Chancellor Rishi Sunak’s Spring Statement delivered a 5% cut in fuel duty which one hopes will relieve pressure on the food and drink supply chain.
The Employment Allowance has increased from £4,000 to £5,000, benefiting small businesses.
From July, there will also be an increase in the annual National Insurance Primary Threshold and Lower Profits Limit from £9,880 to £12,570.
The government also announced it would look into whether it could do more to encourage employers to offer ‘high-quality employee training’. This would include an examination of whether the Apprenticeship Levy could be improved.
Sunak also announced an initial cut to National Insurance Contributions that will save households around £300, with a further cut to income tax to be introduced in 2024.
The chancellor also announced reforms to research and development tax credits to support business investment and increase productivity.
FWD Chief Executive James Bielby pointed out that an increase in VAT for hospitality settings, and no additional spend on public sector food contracts or measures to curb energy price increases could still cause significant damage.
“At a time of unprecedented cost increases for wholesale across food, energy and fuel, the 5% cut in fuel duty will go some way to relieving the eye-watering costs wholesalers currently face,” said Bielby.
“Unfortunately, nothing in the Chancellor’s statement will support businesses with the five-fold increases they have seen in energy costs, which are uncapped. We urge the Chancellor to reconsider his position on this. “It is also disappointing that the Chancellor has decided to increase VAT for hospitality settings back to 20%. This will increase the cost of living for many and depress demand for an industry which has suffered significantly over the past two years, and is still not back to 2019 levels.
“Similarly, the lack of any announcement on increasing the amount spent on public sector food contracts is worrying and may result in the supply of hot meals being untenable in schools if not addressed. The per meal rate of £2.34 per child per meal is not enough given the growing cost pressures and the funding rate for 2022-23 must be increased when the funding allocations are announced in June.”
Wholesale Manager asked some of the key players in the sector what the Spring Statement will mean for wholesalers.
Very disappointing
Paul Hargreaves, CEO at Cotswold Fayre, says the Spring Statement did little for business.
What did you think of the Spring Statement overall?
Overall, it was very disappointing, as the Spring Statement did little for business or individuals facing very challenging times ahead. Clearly the Chancellor has been lambasted from all parties since for not doing enough for the very poorest in our society, with which I would concur.
What do you welcome about the Spring Statement?
The rise in national Insurance threshold in July which, as a percentage of income, will benefit lower earners more than higher earners.
What do you find is the most negative news about the Spring Statement, from a wholesale point of view?
From a wholesale point of view, there was nothing in the Spring statement, except the reduction in fuel duty that will help us.
Will the 5% cut in fuel duty help the supply chain?
Fuel remains higher than it was only two or three months ago despite the cut. Personally, I am against the fuel duty cut, as it would have been far better to encourage businesses and individuals to switch to electric vehicles.
The subsidies for electric cars have been cut and the remaining subsidy on home charging points for electric cars disappeared on 31st March. This is the opposite of what should be happening and sends out completely the wrong messages.
How will the increase in VAT for hospitality to 20% settings affect your business?
It won’t impact the wholesale side of the business much, but we also have a restaurant so this will have a 7.5% gross margin impact until we increase the prices.
Again, the hospitality industry could have done with more to help it recover from a dire two years.
There have been no measures to curb energy price increases. Will this have a detrimental effect on the wholesale sector?
Undoubtedly yes, as all the businesses wholesalers supply have had massive price increases as there is no cap on business energy. As an example our own foodhall and kitchen has had a £80k increase in energy prices for the next year. This absolutely will result in some businesses liquidating over the coming 12 months.
Not far enough
Harvest Fine Foods MD Richard Strongman, says the Spring Statement does too little to support businesses.
What did you think of the Spring Statement overall?
We are grateful for the support businesses and individuals received from the Government during the pandemic but recognise that at some point this needs to be repaid to balance the books. We are proud of our NHS and supportive of any initiative to increase their funding (although with the proviso that we would like to see more of that reach front-line services). But from a business perspective many companies are still reeling from the effects of the pandemic and we are still working hard to recover in difficult circumstances. Generally, we don’t think the spring statement goes far enough in supporting businesses during this recovery period and the Government should perhaps have waited a bit longer before trying to redress the balance.
What do you welcome about the Spring Statement?
Increasing the threshold for employee NI to £12,570 on the face of it is a welcome move, but the Government has given with one hand and taken back with the other by increasing the rate of NI for individuals. On balance, what it does achieve is to support people with lower earnings and that’s a good thing.
