Business briefing from Logistics UK steers members through the 2021 Budget

The webinar specifically explored how last week’s Budget may impact Logistics UK members’ businesses.

Elizabeth de Jong, Logistics UK’s Director of Policy, introduced the briefing, by remarking that the industry and the wider economy had just experienced a year like no other.

“There have been two major themes running through the policy work at Logistics UK,” she said, “COVID and the subsequent lockdown and Brexit.”

In its submission to the Chancellor prior to the Budget, Logistics UK focused on skills and apprenticeships in logistics, infrastructure investment, decarbonisation and the need to delay a rise in Fuel Duty.

Elizabeth de Jong encouraged attendees to participate in Logistics UK’s policy work. “Engagement with you has been vital in building and maintaining our strong reputation for informing government from a reputable and evidence solutions-based perspective,” she said. “And that is absolutely key to being able to deliver policy wins for our members.”

2020 BUDGET

She then handed over to Ryan Barnett, Logistics UK’s newly appointed Economics and Research Manager.

Barnett drew attention to the widely different economic backdrop of the 2020 Budget, when employment was at an all-time high and many commentators were looking ahead with optimism to a new decade – the “roaring 2020s”.

“The then fresh and largely unknown Chancellor had been in position for a mere three weeks,” Barnett said, “when he had to confront the biggest economic crisis in peace time and biggest fall in GDP for if not 100 then potentially 300 years.”

The 2020 Budget was swiftly followed by several smaller ones and a series of measures to support jobs and businesses through a range of loans, tax deferrals and direct wage support, such as the furlough scheme. “Now, a year on, we are starting to understand its economic impact,” Barnett said.

FISCAL ANNOUCEMENTS AND FORCASTS

The government and Office for Budget Responsibility revised their outlook for growth to 4% for this year and 7.3% next year. Looking at the domestic economy, unemployment, which is currently at 5.1%, is predicted by the Bank of England to reach between 6% and 8% this year.

“The good news is that the vaccine rollout is going well,” Barnett said, “and we now have an idea for how that reopening over the next few months will take place. These factors have added some much-needed positivity into wider economic sentiment, though that is a very long road ahead especially in terms of employment.”

Internationally, East Asian economies have already begun to recover, along with the IATA Jet Fuel price index and the Baltic Dry index, which tracks global shipping.

Owing to the extra spending and measures government had to take to support the NHS, jobs and the wider economy, government debt and its annual budget deficit are much higher this year.

“The government now expect the budget deficit to continue until at least 2026,” Barnett said. “However, the majority of rises in taxation to offset this spending have been delayed to give the economy time to recover.”

WHAT THIS BUDGET MEANS FOR LOGISTICS

Road and rail movements have largely recovered to pre-pandemic levels. In aviation, the dearth of passenger flights has led to a certain amount of rebalancing, with some operators repurposing passenger planes to cargo-only flights to utilise their existing fleets.

While HGV and van traffic fell substantially in the initial lockdown, and the restrictions in November were noticeable by the drop off in van and car traffic, the lockdown in January had less of an effect, with traffic much closer to normal levels. Barnett believes this indicates increased sectoral resilience and adaptability since the first lockdown.

“It is with these factors in mind that we look to last Wednesday’s announcement, hoping to see support for our industry and the sectors it is closely intertwined with,” he said.

CHANGES TO TAXATION AND DUTIES

Logistics UK’s submission to the Chancellor ahead of the Budget highlighted the need to keep Fuel Duty frozen at this time to help ensure economic recovery.

“A rise in Fuel Duty could impede growth and diminish the creation of new jobs and therefore the amount of tax collected by the government,” Barnett said. “We are very pleased he has taken our advice and frozen it, continuing a decade of frozen duty, which is already comparatively high if we look across Europe.”

Fuel Duty is already a substantial cost. It is estimated that an HGV travelling 80,000 miles a year equates to about £28,000 in Fuel Duty. For a fleet of 15 HGVs that means annual costs of £428,133, while a fleet of 100 HGVs could incur costs of £2.8m.

