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Retailers lukewarm on budget measures
Archived article dated Wednesday April 22nd 2009
The UK economy will shrink by 3.5 per cent during 2009 before it begins to recover by 1.25 per cent in 2010, Chancellor Alistair Darling has predicted in his budget.
There were no retail-specific announcements in the budget, though duty on fuel, alcohol and cigarettes is to rise by 2 per cent. Initiatives such as a £2000 payment for scrapping old cars in favour of a new one are to be tried out in a bid to kickstart spending. A new 50 per cent top rate of income tax will be introduced for those earning more than £150,000 a year.Reaction from the retail industry has been lukewarm at best. “This 'Budget for jobs' has done little to help under-pressure retailers keep people in work,” according to the British Retail Consortium. “The Budget left retailers still facing most of the people and property costs that will prevent new investment and threaten the viability of retailers and their ability to create and sustain jobs. Few share the Chancellor's optimism that the economy will be growing again by the end of this year. It's crucial retailers are spared new burdens and support for the sector isn't ended prematurely,” says BRC business director Jane Milne.
Last week, half of large retailers and over 40 per cent of small and medium-sized ones responding to the BRC's Credit Conditions Survey said the reduction or withdrawal of trade credit insurance has undermined their ability to trade. The BRC says the Chancellor's plan for 'top-up' insurance is too little too late. “Matching the trade credit insurance that private insurers are willing to provide is vital to helping fundamentally sound businesses weather the recession. But the unannounced detail confirms this safety net will be denied to companies whose cover was cut before 1 April meaning the plight of many is being ignored,” says Milne.
The Chancellor's re-announcement that retailers will be given the option of postponing part of this April's five per cent annual increase in business rates is welcome, but not enough on its own, says the industry group. “Offering extra time to pay part of this year's five per cent annual business rates increase is welcome help. But retailers still face large increases next April thanks to business rates revaluation and Business Rates Supplements and the Chancellor has done nothing to reduce the tax bills from empty property,” says Milne.
The BRC also believes Darling should have announced a delay of at least a month in the date for ending the current temporary VAT reduction.“Instead the Chancellor appears to have confirmed VAT will rise on that date. The change should be postponed until at least the end of January with retailers given the notice they need,” says Milne.
Jim McCarthy, chief executive of fixed price retailer Poundland, says Alistair Darling had unpalatable choices to make and that short-term consumer pain may result from measures to accelerate the speed of the recovery. “More people will seek value, and Poundland is well-placed to provide that, says McCarthy. “But a vibrant high street is good for UK shoppers and for retailers. We need good choice and a competitive environment.”
The Association of Convenience Stores, which represents more than 33,000 local shops, has welcomed steps to support trade credit insurance, but warns that the Chancellor's failure to act to prevent tax rises will hurt local retailers.
ACS Chief Executive James Lowman says, “At a time when retailers need radical action to reduce costs, spur investment and create jobs, this Budget contains only crumbs of comfort. The failure to act on the looming threat of next year's tax hikes in business rates and national insurance will do nothing to bolster local retailers who are crucial to economic recovery.”
Lowman adds, “The increase in duty on cigarettes and alcohol is depressingly predictable for retailers. Every increase in duty fuels the black market and sustains the criminal gangs that thrive particularly in the most deprived communities. This will mean reduced sales for legitimate retailers and less control over who is buying alcohol and tobacco, especially young people.”
On VAT Increase Mr Lowman says, “The Chancellor's failed VAT reduction will continue until the end of 2009. We are concerned that the increase back to 17.5% will harm retail sales, but more importantly will require a massive re-pricing exercise on New Years Eve in the middle of the busiest trading season of the year. This is impractical and will be costly.”
Tagged as: budget | chancellor | Alistair Darling | BRC | Poundland | Jim McCarthy
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