The 2024 Budget Challenges

Unlock the secrets to navigating the recent economic shifts with us as we dissect the impacts of the recent budget. Discover how the 6.7% rise in national minimum wage, cessation of Covid-era business rate relief, and increased employer national insurance contributions are rewriting the playbooks for retail and hospitality industries. These sectors, which are heavily reliant on national minimum wage workers, face a unique set of challenges. Businesses are bracing for recruitment slowdowns and inflationary pressures, with major players already strategizing to tackle billions in additional costs. We share valuable insights into salary sacrifice schemes and other proactive strategies to help mitigate these financial burdens

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Chapters

• 0:00 Budget Impact on Business and Productivity
• 7:02 Improving Efficiency and Reducing Costs
• 15:39 Supply Chain Trade-Offs and Opportunities

Transcript

Speaker 1: 0:05

Welcome to the Productivity Podcast. Sue's joined me today and we're going to talk about the outcomes from the latest budget. Hi, sue. Hi so shall I just do a quick recap.

Speaker 2: 0:17

Yeah.

Speaker 1: 0:18

So key things. If we just focus on impact on business, there's lots of things that impact, kind of personal conditions. So 6.7% minimum wage increase from the 1st of April to £12.21 for those over 21. Doubling business rates. So the relief that was there from Covid is being removed. And then employers national insurance contribution so not personal employers will move from 13.8% to 15% and the threshold of annual pay will come down from £9,100 to £5,000, which will pull in lots of lower paid and part-time workers. So, understandably, there's been lots of noise around the gap or the hole that's been left by the previous government and some of their spending ways, which has been inherited by Labour, and this seems to be the way that Rachel Reeves and Keir Starmer are going in terms of trying to plug that gap. So less from a personal point of view, more from a business point of view, announced a couple of weeks ago, so everyone's had a bit of a time to reflect.

Speaker 2: 1:24

if you've got any initial thoughts, sue, Well, the sectors it's going to hit most, I would think, or would be affected by it, will be the ones where it sounds obvious they've got a lot of headcount.

Speaker 2: 1:37

So the more people you've got then the more impact it has, particularly if you've got a higher proportion of part-timers and or low paid work. So if you compare a big supermarket chain and some of them have already come out and talked about the size impact where you've got a lot of people that are part-time, probably paid near the minimum wage, it's having a huge impact in terms of numbers. At the end, if you're a high-end creative agency where you've got 10 people that you hire them out for a huge hourly rate, you might end up with a similar turnover but actually your impact would be very different. So it means that the businesses that will be hardest hit by it are the ones that have got, say, high headcount, lower cost. So you're talking hospitality, retail, the care sector, so those sorts of places where in a lot of instances, margins are already tight or there's tight price competition. So a lot of those businesses have had to make some hard decisions already to get a business that's profitable now.

Speaker 1: 2:36

So some of the figures that are being bandied around in the papers. So Asda, morrison, sainsbury's, saying that over the course of the parliament it'll cost them 1.3 billion. Course of the parliament it'll cost them 1.3 billion. And Sainsbury's have warned that it will lead to inflationary pressure on cost of goods, so higher food prices. Co-op saying it's going to cost them tens of tens of millions of pounds a year. And then the hospitality sector is saying, oh, again, over the course of the parliament it's going to cost them circa 14 billion pounds.

Speaker 1: 3:07

So big, big numbers, significant challenges. Even recently, since the the budget's been announced, I've spoken to a number of retailers, hospitality companies, and they've already said they were, they were scaling back recruitment and some even stopping recruitment, that temporary piece leading up to christmas, so kind of what you've got, you've got. Others were recruiting for a number of roles and reduced that headcount or the number of devourers they were advertising for. So people taking immediate action to help, I suppose that glide path in Others, I think maybe have been a bit of paralysis in terms of the cost challenge that now lies ahead and what they're going to do of the cost challenge that now lies ahead and what they're going to do.

Speaker 2: 3:53

Well, I guess there might be some that hang on for the golden quarter and then start to decide in January, which in some ways is a risky game to play. Usually, the sooner you start to plan for these known cost challenges, then the more options you have open to you. But whether you wait until after Christmas or not, I guess it does mean that christmas is going to have a big impact on people, because there are quite a number of businesses that really rely on that christmas period to to make profit that seems them through leaner times of the year well, it becomes more make and break than maybe we've seen historically.

Speaker 1: 4:23

So not necessarily good news, but let's let's focus on what we can do, because clearly it's not going to change. There's various people lobbying the government to review, but when's that ever happened? It's a bit like trying to get a red card overturned on a football pitch, isn't it? There's no VAR, there's no appeal. We just live with it and, as operators, always find a way to navigate through it.

