The National Insurance controversy has thrust retail and its leaders into the thick of the general election battle. How will the parties’ policies affect our industry?
The 2010 election general election is shaping up to be one of the closest polls in a generation and retailers have already been making their feelings felt.
Days before Prime Minister Gordon Brown confirmed a May 6 polling day, some of the stores sector’s biggest names showed their clout by stirring up the debate on a planned 1% rise in National Insurance.
Retail leaders such as Kingfisher chief executive Ian Cheshire, Carpetright founder Lord Harris and Sainsbury’s chief executive Justin King labelled it a tax on jobs as they, along with more than a dozen other retail chiefs, put their names to a letter urging the Government to reconsider. As that debate rumbles on, retailers will be paying close attention to the main parties’ wider stance on business, revealed in manifestos released this week.
The battleground as far as retail is concerned hinges on anything that will affect consumer confidence - such as higher taxes and unemployment - as well as wider commercial concerns over business rates, credit insurance and bank lending. The minimum wage, retail crime and town centre regeneration will also be high on retailers’ agendas.
Voice for retail
Whichever party gets in, retailers want their voices heard. The industry employs 3 million people - one in every eight households includes someone who works in retail - and governments have been accused of overlooking store groups in the past.
Various surveys and analyses have sought to pinpoint the effect a Labour, Conservative or Liberal Democrat government would have on business. Last week’s Deutsche Bank UK Election “what if?” report claimed a Tory government would be the best for retailers because of a concentration on public spending cuts rather than tax increases.
Retailers have traditionally leaned towards the Tories. In this week’s RW Online poll, nearly half of respondents said a Conservative government would be best for the retail industry, while just a third said Labour would. Furthermore, a survey of 540 senior business figures by law firm DLA Piper found more than a third of respondents felt Conservative leader David Cameron was the best politician for the economy, followed by shadow business secretary Kenneth Clarke. Liberal Democrats shadow chancellor Vince Cable came third, followed by Gordon Brown.
Whatever the outcome of the election, the issues keeping retailers awake at night remain the same.
British Retail Consortium director-general Stephen Robertson believes any future government should make efforts to maintain employment, reduce costs for retailers and “develop a competitive framework” to keep the sector thriving.
Robertson backs the store chiefs’ concern over any increase in National Insurance. “It’s a very bad idea,”
says Robertson, who points out that “people figure very highly in retail” and it would be “difficult to maintain employment” in the face of a National Insurance rise.
Other employment-related costs include the minimum wage, which has always been a bugbear for retailers. Although only a small proportion of retail staff are on the minimum wage, increases in its level push all retail pay up and Robertson argues that the planned 2.2% rise by the present Government is disproportionate. “We need to make sure the minimum wage rises do not exceed the average wage increases,” says Robertson. “It adds to costs and decreases competitiveness.”
Ryman owner Theo Paphitis highlights another issue the incoming government must tackle. “It needs to do everything it can to stave off unemployment,” he says. Rising joblessness dampens consumer confidence, he says, which in turn reduces the likelihood of consumers parting with their hard-earned cash.
VAT has featured in most retailers’ conversations ever since the Government reduced it to 15% at the end of 2008. The reduction - designed to stimulate consumer spending - caused a headache for stores that had to reappraise their pricing, knowing that 12 months later they would have to do it all over again when the tax was reinstated to 17.5%. It has been mooted that a rise to 20% is possible as a way of reducing the gargantuan deficit, which is expected to hit £178bn - 12.6% of GDP - this year.
Tax burden too great
Robertson says that while retailers “recognise that some strong medicine” is needed, extra taxation will “impede consumer demand”. “The first medicine should be in cutting public spending,” he adds.
There have also been faint murmurings about the imposition of VAT on products that are currently exempt such as food, books and children’s clothes, although Labour has ruled this out.
Tax increases, although likely, would be unhelpful. Asda chief executive Andy Bond says his customers are saying “loud and clear” that the cost of living is their “primary concern as we head towards the election. We hope the new Government does everything it can to help us lower the cost of living for customers”.
The death of the high street is a phrase that has been bandied around for years, but it took on a new resonance during the recession. This year Retail Week launched its own campaign, Manifesto for the High Street, as research from Cushman & Wakefield showed that 11% of shops lie vacant.
Robertson says central government should work with local authorities to encourage cheaper car parking, better transport links, and safer high streets. Alan Giles, chairman of fashion brand Fat Face, agrees, saying the incoming government needs to impose a “balanced planning regime which recognises the need to keep town centres healthy and vibrant”.
Retail crime has been high on the agenda for store groups during the recession. Retail crime soared nearly 20% last year according to the 2009 Retail Global Theft Barometer, costing retailers a record £4.88bn - a £750m increase on the year before.
The BRC has backed proposals made by the Tories on the issue, including the need to tackle retail crime at a local level, and punishments that more readily reflect the crime. But Robertson says he will be looking “very closely at the Conservative manifesto” to see if the proposals make the final cut.
A crucial issue retailers want the next government to act on is business rates. The sector bears 25% of the total business rates bill, and the loss of empty property rate relief hit retailers hard, as did the unrepresentative rise last year.
The 2010 revaluation and the introduction of Business Rates Supplements could add “substantial further burdens”, according to Robertson, who wants any new government to “move very cautiously” on the issue.
