Now that the dust has settled on last week’s Budget, it’s time to unpack what it all means for the FMCG sector – and Grayling’s specialist team is here to help you do just that.
Perhaps not the fiscal giveaway that may have been anticipated during an election year, there were still obvious signs the Chancellor was delivering an election-fighting Budget, unashamedly namechecking the specific lobbying efforts of a raft of Conservative MPs representing marginal seats.
Somewhat surprisingly, the namechecking even extended to parish councillors when Jeremy Hunt praised Councillor John Tonks, a “strong supporter” of the Admiral pub in Ash, situated within Hunt’s new constituency boundaries. This was the first of a string of references to the Surrey constituency which is firmly in the demographic targeted by Ed Davey’s Lib Dems. And frankly, it signalled fear.
According to the Chancellor, Tonks had pointed out the pressures facing pubs, which led him to announce an extension to the alcohol duty freeze until February 2025. A welcome move, but one that publicans may feel fails to ease inflationary pressures across their businesses. From reduced footfall in the cost-of-living crisis, to high energy costs and a rising tax burden, the sector has a lot to contend with.
But aside from this modest intervention, what else was in there for FMCG?
The simple answer is, very little. The OBR’s tightening of fiscal headroom left the deflated-looking Chancellor with limited wiggle room. Instead, the heavily pre-briefed introduction of a duty of vaping products from October 2026, plus an aligning one-off tobacco duty rise to maintain the tax differential, were announced with limited fanfare.
With the changes due to come into force in two-and-a-half years’ time, the door is open for the Labour Party to revise the duty regime should they receive the keys to Number 10, with a stricter approach likely to follow suit. After all, Labour’s Shadow Health Secretary (Wes Streeting) has threatened to ‘come down like ton of bricks’ on the vaping industry, with the suggestion of radical proposals including making e-cigarettes prescription-only – similar to Australian law.
Meanwhile, the Budget saw no action on business rates, despite significant pressure from retailers and trade associations. This means April’s planned tax hike will go ahead with 220,000 English business including pubs and bars facing an uprating of their multiplier by 6.7% – the inflation rate from last September when the change was announced. As pointed out by retailers, this represents a significantly higher rate than the 2% interest rate Hunt suggested will come to fruition in the coming months.
Is a perfect storm brewing for FMCG?
The Budget provided little clarity for the FMCG sector, or for hospitality businesses, as the announcements were largely consumer-focused policies aimed at drawing battle lines between the Conservative and Labour Parties, with very little meaningful change for UK businesses.
Added to this business uncertainty is wider speculation about packaging recycling reforms that could add to the cost burden for producers and retailers for years to come. Suggestions that a delay to the rollout of deposit return schemes (DRS) until 2028 – ten years after the plan was first consulted on – now seems likely.
Not only does this leave room for a potential future Labour Government to revisit the scope of the UK’s DRS and its interoperability with the Welsh and Scottish schemes, but it also leaves questions about its interaction with ‘Simpler Recycling’ and Extended Producer Responsibility, and whether these proposals will also face the same level of delay and gridlock.
The FMCG sector ultimately sits in a state of purgatory. The goalposts keep moving, and there is little information about policy direction post-general election. The sector desperately needs answers to provide clarity – to allow for the necessary planning, and to ensure an effective policy framework that works for business, consumers and the environment can be realised.
What next?
The million-dollar question is when the General Election will take place. The Chancellor’s Budget felt like that of a government teeing itself up for a second fiscal moment later in the year, hoping that this time the economic weather blows in their favour. With Labour consistently polling at over 20 points ahead of the Conservatives, whenever that election is, there is an air of inevitability about who will enter Downing Street – bar any major faux pas.
As we await Sir Kier Starmer’s General Election manifesto – expected to be broad brush – there are opportunities for the FMCG sector to engage in Labour’s policy formation by providing pragmatic solutions and offering front-line business insights into the impacts of specific policies. Not only in Westminster, but across the UK’s devolved governments.
by Michael Broughton, Account Director (Public Affairs)