Retail: Sector-specific predictions and implications

Our retail and hospitality team review the potential changes to business rates, import duties and the impact this Budget could have on consumer confidence in the golden quarter. 

Business rates

The UK retail sector has been pushing for a review of business rates for years, and it seems the government is listening. The proposals in the Autumn Budget are for the introduction of lower multipliers to apply to properties with rateable values below £500,000 with a higher multiplier applicable to those over that threshold. Initially the proposed reforms could be seen as a lifeline for struggling high streets populated by smaller shops, but larger retailers could be hit hard with steep increases in their rates bills. 

The British Retail Consortium (BRC) fear that supermarkets and department stores could disappear from high streets if the Government’s proposals go ahead, leading to job losses, reductions in investment from larger format brands and a loss of revenue to local authorities and so resulting in a much wider economic impact. Larger shops drive footfall on high streets and if these disappear, smaller shops will suffer.

While smaller format retailers could initially see real savings, these may be limited once the impact on larger stores is felt and when the next rates revaluation kicks in. Some critics suggest that shifting the tax burden within the retail sector does not address the imbalance between bricks and mortar retailers and online retailers.

We will have to see whether the government has listened to the concerns when the Autumn Budget takes place, but the government have acknowledged that long-term reforms are under consideration which will be welcome news within the sector.

Import duties and the Shein/Temu effect

There have been reports that the Treasury is committed to closing the loophole which allows online behemoths based outside the UK (such as Shein and Temu) to send small packages with a value of less than £135 direct to consumers in the UK without paying import duties.

This loophole, which the BRC and many UK retailers have been pressing the government to close for some time, gives the likes of Shein and Temu a competitive advantage on price as compared with domestic retailers which import goods in bulk to sell to UK consumers and must pay substantial import duties (which average at 12% for clothing). 

This issue has been thrown into sharp relief this year following the US abolishing its de minimis exemption from import duties for small packages, which has directly resulted in a substantial increase in the volume of parcels from China coming to the UK.

Consumer confidence and the golden quarter

As Stuart Machin has recently highlighted, the retail sector is already reeling from the enormous increase in compliance costs due to a raft of new regulation (including EPR and DRS) and the damaging effect of recent tax rises (particularly the increase in employers’ NIC contributions earlier this year). In view of this, the timing of the Budget, coming in the week of Black Friday and a month before Christmas, heaps further uncertainty on already uncertain times, and does not bode well for consumer confidence in the critical golden quarter.