Few surprises in Budget

The Budget could have been worse. The chancellor chose to retain the excise duty escalator imposed by Labour, but few expected him to do anything else. If he had been going to modify or scrap it he would have done so last June.

HMRC figures show that despite depressed sales in part generated by extra taxation, the Treasury is still raking in extra funds from the drinks sector every year. For instance, since 2000, wine sales volumes have increased by 9% but the tax take has soared by 74%.

Over the same period, despite a 20% fall in beer volumes, Treasury revenues from them have risen by 16%. The Law of Diminishing Returns holds that Osborne would get more if he pegged or reduced duties, but despite intensive lobbying over the years by the industry, the message has fallen on deaf ears.

So up goes a bottle of still wine by 15p, while a bottle of spirits rises by about 54p from Sunday. High strength beers came off worst, with the duty rate going up by 25% in October, but their low-strength counterparts will attract 50% less duty.

On the plus side corporation tax is coming down – albeit marginally – and measures to stimulate manufacturing exporters will aid Britain’s distillers to plan for growth in overseas markets.

In the same vein, the cut in fuel duty will help most drinks companies with their margins. So too will the scrapping of much legislation affecting small businesses – if it comes about. Governments have a habit of paying lip-service to the principle, but often action is slow in coming. The Treasury is reticent about exactly what Osborne is changing.

Two duty anomalies have been scrapped, as predicted by the drinks business last year. The exemption of Angostura Bitters will disappear some time after next year (the timing has been left vague) because it benefits only one producer – in Trinidad – and puts producers of other cocktail ingredients at a competitive disadvantage. Slightly more controversial will be the subjecting of Black Beer – of which there is only one producer, in Leeds – to excise duty.

What was unspoken in the Budget, however, was the arrival in 10 days’ time of Osborne’s tax and spending squeeze on domestic incomes which he put in place last year. From 6 April personal allowances are frozen, National Insurance is rising and VAT has already gone up.

This is the year that austerity hits Britain in the pocket. Inflation is running at 5% and although calculations vary, the average family will be at least £300 worse off than in 2010. If this week’s first quarter figures from J Sainsbury are anything to go by, the chancellor’s bitter medicine is already biting.

The measures he announced on Wednesday are tinkerings at the edges.

Finance on Friday, 25.03.2011