Chancellor Rachel Reeves’ 2025 Spring Budget introduced a series of measures that are set to impact the retail landscape, some more directly than others. While many headlines have focused on the mounting pressures for the sector, it's not all bad news. There are still opportunities for growth with strategic advantages still possible for those able to adapt.

Here, we explore some of the headline measures we expect to have the largest impact on retail businesses and how they can respond.

Direct challenges

1. Increased Employer National Insurance Contributions ("NICs")
   • Effective from 6 April 2025, employer NICs will rise from 13.8% to 15%, with the threshold reducing from £9,100 to £5,000. This increase is expected to add £25 billion to employers' NICs obligations, significantly affecting labour-intensive sectors like retail. As a result of these higher employment costs, businesses anticipate potential job cuts, and increased prices being passed onto consumers, which could impact sales amounts and volumes.
2. National minimum/living wage increases                                              
   • The National Living Wage (applying to over 21s) will increase marginally from £11.44 to £12.20. However, the National Minimum Wage (applying to 18-20 year olds) will increase from £8.60 to £10.00, which is the largest increase on record. This poses a challenge for bricks and mortar retail (and hospitality) who typically employ store staff within this age bracket.
3. Reduction in Business Rates Relief                                                  
   • Despite pressure from retailers, there was no change to what was announced in the Autumn Budget, which reduced business rates relief for the retail, hospitality, and leisure sectors from 75% to 40%. This change increases the financial burden on retailers, especially those operating on thin margins.

Indirect challenges

1. Inflation and interest rates 
   • The Office for Budget Responsibility forecasts RPI inflation averaging 4.1% in 2025. This inflationary environment will lead to increased costs for retailers and influence consumer purchasing behaviour, but the current stable inflation levels represent a boost for economic (and therefore retail) growth.
2. Frozen tax thresholds 
   • It was confirmed that income tax thresholds will remain frozen at their current rates, despite inflationary pressures. This will almost certainly have an impact on consumer spending, which is the lifeblood of retail, as households anticipate higher tax bills.
3. Geopolitical issues 
   • Trump 2025 brings the threat of a global trade war as worldwide tariffs were announced on 2 April, including the UK at 10%. This will directly impact costs in all sectors, including retail. Add to that a particularly challenging political landscape alongside ongoing conflicts e.g. Ukraine, and we can expect to see consumer confidence fall away and discretionary spending reduce.

Despite these challenges, retail remains important to the UK economy with £8.5 billion UK retail sales per week in February 2025. However, in an increasingly competitive environment it is important that retailers properly understand their target consumer and ensure that the in-store experience being provided is tailored accordingly.

Alongside this, having robust scenario/contingency plans in place with proper financial reporting so management can adapt to (often rapid) changes in the marketplace quickly can help ensure that retail businesses continue to remain an important part of the UK high street.