As Budget measures loom, is retail ready?

As the retail industry sidles closer to the new financial year and the implementation of new Budget measures on 6 April, TheIndustry.fashion rounds up reactions from key retailers and the British Retail Consortium (BRC).

After Labour announced its first Budget on 30 October 2024, the fashion retail industry was quick to react.

The new Budget includes a higher rate and lower threshold on employer's National Insurance (NI) contributions, an increase in the national minimum wage, and an increase in the national living wage, all of which are leaving employers more than usually squeezed.

Just two weeks after the Budget was announced, more than 70 businesses, including Marks & Spencer, NEXT and Primark, told Rachel Reeves in an open letter that the changes announced in the Budget would mean price hikes are a "certainty", adding that job losses were inevitable and the retail industry would take a £7 billion hit as a result.

Similarly, two thirds (67%) of 52 Chief Financial Officers surveyed by the BRC said they would raise prices in response to increases in employers’ NI contributions from April.

"With the Budget adding over £7 billion to their bills in 2025, retailers are now facing into the difficult decisions about future investment, employment and pricing," Helen Dickinson, Chief Executive Officer at the BRC, told TheIndustry.fashion.

"Business rates remain the biggest roadblock to new shops and jobs, with retailers paying over a fifth of the total rates bill," she continued.

Business confidence hit a two-year low in December, its lowest level since the aftermath of the Truss/Kwarteng Budget in 2022.

Data from accounting and advisory firm BDO said that after assessing the effects of the new Budget, it witnessed the biggest month-on-month decline in business sentiment since 2021.

The BDO Optimism Index fell 5.81 points to 93.49 in November – the weakest reading since January 2023.

Many businesses, including Schuh, Shoezone and New Look, have had to rethink their current model, often opting for restructuring programmes that include redundancies and store closures. Poundland owner Pepco took a £675 million hit.

But what do retailers themselves think of the budget? Big names such as Marks & Spencer's Stuart Machin, NEXT's Simon Wolfson and Asda's Lord Stuart Rose, were among those slinging mud at the new measures.

Yesterday, Marks & Spencer boss Stuart Machin warned that the new measures would shrink the retail industry and called upon the Chancellor to "act now" when writing in The Sunday Times.

"The blunt truth is, left how it is, the Budget means UK retail will get smaller," Machin wrote.

"At M&S we are growing, but others are not and there is no doubt that there will be fewer jobs, fewer shops, and slower wage growth across the sector as a whole."

Machin had previously warned that the hike in employers’ NI contributions would increase the firm’s annual tax bill by about £60 million next year – from around £460 million to an estimated £520 million.

In his initial response to the announcement, he warned over a £120 million hit from the measures and said the business could not rule out price rises to offset the extra cost.

Last month, however, the British retailer vowed to constrain these price rises, saying it would pass on "as little as possible" of increased costs to customers.

NEXT has also warned of slowing sales growth in 2025 and plans to increase prices due to higher employer NI contributions and minimum wage rises. The retailer expects a £67 million increase in wage costs, leading to a 1% price hike. Despite strong sales in late 2024, growth is predicted to slow, with profits rising by 3.6% in the next financial year. Overseas sales growth is also expected to dip.

NEXT said: "We believe that UK growth is likely to slow, as employer tax increases, and their potential impact on prices and employment, begin to filter through into the economy.

"We do not believe we can profitably increase our overseas marketing expenditure by the same percentage next year, and expect the growth to be closer to 20%."

Lord Stuart Rose, Chair at Asda and former boss of Marks & Spencer and Topshop, said the increase in employers’ NI contributions and changes to tax thresholds would have "consequences" and similarly meant price increases were possible.

"If you get presented with a bill unexpectedly for around £100 million, even if you’re a business as big as us, that takes some digestion. So we’re looking at the consequences of that, but you cannot rule out the fact there will be some inflation," Lord Rose told the Guardian.

Rose added that the measures were "a big burden for the retail industry to carry" and meant that Asda would "have to look hard at every piece of expenditure", such as its annual pay increase for staff, and may limit how many workers it hires.

"We’ve seen an increase in national minimum wage," he continued. "We want to attract good staff, but we have to look very, very hard to affordability."

Looking ahead, the industry will not know how these measures will truly affect business until they take effect on 6 April. "The Government must confirm the planned reforms will make a meaningful difference to retailers’ bills and that no shop will end up paying more," concluded the BRC's Dickinson.