Former Chancellor Kwasi Kwarteng’s mini-budget caused market chaos, driving down the FTSE 100 and the pound while raising interest rates. Just over three weeks later, new Chancellor Jeremy Hunt’s emergency statement has dismantled most of Kwarteng’s plans. However, this handbrake-turn will not be pain-free for British businesses and their logistics partners.
Clearly, restoring market stability amid soaring Government borrowing and interest rates was vital. There seems to have been a relatively positive reaction so far, with both the pound and stock markets initially climbing. That may ease the immediate pressure on retailers and UK manufacturing.
However, Chancellor Hunt’s emergency statement has a dark side for businesses; it’s very much a two-edged sword.
Businesses are already reeling from the corporation tax chaos. The on-off-on rise of this tax on businesses, from 19% to 25%, has caused significant confusion. MHA, the network of independent regional accountancy firms, says the restoration of the tax increase is a “big blow” for businesses and the U-turn is a “significant setback”.
A number of other handbrake-turns from last month’s mini-budget will also have a significant impact on retailers. Abandoning plans to scrap VAT paid by foreign visitors in UK stores will not please many retailers. They were eagerly anticipating a spending spree from wealthy US and Middle Eastern shoppers. The Association of International Retail says the original scrapping of tax-free shopping back in 2019 cost 20,000 jobs and lost a significant amount of the £28.4bn foreign visitors spent in the UK annually. Retailers and their logistics partners have seen a great opportunity for renewed growth snatched away from them.
Similarly, in terms of energy price caps, it looks as if there will be a lot less support for businesses than hoped for beyond April. Chancellor Hunt said that any continued support for businesses will only be targeted on those most affected, and that any further measures will be focussed on increasing energy efficiency. That’s bad news for traditional, high-energy use manufacturers and their transport partners.
Retailers and manufacturers will also be very concerned about the strong possibility that consumers will draw in their horns even further following Chancellor Hunt’s scrapping of energy price guarantees for homeowners beyond April. Any further energy capping will be subject to a Treasury-led review. That’s not going to do much to restore consumer confidence in the medium term. The scrapping of the planned cut in the basic rate of income tax from 20% to 19% will also discourage shoppers from putting their hands in their pockets.
Today's statement ruthlessly dismantled most of the policies unveiled in September’s mini-budget, but it could be tough medicine for UK retailers, manufacturers and their supply chain and logistics partners. Something needed to be done following the omnishambles of September’s mini-budget, but it could still be a rocky road ahead.
This further reinforces the plight of retail, still reeling from the impact of Covid. ParcelHero’s influential report 2030: Death of the High Street has been discussed in Parliament. It reveals that, unless retailers develop an omnichannel approach, embracing both online and physical store sales, the High Street as we know it will reach a dead-end by 2030.
Read the full report here