IGD chief economist considers impact of 2012 budget on food and grocery sector

Walton: budget analysis

Walton: budget analysis

The budget measures that have the greatest long term impact are not always the ones that capture the initial headlines. James Walton, IGD’s chief economist, considers five potential game changers for the food and grocery sector

1. Changing VAT rules

Another review of VAT anomalies is promised. Sports drinks and hot food in particular are in the Chancellor’s sights. The debate on what should and shouldn’t be zero rated is raging again. It is possible, but unlikely, some items might have VAT removed in this review. The concern for the food and drink sector is zero ratings will be gradually chipped away year by year.

2. A boost for the middle market

Recent conditions seem to have helped both the premium and value ends of the food and grocery market to prosper. However, the higher tax threshold will support the squeezed middle income earners, which should boost mainstream retailers and brands; particularly if this signals a trend for future budgets.  

3. Could this be the end of Sunday trading restrictions?

Owing to the Sunday trading rules, the retail industry and its supply chain has never quite evolved to a 24×7 basis. It has been more akin to 24×6.5. However, if the temporary lifting on these restrictions for the Olympics proves popular enough, the last step could be in sight, although it would be highly contentious. Throughout the trial, the impact on spending will be closely scrutinised.  

4. A further stimulus for online shopping

The Chancellor announced new investment in broadband including ultra-fast speeds for 10 big cities. On the day Game has called in the administrators, this will give even greater momentum to online retailers, particularly in those chosen cities. IGD predicts the online market for food and grocery will reach £11.6bn by 2016.

5. Rising retirement age

The state pension age is about to be linked automatically to life expectancy. Private sector employers are likely to follow suit. This could be the one measure in this budget remembered for decades ahead.