Politics and high street: HFSS, Online Sales Tax and more

Asian Trader takes a quick look at political developments over past weeks that could potentially impact your business.

0
(Photo by Henry Nicholls-WPA Pool/Getty Images)

As the UK emerges from pandemic and faces up decades-high inflation, policies and debates over food, fuel and energy are under constant spotlight and are expected to be so for a long time to come.

While food prices are predicted to remain high, energy prices are going to pinch for next 18 months, E.ON UK boss has warned, saying that bills could reach £3,000 when the price cap lifts in October at a time when people would also need more gas and electricity to heat their homes.

Bank Of England governor Andrew Bailey Bailey did not help matters by admitting he felt “helpless” in the face of global price pressures and warned of an “apocalyptic” surge in the cost of food. He has “run out of horsemen” after the pandemic, the war in Ukraine and the latest price shock, he said.

HFSS 

The much-talked about HFSS regulation, which drove reformulation in the food industry as well as drew a lot of criticism, is now not partly-delayed. 

The announcement was made almost four month prior to when it was supposed to come into effect. While the ban on promotion restrictions  (buy one get one free, 50 percent extra free deals) are delayed, rules limiting the location of HFSS foods in stores are still going ahead as planned in October, implying that less healthy products can no longer be promoted in the most visible locations, such as checkouts, store entrances, aisle ends and their online equivalents.

The government on May 14 announced that despite speculation on the future of the regulations, they intend to press ahead with both location restrictions and the promotional restrictions. The promotional restrictions, however, are pushed back to October 2023.

The move came as a surprise though the government has been under constant pressure lately from retail groups and trade bodies like ACS and Food & Drink Federation,  who were raising that the regulation will put extra burden on the retailers and store owners who are already reeling under cost of living crisis and 40-year-high inflation rates.

iStock image

The delay is welcomed by industry though confusion over many aspects still prevails. However, calls are being raised to delay the location restrictions rules as well. ACS continues to maintain that location restrictions will cost about 13,000 pounds for a store.

Makers, like KP Snacks, Premier Food, Golden Wonder and Walkers, have already invested millions to come up with HFSS-compliant ranges.  

Tory backbenchers have cheered the announcement, arguing this is the worst possible time to impose as the average household is facing an additional £271 grocery bill.

However, health campaigners fear that delayed restrictions are now unlikely to ever see the light of day, accusing Prime Minister Boris Johnson of “playing politics” with children’s health.

Children’s Food Campaign’s Barbara Crowther said the government should be moving faster on buy-one-get-one-free deals, not “delaying and dithering”.

“This delay threatens the UK target to halve childhood obesity by 2030. Boris is playing politics with our children’s health.”

Online Sales Tax

Online sales tax, whose consultation ended earlier this month, lately is gathering a heated debate. The consultation ran from Feb 25 to May 20 and by the time it was closed, opinion from the industry seemed divided.

The idea was introduced to create a level playing field for high street and online players since the former ones were demanding to reduce business rates for quite a long time now. It was raised that the business rates are an extra burden which online retailers get to bypass easily.

While the government has not given any sign to further reduce business rates, the idea of Online Sales Tax was introduced to rebalance the taxation of the retail sector between online and in-store retail.

“We want to see thriving high streets and a fair economy as we move forward from the pandemic, which is why our business rates review cut the burden by £7 billion for businesses, and committed to look at an online sales Tax – given the imbalance identified by some between online and in-store retailers,” Lucy Frazer, Financial Secretary to the Treasury, said at the time of the commencement of the consultation.

According to property firm Colliers, while a whopping 89 percent were in favour of some form of online sales tax, just 11 percent of respondents said they did not support an online sales tax. About 54 percent agreed that items that are sold online but delivered via click and collect should be subject to additional charges, shows the survey’s findings. 

iStock image

The Association of Convenience Stores (ACS) has submitted evidence in support of OST, calling on the government to reduce business rates for retail properties. In its submission to the consultation, ACS has recommended to exempt Click and Collect, develop a revenue-based system and exemption for smaller online businesses (those who generate less than £1m of online sales revenue).

On the other hand, retail player Marks & Spencer warned that an online sales tax would “punish” the very retailers it plans to support and leave them less money to invest in High Street stores.

