In the UK, today’s budget had some good news for retailers, especially on business rate reform, but this was overshadowed by a savage downgrade to GDP forecasts which will have a far more dramatic impact on the retail sector over the next five years.

GDP growth was downgraded from 2% to 1.5% in 2017, and is forecast at 1.4%, 1.3% and 1.3% in following years before returning to 1.5% in 2021; this pushes the reversal in GDP decline a further two years than expected, alongside disappointing forecasts for productivity and business investment.

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Such a downbeat assessment of the country’s prospects will have implications for retail growth, although the Office for Budget Responsibility acknowledges that its forecast is clouded by the lack of information on the government’s policy on Brexit negotiations.

Good news on business rates

The good news was that following years of campaigning with little real progress, retailers have finally caught the ear of the government on business rates. Increases will be based on the CPI, rather than the permanently higher RPI, from April 2018 instead of 2020 as previously anticipated. This will save businesses £2.3bn over the next five years, with retailers seeing £210m of those benefits, according to the British Retail Consortium (BRC). Furthermore, the procedure surrounding business rate calculations will be reviewed every three years instead of every five, a key issue that the BRC had pushed for in its pre-budget report; the ensuing hope is that business rates will be closer related to the strength of the economy than before.

Retail chains have long complained that they are discriminated against as online pureplays’ business rates bills are so much lower, and while this will continue to be the case, there were changes aimed at tightening tax rules that apply to the likes of Amazon and eBay – marketplace sellers will now be jointly liable for VAT that sellers should charge consumers, and any attempts by overseas businesses to move royalties relating to UK sales to low-tax jurisdictions will incur income tax in the UK.

Boosting consumer spending

Retailers will hope that relief in personal taxation and wages will go some way to stimulate a boost in consumer spending. A minimum wage hike of 4.4% (£7.50 to £7.83) and a 3% increase in the personal tax allowance (£11,500 to £11,850) in April 2018 should partially offset inflation, though the OBR is forecasting negative real income growth every year through 2022. Small businesses will also be considering more optimistic investment plans as the VAT threshold is held at £85,000 for the next two years.

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Home and DIY retailers will pick up further long-term gains with the expected boost of £44bn in capital, loans and guarantees committed to supporting housebuilding projects over the next five years, with a 300,000 net increase per year in homes built by the mid-2020s driving down prices and increasing affordability.  A more short-term benefit is the headline-friendly scrapping of stamp duty for first-time buyers for the first £300,000 on purchases up to £500,000 (affecting 95% of first time buyers), which should increase housing transactions in 2018.

Independent convenience retailers may not view the budget so kindly, due to a raft of tax increases that affect them more than others: a 2% (3% for hand-rolling) plus inflation increase for tobacco, coupled with a minimum excise duty rise in March, and a new tax on high-strength ‘white ciders’ (while a freeze is placed on duty for other wine, spirit and beers) increases pressure on shops where a larger proportion of sales comes from less affluent customers.