He also wants to see government reducing the burden of overly complicated legislation and red tape, which “cuts down on the competitiveness of the UK”, as well as ensuring bank lending is “restored to levels that help retailers and suppliers survive”.
The issue of credit insurance - or lack of - gained more prominence during the recession. Last year a Government top-up scheme was implemented, but few took it up and it was largely branded a failure. Retailers will look for any advances in this area.
The prospect of a hung parliament adds to retailers’ woes. It is a rare occurrence in the UK - the last one immediately following an election was February 1974 - and could spell bad news. A weak, divided administration could delay important decisions and increase uncertainty, which may lead to a sharp fall in the value of sterling, according to Deutsche Bank.
New Look boss Carl McPhail has described a hung parliament as “the worst thing that could happen” while fashion chain Reiss founder David Reiss fears a hung parliament would “affect the level of uncertainty and currency”.
Whether a red, blue, or yellow flag - or even a combination - will be flying over Downing Street on May 6 will soon be clear but, as Robertson says, retailers must “work with whichever party gets into power to make sure they understand retail and the issues it faces”.
Labour’s manifesto this week laid out plans to “rebuild the economy to secure the recovery and invest in future growth and jobs”, and said that “radical change is needed”.
The party affirmed that it considers private enterprise to be the “engine of growth” and that it would give business its “full support in creating wealth and jobs”.
Labour favours raising taxes instead of making “wreckless cuts” to public spending. It would introduce a bonus tax - a new 50p tax rate on earnings of more than £150,000 and a 1% increase on National Insurance Contributions. The party said it would drive its programme to “strip out all waste” in the public sector.
Labour has vowed to offer those unemployed for more than two years work they must accept, and aims to increase the minimum wage “at least in line with average earnings”.
VAT would not be extended to cover food, children’s clothes, books, newspapers and public transport fares.
The party said it will “support small businesses and help with their cash flow” by continuing its Time to Pay scheme, which enables tax and National Insurance deferral, as well as introducing a one-year holiday on business rates for small businesses.
It pledged to “continue to simplify regulation and avoid unnecessary red tape”.
Labour expects to create at least 1 million skilled jobs by 2015 and intends to offer more apprenticeships to the unemployed.
The Conservatives have been vocal on National Insurance - the party plans to scrap part of Government’s proposed 1% increase in the tax, but has stopped short of pledging to shelve the rise altogether.
Although the Tories have said they will make savings through public spending cuts, economists have queried the strategy, questioning exactly how the party would be able to afford to curb tax increases.
The party has not ruled out increasing VAT to 20%, but insisted they would not necessarily need to in order to cut the deficit.
Tory planning policy has not gone down well with all retailers. Grocers earlier this year hit out at plans to give more power to local councils to veto the development of shopping complexes. The party would also reintroduce a supermarket needs test.
A Conservative government would offer guarantees to create more “diverse sources of affordable credit” to cash-strapped companies, and take action on retail crime. MP Philip Dunne told Retail Week last year that he wanted to “raise the awareness of retail crime in a way that hasn’t been done by the Government”.
Fiscal policy is designed to help keep interest rates lower for longer. Shadow chancellor George Osborne has pledged to hold an emergency Budget within 50 days of taking office and to implement a one-year public sector pay freeze.
The Tories say they will “reward business development” by allowing local councils to keep the business rates they collect.
The Liberal Democrats’ manifesto was due as Retail Week went to press, but they have said they would raise the starting threshold for income tax to £10,000, putting £700 back in the pockets of the “vast majority of people”, it claimed.
The Lib Dems are the only party that has pledged not to raise VAT. The party is opposed to the Government’s proposed increase in National Insurance that has caused so much controversy, labelling it a “tax on jobs” and “counterproductive”.
It would endeavour to cut red tape and provide more access to credit by getting banks to lend again.
It has vowed to invest almost £900m in creating opportunities to help young unemployed people gain skills and experience and fully fund apprenticeships, removing the burden of costs for employers.
It has laid out plans to “reform” business rates by rebalancing the “burden on small independent shops” and extending Empty Property Relief, but says it will fund this by increasing business rates for the “very largest businesses”.
Under a Liberal Democrat government, new retail developments would have to be “driven by need”, with local planning authorities required to produce
a plan of retail development for their area, in order to “safeguard against the over expansion of large supermarkets”.
The party would also introduce a local competition test for all planning applications for new retail developments, requiring that they show what the beneficial effects would be.
Retail at the heart of the campaign
Retail doesn’t normally have a high profile in the political world, but all the major parties have been working hard to associate themselves with success stories of the retail and consumer products worlds as they kick off their campaigns.
Both leaders paid visits to Morrisons sites in Kent in the first week of their campaigns - David Cameron to a distribution centre in Sittingbourne and Gordon Brown to a store in Rochester. And this week Cameron visited Warburtons’ bakery in Bolton and Fullers’ brewery in Chiswick as he toured the country ahead of the Tories’ manifesto launch.
The early visits to Morrisons prompted suggestions that the supermarkets’ core aspirational working class and lower middle class shoppers were a key group of swaying voters that the parties were going to need to target.
However, Asda sought to muscle in this week by broadcasting interviews with all the party leaders on its Asda Mums site, addressing the issues that were worrying its audience of mums from across the country.