Speaker 1: 4:50

One of the things I mean we've been talking about and we do Summit Rethink and we'll aim to do more in the future is salary sacrifice. So I think that's going to play a big part for lots of organisations. Lots do a great job already, but one of those things that you can offer your colleagues electric car schemes, gym childcare vouchers, tech schemes, bike schemes, pension, et cetera that you can do at gross. Clearly you need to consult with financial advisors etc to to make sure your scheme works for you and your people and your contracts, but that helps give the colleagues a benefit because they pay less uh, ni and national insurance and tax, uh, but also the business because it's done at gross. So some some really interesting things there.

Speaker 2: 5:26

So you're talking about the salary sacrifice schemes that mean you pay out of your gross pay, so before tax. So essentially you're buying something before tax, so it has that benefit that you don't pay income tax and national insurance on it for both parties and there's only certain ways you can do it and certain things you can do it on.

Speaker 1: 5:45

And again, if you can search the internet, there's lots of schemes and shelves that are set up that make it really easy to access and really easy to process through payroll. So you can't do it with everything. As I say, you need to kind of do your own research and financial advice, but most large organisations small as well have some forms of that in place. I suppose the question is are you exploiting it to its full potential for your business benefit and a benefit for your people? We then get back round to some of the stuff we've talked about in the podcast chapters on the book. In the book you can download a copy off the website or email us for a copy, and it's kind of quite timely again because it all starts to play into where people should go. So I know you've been having some conversations, sue, with people around. You know where do you start, where do you revisit or review? Have you got any thoughts you can share?

Speaker 2: 6:38

Well, the obvious point is you kind of need to know where you're starting from. So to have some measurement is the ideal place, whether that's an efficiency study that looks at where the proportion of time is spent, so how long you spend in doing the different activities. But then it can also be useful to drill down within those individual activities and have some timing done to understand what takes the time within it. So there are always bits, even for very customer-facing organisations. There are always bits of the business that aren't necessarily customer-facing that are always the obvious place to look. But actually even within your customer piece are the parts of that that are more important for the customer than others.

Speaker 2: 7:22

So you know, there are parts of a transaction where, um, you know, people have moved to self-checkout increasingly.

Speaker 2: 7:30

So the important time to have with the customer is when they're buying and choosing and you're helping them and trading them up and link, selling and making sure that they're aware the customer's aware of all the different options and that are available to them. But actually, once they've made a decision, usually the customer just wants to get out as quickly as possible because it's job done as far as they're concerned, and the sooner they get out, then the less of your time it takes too. So if there's things within the functional part of that transaction that you can minimize and there's lots of businesses where it happens it can be signing people up for loyalty cards, it can be, um, you know, even set. Things like self-order screens have come in more, so the customer pays themselves. So there's lots of different things that can happen, and I think one of the bits that we often find frustrating is things like hotel checking, where you just want to check in quickly and yet you have a colleague there.

Speaker 2: 8:27

That's I don't know what they ever put in the computer.

Speaker 1: 8:29

But I've given you all my details when you check in. I've paid, you've got my email, my phone number, my name. When I'm checking in, when I'm checking out, yeah, you seem to tap away at the keyboard like you're writing two chapters to a novel. Yeah, mystifies me. It really does. And I think it comes back to some of the stuff we talked about at the forum and registrations open for 2025. We've got a really good selection of speakers for next year and loads of people signed up. So check the website to sign up and register if you've not. We talked about driving ATV, so actually it's really difficult to get new customers, so just selling a little bit more to the ones you've got by making sure you know where people want service, you know where they want less friction and can check out by themselves, has always been important.

Speaker 2: 9:15

But again, people are going to have to up the game, I think.

Speaker 2: 9:16

Well, I think it's interesting because things like signing people up to offering, you know, email receipts and signing people up to loyalty schemes all that they're really important parts of marketing and clearly it's highly valuable to our customers details and to be able to contact them, and I think there are some businesses that think that's best done face to face-face. From what we see, if you hit peak times and you haven't got enough people, then kind of the colleagues self-censor about what they offer, because actually if I've got a queue of 10 people waiting that are all looking at me, am I going to spend five minutes explaining the benefits of the warranty scheme or the whatever? You're not going to do it, so that in a lot of ways, having those things in some automated way that gives the customer a great experience while they're doing it is a much more reliable way to do it and it's it's about being really clear-eyed about where your colleagues are actually adding value for your customers and where it can be done a different way leadership.

Speaker 1: 10:18

So always a point of debate and review. Lots of work being done. Probably the last 10 years or so, certainly in the last four or five years, we've seen where people have looked at structure. We've done lots of role study to look at overlap, differentials, benchmarking. I think that comes back into play again with the NI piece, but also the national living wage piece and then the compression of salary from leadership levels through to to colleagues. You've got to keep that differential or or understand you eroding that differential and therefore it's it's less valuable for me to be a leader and be salaried when potentially I could earn the same slightly less for less responsibility being on the shop floor.

