Labour tax hikes drive steepest fall in retail sentiment since Covid
British retailers’ confidence has made the steepest dive in five years, after facing pressures from Rachel Reeves’ £26bn employer tax raid and uncertainty sparked by Donald Trump’s trade war.
The drop is the most severe since the Covid-19 pandemic paralysed the UK high street, according to the Confederation of British Industry (CBI).
Grim sentiment in the sector reflects a tough set of financial metrics, with year-on-year retail sales tumbling 27 per cent from May 2024 – compared to an eight per cent decline in April.
June’s numbers are expected to be even worse, anticipated to plummet 37 per cent from the same month the year before.
Ben Jones, the CBI’s lead economist, said: “This was a fairly downbeat survey and highlights some of the challenges facing the retail and wider distribution sector. In contrast to other recent retail data, this survey suggests parts of the sector are still struggling with fragile consumer demand, though online sales seem to be holding up better.
Jones pointed to industry anxiety surrounding new taxes on business: “Firms are also feeling the impact of higher NICs and the National Living Wage increase.
Tax hikes hit retail
A net balance of firms expect that their business situation will get worse throughout this quarter, at -29 per cent – compared to -19 per cent in February.
Meanwhile, a net balance of firms anticipate a fall in head count, at -20 per cent, with the number slipping to -47 per cent for those expecting to scale back investment.
In April, a poll of 31 major retailers conducted by the British Retail Consortium (BRC) found that Labour’s Employment Rights Bill is set to spark job losses and price hikes.
This gloomy outlook comes in spite of a recent uptick in retail sales, with an unseasonably warm spring driving earlier summer purchases.
However, these figures could reflect accelerating retail selling prices – noted by the CBI research – with costs up 35 per cent, with June set to jump up 57 per cent.
“Our quarterly survey suggests that retailers are cutting back on hiring, scaling back investment and expect to increase selling prices at the fastest pace for over a year.”
Jones added: “With the Spending Review on the horizon, the government has an opportunity to kickstart growth and incentivise investment, whether by reforming business rates, simplifying skills investment through the Apprenticeship Levy reform or expanding the Made Smarter Programme, further enabling digital adoption.”