Retailers are watching closely as Chancellor Rachel Reeves prepares to deliver a Budget she says will be built on “fair choices”.
A pre-Budget announcement expected later today comes as analysts warn that tax rises could affect consumer spending power ahead of the crucial festive trading period.
Reeves is due to speak from Downing Street later on Tuesday, setting out her priorities ahead of the 26 November Budget, which many economists expect to include new tax measures, despite Labour’s election pledge not to raise income tax, VAT or National Insurance.
The Resolution Foundation said higher taxes are “inevitable” as Reeves seeks to stabilise public finances. Any such move could weigh on household disposable income at a time when the retail sector is already grappling with subdued demand and rising operating costs.
The chancellor is expected to insist that her Budget will focus on “fairness and opportunity,” targeting long-term economic stability while addressing NHS waiting lists, the cost of living, and the national debt.
The BBC reported that in her speech, Reeves is expected to say: “You will all have heard a lot of speculation about the choices I will make.
“I understand that – these are important choices that will shape our economy for years to come. But it is important that people understand the circumstances we are facing, the principles guiding my choices – and why I believe they will be the right choices for the country.”
Her comments are expected to echo the remarks from Prime Minister Sir Keir Starmer, who told Labour MPs the Budget would be “a Labour Budget built on Labour values,” promising “tough but fair decisions to renew our country and build it for the long term.”
Business groups say clarity on taxation and spending will be key for retailers heading into 2025.
The Resolution Foundation has suggested that raising income tax could be the “best option” to generate revenue, potentially offset by a 2p cut to employee National Insurance contributions to “raise £6 billion overall while protecting most workers from this tax rise.”
It also proposed extending the freeze on personal tax thresholds for two more years, a move that could raise an additional £7.5 billion but risk further squeezing consumer spending.
The Office for Budget Responsibility (OBR) is expected to downgrade its productivity outlook later this month, which has the potential to create a £20 billion hole in the government’s finances and an increasing likelihood of fiscal tightening.
Reeves has already acknowledged that both tax increases and spending cuts remain on the table as she works to create “sufficient headroom” to withstand future economic shocks.
Meanwhile The Resolution Foundation has urged her to expand that fiscal buffer to £20 billion, saying it would “send a clear message to markets that she is serious about fixing the public finances,” a move that could also help to steady gilt yields and borrowing costs, all factors which will be being closely monitored by retail investors.
The Institute for Fiscal Studies (IFS) has echoed those concerns, warning that limited headroom leaves the government “limping from one forecast to the next”.
This dynamic has historically undermined consumer confidence and spending patterns across the retail sector, with many believing the trend is set to continue.
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