Speaker 1: 10:58

And that let's just quantify that with at 12, 21 for 40, our colleague, from the 1st of april they're going to be earning 25 800 pounds yeah which is right, and we should make sure that there's a minimum wage 25 800 and I'm talking when I'd hair 20 years, that was middle management salary with a big expectation and people were working 60, 70 hours to get that and were thankful for it. So that just shows you where we've come and National Living Wage totally support. There were some unintended consequences of doing that and as we see the aspiration to get £15 15 pounds quickly with this incumbent government, that's going to be a real challenge yeah, and I think there's a leadership challenge anyway in terms of being clear about what you want your leaders to do.

Speaker 2: 11:50

so if what happens is you end up as expensive shelf fillers, because that's what they do all the time, and once the heads are down, they're not leading anyway, but they're probably on site in case anybody needs a manager. That's one thing. And if you decide that's what you want to do, then that's fine. You just need to be clear about it. If you think you've got people there to coach people, to lead them, to develop training, but actually what's happening is they're dropping down into doing tasks because everything is so tight and um, or that's just how they choose to work because they can be depending on the leadership that they get themselves, then that's a different scenario. So it comes back to being really clear about how you want to invest your money and that leads us really, then back to the labour modelling piece of the budgeting.

Speaker 1: 12:39

For those that run labour models budgets, probably your time to shine and become creative. What are the scenarios you're going to try and present? Are you moving more assumptions to percentage of transactions that go through SCO? Are you looking at structure? Are you looking at inbound stock? Are you looking at time to replay? And there's a whole bunch of levers that aren't particularly going to be palatable Trading hours, again minimums but you're probably going to be the ones that are called on to present options to senior teams to start to help them make decisions, because all the easy stuff's been done, as we've talked about before, it's all the stuff on the list. That's not nice, unpalatable.

Speaker 2: 13:18

people have kicked down the road because they've not needed to that resurface yeah, and I think those points where you have service points or production points that mean you have to have a minimum number of people so you have a minimum cover over a certain number of hours, there are really points to look at because they are just fixed cost and not relevant, not related to the turnover.

Speaker 2: 13:44

So if you can do things around those you can usually have a big impact. So it can be things like what's your number of customer service points? We've seen self-checkouts merging into you know it works best where you've got a self-checkout operation, that that sort of links closely to your um, your tills, where you've got people on them, where they can flex together to have them as anytime. You've got separate points, you've probably got higher costs and it's like um, custom service desks, service kiosks, all those sorts of things. It's a matter of having a look at what are the different points. Same in a hotel how can you get your reception linked to some of your bar service or all those sorts of things?

Speaker 1: 14:26

And this is before. You've then worked out how much your shrink's costing you, how much putting mesh nets over every bottle of spirit or putting your spirits behind the door costs in terms of labor and all the different types of defensive merchandising people are trying some saving labor, some creating more labor costs. So none of this is easy. I think that's the the difficult news. But there's lots of opportunity as well. So whenever there's challenges, retailers, hospitality companies, operators, get creative and inventive and always find a way through.

Speaker 1: 15:00

Um, to coin a phrase from one of the big supermarkets, I think every, every little is going to help in this. In this instance, there's no golden bullet. There might not even be many silver bullets. You might be on multiple let's call them bronze bullets now, um, but it's all going to make a difference at the end of the day. And then you make sure you're planning your people correctly with your workforce management solution against the demand that you've got for the roles that you need to do, and you can edge closer to mitigating some of the cost challenges that we're going to see, without necessarily having to result to just putting costs up as the only answer.

Speaker 2: 15:39

And I think for some it'll be helpful if they can look sort of up the supply chain. So there are instances where there are trade-offs between how lorries are picked, how orders are picked in the warehouse, how they're shipped, and then the impact on store teams. So, for example, it might be easier to pick mixed cages in the warehouse, but actually that's pushing work onto the shop floor. Does that cost equation change if you've got higher cost in store or things like introducing goodwill receiving? So again, not everywhere does it. But if you can introduce goodwill receiving, even with a third party supplier, there might be benefits for them because if they then don't have to process refund claims or, you know, to deal with delivery inconsistencies and actually your people don't check off anymore, then that can be a win win and there's commercial ways around that. So I think it's going to require looking not just within the box of the unit but actually out of everything that you do. What are the things that are impacting how you work that you could change by looking, you know, further upstream absolutely so.

Speaker 1: 16:52

challenges ahead, not all doom and gloom. Wherever there's a challenge, there's an opportunity, and you know where you are. If you want to chat to Sue or I and pick our brains or talk to us about anything and again, feel free to download the book off the website. There's a downloadable version on there. Order from Amazon if you want a paper copy, and don't forget to register for the forum in September 2025.

Speaker 2: 17:13

And hopefully there'll be a bit more spend this Christmas. So if we can have a good christmas, then that is really going to help. So perhaps the fact that, um, you know, people as individuals haven't been affected as much or a lot haven't been affected by the, by the budget, perhaps that means that people will be prepared to to have a bit more of a spend at christmas. So we'll see fingers crossed.