Local retailers will be thinking hard about the impact of the government spending review announced last week. The first thing to note is that the government is not cutting spending at all.
In fact, as economist Roger Martin-Fagg points out, spending will continue to increase by 5 per cent over the next four years.
What may happen, if the economy grows, is that the proportion of the economy that is accounted for by government spending will contract from 47 per cent today to a level of 40 per cent at the same time. For the purpose of comparison, spending was at 37 per cent in 1997 when Labour came to power.
According to Mr Martin-Fagg, the current plans will cut spending in around 6 million houses with mortgages by £500 a year over the next four years.
On the other hand, if the government did not constrain spending, interest rates would need to rise by 1.5 per cent and that would cost the same householders £900 a year – nearly twice as much.
On this simple measure, the spending review must be good news for local shops.
But what will the big chains do? Retail expert and former Asda general manager Joe Cushnan says they are going to get more aggressive with their offers, carefully targeting specific activities or groups of people who they think have money to spend. They will tighten costs, affecting service standards and morale, he says. At the same time, he says they will look to sneak price rises through.
While Mr Cushnan says smaller retailers will feel the squeeze, there are two things you can do. Watch the multiples closely to see who they are targeting and make these people a better offer. Secondly, back your staff and service levels to demonstrate a point of difference.
