The recent budget has imposed significant challenges on businesses across the board, with the retail sector being particularly affected. The Chancellor has announced several policy changes and tax increases that will impact retail.
1.2% increase in Employers National Insurance Rates
A 1.2% increase in Employers National Insurance rates will be a substantial burden on profitability, especially when combined with the reduction in the threshold for Employers National Insurance contributions from £9,100 to £5,000. While the increase in the Employment Allowance from £5,000 to £10,500 may benefit the smallest retailers, the overall effect on the sector will likely be a marked increase in the Employers National Insurance liability.
National Living Wage
The National Living Wage has seen a significant increase, affecting all retailers. The rate for employees aged 18 to 20 has risen by 16.28%, from £8.40 to £10 per hour, while those over 21 will see an increase of 6.7%, from £11.44 to £12.21 per hour. This exceeds the Low Pay Commission’s recommended increase of 5.8%, placing additional financial pressure on retailers who must absorb these costs. When combined with the rise in Employers National Insurance, this will likely result in a considerable increase in employment costs, and will likely result in either lower pay for workers, or no pay for workers with staff not being hired, as business look to manage their costs.
Business Rates Relief
The reduction in Business Rates relief from 75% to 40% represents a significant challenge for high street retailers. This 35% decrease in relief will place additional financial strain on these businesses, with limited ability to recoup losses through price increases for customers. It is worth noting the 40% is a one year drop that from 2026-27, they intend to introduce two permanently lower tax rates for retail properties with the intention that is paid for by a higher multiplier for the most valuable properties.
Other: There is a small positive development in the form of additional funding allocated to combat shoplifting, which is a growing concern for retailers.
Summary
In summary, the Chancellor’s measures appear to fall short in supporting the growth and sustainability of the retail sector. There was an opportunity to reassess the treatment of e-commerce businesses, which currently operate without business rates in many cases. Implementing a modest tax on e-commerce could have facilitated more robust assistance for Business Rates, allowing the retention of the 75% relief. As a result, the outlook for the UK retail sector remains bleak, particularly in light of projected inflationary pressures over the next five years.