Spring Budget 2024: Retail predictions

Tuesday March 5, 2024

What can retailers expect from the Spring Budget?

Retailers will be closely watching the Spring Budget on Wednesday, hoping that the Chancellor has something special in store for them.

The sector is coming out of what was a difficult 2023 into a first quarter that’s shown some reasons for optimism – the latest ONS’s retail sales data showed January brought the largest monthly rise in sales volumes since April 2021.

But significant pressures persist. Although inflation is expected to begin falling again over the coming months, and a cut to interest rates is anticipated in the medium-term, consumers are likely to remain cautious about spending.

Meanwhile, labour shortages and ongoing shipping challenges stemming from disruption in the Red Sea continue to hamper brands’ ability to make the most of already subdued demand. The planned rise in the National Living Wage in April will also be a shock to bottom lines that are already showing signs of strain.

As we’ve explored in broader terms, the challenging state of the public purse makes it likely that this year’s Budget won’t be marked by massive giveaways.

But what might the Chancellor deliver to help support the UK’s retailers? Here, we look at two possible areas of action.

Reducing the tax burden

Retailers will value any support that helps their margins by reducing their tax bill, or cutting their overheads.

The burden of business rates is an issue that frequently comes to the fore around fiscal statements, and is something that’s already featured on the ‘wishlist’ of the British Independent Retailers Association as priority area for the Chancellor to address this week.

While some support measures were announced at the Autumn Statement in November 2023 – including an extension to the Retail, Hospitality and Leisure Relief (RHL) for 2024/25 and a freeze to the small business multiplier for businesses in England – many larger companies are likely to see a rise in their rate bill when it lands from April.

Further support on this would be welcome, but potentially costly, and therefore an unlikely move for a Chancellor with little wiggle room for giveaways.

Wider reform of business rates, which some in the sector believe are an advantage to online retailers at the expense of those with physical property portfolios is also probably not going to feature. The government is looking at the system, but any proposals will need to be given careful consideration, and review is likely to take time.

Another area of frequent speculation at Budget time is Corporation Tax. However, given that this was only hiked a year ago, it’s also likely off the cards this time around as the Chancellor looks to balance the books.

Driving demand

An area that has a greater chance of featuring is change to VAT, specifically VAT-free shopping for international visitors. This would provide – small, but welcome – support for the other side of the equation for retailers: demand.

The introduction of the ‘tourism tax’ – as the abolition of the VAT exemption was dubbed – in 2020 has been mourned by UK retailers, hospitality firms and travel operators alike. Analysis by the Centre for Economics and Business Research (CEBR) has indicated that it’s dissuading as many as two million tourists from visiting the UK each year, costing the economy up to £10.7 billion in lost GDP annually.

Reinstating the VAT-free scheme could provide a direct boost to retail, although it remains to be seen whether the Treasury can absorb what it’s said would be the loss of £2 billion a year in tax revenue.

At the same time, it was reported last week that more National Insurance cuts were under consideration.

In the Autumn Statement, NI was reduced from 12% to 10% for employees. Further changes along these lines – while not reducing retailers’ own NI bill – would help put more money back into consumers’ pockets, potentially supporting their ability to spend more at the till.

Looking ahead

Whatever is unveiled on Wednesday, it won’t be a fix-all for the sector’s challenges. Management teams need to remain focused on building robust strategies for the short and the long-term to both build their resilience and support further growth – including considering renewed financing strategies in anticipation of interest rate cuts, but also contingency plans should demand remain sluggish.

If expectations prove true, this year should bring clearer trading conditions, and smoother sailing. As always, those who are prepared will be best placed to benefit.

Related team

Jim Davies

Jim Davies

Jim Davies

  • Partner
  • Financial Advisory
  • London