Chancellor Rishi Sunak recently delivered a budget statement that has been hailed as one of the most important in decades. The fashion and retail industry, in particular, will be directly impacted by several measures outlined in the budget. One notable announcement is the extension of the furlough scheme until September 2021. During this period, businesses will have to contribute 10% of wages in August and 20% in September for employees on furlough. The business rates holiday, which has been instrumental in providing relief to struggling businesses, will continue until the end of June. Following that, there will be a discount of up to two-thirds for the subsequent nine months. The government will also offer restart grants ranging from £6,000 to £18,000 per store or salon for retail businesses and hair and beauty salons.
The budget also revealed the end of the government-backed bounce-back loans (BBL) and the coronavirus business interruption loan scheme (CBILS). However, a new loan scheme will be introduced, offering loans ranging from £25,000 to £10 million until the end of the year.
In terms of employment, the minimum wage will increase to £8.91 in April, and the age threshold for eligibility will be lowered to 23 from the current 25. To incentivize companies to hire more young people, the government will double incentive payments for new apprentices to £3,000. Additionally, £126 million will be allocated to triple the number of new traineeships.
Surprisingly, there was no mention of an online sales tax, despite earlier speculation. However, corporation tax will increase from 19% to 25% in 2023, but this will not apply to smaller companies. Individual income tax thresholds have been frozen, with the starting threshold remaining at £12,570 and the higher rate threshold at £50,270 until 2026. This may not pose an immediate concern, but it could become problematic if inflation rises. If that happens, consumers receiving wage increases will have to pay more tax without a corresponding increase in the tax threshold.
Overall, Sky News estimates that the percentage of tax compared to GDP will be the highest in 2025-26 since the late 1960s, indicating a significant tax burden on consumers in the future. On a positive note, the budget does offer some support to self-employed individuals who became self-employed in the 2019/20 tax year. However, those earning £50,000 or more in recent years are still excluded from this benefit, despite experiencing income drops due to the pandemic. This exclusion has disproportionately affected freelancers in the fashion and beauty sectors over the past year.
Regarding consumer spending, the contactless payment limit will increase to £100 later this year, allowing consumers to make more frequent contactless payments.
Reactions to the budget have been mixed. Jace Tyrrell, Chief Executive of New West End Company, expressed dissatisfaction with the lack of specific support for major commercial centers and called for targeted relief for cities like London, Birmingham, and Manchester. British Fashion Council CEO Caroline Rush welcomed the budget measures but highlighted the disproportionate impact of the pandemic on the fashion industry. Chris Brook-Carter, chief executive of retail industry charity RetailTrust, praised the promises made in the budget, especially the extension of the furlough scheme and the business rates holiday. Brook-Carter emphasized the crucial role of the retail sector in addressing issues such as youth employment and social mobility, and called for collaboration between the government and businesses to protect the long-term interests and well-being of retail workers.
Economically, the Office for Budget Responsibility predicts that the UK economy will grow by 4% in 2021 and by 7.3% in 2022, reaching pre-Covid levels by mid-2022, six months earlier than previously estimated. Unemployment is projected to reach 6.5% this year, significantly lower than the 11.9% forecasted in July. However, the Chancellor stressed the need for a payback moment, as government borrowing is expected to reach £355 billion in 2020/21, equivalent to 17% of national income, the highest level since World War II.
In conclusion, while the budget provides some relief and support for the fashion and retail industry, there are concerns about the future tax burden on consumers and the exclusion of certain individuals from financial support. Although the economy is showing signs of recovery, there is still a long road ahead in rebuilding and restoring the industry to pre-pandemic levels.
Useful links:
1. [Furlough scheme extension](https://www.gov.uk/government/news/rishi-sunak-extends-furlough-and-business-support-measures)
2. [Government-backed loan schemes](https://www.gov.uk/government/news/government-backed-loan-schemes-extended-to-31-march-2021)
