Below is a selection of recent key developments and relevant trends affecting Retail.
Update on advertising of High Fat, Salt and Sugar (HFSS) products
As discussed in the previous edition of Retail Compass, the advertising of HFSS Food and Drink foods remains high on the agenda of the Advertising Standards Authority (ASA). The ASA concluded its review on its non-broadcast food advertising rules 12 months after they came into effect almost a year ago. We are still awaiting the results of that review.
The Government has also launched a new consultation about imposing further restrictions on the advertising of HFSS products. The consultation focuses on the inefficacy of existing restrictions on HFSS advertising, particularly on online platforms. Proposed additional restrictions include a watershed for HFSS advertising between 5.30am and 9pm on all forms of media. Also, the prohibition for advertising HFSS products for online audiences could be adjusted to include any program with an audience comprising of at least 10% children.
This follows an earlier consultation in April 2019 where the Government sought to restrict both volume-based price promotions of HFSS products, and the placement of HFSS food and drink at main selling locations in stores, such as checkouts, aisle ends and store entrances. The consultation has concluded and the Government is currently considering the evidence submitted.
IR35 changes for the private sector (April 2020)
“IR35”, the legislation designed to combat tax avoidance by workers supplying their services through an intermediary, is set to change in April 2020. IR35 has been around since 2000, but HMRC has long been dissatisfied with its application. “Off payroll” rules were implemented for contractors working for public sector organisations, switching the obligation to determine IR35 status from contractors to their clients. Where a contractor is deemed to be “inside” IR35, the client is responsible for deducting employees’ National Insurance Contributions (NICs) and income tax from a contractor’s pay, alongside employers’ NICS.
As of April 2020, the “off payroll” rules will be extended to all private sector businesses except “small business” clients. This is a significant change which introduces a difficult burden on companies both to police the tax status of its contractors – many of whom will have their own view on their employment status – and the risk of significant tax liabilities if they are deemed to have come to the conclusion that someone is a self-employed contractor when they are not. These are complex questions which HMRC often get wrong (see the Lorraine Kelly decision), and companies with large numbers of contractors should take advice on how to implement the new rules.
ASA five year strategy and its impact on Retail
The ASA launched its five year strategy in late 2018, showing a clear intent to more strictly regulate current and emerging forms of online advertising. The ASA is seeking to harness new technologies and build stronger relationships with online platforms to achieve this new strategy and better combat noncompliance. Sanctions for non-compliance will also potentially be made more severe.
The ASA’s focus will remain on a few key topics, particularly child protection, influencer marketing, gender stereotyping and the Internet of Things. The strategy is clearly aimed at more effectively regulating new and emerging forms of online advertising through collaboration with online platforms and intelligent usage of new technologies.
All termination payments above the £30,000 threshold to be liable to employer NICs (April 2020)
First proposed in 2006, the Government's plan to align the income tax and employer National Insurance Contributions (NICs) regimes in relation to termination payments is set to come in to force in April 2020. Currently, the first £30,000 of a termination payment to an employee is free of tax, and anything above £30,000 is subject to deductions for income tax, but not for NICs. The changes coming into force in April 2020 will mean that any termination payments above the £30,000 threshold will now also be subject to employer NICs, placing an extra financial burden on employers. The exemption for employee NICs, however, is to remain. It is expected the extra NICs will be collected in 'real-time' through employers' weekly or monthly payroll returns, representing an additional administrative burden for employers to calculate, record and account for such NICs throughout the year.
Company Voluntary Arrangements: Retail tenants turn up the pressure
According to Deloitte, the number of large retailers launching CVAs increased seven-fold in 2018. The trend continues apace this year and high street stalwart Arcadia Group has just been added to the ranks.
The trend for CVAs is, of course, a sign of high street distress but does it also point to something more opportunistic? In a CVA voting power is determined by value of debt but unascertained debt (such as future rent) is only given nominal value, meaning landlords often have limited sway.
Used effectively, CVAs can allow tenants to rewrite lease liabilities. Tenants are also increasingly making preemptive approaches for rent reductions on the basis that landlords may otherwise end up with empty units. Monsoon-Accessorize and Ann Summers both threatened CVAs recently if rent cuts were not agreed. William Hill took things a step further in March by asking for reduced rents in mere anticipation of difficulties when fixed betting curbs are introduced. For new leases, “turnover rents”, whereby rents are wholly or partially linked to turnover are also growing in popularity.
In this challenging market, landlords are increasingly taking a share of downside risk, whether they signed up to it or not.
