Invezz.com - UK retailers are bracing for a combined £5 billion rise in operating costs this year as government-led increases to employer national insurance and the national living wage come into effect from April.
This is ahead of UK Finance Minister Rachel Reeves’ Spring Statement, scheduled for 12:30 p.m. London time on Wednesday.
The upcoming update on public spending and taxation is expected to draw heightened scrutiny from business leaders, after many voiced concerns about the economic impact of last October’s budget.
Wage and tax hikes raise pressure
The British Retail Consortium (BRC) has flagged that the government’s autumn 2024 fiscal policies will result in significant additional financial pressure on consumer-facing companies, especially retailers.The BRC estimates the April tax and wage changes will generate around £5 billion in added costs.
Among the key contributors to this projected increase are two policies announced in October: a rise in national insurance contributions from employers and a 6.7% hike in the national living wage, which takes effect from 1 April 2025.
These measures were intended to boost workers’ earnings and fund public services, but have been criticised by businesses as undermining margins and weakening hiring incentives.
Multiple UK businesses, including supermarkets, home improvement retailers, and fashion outlets, have already reported earnings hits and declining demand linked to these cost pressures.
Tesco (LON:TSCO) said its national insurance bill alone may rise by £250 million ($324 million) annually, while JD Wetherspoon (LON:JDW) estimated the changes will cost each of its pubs £1,500 per week.
Retailers report earnings hit
Home improvement group Kingfisher (LON:KGF), which owns B&Q, said in its full-year results on Tuesday that the government’s economic policies have driven up costs and dented consumer confidence.The company noted a clear pullback in spending on big-ticket items, which tend to be sensitive to sentiment shifts.
Other retailers echoing similar concerns include Frasers Group (LON:FRAS) and AB Foods (LON:ABF), the owner of Primark.
Both companies flagged weaker consumer demand following the budget, with AB Foods’ finance director describing customer behaviour as being driven by “shock and fear.”
Frasers Group’s Chief Financial Officer said the business felt it had “been kicked in the face” by the budget impact.
JD Sports added that the government’s wage and tax changes were prompting firms to consider reducing staff hours or headcount, which would risk amplifying the UK’s existing economic slowdown.
Growth forecast set to fall
The Office for Budget Responsibility (OBR) is reportedly preparing to cut its 2025 growth forecast in Wednesday’s update, potentially halving the previous 2% estimate.This comes amid ongoing uncertainty linked to inflation, consumer caution, and the impact of US President Donald Trump’s global trade policies.
Goldman Sachs’ chief equity strategist said this week that Reeves is likely to prioritise cost-cutting rather than further tax hikes in the Spring Statement, in response to falling business and consumer confidence.
While acknowledging that the government’s aim to stimulate growth is important, analysts suggest it will be difficult to achieve without first stabilising corporate sentiment.
Businesses demand clarity
Both the Confederation of British Industry (CBI) and the British Retail Consortium have called on Reeves to avoid any further increases in business taxation during this Parliament.The CBI urged the government to help ease the regulatory burden and commit to supporting innovation and skills investment.
The CBI’s chief economist said the Spring Statement must deliver a confidence boost to UK businesses.
With employers already absorbing higher tax and wage obligations, there is growing concern that any additional burden could force companies to pass on costs to consumers, stalling economic recovery.
As UK firms adjust to the reality of tighter margins and cautious consumer spending, all eyes will be on Reeves’ fiscal plans — and whether they strike a balance between public funding needs and private sector resilience.