NEWS: Budget report - What it means; Clarke keeps most marketers happy but hurts some sectors,

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

alcopops.

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.

Tax

\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

market.’

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.’

Alcohol

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.

Tobacco

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

was unimpressed.

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.

Travel

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

brochures.

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.’

Petrol

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

fuels.

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.

This article was first published on Marketing