Unexpected extra costs imposed in the recent Budget have left retailers reeling in shock. They will need all their legendary resilience to leap the hurdles placed in their way by the government, warns Charlotte Hardie
Today marks an impressive case of genuine industry collaboration. Industry bosses have signed an open letter from the British Retail Consortium (BRC) to chancellor Rachel Reeves, imploring the government to discuss their concerns about a catastrophic Budget that will cost the industry £7bn next year.
It’s an impactful raft of names including the bosses of Aldi, Asda, B&Q, Kingfisher, Amazon, Currys, Boots, Holland & Barrett, Next, Burberry, All Saints, JD Sports, Marks & Spencer, Morrisons, Wickes, Sainsbury’s, Screwfix, River Island… the list goes on.
Among their proposals are a phased introduction of the new lower National Insurance earnings threshold, delays in timelines for packaging levy implementation and an earlier realisation of business rate changes. It’s a letter that reflects the strength of feeling across retail.
An entire industry is scratching its heads to try and work out a way to make the numbers work.
The minute the festive decorations have been packed away and the golden quarter trading figures crunched, industry attention will quite simply turn to figuring out how to survive 2025
According to one chief executive of a specialist retailer I’ve heard about, although the National Insurance increase had been budgeted for, what had not been anticipated was the lowering of the threshold, nor the higher-than-expected hike in the National Living Wage. To put this into perspective, the BRC has calculated that the lowering of the threshold will collectively cost the industry £1.76bn. The rate increase to 15%, meanwhile, will cost £0.57bn.
The unexpected cost has thrown this particular retailer, and no doubt many more, into disarray. After some tough years, it had turned a corner and was feeling confident about 2025. Now its only option is to make redundancies.
The minute the festive decorations have been packed away and the golden quarter trading figures crunched, industry attention will quite simply turn to figuring out how to survive 2025.
Even for those whose golden quarter may prove triumphant, many exciting business plans will be put on ice. Whether it’s store openings, investment plans, the creation of new roles, the implementation of new projects – everything will now be viewed through a very different post-budget lens.
And that lens is not only shaped by cost increases. Consumer spending will be hit because some people will end up worse off. The Budget will benefit many on lower incomes with increases to the National Living Wage – which will collectively cost the industry £2.73bn. But businesses will be grappling with whether they can afford any annual increase at all for anyone above that threshold. Before long, the ripple effect is likely to assume tidal proportions.
Price increases are inevitable. A chief executive of one large fashion retailer told me last week that it will maintain low prices on certain prominent SKUs but will be forced to edge up and recoup on other lines. She also spoke of her relief that it has only bought 25% of product for the first quarter of its financial year. It has options to change sourcing plans and find savings. Others will be more committed and less flexible.
It’s baffling why any government, not just this one, does so little to remove the major hurdles that stand in the way of this hugely economically significant industry
The grocers – Sainsbury’s chief executive Simon Roberts and Asda chair Lord Rose among them – have also warned that it will mean price increases. That means more scorn for the sector, which has already come under heavy criticism and been hauled before a select committee for passing on costs to consumers.
But what’s the alternative? Retailers play a huge part in creating jobs and driving growth in the UK economy – the lack of which Rachel Reeves herself was so scathing about earlier this month when the ONS revealed paltry 0.1% economic growth in the third quarter. Some observers believe that lack of growth can be attributed to none other than Reeves because of the scale of uncertainty created ahead of budget announcements.
For retailers to absorb the projected £7bn in costs is counterintuitive. At best the Budget is another barrier to retail success. At worst it will sound the death knell for some smaller businesses with far less ability to deal with extra cost of this scale.
The industry feels let down. Some retailers will no doubt have voted Labour after feeling consulted and listened to in Starmer’s pre-election campaign. But retail’s had the rug pulled from under its feet.
Change was needed, without question. Few would dispute the exceptionally challenging position the Labour government finds itself in. But it’s baffling why any government, not just this one, does so little to remove the major hurdles that stand in the way of this hugely economically significant industry.
Retail is famously resilient. It’s proven that time and time again. Most will overcome this latest hurdle with characteristic resilience and ingenuity – although not without sacrifice. It may also prompt much-needed productivity gains.
In the meantime, the retail Christmas cheer is definitely muted. Pre-Budget, leaders had felt that 2025 would be a strong year on the back of 2024’s declining inflation and interest rate reductions. Instead, they find themselves limbering up for one almighty and unwelcome hurdle contest.
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