Touching Base - Budget Reaction

Retailers weigh in - Does the Budget measure up?

In April, measures announced in Chancellor Rachel Reeves October Budget will come into effect. Ostensibly designed to fund investment and boost the economy through tax rises, her plans have been widely criticised due to the impact they’ll have on overheads, employment rates and more. Here, Toy World sums up what the Budget means for retailers, while four respected voices from the world of Toy retail tell us what the changes will mean for them.

On Wednesday 30th October, Chancellor Rachel Reeves stepped up to the dispatch box to deliver the first Labour budget in 14 years. While many had been braced for the announcement of tough measures – Labour had repeatedly highlighted the £22b ‘black hole’ in the UK’s public finances left by the Conservatives in the days before the Budget was announced – three measures in particular, outlined as part of a plan to generate some £40b in tax rises, have left retailers dismayed:

• Employer National Insurance Contributions (NICs) will increase from 13.8% to 15% from April 2025, while the Secondary Threshold (the level at which employers become liable to pay National Insurance on each employee’s salary) will reduce from £9,100 per year to £5,000.

• The National Living Wage will increase from £11.44 to £12.21 an hour (+6.7%) from April 2025, while the National Minimum Wage for 18- to 20-year-olds will rise from £8.60 to £10 an hour (+16.3%).

• Business rate relief has been cut from 75% to 40% during the 2024/25 financial year, capped at £110,000, before the system is overhauled in 2026/27.

The British Independent Retailers Association (BIRA) has condemned the Budget, calling it the “most damaging for independent retailers in recent memory”, with CEO Andrew Goodacre saying it showed “complete disregard for the thousands of hard-working shop owners who form the backbone of our high streets”. The British Retail Consortium (BRC), meanwhile, has estimated that as a result of these measures, UK retailers will face an additional £2.5b in costs. Multiple retailers have calculated specific impacts on their businesses, with costs ranging from £90,000 to £150,000 per year.

In November, 80 signatories – all of whom are members of the BRC – set out what they believe will be the biggest impacts from the autumn Budget in an open letter to the Chancellor, including ‘inevitable’ job losses and higher prices. The Entertainer has also voiced concerns. Group CEO Andrew Murphy OBE said the new measures have forced the retailer to halt two new store openings, and added that hiring at The Entertainer’s head office had also been frozen. Speaking exclusively to Toy World, he explained: “What the budget has done is basically raise the hurdle for new shops to clear and, sadly, two of our welladvanced candidate stores dropped below the new bar.”

Another retailer (who shall remain anonymous), when asked how they feel about the Budget, told Toy World: “All I know is it’s going to be bloody hard work.”

What’s interesting is that reactions appear mixed, even if only slightly, across all sizes of retailer. For example, online behemoth Amazon – which paid just £18m of tax on £27b retail turnover in 2023 – was one of the signatories of the BRC letter, raising some eyebrows, while Iceland Foods boss Richard Walker has come out in defence of Rachel Reeves’ measures, telling The Telegraph that it ‘isn’t a time for businesses to wallow’. He added: “There’s been a lot of complaining from business. But actually. what matters much more is how the government invests for the future and looks at long-term solutions, like skills development, industrial strategy, the business rates overhaul. How they spend all the money they are raising is more important.”

Here, an online specialist, two brick & mortar indies and a Toy buying group tell Toy World what the Budget means for their business and what they’re doing to offset its impacts.

Mike O’Shea Director, Wicked Uncle

To be fair, our new Labour government wasn’t given the best start. The last set of Tories hadn’t done us any favours: the Conservatives raised Corporation Tax by 31% (!), taking it from 19% to 25% of profits, kept a 45% top Income Tax rate for 28 times as long as Blair-Brown did, and ruined our trading relationship with the 450m person superstate next door. So, it was never going to be a budget to make people happy.