The anticipated rise in Corporation Tax from 19% to 25 % will take place over the next few years. But even at this higher rate Barnett said that it would still rank among the lowest in Europe, the G8 and the OECD.

“Interestingly and unexpectedly,” Barnett said, “there is also going to be a taper. So this means that businesses with profits above £250,000 will be taxed the full 25%. Companies with profits less than £250,000 will remain at 19% and then there should be a gradual easing between the two as you move up the profit range.”

COVID BUSINESS SUPPORT

As expected the government has extended job support via the furlough scheme and self-employed funding until the end of September – a whole three months longer than the government’s roadmap for the complete hoped-for reopening of the economy by June.

“This should bring some confidence to employers,” Barnett said, “particularly in sectors that have had to close their doors to the public, and hopefully stave off job losses.”

There will be £5bn worth of ‘restart’ loans to help high street businesses reopen, a new recovery loan scheme of between £25,000 to £10m for businesses of any size, plus £5,000 to help SME businesses access training to use new software.

OTHER ANNOUCEMENTS

Other announcements include £126m for traineeships in England, £138m to fund areas such as digital and technical skills, £22bn for a new Infrastructure Bank, based in Leeds, and the first stage of the £4bn Levelling Up Fund.

Red Diesel tax reform is confirmed, with inland water freight and some rail-related operations added to the list of sectors able to benefit from continued zero duty. Refrigerated vehicles, purpose-built road gritters and snow ploughs, however, will pay full duty rates from 2022.

Eight Freeports across a fair balance of English regions were also announced in the Budget, while further negotiations at other locations are still ongoing.

ADDED CONTEXT

Alex Veitch, General Manager – Public Policy, then provided some additional detail and context to the key Budget announcements under four broad headings: the economy, COVID, infrastructure and skills.

ECONOMY

Broadly, Veitch said the economic measures in the Budget were mostly positive for logistics, particularly the freeze on Fuel Duty and the suspension of the HGV Levy until next summer. However, the Corporation Tax rise was more troubling, although the tapering for businesses with profits under £250,000 was welcomed. “I think we have to expect a certain amount of tax revenue raising measures in the Budget,” Veitch said.

COVID

Logistics UK has undertaken a lot of work around the process for accessing and taking advantage of business loans, including plenty of direct engagement with the Department for Business, Energy, Innovation and Skills (BEIS) through its Chief Executive David Wells.

Veitch also highlighted the extension to the furlough scheme, saying that there had been a relatively high usage of furlough in parts of the logistics sector that have been particularly impacted by the pandemic.

INFRASTUCTURE

Outlining the range of loans and funding that will become available to support the levelling up agenda, Veitch said: “We’ll be working through our regional structures and our councils in the devolved administrations to work out how best to engage with that local delivery of funding.”

On the Freeports announcement, Veitch said that Logistics UK had been at the forefront of the debate and looked forward to working and engaging with members on this topic via Logistics UK’s Maritime and Customs committees.

It was a more mixed and complicated picture on red diesel. While it appears the rail and inland waterway sectors will continue to receive the duty exemption, refrigerated units on HGVs will not. However, Veitch said this was somewhat cushioned by the infrastructure tax cut and a £500m fund to support companies to invest in alternatives to diesel.

SKILLS

On skills, Veitch said there was a lot in the Budget to be excited about. As well as more money to take on apprenticeships and traineeships, there was also a strong commitment from the Department for Education to reform how apprenticeships work, which Logistics UK has campaigned on for many years. While Veitch applauded the government’s support for higher skilled, Level 3 roles, he said it did leave out operational roles, such as HGV drivers and warehouse operatives. Although apprenticeship standards do exist for those roles, Veitch described them as clunky and they have not been delivered at scale.

“We were disappointed that the government chose not to take us up on that,” he said, “and we will continue to apply pressure on that point.”

Elizabeth de Jong chaired an interesting discussion on the implications of the Budget announcements and the possible further announcements later this month. Members will be updated on any new measures being consulted on through the weekly enews. 

*www.logistics.org.uk/campaigns/logistics-and-the-economy

Published On: 11/03/2021 16:00:42

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