Our Election Pledges for the Retail Sector

Business Support • Online • In Print • In Person

Our Election Pledges for the Retail Sector

Rob Janering, Partner, VAT and Customs Duty services
man working at a bakery

The UK retail industry has recently started to report on some green shoots of optimism that things might be starting to get better. However, traders both big and small will be hoping for further support from whichever party comes out on top when the UK votes in the General Election on 4 July 2024.

Industry feedback

The over-riding feedback that Crowe UK receives from its retail clients and hears when speaking to those in the industry is that red tape and barriers to trade are holding businesses back. This has been a constant theme since the UK’s exit from the EU in January 2021. This new trading position didn’t fundamentally change the position when importing from outside of the EU, but it did make supply chains within the EU much more expensive and difficult to maintain (and this continues to be the case).

We also hear how retailers in particular are grappling with a shortage of human resources. The complexity of managing employment taxes and auto-enrolment adds to their administrative burden, making it even more challenging to maintain efficient operations. These factors collectively create a tough environment for SMEs striving to thrive in the current economic landscape.

Many SMEs now tell us that they feel locked out of the EU market, trade deals the Government has completed are for locations too far away and hence are left to focus on the domestic picture. That though is fraught with challenges such as high operating costs (i.e. business rates, labour and general overheads), continued lower footfall in towns and competition from overseas based online traders and marketplaces.

In particular on the last challenge, the Financial Times has recently flagged concerns about how the use of ‘loopholes’ by overseas retailers to avoid customs duty needs to be remedied. This refers to the rule whereby individual consignments imported into the UK with a value below £135 are exempt from customs duty. It compares to the position where businesses alternatively manage UK stock from a domestic warehouse and hence their imports are levied with the tax. Given the rate for many items of clothing and shoes can be up to 14%, this is not an insignificant burden.

What do the manifestos say?

Labour and the Liberal Democrats have pledged to abolish the current business rate rules. Both have plans to introduce a new system taxation that will be titled more favourably towards smaller businesses, with an aim to boost high streets.

The Conservatives however are taking a different approach, with a plan to keep the existing rules but with a tweak to increase the burden on distribution centres that support online shopping. This will only happen over time alongside a support package of £4.3 billion to help re-vitalise highstreets.

An increase in freeports and business rate retention zones is also detailed in the Conservative’s manifesto. However, the only party to mention a review of the UK’s relationship with the EU is Labour’s, where they state that they will look at ways to remove the barriers to exports for firms of all sizes, will improve guidance to make exporting easier and ‘make Brexit work by improving on the Conservatives’ thin deal’.

On employment matters, the Conservatives intend to maintain a pro-business stance, assuring employers that, unlike Labour, they do not support French-style industrial relations. Instead, they aim to ensure a ‘flexible and dynamic labour market.’ However, there is a risk that their proposals could further increase the workload for employers due to heightened friction with unions and potential conflicts around diversity issues and sickness absence processes.

Labour, on the other hand, is pledging to significantly empower trade unions, reversing many of the changes introduced by the Conservatives. This would include granting unions the right to access workplaces, removing minimum service level requirements for strikes, relaxing limits on strike mandates and notice periods, and lowering the turnout required at ballots.

Our view is that this could lead to significant impacts on already overburdened employment tribunals, especially with the claim deadline reduced to three months. Employers will need to closely monitor any resurgence of trade unions plus Labour’s commitment to abolishing zero-hours contracts and worker status, along with implementing a universal minimum wage regardless of age as all could lead to increased costs

Among the three main parties the Liberal Democrats have made the boldest employment pledges. Their proposed changes are both extensive and potentially expensive for employers. Retailers will have concerns regarding the minimum wage increase for zero-hour workers and apprentices as well as the increased cost and access to parental leave.

Crowe UK’s wishlist for Retailers

Whichever party forms the next Government, they are going to have a significant in-tray of issues to look at and act on. We also appreciate that any significant changes might take some time to be enacted but there are some quick wins that could be achieved within the first 100 days.

With this in mind we have listed below our thoughts on what could be done to help retail, beginning with immediate changes through to longer term goals.

1. Business rates

We agree that business rates need to change. As could be done with council tax (but appears to have been ruled out), a revaluation exercise should be considered to ensure that bricks and mortar operators in high streets pay a lower amount than current rates. The aim of this should not be to penalise online retailers because many businesses now run multiple routes to consumers, and this would be hard to achieve. Instead, it should be a method to boost the high street and take advantage of the knock-on confidence that could be gained by the economy as a whole.

2. Retailers scheme for travellers

Since 1 January 2021 visitors from overseas have not been able to obtain VAT refunds when buying goods in the UK which they will take home. Several estimates have suggested this has led to a £4-5 billion hit on UK retailers and a loss of visitors to the EU, where the scheme still exists. Re-instating this should see an immediate benefit to UK retailers of increased customers plus a positive knock-on effect for other services (such as hotels, leisure and hospitality) also benefitting.

3. Restraint on pay increases

Whilst it is laudable to increase the pay for the lowest paid in society and, in our experience, retailers are generally supportive of this we have seen unnecessary tinkering in recent years on the National Living Wage (NLW) rules. An example of this was reducing the age from when the full rate of the NLW starts from 25 or above to 21, with effect from1 April 2024.

Coupled with annual increases in the amount paid, some employees have had nearly 40% increases in their pay in 3 years. However this doesn’t just impact the lowest paid in the retail sector but has a knock-on effect for those in more experienced roles as the differential in pay narrows. On this basis a period of modest growth in the NLW with no or limited changes to the age categorisation would be welcomed by the retail sector.

4. EU Alignment

Where possible there should be small deals struck that align UK standards and rules with those in the EU. It has been seen already with regulatory standards that duplicating these requirements only leads to increased costs and a reduction in businesses wanting to enter markets. This doesn’t help with keeping prices competitive or driving innovation which consumers benefit from. A start in this area would be to adopt the EU’s SPS standards to allow for more imports of those products into the UK and the same Carbon Border Adjustment Method (CBAM) rules plus try for unified EU/UK plastic packaging tax obligations.

5. Add Customs Duty to low value consignments

The EU has tabled plans to have Customs Duty collected by online retailers on low value consignments entering the EU from January 2028. The UK could take a similar approach which would see increased tax revenues and a levelling of the playing field for domestic businesses. There would be a need to consider the costs of implementing this though versus the expected tax take plus impact on consumers choices.

6. Rejoin the EU Customs Area

The main burden we discuss with clients is the paperwork associated with moving goods into and out of the EU. This is when compared to the pre-Brexit model, where the administration involved was minimal. This would be a big step to take and might well involve politically sensitive interactions with areas such as free movement of people and VAT rules. However, our view is that these issues plus some increased compliance obligations would be heavily outweighed by the business opportunities and growth created via easier access to such a large and geographically close market.

What’s next?

For the moment it’s a case of wait and see what the election brings. From 5 July onwards though we hope that whoever is in Government will take proactive and sensible steps to help retailers and listen to the concerns they have.

We will report on updates and changes as they happen, with those comments published on our website. If in the meantime you would like to discuss any of the above (or other matters) with us, please reach out to your normal Crowe contact.


Source: Our election pledges for the Retail sector | Crowe UK