The Retail Note - Autumn Budget: a zero sum game for Retail & Hospitality

Key Messages

• Some support for small retail businesses, but little else
• Acknowledgement of ‘the cost of doing business’…
• …yet measures that will increase, rather than reduce it
• National minimum wage to increase by 49p to £13.20 from April
• An increase of +3.9%, higher than CPI (+3.5%)
• Since 2012, minimum wage has cumulatively increased by +113%
• Retail sales volumes have grown by just +25% over the same period
• A major cost headache for Retail & Hospitality
• Likely to result in further workforce reductions and prove inflationary
• Removal of import tariffs on everyday essentials likely to have limited impact
• Unlikely to filter through to lower inflation
• Business rate exemption threshold raised from £12k to £18k
• Ca. 70k additional small businesses will now pay no business rates
• Benefits independents and sole traders…
• …but national multiples form the mainstay of most retail markets
• Raid on vaping shops and adult gaming stores to fill deficit
• No additional rate relief for Pubs, Clubs, Music Venues
• Relief not extended to other areas of Hospitality e.g. F&B
• Allocation of business rate receipts to change significantly
• Local Authorities and Mayors to retain 100% by end of decade
• Sound in principle – but at odds with wider devolution push.

Another increase in the national minimum wage, a tweak in Business Rates and the removal of import tariffs on over 100 everyday items (including gherkins). Relatively little for the Retail sector to get excited about in the Autumn Budget. No unexpected nasties, but equally no real niceties. No alarms, no surprises, if you will.

Reducing ‘the cost of doing business’? 

The ‘cost of living crisis’ proved a predictable leitmotif throughout. More tellingly, the ‘cost of doing business’ was given almost equal billing. Which is why the Retail & Hospitality communities could be forgiven for raising a cynical eyebrow.

An increase in the national minimum wage was anticipated – anticipated, but still not welcome. Few retailers openly denounce increases in the minimum wage, for fear of alienating their existing workforce. And obviously no one begrudges the lowest paid being paid more - but it doesn’t make the ‘cost of doing business’ any cheaper.

From April 2027, the minimum wage will rise by 49p to £13.20, a rise of +3.9%. Above headline inflation (+3.5%) – good for employees, less good for employers. A +3.9% increase is lower than the running yearly average increase (+5.2%) since the national minimum wage was introduced, but the key metric is that since 2012, the minimum wage has more than doubled, increasing by +113%. Over the same period, retail sales values have grown significantly lower at just +67%, while retail sales volumes have increased by just +25%.

These metrics completely debunk the notion that an increase in minimum wage benefits consumer markets – some consumers may see their pay packets rise, but this does not necessarily filter through to retail markets. If it did, there would not be a fourfold gulf (+25% vs +113%) between ‘real’ topline spending growth and bottom line cost increases.

Possible unintended consequences? Further Retail & Hospitality job losses and potentially price inflation. The former may get blamed on AI (as seemingly any workforce rationalisation will henceforth) but basic economics dictate that a rise in staff costs will result in staff reductions. To the second point, with pressure on the bottom line, are retailers going to reduce prices or raise them?  

Scrapping import tariffs

Which segues beautifully into the second Retail-centric item to arise from the Budget: the suspension of import tariffs on over 100 everyday grocery and household goods, plus industrial and farming essentials such as fertilisers and kerosene heating oil, to help lower production costs. The changes are scheduled to take effect starting December 2028.

The government estimates that these new cuts - combined with previous tariff suspensions - will save households up to £21 a year on food shopping and reduce overall consumer costs by between £245 million and £595 million annually.

But all this assumes that reduced import tariffs will automatically filter straight through to consumer prices. Unfortunately, they have to pass through the “sieve” that is the retail sector. Retailers will benefit from lower sourcing costs, but will they pass these savings on to their customers? If they can, they will, if they can’t they won’t. And if the ‘cost of doing business’ is elevated, say, by something such as higher staff costs, they are less likely to do so.

And that is not to suggest that retailers are being unscrupulous and profiteering, they are merely doing business according to the cost framework under which they are placed.  

So, don’t expect cheaper gherkins anytime soon.

