Most retailers will hike prices in response to Reeves’ NI Budget raid
Two thirds of CFOs have said their business will be forced to raise prices as a result of higher wage bills, according to a new survey.
Around 70 per cent of respondents to the survey, which looked at the attitudes of CFOs at 52 retailers, were “pessimistic” or “very pessimistic” about trading conditions over the coming 12 months, according to the British Retail Consortium (BRC).
BRC chief executive, Helen Dickinson, said that changes to national insurance contributions have a “disproportionate impact” on retailers and their supply chains, who together employ 5.7m people across the country.
Employer’s national insurance contributions (NICs) – a tax on employees’ wages – will rise 1.2 per cent to 15 per cent as of April 6, following Rachel Reeves October Budget. However, many retailers are struggling more with the second change: the lower threshold for the tax.
Employers will have to start paying NICs on wages over £5,000. The threshold was previously £9,100. Given that half of all retail employees work part-time, this will bring around 1.45m employees directly employed in retail into the bracket.
“With slow market growth and margins already stretched thin, it is inevitable that consumers will bear some of the burden,” Dickinson added.
While inflation has dropped throughout 2024, this has been driven by increased discounting as shops compete for price-conscious shoppers – particularly in the Autumn – which has cut into retailer’s margins and made them particularly vulnerable to higher taxes.
JD Sports noted this in its festive trading results this morning, with a “more promotional environment in the period than we anticipated”.
List of shops warning of price increase rises
Large retailers like Next and Tesco have already warned they face millions in extra wage costs and will have to raise prices – although these potential increases have so far remained minimal.
Next, which faces a bill of £67m, has said it will have to raise prices by one per cent.
Tesco, which faces a bill of £250m, has said it will aim to limit the inflationary impact but hasn’t ruled out higher prices.
Greggs, too, has warned that it needed to pass on some of the costs it faces to customers, putting the price of its iconic sausage rolls up by five pence.
Consumer stocks have taken a hammering in the last week as investors become increasingly nervous about the twin effects of higher prices and lower demand.
In October, the CEOs of 81 retailers wrote to Chancellor Rachel Reeves warning that changes to NICs would have a significant impact on inflation, employment and investment.
“For any retailer, large or small, it will not be possible to absorb such significant cost increases over such a short timescale. The effect will be to increase inflation, slow pay growth, cause shop closures, and reduce jobs, especially at the entry level.
“This will impact high streets and customers right across the country. We are already starting to take difficult decisions in our businesses, and this will be true across the whole industry and our supply chain,” the letter said.