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Latest news from Packaging Innovations & Empack
Packaging industry has its say on the Budget
Rachel Reeves’ first Budget as Chancellor was met with plaudits and criticism in equal measure. We sounded out the packaging sector to take the temperature of the industry’s response to the most headline-making Budget in a generation.
The Labour government came into power on the back of a simple, one-word slogan – “change”. For better or worse, the Budget delivered on that promise. While it was already historically significant as the first Budget to be delivered by a female Chancellor, and the first Labour Budget in 14 years, the economic policies contained in the famous red briefcase are what really sparked discussion across the nation.
As the packaging industry contributes roughly £11bn per year to the UK’s GDP and employs tens of thousands of people across the nation, it has a loud voice in those discussions. Packaging Innovations spoke to voices from across the industry to ask: what does the Budget mean for the packaging industry?
The headline measures
One of the most controversial elements of the Budget was the rise to employers’ national insurance contributions, estimated to raise £25bn – accounting for over half of the Budget’s £40bn in tax rises. The Chancellor attempted to soften this blow for smaller businesses by increasing the employment allowance and freezing the main rate of corporation tax until the next election, but there’s no getting around it – this will have significant ramifications for many businesses, especially in the context of other rising costs.
One of these costs is the legal minimum wage, which will rise to £12.21 per hour for over-21s in April, while the rate for 18-20-year-olds will rise to £10. However, when taken into context alongside the many other industry-specific costs on the horizon, including EPR fees and the continuing plastic packaging tax, packaging businesses have extra work to do to maintain profitability.
However, large investments in infrastructure, industry, innovation, and clean energy mean that businesses involved in sustainable packaging and the supply chain may benefit from exciting new opportunities. A continued freeze on fuel duty will benefit logistics through the supply chain. And, should the government’s plans to reduce inequality pay off, more money in the pockets of the lower-paid should lead to a broader consumer base more willing to spend on a range of products – and the packaging they arrive in.
Whatever the eventual outcome, the packaging industry finds itself in a changed landscape. We asked stakeholders from across the industry how they feel about this new reality, and what they see as the road ahead.
Dani Novick, Director at Mercury Search and Selection Limited
“The print and packaging sectors use a large number of seasonal and temporary workers, and the costs of continuing to do so are likely to jump up significantly as the temp agencies look to maintain margins. The inevitable result of this is that companies will try to reduce the number of temps employed – leaving many without work.
“As such, many employers who have used temps to flex capacity may look at alternative means. The increase in living wage will hit hard. There are employers who look longer term and plan work over longer periods – perhaps bringing some work forward to quieter periods, although this can impact working capital. Others are focusing on more cross-training and flexible working hours, with shorter weeks in quieter times and longer weeks or more shifts in busy periods.
“This flexibility will extend to skills and functions, so teams can be moved and processes shifted to accommodate peaks and bottlenecks.
“For permanent and higher-paid staff, employers should consider salary sacrifice schemes as their best opportunity to soften the impact of the increase in national insurance. Salary sacrifice is a workplace scheme where you give up some of your earnings each month in return for a non-cash benefit. This deduction reduces salary and, because income is lower, the employer pays less national insurance and the employee pays less income tax and national insurance.
“Of course, employers need to get professional tax advice but they could offer additional pension contributions, gym membership, car leasing, health insurance, and so on. Unfortunately, you can’t sacrifice salary if it takes you below the minimum wage, so again, the lowest paid will be disadvantaged.
“These changes are going to hit many employers hard, and they will need to be creative and take a hard look at how they operate to minimise the impact. If they don’t, we could see redundancies and less temporary work available.
“On the plus side, those employers who can be creative, look at their processes, and provide a broader range of benefits that minimises employee and employer tax burdens will be highly attractive employers.”
Emma Verkaik, CEO of BCMPA
“The Autumn budget is a tough one for small to medium business owners in our sector. Despite being praised for keeping the economy going during COVID and ensuring essential deliveries, it seems the Treasury has a short memory, now looking to SMEs to bear the weight of higher state spending.
“The National Insurance increase alone adds nearly £1,800 per employee annually, a heavy burden for labour-intensive operations like gift packing, contract manufacturing and logistics, where increasing margins isn’t usually an option. This will undoubtedly impact on companies’ ability to invest and make growth much more difficult. It was also disappointing to see no support in the budget for upskilling or apprenticeships, which could boost employment growth and help the UK remain competitive globally. With the recent news from the US, it looks to be a challenging winter. Still, as proven solution providers, I’m confident businesses in the outsourcing sector will find ways to overcome these issues.”
Andy Johnson, Commercial Director at Sun Branding
“As Commercial Director for a brand and packaging agency with several UK FMCG clients and retailers, the biggest impact I see for many of our clients – as well as any people-focused business, including ourselves – has to be the increased labour costs with national living wage increases, higher NI contributions and lower thresholds.
