Rt Hon Philip Hammond MP Chancellor of the Exchequer HM Treasury 1 Horse Guards Road London SW1A 2HQ 22 September 2017

Transcription

1 Rt Hon Philip Hammond MP Chancellor of the Exchequer HM Treasury 1 Horse Guards Road London SW1A 2HQ 22 September 2017 Dear Chancellor FDF SUBMISSION, BUDGET 2017 On behalf of the Food and Drink Federation (FDF), the voice of the UK s food and drink manufacturers, I am writing to set out our proposals for consideration ahead of the Government s Budget on 22 November UK food and drink is central to the economy and to food security, providing consumers with a fantastic array of safe, affordable and nutritious food and drink. As the UK s largest manufacturing sector, we contribute 28.2 billion to GDP, generating more than 20 billion in exports. We employ 400,000 people in over 6800 firms of which 96 per cent are SMEs, and sit at the heart of the UK s 110 billion farm to fork supply chain, employing four million people. With our trading and regulatory ties deeply interwoven with the EU27, food and farming is the sector most impacted by Brexit. It is therefore vital to secure the right deal which enables us to continue to provide consumers with the quality, choice and value they rightly expect. We would urge negotiators on both sides to swiftly agree a suitable transition period which requires business to make only one adjustment to a new way of trading and operating. Uncertainty around the shape of the UK s future relationship with the EU27 is weighing on manufacturers long-term investment intentions. Member companies are continuing to experience severe pressures from increased instability and rising input prices, affecting purchases of essential ingredients and raw materials, including packaging. This in turn has contributed to rising food and drink inflation in 2017 with food and soft drink CPI inflation increasing from -0.5 per cent in January to +2.1 per cent in August The UK s current fiscal position and softening business confidence means pro-enterprise and productivity-enhancing measures are crucial. We would like to see this Budget focus on those areas which will spread growth evenly across the UK and which will ensure we are ready to take advantage of new global opportunities. For food and drink, with a footprint in every constituency, an Industrial Strategy sector deal will be vital in counterbalancing shortterm uncertainty and in boosting our longer-term performance in exports, innovation and skills. The current value of Sterling does offer opportunities for firms to export more, and we urge more assistance to help food and drink businesses access new markets.

2 FDF and its member companies will continue to work constructively with Government to share our expertise as the negotiations proceed. Please do not hesitate to contact me if you think we can be of further assistance. Yours sincerely IAN WRIGHT CBE Director General Food and Drink Federation Page 2

3 FDF BUDGET SUBMISSION 2017 Key recommendations Protect the food and drink industry s competitiveness and economic growth by ensuring a suitable Brexit transition phase and proritise the sector in any consideration of sectoral-specific transition arrangements with the EU. Recognise the strategic importance of food production in the UK by committing to ensure that essential imports of ingredients and raw materials from the EU and EU FTA countries do not face tariffs or costly non-tariff barriers. As highlighted in a recent report for FDF, almost half of our raw materials are sourced abroad. Address the lack of sector-specific export training available in England by funding a pilot Food and Drink Export Academy to be run by FDF and the Food and Drink Exporters Association (FDEA). This would be an accredited scheme that helps to raise UK exports by providing much-needed training to prepare new exporters and enable existing exporters to scale up their activity overseas. Work with us to create an Industrial Strategy sector deal for food and drink, in which the UK has a competitive advantage and offers significant opportunities to secure world-class status. Put in place conditions to deliver a more productive, investment-driven economy that aligns with food and drink manufacturers plans to invest in automation and skills so that the sector can decrease its reliance on migrant labour in the long term, with support in the short term to ensure we have access to our valued EU workforce (currently 30 per cent of our workforce). Make the Apprenticeship Levy more flexible, so a greater proportion of levy proceeds can be shared in the supply chain. Improve the Industrial Strategy Challenge Fund process so there is greater transparency and a clear timeframe which enables our industry to engage. Ensure legislation does not place disproportionate burdens on business and monitor the economic impact of the soft drink industry levy as it moves towards implementation in Ensure that future energy regimes maintain our sector s competitiveness and energy productivity, and minimize the impacts of energy costs on our sector, while contributing to the UK s efforts to reduce emissions. 1. Prioritise food and drink in the Brexit negotiations The overwhelming majority of UK trade in food and soft drink is with the EU - more than 70 per cent of exports and imports. UK businesses and consumers cannot afford any cliff edge. Until a future UK-EU FTA has been agreed, ratified and enters into force, we will need traditional arrangements to ensure UK firms have continued access to vital imported ingredients of which 70 per cent are sourced from the EU, and export markets, given seven of the UK s top ten export markets are EU countries. Ensuring a single point of change will help to minimise unnecessary disruption for businesses that have established trading relationships with the EU. Food and Drink Federation Page 3

