introduce it this year.”
Similarly, while prior to the election the Tories were talking tough about banning below-cost selling of alcohol, it won’t save money. And it is also likely to involve a bitter fight with the supermarkets, which one retail source said is not something the government will be in a hurry to get involved in.
Another source added that, even though both the Tories and Lib Dems have said they want to look again at the tobacco display ban, this may also slip to the bottom of Cameron and Clegg’s to-do list.
A more intriguing area is the environment, with Chris Huhne’s new role as Energy & Climate Change Secretary. “If there’s one big green department,” said the lobbyist, “it will potentially be more rabid and that could present a challenge.”
But while there is clearly still much to be decided, the number one priority right now is effectively the only priority.
To use a well-worn phrase: “It’s the economy, stupid.”
Dave and Nick’s to-do list
1. Stop NI increase for employers (not employees)
2. Scrap plans for national ID cards
3. Sort out economy
4. Increase VAT to 20%
5. More tax on booze and fags (not cider)
6. Dismantle Labour quango labyrinth
7. Tackle below-cost selling
8. Ombudsman
9. Review tobacco display ban
10. Get tough on duty fraud
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