Business Rates – relief for some

“There’s too much confusion, I can’t get no relief”. The best musical reference I could muster to sum up the perennial minefield that is Business Rates. 

Sole traders and small businesses are more likely to be raising a glass in celebration than publicans and restauranteurs. And bookies and vaping shop owners pondering why they are the fall guys in a thinly-shrouded moral crusade. 

From a Business Rates perspective, the Budget was somewhat underwhelming, but this was always going to be the case given that it didn’t tie in with a Business Rates Revaluation (the next one is not until 2029). Bandings and multipliers (base or otherwise) were unlikely to be changed or modified at this juncture and CPI was already a known quantity. The only levers at the Chancellor’s disposal lay in the relief department. 

Pubs, Nightclubs and Music Venues were already singled out for special dispensations in Andy Burnham’s first week in office – hopes of further increases did not materialise. But other Hospitality operators, who are subject to many of the same economic, financial and operational pressures, will continue to feel aggrieved at not being afforded any tangible relief benefits.

The great ‘Business Rate reveal’ was an increase in the exemption threshold from £12,000 to £18,000. This will see an estimated additional 70,000 Retail & Hospitality premises freed from Business Rate obligations, welcome respite for large numbers of small operators and sole traders. But a move that is unlikely to have either a positive or tangible impact on the high street in the widest sense (i.e. the whole retail market), where multiples and major national chains are the dominant force in terms of share of retail sales, employment and footfall-drivers. 

The government will also increase taxes on gambling machines, and will exempt vape shops and adult gaming centres from business rates relief. This seems a slightly curious, morality-based judgement which seems predicated on the misplaced notion that these are blighting communities rather than occupying premises for which there is limited demand from other operators and would otherwise be vacant. The Chancellor spoke warmly of bakers and pubs, yet was happy to raid vaping shops – are their products any more harmful? Is a small, sole trader trying to make a living in this space any less worthy than a baker or coffee shop owner? I’m struggling not to use the phrase “Nanny State”, so I won’t…

Limited movement on collection, but significant shift in allocation. Currently, local authorities retain 50% of Business Rates locally, while the remaining 50% goes to central government for redistribution via grants, tariffs and top-ups. From April 2027, Mayoral Strategic Authorities (MSAs) will receive a 20% share of business rates, towards a wider aim of making business rates a 100% locally-retained tax by the end of the decade, with local authorities' share increasing to at least 70%, mayors retaining 20% and the remaining 10% to be determined through upcoming local government finance settlements.

Sound in principle, but likely to have unwanted, unintended consequences. Properties with the highest RVs are heavily concentrated in London and the South East, by extension these areas are likely to have the highest Business Rates receipts by far. At the other end of the spectrum, the most deprived areas of the country are likely to have the lowest Business Rates receipts due to low RV properties and a growing exemption base. 

Unless there is intervention, the areas that need investment most are to receive the least, surely the very antithesis of wider devolutionary designs?

What wasn’t addressed

In a Budget that wisely didn’t seek to rock any boats (baby), it was hardly surprising that there weren’t any earth-shattering pledges for major high street reform. Specifically, there was no mention of the ‘levelling of the playing field’ between online and high street retailers. This was only touched upon in reference to a crackdown on online sellers non-payment of VAT through marketplaces. Tighter application and policing of a law, rather than a fresh change in policy.

Probably better at this stage to bide time and address the issue in a measured way, rather than make bold proclamations that are likely to prove unworkable in practice. Hope springs eternal that the major reform we and the wider industry have been advocating (Retail Renaissance 2026 - Business Rates: making the inequitable palatable) is being taken seriously and a full review is being undertaken behind the scenes. But equally, there is a risk that the silence in this Autumn Budget actually signals an extended stay in the long grass.

No alarms and No Surprises. To be expected after a period of Electioneering. Not exactly Lucky, nor necessarily Fitter Happier. But not totally Let Down.  

Click below to access Knight Frank’s full cross-sector review of the Autumn Budget and the implications for Commercial Real Estate. Spoiler alert, not all my colleagues are as grumpy as me.

What the 2026 Autumn Budget means for UK real estate

Click here to access the full series.

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