‘Sure it’s Christmas’ will no doubt be a frequently heard phrase over the next couple of weeks as the traditional season for over-indulgence ramps up.
As we know, people have faced a massive cost of living crisis over the past 18 months so the question is what shape the consumer is in and will the tills ring?
Last week’s Autumn Statement provided some light relief to many who have been feeling the pinch. As part of his Statement Chancellor Jeremy Hunt increased incomes for those on benefits and for pensioners. He proposed raising the level of Universal Credit by 6.7% in line with September’s inflation rate, and also promised to raise the State Pensions level by 8.5% in line with average earnings growth. With inflation now just below 5%, the pension and benefits uplift are what we call a ‘real’ increase. Employees also received a boost, with the level of National Insurance being cut from 12% to 10%. On the face of it, these measures are welcome but beware a chancellor bearing gifts – they are rarely as generous as they appear.
Take for example the fact that despite the cut in National Insurance, the average tax burden on individuals is at a 70-year high. By the end of 2024, the Treasury will be raking in £100 billion more in tax revenues than in 2019. The Institute for Fiscal Studies has suggested that despite the National Insurance cut an individual earning £35,000 will pay £249 per year more in direct tax up to 2028. Issues like this, plus the significant spike in inflation mean that UK residents recorded the largest single decline in living standards since records began in 1955.
Shrinking living standards are a concern for the Northern Ireland economy, given our reliance on consumer spending. In research that we in Grant Thornton undertook for the Consumer Council, we found that around 64% of the Northern Ireland economy relies on consumer activity. Anything that hampers our ability to spend on goods and services therefore has a direct and potentially profound impact on the economy.
Two key sources of information on consumers shine some light on how the Christmas season might go for retailers. According to the Household Spending Tracker from the Consumer Council, those in the lowest earning households have £26.81 per week in discretionary income (i.e. what is left after spending on basics). This goes to show just how difficult the cost of living crisis has been on a significant proportion of our population and why consumer sentiment is fragile. The Consumer Sentiment survey undertaken by the Irish League of Credit Unions with Core research bears this fragility out. The findings of their latest survey of NI Consumers were released last week and found that more consumers feel that the economic situation is going to be worse over the next 12 months compared to when the sentiment survey was last conducted in August. Additionally, many households say they must make further adjustments in their spending to ensure Christmas is affordable for them. Just over half of Northern Irish consumers expect to have less to spend than last Christmas, while only 1 in 20 of consumers say they have more to spend. Hardly surprisingly, the pressures from the cost of living crisis, rising household bills and pre-committed spending were all cited as reasons for reduced spending expectations.
As we head into the Christmas season, it is still unclear how retailers will fare. Will the chancellor’s recent moves to put more money in people’s pockets give enough of a boost to people to convince them to loosen the purse strings or will they still feel that caution is required. Hopefully some Christmas cheer does filter down to the high street.
