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Election 2015: what it means for UK grocery

IGD's chief economist runs through the policy announcements announced as a result of May's General Election

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The General Election is over and, contrary to expectations, it has delivered a majority - albeit a small one - for the Conservatives.

Cabinet appointments are now complete. For grocery businesses, the key appointments are George Osborne (Chancellor of the Exchequer), Liz Truss (Secretary of State for Environment, Food and Rural Affairs) and Sajid Javid (Secretary of State for Business, Innovation and Skills). 

Food policy

Conservative majority government, coupled with the re-appointment of senior personnel, implies stability and continuity of policy, and the manifesto issued by the Conservatives just before the election suggests that government objectives and methods will remain largely unchanged. Some elements, however, will require consideration and/or action by grocery businesses. 

Many of the commitments made in the manifesto echo those delivered in other official documents, especially the Budgets of 2010-15, though not all of these policy commitments are explained in detail – suggesting direction and intention rather than giving firm plans. 

There are fourteen policy measures which will impact the grocery industry specifically, with most of these referring to the farming sector (headings are provided by IGD and do not appear in the original document):

Long-term planning

  • A 25 year vision will be created to guide the development of farming and food production.
  • Further reform of the EU’s CAP and CFP will be supported; gains made so far will be protected.

Promoting UK production

  • A Great British Food Unit will promote UK food at home and abroad.
  • All central government departments will source food produced to UK standards within 5 years.

Regulation

  • Country-of-origin labelling will be extended to dairy and other foods.
  • High animal welfare standards will be incorporated into all trade treaties.
  • Religious slaughter of animals will be protected.
  • The Grocery Code Adjudicator will be supported.
  • The regulatory burden on farmers will be managed better.

Social

  • Reference is made to dealing with childhood obesity, diabetes and food information.
  • The number of apprenticeships in food, agriculture and fishing will be tripled.

Sustainability

  • The approach to GM foods and agrichemicals will be science-led
  • £3bn from the CAP will be channelled into environmental protection, including protection of bees.
  • Action on antibiotic resistant diseases will continue.

Other policy areas

For non-farming food and drink businesses, other aspects of the manifesto may have much greater long-term impact, with fiscal policy being an area of particular interest, since this affects household economics most directly:

Fiscal objectives
  • A small budget surplus is planned for 2018-19.
  • Beyond this, government expenditure will grow no faster than GDP.
  • In this way, it is intended to run a “perpetual surplus”, allowing long-term debt to be managed.
Further savings
  • A further £30bn of expenditure reductions will be found over the next 2 years.
  • Of this, £12bn will come from welfare and £5bn from tax evasion / tax planning.
  • The cap on overall welfare spending will be retained.
  • The household benefit cap will be cut from £26k/yr to £23k/yr.
  • The £12bn from welfare will be in addition to the £21bn already saved in this area.
Personal taxation
  • There will be no increase in VAT, income tax or NI rates.
  • The threshold for payment of income tax will rise over the next 5 years to £12.5k.
  • The threshold for paying the higher rate of income tax will be raised to £50.0k.
  • Increasing the income tax threshold should encourage more people into the workplace.
  • It should also increase prosperity of the least well-off employees.

Business taxation

  • Planned reductions in the rate of corporation tax will go ahead.
  • Concessions on business rates will continue, including the £1.5k/yr discount for High St shops.
  • A review of business rates will be completed by the end of 2015.
  • The business rate system is seen as problematic by some retailers and a review may be welcome.

Infrastructure

  • Investment in broadband will deliver “superfast” performance to 95% of the UK by 2017.
  • Investment will be beneficial to development of m-commerce and multichannel.
  • It will also help UK firms to develop software and technology which can be transferred overseas.

Europe

  • The government will seek to renegotiate the UK’s relationship with Europe.
  • This will be completed by 2017 and an in / out referendum on EU membership will be held.
  • The UK will oppose further EU integration but will support development of the EU free market.
  • The UK will lead the EU in developing free trade agreements with the US, China and India.
Constitution
  • Commitments on further devolution of powers to Scotland will be pursued.
  • This implies that Scotland will gradually diverge from the rest of the UK in terms of law and tax.

Looking ahead

Execution of policy objectives is rarely straightforward – listing in a manifesto is no guarantee that a policy will actually be pursued successfully…or that it will deliver the intended outcomes.

If changes to the personal taxation system do in fact deliver the increased personal prosperity which is promised, then this should be supportive for further growth of grocery businesses. A more business-friendly system for taxation and regulation will also be welcomed by most.

On the other hand, further reform of the welfare system is likely to create political tensions and also social effects – it is difficult to see either of these as desirable for businesses.

Constitutional change also raises question marks for business leaders. If the Scottish government continues to develop legislative and fiscal independence then cross-border operations for grocery businesses will become increasingly complex. 

The EU-exit referendum raises similar issues of legislative divergence and operational complexity for business leaders. 

UKIP was able to muster significant democratic support in the election – though only one seat – which implies that an EU-exit is a significant possibility.

Debating points

Government policy is likely to advance rapidly, to take advantage of the democratic mandate. Businesses will therefore need to remain alert and if necessary move quickly.

A number of areas will obviously require consideration;

  • The government is to develop a long-term vision for farming and food – does your business also plan this far ahead? And if not should it?
  • Could the Great British Food Unit support your business as it grows sales at home and abroad?
  • If you sell to government clients will the new sourcing standard affect your ability to do business?
  • The approach to environmental and sustainability issues is to be science-led – do you have the evidence you need to participate in the process? If not should you take action now?
  • Whatever the outcome of the EU referendum, UK food and drink businesses are sure to be affected and therefore, they may wish to participate in the debate – are you ready for this?

Political debate will continue to rage for some years to come and food and drink businesses will be affected for better or worse.

IGD will continue to help the industry prepare for the future. Join us at The Big Debate 2015 for exclusive insights, predictions and strategies from the leaders of big and fast growing companies.

Confirmed speakers include:

  • Andy Clarke, Chief Executive ASDA
  • Mark Price, Manager Director Waitrose
  • Mike Coupe, Chief Executive Sainsbury’s
  • Jim McCarthy, Chief Executive Poundland

Plus many more. See the full list here.

Related information on IGD.com

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