Brown’s Budget for poor aids retailers

It’s ironic that a Budget designed to give more to lower income families should also be taking it away from the same people through an extra 20p on a packet of cigarettes.

Obviously not all of those who will benefit from a series of changes such as the cut in employers’ National Insurance contributions – seen as a barrier to employing people – working family tax credits or enhance childcare allowances, are smokers.

It is this underprivileged group – smoking habits aside – of consumers, which could number as many as 1 million people, that most observers and, more accurately, most retailers and banks will be targeting and fighting for over in the next 12 months.

The retailers will be seeking their extra income to boost flagging retail sales. The banks, and other financial service providers, will want them to invest in Individual Savings Accounts (ISAs) when they are launched next April.

Indeed some retailers, the supermarkets managing ISAs, will be looking for revenue from both streams.

The prevailing theory is that those on lower incomes do not save. Which could, if true, be better news for the retailers than the banks.

British Retail Consortium figures show that in the 12 months to February like-for-like sales grew just 3.4 per cent. The retail sector had a poor Christmas and despite the fact electrical chain Comet is expected to release results showing an 11m increase in profits to 31m later this week, the high street is still a difficult place in which to operate.

“In terms of consumer spending it is a neutral Budget,” says BRC economist Pamela Webber. “But lower income families spend a higher proportion of what they earn and so we would expect some increased spending.

“Obviously it is a marginal effect. But the accumulation of things, working family tax credits and investment in public transport – meaning that lower income families can get to superstores – will start to have a positive impact.”

It is a view echoed by retail analysts. Most were relieved that the Budget did not include any measures likely to damage the brittle confidence in the retail sector.

“There was nothing significantly good or bad either way, so there is an element of relief,” says John Richards, retail analyst at NatWest Markets. “The economy is being managed through interest rate policy, so the Budget is secondary.

“Help (for those on benefits) helps retailers, since any money that goes into pockets at the lower income end will end up getting spent, in contrast to the windfall taxes, where only a small element ended up being spent.”

Before Kenneth Clarke’s last Budget in November 1996 Marketing Week argued that companies should be supportive of social policies which brought more people into the consumer society. Brown’s unspectacular Budget has at least opened the door.


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