4 Food and drink supply chains rely on unimpeded movements of perishable ingredients and sales of limited shelf-life consumer products. As a priority, we need reassurance that new customs arrangements will be as frictionless as possible and not undermine existing access to markets, or UK food security. The most pressing example is the seamless and highly valuable market in food and drink which exists between Great Britain, Northern Ireland and the Republic of Ireland. The UK is Ireland s largest trading partner in food and drink, with the UK selling 3.3bn or 17 per cent of its total exports to Ireland. The majority of food sourced in Ireland from EU and international sources, particularly fresh produce, arrives via ports and supply chains from across the whole of the UK. FDF has offered to convene a joint industry-government taskforce to address the specific challenges, so that raw materials and finished goods are not delayed or impeded. We will continue to work closely with Defra, DExEU and HMRC to secure outcomes which protect consumer choice and economic stability. We also do not underestimate the new remit and responsibilities for Defra, which in recent times has undergone serious budget cuts. It is vital that Whitehall departments and agencies with significant EU Exit related responsibilities, are resourced appropriately and reprioritised in terms of their budgets. 2. Transform Government support for food and drink exports Over the last ten years, we have seen consistent growth of six per cent CAGR in overseas demand for quality UK food and drink. Recent currency changes have provided an additional boost to this demand, and UK products are becoming more competitive in both EU (up 10 per cent in 2016) and non-eu markets (up 11 per cent in 2016). This is helping to highlight the excellence of UK manufacturing around the world. The Department for the Environment, Food and Rural Affairs demonstrated its commitment to growing our food and drink exports, launching a new International Action Plan in October With only 20 per cent of food and drink manufacturers actively exporting and maintaining the UK s global market share of 2.2 per cent, we know there is huge untapped potential among UK manufacturers to meet rising demand. The FDF commissioned research by Grant Thornton on the growth potential in our industry 1. This highlighted China, India and the UAE as the top three non-eu markets which firms would like to target, but do not, due to perceived complexity and unfamiliarity. It is notable that 40 per cent of Irish food and drink firms export, and boosting the performance of current and would-be exporters in the UK will require a step change in Government s provision of export support. One immediate action we would encourage Government to seize is to create a longer-term budget for individual Tradeshow Access Programme (TAP) grants. Industry participation in ITI trade fairs and-market activities would be greater and more effective if a full programme of activity was confirmed with suitable notice. This would allow businesses to better prioritise and to fit this in to their own export activity. The current budget approval process means events are frequently confirmed at very late notice, which curtails involvement, particularly by smaller firms. 1 1 FDF Economic contribution and growth opportunities, July Food and Drink Federation Page 4

