New Budget blow for Starmer as retailers warn of price hikes and job cuts

Keir Starmer faces a fresh Budget headache as retailers warn of higher prices and job cuts following disappointing sales in the crucial Christmas “golden quarter”.

The British Retail Consortium and global accounting firm KPMG said costs are projected to eclipse sales growth this year, forcing traders to pass higher prices onto consumers.

BRC chief executive Helen Dickinson said the crucial quarter between October and the end of December had “failed to give 2024 the send-off retailers were hoping for” after a year she said was marked by weak consumer confidence and difficult economic conditions.

She said the BRC and KPMG projected sales growth to average 1.2 per cent in 2025, below the projected shop price inflation of 1.8 per cent.

“This means volumes are likely to fall this year, all while the regulatory and tax burden on retailers will increase costs by £7bn from rising national insurance contributions, increasing national living wage, confirmed in the Budget, and new packaging levies,” she said.

“With little hope of covering these costs through higher sales, retailers will likely push up prices and cut investment in stores and jobs, harming our high streets and the communities that rely on them.

She urged the government to mitigate this, “so that retailers can invest more in growth and jobs, starting with its planned business rates reform where it must ensure that no shop ends up paying higher rates than they do already”.

Festive season shopping failed to bolster retailers’ hopes for 2025, the BRC says (PA Archive)

Retailers will be particularly hard hit by chancellor Rachel Reeves’s planned hike to employers’ national insurance, which will see a 1.2 percentage point rise to 15 per cent and more lower-paid workers caught by the tax as the threshold for payment is lowered.

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Labour says it needs to raise tax in order to fix the nation’s finances and the NHS, with the Treasury estimating the policy could raise £25.7bn a year.

Last month, Treasury minister James Murray defended the increase, telling MPs: “It will implement a difficult but necessary decision that, along with others, is critical to raising the revenue needed to fix the public finances, to get public services back on their feet and to restore economic stability.”

Ms Dickinson said food fared better than other items, as did goods normally bought as presents, such as jewellery, beauty products and electricals.

The gloomy outlook follows news the UK economy shrank 0.1 per cent in October, stoking fears of a recession.

The Office for National Statistics (ONS) said output fell by 0.1 per cent in October following the 0.1 per cent decline recorded for the previous month – the first time the economy has contracted for two consecutive months since March and April 2020, during the onset of the Covid-19 pandemic.

Liberal Democrat Treasury spokesperson Daisy Cooper urged the government to scrap the national insurance hike, which she described as a “misguided jobs tax”.

“These figures lay bare just how tough things are for our retail sector currently and the new government’s ill-judged national insurance hike is set to only make things worse,” she said.

On Monday, a survey by the British Chambers of Commerce suggested that more than 60 per cent of firms were worried about the government’s expanded tax demands, up from 48 per cent three months ago.

Chancellor Rachel Reeves’s national insurance hike is being blamed for impending price increases (PA Wire)

Half of executives now expect to increase prices in the next three-month period.

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Shevaun Haviland, the BCC’s director general, said: “Business confidence has slumped in a pressure cooker of rising costs and taxes. Firms of all shapes and sizes are telling us the national insurance hike is particularly damaging.”

Business confidence is now at its lowest since Liz Truss’s disastrous mini-Budget, which sent borrowing costs spiralling in 2022.

Nearly 5,000 businesses took part in the survey.

Recent survey results from the Federation of Small Businesses suggest that the government’s proposed employment reforms will harm them, with two-thirds saying they will recruit fewer staff.

It wants Keir Starmer to scrap plans to expand unfair dismissal laws which could allow workers to take their employers to a tribunal from their first day at work. Labour has said all workers deserve the same basic protections.

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