‘How retailers operate will change post-Budget as they confront new economic reality’

It has been a long time since a Budget was quite as challenging to retailers as this one.

We are not the only ones. Social care, hospitality and other sectors that employ large numbers of people are all feeling the squeeze. It might have been called a “Budget for growth”, but few chief executives I speak to are feeling that right now.

Spreadsheets will be out as retailers work through the impact of the big announcements. Not only did employer national insurance contributions rise by 1.2%, but the threshold at which businesses start paying will almost halve to £5,000.

I long for the day when we no longer have to prefix the business rates system with ‘broken’

Together these will cost the industry £2.3bn in 2025/26. While they affect many industries, the lower threshold for payment will have a particularly big impact, given retail employs around 3 million people, and a further 2.7 million in the supply chain, so many of whom are part-time or in entry-level jobs.

The national living wage is going up 6.7% – above the mid-range of the Low Pay Commission’s September estimate. That will increase wage bills by a further £2.7bn. Given such significant employment changes will put pressure on the whole industry, including its supply chain, it is hard to see how they will not impact the cost of goods, services and consumer prices.

Put together, these changes will squeeze hours and employment in an industry that has already lost 200,000 jobs in the last three years. And that’s before we consider future changes to packaging and recycling costs, and the implementation of the Employment Rights Bill, which the government’s impact assessment suggests could cost retailers £300m to £800m.

There was one announcement, however, that offered a glimmer of hope. After years of industry campaigning, the chancellor said there would be a permanent reduction in business rates for retail, hospitality and leisure properties with a rateable value of under £500,000.

This will be funded by increased bills for any commercial properties, in any industry, with a rateable value above £500,000. It may not be the fundamental reform many had hoped for but it is, at minimum, an acknowledgment by the chancellor that the industry has faced a disproportionate burden over recent years. What remains to be seen is the extent of the reduction, and how it will balance for those retailers who also hold larger properties. The effects will be even harder to assess, as there is a revaluation due to kick in for 2026.

Price rises seem to be inevitable and I’m sure many of us suspect the OBR has undercooked the inflationary outlook

Smaller retailers are feeling the effects of the reduction in the existing rates discount. Taken together, a low-margin industry has been hit hard. Navigating the next few months will mean difficult decisions for many.

A welcome announcement was the chancellor’s plan for additional funds dedicated to addressing retail crime, alongside the scrapping of the £200 “threshold” for low-level crime. Given all the other challenges retailers are facing, any opportunity to stem the tide of shoplifting should be grasped with both hands.

So what’s next? Trade associations across the economy will be lobbying the government to minimise the impact of some of the changes. That’s going to be tough as the government focuses its energies on plugging the “black hole” in the public finances.

Along with our members, the BRC will be working tirelessly to shape the future changes to the Employment Rights Bill and business rates – trying to make sure that we achieve a more equitable rates system. I long for the day when we no longer have to prefix the business rates system with ‘broken’.

What will change is the operating models of thousands of businesses, adapting to the new economic realities. What does that mean? Investment, already under pressure before the Budget, will be trimmed further. Investment that does get through is likely to be in efficiency savings and automation, as retailers try and mitigate the narrowing gap between revenues and costs. Price rises seem to be inevitable and I’m sure many of us suspect the Office for Budget Responsibility has undercooked the inflationary outlook.

But everyone who works in retail knows this industry is nothing if not resilient. Brexit, the pandemic, the pingdemic, the cost-of-living crisis – all showed its ability to face immense obstacles. I have no doubt it will meet the cost-of-business challenge too.

So, what now? The BRC will continue our work supporting the industry and working with our members. As we found in the pandemic, the need to come together to face these new challenges will be even more valuable as many retailers adapt to the new economic realities we have been left with.