It may have been a cautious Budget but it will create waves among
marketers in certain sectors.
The biggest blow came with the decision to slap a 40% hike in VAT on
Mr Clarke said the move was designed to deter underage drinkers. But the
industry believes he was scoring political points at the expense of a
brand sector which has been hitting the headlines for the wrong reasons.
Another potential loser is the travel industry, which expressed surprise
at the decision to double air travel tax.
The effect will be more expensive holidays for all and will spark angry
reactions (see below). But broadly the industry was happy that the
Budget would fuel consumer spending without the excess that could create
a false boom.
Most observers were satisfied that the budget had kept the economy on
course, but said the question still remained as to whose hand will be on
the tiller this time next year.
\Retailers gave the 1p cut in the basic rate of income tax and a slight
increase in the personal tax allowance a cautious welcome; one analyst
calling it ‘prudent and virtuous’.
‘The outlook for retailers is already good, with a predicted 4% rise in
consumer spending for next year,’ said retail analyst Nick Bubb of Mees
Pierson. ‘This, plus the effect of all the windfalls from building
society giveaways, means consumers didn’t need any tax cuts to encourage
them to spend more. If the Chancellor had given away any more, we could
have ended up with higher interest rates, which would inflate the
Sir Stanley Kalms, chairman of Dixons Group, said he was pleased that
the small cut in income tax would ‘put money into peoples’ pockets,
without fuelling a boom. What we need now is steady growth and this is
the kind of budget which will help.’
Clarke’s widely predicted decision to respond to fears over underage
drinking by hitting alcopops with a 40% rise of 7p to 8p a bottle was
blasted by the industry.
Merrydown managing director Paul Millman said the action was ‘Pretty
ill-judged. It can’t have been driven by consumers. It was driven by
vocal pressure which is no way to go about legislation.’
Despite a freeze in beer duties, the brewing industry remained
unconvinced - brewers argued that duties should have been cut and
brought into line with France. ‘This does nothing to reduce our problem
with cross-border trading and puts jobs and pubs at risk,’ said the
Brewers and Licensed Retailers Association.
Clarke, who sipped a glass of whisky throughout, was more sympathetic
towards spirits. His decision to drop tax by 26p a bottle or 4% was
cheered by the industry. ‘It is great news for the industry at home and
overseas. Supping whisky has obviously got his brain in the right mode,’
said Campbell Evans, spokesman for the Scotch Whisky Association.
Once again, the nation’s cigarette smokers have been hit hard by the
budget with 15p being added to a pack of 20.
Despite Kenneth Clarke’s statement that he had deliberately kept hand
rolled tobacco low because it is easy to smuggle, the tobacco industry
A spokesman for the Tobacco Manufacturers Association said: ‘He has
again ignored warnings from the industry of risks to revenue and jobs by
this unjustifiable increase. It flies in the face of indisputable
evidence of the vast scale of smuggling, which costs pounds 600 million
a year. The only winners are the criminals.’
Gallaher Tobacco added: ‘UK tobacco taxes are too high. We need a
radical reappraisal as we’re flooded from the Continent.’
The spokesman at Gallaher thought it was too early to say if marketing
budgets would be hit by the tax hike, but said past experience suggested
it would force the market down.
The holiday industry has reacted angrily to the move by the Chancellor
to double air passenger tax from November 1997, with British Airways
calling it ‘extremely unwelcome’ and ‘damaging’. Passengers travelling
to Europe will now have to pay pounds 10 and those travelling outside
Europe pounds 20.
Many in the industry believe the increase will lead to an rise in the
price of holidays, with leading tour operator First Choice saying it
will separate the tax from the price of holidays in its Winter 1997/8
Colin Trigger, president of The Association of British Travel Agents
(ABTA), summed up the general concern. ‘It will hurt the UK economy as
foreign visitors will see Britain as more expensive and less competitive
as a result.’
Clarke opted for caution, with tax on petrol and diesel up 3p a litre
and car tax up pounds 5 to pounds 145 a year. Concessions to the green
lobby were made with a cut in tax of 1p a litre on ultra-low sulphur
The impact of the price hike in petrol and diesel is expected to be
dampened for motorists because of moves by some retailers to stock pile
fuel prior to the budget.
The car industry largely expected the moves and responded calmly,
expecting it to have little impact on sales.