Retailers warn public sector cuts will hit spending and exacerbate the North/South divide

Retailers warn that sales will take a hit as a result of the 490,000 public sector job cuts over the next four years, but that the Government’s spending review was necessary to reduce Britain’s huge deficit.

Some retailers have also warned that the cuts could lead to a widening of the North/South divide, as areas such as the North of England and Northern Ireland are more reliant on public sector employment.

Chancellor George Osborne confirmed the cuts on Wednesday, and said all government departments will next month publish a business plan for the next four years.

Alliance Boots health & beauty chief executive Alex Gourlay said the cuts would have a “real impact on how people will spend”, while Iceland chief executive Malcolm Walker said: “Our customers will suffer, our sales will suffer, but the Government had no choice.”

More optimistically, Peacocks Group chief executive Richard Kirk said the “worst part of it was the waiting” and that it “could be a relief now it is out of the way”.

The threat of a widening North/South divide is “quite significant” according to Halfords chief executive David Wild. He said it could affect store groups’ “acceleration of rationalisation”, although he was not referring to Halfords specifically.

Ryman chairman Theo Paphitis agreed the regions could be hit hard. “Any business is going to put their wares for sale in an area where there’s likely to be a market,” he said.

British Retail Consortium public affairs director Jane Beavis said retailers with a heavy presence in those areas reliant on public sector employment will be worried.

Retailers can take some comfort in the prospect of a good Christmas, with Verdict predicting Christmas is set to be the best for retailers since 2007. Sales over the festive period are expected to rise 1.9% to £85.2bn.

According to exclusive research conducted for Retail Week over the weekend, 47% of shoppers intend to spend the same amount this Christmas as they did last festive season. This compares with 50% who said the same last year.

The ICM poll found that, with VAT rising on January 4, 10% of shoppers are very likely to bring forward “significant” purchases. This compares with 9% the year before, when shoppers were factoring in a VAT rise from 15% to 17.5%.

ICM head of retail Nathan Bartlett said the similarities with last year were a “good thing” as it indicates consumer confidence around Christmas will be similar to last year.