Living standards are “set for historic fall” following the government's spring statement, according to the Office for Budget Responsibility. Atif Butt examines what this might mean for independent pharmacies…

With the UK inflation rate hitting a 30-year high and driving a cost-of-living crisis, the chancellor Rishi Sunak was under pressure to use his spring statement to relieve some of the burdens faced by households and businesses across the country.

Community pharmacy businesses in the UK currently face a number of challenges. Operating costs are increasing, with soaring fuel and energy prices continuing to the rise. Staff costs have also gone up as increases in national insurance and the minimum wage took effect in April.

There are also downward pressures on customer demand and revenues as households feel the pinch of rising inflation. Pharmacies are also anticipating an impending loss in income from the winding down of some Covid-related services. With no recent announcements of additional funding for the sector, there was hope that the spring statement would introduce new measures to address some of these issues.

What were the key changes announced by the chancellor and how will they affect community pharmacy? One of the headline announcements was a 12-month cut in the rate of fuel duty of 5p per litre. This provides some welcome relief with fuel prices currently at their highest ever levels, but there is concern that the measures don’t go far enough.

RAC, the vehicle recovery firm, said that benefiting from the fuel duty cut “depends entirely on retailers reducing their prices and not using it as an opportunity to take a greater profit on every litre they sell”.

Additionally, with fuel costs having already risen by an average of 30p per litre since January - and predicted to continue to do so - it’s hard to see how this small cut will make much of a difference to energy or fuel costs.

This is of particular concern to pharmacy businesses because, unlike households, they are not protected by the energy price cap, and so could see their premises costs continuing to rise.

While the increase to the national insurance rate of 1.25 per cent that was announced last year has gone ahead, there were a couple of further changes to the tax and national insurance system.

The employment allowance has increased from £4,000 to £5,000. This is the amount you can claim against your employers’ class one national insurance, and effectively means a tax saving of £1,000 for most pharmacy businesses. Also, national insurance thresholds will be raised by almost £3,000 in July 2022, to bring them in line with the income tax personal allowance. This will lead to a moderate tax cut for both employed and self-employed workers but will not have an effect on pharmacy staffing costs.

So, while the rise in the employment allowance does represent a saving to your pharmacy staff bill, it is of limited scope, and pharmacy businesses are still likely to face rising staff costs this year.

Overall, the statement was met with disappointment by small business leaders and pharmacy sector representatives Many expressed the view that the chancellor should have done more to support businesses through this challenging time. The chancellor also used the statement to set out some of his plans for the future. What changes can we expect? Are there likely to be any new measures in the pipeline that can benefit the community pharmacy sector?

The chancellor has said he plans to reduce and reform taxes during this parliament. While he hasn’t revealed a detailed analysis of his tax plan, he did announce that by 2024 the government will reduce the basic rate of income tax by 1 per cent. Like the increase to the national insurance threshold, this will result in a tax cut for employed and self-employed workers but will not have any impact on staff costs.

As part of the new tax plan, the government is also looking at ways to improve the apprenticeship training system and encourage greater private sector investment in employee training, so there are expected to be new measures announced that will help alleviate rising staffing costs for operators.

As previously announced, the new business rates discount scheme for retail, hospitality and leisure started in April, providing 50 per cent relief on rates for one year. Although there were no new announcements on business rates, the government has committed to setting out its plans for business rates reform in the autumn budget this year, with any changes starting in April 2023.

There were no changes announced to business taxation rates, but there was a promise for longer term reforms to be announced next year. Hopefully, the chancellor will use this opportunity to address some of the challenges being faced by community pharmacy businesses.
 

Atif Butt is a senior accountant at Hutchings Accountants.