5 To overcome structural challenges, intervention is required to help our sector fulfil its potential. We believe this should focus on two critical areas that, if combined, can help shape long-term thinking on exports: a. Expand provision of specialist food and drink export support Export support for manufacturers in England lags behind that available to manufacturers based in Scotland, Wales and Northern Ireland. A gap exists in the provision of food and drink-specific export training and guidance. Government could make a real difference in our sector by funding a pilot Food and Drink Export Academy. FDF works in partnership with the Food and Drink Exporters Association (FDEA) on exports and the organisations could deliver an accredited programme with the backing of Government, providing practical training to help prepare new exporters and to enable existing exporters to scale up their activity overseas. An effective and relatively low cost pilot could quickly be implemented in late 2017, based on existing experience operating the Welsh International Trade Development Scheme. b. Provide additional incentives to drive long-term thinking on exports Government should develop WTO-compliant solutions to provide an increased package of fiscal incentives and financial assistance to encourage businesses to invest in their export capability so that they are ready to take advantage of new opportunities after the UK leaves the EU. Exporters would be better prepared to successfully enter new markets if Government could provide vital support that would enable businesses to recruit and train skilled export managers. FDF research carried out in 2015 found that UK businesses consistently operate at a disadvantage in overseas markets. Competing manufacturers from other countries typically receive greater support and funding that helps with the costs of starting to export. In many countries, funding for tradeshows is provided through a consortium model that helps generate economies of scale, while businesses receive grant funding to assist with costs of exhibiting, training and undertaking market research. The Grant Thornton report commissioned by FDF shows that food and drink manufacturers need funding towards participation in international trade fairs and market development trips, alongside greater provision of targeted market research and mentoring/networking opportunities with experienced exporters. 3. Support UK food and drink through an Industrial Strategy sector deal Boosting productivity across the UK is key if we are to take advantage of new, global opportunities. The UK still lags behind many international counterparts, and Government must counterbalance any negative consequences from the uncertainty of leaving the Single Market on investment, innovation and job creation with incentives to support growth through a modern industrial strategy. We looking forward to continuing to work in partnership with Government, Defra and BEIS in particular, to take advantage of long term opportunities. We believe that a sector-led approach to industrial strategy, using both horizontal and vertical measures will best such support the development of sectors, such as food and drink manufacturing, in which the UK has a competitive advantage and significant opportunities to secure world-class status. Recent research by Grant Thornton for FDF 2 highlighted the food and drink sector s unique footprint in communities across the UK. We therefore support the 2 FDF Economic contribution and growth opportunities, July Food and Drink Federation Page 5

6 Government s focus on a strategy that will deliver for every city and rural area, not restricted to one or two major cities. We look forward to guidance for sector deal development due to be published shortly, in advance of the White Paper on Industrial Strategy. As an industry we are developing a sector deal proposal which will add economic and societal value through the following priorities: 1. Investing in science, research and innovation for health and productivity improvements; 2. Addressing fragmentation of specialist food and drink export support to drive SME export growth and fulfil industry s export potential; and 3. Developing skills to improve workforce self-sufficiency and productivity improvements. 4. Continued access to a skilled workforce Food and drink manufacturing has benefited greatly from the skills, expertise and flexibility of EU workers, employed by firms large and small. Almost a third (30 per cent) of our current workforce are EU nationals, with a high percentage carrying out essential technical and specialist roles. Around 19 per cent of FDM employees working in higher skilled jobs with a higher education or degree are from the EU. It is vital that we have the right pool of talent to feed the nation. We would like Government to guarantee the right to remain for the 121,000 valued EU citizens employed across food and drink manufacturing. While companies are working hard to build their pipeline of home grown talent, through outreach with schools, new apprenticeships and degree courses, we cannot replace such a significant proportion of our workforce quickly. A joint, cross food chain report led by FDF published in August 2017 revealed that the loss of access to EU workers would cause significant economic disruption, with over a third of respondents (36 per cent) reporting that their business would no longer be viable 3. As a sector, we already faced a large skills gap due to an ageing workforce, talent shortages, STEM skills gaps and historically low apprentice numbers. Food and drink manufacturing alone is estimated to need 140,000 new recruits by2024. The opportunity to build a homegrown STEM skills base for the industry, by building a critical mass of learners to address market failure and delivering sector appropriate qualifications, remains a crucial part of the Industrial Strategy sector deal for food and drink manufacturing. The Government should continue to explore how the Apprenticeship Levy can be better used and made more flexible, so firms can invest in upskilling and throughout their supply chain. We would ask that that timescales are brought forward so a greater proportion of levy proceeds can be shared in the supply chain. Smaller businesses will need support from larger firms to identify best practice and best value providers. The Government should empower firms to pool resources to meet regional labour market needs. 5. Make UK location of choice for science and innovation The UK is globally recognised as a market where both international and British companies have been at the forefront of innovating both products and production processes to deliver 3 FDF Breaking the Chain, August Food and Drink Federation Page 6

