Budget breakdown

We examine last week's UK Autumn Budget to understand how changes in consumer confidence and tax rises may impact the retail, F&B and leisure sectors - and why, perhaps, things might not be as bleak as some predict.

The Nuffield Foundation reports that the average "real wage" in the UK is only £16 a week higher than it was in 2010. Rampant inflation has outpaced wage growth, significantly impacting households across the country, leading to a 2.4% decline in disposable income compared to pre-pandemic levels. While these statistics may suggest a bleak outlook for the retail and hospitality sectors, various other factors are at play. New government policies aim to boost consumer confidence, which could help stimulate spending in these areas.

Chancellor Rachel Reeves’s Autumn Budget aims to address the fiscal shortfall with £40 billion in tax increases. However, it’s not all doom and gloom: the national minimum wage will be increased, and Reeves shared new projections from the Office for Budget Responsibility indicating that inflation is expected to dip below 2% after 2028. Additionally, with a commitment to not raising income tax, and the increase in the national living wage, these measures are designed to put more money into consumers' pockets and stimulate discretionary spending, a welcome boost for retail and hospitality operators heading into what is traditionally the busiest time of the year.

The public's optimism seems to be spurred further by relatively low unemployment rates (4.1%) and increasing evidence of a government who are attempting to keep money in the pockets of working people. This month, Deloitte's Consumer Confidence Index for Q3 2024 rose to its highest level in over five years, returning to pre-COVID levels. Discretionary spending on dining out, clothing, and footwear has reached its highest point since Q3 2021, indicating a full recovery from pre-pandemic levels. Spending on "going out" is lagging behind slightly, but is projected to return to full strength within a couple of years.

While consumers may be feeling confident, businesses in the retail and hospitality sectors might be less enthusiastic about the Chancellor’s latest announcements. Increased national insurance contributions for business owners, combined with higher labour costs due to the rising minimum wage, will inevitably eat into profits. This may force some businesses to make tough decisions if retail and hospitality portfolios begin to struggle with profitability, potentially leading to job losses and a decline in consumer confidence. Furthermore, increased costs may result in wage stagnation for workers earning above the minimum wage, as employers may struggle to afford pay raises. However, there is a glimmer of hope for small businesses: the British Retail Consortium highlights that Reeves has proposed permanently lowering rental multipliers for small businesses, which could benefit high street shops that already bear over one-third of all business rates in the country.

While it may be too soon to assess the success, or indeed failure, of the government’s fiscal policies in the retail and hospitality sectors, the upcoming festive trading period will serve as a key indicator. With consumer confidence high and minimum wages on the rise, retailers and hospitality operators are hopeful that increased holiday spending will help offset their rising costs this Christmas season.

Charlie Gaisford