Chancellor Rishi Sunak has ushered in a budget that aims to attempt to protect a flagging economy from a ‘deep but short’ recession caused by Corona Virus, revamp the High Street and encourage investment and spending.
The key take-aways are that around £30bn is being invested one way and another in stimulating the economy – some stand alone, many trying to weather the Corona virus pressures. Here are the highlights and analysis of what they mean for retail.
Business rates abolished
The headline for High Street retailers is that business rates will be abolished for firms in the retail, leisure and hospitality sectors with a rateable value below £51,000. This has been something that The British Retail Consortium and 52 retailers have been campaigning for over the past months.
This has been seen as a Corona virus amelioration tactic, but it could well have longer term impact on spending and a High Street rebound. Head of retail and consumer at Pinsent Masons, Tom Leman, says that the announcement would be “extremely welcome news” for small businesses.
“On the basis the coronavirus is not a long-term issue for these businesses, it is crucial that they have the liquidity to see them through the worst,” he comments. “This will definitely help the cause and hopefully see many of them come out the other side ready to benefit from the increased spending power prompted by the money people are currently saving on their discretionary spend.”
Lee Lucas, Principal at the Fashion Retail Academy, comments: “Retailers, who have been demanding cuts, will be celebrating today after the much needed announcement that the Chancellor will be slashing their bills. It will be particularly welcome news for fashion retailers after a tricky few years battling intense pressure from online rivals and, now, the full impact of the coronavirus.
Lucas continues: “The new cuts will help protect the high street, which is at the heart of our economy and hopefully boost business investment in Britain in the aftermath of our exit from the EU. With this boost we hope to see new fashion retailers on the high street this year and a growth for the sector as a whole.”
Helen Dickinson OBE, Chief Executive of the British Retail Consortium, is less impressed: “Despite announcing his support for British business, the Chancellor has failed to provide any relief for larger retailers, who employ the majority of the industry’s 3 million workers and currently foot most of the industry’s £7.5bn business rates bill. In April, these retailers will face yet another rise in business rates across England, piling on even more pressure on shops at a time when they are squeezed by lower demand and increasing costs arising from coronavirus.”
On the longer term view of what the government is likely to do with Business Rates Reform, she adds: “The Chancellor has shown he is capable of making bold decisions, this will be critical to the upcoming review of the broken business rate system. We welcome the stated objectives of reducing the rates burden on business, something we have been calling for, and the inclusion of changes to transitional relief as an option to provide short-term relief from April 2021. It is vital that the burden is reduced for all retailers – large and small – if it is to promote further investment in productivity growth and higher skilled, better paid jobs. We hope this open-minded approach carries through to implementing positive changes once the review has concluded later this year.”
Corona virus measures
When it comes to Corona virus, there is help for all businesses, not least retailers, with “business interruption” loans of up to £1.2m being made available for smaller firms. Sick pay will also be available to workers from day one of self-isolation, whether they have symptoms or not and firms with fewer than 250 staff will be refunded for sick pay payments for two weeks. How this applies to sole-traders or the self-employed is unclear.
The measures will not apply to bigger retailers and leisure chains, some of whom have also criticised the business rates system. However, the chancellor said business rates as a whole would be reviewed later in the year.
Packaging and logisitics
Retailers also need to take note of new packaging laws coming into force off the back of the budget. A new plastic packaging tax will come into force from April 2022, which will see manufacturers and importers whose products have less than 30% recyclable material charged £200 per tonne.
BRC’s Dickinson says: “The industry is committed to reducing the levels of plastic, however the scale of the challenge is huge. Sadly, the plastics tax would effectively be a tax on many goods including food as the use of plastic packaging is currently unavoidable in some circumstances due to food safety legislation and the lack of alternatives. Instead, the Government should push for more responsible packaging through the Extended Producer Responsibility scheme, whereby the money raised would be invested in our limited recycling infrastructure.”
Meanwhile, more than £600bn is set to be spent on roads, rail, broadband and housing by the middle of 2025, with road upgrades and new links helping logistics firms move goods around. Potholes, too, are being filled in with a new £2.5bn fund.
Fuel duty to be frozen for the 10th consecutive year, while subsidies for fuel used in off-road vehicles – known as red diesel – will be scrapped “for most sectors” in two years’ time. Red diesel subsidies will remain for farmers and rail operators.
These changes to duty on diesel may also have an impact on retail logistics, not least its plans to go ’green’, believes Dickinson. “Climate change remains a key issue for the retail industry. However, non-diesel engines are not always more fuel efficient, meaning the proposed tax hike on diesel may well increase costs to retailers, without any clear benefit for the environment. We estimate that major supermarkets alone would have to pay at least an extra £25m in tax each year.”
Brexit and International trade
Plans for Brexit help was conspicuous by its absence, with the focus instead being on Corona Virus.
Sunak handed over £5 billion to UK Export Finance (Ukef), the Government’s export credit agency that provides loans to overseas buyers of British goods and services – up from £3bn last year.
We shall have to wait until the next budget – pencilled in for Autumn 2020 – to see what the government then does to help mitigate the impact of what will likely be a hard Brexit.
Digital tax and R&D
The government has also pledged to tax the digital sales of certain goods from 1April in a move that could raise £500m each year and is designed to try and at least make it look like many digital retailers and marketplaces pay the tax in the UK that they should.
“This will ensure the amount of tax paid in the UK reflects the value these businesses derive from their interactions with, and the contributions of, an active user base,” the government said, post budget. This has gone down very well with many retailers and retail tech suppliers.
“The Government’s digital tax announcement solidifies the UK’s position as a fierce antitrust enforcer. While it is likely to face substantial derision from tech giants, the move will help to significantly level the playing field and should be welcomed by all businesses who play by the rules,” says Philippe Corrot, Co-Founder and Co-CEO, Mirakl. “The initiative will also be instrumental in regulating the quality of the goods offered on marketplaces and allowing the government to have more visibility of how companies are storing and using consumer data – critical in an age of GDPR.”
While broadly welcomed by many in the industry, there are some that are more cautious. US president Donald Trump has already threatned to slam a tax on French companies selling into the US after the government in France introduced a similar tax.
The OECD, which is tasked with brokering a global compromise on tech tax, has urged the UK to “hold fire” on bringing in new measures. Secretary general Angel Gurria warned there was risk of a “cacophony and a mess” if a worldwide agreement is not reached.
Mirakl’s Corrot is similarly cautious: “While the digital services tax is a decisive step in the right direction, international regulation needs to be introduced by the OECD to make things truly equal. We have entered a new world where digital companies are not bound by the traditional definitions of industry, place or trade. To continue to protect consumers, it is imperative that governments monitor and tax tech giants at a fair rate. The development of these strategies and policies will help to aid the growth of a fairer and consumer-centric market.”
Still on the digital front, the government is also planning a £5bn investment to bring gigabit-capable broadband into the hardest to reach places, connecting more people to the web and, hopefully, increasing ecommerce.
Meanwhile, entrepreneurs’ Relief will be retained, but lifetime allowance will be reduced from £10m to £1m, to encourage more investment in new ideas and start-ups.
Commenting on the investment in R&D, Director of R&D tax credit specialists RIFT Research and Development Ltd, Sarah Collins, comments: “An increase in the R&D credit amount to 13% and a commitment to encourage the biggest R&D investment by industry in 40 years, to increase to 2.4% of GDP, shows this government is serious about encouraging business and business investment within the UK. This is a fantastic sign for all industries who look to better their business practices through R&D, especially when they have the ability to recoup such spend with R&D tax credits. Something certainly worth raising a glass to, be it Scotch or otherwise.”
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