UK Budget 2012: the food industry reacts

Following UK Chancellor George Osborne’s third budget announcement in March 2012, the British food and beverage industry has given mixed reactions. The introduced measures will affect energy and small businesses, while the government also established VAT on takeaway hot food and sports nutrition drinks.

Food and Drink Federation (FDF) director general Melanie Leech said: "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."

Leech went on to say the positive effect of not implementing carbon price support charges to fuels used for combined heath and power (CHP) is offset by the decision to eliminate the associated climate change levy (CCL) exemption certificates.

"Continuing with the doubling of the carbon price support charge itself will hit many food manufacturers hard in difficult trading conditions," she said.

Budget 2012: regulation review for small food manufacturers

On the other hand, the FDF welcomed the suggested review of regulation on small businesses in food manufacturing and the Chancellor’s plans to significantly deregulate employment law, as Leech explained: "The cumulative burden of more than 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."

The government plans to fund non-bank finance schemes, and the new National Loan Guarantee Scheme should help small and medium enterprises (SMEs). Melanie Leech commented: "The SMEs which are the backbone of the food and drink industry need working capital to grow their businesses and capitalise 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."

Budget 2012: corporation tax changes

In his budget announcement, Chancellor George Osborne also said he aims to create a more competitive tax system for businesses. Taxes for small firms have already been cut, but also, corporation tax is to be cut by one percent in 2010.

From April onwards companies will have to pay 24% in corporation taxes. This will decrease further with two cuts going ahead, reaching 22% by 2014.

According to Osborne, this is the "biggest sustained reduction in business tax rates for a generation." He said the rates are noticeably lower compared to the US, Japan, France and Germany, which would be an advertisement for investment and jobs.

Melanie Leech said: "We are 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."

Budget 2012: VAT on hot takeaway food

Chancellor Osborne also announced the introduction of VAT on hot takeaway food and sports nutrition drinks. From October, retailers selling any type of hot takeaway food will have to pay 20% of the sale price to the taxman.

Currently supermarkets and other vendors avoid the VAT by claiming their hot food is not designed to be eaten immediately and is only kept hot to improve its taste and appearance.

The Chancellor said: "VAT will also apply, to the extent that it does not already do so, to the sale of hot food, cold food consumed on the supplier’s premises, sports drinks and holiday caravans, and to the rental of hairdressers’ chairs."

Osborne said the plan aims to remove "loopholes and anomalies" surrounding VAT on food and drink, and that VAT laws would be tied up when the changes come into effect in October 2012.

The food industry has however expressed concerns over the VAT introduction. Nick Troen, owner of burrito restaurant group Poncho 8, said: "Effectively this is the government punishing retailers who prepare better quality, healthy hot food over those who pre-package cold food and leave it on the shelf for hours. It doesn’t make any sense."

Also, leading UK bakery retailer Greggs opposed Osborne’s measurements. In a statement, Greggs said: "We do not believe that our freshly baked savoury products should be subject to VAT and we will be making strong representation to the government regarding the proposed changes."