Government to introduce new legislation mandating full ingredients labelling on prepackaged foods
The new legislation, to be known as “Natasha’s Law” (named after the individual involved in the tragic Pret A Manger incident), will make full ingredients labelling mandatory for all pre-packaged foods. Under current legislation, food prepared on the premises in which it is sold is not required to display allergen information on its labelling.
The Government intends to draft the legislation by the end of summer 2019, with a view to it coming into force in 2021. After this all foods prepared and sold on the same premises will have to include details of ingredients and allergens.
Retailers should therefore review their packaging and labelling for all foods prepared and sold on their premises, to ensure compliance when the legislation comes into force.
Modern slavery – latest
The Home Office has recently written to the CEOs of 17,000 UK companies telling them to open up about modern slavery in their supply chains, or risk being named as in breach of the law. Any companies found to be non-compliant with section 54 of the Modern Slavery Act 2015 (MSA) will be “named and shamed” in a list published after an audit of modern slavery statements. While the list has not been published yet, this still shows a clear intent by the Home Office to pursue stricter enforcement of the MSA.
The Home Office also published its final report on its review of the MSA on 22 May 2019. The report looks at the operational effectiveness of and potential improvements to certain provisions in the MSA. The report recommends a total of 80 changes, including:
- making the six areas of reporting mandatory, as opposed to only being recommendations, and not allowing companies to simply state they have taken no steps to address modern slavery in their supply chains,
- establishing of a central, Government operated central repository for statements, and the monitoring of transparency by the Anti-Slavery Commissioner,
- strengthening of sanctions for non-compliance and the establishment of an enforcement body, and
- extending of MSA section 54 requirements to the public sector and improving its public procurement processes, and a requirement for companies to have to refer to their modern slavery statement in their annual reports.
It will be up to the Government to decide whether to implement the report’s recommended changes to further strengthen the provisions around modern slavery and bring non-compliant companies to the foreground.
Retail consolidation - lessons from the failed Asda/Sainsbury's merger
In April 2019, the Competition and Markets Authority (CMA) blocked the proposed Asda/Sainsbury's merger after an in-depth investigation. The CMA found it would have left UK shoppers worse off with expected price rises, reductions in the quality and range of products available, and a poorer overall shopping experience.
The CMA has clearly tightened up its position in the retail market in terms of mergers. In its decision it assessed the "substantial lessening of competition" at a threshold of 2.75% for pricing pressure in local markets (i.e. how big of a projected increase there will be in prices after the merger), which was typically assessed at 5-10%. The change drastically increased the number of store disposals that Asda and Sainsbury's would had to have made than before. The tighter threshold could also mean that even smaller retail mergers would be blocked by the CMA.
Government shows further concern over retail issues
The National Minimum Wage (NMW) increases each year, but the Government is still actively pursuing further improvements. A review of international research on the impact of minimum wages was started in March 2019. This is set to examine the implications of NMW policy in both the immediate and longer-term and will ultimately lead to a consultation.
Even in the light of the above, the Government has currently suspended their practice of “naming and shaming” companies for the underpayment of NMW.
"Burn out" redefined and re-categorised by the World Health Organisation
The World Health Organisation (WHO) has recently decided to recognise "burn-out" as a form of work-induced stress.
While the WHO has clarified that burn-out isn't classified as a medical condition, it has included it in the updated International Classification of Disease as a reason to contact health services outside of illnesses or health conditions. Importantly, it has also, re-categorised burn-out as a problem specifically associated with employment.
WHO has defined burn-out as "a syndrome conceptualised as resulting from chronic workplace stress that has not been successfully managed". Burn-out is to be categorised with the following symptoms: feelings of energy depletion or exhaustion; increased mental distance from one's job or feelings of negativism or cynicism related to one's job; and reduced professional efficacy. It will be specific to feelings within the work environment.
Court of Appeal decides that differences in pay levels for maternity and shared parental leave is not sex discrimination
The Court of Appeal has recently handed down a judgment about whether it amounts to sex discrimination for an employer to pay enhanced maternity pay but not pay the same in enhanced shared parental pay.
The Court of Appeal has rejected the sex discrimination arguments. As the law stands it is not discriminatory for an employer to enhance its maternity pay and not match its shared parental pay. This is due to the fact that the circumstances are different for the two, including because the main purpose of maternity leave is the health and wellbeing of the pregnant mother and other mother-specific matters such as developing the special relationship between mother and newborn and breastfeeding.
It remains to be seen whether the case will be appealed to the Supreme Court, but both parties have been given leave to do so.