Shops face their greatest difficulties since the financial crisis following Labour’s tax increases

Retail Sector Faces Unprecedented Challenges

Retailers experienced their most difficult December in years, with performance hitting its lowest point since 2018, according to data from the British Retail Consortium.

High Street Under Pressure

The retail industry is facing its toughest period since the global financial crisis, as recent tax hikes and increases in the minimum wage introduced by Labour have intensified the strain.

Rising Distress Among Retailers

The latest Weil European Distress Index, published on Wednesday, showed that financial stress among retailers and consumer goods companies surged to its highest level since 2009 last month.

This distress is assessed by analyzing company profits, cash flow, and investment activity. Currently, retail is the most troubled sector in Europe, followed by infrastructure and heavy industry.

Impact of Government Policies

Labour’s recent tax measures have raised concerns about further accelerating the decline of the high street. According to restructuring specialists at Weil, Rachel Reeves’s new tax policies and changes to the minimum wage are expected to put additional pressure on businesses this year.

Experts also noted that government actions have done little to boost business confidence, leaving companies hesitant to invest.

In the last quarter of 2025, the UK ranked as the third most distressed market in Europe, trailing only Germany and France.

Weil attributed the widespread difficulties facing retailers across Europe to weak consumer demand, ongoing cost increases, and tighter household budgets, all of which are eroding profit margins.

Financial Strain Intensifies

Last week, Claire’s Accessories became the first UK retailer this year to begin insolvency proceedings, marking its second brush with collapse in just six months.

Modella, the company’s owner, cited a combination of extremely low consumer confidence, unfavorable government fiscal policies, and persistent cost inflation as reasons for seeking administration.

Retailers have also been hit by a surge in staffing expenses, following last year’s National Insurance hike, a rise in the minimum wage, and new packaging taxes introduced by Labour. According to the British Retail Consortium, these changes pushed costs up by £7 billion last year.

These rising expenses have coincided with a period when consumers are cutting back on their spending.

Sales Slump During Holiday Season

Retailers endured their weakest December since 2018, as reported by the BRC. Sales increased by just 1.2% during the five weeks leading up to January 3, a significant drop from the 3.2% growth seen in 2024.

The BRC also noted that demand for traditional Christmas gifts—including board games, chocolates, and candles—fell short of expectations in the lead-up to the holiday.

Future Outlook

Weil cautioned that the Chancellor’s decision to extend the freeze on income tax thresholds until 2031 will likely reduce consumer spending power in the years ahead, with millions expected to move into higher tax brackets.