Chancellor Rachel Reeves made her first budget speech yesterday and Labour’s first for 14 years, the focus was on growth and government responsibility to fix failing services and undo the neglect of the previous incumbents.
The initial response, like always, has been mixed, some have acknowledged that many of the policies are a necessary evil to provide money to help fix failing services in the UK.
Others have not held back with their scathing inditement of the budget, some have stated it’s a clear indication that this government isn’t ‘pro-business’, others have said it’s a kick in the teeth for wine and spirits and some have labelled it ‘the latest blow for hospitality”.
With my Food & Beverage hat on, here’s a few things that stood out in the budget, and how it might affect businesses and brands.
First of all, here are the key policies affecting the food and drink industry:
- The chancellor plans to raise taxes by £40bn, making her budget one of the largest tax-raising events in UK history.
- Employer national insurance contributions will rise from 13.8% to 15%, with payments starting at £5,000 salary instead of £9,100. However, the amount employers can claim back on the their NI bill was raised from £5,000 to £10,500.
- An increase of the lower rate of Capital Gains Tax from 10% to 18%, and the higher rate from 20% to 24%.
- The 75% business rates discount, due to expire in April 2025, will be replaced by a discount of 40% up to a maximum of £110k.
- The national living wage is set to increase to £12.21 per hour for those over 21, while minimum wage for 18-20 year olds will rise to £10.
- A cut to duty on draught alcohol, “which means a penny off the pints at the pubs”
- UK’s alcohol duty for “non-draught” drinks like wine and spirits will rise in line with the Retail Price Index (RPI) measure of inflation
Money, money, money
Changes to living wage and national insurance contributions will mean an immediate hit to profits as businesses are asked to shoulder the burden, but could arguably allow greater spending with an increase in overall disposable income for the public. This could however, prove to be a double-edged sword as in a world of rising food costs these increases will likely be passed on to the consumer for food and drink and hospitality brands – we could see the Freddo going up again and the average pub grub sneaking up by a pound or two to help counteract the increased taxes and costs.
Bricks and Mortar
Where it could really have a negative impact is the hospitality industry, Kate Nicolls, Chief Executive of UK Hospitality, didn’t hold back in this article in the MEN:
“This Budget is the latest blow for hospitality businesses. Rising taxes, increasing costs and fragile consumer confidence risk bringing growth to a grinding halt.
“In the short-term, the tsunami of employment costs coming in April will ultimately do more to hamper growth than incentivise it. Increases to employer NICs and wages will make it harder for businesses to support employment and invest in their businesses.
“Avoiding the business rates cliff-edge next April was critical and it was important that some relief has been extended. However, the reduced level of 40 per cent is another cost that businesses have to deal with. For those small- and medium-sized operators, their rates bills will still go up in April.
“All of this means that 2025 will be painful for hospitality, with an increased annual tax bill of £3bn for the sector.”
Difficult times ahead for an industry that has had to deal with blow after blow over the last 5 years, first with covid and then with rising costs to energy and food prices.
The drinks cabinet
It swings and roundabouts when it comes to alcohol, a positive move to cut duty on draught alcohol will help the nation’s struggling pubs as well as smaller independent breweries and cider producers. There is also a suggestion that Reeves will incentivise pubs and bars stocking more local and independent breweries in a move to open choice to pub goers and support smaller producers at the same time.
However, taxing non-draught even further will mean a continued struggle for the industry in the mix of rising costs and a consumer that is still facing a cost-of-living crisis. The idea is clearly to drive people into pubs and away from cheap supermarket alcohol, but it’s unsurprisingly come under criticism from those within the industry. You can’t please all of the people all of the time though as the saying goes.
The world of Marketing and PR
With my Hatch hat on, I can see how many of these developments are worrying for the food and drink sector, it’s been a difficult time for hospitality and there’s already a lot of hoops the alcohol industry has to jump through.
Again, it will come down to investing your marketing and PR budget wisely and in the right ways, being tactical with what you have is going to be crucial to providing return on investment. What is clear though is that cutting marketing budgets is not the right way to go, often the first thing to fall by the wayside, all that happens is it leaves the door open for your competitors to steal a march and get in front of your audience before you do. Hospitality businesses need to think of innovative ways to attract new customers and drive brand loyalty and often that comes through marketing, PR and social media campaigns. Consumers are increasingly looking for experiences to part with their cash, whilst 50% off in January might drive people through the door, it’s a little tired now and won’t help get people coming back throughout the year, consumers are willing to part with a little bit more cash for a little bit more from the brand, unique experiences, limited edition menus and things that bring people together, in a continued cost of living crisis it’s increasingly difficult to get people to spend, so when they do they want to know they’re getting the very best experience.
I could talk until I am blue in the face about this topic and go into a whole lot more detail on the reaction to this week’s budget, so if you’re interested in doing that let’s go to a pub and grab a pint, or chat over lunch so we can support those businesses whilst we put the world to rights together.
If you want to see more of the reaction here’s some further reading:
Food Manufacturer:
https://www.foodmanufacture.co.uk/Article/2024/10/30/Food-and-drink-industry-reacts-to-Budget
The Grocer:
The Morning Advertiser:
Restaurant:
The Drinks Business:
https://www.thedrinksbusiness.com/2024/10/autumn-budget-a-kick-in-the-teeth-for-wine-and-spirits/
The Spirits Business:
https://www.thespiritsbusiness.com/2024/10/uk-budget-betrayal-for-scotch-and-a-blow-for-hospitality/
Just Drinks:
https://www.just-drinks.com/news/uk-budget-draught-duty-cut-alcohol/