Oddly enough, I don’t really object to the increase in National Insurance or the minimum wage. Neither is going to help employment, but rising wages is a function of an advanced, well-educated society. If we’re going to have children educated to 18, not 14, then we have to pay for it. The good news is that extra education means we’ll have smarter, more aware, better-informed people to come and work in our businesses. Can we therefore make better use of them? Sure - give them more responsibility and trust them to work hard and creatively in a more important role, and they may well be worth the extra cash.

In my opinion, where the government has gone seriously wrong is the extension of all employment protections to Day 1, as well as the extra duties on employers it has imposed. Now you need to be a lot more careful. Make an error, hire the wrong person and let them go on day two, and you can easily end up with a claim. You’ll either have to pay them off (AKA: give in to blackmail) or prepare for a huge waste of management time having to defend your actions. Making sure you comply with all the latest employee regulations just piles on more pressure. By the time you’ve ticked all the boxes, filled out your training book and tested your managers, you could have filled most of a 40-hour work week. Good luck fitting in your real job. Under these changes, hiring becomes a minefield. As a result, and after it has already become more expensive, we’ll hire fewer people. That means fewer jobs. Add in the Inheritance Tax changes that kick in if you’re passing on a successful family firm between generations, and overall, you can see this isn’t a business friendly or growth budget. It has been said that not a single member of the Cabinet has ever worked in a small business. It shows.

Stephen Barnes Toy Barnhaus, multiple locations in Sussex and Surrey

The latest Budget is a really challenging one for businesses in general, particularly for retail. It’s a three-pronged attack: the employers’ National Insurance increase, a substantial increase in the National Living Wage and the reduction in Business Rates relief, which will more than double our current rates liability. Having to deal with just one of these measures would have probably been doable, but trying to cope with all three at once, at a time when trade is certainly not easy, means we’re really going to have to look at how we do things going forward.

Although these changes don’t come into effect until April, we’ve already been looking at mitigation measures. For example, we’ve focused on our margins, trying to improve them as a way of increasing gross profit in a flat sales environment. This has involved assessing many of our lower priced ranges line by line, and - where possible - adding a small amount onto the price, especially in pocket money. We’ve already seen an improvement in our margin as a result and will be continuously looking at this going forward. Another step we’ve taken, having already planned our own budget for this year, is to shave some hours off our opening times for 2025 right across our store portfolio. Not a lot, but just enough to help mitigate some of the additional costs.

The announced Business Rates relief measures have been mulled over for a long time, so I’m sceptical about what will actually happen. However, there needs to be some kind of cost levelling of the playing field against large warehouses and the like; the rates on some of our stores are very high for their size. What we also need is for this new system to be done once - and done correctly. The rates relief we’ve had over the last few years has been welcome, but changing it each year, and not knowing until a few months beforehand how much it will change, makes it very difficult to plan for the future. There’s too much uncertainty for such a key overhead.

The open letter sent by the BRC on behalf of its members did cover all the most important points affecting retailers and will hopefully be taken seriously by the Chancellor. A rethink about how these measures are phased in would definitely help businesses to absorb the extra costs.

Yogi Parmar Managing director, Toymaster

As we all know, there are three key changes in the Budget that will directly impact all Toymaster members (and retailers in general). While the impact will vary across our membership, we know it will increase the outgoing costs of all our UK Toymaster stores. We were already anticipating that 2025 would be a tough year for independent retail, and the Budget just makes it tougher. In an era where margin is eroding, it’s added to the many challenges independent retailers are facing.

Soon after the Budget was announced, a number of our members sent us their initial calculations of the cost impact; they all estimate it will add a significant sum to their business costs. Our members’ main concern is largely the changes they’ll need to make to their business model to offset these additional outgoings. Most cannot expect that their turnover will increase enough to offset their rising costs, so they need to look at other solutions. This entails examining all aspects of their business, perhaps rethinking their pricing strategy or changing their supplier mix to bring in some higher margin product. Ultimately, it may also mean looking at their staff costs, potentially reducing the number of shifts they can offer to employees, and even reviewing store opening hours. These are tough decisions that no independent retailer wants to make, but the reality is that this could be what they need to do to survive.

