The UK Government’s latest Budget has offered some relief to smaller high-street businesses, with an increase in the business rates threshold from £12,000 to £18,000. The measure is expected to take a further 70,000 businesses out of paying business rates, providing welcome support for independent retailers struggling with rising costs and uncertain consumer demand.
But while smaller shops stand to benefit, questions remain over whether the measures go far enough to support the wider retail sector, including supermarket groups, larger chains and the thousands of businesses supplying them.
For shoppers, the issue is straightforward. Retailers facing higher wages, energy bills, taxes and other operating costs must decide whether to absorb the extra expense, reduce investment or pass some of it on through higher prices.
The British Retail Consortium has reported that retail sales grew by just 1.3% in September, while the sector’s tax bill has increased by 20% over the past two years. Against this background, the latest relief may help smaller businesses, but the pressure on retail margins remains considerable.
Small businesses welcome the relief
Warren Abbey, CEO of 365 Finance, described the increase in Small Business Rate Relief as a significant gain for SMEs and high-street businesses. He argued that business rates have long been a problem because they do not adjust to changing trading conditions. A quiet month or a difficult winter can leave a retailer facing the same bill despite weaker sales.
More predictable costs could give independent retailers greater confidence to refurbish their premises, invest in equipment, purchase stock and recruit staff.
However, Abbey also warned that the Government must do more to improve access to finance. Established businesses need funding to expand, open new sites and invest in their operations, not simply to survive difficult trading periods.
He believes support should extend beyond start-ups and innovative technology companies to the independent shops, cafés, pubs and restaurants that provide employment and keep local high streets active.
Larger retailers want a fairer approach
Matt Dalton, Retail Sector Lead at Forvis Mazars, welcomed further business rates relief for smaller high-street retailers but warned against overlooking larger businesses, which remain major employers and investors in town centres.
His concern is that reforms which leave larger retailers facing disproportionate costs could undermine the very high streets the Chancellor is trying to support.
Charlotte Bosworth, CEO of Lifetime Training, also described the Budget as a missed opportunity to provide business rates relief for larger retailers. She said the cost of creating and sustaining jobs remains under pressure, while employers need greater certainty over apprenticeship funding and training arrangements.
Retailers must be able to recruit young people while continuing to develop existing employees, experienced workers and those changing careers. Training takes time and money, and businesses need the confidence to make that investment.
Higher minimum wages can improve employees’ living standards, but employers must also be able to afford the additional costs. Otherwise, businesses may delay recruitment, reduce working hours or increase prices.
What does this mean for supermarkets and shoppers?
Supermarket groups face a different operating model from small independent retailers, but the underlying challenge is much the same: keeping costs under control while offering customers competitive prices.
Large food retailers employ substantial workforces, operate extensive property portfolios and invest in distribution, refrigeration, digital systems and store technology. Any increase in the cost of running that network can influence decisions about new stores, refurbishment, recruitment and pricing.
For shoppers already watching household budgets, the concern is whether retailers can continue to absorb rising costs without making everyday shopping more expensive.
The Budget’s £100 payment for 20 million households in Council Tax bands A to D is intended to help with rising energy bills. Yet household support and business relief will need to work alongside stronger consumer confidence if retailers are to see a sustained improvement in demand.
Michael Shapiro, partner at Spencer West LLP, said the higher business rates threshold could help smaller independent and artisan shops return to high streets. He also welcomed the decision not to proceed with the proposed approach of funding business rates cuts through a tax on warehouses operated by large online retailers, noting the risk that such a cost could ultimately be passed on to consumers.
The Government also intends to devolve business rates and tax revenues locally by the end of the decade, with 20% of revenue to remain in the area where it is collected. In principle, this could give local leaders more scope to improve public spaces, infrastructure and facilities, helping attract shoppers back to town centres. The longer-term success will depend on how these plans are implemented.
Property and investment: further changes ahead
The Budget also includes measures affecting the wider property market. The anticipated Mansion Tax threshold reduction did not take place, leaving the starting point at £2 million rather than the predicted £1.5 million.
For housebuilders and developers, the Government has indicated there will be no major changes to Building Regulations during the current Parliament unless required for critical safety reasons, although calls to simplify the planning system remain.
First-time buyers are also set to receive a replacement for the Lifetime ISA, alongside a proposed Your First Home equity loan scheme. Meanwhile, individuals holding investment property in their own names face a planned two-percentage-point increase in income tax rates applying to taxable rental profits from next April.
Although these measures do not directly determine supermarket prices, the wider property and household cost picture matters to consumer confidence, spending power and investment decisions.
Riad Beladi, ISN analyst: retailers need certainty to grow
Riad Beladi, ISN analyst, believes the Budget provides some welcome support but does not settle the wider question of how the UK can create a more competitive environment for retail investment.
“Ultimately, retailers make investment and hiring decisions based on the cumulative cost of doing business, not individual tax measures. While today’s announcement is a positive step, broader reform of the business rates system will be essential to give retailers of all sizes the confidence to invest, recruit and grow.”
For supermarkets and other food retailers, investment in technology can also help improve resilience. Better stock visibility, more efficient supply chains, faster supplier onboarding and more flexible product ranges can help businesses respond to changing demand and manage operating costs.
But technology is not a substitute for a stable business environment. Retailers still need to know what their tax liabilities will be, how wage costs may develop and whether consumer spending will justify new investment.
The Budget may provide a welcome hand to smaller high-street businesses, but the real test will be whether the measures translate into stronger trading, new jobs and renewed investment.
For shoppers, a successful policy will be one that supports viable businesses, protects employment and helps maintain competition without adding unnecessary pressure to the weekly shopping bill.
For Britain’s supermarkets and retailers, the message is clear: relief is welcome, but long-term confidence will require more than a single Budget announcement.
