Shopping for votes

Consumer confidence is returning, but what will the Election mean for retailers?

Image source: @Ed_Miliband

According to the British Retail Consortium, prices dropped by a record 2.1% in March, with the fastest fall in non-food items, and latest figures out today showed retail sales increased like-for-like by 3.2%. Stable economic conditions and continuing growth appear to be paying out for retailers. So how far will the outcome of May’s election jeopardise or support this recovery?

Consumer confidence

As the cost of living continues to be important, both Labour and the Conservatives have ruled out a rise in VAT and National Insurance. Ed Miliband has also ruled out any rise in the basic and higher rates of income tax, and the Conservatives have promised a cut by raising the personal allowance and 40p income tax threshold to £50,000. Ostensibly this bodes well for consumer spending.

Business rates and tax

The number of national retailers signing the recent letter to the Telegraph indicated support for the drop in corporation tax to 20%. Labour has prioritised smaller businesses, by promising to freeze and then cut business rates for small businesses, paid for by retaining corporation tax at 21%.

A major announcement came with the coalition Government’s commitment to a root and branch review of business rates to report by Budget 2016, which Labour has said it will honour. However, there are still big questions over how (and how far) this review is likely to reform the system; especially given that it is now certain to be fiscally neutral and that the current Government has expressed a preference that rates remain a tax based on property values. There is disagreement across industry and there will be winners and losers from the new approach, whichever way it is sliced. Retailers will want to engage actively in shaping the outcome.

High streets and planning

Empty shops may be at the lowest in 5 years, but a 13% vacancy rate is hardly something to celebrate. The recovery in consumer confidence has not translated into a commensurate increase in town centre footfall, at least partly because of structural changes to how we shop. Footfall may recover over time as high streets readjust. In the meantime politicians are under pressure to “save” the high street – with voters perceiving their town centres to be a visible symptom of a sluggish economic recovery.

Labour has proposed an umbrella use class in the planning system which will allow councils greater power to shape the high street and this week their manifesto reiterated that councils will have the power to require particular types of shops to apply for planning permission. Though explicitly aimed at payday loan companies and betting shops, this power could potentially be used by local government to put greater restrictions around other retail businesses which they feel are ‘clustering’. Today, the Conservative manifesto also reiterated its commitment to Business Improvement Districts, and promised to take steps to tackle “rogue practices” by private parking operators.

Europe

Many retailers will consider the potential for a European Referendum if the Conservatives win the most seats by far the biggest risk to their businesses. As a (generally speaking) property heavy industry, retailers who have built UK businesses, particularly those which are not online – cannot simply up sticks to a different European location and will need to make any outcome work. There is established European oversight on integral issues such as product safety, environmental standards and consumer rights, and retailers also need certainty on cross-border trading.

Employment and skills

Retail employment continues to be held up as a symptom of a negative, low-wage economy in some quarters. While UKIP sees this debate primarily through the lens of immigration, the other parties have been jostling over Britain’s need for a pay rise, promising to raise the minimum wage, increase enforcement and regulate zero-hours contracts. Most recently, Citizens UK launched a campaign on the pay of retail workers, citing research findings that employees are not being paid enough to live on, and that some of the UK’s largest retailers are benefitting more from in-work benefits funded by the taxpayer than they are paying in tax. Labour has made the use of zero-hour contracts a key part of its political campaign and has promised to stop their use when regular hours are being worked.

Political uncertainty

The policies of smaller parties are more significant than ever – for example the SNP’s push on prompt supplier payment measures to be put into law, the Green Party’s desire to replace VAT and UKIP’s 30 minutes of free parking in town centres. The fact is that if neither of the Conservatives or Labour secure a majority, manifesto commitments will be replaced by a new coalition agreement or, in the case of minority government, a set of ‘confidence and supply’ agreements. Both scenarios mean agreement around a very limited set of priority issues, with everything else being horse-traded between different political groupings. This means that unless either Labour or the Conservatives hammer out a clear lead before May 7th, nothing is certain.