Retail’s message to the Chancellor – cut costs, create certainty

Retailers need targeted action from the Autumn Budget on employment costs, business rates and policy certainty to unlock investment in people, stores and long-term growth.

That was the consistent message from CEOs and other board members in our retail network. After almost constant headwinds and disruption since the pandemic, many retailers have had little choice but to delay plans and make difficult decisions to maintain financial resilience.

The cost of uncertainty

A meaningful reduction in the cost of employment and a fundamental reduction in business rates were top of their wish list. Reducing the pressure created by higher employer National Insurance contributions would give retailers greater scope to protect existing jobs, maintain staff hours and invest in recruitment. More targeted support for employers taking on entry-level staff could also help create opportunities for young people entering a challenging jobs market.

A permanent reduction in the multiplier used to calculate retailers’ business rates is seen as critical. While temporary discounts provide welcome short-term relief, they do not offer the certainty retailers need when planning investment over a three-to-five-year period. A permanent adjustment would give businesses a stronger basis for decisions on store openings, refurbishments and longer-term growth.

This need for greater long-term certainty underpinned every conversation. There was clear frustration that Government does not recognise how fundamental certainty and a lower cost base are to investment in stores, people and growth.

This concern extended beyond retail: “More broadly the economy needs clarity and stability for businesses to plan and prepare…this constant flip flop approach diminishes confidence and as such the desire and ability to invest.”

Short notice changes, such as those to National Insurance and the National Living Wage, have put massive pressure on retailers. For some, they have been a major factor in their need to restructure the business. A “coherent, multi-year phased approach, setting out rates 18 months in advance” would give retailers greater confidence to plan headcount and pricing.

Domestic pressures, global disruption

Retailers are facing a double hit from rising business costs at the same time as consumers are reluctant to spend amid the ongoing cost-of-living crisis. The new Prime Minister and Chancellor’s focus on the latter was welcomed, but there was a clear call for them to continue efforts to reduce pressure on businesses and households, helping protect consumer demand and retailers’ capacity to invest.

The volatile geopolitical landscape continues to impact the UK economy, and with trading conditions in the United States becoming increasingly uncertain, reducing post-Brexit friction would lower cross-border costs and strengthen the competitiveness of British retailers.

“Making it easier for goods and people to move between the UK and EU would help stimulate trade, reduce cross-border operating costs and improve the competitiveness of British retailers. Practical improvements in this area could also deliver benefits more quickly than many longer-term policy interventions.”

Difficult decisions

The rising cost of operating in an increasingly complex global market has forced many retailers to prioritise short-term survival over long-term investment. From reducing staff hours and freezing recruitment to cancelling marketing initiatives, closing stores and delaying or abandoning new openings, businesses have had to protect cash and control costs. The full impact of these decisions may not yet be visible, but reduced investment, delayed transformation and weaker employment prospects will constrain longer-term growth.

At the same time, the growing regulatory burden is creating additional costs, system requirements and administrative demands. “Policymakers should recognise that regulation does not affect only the compliance function; it can divert funding and management attention away from investment, job creation and growth.”

What retail needs from the Budget

Finally, we asked our retail board members what single message they would give the Chancellor on behalf of the sector ahead of the Budget.

A zero-tolerance approach to the rise in shoplifting was one priority, supported by a greater police presence around high streets, retail parks, and shopping centres. The need for the Government to work with the retail sector to develop retail-friendly policies and tax reforms was also raised. But the broader message was summed up clearly in one response:

“The importance of retail to the wider economy should not be underestimated. In addition to being a major source of employment and economic activity in its own right, the sector supports an extensive network of other industries, including warehousing, distribution, manufacturing, professional services and property.

My message to the Chancellor would therefore be straightforward: supporting retailers, both large and small, will be critical to restoring confidence, encouraging investment and putting the UK economy on a stronger footing.”

FRP’s Retail Conference: ‘The Decisions Driving Retail – Shaping growth, strategy and competitive advantage’ takes place on 4 November, please contact londonevents@frpadvisory.com for more information.

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