Why Scottish shoppers could pay the price in 2025 if tomorrow’s Budget misses this target

Tomorrow’s Scottish Budget has been described as a “make-or-break” event for the nation’s retail sector after a sales slump in the countdown to Christmas.

Industry leaders warned that Scotland’s retailers were already facing a £190 million cost burden next year from the changes to employers’ national insurance contributions announced in the recent UK Budget. They said that if the Scottish Government chose to increase costs further through new levies or substantial business rates increases then shoppers were “likely to face the price in 2025”.

The latest snapshot from the Scottish Retail Consortium (SRC), published today, on the eve of the Budget at Holyrood, shows that sales, by value, fell by 2.3 per cent last month, compared with November last year and once adjusted for the effects of inflation.

The sales figures spanning the four-week period from October 27 to November 23 were almost as poor as the weather.

The SRC noted that the technology and fashion categories had both underperformed as a result of consumers holding back on festive spending and the “significant discounting” in the run-up to Black Friday. The figures cover the four-week period from October 27 to November 23, prior to this year’s Black Friday and Cyber Monday annual sales events.

Ewan MacDonald-Russell, deputy head of the SRC, said: “Scottish retail sales slumped by 2.3 per cent in real terms in November as the mid-month of the golden trading quarter disappointed. With retailers already reeling from the enormous bills coming out of the UK Budget and the bitter arctic weather, the poor trading performance will have alarm bells ringing for many.

“Health and beauty products continue to perform well for retailers, with the now staple beauty advent calendars being popular. Sales of Christmas trees and decorations and energy-efficient products did well. However, broader technology and fashion both underperformed.”

He added: “Scotland’s retailers are already facing a £190m cost next year from the changes to employer national insurance. They will be nervously looking towards Wednesday’s Scottish Budget with very significant trepidation.

The latest period did not include the Black Friday week, which may have seen shoppers hold out for potential bargains.

“Bluntly, consumers are already likely to see prices rise in the new year due to rising government-mandated cost pressures whilst jobs and shops are at risk. If the Scottish Government chooses to increase costs further through new levies or large business rates increases, it’s Scotland's shoppers who are likely to face the price in 2025.”

The latest sales monitor showed that total food sales nudged up 0.6 per cent last month, compared with a year earlier. Total non-food sales tumbled 5.8 per cent year on year, while adjusted for the estimated effect of online sales, non-food takings plunged 10.8 per cent.

Linda Ellett, UK head of consumer, retail and leisure at KPMG, which helps to produce the monthly sales monitor, said: “While the majority of November’s data tells a disappointing tale for the retail sector, this reporting didn’t include Black Friday week, so the hope for Scotland’s retailers is that consumers were being savvy shoppers and that the promotional push in the last days of the month saw held-back consumer spend materialise and mitigate what is otherwise a disappointing month. If not, then we may see some retailers launching Christmas sales early.”

Meanwhile, a study today suggests that Scotland’s economy enjoyed solid growth in the first half of 2024, broadly keeping pace with the UK. However, the EY Item Club’s latest Scottish forecast also points to signs of growth slowing in the second half of the year.

Scotland’s gross value added (GVA) - a measure of net economic contribution - is expected to expand by 0.7 per cent over the course of 2024, slightly below the UK average of 0.9 per cent. Scotland’s growth is expected to pick up in 2025 (1.3 per cent) and 2026 (1.4 per cent). However, the new forecast for this year is weaker than the one flagged in the previous quarter (0.9 per cent for 2024), with Scotland continuing to lag UK growth over the forecast period.

Future growth is forecast to be concentrated in and around Edinburgh and Glasgow (1.8 per cent and 1.7 per cent, respectively, between 2025-2029), with weaker prospects for the islands and rural parts of the country. This is principally due to sector mix with private services expected to drive growth located in Scotland’s larger urban areas, EY noted. Aberdeen City and neighbouring Aberdeenshire are forecast to continue to struggle.

EY Scotland managing partner Ally Scott said: “Our forecast shows economic growth is fragile and highly sensitive and we’re already aware organisations have found themselves in a bit of a quandary since the UK government Budget on policy changes like increased employer NIC costs.

“This poses a number of challenges. Pass-through these costs fully, there’s a risk of fuelling higher inflation, which impacts confidence levels and could keep interest rates higher for longer - generally not seen as good for attracting investment.

“Apply the lever of lower wage rises and you hit the pockets of employees already feeling the strain on bottom line pay from the differentiated Scottish rate of income tax, which could have knock-on impacts to key lifestyle choices in the future, such as access to mortgages.

“Take it on the chin, change nothing and accept a lower profits environment then there’s less cash for investment, reinvestment, transformation and innovation impacting business competitiveness. A conundrum, to say the least, and a set of circumstances many clients and business leaders are struggling with.”

The Item Club is the only non-governmental economic forecasting group to use the HM Treasury’s model of the UK economy.

Scottish Budget: Pro-business plea on Black Friday after ‘unnerving’ high street shopper numbers