What do you find is the most negative news about the Spring Statement, from a wholesale point of view?
Increasing the rate of Employers NI contributions is most unwelcome. High employment levels and the loss of hundreds of thousands of European workers following Brexit, coupled with a resurgent economy means that many employers are facing significantly increased employee wage demands to attract and retain staff. These wage pressures have been exacerbated by the cost of living squeeze. So to add an extra burden to employers at this time seems insensitive and doesn’t help businesses. We would like to see the Government reconsider their plans to increase Corporation tax next year. The constant drain on SME’s is becoming unbearable and it is galling that the Government spurned the opportunity to apply a windfall tax on the Fuel giants.
Will the 5% cut in fuel duty help the supply chain?
Not enough. Margins in wholesale Foodservice sector are very slim at the best of times and increase in energy and fuel costs is a huge challenge – inevitably this will drive further inflation.
How will the increase in VAT for hospitality to 20% settings affect your business?
It’s widely acknowledged that hospitality was one of the sectors that was hardest hit by pandemic lockdowns and restrictions, and were affected for the longest time. We have one of the highest VAT rates on hospitality venues in the whole of Europe. Now that we are no longer part of the EU, the Government has the freedom that they wanted to make their own decisions on issues such as this. We feel they have missed an opportunity to remedy this inequality and give our hospitality and tourism sectors a much needed boost. We are concerned that many operators are still struggling to make ends meet following the pandemic and this could result in more business failures.
There has been no additional spend on public sector food contracts. Will this threaten the supply of hot meals in schools?
Almost certainly. In practice food price inflation is running much higher than the published rate and public sector operators are struggling to make ends meet. Many school meals are provided by independent contractors who are ultimately in business to make a profit (albeit a modest one). The quality of school meals inevitably will go down and ultimately may stop completely unless more budget is provided.
There have been no measures to curb energy price increases. Will this have a detrimental effect on the wholesale sector?
Yes. We operate multi-temperature storage and distribution and energy costs are our 3rd biggest cost (after staff and rent). Businesses are not protected by energy caps so this could become a major driver of inflation in the Foodservice sector. It is also hitting manufacturers, hospitality venues and hotels extremely hard. At the very least the Government should have cut fuel duty to maintain the levels of tax that they previously enjoyed, and they should have taken some action to prevent profiteering by energy firms during this crisis to protect business.
A perfect storm
Paul Nieduszynski, Chief Commercial Officer, Sysco GB, says there is a long way to go on the road to recovery.
The hospitality and catering sector faces the perfect storm of Brexit, availability, the highest inflation in 30 years and the lingering effects of the COVID pandemic, all compounded by the supply chain challenges resulting from the Russian invasion of Ukraine. There is a long way to go on the road to recovery.
Across Sysco, we are focused on supporting our customers by providing the best value products and solutions that save time and support them in managing a reduced and rapidly changing workforce in their kitchens. The government’s support during the pandemic was critical to securing the future of many businesses and the livelihoods of people throughout our supply chain. But this moment is critical in the sector’s recovery, and the support cannot end here. The recent removal of the VAT cut for hospitality will be the nail in the coffin for some businesses.
In the broader foodservice sector, while budgets in public sector catering, including schools and hospitals, remain static, rapidly rising inflation represents a very significant real-term cut in budgets. The government’s strengthened standards on nutrition and healthy meals are an important step, but to ensure our children have access to nutritious, quality and healthy food, the government must stand behind this by increasing catering budgets.
Welcome change
David Lunt, Managing Director of NBC, says the change to the National Insurance threshold will benefit most employees.
What did you think of the Spring Statement overall?
I think that the Spring Statement has to be considered in the wider context of what has been happening as a direct or indirect result of three things – Brexit, the Pandemic, and the conflict being inflicted upon the country and people of Ukraine. All of these factors have had a significant impact upon costs, ease of access across borders, skilled labour availability, and raw materials. The direct impact upon our industry has been cost pressure, price pressure, a shortage of skilled labour, and product availability. The Chancellor has a challenging position of having had to support the UK economy at unprecedented levels, and then try to assist everyone once again – we totally understand the point that borrowing costs are low because of interest rates, but the actual amount being paid in interest alone is eye-watering!
What do you welcome about the Spring Statement?
