Retailers are facing a significant jump in costs following a National Insurance and minimum wage hike unveiled in Chancellor Rachel Reeves’ Budget, the first by a Labour government in 14 years.
The industry is set to pay an additional £2.3bn in National Insurance when the increase in employer contributions comes into force in April next year.
Last week, M&S boss Stuart Machin hit out at the plans, which it said was “a tax with no link to profit which hits bigger employers like us and our smaller suppliers”.
“The Chancellor was right in the past to call National Insurance a tax on workers – it makes it more difficult to offer the life changing opportunity of a job. Particularly if you hike other tax that hit retailers, like business rates or fuel duty,” he said.
BRC chief Helen Dickinson said the hike was “yet another case of piling taxes on an already overburdened industry – a decision which will reduce investment in shops and jobs”.
She said: “Retail employs 3m people and 2.7m more across supply chains, driving investment in jobs, communities and, ultimately, economic growth, right across the country.
“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.”
A 6.7% increase in the National Minimum Wage and 6% jump in National Living Wage in April is set to add another £367m onto retail employers’ wage bill, according to the BRC.
However, Shore Capital director Clive Black pointed out that wage rises “should feed into household spending and, if inflation remains manageable, raise living standards”.
Business rates reform on the horizon
Reeves also promised an overhaul on retail business rates, something the industry has been lobbying hard for as she vowed to introduce permanently lower rates multipliers for high street retail, hospitality and leisure properties. However, this will not come into play from 2026-27.
This change will be funded through introducing a higher multiplier on the most valuable properties, which is thought to include distribution centres from ecommerce giants like Amazon.
Dickinson highlighted that there were still “many unanswered questions” about the new charges and discounts.
“Charging more to businesses with higher rateable values may punish not only distribution hubs, but also larger stores, which play a key role in attracting footfall to high streets and town centres,” she said.
“With retailers paying over 21% of all business rates in the economy, the solution is not to simply shift the burden around, but to look outside retail to address the disproportionate impact of business rates on the industry.”
Reeves also extended a relief scheme introduced during the pandemic, with eligible retail businesses receiving 40% rates relief – down from 75% – in the next tax year, up to a £110,000 cap.
Dickinson said: “The measures will do nothing to help bigger brands that play such a key role in attracting shoppers and delivering investment for our high streets and town centres. Thriving shops of all sizes are essential to successful high streets to ensure breadth of choice, convenience and experience for customers.”
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Tackling shoplifting
Getting to grips with the surging level of shoplifting was also on the agenda.
Reeves said: “We will scrap the effective immunity for low-value shoplifting…And having listened closely to organisations like the British Retail Consortium and USDAW, I am providing additional funding to crack down on the organised gangs which target retailers and to provide more training to our police officers and retailers to help stop shoplifting in its tracks.”
Dickinson welcomed the additional funding.
She said: “This is on top of the scrapping of the low-level shoplifting threshold, which has resulted in many police forces ignoring smaller crimes. Working closely with the police and Government, retailers are determined to tackle retail crime – from shoplifting, to violence against retail workers,” she said.
Smoking and unhealthy food
The cost of vaping and smoking will increase following tax rises announced in the Budget.
Reeves set out a 2% hike on tobacco and 10% for hand-rolled tobacco, along with a new flat rate duty at £2.20 per 10ml from 1 October 2026 tax on vaping liquid.
Meanwhile, the government will increase the Soft Drinks Industry Levy to maintain incentives for soft drinks manufacturers to reduce their sugar content. The government will also review the current sugar thresholds and the exemption for milk-based drinks.
Sonia Pombo, registered nutritionist at Action on Sugar and Action on Salt welcomed the decision to increase the levy but urged the government to consider “additional, robust measures”, such as introducing salt and sugar taxes on food manufacturers.
“By broadening the scope of health-focused fiscal policies, we can create a more sustainable and impactful improvement in public health.”
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