Emergency budget 2010 - Impact on the Food & Drink sector

As with most businesses, the deferred VAT increase (standard rate to 20% from 11 January 2011) stands out as one of the biggest changes. Items that are currently zero-rated, such as children’s clothing and most foods, will remain so.

Other tax measures affecting food and (in particular) drink are a mix of rises, cuts and holds.

The 10% increase in cider duty announced in the previous government’s last budget will be reversed from 30 June 2010. But secondary legislation (i.e. that which does not require the approval of Parliament) will be introduced shortly to increase tax on “cheap, strong” ciders.

This Budget saw beer, wine and spirits escape an increase in duty but the Chancellor will pushing ahead nonetheless with the inherited plans to increase the rates by two percent above inflation each year to 2014-15.

There will also be a review of alcohol taxation and pricing that will report in the autumn. This is in line with the government’s commitment, as laid out in May’s Coalition Agreement, to introduce minimum alcohol pricing to tackle “binge drinking”.

The biggest Budget story has been the range and depth of the public spending cuts announced. However, for 2010-11, the Departmental Expenditure Limits (the money that is set for spending by each Department of State and other bodies) will mostly rise as planned or remain stable on the 2009-10 and 2008-09 figures. Environment, Food & Rural Affairs (DEFRA) is one of the departments to see essentially no change, from £2.4 bn to £2.5 bn and back to £2.4 bn over the three years to 2011.

The budget for Independent Bodies, under which the Food Standards Agency falls, is similarly essentially untouched with a modest increase to £1 bn for 2010-11 from £0.8 bn.

It is in the next Comprehensive Spending Review (CSR) that will be announced on 20 October that longer term budget cuts across the board will be announced. Both the Departments and Independent Bodies will be bracing themselves for reductions over the CSR’s next period of 2011-2014.

KEY DATES

·         Before the House rises on 29 July: secondary legislation to raise duty on cheap, strong ciders (provisional).

·         October/November 2010: report of review of binge drinking and minimum alcohol pricing.

·         20 October 2010: Comprehensive Spending Review will be published on 20 October 2010