Helen Dickinson, Head of UK Retail at KPMG comments on what the Budget means for retailers
With the health of the retail sector deteriorating due to low consumer confidence and rising costs, hope rested on the Chancellor to deliver a Budget that would help tackle some of the challenges facing the sector.
When I talked to retailers prior to the Budget, most hoped for changes that would alleviate pressure on consumers’ disposable income and deliver relief for them in the key areas of business rates and fuel bills.
Unfortunately last week’s Budget failed to sufficiently tackle these issues. Consumer spending is down and retailers needed the Government to put more money in people’s pockets to get them spending quickly. Whilst the increase of the basic rate of personal allowance to £9,205 is welcome, it will not take place until next year and so offers little help to retailers struggling to maintain sales volume over the next twelve months.
The Chancellor’s decision to try to boost the retail sector by suspending restrictions on opening hours for retailers for the two month period during the Olympics may only benefit those larger retailers with floor space of more than 3,000 sq ft who are currently restricted to trading to six hours on a Sunday. But for these businesses the ability to trade for longer also brings the prospect of increased overheads and staffing issues and many will not welcome the new expectation put upon them that they will be open for longer during the Games.
Retailers in London are concerned about the other challenges the Olympics will bring. There is ongoing debate among them as to which sectors will be the winners and losers in terms of spending. Net, net, I expect the impact on retail spending in the capital to be neutral at best. However, increased traffic and road closures will make the distribution of goods to stores increasingly challenging for all retailers and many are concerned that they will not be able to maintain good stock levels over the Olympic period. This challenge is already present and will simply be exacerbated by extending current trading hours.
What retailers really wanted was immediate action that would help consumers and help them manage their costs, such as relief on business rates. This was notably absent. Most retailers have extensive property portfolios and thus are particularly exposed to increases to business rates. Reform is needed to make the rates more predictable and fairer.
News of the removal of the VAT anomaly on hot food is bad news for a number of retailers and that the August fuel rise will go ahead is also a devastating hit for the sector. Rising fuel costs hit retailers twofold by increasing business running costs and putting further pressure on consumers’ household budgets, reducing their disposable income further.
The Chancellor also confirmed that the Government will no longer apply relief to low value imports by individuals into the UK from the Channel Islands, with effect from 1 April 2012. This follows an unsuccessful challenge in the Administrative Court by the States of Jersey and Guernsey in Judicial Review proceedings. This change was announced some months ago by the Treasury, but has to some degree remained uncertain pending the outcome of the challenge mounted by the Channel Islands. Both Jersey and Guernsey have been given leave to appeal the decision in the Judicial Review, but irrespective of whether they do decide to appeal, the legislation will be introduced from 1st April 2012.
Overall whilst retailers may recognise that the Chancellor has attempted to address their needs, and that of corporate Britain with the reduction in corporation tax rates, many will be disappointed at the limited help available.
What retailers really wanted was immediate action that would help consumers and help them manage their costs, such as relief on business rates. This was notably absent in this budget. Most retailers have extensive property portfolios and thus are particularly exposed to increases to business rates. Reform is needed to make the rates more predictable and fairer.
