LONDON — Retail, beauty and luxury organizations reacted with dismay to the 2025 budget delivered by U.K. Chancellor of the Exchequer Rachel Reeves on Wednesday and accused the government of failing, once again, to support business.
Although Reeves kept the Labour party’s electoral promise of not raising income tax, she instead offered a package laden with loads of other taxes that will hit middle-earners, homeowners, businesses, employees and tourist-dependent industries such as retail and hospitality.
The government announced plans to freeze income tax thresholds, meaning that more people will be dragged into higher brackets as their salaries increase.
It will also slap extra taxes on employees’ pension contributions, and the funds that employers pay into pension pots, and jack up the National Living Wage for workers, and the minimum wage for teenagers, putting further pressure on employers.
Selfridges is among the larger stores that will continue to be impacted by soaring business taxes in the U.K.
David Parry/Courtesy
Reeves is also giving local mayors across the country powers to impose a “tourist tax” on overnight stays. She has largely preserved the stiff taxes that companies pay on their physical stores, hotels and other brick-and-mortar properties, especially in the big cities.
That “business rates” tax has long been a bone of contention here, with companies accusing government of de facto favoring online retailers over physical stores. Under Reeves’ new proposals, some businesses with smaller premises will be eligible for lower tax rates.
Helen Brocklebank, chief executive officer of U.K. luxury lobby Walpole, called the budget “a missed opportunity. Instead of introducing measures that would boost growth and help businesses thrive, the Chancellor chose the opposite.”
She said Britain’s 81 billion pound luxury sector “remains a resilient driver of growth for the U.K. economy and supports 454,000 jobs across the country. Luxury businesses want to invest and grow, but this budget missed its chance to support this agenda. Large luxury retailers now face higher business rates, while hospitality faces a double whammy of business rates and a tourist tax.”
Millie Kendall, CEO of the British Beauty Council
Liz Collins/ Courtesy of Millie Kendall
Millie Kendall, founder and CEO of the British Beauty Council, said she is concerned about “the significant increases in operational costs, such as the rise in National Living Wage and the impact of fiscal drag on employee retention.” Even a salary increase of a few thousand pounds, in line with inflation, can automatically drag people into a higher tax bracket.
Lesley Blair, CEO of BABTAC, the British Association of Beauty Therapy and Cosmetology, said the freeze on tax thresholds “will effectively increase employer contributions as wages rise with inflation, adding further pressure on already tight margins.”
She added that several other measures laid out in the budget “are likely to place additional strain on both employers and employees.”
The scheduled increase in minimum wage to 12.71 pounds for over-21s from April 2026, “will significantly raise wage bills in a labor-intensive sector,” she said. The impact of that hike, and other taxes, “could challenge the commercial viability of many small salons, potentially leading to price increases, or reduced staffing.”
Retail organizations were also disappointed with Reeves’ budget.
Oxford Circus in London.
Adobe
Dee Corsi, chair of High Streets U.K., and CEO of New West End Company, which represents 600 consumer businesses in central London, said that “far from proper reform, today’s changes to business rates only tinker with a broken system — providing some short-term relief at the expense of necessary change.”
Corsi said that larger businesses, such as “much-loved department stores, hotels and leisure venues,” will still suffer from high rates for their physical premises,” while taxes in the West End are set to double. “It is these businesses that bore the brunt of tax hikes in the last [2024] budget, and many simply cannot shoulder an additional burden.”
Helen Dickinson, CEO of the British Retail Consortium, said “while increases in the National Living Wage were in line with expectations, the rise to the minimum wage for under-21s could limit employment opportunities.”
She continued: “All in all, we will see winners and losers across retail, and the impact for consumers will unfold in the coming months, but this budget does not go far enough to mitigate the inflationary pressures already bearing down on the industry.”
The new Fendi space at Harrods.
Stephen Springham, partner, retail research at Knight Frank, said the budget will squeeze the margins of the retail and hospitality operators “in the shape of an increase in the National Living Wage.”
He added that “increases in the minimum wage are actually a major cost headache for retail and hospitality operators. Since it was launched in 2012, the Living Wage has risen by more than 105 percent. In contrast, retail sales have grown by just more than 60 percent over the same period. The net result of operating costs growing at a faster rate than sales is a margin squeeze, with inflation an inevitable pressure-relieving valve.”
Organizations said one bright spot in the budget was Reeves’ plan to abolish the de minimis loophole for imported goods worth 135 pounds or less, although that law won’t come into effect until 2029.
Kendall of the British Beauty Council said that closing “this major import loophole finally ensures a more level playing field for U.K. beauty manufacturers and high street retailers, helping them compete fairly against overseas businesses that previously bypassed tax and product safety standards. This action is vital for the growth of U.K. businesses.”
The FTSE 100 was broadly flat following Reeves’ midday announcement, while the pound strengthened slightly against the euro and the dollar.
