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Autumn Budget 2018: Implications for the consumer, retail and leisure sectors

Implications for the consumer, retail and leisure

KPMG assess the implications of the Autumn Budget 2018 on the consumer, retail and leisure sectors.

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Partner, UK Head of Consumer Markets, Leisure & Retail

KPMG in the UK

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Autumn Budget 2018: Implications for the consumer, retail and leisure sectors - four-brown-leaves

The effects of the Budget on our businesses will vary, with some direct impacts but many indirect as well. Overall, we can see from the Autumn Budget that consumer behaviours around smoking and gambling could potentially be influenced by new regulation, and that there’s also a drive to recycle our plastics. Alongside measures to support small retailers and tax tech giants, perhaps this can support all of our businesses with the knock-on effect that comes.

Let’s start with the future of the high street…

The British retail industry has been going through a period of unprecedented change and to a degree the Autumn Budget has taken note of this. Whether you believe retail is fundamentally changing to a new paradigm or not, it is difficult to argue against the importance of high streets as a hub for the communities they serve. The Government’s £675 million plan for the sustainable transformation of high streets is set to address this, at least for smaller retailers, and the money allocated for councils to reinvent disused retail space will help add to the high street’s sense of community if executed correctly. Converting under-used commercial space for residential use is an important move to note, and it’s also vital that local government plays a role in this context. However, the plan to implement this lacks detail, so it’s one that retailers will likely be eager to gain clarity on.

For bigger retailers, a prosperous high street is a good thing too, so perhaps a win-win situation for all? 

And does the digital tax help level the playing field for some retailers?

It also looks like good news for UK retailers losing out to large online retailers and others with the talk of the digital services tax. Coming into effect from April 2020, this holds the greatest potential to rewrite how the retail game is played with the tax restricted to “tech giants” and an exclusion for sales of online goods and services for retailers. However, this is seen as a temporary measure with the intention to align with legislation from the EU, therefore we will have to stay close to this debate and wait and see exactly how the definition will work and how the tax will be applied in practice. Assuming the tax is passed on, it remains to be seen whether this will change consumer behaviour.

Something for independent retailers and pubs 

The Budget sees business rates set to be slashed by a third for businesses with a rateable value of less than £51,000 for two years from April 2019. This will benefit smaller retailers and independent publicans. However, just because it’s good news for smaller businesses doesn’t necessarily relieve the mid-market and larger players (mainly in non-food) where the pain is greatest. Whilst it may have limited upside for the bigger players, I’d argue that anything helping consumers stay physically shopping and socialising, rather than doing both online, is a good thing. 

With the Great British Pub industry also having a few tough years with closures across the country, we have started to see smaller venues divert their focus to craft, local and small craft drinks. Those venues that are not part of a chain (and are an integral part of a community) will benefit most, and we will hopefully see the cycle of trade flourish. 

But our people heavy retail and leisure sectors see a compliance burden shifting to them for their flexible resources…

As expected, the Government is to reform the operation of the anti-avoidance rules (known as IR35) that target off-payroll workers in the private sector by shifting the responsibility for compliance to the company that engages the contractor from April 2020. The rule is that if a working arrangement would, without the use of a Personal Service Company (PSC), give rise to an employment relationship, the company paying the fees has to treat it as such, operating PAYE and, critically, paying employer’s national insurance on the amounts paid to the contractor. 

How else could the Autumn Budget influence consumer behaviour?

Firstly, the Government is providing £20 million to support measures in this Budget to tackle plastics and boost recycling – £10 million more for plastics R&D, and £10 million to pioneer innovative approaches to boosting recycling and reducing litter, such as smart bins. Will our grandchildren’s’ grandchildren be horrified that we used to just throw things away? Or will they suggest we shouldn’t be using so much in the first place? 

Duty rates on all tobacco products will increase by two percentage points above RPI inflation until the end of this Parliament. Hand rolling tobacco will increase by an additional one percentage point. These changes came into effect at 6pm on 29 October 2018. In addition, the Minimum Excise Tax for cigarettes will rise to £293.95 per 1,000 cigarettes. 

In regards to alcohol consumption, duty rates on beer, most cider and spirits will be frozen. Duty on most wine and higher strength sparkling cider will rise by RPI inflation from 1 February 2019. The Government will also review the current Small Brewers Relief to ensure it is supporting growth in the sector. 

And, tax will also increase around gambling activities. As announced in May 2018, in order to ensure that funding for public services is maintained following the implementation of a £2 maximum stake on B2 machine games, the rate of Remote Gaming Duty will increase to 21%. Both the reduction in maximum stake and increased duty rate will come into effect in October 2019.

So what do we conclude? Lots of tinkering and more compliance. But, with a fair wind perhaps it can continue to support innovation and growth of smaller businesses, slow the decline of our high streets (perhaps even reverse it?) and maybe protect our larger retailers and their consumer goods suppliers from annihilation by tech giants. If only there were no other uncertainties for us all to be thinking about… 

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