It is no secret that the Chancellor Gordon Brown has been busy dreaming up plans to fund increased spending on the National Health Service and Education for yesterday’s (17 April) Budget.
But it is the manner in which the funds – estimated at between £3.5bn and £10bn – are raised that has caused much debate among retailers, manufacturers and marketers.
This time around, tax breaks will be given to companies that increase expenditure on research and development yearly and provide for a fall in capital gains tax.
Economists expect Brown to raise the rate of employee National Insurance contributions from ten per cent to 11 per cent and lift the ceiling on which employees pay it. The two options together will produce about £4bn.
Safeway communications director Kevin Hawkins believes the impact of such a move on consumer spending will not be great. He adds: “Ideally one would want him to leave it [NI contributions] well alone, but that’s not going to happen.”
There have also been rumours that the Chancellor is considering increasing Value Added Tax (VAT) from 17.5 per cent to 20 per cent, which could curb retail spending. But Commerzbank economist Peter Dixon says: “I don’t think it will happen. The standard rate of VAT has only been increased twice before in 1979 and 1991, when public finances were in a bit of a state.”
A spokeswoman for the Food and Drink Federation says: “Any moves that either increase or broaden the impact of VAT on consumers’ shopping baskets would be bad news.”
However the removal of some VAT exemptions may be on the cards. Direct Marketing Association managing director James Kelly says: “There’s a rumour that the VAT exemption on postage could be removed. We would strongly urge against this.”
As usual Brown is expected to raise additional revenue through increases in so-called “sin taxes” on beer, spirits and cigarettes.
But a spokesman for Coors says the company hopes to see a reduction in tax on beer: “UK beer drinkers pay one of the highest rates of duty in the EU – 34p a pint compared with 5p in France. That penalises beer drinkers in this country, and damages the Government by encouraging organised smuggling.”
Other beer companies would like to see reductions for smaller brewers or duties based on alcoholic strength, so as to help discourage drink-driving.
Scotch Whisky producers are looking for a reduction in spirits taxes and an increase in taxes on beers to bring the two into line.
The Tobacco Manufacturers’ Association is calling for a 20p cut in tax on a packet of 20 cigarettes, followed by tax freezes, in order to combat cheap, smuggled imports. But anti-smoking pressure group, ASH, is looking for a rise on cigarette tax in line with rises in income.
Brown is not expected to increase levels of excise duty on petrol and diesel fuel. But Petrol Retailers Association director Ray Holloway believes the Chancellor will be unable to avoid putting petrol tax up by a penny.
He adds: “I think that the volatility of the oil market has made the Chancellor realise that major changes would be unwise.”
Despite the focus on households, there are other issues for businesses to cope with, such as changes to the minimum wage. British Association of Toy Retailers vice-chairman Val Stedham says: “The sort of increase being bandied around – an extra 50p to £1 – is something we’re all dreading.