UK Budget raises minimum wage and employer NI contributions, no mention of tax-free shopping

In the first Labour budget for 15 years, Chancellor Rachel Reeves has juggled the task of both giving and taking away, but overall the budget will drive the tax burden up to a historic high.

There was criticism of a lack of announcements to promote green policies, tech innovation and also no mention of bringing back tax-free shopping for tourists, something retail has been pleading for.

But ignoring what wasn’t in the budget, here’s what was. Aside from support for the NHS, schools, defence, roads, rail and more, the changes directly relevant to the fashion and retail sector include:

The good-ish

Fuel duty has been frozen, which should be some help for both consumers’ wallets and company’s costs.

The Chancellor has also announced 40% relief on business rates for retail, hospitality and leisure up to a cap of £110,000 per business. Unfortunately, the 75% discount to business rates will expire next April.

Reeves spoke too about the scourge of shoplifting with the government set to release funding to clamp down on shoplifters and particularly gangs involved in organised retail crime.

The not-so-good

National Insurance contributions for employers will rise by 1.2 percentage points, to 15%, from April 2025. And the Secondary Threshold – the level at which employers start paying national insurance on each employee’s salary – is being cut from from £9,100 per year to £5,000. This is hoped to raise £25 billion per year by the end of the forecast period and will be a major strain for many businesses. 

Good for some

The government has accepted the Low Pay Commission recommendation to increase the National Living Wage by 6.7% to £12.21 an hour, worth up to £1,400 a year for a full-time worker. And for the first time, it will move towards a single adult rate, phased in over time, by initially increasing the National Minimum Wage for 18-20 year olds by 16.3%, taking it to £10 an hour.

That’s good news for consumer spend and for many workers in the fashion and retail sectors. But companies large and small will be hit with a major increase in ages bills.

What the OBR says

Along with the Budget, the OBR (Office for Budget Responsibility) said CPI inflation will average 2.5% this year, 2.6% in 2025, then 2.3% in 2026, 2.1% in 2027, 2.1% in 2028 and 2.0% in 2029. So no return of the rampant inflation that has crimped consumer spending for some time.

It also said real GDP growth will be 1.1% in 2024, 2% in 2025, 1.8% in 2026, 1.5% in 2027, 1.5% in 2028 and 1.6% in 2029. 

Additionally, the OBR said the tax burden will rise from 36.4% of GDP in 2024/5 to 38.3% in 2027/8, a historic high.

What the industry thinks

Rain Newton-Smith, CBI Chief Executive, said: “The Chancellor had difficult choices to make. A more balanced approach to our fiscal rules which prioritises capital investment should help to unlock private sector investment in our infrastructure and net zero transition over the long term.  

“This is a tough Budget for business. The hike in National Insurance Contributions alongside other increases to the employer cost base will increase the burden on business and hit the ability to invest and ultimately make it more expensive to hire people or give pay rises.”

David Lonsdale, Director of the Scottish Retail Consortium, said: “Scotland’s retailers will face a £190 million increase in their tax bill following the Chancellor’s announcement that employer national insurance contributions are to rise. It’s clear retail businesses will see big rises in the cost of employment, whilst there was little sign of any significant reform to non-domestic rates. Such stark increases will increase the cost of operating a retail business and are unlikely to be absorbed by businesses, making it likely those costs will be passed along to consumers.”

Chris Brook-Carter, chief executive of retail industry charity Retail Trust, was more upbeat: “Retail is the largest employer outside of the public sector so a healthy and happy retail workforce is important for our industry and for the country’s communities and high streets and its GDP.

“Yet right now, thousands of shop workers are contacting the Retail Trust to say they’re now being forced to consider leaving a job they love and often have worked in for many years because they no longer feel safe there. We therefore welcome with open arms the new funding being announced to crack down on retail crime and provide more training to police officers to help better tackle this issue.

“We’re also supportive of the government’s commitment to extend business rates relief and introduce permanent and lower rates from 2026 if it can help to give retailers more confidence to plan for the future to ease much of the uncertainty and insecurity currently facing everyone working in the industry.

“Increases to the national minimum wage and national living wage will also support many people across the retail sector by giving them the pay raise they deserve.”

Charlotte Broadbent, UK general manager at Faire, the online wholesale marketplace, said: “We welcome the Chancellor’s commitment to easing the pressures on the UK high street and on small businesses, and it’s a relief for retailers that this budget has taken some action on extending the business rates discount for retailers beyond April next year and freezing the tax multiplier. But reducing the rates discount from 75% to 40% will still mean a steep increase for them next year.”

And John Webber Head of Business Rates at Colliers, said: “The Chancellor’s announcements concerning business rates today were desperately disappointing. There is to be no consultation, just a discussion document, and the measures announced hardly put a sticking plaster over the gaping wound rather bringing in any fundamental reform.

“And the outlook for the high street is not good either. The Chancellor said she was heading off the knife edge that the retail/hospitality/leisure sectors might face. Far from heading off a cliff edge, the Chancellor’s measures potentially are driving the sector to the wall . By replacing the current 75% discount to business rate bills, with a discount of 40%, those businesses currently eligible for the relief will see their business rates bills actually rise by a massive 140% next year.”