A budget for retail

How to drive jobs, growth and trade

If you are anything like me, your email inbox this week is full of “organisation X calls on the Chancellor to [do something entirely in X’s financial interest] in this week’s budget”. Well, today is the day and thanks to the modern phenomenon of leaking the entire content of the budget days in advance, I think we know that few of those self-serving lobbying press releases are going to be rewarded.

I was away last week (apologies to those of you bereft at the lack of a Moving Tribes post) and took the opportunity to reflect a bit on the intersection between macro-economics and the apparently simple task of running a retail or hospitality business.

Rather than a self-serving ‘please give us more money’ request, what are the policy measures which deliver the genuine win-win of being in the Government’s and the nation’s interests on the one hand, but also serve to support our sectors on the other? After all, retail and hospitality are massive employers, serve millions of customers, bring in valuable tourist spending and play a vital role in our urban landscape, so it ought to be possible to find some policy interventions that work both for the sector and for the wider economy.

And so it is. There are plenty of ways in which our sectors can contribute to the wider goals of economic management. So here, in no particular order, are some of the ways the Government could help businesses like ours (and many in other sectors too) drive the economy, without just giving away money:

Tax success, not activity

As we explored 2 weeks ago in our exploration of the costs of opening a shop, starting any new business is expensive and the rewards from doing so are uncertain. People are therefore making a risk/reward call when they decide to start a business, and make it again every time they decide to expand it (in our case by opening new stores or investing in a new manufacturing facility, for example).

Inevitably, one of the costs a business faces is tax. Given that our businesses consume public sector services just like consumers do that is perfectly reasonable (someone made the path outside your shop), but Governments need to be careful about what their taxes do to that risk/reward decision.

Taxes that you have to pay whether you trade well or not (hello Business Rates) increase the risk, and that can’t help but mean that some expansion decisions get left on the shelf. Taxes that are incurred as a ‘success penalty’ like Corporation Tax do not increase the risk of opening a business and are thus more consistent with growth and expansion.

A government that was seriously committed to economic growth would abolish business rates entirely and replace the revenue generated with increases in taxes that are paid on success. That would be a dramatic and painful reshaping, but would unlock growth like few other measures could.

Incentivise innovation

One of the enduring problems of the UK economy is low productivity. In economic terms, that means that the output generated by each person in the UK is not increasing fast enough to support what we’d all want, which is increasing wealth per person.

Part of the reason for that is that we, as a country, don’t spend enough exploring how new technologies can help our businesses. Even in apparently traditional sectors like retail and hospitality there are plenty of ways to do that (my inbox is awash with technology companies offering whizzy new solutions to business problems, a few of which might actually work).

Here, the problem is not so clearly ‘government getting in the way’ - indeed, the various capital allowances and schemes to encourage technology investment that have featured in recent budgets have been pretty helpful. As a sector, however, we don’t seem to be fully embracing the opportunities that technology investment could create, and there is room for both legislators and leaders in our sector to consider what we can do to drive that further.

Unlock the power of people

If there is one thing the retail and hospitality sectors do well, it is create opportunities for people. We are massive employers, particularly of younger workers, and our sectors are fantastic engines of social mobility, something every flavour of Government must want.

We can do much more, though. Investment in training, apprenticeships, mentoring and career management can all make a difference, not only to the people who work for us, but to the wider societies in which they live.

Tragic, then, that the UK’s flagship programme for developing people in the workplace, the Apprenticeship Levy, is an unmitigated disaster. It is costly, bureaucratic, wasteful and results in companies doing less training than they otherwise would.

Part of being successful is recognising when something is not working and changing tack, and it is time for the UK to take a completely different approach to encouraging investment in people.

And by the by, that is part of the answer to the UK’s productivity challenge too. If we incentivised investing in people as well as we incentivise investing in technology, we’d really have something to brag about internationally.

Get out of the way

All of the objectives we’ve explored so far - growth, productivity, training and development, social mobility - are fundamentally driven by having more businesses investing more, hiring more and delighting more customers.

Important, then, for legislators to ensure that it is as easy to do that as possible. And part of that is knowing when to stay out of the way.

In a recent review with a mid-size business, I counted the number of acts of parliament which required active management by the leadership team and which had potentially serious consequences if something was missed - ranging from critical foundations of a modern society like the Equalities Act and the National Minimum Wage act to the more ‘specialised’ suites of regulations and codes of conduct.

Altogether there were more than 40 such bits of regulation for the team to worry about. Each and every one of them had a valid purpose and represented something that genuinely needed to be looked at, but taken together they represented a huge drain on management time.

Governments need, therefore, to be careful not to turn every issue that comes up into another legislative burden - particularly on small businesses just getting started, who will already be wrestling with setting up accounts and paying VAT and really don’t want to have to fill in a dozen other forms, all on slightly different government portals. Asking those businesses, for example, to provide Workplace Pension schemes is a great example of a well-intentioned thought going wrong, as it would have been massively simpler and more cost-effective to do that through the State Pension system.

In summary

Consumer-facing business sectors like retail and hospitality already play a big role in our economy, and they can play a huge role in improving it in the coming years. We can support growth, create new jobs, drive social mobility, generate innovation and provide employment for otherwise marginalised groups in society.

All of that requires partnership between business and government, and the creation of tax, planning and regulatory environments that drive growth, rather than strangling it. Whether that’s national governments, devolved administrations or local authorities, it is time for a reset in the relationship between those we elect and the business community.

P.S.

I can’t let this week’s post finish without giving a hearty congratulations to Oliver Banks, whose new book Driving Retail Transformation is out today (and available here). Many of you will know Ollie from his long-running Retail Transformation Show podcast, which is well worth seeking out too, and his new book is terrific.