ANALYSIS: Autumn Statement
‘Challenging’ times ahead
Chancellor Philip Hammond’s Autumn Statement has been met with mixed reactions from the retail industry and poses new threats to independent retailers over the next year and beyond. The British Retail Consortium’s Helen Dickinson and the Federation of Small Businesses’ Mike Cherry look at the potential impact
“Stocking fillers rather than expensive presents” was how BRC chief executive Helen Dickinson summed up the Chancellor’s Autumn Statement.
She added: “With a post-Brexit slowdown forecast to make a big hole in public finances, there was little room for the Chancellor to pull out any real crackers. The key takeaway from this is that, while Brexit has not heralded the economic decline some feared, the OBR [Office for Budget Responsibility] is expecting a significant dent in UK GDP and hence in consumer spending also.”
Ms Dickinson continued: “As expected, the OBR has revised downwards its March forecast of growth and that means lower growth in consumer spending in the medium term. While the UK economy as a whole will grow 1.4 per cent in 2017 and 1.7 per cent in 2018, household consumption is predicted to grow at just 1.2 per cent next year and 1.1 per cent the following year. This is a significant shift downwards from 2.2 per cent this year.”
However, Ms Dickinson welcomed the new £23 billion Productivity Investment Fund, which would see an additional £1.1bn of funding for key pinch points on strategic roads. She claimed this recognised that “small, but targeted amounts can make a big difference to retailers transporting everyday goods 24/7 on the UK’s road network”.
The Federation of Small Businesses’ national chairman Mike Cherry also believed it would have a positive impact for retailers, saying: “The new £23bn fund will help drive important improvements in productivity across the UK. Increased investment in transport, digital communications, housing and research and development (R&D) are all key priorities for businesses.”
He added: “Many small businesses view problems with the local road network as a key barrier to growth and this is especially true in rural communities. The £1.1bn in additional funding for the upgrade and maintenance of roads outside the Strategic Road Network should help deliver real benefits to small firms. This is a key win for our members who have consistently raised this issue. A further £220 million set to be invested in pinch points on the motorway network will also address frustration and delays.”
Mr Cherry also claimed that the freeze in fuel duty had been a key priority for its members and said it would provide a “significant boost” to small business confidence and stability.
However, Ms Dickinson claimed that while the freeze on fuel duty and the abolition of letting fees could provide some relief to households on tight budgets, the measures announced “will do little to offset the overall expected reduction in spending growth”.
“At the same time, the devaluation of the pound will feed through into higher prices,” she added. “The OBR predict inflation is likely to average 2.3 per cent next year, meaning that each pound in consumers’ pockets will buy less, with wage growth only just about keeping up.”
Ms Dickinson also cautioned that the years ahead would not all be plain sailing. She said: “While the outlook is not as bad as some predicted it could have been in the wake of the EU referendum, the next few years will be challenging for the industry. While shoppers’ spending power is falling, retailers will almost certainly have to absorb some of the underlying cost increases into their margins, rather than fully pass them on. As a result, retailers are likely to see slower volume growth at lower margins next year.
“For an industry with around five per cent of its expenditure on transport services, the freeze in fuel duty will ease some pressure. However, compared with the coming increases in business rates and the National Living Wage, its impact will be virtually unnoticeable,” she argued.
Ms Dickinson claimed that although the Government had pledged to permanently increase business rates relief – which would see around 600,000 small firms out of the rates system altogether, according to the FSB – they have risen “disproportionately” by comparison with other taxes, which has had a lasting impact on high streets and town centres.
“Rates, which are disproportionately impacting property intensive industries, such as retail, have steadily increased from approximately one third of annual rental value to one half,” she added.
She went on to say that the Chancellor had missed an opportunity to “keep up the momentum” behind the reforming of the business rates system by failing to bring down the burden of rates for retailers.
She added: “The retail industry will be encouraging the Chancellor to look again at measures to help alleviate the pain felt on the high street. Despite recent reform measures, retailers are expected to pay £550m more in rates than they do today.”
Mr Cherry added that small businesses in London would still be hit hard by business rates.
“Our members in London are facing huge increases in their rates bills in the wake of the recent revaluation. We still want Government to look again at increasing relief thresholds in the capital as the next major reform of the business rates system,” he said.
Both the BRC and FSB agreed that the proposed increase of the National Living Wage was “modest” and “sensible”, which will be a welcome relief to retailers across the nation. However, the FSB argued that small employers would still need support, particularly with “steeper” increases likely in order to meet the 2020 target.
The extra £1.1bn funding for investment in digital infrastructure has been praised by both parties, with the FSB’s Mr Cherry describing it as an “important step in the right direction to improve digital connectivity”, but claimed it should be targeted towards small businesses and business parks to have “maximum impact”.
“This investment is a welcome and timely development, and should help lead to faster broadband speeds across the UK,” he said. “Beyond this investment, it is also important that the new Universal Service Obligation includes business premises to help those in the most hard-to-reach areas. A strategy is now needed to help businesses take full advantage of the digital economy which will help improve productivity and growth.”