Rachel Reeves, the UK’s chancellor of the exchequer, was seen outside 11 Downing Street before delivering her budget address to parliament in London, UK, on Wednesday, October 30, 2024.
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Home improvement retailer Kingfisher has joined the ranks of British companies reporting adverse effects stemming from U.K. Finance Minister Rachel Reeves’ October budget, as she readies her latest update on the British economy.
In their annual earnings announcement on Tuesday, Kingfisher, the parent company of B&Q, stated that the government’s policies had “increased costs for retailers and affected consumer sentiment,” leading to a decline in sales of high-ticket items.
This criticism continues a trend among British businesses unhappy with Reeves’ substantial tax-raising budget implemented since autumn. Companies are now closely watching Reeves’ upcoming Spring Statement, where she will update lawmakers on her latest spending and taxation proposals at 12:30 p.m. London time on Wednesday.
A primary concern for businesses is the elevated employment costs following the government’s commitment in October to raise national insurance contributions for employers and to increase the nation’s “national living wage” by 6.7% starting April 1.
On Sunday, Reeves defended the tax increases in anticipation of the Wednesday statement, asserting to Sky News that the government “took necessary actions to secure our public services and public finances.”
However, various consumer-oriented businesses have raised alarms regarding the Labour government’s economic strategies in their earnings reports this quarter. For instance, supermarket leader Tesco indicated that the heightened national insurance contributions could result in an added £250 million ($324 million) in annual expenses, while Tim Martin, chairman of pub chain JD Wetherspoon, stated that these measures would cost each of his pubs £1,500 weekly.
Regis Schultz, CEO of sportswear retailer JD Sports, remarked that the policies could tempt businesses to reduce their workforce and working hours, a scenario he warned would be detrimental to the economy.
This comes amidst the U.K.’s struggles with economic stagnation, increasing prices, and overall uncertainty stemming from U.S. President Donald Trump’s global trade tariffs.
The Office for Budget Responsibility (OBR), the independent overseer of public finances in the country, is anticipated to downgrade the U.K.’s growth forecasts for 2025 during Wednesday’s announcement, potentially halving its earlier estimate of 2%.
AB Foods, which owns budget apparel retailer Primark, attributed the Labour government’s budget to a broader decline in consumer behavior across the nation. Finance Director Eoin Tonge shared with analysts that customers across its brands have become more cautious, noting “a shock and fear, which has led people to cut back.” Frasers Group, another clothing retailer, echoed these sentiments, reporting weaker consumer confidence around the time of the budget announcement. The company’s Chief Financial Officer Chris Wootton told Reuters that they felt as though they had “been kicked in the face.”
This wave of negative corporate feedback is expected to place additional pressure on Reeves ahead of her Spring Statement.
The British Retail Consortium has urged the government to “restore confidence in the economy,” cautioning that April’s tax increase and minimum wage hike will lead to an additional £5 billion in costs for retailers, forcing “many to raise prices.”
The Confederation of British Industry (CBI) remarked that Reeves “must provide businesses with a significant boost in confidence” during Wednesday’s address.
“As an immediate priority, the government should reaffirm its commitment to halt any further increases in the business tax burden during this Parliament,” stated Louise Hellem, chief economist of the CBI. “Setting ambitious goals for R&D spending, simplifying the investment process in skills, and reducing the regulatory burden on businesses would be promising steps that demonstrate the government’s understanding of what businesses need.”
Goldman Sachs Chief Equity Strategist Peter Oppenheimer told CNBC on Monday that worries regarding consumer and business confidence will lead Reeves to focus on cost-cutting instead of tax hikes this week, acknowledging that while boosting growth is “a commendable goal, it is a challenging task.”
CNBC has sought comments from the U.K. Treasury regarding these issues.
— CNBC’s Holly Ellyatt contributed to this report.
