Budget 2020: How will you benefit?
We analyse the key areas of importance to independent retailers: business rates, staffing, illicit trade, duty and sustainability
Chancellor Rishi Sunak delivered his first Budget last week. With investment that will impact business rates, staffing, tax and pay, betterRetailing examined how independent retailers are set to benefit.
To minimise any potential cost damages as a consequence of the coronavirus outbreak, retailers in England with a rateable value of less than £51,000 will not pay business rates until 2021. Eligible businesses have been advised to apply to their local authorities for the discount.
Alongside the discount, Sunak announced a £2.2bn fund for local authorities to support retailers who receive small business rates relief.
Those eligible to apply for the funding will receive a grant of up to £3,000 to help their business meet challenges related to the virus. According to the government, this is comparable to three months of rent for a property with a rateable value of £12,000.
Ian Sloan, of chartered surveyors Bankier Sloan, told betterRetailing: “If [business rates relief] is what it says on the tin, it’s fantastic for everyone, especially for a one-man convenience store in a town or a village. Many of these retailers will have an eligible rateable value of less than £51,000.
“There’s no limit to the number of properties you have, either. You can have six shops and you’ll still get relief.”
However, Sloan advised retailers to wait until their local councils receive full documentation about the relief. “The councils will get the letters within 24 hours of the Budget, explaining the full details in black and white.
“I also wouldn’t go out and spend £3,000 straight away. It’s an amazing amount of money, but it’s likely to be taxedand retailers won’t get the full amount.”
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Sunak has revealed the government will be increasing the national insurance contribution (NIC) employment allowance (EA) to £4,000. It was previously £3,000.
A tax cut for 31 million working people was also confirmed, with the increase in NICs thresholds for employees and the self-employed, saving the typical employee around £104.
In response, Institute of Economic Affairs professor Len Shackleton told betterRetailing the EA, which offsets employer NICs, was already announced to be restricted from April to businesses with employer NIC bills of less than £100,000. He said: “This will mean some larger convenience stores will now miss out, although the bulk of corner shops will probably still receive it.”
Although he said the news will be welcomed by those who are entitled, he warned it may result in more form-filling.
“The allowance will not roll over from year to year,” he added. “Lower employer NICs rather than fiddly allowances would be sensible. Better still, scrapping NICs and combining them with income tax would make taxation clearer and its burden more obvious.”
In addition, Sunak announced that the national living wage (NLW) will rise to more than £10.50 an hour in 2024, compared with £8.21 at present.
This sits alongside an already planned increase on 1 April, from £8.21 to £8.72 for workers over the age of 25.
Retailer Gaurave Sood, owner of Neelam Post Office in Uxbridge, London, told betterRetailing he has reduced his staff from four to one as a result of rising staff costs.
“Although we welcomed a lot of the Budget, staffing remains a real problem,” he said. “We just can’t afford to keep them any more.
“Cash flow has always been an issue for us, so the recent news regarding a reduction of NICs is encouraging for small businesses.”
Shackleton added: “Convenience stores have few options, though I would predict greater reliance on part-time workers, reductions in hours and more pressure on staff are likely to be a common response.”
Lastly, retailers who have employees diagnosed with coronavirus and quarantined will be able to claim compensation from the government for any statutory sick pay they owe. Employers with fewer than 250 staff will be eligible.
The cost of cigarettes is expected to increase by 2%, above the inflation rate of 1.8%, while handrolling tobacco will jump by 6% this year.
Harj Gill, owner of The Windmill Select & Save in Birmingham, told betterRetailing: “The only thing that might affect us in the Budget is the tobacco increase – packs are over £10 now, with the premium packs being priced towards £13.
“With the menthol ban coming in and then the duty on tobacco increasing, it’s another nail in the coffin for tobacco.”
In addition, Sunak announced an increase in resources for trading standards and HMRC to combat the illicit tobacco trade, including the creation of a UK-wide HMRC intelligence sharing hub.
However, Tobacco Manufacturers’ Association (TMA) director Rupert Lewis warned the tax hikes could worsen the illicit trade.
“The announcement will only encourage consumers to buy through black-market channels. The Treasury already lost £1.8bn in 2017/18 due to the illegal tobacco trade. Repeated tax hikes only make the challenge even more difficult,” he said.
Ralph Patel, of the Look-In in Banstead, Surrey, said retailers risk losing out on sales of tobacco because the government has “almost priced itself out of the market”.
“The cost of some buying tobacco in this country becomes more and more expensive, while it’s cheaper all over the European continent,” he added.
Action on Smoking and Health chief executive Deborah Arnott added: “Reducing the affordability of tobacco is a vital measure to tackle smoking, but it must be part of a comprehensive strategy to help smokers quit.
“Tobacco companies are highly profitable, with profits made from addicted smokers unable to quit smoking.”
The 2020 Budget includes freezes on the duties of spirits, beer, cider and wine. The government will review potential reforms of duty to be implemented once the transition from the EU is complete, with a call for evidence to be published by summer.
Wine and Spirit Trade Association director of communications Lucy Panton said: “The freeze in alcohol duty is good news for all retailers of alcohol, but especially smaller independent retailers who have limited cash flow compared with the bigger retailers.
“Duty rises are bad for consumers, bad for small businesses – which are the backbone of this successful British industry – and also bad for the Exchequer.”
However, Ralph Patel said a rise in duty would not have had a big impact on retailers in terms of competition. “If the duty had gone up, we would have had to put our prices up, and the multiples would have had to do the same,” he said.
Another change as part of the 2020 Budget is the abolition of VAT on all women’s sanitary products from 2021, which, under EU legislation, currently have a 5% VAT under their former categorisation as “non-essential, luxury items”.
Retailers have welcomed the abolition of the tax on sanitary products. Rob Dickinson, of The Real Food Store in Exeter, Devon, said: “We’ve been selling those products at discounted rates anyway, so we will just not apply that discount and the products will remain at the same price.
“As a business, we’re very supportive of the removal of that kind of taxation on those goods. We’re also trying to encourage people to try reusable products because of the environmental impact of disposable sanitary goods.”
Forecourt retailers could also benefit from the Budget, as Sunak announced a £500m fund to support the rollout of super-fast electric vehicle chargers, while a separate £533m grant was unveiled to encourage the uptake of ultra-low emission vehicles in 2023.
Forecourt and Spar retailer Moiz Vas said the change for forecourt retailers focusing on traditional petrol and diesel fuels to electric charging is “no longer about if it happens”. He said: “We have a number of stores in different locations, and each one lends itself to a slightly different model – whether it’s on a busy A road, or a more rural location.
“Like most in our sector, we are at the preparation stage, talking to consultants and councils to take the best advice. It’s now focusing on the steps to prepare for when it happens.”
Suppliers will also be charged £200 per tonne of packaging made of less than 30% plastic from April 2022. Federation of Wholesale Distributors chief executive James Bielby said: “The plastic tax will potentially have major consequences for wholesale and FWD will be working closely with the government on how far and how fast changes are implemented.”
However, Paul Hargreaves, chief executive of speciality wholesaler Cotswold Fayre, claimed: “Sustainability is a major area of concern for many consumers at the moment and they might not mind paying extra if prices are passed on.”
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