Retail didn't get the bold Budget it needed

The last time I pondered over an issue like this, I was watching a TED talk on artificial intelligence wondering where the world is taking us. The uncertainty and possibilities are mind boggling. Fast forward a few months and here I am frowning at our chancellor’s second budget, hearing him talk of technological revolutions with robots and self-driving cars, and considering what it all means for retail.

[also featured in Retail Week: https://www.retail-week.com/topics/policy-and-legal/opinion-retail-didnt-get-the-bold-budget-it-needed/7027674.article?blocktitle=Also-in-the-news&contentID=19664]

Uncertainty is huge. With a chaotic-Brexit, weakening economic growth, faltering productivity and political in-fighting, I guess Philip Hammond could be excused for much head scratching.

The self-proclaimed ‘fiscal’ Philip was as unlikely to produce a revolutionary budget as fundamental reform of the business rates system. Unsurprisingly, it contained incremental changes when the country faces seemingly impossible challenges – at least for the immediate future.

Hammond’s options were further constrained by worsening growth forecasts from the OBR, stating that the economy is now only expected to grow by 1.5% this year, revised down from 2.0%. Additionally, the OBR’s assessment of lower productivity growth means there were painful downward revisions in growth throughout the forecast period with output dipping to just 1.3% in 2019. 

Safeguarding Britain’s finances from a possible Brexit blast was a rational strategy from a prudent man. Given the expected fall-out from the possibility of a hard Brexit, albeit not the most likely outcome in my view, it’s difficult to argue against a prudent approach being the most appropriate just now.

Nevertheless, there is one certainty Hammond could bank on - consumers being the life-blood of a “prosperous and inclusive economy”. Consumer spending comprises two thirds of the economy with about one third of it generated by retail. Hurrah! Shoppers form the heart of our economy in which retail creates countless jobs, drives productivity and fosters innovation.

After all, the only way the UK will emerge from its current economic malaise is to boost productivity. Regrettably, fundamental reform of the archaic business rates systems fell well short of what’s required for the industry. Plans to move from RPI to CPI indexation two years ahead of schedule is a welcome move, but falls short. Retail Economics estimates that switching to CPI will save the industry around £60m next year - meagre compared with the £7 billion business rates it pays annually.

The introduction of three yearly revaluations is a positive move and will help businesses avoid the cliff-edge situation they faced earlier this year. However, this cancerous instrument continues to gnaw away at the much-needed boost in productivity that investment in innovation, jobs and training could so vitally provide.

The announcement to increase National Living Wage from £7.50p/h to £7.83p/h will add further cost pressures. Labour costs comprise around 40% of operating costs and so the 4.4% will be difficult to absorb.

Since the financial crisis, CEOs often tell me they have dedicated increasing efforts to cut costs; and while being squeezed to the limits of efficiency, the only release will probably involve passing on those costs to their valued customers.

Although spending power is being eroded, the announcement that the personal tax allowance will rise from £11,500 to £11,850 next year, while the higher-rate threshold will be pushed up to £46,350 will help ease the pressure on households’ finances. Our surveys routinely highlight the squeeze on incomes and shifting behaviour towards budget lines. In other areas the freeze on fuel duty, the scrapping of stamp duty for first-time buyers up to a property value of £300,000 and relaxing Universal Credit bureaucracy will help ease the pain for some families.  

I feel the budget was born from limited manoeuvrability which only allowed incremental reforms which was highly anticipated. Much discussion included technology and the exciting possibilities and developments that retail will undoubtedly lead on as we move forward. I strongly feel that government needs to adopt a bold attitude, taking a firmer grip during Brexit negotiations in order to deliver favourable trading terms for our country. Let’s hope the UK will be in a much stronger position next year so we can deliver a bolder budget as we head out of the EU.