04 April 2025, 04:00
By Paul Farley Apr 03, 2025

How will the new pay framework impact furniture retailers?

This month, the new pay framework outlined in the autumn Budget comes into force, and its impact on businesses across the industry will be both immediate and significant. Furniture News looks at the likely benefits and threats of the changes, and asks a handful of retailers for their views on this controversial catalyst of the Government’s plan for growth … 

“This Government promised a genuine living wage for working people that will support people with the cost of living, creating a workforce that is fit and ready to help us deliver number one mission to growth the economy,” stated Chancellor Rachel Reeves as she unveiled the plans in November. “This pay boost for millions of workers is a significant step towards delivering on that promise.”

On the face of it, mandating an increase in workers’ pay to help deliver improved living standards and drive growth seems essential if Labour is to deliver the change it promised in its manifesto – but at what cost?

This month, the National Living Wage for anyone aged 21 and over rises from £11.44 per hour to £12.21. The National Minimum Wage for 18-20-year-olds goes from £8.60 to £10 per hour, and the apprenticeship rate for 16-17-year-olds from £6.40 per hour to £7.55.The Government says over 3 million workers will receive a significant pay boost – that’s £1400 a year for an eligible full-time worker, and a significant step towards a genuine living wage, putting “more money back into the pockets of working people”. 

Unintended consequences

Yet there’s another side to this coin, and that’s the huge pressure it will put on businesses, in an economy which is already unforgiving. Many employers forced to absorb these extra costs are already looking at cutting staff, implementing hiring freezes and holding back investment – the polar opposite of the growth the policy aims to deliver. 

In the same Budget, the Chancellor also signalled a hike in the National Insurance (NI) rate, as well as reducing the threshold at which employers start paying it – a move set to generate £25b a year in taxes, at business’ expense.

In January, a British Retail Consortium (BRC) survey of CFOs at 52 leading retailers offered some insight into that sector’s likely response. When asked how they would be responding to the increases in employers’ National Insurance Contributions (NICs), two-thirds stated they would raise prices (67%), while around half said they would be reducing ‘number of hours/overtime’ (56%), ‘head office headcount’ (52%), and ‘stores headcount’ (46%). Almost one-third said the increased costs would lead to further automation (31%).

The impact of the Budget on wider business investment was also clear, with 46% of CFOs saying they would ‘reduce capital expenditure’ and 25% saying they would ‘delay new store openings.’ Nearly half (44%) of respondents expected reduced profits, further limiting the capacity for investment.

The BRC’s survey came just weeks after 81 retail CEOs wrote to the Chancellor, outlining their concerns about the Budget’s economic consequences, noting that the retail industry’s costs could rise by over £7b in 2025 as a result of changes to employers’ NICs (£2.33b), National Living Wage increases (£2.73b) and the reformed packaging levy (£2b).

Factor in a reduction in business rate discounts, inflationary pressures, widespread uncertainty and its impact on consumer confidence, and the incoming Employment Rights Bill (kickstarting ther Government’s Plan to Make Work Pay), and the retail sector faces a perfect storm like no other.

BRC chief executive Helen Dickinson said: “With the Budget adding over £7b to their bills in 2025, retailers are now facing into the difficult decisions about future investment, employment and pricing. As the largest private sector employer, employing many part-time and seasonal workers, the changes to the NI threshold have a disproportionate effect on both retailers and their supply chains, who together employ 5.7 million people across the country.

“Retailers have worked hard to shield their customers from higher costs, but with slow market growth and margins already stretched thin, it is inevitable that consumers will bear some of the burden. The majority of retailers have little choice but to raise prices in response to these increased costs, and food inflation is expected to rise steadily over the year. Local communities may find themselves with sparser high streets and fewer retail jobs available.”

M&S boss Stuart Machine, writing in The Times, went further, saying UK retailers were “being raided like a piggy bank”. While some had already lifted their wage brackets, furniture retailers closing their doors this spring, including historic department store Beales and Bennetts Family Furnishings (Banbury), cited the incoming tax rises as a key driver behind their decision to shut up shop.

And the impact on the wider furniture industry is another matter entirely – manufacturers employing numerous lower-paid staff will be hit particularly hard.

“The increase in NICs will have a direct impact on staffing costs, meaning businesses will need to rethink workforce strategies, recruitment plans, and retention efforts,” says UK manufacturer champion, Make UK.  “Britain’s manufacturers have hit the brakes on recruitment and investment plans amid rising employment taxes and business costs.”

Bracing for impact

So, what does the new legislation mean for your business? Are you making cuts or price rises to fund the increases? How do they factor into the other challenges you’re facing? Have you been forced to revise your forecasts significantly? And do you think the changes can bring about growth?

In April's issue, Furniture News asks a handful of retailers to share their reaction to the new framework, and their thoughts on its likely impact. Many thanks to Steve Pickering, Sarah Bianchi, Deirdre Mc Gettrick, Brian McCann, Kathryn Lukehurst, Peter Harding and Jodi Skelton. 

Read the article here.


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