We’ve already written to all our members to highlight the impact of the Budget and our new Finance director, Darren Robinson, is available to address concerns. He’s also happy to visit members who would benefit from a review of their business financials and suggestions that could help their cashflow. Some members have already taken advantage of this.

Moving forward, communication is going to be key. It’s essential to have support from our suppliers and we’ve already met with a number of them to discuss what more they can be doing to help our members in 2025. Better margins and terms are obviously central to those conversations. There are, however, many other ways our suppliers can support Toymaster’s members, such as exclusives and first-to-market launches. We enjoyed some major successes in 2024, thanks to suppliers being willing to give indies special promotions, and we’re looking to do more of this, in partnership with our suppliers, to drive footfall into Toymaster stores in 2025. We also continue to offer strong marketing support in collaboration with our suppliers. Our window programme runs throughout the year, giving members the opportunity to create an exciting shop window that showcases new launches and events, and helps their store stand out in their town. In addition, we’ll once again be speaking to our suppliers about featuring their brands in our Christmas Catalogue. Our brilliant catalogue really highlights to consumers that Toymaster stores are a go-to destination for their brands. Toymaster does not have an own brand range; we only sell our suppliers’ brands, and we’re looking to grow our partnerships with suppliers into 2025 and beyond.

We’ll also be supporting our members by helping them to create digital flyers, specific to their own store, that they can promote locally during the year at a time that suits them. Of course, we’re always open to suggestions from our members on what we can be doing to help make their lives easier. Last year, for example, we created an app for our online portal, TIMS, which lets members access many of its desktop features on their phone. This means they’re better informed and less likely to miss important updates. Our members know that we’re here to help them and we remain open to conversations with other independent toy shops who may previously have been reluctant to join a buying group. 2025 is going to be a challenging year for all independents but the services we offer can save them both time and money. We firmly believe that indies benefit from being part of Toymaster.

With this in mind, we would encourage any and all independent toy retailers to come and talk to us ASAP. I’d also recommend chatting to existing Toymaster members so you can hear about the benefits first-hand, retailer to retailer.

The Toymaster lounge at Toy Fair is open to all retailers. We’re located upstairs in the Grand Hall and look forward to meeting with you. Alternatively, contact Brian McLaughlin direct on 01604 662 922 or email brian.mclaughlin@toymaster.co.uk to discuss the benefits of membership and how they could help you navigate the upcoming Budget measures.

Kris Simpson Managing director, SMF Toytown

While the new Labour government claims that October’s Budget is for growth and for the working person, I think it is anything but that. The government that leans too heavily on businesses, instead of supporting them, pushes them to the point where they look for alternatives to employing the working person that they claim to represent. You don’t have to look too far to see the steps larger retailers are taking to help reduce employment costs: self-service tills, robotic warehouse systems and automation software, to name a few.

Over the last few years, I genuinely believe that people have become worse off as a result of each wage increase. While the tax-free allowance stays the same, people pay tax on more of their income and the goods they have to buy are costing them more.

The open letter to the Chancellor covered the bulk of the issues businesses will face. Unfortunately, I’m not sure how much attention the Chancellor will give to it. It feels as though businesses have become a punch bag for the government, with ever-increasing minimum wage rates, pension contributions, sick pay and now a double whammy of increased Employer’s NIC and the lowering of its threshold. The message businesses receive from the government is that: “You’re on your own.”

We’re currently evaluating all the options we have to minimise the impact rising employment costs will have on our business. Make no mistake - there will be some difficult decisions ahead. Toytown is keen to grow, and we had set ourselves the goal of reaching at least 50 stores by 2033. We hope to open five in 2025, but the increased staff costs will make some options unviable. However, we’ll do what we can to keep the business as strong as possible, despite the challenges thrown at us.