The Chancellor delivered the Spending Review and Autumn Statement 2015 on 25 November. Although there were no real "showstopper" changes, there were a number of important announcements and confirmations. Whilst some of the measures will be warmly received by the smallest businesses in the retail and consumer ("R&C") sector, the outlook for larger businesses is less positive with the highly anticipated overhaul to business rates delayed once again until the Budget next March. According to the British Retail Consortium ("BRC"), the anticipated increase to rates, combined with increases to the living wage and the Apprenticeship Levy would result in an additional £14bn spend for retailers over the next five years.
The economic recovery in the UK is well established with GDP having risen for the past 3 years. Whilst economic growth has slowed this quarter to 0.5% from 0.7%, growth forecasts of 2.4% for 2015-16 remain unchanged from July's Budget. Forecast growth figures for 2016-17 and 2017-18 have been revised up to 2.4% and 2.5% respectively. This steady outlook is positive news for R&C businesses operating in the UK market, but those operating overseas may face more challenging conditions. A stagnating Chinese economy combined with a problematic Eurozone may impact world demand for R&C products and will require a strategic response. "British R&C companies perform well in the global market as 'Brand Britain' entails integrity, premium branding, quality and value", comments Andrew Rosling, Head of Retail and Consumer at Addleshaw Goddard. "The slowing down of China, which accounts for about 25% of UK online sales from overseas, is of course a concern but all retailers from around the world face the same challenge and it will be those companies which can create singular, stand-out experiences and great value for their customers which will do best in weathering slow-down in key markets".
R&C businesses continue to face uncertainty around the business rates reforms – despite assurances that these would be concluded by now. The consultation closed in June and it is anticipated that rates will increase by £500m next year, and by an additional £5bn by 2020, according to the Telegraph. Whilst there are frustrations amongst some camps at the delay, Helen Dickinson, Director General at the BRC, says it's better that the Government takes its time now to "design a system that is fit for purpose". However, despite calls for caution from the BRC, CBI, Federation of Small Businesses ("FSB") and the Association of Convenience Retailers ("ACR"), the Chancellor also announced that universal business rates would be abolished and devolved to local councils, potentially confirming the FSB's fear that the complexity of the system could be "multiplied if councils have their own rules and rates." Independent retail analyst Richard Hyman calls the devolution to local authorities "discouraging", saying "their track record in understanding business in general, and shopping in particular, is a worry."
There are further concerns over the imbalance between physical and online retail outlet contributions. Joe Maitland, Real Estate Lawyer at Addleshaw Goddard explains, "the proposals relating to business rates outlined in the Spending Review and Autumn Statement do little to ease the concerns of traditional high street retailers with large property portfolios. The elephant in the business rates room, which the Government will have to address sooner or later, is the current disparity between the relative contributions to business rates of those retailers with a bricks and mortar base and those whose presence is solely/principally online."
Meanwhile, the smallest businesses in the R&C sector received the comparatively good news that the business rates relief has been extended to 2017, new enterprise zones are being created or extended – taking the total to 26, and feared cuts to the entrepreneur's relief didn't materialise; three announcements which should help support the growth of the smallest players in our market.
July's Budget saw the announcement of the national living wage ("NLW") cause shockwaves through the R&C sector – one of the main markets particularly affected by the new wage structure. As businesses struggle to calculate the financial burden of the NLW, the largest in the sector will now also have the Apprenticeship Levy to contend with. This will begin in 2017-18, charged at 0.5% of payroll and is expected to raise £3bn and fund 3 million apprenticeships by 2020-21. It will only apply to businesses with an annual wage bill over £3m, apparently exempting 98% of businesses. However the cost of the levy, combined with the inefficient loss of money collected in re-administering the levy has prompted criticism from many. As Simon Walker from the Institute of Directors explains, "firms have been promised they will get back more than they put in, but it's not clear how this will happen if so much is being lost in bureaucracy."
Whilst the levy is essentially being viewed by businesses as an additional payroll tax, the value of apprenticeships should not be overlooked, says Sally Hulston, Employment Lawyer at Addleshaw Goddard. "Indeed, evidence shows that retail apprenticeships can improve the bottom line by £2,900 and 80% of companies investing in apprentice schemes report increased staff retention. Essentially, businesses need to decide if the return on investment is worthwhile for them."
Changes to the practical administration of the tax system continue apace, with HMRC seeing both significant cuts in its operational budget but also material investment in IT systems in order to "transform HMRC into one of the most digitally advanced tax administrations in the world". Scepticism has already been expressed on whether this is achievable, and there must be a risk that HMRC cuts, plus a failed IT implementation, could have a large negative effect on how businesses engage with the tax authorities. That would increase both bureaucracy and cost for businesses in managing their tax affairs, particularly in light of the new requirement for businesses to file tax information at least quarterly. As Paul Concannon, Tax Lawyer at Addleshaw Goddard says, "it is critical that taxpayers' interaction with HMRC is as efficient as possible. These proposals will not be welcome if they result either in additional compliance costs, or in the loss of current HMRC services that would be hard to replace digitally such as dedicated helplines for specific taxes. Taxpayers (and probably also HMRC) will also have legitimate concerns over the actual delivery of the proposed IT system and whether it is able to live up to the government's ambitions in practice."