UK retailers brace for a £2.5 billion blow in 2025, as the Labour government’s recent budget announced sweeping changes that could reshape the retail industry.
The budget, announced on October 31st, lays out a series of measures that will cost the UK retail industry £2.5 billion in 2025, according to the British Retail Consortium (BRC).
Industry bodies were quick to highlight the impact of the budget, with the British Independent Retailers Association (BIRA) stating in a press release that the budget was “the most damaging for independent retailers in recent memory”.
With profit margins already under pressure, UK retailers are once again being forced to look creatively at ways of maintaining profitability at a time of rising costs.
Impact on Retail Industry
Rises in the national minimum wage and employer national insurance (a tax that employers pay on their wage bill) were unveiled last week, along with a decrease in the discount on business rates (a form of local tax) from 75% to 40%.
While this reduction in the discount on business rates means that the amount being paid by individual businesses will increase significantly, there was promise ahead of an overhaul of the UK business rates system which has been long requested by retailers.
The question remains whether these business rates reforms will deliver the long term relief that the industry is looking for.
BRC chairperson Helen Dickenson outlined via a press release: “improvements to the business rates system will not come until 2026. We welcome the recognition that retail, along with hospitality businesses, should pay lower rates. But with the detail still to be worked through, it is unclear whether this will address an imbalance which sees retail, as 5% of the economy, pay 21% of the total business rates bill.”
Higher Taxes Hit The Retail Industry
With retailers facing a triple burden of higher business rates, higher wage costs and increases to the national insurance contributions, many businesses are asking how they will absorb these costs.
BIRA member Andrew Massey of Masseys DIY in Swadlincote, Derbyshire, in a press release clarified: “This budget was horrendous for us as a company. Estimated costs to be around £110,000 – £120,000 per year.”
This triple burden comes at a time when slower sales growth and reduction in consumer spending are giving retailers reduced options.
“Although these changes will mostly come into effect from April next year, Xero’s Small Business Insights data underlines just how tough the conditions are for them right now,” shared Kate Hayward, UK country manager for accounting software company Xero.
“Consumer spending is still constrained by increased everyday costs, with the data for the September quarter showing that small retailers continued to see weak sales growth, and had some of the lowest jobs growth compared to other industries,” she continues.
In turbulent times, the focus more than ever needs to be on close financial management for retailers who are walking an increasingly narrow path to profit.
“It’s important for small retailers to start taking steps now to improve their cash flow management,” states Hayward.
Not all businesses, however, will be impacted, as Michelle Ovens CBE, founder of Small Business Britain, is keen to point out.
“The employer national insurance rise was offset for small businesses by a significant rise in employment allowance. Indeed, only businesses with significant wage bills will see a rise, with many smallest businesses actually getting a tax cut,” she said, via an official statement on LinkedIn.
Impact on Retail Industry Investment
With the rise in costs, the BRC have highlighted the likelihood of reduced investment in the industry as a result.
“For a low margin industry, today’s Budget will hit hard, with the odds now stacked firmly against growth and investment in the short term. These new costs also risk increasing the prices customers pay at the till,” said Dickenson.
Many businesses will be forced to reassess based on rising costs. Bird & Blend, a tea brand who operate 23 stores across the UK, are mindful of the impact on their plans.
“The increases to National Insurance contributions will significantly impact the total cost of employment for us as a business, so we will likely be cautious with hiring new roles and will have to scale back planned pay increases for the new financial year,” shared Mike Turner, co-founder.
“With that in mind, we will be looking at driving efficiencies in the way we staff our retail stores, rotating the team to make sure staffing levels are consistent with peak trading hours. We may also consider increasing prices to offset these additional costs.”
What Lies Ahead For The Retail Industry
The latest budget may have delivered difficult news for the retail industry, but ultimately what retailers need now is growth, increased consumer confidence and a buoyant Christmas spending season.
Despite the changes ahead, the UK retail industry has shown itself to be nothing but resilient over the past five years. In 2025 it will need to find innovative ways to adapt once more.
Small Business Britain is keen to highlight that the budget also saw the introduction of measures allowing small businesses to have more input into government policy going forward. “In the big picture, the Small Business Strategy announced today by the Treasury will be an opportunity to put small businesses at the very heart of Government decision making and we are particularly looking forward to contributing to major areas of economic opportunity for small businesses, such as AI and sustainability,”” shared Ovens.
With the answers far from set in stone, this is indeed time for industry leaders and politicians to work together to help the retail industry navigate this challenging time.
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