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Newsroom & speeches
22 January 2009
Good evening and thank you to our generous hosts, Retail Week, for inviting a Treasury minister to attend this event. Stephen Timms asked me to pass on his apologies, but it’s my pleasure to be able to be here with you in his place.
I would like to say a few words about government’s view of the retail sector; about the current economic climate and its impact on British business; and about the action that government is taking.
I won’t speak for too long, because I’m anxious to have some time left over to hear your views and to answer any questions that you may wish to put to me.
The retail sector has been one of Britain’s success stories. Employing over 3 million people (2007), you collectively account for over 8 per cent of the UK economy.
British consumers have benefited from retail goods that are on average 7 per cent cheaper in real terms than they were in 2000, and 15 per cent cheaper than in 1990. These lower prices reflect both the increasing efficiency and the healthy competition that can be found in the retail sector.
But it’s impossible to ignore the stark realities of today’s economic climate. Irresponsible decisions at the heart of the financial system have infected the entire global economy. Credit markets remain frozen and demand has fallen.
Businesses of every kind are feeling the pinch. Across much of the retail sector sales and profits have declined. A weaker pound is affecting imports, which has a pronounced effect on a number of sub-sectors- notably including consumer electronics. Both DSG International (which owns brands like Currys and PC World) and Comet reported significant drops in sales and half-year losses.
Major high street retail brands like Woolworths, MFI and Zavvi have gone into administration, and others may follow, with potentially bleak consequences for thousands of employees.
Businesses of every kind must be creative and exploit every opportunity to tackle the challenges they face.
And it’s not all doom and gloom- many retailers continue to perform strongly. Tesco, Sainsbury's, Asda and Morrisons have all showed further sales growth. Aldi and Lidl continue to thrive.
Republic and New Look reported rising like-for-like sales. New Look sales rose by 2.8 per cent in the 14 weeks to January 3, with total sales up 14.5 per cent against the previous year.
And John Lewis reported a 2.4 per cent rise in sales over the Christmas trading period, with strong gains in homewares, electricals and technology.
And the government has made it clear that we will do whatever is necessary to maintain economic stability.
Earlier this week the Chancellor announced a further package of measures to support the banking system and safeguard the millions of jobs that would be put at risk by the continuing difficulties in the financial system.
These measures are aimed at:
The announcements are an extension of the Government’s existing measures to support the economy through the economic downturn, including:
As you know, the main lever chosen by the government for the fiscal stimulus was a temporary reduction in the rate of VAT.
This option was chosen because it could be implemented rapidly, it would impact immediately on the purchasing decisions of firms and individuals, and because its temporary nature was well-matched to the need for a short-term economic boost.
The move will leave £12.4 billion with consumers and businesses that would otherwise have been taken in tax.
Whether that money is spent on increased consumption, reducing debt or keeping businesses going, it will have a positive effect on the economy.
Of course we recognised that some businesses would face implementation difficulties, but we had to balance that against the importance of making this change quickly.
We said that we anticipated that the UK’s competitive retail sector would pass on the majority of the reduction to consumers through lower prices. By and large this has been done –according to the Office for National Statistics, around two thirds of items subject to VAT in the consumer price index basket have had their prices reduced, either on the shelf or at the till.
So I want to thank those parts of the retail sector that have worked so hard to implement the change quickly and to pass on the reduction to your customers.
The Government is committed to targeted support for businesses to help them through the current economic climate. We’re aware that reduction of credit insurance can exacerbate the financial difficulties already being felt by firms.
So the Department for Business, Enterprise and Regulatory Reform is discussing with trade credit insurance providers a possible scheme to provide breathing space for companies to address increased risks in their supply chains.
Discussions with industry are continuing and there will be a further announcement on this as matters progress.
We are living through some of the toughest economic conditions for decades- perhaps for a century. And there is no “quick fix”.
But the government is co-operating with other nations around the world to confront the problems that we all face, and to boost the global economy,
It’s clear that existing international systems of regulation failed to adapt to the challenges of a new, highly globalised world. In the medium-term, therefore, we will need to make major changes to ensure that the mistakes of the past cannot be repeated.
There is no doubt that things in the coming year will be tough for British businesses.
I would urge the retail sector to be flexible and innovative when responding to these challenges, and to keep an eye on the future so that you are in the best possible position to take advantage of the upturn when it comes.
Thank you.
[ENDS]
