The autumn Budget dealt some tricks and one very unexpected big treat for the forecourt sector, explains industry commentator Jan Mikula.
Hands-up, I got it wrong. The Chancellor somehow managed to avoid any increase in fuel duty in her first Budget, and it remains at 52.95 pence per litre. That rate was scheduled to end in April 2025 but will remain in place for another 12 months until April 2026, unless, of course it is changed in a future Budget between now and then. Perhaps the decision was part of her attempt at avoiding tax increases that will be felt immediately by consumers, although the ’sin tax’ on tobacco was not spared – a rise of 2% above inflation for cigarettes and a whopping 10% above inflation on hand-rolling tobacco – or maybe her crystal ball is better than mine, and, I should add, many others who were expecting fuel duty to increase.
While there has been a genuine fall in oil prices, and hence pump prices, over the last month or two, this has been rather weird, in the sense that it is based on several factors that don’t fit the historic trends. And especially considering what has been happening in the Middle East during the same period; as Israel and Iran trade tit-for-tat missile exchanges, many analysts have voiced concern that a single miscalculation by either side could very quickly result in oil tankers having to avoid the region altogether – which would send the cost of crude oil in Europe and the US through the roof. If that happened, the economic consequences would be atrocious.
Leaving that aside, the Budget has included a couple of measures that will cause headaches for employers. Firstly, there is the increase in the National Living Wage. The legal minimum for over-21s will increase by 6.7% from £11.44 to £12.21 from April 2025. Coupled with that is the increase in the rate for 18 to 21-year-olds of a whopping 16.3% from £8.60 to £10.00 an hour. This is said to be in line with an intention of eventually having a single adult rate for every employee aged 18 and over, at some undefined point in the future. Certainly, the headline rate had been ‘leaked’ well before the Budget, and won’t have come as shock to most employers, although the junior rate might.
Of much more concern to all employers are the changes to National Insurance (NI). At present, employer’s NI contributions become payable on staff wages of £9,100 per annum, at a rate of 13.8%. From next April the levy will start on annual wages of £5,000, and be at a rate of 15%. For some smaller employers there will be a little alleviation – the limit on Employment Allowance, which allows qualifying employers to re-claim some of their NI contributions, will also rise from £5,000 to £10,500 per year. However, that particular allowance is unlikely to be relevant to most of the forecourt retailing industry.
These increases in the scope and rate of employer’s National Insurance contributions are serious. They are inevitably – and correctly – called a “tax on jobs”, and there’s little or nothing that any employer can legitimately do to avoid them. Other than reducing their staff levels or staff working hours. In the real world, both of those choices are severely constrained; staff numbers and hours are hardly optional in any case. Cutting opening hours on a forecourt may not be realistic, and looking for a technological solution, that is more automation, takes time and capital investment, even if there is one.
So, while fuel retailing in particular has dodged the bullet of an immediate rise in pump prices after the Budget, it now has five months to try and find some way of trying to reduce costs, or increase revenues before the Chancellor’s new measures come into effect in next April.
- Jan Mikula represents nationwide franchise accounting company EKW Group – ekwgroup.co.uk
