Budget breakdown

The famous red briefcase took centre-stage last week as Chancellor Alistair Darling announced the Government’s 2009 budget, which aims to rescue the UK from the doom and gloom of the global recession.

While the budget is always of interest to both companies and consumers, this year’s set of policies is particularly high profile due to the global recession. It is especially important for marketers who sit on the front line and are charged with the task of luring customers back to otherwise struggling businesses.

With Darling predicting the economy will shrink at its fastest pace since 1945, the Government claims its budget will help families and businesses through the recession, working on the theme “Investing in the Recovery”. Marketers across the UK will be tasked with helping to balance the books and repair the economic damage.

BT Business marketing director Robin Mackenzie believes that marketers need to see the budget as a starting point for opportunities, rather than problems. He claims: “There is a real opportunity to nurture new creative industries and keep the UK’s entrepreneurial spirit alive.”

But Tim Hipperson, chief executive of agency RMG Connect, warns: “Brands cannot afford not to have a dialogue with their customers. Now more than ever it’s essential that these dialogues are open and two-sided. Marketers need to listen to how their customers react to the budget and tailor their strategies accordingly.”

Across the sectors, companies will be faced with difficult decisions, struggling to avoid any more redundancies or businesses entering administration. Marketing Week asks a set of marketers and agencies how they think the budget will affect their operations.

 

Motoring

The budget put in place some environmentally focused policies for cars. The Government re-iterated its £5,000 subsidy for the purchase of electric and hybrid cars, as well as providing £20m for local councils to install electric vehicle charging points.

Both initiatives were welcomed by the industry, but motor marketers are bemused by what they can do to promote the new transport options immediately, with models not expected to hit showrooms until 2011.

Mike Moran, a former marketing director at Toyota and director at the Automotive Partnership, says: “The funds for low carbon transport are all well and good, but if you consider the situation the car industry is actually in – and will continue to be in until a decent economic recovery – it is just a distant dream and showboating for the Government.”

He adds: “In reality, it is meaningless at the current time. We need to get drivers into forecourts now, not in two to five years’ time.”

Other suppliers, such as GoinGreen, which has sold the G-Wiz electric car in London since 2004, says the grants should be effective quicker to give manufacturers already working in this area the chance to generate new custom.

GoinGreen managing director Steve Hartridge fears the policy may encourage people to put off buying green vehicles until 2011. “Armed with the knowledge of impending financial assistance, potential buyers might delay their purchase until the grant is available and therefore it is anticipated that sales of greener vehicles will decline until the grant scheme starts. This jeopardises the whole electric vehicle market in the UK at a very crucial time.”

As the beleaguered car industry faces the worst downturn in demand for decades, manufacturers are instead banking on the year-long “cash for bangers” scrappage scheme – despite its well-publicised problems elsewhere in Europe. This involves consumers receiving discounts of up to £2,000 for trading in old models and buying new ones.

But some car-makers say they are disappointed by the ruling that old models should be aged ten years or older. Moran adds: “We need a real stimulus to be able to market and offer incentives to drive consumers to forecourts to look at new cars and want to purchase them.

“It would perhaps be best not to complicate issues with too many rules. Instead, like any industry, it should be incentivising customers to go out and shop for new items as they usually would.”

Society of Motor Manufacturers and Traders chief executive Paul Everitt backs up Moran’s view. “The motor industry must seize the opportunity to send strong ‘buy-now’ signals to kick-start demand in the new vehicle market through the scrappage incentive scheme. Marketing needs to be able to reach out to consumers effectively and get them spending again but the age issue might complicate this,” he comments.

Almost all the car manufacturers, from BMW to Citroën, are already running new ads to promote their participation in the scheme.

 

Financial Services

This is arguably the industry most under the spotlight during the recession. Darling has been under pressure to bring public finances back under control; he says he is determined to strengthen the economy and restore lost trust in businesses.

Previously, Darling has been forced to admit that the Treasury has been over-optimistic on its financial forecasts and now faces scrutiny over how he uses taxpayers’ money in the future.

David Kuo, financial commentator at financial website, The Motley Fool, says the Government’s pressure to reduce debts will make it difficult for financial services brands to convince consumers to invest more. He predicts: “This really is the toughest budget ever because shortfalls need to be filled. The Chancellor must find a way to plug this.

“Of course, the public will be all too aware of these financial issues and financial marketers face an uphill challenge in championing a discipline so heavily affected by recession woes.”

The Chancellor has promised increases in tax-free ISA limits to £10,200 and allowances for cash savings of £5,100. Those aged over 50 will be allowed to save this much immediately and other savers will be entitled to these allowances from next year.

Kuo adds: “The Government has promised to do something for savers, who have seen their interest rates slashed in recent months. The increase in allowances is the fundamental area where banks and building societies can draw consumers back in and help to rebuild trust.”

This view is echoed by Geoff Tresman, an independent financial branding expert. “Trying to ensure that enough revenue is raised to start reducing our debt mountain is asking for a miracle,” he says. “But we need brave and bold action now. We also desperately need a dose of reality and this means hearing the Chancellor be truly honest about the problems we face. For marketers, it’s essential that these home truths are used in the best light possible to help kick-start the struggling environment we live in.”

 

Housing

The £1bn emergency package for Britain’s housing market encompasses many measures, including a fund for social housing provision, extending the stamp duty holiday on buying property and restarting work on construction projects that was put on hold due to the recession.

Tim Betts, sales and marketing director for homebuilder George Wimpey, says this budget is a positive step for marketers in the property industry. He reveals: “Many people have concerns about moving, particularly as they feel they may not be able to sell their existing property easily, or they are worried about not being able to get a mortgage.”

Mortgage providers are also likely to use the new opportunities laid out in the budget to kick-off new marketing campaigns based on educating people about their choices in the property market. “Extra incentives for the ailing market helps us use marketing to offer clear-cut answers to any questions consumers might have, to help them make informed decisions,” explains Betts.

Fionnuala Earley, Nationwide’s chief economist, adds: “The greater volatility in prices could be due to fears of being priced out of the market causing borrowers to rush in on the way up and affordability constraints biting more severely given deposit constraints. With the budget help, we can promote better ways of helping customers with this complex choice.”

 

Retail

The UK’s annual inflation measured by the Retail Prices Index (RPI) went negative in March for the first time since 1960, and the Chancellor expects this to remain negative throughout 2009. As a result, VAT will remain at 15% for the duration of the year.

Some retailers are surprisingly upbeat. Andy Street, managing director of John Lewis, says: “The worst point has gone and was probably last autumn – when the financial crisis caused such a serious dislocation to confidence. Nevertheless, we do not expect sales to start growing again until 2010.”

Mackenzie at BT Business agrees that businesses should look for the positive: “I firmly believe that there are always opportunities for innovators, whatever the conditions, and we are still seeing people start up and open ventures who need our support.”