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Mark Harwood
Head of Retail and Leisure

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Retail

Developments since Pre-Budget Report

There was not much in the Budget that can be said to have offered respite specifically to the retail sector.

If last year’s cut in VAT failed to provide a significant boost to retail activity, retailers will still have been grateful that the rate was not increased above the recently-restored 17.5% rate. Even if an increase in VAT might not have reduced retail activity the associated administrative burden of a second change in three months would have been a real nuisance. The option to widen reduced rates for labour intensive businesses, such as restaurants and hairdressers, has been popular in Europe and would have been welcomed in the UK, but did not materialise.

Meanwhile, continuing low interest rates, consumer spending that exceeded expectations (at least in some sectors, and up to and including the New Year sales) combined with understanding landlords to keep many retailers in business. However, a major pinch point is approaching as we near the end of the first, for many quietest, quarter of the year. Creditor and quarterly rental payments will soon fall due and cashflow may be extremely tight. In these conditions the extension of HMRC’s time to pay arrangements may prove invaluable.

Smaller retailers who survive until October will benefit from business rates relief on properties with rateable values of up to £12,000.

If last year’s cut in VAT failed to provide a significant boost to retail activity, retailers will still have been grateful that the rate was not increased above the recently-restored 17.5% rate. Even if an increase in VAT might not have reduced retail activity the associated administrative burden of a second change in three months would have been a real nuisance. The option to widen reduced rates for labour intensive businesses, such as restaurants and hairdressers, has been popular in Europe and would have been welcomed in the UK, but did not materialise.Meanwhile, continuing low interest rates, consumer spending that exceeded expectations (at least in some sectors, and up to and including the New Year sales) combined with understanding landlords to keep many retailers in business. However, a major pinch point is approaching as we near the end of the first, for many quietest, quarter of the year. Creditor and quarterly rental payments will soon fall due and cashflow may be extremely tight. In these conditions the extension of HMRC’s time to pay arrangements may prove invaluable.Smaller retailers who survive until October will benefit from business rates relief on properties with rateable values of up to £12,000.

Overall though, the retail sector will continue to be a barometer of the health and confidence of the economy as a whole and conditions are likely to remain challenging for some time.