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It’s that time of year when retailers usually get a lot cheerier: we’re in the golden quarter, the run up to Christmas when the year in retail traditionally turns from a loss into a profit. And retailers have got a lot to celebrate. Another year of serving customers with everything from essentials to the occasional splurge; another year as the largest private sector employer, offering everything from that first job to a long-term career; another year as the front line of the economy, helping high streets and communities thrive. But behind all the festive spirit, the mood is tense: retail is at risk from soaring costs. For many retailers, particularly the smaller independents who make up the majority of stores, soaring costs have turned a difficult situation into a near-impossible one. Energy bills, rents, and wage costs have all hit unprecedented highs, piling pressure on businesses up and down the country. Last year’s Budget added even more costs, with higher employer National Insurance contributions and an increase in business rates. The consequences of the cost and tax increases of the past year are clear to see. Not just the profit warnings and store closures, but the knock-on effects as retailers (who work with thin profit margins) work to offset the added costs. The biggest impact has been on people: the National Insurance cost increases have led to less hiring, reduced hours and lower pay increases. And the focus on managing costs and cash has meant less investment in new stores and growth. Reduced employment and lower investment clearly weren’t what the Government had in mind with the last Budget, but those have been the consequences as retailers fight to keep their collective heads above water. And now we have this year’s Budget fast approaching. Depending on who you ask, it’s either set to take the tough decisions to put the country on track or repeat the mistakes of the last Budget. Of course businesses are complaining again: they see a series of cost and tax increases coming without a coherent picture of how they fit together into any kind of growth agenda. We desperately need more joined-up thinking, where the level and focus of regulation and taxes provide an incentive for investment, where there’s some overall direction that businesses can buy into. One glimmer of hope in the last Budget was the Government’s commitment to a business rates reduction for retailers in the year ahead. Business rates disproportionately impact retailers, who pay four times as much in rates compared to their share of the economy. Lowering the tax burden on retail, making it more equitable, will lead very directly to investment in stores and very directly to the jobs they create. I cannot overstate how important rates are in decisions to close and open stores. To have an effect, the rates reduction needs to be meaningful, and it needs to be an actual reduction, not simply a shuffle of costs amongst retailers of different sizes: all retailers need to benefit if we are going to encourage investment across the board. Everyone realises that the Chancellor is in a tough spot. She clearly needs to raise revenue (and hopefully reduce spending). And we need stability and predictability in the tax regime so we can plan. But we need to consider the cost and tax changes in the round, and be clear that in the round, they are now a huge burden, and they are breaking some businesses, particularly retailers who bear more than their fair share. There is still time for the Government to step back and use tax policy to support a growth agenda that businesses can buy into. Reducing business rates would go some way to reforming a tax that has a disproportionate impact on retail. It would be a step in the right direction, would rebuild some trust, and would be incredibly positive for investment, jobs and communities. All eyes are on the Budget. Nick Stowe is CEO of Monsoon and Accessorize
