Budget reaction: Retail warns that higher costs will hamper investment

The retail industry has warned that increased costs following the Autumn Budget may hit businesses hard, with retailers facing higher costs amid new measures that come into place next April, with some warning the sector will face over £2.5bn in new costs in 2025.Yesterday, chancellor Rachel Reeves announced a series of measures aimed at raising £40bn in taxes, including employers’ national insurance contributions rising to 15%, alongside hikes in both the National Living Wage and National Minimum Wage.

The BRC warned that these rises may negatively impact investment plans and economic growth within the sector, adding that they come on top of other upcoming regulatory costs for retailers and an estimated £300-800m of extra costs following the Employment Rights Bill.

Reacting to the budget, Helen Dickinson, CEO of the BRC, warned that the budget will “hit hard, with the odds now stacked firmly against growth and investment in the short term”. She added that these new costs could also lead to higher prices that customers pay at the till.

She said increases to National Insurance contributions are “yet another case of piling taxes on an already overburdened industry – a decision which will reduce investment in shops and jobs”, and warned that the “scale of increases will have an immediate and disproportionate effect on both retailers and their supply chains”.

Reacting to the rise in pay, the BRC also warned that with retailers facing other increases in costs, “investment plans and economic growth will be impacted given the larger-than-expected increase to NLW”, which adds £367m more than pre-Budget expectations, according to the association. 

Chris Brook-Carter, CEO of retail industry charity Retail Trust, welcomed the pay rises however, and said that increases to the national minimum wage and national living wage will “support many people across the retail sector by giving them the pay raise they deserve”.

The BRC meanwhile welcomed the budget’s recognition that retail should pay lower rates, after Reeves confirmed that the current 75% discount to business rates for retail in 2025-26, due to expire in April 2025, will be replaced by a discount of 40%.

However, Dickinson said it was “unclear whether this will address an imbalance which sees retail, as 5% of the economy, pay 21% of the total business rates bill”. 

She added: “There remain many unanswered questions about the new charges and discounts that will be levied from 2026. Charging more to businesses with higher rateable values may punish not only distribution hubs, but also larger stores, which play a key role in attracting footfall to high streets and town centres.”

Nonetheless, the Retail Trust said it was supportive of the government’s commitment to extend business rates relief and introduce permanent and lower rates from 2026 “if it can help to give retailers more confidence to plan for the future to ease much of the uncertainty and insecurity currently facing everyone working in the industry”.

Elsewhere, the British Independent Retailers Association (BIRA) condemned the budget as “the most damaging for independent retailers in recent memory”, warning that the “triple blow” of doubled business rates, increased National Insurance, and higher minimum wage costs will lead to “widespread” high street closures.

Andrew Goodacre, CEO of the BIRA, said: “This is without doubt the worst budget for independent retailers I have seen in my time representing the sector. The government’s actions today show complete disregard for the thousands of hard-working shop owners who form the backbone of our high streets.

“For all the government’s rhetoric about supporting small businesses and revitalising high streets, their actions do precisely the opposite. These punishing measures will force many shop owners to make heart-breaking decisions about their businesses’ future.”

He claimed that the budget was “clearly an anti-high street”, adding that the government has “shown complete disregard for the local businesses that create jobs and maintain vibrant communities”.

He said: “This budget betrays every independent retailer who has fought to keep their business alive through recent challenges. It’s not just disappointing – it’s potentially catastrophic for Britain’s high streets.”

The CBI meanwhile said this was a “tough budget for business”, though acknowledged that the chancellor was faced with “difficult choices” over the new measures. 

Rain Newton-Smith, CEO of the CBI, concluded: “The chancellor had difficult choices to make to deliver stability for the economy and public finances. A more balanced approach to our fiscal rules which prioritises capital investment should help to unlock private sector investment in our infrastructure and net zero transition over the long-term.

“This is a tough budget for business. While the Corporation Tax Roadmap will help create much needed stability, the hike in National Insurance Contributions alongside other increases to the employer cost base will increase the burden on business and hit the ability to invest and ultimately make it more expensive to hire people or give pay rises.”