Fraser Group has warned that Rachel Reeves’ budget will cost it at least £50m next year, likening the impact on retailers to a “punch in the face”.
Michael Murray, chief executive of the British retail group, said the latest financial measures would force companies to cut costs and could damage consumer confidence to the point that sales actually suffer.
“This budget is devastating,” Murray said. “Not only will this add at least £50 million to our costs next year, consumer confidence has also been destroyed.” He blamed the measures for weaker-than-expected sales at Frasers, which owns House of Fraser and Sports Direct, and forcing the company to cut its annual profit forecast by £25 million to between £550 million and £600 million.
The budget, presented by the Chancellor, includes an increase in employers’ National Insurance contributions and an increase in the minimum wage. Retailers now fear these costs will put further pressure on profit margins, with even powerful groups such as Fraser’s feeling the pressure. Furthermore, the government’s decision to delay business rates reforms until 2026 exacerbates concerns that property taxes will remain high.
Murray said the budget shattered trade and confidence in the run-up to and after its announcement. “It’s all about budget,” he said. “Consumer confidence declined significantly before that and has not recovered since.”
The market responded sharply to the warning. Fraser shares fell about 12 per cent on Thursday, shortly after the retailer learned it would drop from the FTSE 100 index. Murray admitted that the withdrawal from the blue-chip index was “disappointing”, but insisted that the company remained focused on moving its brands Business to the top market.
In addition to the new National Insurance scheme, an increase in the minimum wage to £12.21 per hour from £11.44 increases running costs. Fraser is now grappling with how to absorb these expenses, considering the combination of cost cuts elsewhere and price hikes.
“We’re really going to have to focus on mitigating these increases in an already challenging environment,” Murray said. He also noted that other retailers, especially smaller ones, will struggle to deal with the blow.
Councilor Reeves says the budget provides the stability needed to rebuild public services and stimulate future growth. A Treasury spokesman said: “We once presented a Budget in Parliament to erase the record, reform our public services and give businesses the economic stability they need. Without our action, retail relief on business rates would have ended next April.
Fraser, founded by Mike Ashley – Murray’s father-in-law and the company’s largest shareholder – has been active in strategic investments and takeover attempts, including a failed takeover of Mulberry. She is now stuck in a standoff in the boardroom at Boohoo, where she aims to appoint Ashley as chief executive, although Murray insists the disagreements have not distracted management.
As retailers brace for the impact of higher taxes, rising wage bills and tepid consumer confidence, the risks are high. Many will be forced to make difficult choices about hiring, pricing and investment as the crucial holiday season approaches.
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