Retail and hospitality companies have slammed the UK government’s Budget as a raid on corporate coffers that will heap extra costs on already hard-pressed sectors, with Labour’s 6.7% increase in the National Living Wage and uplift in employers’ national insurance contributions (NICs) forecast to lead to job cuts and price hikes.
Chancellor Rachel Reeves’ lowering of the employers’ NIC threshold to £5,000 from April next year will prove particularly costly for firms with large employee bases and relatively high labour ratios, which will look to mitigate the NIC headwind where possible through job cuts and price hikes.
In the words of one chief financial officer quoted by Jefferies: ‘I don’t think anyone’s in a position to just suck it up, so I would expect prices to move in response.’
High-profile critics of the measures include Stuart Rose, defacto interim chief executive of Asda, whose charge will face a £100 million increase in its NIC bill.
Sainsbury’s (SBRY) estimates its NIC bill will rise by roughly £140 million with chief executive Simon Roberts warning the extra cost burden will lead to higher prices on the shelves.
Marks & Spencer (MKS) faces a £60 million hit and Tesco UK will likely be hit to the tune of £250 million, while other big UK employers facing a massive hit from the wage and NICS increases include Greggs (GRG), Pets at Home (PETS) and DFS Furniture (DFS).
A letter to the chancellor signed by the bosses of more than 200 of the UK’s biggest restaurant, pub and hotel businesses, among them Premier Inn-owner Whitbread (WTB) and Fuller, Smith & Turner (FSTA), warned Reeves’ NICS hike will cause ‘unprecedented damage’ to the sector; hospitality firms insisted they’ll be disproportionately affected by the changes to employment costs, that prices will need to rise by 6% to 8%, and hospitality businesses will be forced to close or cut jobs and slash investment.
Companies whose share prices have slumped since the budget, with investors fretting over the profits impact from the NICS changes, include pub stocks Mitchells & Butler (MAB), where Shore Capital estimates a hit of up to £40 million, and JD Wetherspoon (JDW), where the broker forecasts a £35 million hit, while the market is telling us Marston’s (MARS) also faces a NICS-induced hangover.
However, Shore Capital highlighted Whitbread and tenpin bowling operator Hollywood Bowl (BOWL) as ‘two stocks where the negative share price reaction goes well beyond the announced expected increases in employment costs’.
Disclaimer: The editor of this article (Ian Conway) owns shares in Greggs.
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