7 benefits for businesses and consumers alike. Businesses have a proud history of working closely with the UK s academic community to bring new products, packages and ingredients to the market, often supported by funding from the Research Councils and Innovate UK. The food and drink industry continues to have a strong innovation ambition and in challenging stubborn societal issues. With this in mind FDF were pleased to hear of the Industrial Challenge Fund to be run by Innovate UK. Whilst this programme appears to have much potential, for our sector to be able to access this funding stream we would request greater clarity on the Industrial Strategy Challenge Fund. FDF would support an improved process, more transparency and a timetable that enables our industry to engage. FDF supports the Government s ambition to be one of the best places in the world for science and innovation. The new Industrial Strategy should enable the UK to be an attractive platform for companies to create or launch innovative products and to adopt innovative manufacturing technologies, as well as to direct foreign investment to the UK. FDF is seeking a long-term strategy that supports and channels investment in R&D, innovation and knowledge transfer into the sector. The UK food and drink sector is a world leader in innovation and we self-fund three quarters of the sector s research and development. In 2014, Government contributed 0.6 per cent ( 3m) to the sector s R&D spending, whilst the automotive and aerospace sectors received respectively 1.6 per cent ( 37m) and 11.9 per cent ( 202m). A number of global food and drink companies have chosen to base their R&D centres in the UK, providing highly skilled and well-paid employment. We strongly encourage Government to incentivise using UK hubs as the centres of choice for investing in R&D, whether through financial measures or ease of operation. The industry itself relies upon and supports extensive networks of research sites and helps the UK to maintain scientific expertise. Public funding and highly effective knowledge transfer are particularly important for SMEs, which are some of the most innovative businesses in our sector, yet lack the capacity to undertake R&D on their own account. The Food Innovation Network was set up with a view to bridging these gaps especially for SME s and we would like to see this type of investment built upon where success is being demonstrated. We would like to see more firms accessing R&D tax credits and therefore welcomed the ambition of the recent HMT review, to which we provided input, to improve the process for firms of all sizes. We would now like to see more detail of how Government plans to reduce administrative burdens. This will help boost the UK as the location of choice for R&D investment for businesses who have multiple options at their disposal. 6. Maintain a stable regulatory environment Regulatory stability and predictability is essential for firms of all sizes, particularly at a time of softening growth. The UK Government and devolved nations should play a strong role in ensuring future legislation is fit for purpose and research and innovation-friendly, based on the best available science. Regulation should be proportionate, properly costed and backed up by robust impact assessments, which will further drive the sector s competitiveness. We would urge Government to closely monitor the economic impact of the soft drink industry levy as it moves towards implementation in Future energy policy which supports sector competitiveness Food and Drink Federation Page 7

8 Food and drink manufacturing is the second equal largest energy using manufacturing sector. We have an annual energy spend in excess of 1.3 billion that is expected to increase substantially over the next 10 years. We anticipate announcements this autumn concerning the future of the Carbon Price Floor and the Levy Control Framework. We are looking for these future regimes to support our efforts to help meet the UK s emissions reduction targets, while maintaining our sector s competitiveness and energy productivity, and minimising the impacts of energy costs on our sector. For further information Jayne Almond Head of Corporate Affairs Food and Drink Federation (FDF) Jayne.Almond@fdf.org.uk Food and Drink Federation Page 8

9 The UK Food and Drink Manufacturing Industry The Food and Drink Federation (FDF) is the voice of the UK food and drink manufacturing industry, the largest manufacturing sector in the country. Our industry has a turnover of 95.5 billion, which is 19 per cent of total UK manufacturing, with Gross Value Added (GVA) of 28.2 billion. Food and drink manufacturers directly employ 400,000 people in every corner of the country. Exports of food and drink make an increasingly important contribution to the economy, exceeding 20 billion in 2016 for the first time. The UK s 6,800 food and drink manufacturers sit at the heart of a food supply chain which is worth 110 billion to the economy and employs four million people. The following affiliated associations actively work within FDF. ABIM ACFM BCA BOBMA BSIA BSNA CIMA EMMA FCPPA FOB PPA SA SNACMA SSA UKAMBY UKTIA Association of Bakery Ingredient Manufacturers Association of Cereal Food Manufacturers British Coffee Association British Oats and Barley Millers Association British Starch Industry Association British Specialist Nutrition Association Cereal Ingredient Manufacturers Association European Malt Product Manufacturers Association Frozen and Chilled Potato Processors Association Federation of Bakers Potato Processors Association Salt Association Snack, Nut and Crisp Manufacturers Association Seasoning and Spice Association UK Association of Manufacturers of Bakers Yeast United Kingdom Tea & Infusions Association Ltd FDF also delivers specialist sector groups for members: Biscuit, Cake, Chocolate and Confectionery Group (BCCC) Frozen Food Group Gluten Free Group Ice Cream Committee Meat Group Organic Group Seafood Industry Alliance Food and Drink Federation Page 9