UK retailers warn Rachel Reeves of £7bn hit from Budget changes

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Dozens of large UK retailers including Tesco, Boots, Next and Marks and Spencer have written to chancellor Rachel Reeves to warn of annual costs to the sector of up to £7bn following last month’s Budget.

The letter, which had 79 signatories and was co-ordinated by lobby group British Retail Consortium on Monday, complained about additional costs largely arising from the Budget such as changes to national insurance and the national living wage, as well as an existing packaging levy. They warned that the higher costs would feed through into job losses and higher prices for customers.

“For any retailer, large or small, it will not be possible to absorb such significant cost increases over such a short timescale,” the letter said.

“The effect will be to increase inflation, slow pay growth, cause shop closures, and reduce jobs, especially at the entry level. This will impact high streets and customers right across the country.

“We are already starting to take difficult decisions in our businesses and this will be true across the whole industry and our supply chain.”

The companies, which also include B&Q owner Kingfisher and supermarket chains Morrisons and J Sainsbury, estimated that they will face a £2.3bn bill from April following the increase in the rate of employer NI contributions to 15 per cent as well as the lower earnings threshold at which business start paying contributions, falling from £9,100 to £5,000.

In their letter, the retailers said these changes, which took many by surprise, were “particularly acute given retail employs large numbers of people in entry-level and part-time roles”.

In addition, they said they would incur another £2.73bn in wage costs from April — albeit this was already largely factored into their forecasts before the Budget — as well as an estimated £2bn relating to the so-called extended producer responsibility for packaging from October.

Retailers called for a “discussion” with the Treasury to address some of their concerns and suggested solutions including the phased introduction of the new lower earnings threshold on NI and a delay on the timelines for the implementation of levies on packaging.

It comes after hospitality businesses also wrote to Reeves warning that NI changes would lead to “drastic” job cuts and business closures.

In response to criticism from large employers over the Budget changes a Treasury spokesperson previously told the Financial Times that the government “had to make difficult choices to fix the foundations of the country and restore desperately needed economic stability to allow businesses to thrive”.

“This government is committed to delivering economic growth by boosting investment and rebuilding Britain,” the person added.