“For our clients in food and drink, will this result in increased food prices? Hopefully not, though this cannot be ruled out. Other alternatives could be to reconsider pack sizes and packaging formats to reduce product and packaging cost, so long as the function needs of the pack can be maintained. This may also reignite the brand vs own label battle, with retailers and brands trying to claw market share out of food and drink categories and commodities which are becoming more and more price sensitive.”
Steve Lister, Sustainability Consultant and Founder of SteveLister.com
“The UK’s Autumn Budget has shone a spotlight on sustainability, offering a wealth of opportunities for global brands, retailers, and their supply chain print partners. With increased government investment in green infrastructure and renewable energy, businesses can focus on new sustainable products and services. This presents a unique chance to differentiate themselves and attract new sustainably conscious businesses and consumers.
“The Budget’s focus on supply chain resilience and transparency is a significant step forward for sustainable business practices in the UK. By encouraging businesses to prioritise ethical and sustainable sourcing, the government is driving positive change throughout the print supply chain. This shift presents an opportunity for print and packaging partners to double down and showcase their commitment to sustainability and collaborate with brands to reduce their environmental impact on print and packaging.
“While the Budget offers exciting opportunities, the transition to a sustainable future is not without its challenges. Rising employer NI contributions, energy costs, and supply chain disruptions may impact businesses’ ability to invest in enhanced sustainable technologies and practices. However, by adopting innovative solutions and seeking expert advice, businesses can navigate these challenges and emerge stronger over the next four years.
“However, I think that sustainability is now embedded into global brands and businesses and it’s now an unstoppable force. Yes, there will be headwinds that will push some initiatives off course, but the direction of travel now is to a more sustainable world – driven by Gen Z. The younger generation really cares, and it contains the business leaders of tomorrow!”
Nichols Mockett, Packaging Corporate Finance / Mergers & Acquisitions Partner with Moorgate Capital
“Back in July, the CEO of a multi-billion, multi-national company, which was a potential acquirer of a first-class business in the UK, was in touch to say that they would not make an investment in the UK until they understood the implications of the new government. I thought the CEO was being heavy-handed. But now most acknowledge that the heft of the £40bn plus of Rachel Reeves’s tax hike will fall on business. Not to mention the recent change in labour laws.
“You might say ‘Who cares? Business can afford it.’ Right? Well, some businesses, of course. But when taxes increase on operating businesses, the potential returns from making an investment – such as dividends – are lower. Therefore, why would investors take the risk? This is compounded by changes to taxes on capital gains, at the point an investment is ‘realised’.
“And to have economic growth, a country needs investment, not just a splurge on the public sector. This may stimulate in the short term, but is likely to make life harder for the private sector due to drawing in resources and possibly driving inflation (and higher interest rates). Higher growth economies, particularly with modest inflation and interest rates, will be more likely to attract investment. So, if you are an investor or entrepreneur, thinking of selling a business, perhaps to retire, there are likely to be some bitter pills to swallow. That said, packaging is usually robust, even in a recession, so all is not lost. Time to celebrate with a penny off a pint. Just don’t take the bus to the pub.”
David Bunker, Director of Compass Business Finance
“Packaging manufacturers in the UK have been in and out of survival mode for a prolonged period, and for some navigating these challenges has brought tremendous pressure.
“Whilst insolvencies are still rising in 2024, overall business confidence is increasing, supported by optimism in the economy and softening interest rates.
“The Autumn Budget has generated mixed feelings, whilst there are positives for businesses, such as extensions to the Green First Year Allowances, Full Expensing and the continued £1 million Annual Investment Allowance to encourage business investment. Businesses will also be heavily impacted by the increase in employer National Insurance Contributions and the increase in the National Minimum Wage.
“High street banks still require a high bar for access to their funding, often requiring a business to bank with them. This often means they’re looking for solid credit ratings, deposits and personal guarantees.
“Thankfully, independent lenders and challenger banks are helping businesses to invest by taking the time to understand the needs of the business and focusing their attention on how their investments and future plans will enable them to strengthen and grow.
“Lenders accredited by the British Business Bank to provide funding supported by the Growth Guarantee Scheme (GGS), such as Compass, are in place to support lending to packaging businesses in scenarios where additional support is required to get an investment off the ground. GGS can also enable lenders to provide lower interest rates than they otherwise would have done in higher risk scenarios.”
The way forward leads through Packaging Innovations
The Budget has created many challenges – but it’s also created opportunities for those who are willing and ready to take them. That means it has never been more important for businesses to get inspired and collaborate on exciting new innovations. And it’s why this year’s Packaging Innovations showcase is set to be the biggest and most important in the event’s proud history. It will bring together innovators, stakeholders, and policymakers to network, deliver insightful presentations, and elevate the young talent that will lead the industry into the future.
Discover the future of packaging at the Birmingham NEC. Register now for your free ticket.
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Latest news from Packaging Innovations & Empack
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