Labour’s first Budget since winning General Election includes measures that are expected to impact independent retailers in the next year, including minimum wage increases, a rise in Employer National Insurance Contribution (NIC), an increase in funding to tackle retail crime, a vaping tax and a business rates discount reduction.

Retailers and industry bodies have responded to measures announced by chancellor of the exchequer Rachel Reeves, with the majority expecting to be hit with additional costs in the coming months.

For a detailer overview of measures announced within the budget, click here.

Dean Holborn, of Holborn’s in Redhill, Surrey, said the main takeaways will be the National Living Wage increase and Employer NIC increase.

While wage rises will see those aged 18-20 receive a 16.3% increase, from £8.60 to £10 an hour, under-18s and apprentices will receive a bigger wage increase of 18%, from £6.40 to £7.55, and over-21s receiving a 6.7% rise to £12.21 an hour. Employer NIC will rise from 13.8% to 15%.

Holborn said: “On the back of the National Living Wage increase, today has not been good news for our business. I’m yet to work out what it will all cost me, I can’t bring myself to do it. The change in the NIC will impact us on a monthly basis.”

Too late for additional funding towards fighting retail crime

In response to the announcement that the government will provide more funding to combat retail crime, Holborn said anything that helps with that should “be good”, but “on a personal basis, it’s too late”.

“The horse has bolted,” he explained. “Crime has been building for years now. We’re all dealing with this everyday, the culture is already there. It’s going to take years to reduce it.”

Holborn continued: “We’re getting squeezed in every corner at the moment. I understand the vaping ban, but all these things are compounding on our lives.”

Justin Whittaker, of MJ’s Premier in Oldham, Manchester, said the budget has contained nothing positive for retailers.

“It’s been a bad one,” he said. “Retail is on it’s back and they’ve done absolutely nothing to help it. People will start tightening their purse strings even more – [the government] is not on the same planet as everyone else.”

Whittaker added that “the aspect [he is] looking forward to least is the Employer NIC increase”.

“I can’t believe it. It wouldn’t so be bad if everyone’s sales weren’t down, but now they’ve put that on top.”

In a positive sign for retailers impacted by the Post Office Horizon scandal, the government announced it would be setting aside £1.8bn to compensate victims.

Brian Smith, a postmaster of Freefield Post Office, Lerwick, Shetland, lost £20,000 to the scandal.

He said: “It’s absolutely fantastic that they’re setting money aside officially to go towards it. The majority of the time spent facing these problems was when the Post Office was wholly owned by the UK government, before it was privatised. So the government does have some responsibility there. The fact that the government is making sure that postmasters are taken care of is very well received. People like myself have had to dig into our own pockets over the years, and now we’ll get compensated.”

Retailers may be pushed to reduce staff hours

Fed president Mo Razzaq said there were both “gains” and “some pain” for independent retailers in the Budget announcement, adding that the national living wage rise is “a step too far” at a time when “finances are being stretched to the limit”.

He continued: “As well as paying our staff more in wages, we must pay more in national insurance and pension costs, at a time when many of our other costs, including energy costs, are rising.  There is no easy way for small retailers to combat these increases. As so many of the products that convenience store owners stock are price marked, we cannot pass these costs onto our customers.

 “The only solution available to independent shop owners is to reduce staff hours and staff numbers and, somehow, take on even more hours ourselves.”

Budget set to have an uneven impact depending on store sizes

ACS chief executive James Lowman said the new measured announced “have added two-thirds of a billion pounds to the direct cost base of the UK’s local shops”.

“At a time when trade is tough and operating costs are stubbornly high, this will be challenging for our members to absorb and there will be some casualties on high streets and in villages and estates across the country,” he continued, adding that smaller retailers will see differing impacts to larger ones.

“The smallest retailers, with low NICs bills and lower rateable values for their shops, will benefit from the welcome increase in the employment allowance and the retention of 40% of the retail, hospitality and leisure business rates relief,” he said. “Retailers with a larger store, a number of sites or those operating a chain will receive limited benefit from these mitigations, and this will impact their ability to invest and to continue to offer services in the communities they serve.”

David Lonsdale, director of the Scottish Retail Consortium, said: “Scotland’s retailers will face a £190m increase in their tax bill following the Chancellor’s announcement that Employer NICs are to rise. Combined with increases in the statutory wage rates it’s clear retail businesses will see big rises in the cost of employment, whilst there was little sign of any significant reform to non-domestic rates. Such stark increases will increase the cost of operating a retail business and are unlikely to be absorbed by businesses, at a time when Scottish retail sales are flatlining, making it likely those costs will be passed along to consumers.”

Lonsdale continued: “The update on the economy brought little sunshine. Economic growth is only predicted to rise to two percent at best before easing back, whilst it will be 2029 before inflation returns to beneath the two percent target. That implies little rise in household disposable incomes, further increasing the challenge for retailers looking to grow their businesses.

“Retailers’ will now turn their attention to the Scottish Budget. With little fiscal headroom of their own, retailers will hope to see action to blunt any rise in non-domestic rates and an end to the mooted introduction of a business rate surtax on grocers. After being thwacked by additional employment costs in the chancellor’s Budget retailers deserve to be spared any further tax rises by Scotland’s finance secretary in December.”

