Martin Flanagan: Chancellor likely to disappoint retail sector

The Autumn Statement will be delivered on Wednesday. Picture: Getty Images
The Autumn Statement will be delivered on Wednesday. Picture: Getty Images
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THE Chancellor’s Autumn Statement sometimes suffers from the perception in business circles that it is Budget-lite, and therefore not as des­erving of scrutiny.

This can be unfair, as Chancellors do sometimes have something meaningful to say on the occasion, but when George Osborne steps up this Wednesday it is fair to say that after a second summer Budget following this year’s general election pyrotechnics are unlikely.

The elephant in the room for business, as it has been for years now, is business rates. As David Lonsdale, director of the Scottish Retail Consortium (SRC), says: “The Chancellor has taken action on corporation tax and personal taxes. However, reform of business rates is – for the moment at least – like the hole in the Polo Mint, missing.” One can understand the SRC boss’s concern. The retail sector has been hit by a perfect storm of structural change (the relentless march of customers to online purchase), economic headwinds and onerous political intervention, the latter including the National Living Wage and Apprenticeship Levy.

For example, Lonsdale says more than one-fifth of non-food retail sales are now done on the web, while the total value of Scottish retail sales has virtually trod water over the past 12 months. The upshot is that many retailers are having to spend heavily on their IT software against a backcloth of deflation, declining or stagnant profits, and a seemingly one-way escalator on business rates.

I think the retail sector will be disappointed on rates, however. The Chancellor’s mind has probably been more focused on where and how the spending cuts at unprotected departments – those outside health, education, defence and overseas aid – will be achieved.

And there are implications for Scotland. As Paul Gallagher, tax partner and head of government and public sector at EY Scotland, observes: “As a result of the savings being made to UK departmental budgets, recent research by Fiscal Affairs Scotland indicates a spending reduction to the Scottish budget of nearly 20 per cent in real terms while continued protection of the NHS budget could see other areas face cuts of 30 per cent during the period 2009-10 to 2018-19.”

Along with the vexed question of welfare cuts, these are more politically contentious issues than declining to press the button on definite business rates reform.

It is why business has been swimming against the tide on the issue for many years. Not only that, Friday brought the depressing news that British public finances recorded the worst deficit for any October since 2009. It is particularly disappointing because October is a significant month for corporation tax, with many medium and large domestic firms paying their second instalment of four on their 2014/2015 profits.

That gives Osborne a cloudier and more unhelpful backdrop to meet his borrowing goals even without handing out any goodies to the business lobby. «