Budget 2015: Struggling retailers face huge bill from wage rises and business rates

Aspire To Aspire

  • Businesses to stump up billions of pounds to cope with living wage and business rates

Under-pressure supermarkets and high-street retailers face paying out billions of pounds in extra wages and tax over the next five years after George Osborne’s Budget introduced a new national living wage and revealed a sharp rise in business rates.

Businesses will have to stump up an estimated £4bn to meet the Chancellor’s living wage, with the retail and hospitality sectors accounting for two-thirds of workers on the minimum wage.

But at the same time companies face a £4.9bn increase in business rates – equivalent to 17.5pc – over the next five years.

This will put particular pressure on Britain’s struggling supermarkets, which have hundreds of thousands of staff in their stores across the country.


The Office of Budget Responsibility estimated that the Treasury’s living wage will lead to 60,000 job losses, 0.4pc fewer hours worked in Britain, and GDP reducing by 0.1pc. However, it warned that the response of businesses and the impact on the labour market was “subject to significant uncertainty”.

A new national living wage for over-25s of £7.20 will be introduced from April 2016 and will rise to £9 by 2020. This compares to a minimum wage of £6.50 at present. A retailer employing 50,000 full-time staff at £7 per hour will have to pay an extra £21m a year to get to £7.20.

Shares in Britain’s leading retailers fell following the Budget. Marks & Spencer fell 2.5pc, Home Retail Group, the owner of Argos, lost 2pc, Morrisons fell 1.5pc, Sainsbury’s 1.1pc and Tesco lost morning gains. These companies employ 725,000 people between them.

The British Retail Consortium said the Treasury was “playing pass the parcel around the economy with the financial burden of increasing people’s incomes”, while the CBI said it was a “bad idea” to bring politics into the Low Pay Commission, which sets the minimum wage.

Clive Black, analyst at Shore Capital, said: “For businesses, particularly large employers such as supermarkets and pub companies, the stepped upward adjustment to labour costs may be a major challenge.

“The imponderable item is how much of the higher pay will be recycled back through the tills of the retailers and what all of this means for pricing strategies.”

On top of the national living wage, which is still below the £9.15 that the Living Wage Foundation recommends for London, the Budget documents reveal that business rates are expected to increase from £28bn in this financial year to £32.9bn in 2020/2021. This is due to annual inflation-linked increases and will follow a revaluation of Britain’s property due to come in to effect in 2017.


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