Sunak risks fuelling inflation with high taxes and Brexit red tape, retailers warn

 

Sunak risks fuelling inflation with high taxes and Brexit red tape, retailers warn

 

Shop price inflation eased to 4.3% in November but ministers’ plans could lead to higher prices, BRC says

 

Richard Partington Economics correspondent

@RJPartington

Tue 28 Nov 2023 05.00 GMT

https://www.theguardian.com/business/2023/nov/28/rishi-sunak-inflation-high-taxes-brexit-retailers-brc

 

The UK’s largest retailers have warned Rishi Sunak that his government risks prolonging the cost of living crisis by driving up the cost of doing business on the high street with Brexit red tape and higher taxes.

 

The British Retail Consortium (BRC) said a number of measures laid out by the chancellor, Jeremy Hunt, in last week’s autumn statement risked adding to inflation next year.

 

After soaring to a 41-year high last autumn, inflation has fallen back before this year’s pivotal Christmas shopping season. The BRC said its measure of annual shop price inflation eased for the sixth month in a row to 4.3% in November, down from 5.2% in October. The decline does not mean shop prices are going down, only that they are rising less rapidly.

 

However, the industry trade body warned that retailers were facing headwinds in 2024 from “government-imposed” measures – including tax increases and Brexit red tape – which risked fuelling inflation.

 

“Combining these with the biggest rise to the ‘national living wage’ on record will likely stall or even reverse progress made thus far on bringing down inflation, particularly in food,” said the BRC chief executive, Helen Dickinson.

 

Hunt argued last week the government had taken “difficult decisions” to meet Sunak’s primary target to halve inflation this year, while saying his economic plans would help inflation continue to fall next year. Official figures show inflation has fallen back from a peak of 11.1% in October 2022 to stand at 4.6% last month.

 

However, the BRC said the cost of several government measures confirmed in the autumn statement were likely to be passed on to consumers in the form of higher prices on the shelves.

 

It singled out an increase in business rates – paid by firms on the premises they occupy – from April, for adding more than £400m to retailers’ tax bills, despite Hunt making concessions for smaller firms and cheaper properties.

 

The cost of managing post-Brexit import checks and labelling rules, due to come into force next year, are also likely to be passed on to shoppers, it said.

 

The BRC also questioned whether Hunt approving an almost 10% increase in the national living wage to £11.44 an hour from next spring was sustainable, while saying the higher wage costs would be tough for retailers to stomach amid a slump in consumer spending and rising tax levels.

 

Figures released on Monday from the Confederation of British Industry show retail sales volumes fell year on year in November for a seventh consecutive month, as bosses warned they were anticipating a “disappointing” festive period.

 

Martin Sartorius, the principal economist at the CBI, said: “Retailers had hoped the chancellor’s autumn statement would offer a reprieve from next year’s hike in business rates. While prioritising relief for SMEs and key sectors is understandable, many retailers are being left to contend with another increase in costs at a time when they are least able to afford them.”

 

He said sales had languished in negative territory for much of 2023, reflecting the impact of strained household finances on the sector’s fortunes.

 

“Though sentiment has picked up slightly, firms do not feel that a revival in activity is imminent. Given the weakness in trading conditions, it’s little surprise that firms are scaling back on their investment ambitions.”

 

The Treasury said it was helping businesses by cutting taxes on investment and extending business rates relief for more than 1m business properties. “It is thanks to our action that we’ve achieved our target of halving inflation this year, but we are continuing to stay the course to get inflation all the way back down to 2%,” a spokesperson said.

 

“The OBR have confirmed that our policies will reduce inflation next year while boosting growth and rewarding people for their hard work.”