Budget 2016: what marketers need to know
Words by Sebastian Joseph, Jennifer Faull and Katie McQuater.
Chancellor George Osborne delivered his budget for 2016 in parliament today (16 March), a statement tempered by the fragile state of the global economy as he outlined a swathe of measures to help him balance the books. The Drum highlights the key areas likely to affect marketers.
The economy is slowing
Economic growth estimates for 2016 were downgraded from 2.4 per cent just in November to a 2 per cent growth in GDP, and was dropped down to 2.7 per cent in 2017 and 2.1 per cent in each year after that. Despite the chancellor’s best efforts to talk up the budget, the revisions reflect that the UK’s economy looks weaker in comparison to November’s autumn statement.
The surprise turn in revisions could dent recovery in advertiser confidence in the economy. In January, the Bellwether quarterly survey, found that the negative forecasts for the economy had caused many to reign in their advertising spend in the last quarter of 2015.
Another measure which could sap the confidence of brands and the spending power of shoppers was plans to see public spending as a share of GDP fall to 36.9 per cent by the end of the decade. Further spending cuts o£3.5bn by 2020.
There will be a 'sugar tax'
Osborne announced his decision to enforce a tax on beverage brands selling high-sugar drinks, putting an end to long-running debates that have involved everyone from Jamie Oliver to the chief executive of Unilever.
From 2018, the likes of Coca-Cola, Pepsi, A.G Barr, and Britvic amongst others will fall into one of two tax ‘bands’ depending on how much sugar is in their drinks. It will exclude pure fruit juices.
Despite praising the likes of Robinsons, Sainsbury’s, Tesco and the Co-op for reducing the sugar intake across their ranges, Osbourne said more is needed to be done and he didn’t want to “duck” out of the difficult decision and do nothing.
The two-year gap will give the industry “plenty of space” to change their product mix, said Osborne, and give manufacturers time to decide whether they will pass the price on to consumers.
A.G. Barr chief executive Roger White criticised the decision, saying it was “disappointing that soft drinks have been singled out".
Booze brands handed freeze on duty
While beverage brands were hit with a tax for sugary drinks, alcohol-makers were given a break as Osborne committed to freezing the duty on beer, cider, whisky and other spirits. For products outside these categories, such as wine, duty will rise with inflation.
Andrew Cowan, managing director for Diageo Great Britain said: “Scotch, as a home grown industry, flies the flag for the UK abroad and the alcohol industry as a whole generates billions for the UK economy.
“This year’s freeze on beer and spirits will help to continue this. We have already seen the positive impact that last year’s duty cut had on industries such as Scotch whisky and so tonight, people across the nation will once again raise a toast to the chancellor.”
The managing director of Heineken was similarly pleased, adding that while it would “have liked to have seen a cut in these duties, it’s good news that we haven’t had an increase; which would have undone the positive effects of the cuts made in recent years.”
Scottish brand Tennents said the move recognised "the challenges that pubs, clubs, hotels and restaurants face in serving communities and providing employment across Scotland."
"The budget announcement on duty follows Tennent’s commitment earlier this year to freeze the wholesale prices of our leading draught brands including Tennent’s Lager, Caledonia Best and Magners Original Ice Cold and is further welcome news for Scotland’s publicans and drinkers," Alastair Campbell, Tennent’s managing director said.
Corporation tax cut and avoidance addressed
Large multinational firms like Google and Facebook are facing a clampdown for tax avoidance, with the chancellor pledging to close loopholes, including those that have allowed them to deliberately over-borrow in the UK.
Anti-tax avoidance and evasion measures are to raise £12bn by 2020, with the crackdown on the largest firms helping to raise an additional £9bn to help companies who pay "their fair share," said the chancellor.
This will materialise in a cut to corporation tax to 17 per cent (from the rate of 20 per cent it is now) by 2020. The reforms to corporation tax "will help create a modern tax code that better reflects the reality of the global economy," Osborne said.
The budget brought tax breaks for small businesses, whose annual threshold for tax relief will be raised from £6,000 to £15,000, and the higher rate from £18,000 to £51,000. This means that 600,000 firms will be exempt from paying business taxes from April 2017.