Keir Starmer is grappling with fresh challenges to the Budget as retailers warn of escalating prices and potential job cuts following lackluster sales during the critical Christmas “golden quarter.”

The British Retail Consortium (BRC) and global accounting firm KPMG have projected that rising costs will outpace sales growth this year, compelling retailers to increase consumer prices.

BRC Chief Executive Helen Dickinson noted that the vital period from October to December did not deliver the hoped-for boost to 2024, which had already been marred by low consumer confidence and difficult economic conditions.

Dickinson stated that sales growth is expected to average 1.2% in 2025, falling short of the anticipated shop price inflation of 1.8%.

“This means volumes are likely to fall this year, all while the regulatory and tax burden on retailers will increase costs by £7bn from rising national insurance contributions, increasing national living wage, confirmed in the Budget, and new packaging levies.”
Helen Dickinson

She warned that retailers would have little choice but to hike prices and reduce investment in stores and jobs, potentially devastating high streets and communities. “With little hope of covering these costs through higher sales, retailers will likely push up prices and cut investment in stores and jobs,” Dickinson added, urging the government to intervene.

She advocated for business rates reform, emphasizing that no shop should end up paying higher rates than they do currently.

Retailers are bracing for the impact of Chancellor Rachel Reeves’s planned increase to employers’ national insurance, which will rise by 1.2 percentage points to 15%. The threshold for payment is also being lowered, affecting more lower-paid workers.

Labour argues that the tax hike is essential to address the nation’s finances and the NHS, with the Treasury estimating it could generate £25.7bn annually.

Last month, Treasury Minister James Murray defended the policy, asserting that it is a “difficult but necessary decision” to restore economic stability and support public services.

Struggles in the Retail Sector

While food sales fared relatively better, items typically purchased as gifts, such as jewelry, beauty products, and electronics, showed resilience during the festive period.

However, the overall economic outlook remains grim, with the UK economy shrinking by 0.1% in October, following a similar contraction in September. This marks the first consecutive monthly decline since the initial Covid-19 pandemic lockdowns in 2020.

The Office for National Statistics (ONS) attributed the downturn to a combination of factors, including weak consumer spending and broader economic challenges. The downturn has fueled fears of an impending recession, compounding the difficulties faced by the retail sector.

Liberal Democrat Treasury spokesperson Daisy Cooper called the government to abandon the national insurance hike, describing it as a “misguided jobs tax.” Cooper criticized the tax increase, stating, “These figures lay bare just how tough things are for our retail sector currently and the new government’s ill-judged national insurance hike is set to only make things worse.”

A recent survey by the British Chambers of Commerce (BCC) revealed that more than 60% of firms are concerned about the government’s expanded tax demands, up from 48% three months ago. Half of the executives surveyed expect to raise prices within the next three months.

Shevaun Haviland, the BCC’s director general, emphasized the damaging impact of the national insurance hike on business confidence, which is now at its lowest point since Liz Truss’s mini-Budget in 2022. “Business confidence has slumped in a pressure cooker of rising costs and taxes,” Haviland said.

Nearly 5,000 businesses participated in the survey, highlighting widespread apprehension about the economic environment. The Federation of Small Businesses also voiced concerns over the government’s proposed employment reforms, with two-thirds of respondents indicating they would hire fewer workers.

The organization urged Keir Starmer to reconsider plans to expand unfair dismissal laws, which could enable workers to take employers to tribunals from their first day of work. Labour maintains that all workers deserve equal protection.