British retailer warns Reeves budget will deliver £50m ‘punch in the face’
Frasers Group has warned that Rachel Reeves’ budget will cost at least £50 million next year, likening the impact on retailers to a “slap in the face”.
Michael Murray, chief executive of the British trade group, said the latest financial measures would force businesses to cut costs and could affect consumer confidence to the extent that sales are already poor.
“This budget is terrible,” Mr Murray said. “Not only are they adding at least £50 million to our costs next year, but consumer confidence has also been damaged.” He blamed weaker-than-expected sales at Frasers, which owns House of Fraser and Sports Direct, for forcing the company to cut its annual profit forecast by £25 million to between £550 million and £600 million.
The budget, presented by the Chancellor, includes an increase in National Insurance contributions for employers and an increase in the minimum wage. Retailers now fear these charges will pile further pressure on margins, with even strong groups such as Frasers feeling the pinch. In addition, the government’s decision to delay the change in business rates until 2026 worries that property taxes will remain high.
Mr Murray said the budget had shaken trade and confidence during the run-up to and after the announcement. “It’s completely related to the budget,” he said. “Consumer confidence was down a lot before that and it hasn’t been good since.”
The market reacted strongly to the warning. Shares in Frasers fell as much as 12 per cent on Thursday, shortly after the retailer learned it would be delisted from the FTSE 100. Mr Murray admitted leaving the blue-chip index was “disappointing” but insisted the company remained focused on moving its products to the top.
In addition to the new National Insurance regime, the increase in the minimum wage to £12.21 an hour from £11.44 increases working costs. Frasers is now grappling with how to recover these costs, considering a combination of cutting costs elsewhere and raising prices.
“We will have to focus on reducing this increase in an already challenging environment,” said Mr Murray. He also suggested that some retailers, especially small ones, will struggle to cope with the system.
Chancellor Reeves says the budget provides the stability needed to rebuild public services and spur future growth. A spokesman for the Department of Finance said: “We have introduced the first budget in Parliament to wipe the slate clean, fix our public services, and give businesses the economic stability they need. Without our action, the business price relief would have ended next April. “
Frasers, founded by Mike Ashley—Mr Murray’s father-in-law and the company’s largest shareholder—has been active in strategic investments and takeover attempts, including the failed bid for Mulberry. It is currently closed when there is disagreement at Boohoo, where it is intended to install Mr Ashley as chief executive, although Mr Murray insisted that these disputes have not disturbed the management.
As retailers brace for the impact of higher taxes, rising wage bills, and tepid consumer sentiment, sentiment is high. Many will be forced to make difficult decisions about staffing, pricing, and investments as the critical holiday season approaches.