We welcome the appreciation that fuel costs are a significant element of the costs associated with a wholesaling model – this consolidation platform remains an efficient method of getting a wide variety of goods in smaller quantities to a variety of outlets. We also welcome the change to the National Insurance threshold – this will have a positive benefit to the majority of employees within our industry and the channels we service although there will of course be a rise to anyone earning over £30k plus.
What do you find is the most negative news about the Spring Statement, from a wholesale point of view?
The additional National Insurance contributions for employers – this is an additional cost for every employee – but again it needs to be considered against the wider economic changes. Without product to sell because suppliers are struggling – this depresses our sales volumes. Rising costs from fuel, energy, general inflation and labour shortages – it just adds to the list of problems that independent business owners have to deal with.
Will the 5% cut in fuel duty help the supply chain?
Yes, it will help, but should fuel costs continue to remain high or indeed increase further then the industry should start to consider measures such as fuel surcharges to help offset them. All that means is that the end consumer will always pay for it in the end, and they will have to take decisions on how much they can spend, and upon what. As we supply a number of catering and hospitality settings this may impact overall volumes and at some point it may lead to some business owners within the sector taking the tough decision to close down or sell. Of course our role is to assist them in every way that we can – starting with the basics of good pricing and excellent availability. Our members are pretty resilient!
How will the increase in VAT for hospitality to 20% settings affect your business?
Price increases and consumer demand – it will be another layer of costs to consumers that at some point will flow through into demand. How significant in isolation is a very good question and I am not sure we have a specific answer to that one!
There has been no additional spend on public sector food contracts. Will this threaten the supply of hot meals in schools?
The easy answer is yes, but I am not sure it is the right answer. We are all aware of food poverty issues and as a society we must ensure, through the education system, that every child is provided with a hot meal. If necessary, collaboration between suppliers, wholesalers and the relevant authorities must ensure this does not happen.
There have been no measures to curb energy price increases. Will this have a detrimental effect on the wholesale sector?
Yes, indeed but not as significant as other industries that are part of the food chain process, such as the fertiliser industry. We have premises for both employees and products that require a duty of care. Fuel is obviously a concern, products requiring specific care and attention, such as frozen and chilled, must be maintained to a standard. Ultimately, all of the cost pressures described above will flow through to consumers, and they will determine the levels of demand. Our role is to service that demand as efficiently as possible, making sure that the brands that consumers want are available through the channels that they wish to purchase or consume from. Not an easy job in the current situation.
Not a lot for wholesale
Gurms Athwal, trading director at Parfetts, says the government does not understand the scale of the cost of living crisis.
What did you think of the Spring Statement overall?
There was not a lot in the Spring Statement for our sector. However, without defending the Government, I guess the pandemic, along with the effects of Brexit and now the war in Ukraine, has driven public sector borrowing to extreme levels. At some point, the debt needs to be repaid.
What do you welcome about the Spring Statement?
I would say certain tax cuts and reliefs for our retailers and employees. Like most businesses, we rely on people having disposable income to spend and every little helps. However, the population will be left with less to spend, and a reduction in discretionary spending will lower business and consumer confidence, which is not great for the economy.
What do you find is the most negative news about the Spring Statement, from a wholesale point of view?
I don’t think the government understands the scale of the cost of living crisis. Inflation has a big impact on consumers, and the predicted drop in living standards will affect many people. Also, whilst the Government realises the need to enhance productivity, there are no actual measures to help strengthen supply chains yet increases Corporation Tax.
Will the 5% cut in fuel duty help the supply chain?
Even though a cut is welcomed and would normally dampen inflation, I feel it will do little against the increase in prices we are all facing at the pumps currently, and the same applies for the production and distribution of food and goods as fuel is a major cost.
How will the increase in VAT for hospitality to 20% settings affect your business?
As inflation continues and we all feel the pinch, the extra cost to serve for the hospitality sector and increase in prices and services could potentially mean a reduction in business for the sector as consumers potentially cut down on visits and spend. On the other hand, if people entertain themselves more at home, it could benefit the convenience channel – depending on how much consumers are left with after paying for all other increasing bills.
There have been no measures to curb energy price increases. Will this have a detrimental effect on the wholesale sector?
It will affect every sector and every individual as consumer confidence continues to decline. This will impact sales, growth, profitability and eventually investment into this sector from wholesalers. The mix of spend and where it is spent will also change as consumers go back to looking for deals and shopping little and more often. Although we feel the Government could do a lot more to support other energy-saving resources and initiatives to help the wholesale sector and other businesses, the saving on the VAT for certain energy just isn’t enough.
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