Vaping tax could push more people to smoke

Concerns were also raised that taxing vaping products will lead to more people smoking, or fuel the illicit market.

We Vape founder Mark Oates said: “This is a tax on people choosing a vastly safer way of consuming nicotine. Where this has been introduced elsewhere, taxes on vaping have increased smoking rates. It will push some of the poorest people in society into poverty simply because they enjoy nicotine, which carries no more health risk than a cup of coffee or tea.”

Christopher Snowdon, head of lifestyle economics at the Institute of Economic Affairs, said: “Taxing vape juice shows that the government is not serious about its ‘smokefree’ ambitions. Reeves says that yet another ‘one-off’ tax hike on tobacco will dissuade vapers from switching back to smoking, but with 26% of the cigarette market already in the hands of organised crime, the legal price of cigarettes is irrelevant to a growing number of smokers. Tobacco duty revenue has fallen by £1.5 billion in the last two years and it will go on falling, despite the tax rate rising, because smokers feel no moral duty to buy legal cigarettes and give money to politicians who so obviously hold them in contempt.” 

Retail crime changes could help get a grip on shoplifting

Reeves’ announced that the 2014 legislation which downgraded shoplifting incidents which amounted to a value of £200 or less, would be repealed.

Professor Emmeline Taylor, expert in retail crime, said this “is a welcome step”, and “one I have called for since 2019.”

“The legislation signalled to offenders that they could steal with impunity and was interpreted as shorthand by the police as to whether they needed to take action,” Taylor continued. “This move is part of a series of commitments by the Labour Party to finally get a grip on high-value acquisitive crimes that are impacting the high street, communities, and the public.

Barry Dawson, group managing director of First Response Group, said: “This proposed change, alongside a promise for increased funding to tackle organised criminal gangs, marks a pivotal step towards safeguarding retailers, their staff, and customers. 

“With enhanced training for security teams to apprehend shoplifters, we’re reinforcing our commitment to tackle these rising threats head-on, sending a clear message: retail crime will not be tolerated.”

Business rates decrease receives a cautious response

The business rates discount being decreased from 75% to 40% saw mixed reactions.

Michael Shapiro, commercial real estate partner at Spencer West LLP, said the measure is a “welcome start”.

“For those in the retail and hospitality sectors, the cost of business rates is becoming prohibitive,” he said. “Anything that is giving support is welcomed. Whilst the business rates system needs a complete overhaul, this is at least a positive start.”

However, John Webber, head of business rates at Colliers, said the discount reduction is “desperately disappointing”.

He continued: “Despite pre-election promises of business rates reform, nothing of significance was announced. There is to be no consultation, just a discussion document, and the measures announced hardly put a sticking plaster over the gaping wound rather bringing in any fundamental reform.”

Chartered surveyor Ian B Sloan added that the reduction will “really hit independent retailers” with as much as a 140% increase in annual business rates bills for retailers:

“Yes, retail hospitality and leisure relief is remaining [the same], but from 1 April, it’s falling from 75% relief to 40% relief. This means a store with a rateable value of £20,000 will go from having a £2,700 annual bill to a £6,480 annual bill. That’s a massive 140% increase.

Sloan explained that a store with a rateable value of £25,000, without any relief, should currently pay £13,650 (25,000 x 0.546), but with a 75% relief only pays £3,412.50. From April 2025, with a 75% relief, the same store would see the multiplier increase to 0.555, so will pay £13,875. However, with a 40% discount instead, from April that store will have to pay £8,325, a £4,912.50 increase.

Colin Wilkinson, Scottish Licensed Trade Association (SLTA) managing director, said the trade body “welcomes the news that there will be 40% relief on business rates”.

“The current 75% discount to business rates south of the border – due to expire in April 2025 – will be replaced by a discount of 40%, up to a maximum discount of £110,000.”

He added that “many businesses will see their business rates nearly double”, and as Scotland was “deprived of the 75% rates relief” which has continued in England for the last two years, there is hope that the “announcement will give the Holyrood government the impetus to replicate this support for the hospitality industry in Scotland”.

Employer National Insurance Contribution changes are unpopular

Les Roberts, business comparison expert at Bionic, said: “Lowering the rate at which employers start paying NICs on employee’s earnings and increasing the rates they pay means staff costs will be more expensive. To help alleviate the pressure on smaller businesses, the Employment Allowance will increase from £5,000 to £10,500. This means almost two million businesses will pay the same as or less than they previously did or pay no NICs at all.

“Even so, many business owners will still feel they’re shouldering the biggest burden from this first Labour Budget.”

Todd Davison, managing director of Purbeck Personal Guarantee Insurance, said small business will be served a “fatal blow” due to the Employer NIC increase.

“It’s a sucker punch after a gruelling few years for many traders in labour intensive sectors such as retail. The Employer NICs have already been increasing in these sectors due to the introduction of the National Living Wage rate which has put more individuals above the £175 a week threshold where the tax is charged to the employer.

“NICs are already the UKs second biggest tax, behind income tax with the bulk of this making up an estimated 63% of revenue in 2023 to 2024. Ultimately, this increase will make it more expensive to run a business and will impact the people employed by limiting hiring plans, reducing wage inflation, forcing redundancies and scaling back pension contributions. It will also trickle down to customers through increased costs and poorer service if the business is having to operate with fewer staff.”

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