“Introducing an additional tax on retail – already overburdened – will simply mean retailers cut their cloth accordingly,” BBC quoted the chain’s chief financial officer, Eoin Tonge, as saying, who added that traditional retailers have worked hard to diversify and grow their online sales and such a tax would make it harder for them to invest in what is needed to survive and grow in the modern, digital era.

The Independent Retailers Confederation (IRC), a body of 19 trade associations representing over 100,000 UK-based independent retailers, has taken a neutral position on the introduction of an Online Sales Tax. 

IRC clarified that there is no consensus view from across independent retailers about the introduction of an online sales tax though majority of its bricks and mortar retailers welcome the idea of OST offsetting business rates costs, which significantly impact their physical premises, but “not at the cost of stifling their future online sales”.

IRC has suggested that if an online sales tax was to be introduced a sufficiently high qualifying threshold needs to be applied, starting at £2 million of online sales. Also, Click and Collect services must be exempt from the online sales tax.

Import tariff cut 

To tackle increasing rising food prices, ministers are reportedly considering slashing import taxes on certain food items.

Johnson is backing a proposal to cut tariffs on foodstuffs such as rice and oranges, which are not produced in large quantities in Britain.

Anne-Marie Trevelyan, international trade secretary, is said to be resisting the plan, arguing Britain would be throwing away its leverage in trade negotiations with third countries if it unilaterally cut tariffs.

Chancellor Rishi Sunak is reportedly open minded about the idea of cutting household food bills, even if it might lead to lost revenues estimated to be in the low hundreds of millions of pounds.

However, trade and farmer bodies have warned that lowering food tariffs will not solve the UK’s cost of living crisis.

Minette Batters, the president of the National Farmers’ Union (NFU), which represents the interests of 55,000 food producers in England and Wales, said lowering the tariff wall for imported foods “does not even begin to deal with the problem” of soaring grocery prices.

Dominic Goudie, head of international trade at the Food and Drink Federation (FDF), said a unilateral tariff cut right now would “do little to address the cost of living issues but it would severely undermine the UK’s ambitious trade negotiations and could have damaging impacts for the UK’s food security”.

REUTERS/Paul Childs/File Photo

Nick von Westenholz, head of trade at the National Farmers Union, said tariff cuts on goods not produced in the UK might help consumers, but could mean “indigenous food items get elbowed out by imports of food we can’t produce here.”

Elsewhere, both the British Retail Consortium (BRC) and the Federation of Small Businesses (FSB) said the move would have too little an impact on consumer prices to be worth pursuing. 

“Messing around with tariffs in that kind of respect wouldn’t make much difference to food prices,” reports quoted Andrew Opie from the BRC, who added that price changes would be “negligible.”

Inflation

The latest ONS data showed that the rate of inflation touched 9 percent in April- highest in 40 years. The 6.7 percent rise in the price of food and non-alcoholic drink in the UK has been described as “very sobering” by the chief executive of the Food and Drink Federation (FDF), Karen Betts. 

Food and drink manufacturers have reported that energy price rises have impacted their operations. In addition to this, labour shortages and wage increases are also squeezing businesses.

Sky-high inflation figures and ongoing cost of living squeeze are now burning issues- something which is now putting pressure on Johnson and Sunak.

Speaking in this regard in the Commons recently, Labour’s shadow environment secretary Jim McMahon urged ministers to do more.

Photo by TOLGA AKMEN/AFP via Getty Images

“He is speaking like a commentator, a spectator from the sidelines rather than the Secretary of State responsible around the Cabinet table for food security. He seems to be oblivious to the cost-of-living crisis that people are facing,” McMahon said.

The Chancellor is also under pressure to bring back the temporary increase to state benefits that were introduced during Covid-19 pandemic. The increase to benefits was ended in October last year in a move that affected 4.4 million households.

However, Chief Secretary to the Treasury Simon Clarke on May 23 denied any possibility of temporary increase in state benefits.

Wrap

A YouGov poll published recently showed a record 72 per cent of those surveyed think the government is handling the economy badly, and 75 per cent say it is doing poorly with inflation. More than half of those who voted Conservative in 2019 faulted the government.

Clearly, the country’s worst bout of inflation is slowly taking the form of a political crisis for Conservative government. Sunak has targeted relief for the workforce, says Labour, claiming that help should be extended to pensioners and those on benefits.