Consumer reaction: Spring Budget 2017 brings U-turns, rates relief and digital tax disparity

As the dust settles on the last ever Spring Budget, attention (if indeed it ever left), turns back to Brexit and the triggering of Article 50.

It was a quiet Budget in terms of measures impacting consumer businesses with most of the attention focussing on the employed versus self-employed debate and the subsequent Government U-turn regarding the increase to Class 4 National Insurance.

Consumer businesses are facing strong cost headwinds with business rates, living wage and the Apprenticeship levy all knocking on the door of profitability alongside the anticipated impact of inflation on consumer spending. Stories have started hitting the press about widescale redundancies in large retailers and more than ever, operators need to remain agile and pay close attention to their customers as the battle for hearts and wallets becomes tougher.

The reality of the headline grabbing reduction in rates, which for some smaller companies caps their increase at £600, is that the combined reduction of £435m is a drop in the ocean. The increase, which has led to outrage across consumer businesses, including lobbying by industry bodies and high profile leaders, has again highlighted the disparity in tax profile between retailers operating from 'bricks and mortar' sites and their online competitors.

There was some cheer for the pub sector with a reduction in rates of £1,000 which is anticipated to apply to 90 per cent of pubs. However, with alcohol duties having increased since the Budget and the forthcoming introduction of the sugar tax, consumers will inevitably be paying more for their favourite tipple.

The travel industry will be disappointed to see that the rates of Air Passenger Duty (APD) will again increase in line with RPI (tax year 2018/19), ignoring the campaign to cut the APD rate. The last revaluation of APD was in 2014 by George Osborne and the industry is keen to see tax measures taken by the Government to ease the increasing economic pressures impacting the travel industry and of course the many UK households who are affected by many rising costs, including the cost of their holiday due to increases in tax and unfavourable exchange rates.

The Chancellor alluded to further changes to the tax status of self-employed workers and the impact of this on the gig economy will particularly impact the leisure sector.

The Government is transparent about its struggle with how to modernise a tax system written in a bygone era with the Chancellor highlighting that they 'must find a better way of taxing the digital part of the economy'. Addressing digital tax is on the Chancellor’s ‘list’ but by omission from this Budget, it is clear he has given himself a breather amidst the unpopular headlines around rates valuations.

Consumer businesses and industry bodies will follow the negotiations around Brexit very closely. With the Budget acting as the supporting act for the trigger of Article 50, many will be looking out for changes to employment and immigration laws, scrutinising trade and tariff negotiations and monitoring the continuing impact of a weaker, more volatile pound. The recent hike in inflation has caused jitters and further increases in inflation are likely to curb consumer spending.

Whilst leaving the EU is likely to give the Chancellor more flexibility in setting tax policy it will be interesting to see what the Autumn Statement announcements will be, and how he intends to use it.

Now more than ever businesses will need to examine their operating models to remain agile and respond quickly to both economic, regulatory and consumer changes. Consumer businesses are resilient and dealing with competition and unforeseen challenges is in their DNA.