Frasers Group has warned that Rachel Reeves’ budget will cost at least £50m next year, likening the impact on retailers to a “slap in the face”.
Michael Murray, the CEO of the British retail group, said the recent tax measures will force companies to cut costs and could hit consumer confidence to such an extent that sales are already suffering.
“This budget is devastating,” Murray said. “Not only are they adding at least £50 million to our costs next year, but consumer confidence has been destroyed.” He blamed the measures for weaker-than-expected sales at Frasers, owner of House of Fraser and Sports Direct, and for forcing the company to cut its annual profit forecast by £25 million to between £550 million and £600 million.
The budget, introduced by the Chancellor, includes an increase in employers’ national insurance contributions and an increase in the minimum wage. Retailers now fear that these costs will put further pressure on margins, with even strong groups such as Frasers feeling the pressure. Furthermore, the government’s decision to delay business rates reforms until 2026 increases concerns that property taxes will remain high.
Murray said the budget damaged trade and confidence in the run-up to and after its announcement. “It’s absolutely budget related,” he said. “Consumer confidence fell significantly before that and has not recovered since.”
The market reacted sharply to the warning. Frasers shares tumbled almost 12 per cent on Thursday, shortly after the retailer learned it would be demoted from the FTSE 100 index. Mr Murray acknowledged that the exit from the blue chip index was “disappointing” but emphasized that the company remained focused on taking its brands higher.
In addition to the new National Insurance Scheme, the increase in the minimum wage from £11.44 to £12.21 per hour further increases operating costs. Frasers is now grappling with how to meet these expenses, given a combination of cost cutting elsewhere and raising prices.
“We’re really going to have to focus on mitigating these increases in an already challenging environment,” Murray said. He also suggested other retailers, especially smaller ones, would struggle to cope with the blow.
Chancellor Reeves said the budget provides the stability needed to rebuild public services and stimulate future growth. A Treasury spokesman said: “We have introduced a one-off budget in Parliament to wipe the slate clean, restore our public services and give businesses the economic stability they need. Without our action, private business rates relief would have ended in April next year.”
Frasers, founded by Mike Ashley – Murray’s father-in-law and the company’s largest shareholder – has been active in strategic investments and attempted takeovers, including a failed bid for Mulberry. The company is currently at an impasse in Boohoo’s boardroom as it seeks to appoint Mr Ashley as CEO, although Mr Murray insisted these disputes had not distracted management.
As retailers brace for the impact of higher taxes, rising labor costs and tepid consumer confidence, the stakes are high. Many will be forced to make difficult choices about staffing, pricing and investments just as the crucial holidays approach.