Scotland's retail sector displaying 'grounds for cautious optimism' despite cost-of-living crunch

The freezing of income tax thresholds and increased tax rates for higher earners is likely to “take a bite out of consumer spending”, the Scottish Retail Consortium has warned.

In his new year message, SRC director David Lonsdale highlighted the additional tax burden among a number of headwinds facing the sector, but stressed that there were also “grounds for cautious optimism” looking towards 2023. Reflecting on the year just past, he described 2022 as “another tumultuous year for Scotland’s retail industry”.

Lonsdale said: “It started in difficult circumstances with most retailers still operating under some Covid restrictions. It felt that we had barely escaped from the clutches of the pandemic when the conflict in Ukraine rapidly dissipated any emerging economic optimism. As geopolitical tensions rose we saw inflation turbocharged, leading to a cost crunch affecting every home and business in the country.

“The retail industry has strived to adapt to this new world,” he added. “Retailers have worked hard to keep down shop prices for customers as best they can, against a sobering backdrop and economic and political turbulence.”

Lonsdale said the outlook for consumers was critical to the health of the economy, adding: “In many respects our economy lives or dies by what happens to consumer spending. Customers are benefitting from fierce competition amongst retailers and thankfully inflation is forecast to ease. That said, other pressures are putting a strain on household disposable incomes.

“Taxpayers on modest earnings will be relieved by the Scottish Government’s decision not to increase income tax rates next spring. However, the freezing of income tax thresholds and increased income tax rates for higher earners is likely to take a bite out of consumer spending at a time when retail sales are set to remain sluggish.”

In his message, Lonsdale concluded: “Despite the headwinds, there are grounds for cautious optimism. Retailers are a resilient bunch and are striving to become more customer focused, productive and fit for the future, no matter what policy makers throw their way. Following a year of profound ups and downs, Scottish retail is hoping for less of a white-knuckle ride over the coming 12 months.”