London’s already hard pressed retail and hospitality sectors are being hit by an “eye-watering” extra £2 billion in costs this week as taxes and wage bills soar following the Budget.
Direct taxes on the retail sector will rise by an estimated £5.6 billion nationally, of which as much as £1 billion will fall on the capital.
That will increases operating costs by around 3.9% and hit already thin profit margins.
Meanwhile the hospitality sector is braced for £3.4 billion of extra costs nationally, of which up to £1 billion will hit London.
The cost explosion is being driven by changes in reductions in retail business rates relief from today, higher minimum wages, also from today, and increases in employer National Insurance contributions, from 6 April.
Analysis by research consultancy Retail Economics and employee app Yoobic suggests that the retail industry will pass on about £1.7 billion to consumers through higher wages, take a reduction in profits of around the same amount that attempt to offset the remaining £2 billion through cost cutting.
Richard Lim, chief executive officer at Retail Economics, said: “Retailers are staring down the barrel of a £5.6 billion wave of additional costs that will squeeze margins and threaten jobs across the industry.
“With operating costs rising sharply, many retailers have little choice but to absorb some of the financial pain while cautiously passing costs onto consumers already facing their own pressures. The scale of this challenge risks stalling investment, accelerating store closures, and reshaping the retail landscape in the year ahead.”
Fabrice Haiat, chief executive officer of Yoobic, said: “As cost pressures rise, retailers must rethink their approach to frontline operations, which are too often seen as a cost centre rather than a competitive advantage and a strategic driver of profitability.
“To mitigate the impact of cost increases, efficiency and productivity are core mitigation tactics. Retailers need to accelerate digital transformation and automation of their processes in stores to avoid hefty price increases for consumers.”
Trade group UK Hospitality estimates that businesses in its sector will now face an additional £1.9 billion in wage costs, £1 billion of employer National Insurance Contributions (NICs) and £500 million in business rates, as a result of relief being lowered from 75% to 40%.
it fears the the cost of employing a full-time member of staff, aged over 21-years-old, has increased by, 10%, or more than £2,500 annually. The cost of employing staff aged below 18-years-old has increased by 18% and for employees between 18- and 20-years-old it has increased by 16%.
Seven in 10 hospitality businesses say they will have to reduce their employment levels as a result, risking job losses and lost income for workers. A third will reduce trading hours and 15% believe they will have to close at least one site.
Kate Nicholls, Chief Executive of UKHospitality, said: “The costs hitting hospitality this month are eye-watering, and the impacts it will have on businesses, teams and communities are stark.
“We’ve already seen a chilling effect on investment plans and job creation – all of which have been put on hold or shelved.
“As costs begin to bite, we’ll see venues having to tighten their belt even further through restricting trading hours or, in a worst-case scenario, cutting jobs.
“None of this helps the Government’s ambitions to drive growth or get people back into work. It needs sectors like hospitality to achieve both of those goals, but with disjointed tax and welfare policies, that is looking more difficult than ever.
“Hospitality has the ability to generate socially productive growth and create jobs for everyone, everywhere, but this level of cost ties our hands behind our back. I urge the Government to work with us to bring forward a plan for hospitality that addresses these issues and backs the sector to serve Britain and create places where people want to live, work and invest.”
