Reeves must avoid additional tax on retail, HMV boss warns

Ahead of the Fall Budget, City Reporter Samuel Norman sits down with top industry names for a Budget Briefing. This week, HMV chief executive join the warning chorus to provide a reprieve to the retail sector.

As high street music retailer HMV enters all-important golden territory, its boss Phillip Halliday is eyeing a chart-topper that won’t come from Wham or Mariah Carey this year.

With the Budget dropping less than a month before the festive celebrations, Chancellor Rachel Reeves is under pressure to help the retail industry enter the new year with a bang.

“We had a good year,” Halliday said AM City“So we are a little better positioned to deal with those delays than in previous years.”

The high-profile boss recalls “indecision” around 2024, when the retail sector will be hit by a double whammy of a rise in employer national insurance contributions (NICs) and a rise in the minimum wage.

But now Halliday has sent a warning to Reeves to change his tone in his second Budget.

“What they did was nothing extraordinary,” he said.

“We are clearly overpaying in terms of the tax burden on retail and that is common knowledge.”

Halliday added the Treasury should look at “where they have put pressure” and adopt a “commonsense approach” to focus on other areas.

Business rates are increasing rapidly

The price of the business is high on the agenda when it comes to leverage. Halliday hopes Reeves will consider pulling out to give the retail industry a boost.

“This has been so complicated for so long that it needs to be addressed,” he said.

“You can’t do anything about your business rates… there’s nothing you can do about it, it’s just a fixed cost imposed on you.”

Halliday said business rates reduce investment by triggering “unnecessarily high revenue targets” that “you wince a little when you see”.

The tax is calculated by taking the assessable value of the property – the estimated annual rent of the unit on the open market – and combining it with a fixed business rates ‘multiplier’. It is implemented in shops, offices and warehouses across the country.

Legislation currently working its way through Parliament would introduce a higher multiplier for properties worth more than £500,000 to pay a lower figure for small premises and retail, leisure and hospitality businesses.

The new multiplier will be announced in next Autumn’s budget.

While there will be little change for small businesses who currently benefit from tariff relief and larger bills for businesses with many ‘anchor’ stores, medium-sized companies such as HMV are likely to benefit.

Halliday said the changes Reeves made to large properties would be “important” but he hoped HMV could provide a reprieve in changes to retail rates.

VAT threat

As well as business rates, on November 26 Halliday will oversee changes to the minimum wage and VAT.

The Chancellor refused to rule out a new VAT rise ahead of his speech at the Labor Party conference last month.

When asked whether Britons could face a rise in the retail levy, Reeves dodged the question, pointing to his pledge not to increase key personal taxes for workers, including VAT.

Reeves added: “If you look at my record, in last year’s budget a lot of people said we should break the manifesto commitments, to renege on them. And I didn’t do that.”

The move could spark a fierce political backlash after Labor committed not to raise taxes on workers – including increases to VAT, national insurance and income tax – in its 2024 election manifesto.

“VAT changes would be terrible,” Halliday said

Retail heavyweights, including Sainsbury’s, John Lewis and Tesco, warned Reeves’ tax policy could force prices to rise due to rising costs.

The industry has also been bracing for changes to the national minimum wage – a move Halliday said would be “very difficult”.

Reeves will reportedly confirm a four per cent increase in the National Living Wage in the Budget.

The move will mark another blow after NICs and the minimum wage for companies were double hit last year.

The new changes will require employers to increase workers’ wages from £12.21 to at least £12.70 an hour, causing impacts across the private sector and the jobs market.

Making highways ‘working again’

HMV went into administration for the second time in six years in December 2018, when the company cited a “tsunami of challenges” including rising business rates and a shift to digital streaming.

The high-end retailer was rescued in February 2019 by Doug Putman, owner of Canadian record retailer Sunrise Records.

The business has almost 120 stores across the UK.

Reeves’ second budget comes at a crucial time for British society as rising financial burdens and the rise of online retail weigh on companies’ books.

Earlier this year, WH Smith agreed to sell the 233-year-old high street business to Modella Capital for around £76m.

Halliday stressed the “importance” of making high streets “working again” – be they hotels, cafes or shops.

“Some of the worst damage has already been done,” he said.

But he added that increased employment opportunities for “committed local people” in the area would make the high street a major attraction for visitors again.

“They do need help and this is important because they may not be as interested in an AI strategy in this country.

“There are people in a lot of places who are not really in touch with them and the number of jobs created by those strategies is not much.”