Supermarkets warn tax rises could drive food prices higher

The bosses of the UK’s biggest supermarket chains have warned that food prices could rise again if Chancellor Rachel Reeves increases taxes on the retail sector in her forthcoming Budget.

In a joint letter to the Treasury, executives from Tesco, Sainsbury’s, Asda, Morrisons, Aldi, Lidl, Waitrose, M&S and Iceland cautioned that households would “inevitably feel the impact” of any increase in business rates or other levies on the industry.

“Given the costs currently falling on the industry, including from the last Budget, high food inflation is likely to persist into 2026,” the letter stated. “This is not something that we would want to see prolonged by any measure in the Budget.”

The supermarkets’ intervention comes amid speculation that Reeves will unveil new tax measures to plug a £22 billion shortfall in the public finances, following the Office for Budget Responsibility’s downgrade of growth forecasts.

In particular, retailers are concerned about the government’s plans for a “business rates surtax” on large commercial properties — a move expected to hit supermarkets and distribution hubs hardest.

Under the proposed changes, smaller shops and hospitality venues with rateable values below £500,000 will benefit from lower rates, while large premises above that threshold — including major retail stores and warehouses — will face higher bills.

The British Retail Consortium (BRC), representing the country’s largest grocers, said large stores account for only a small share of retail locations but contribute around one-third of the sector’s total business rates.

BRC chief executive Helen Dickinson said: “Retailers are doing everything possible to keep food prices affordable, but it’s an uphill battle with more than £7 billion in additional costs expected in 2025 alone. The simplest way to help would be to ensure business rates don’t rise further.”

Reeves is facing one of the toughest fiscal tests of her tenure ahead of the Autumn Budget on 26 November. Following last year’s £40 billion tax package — which included an increase in employer National Insurance contributions — she pledged not to “come back for more tax rises.”

However, analysts at the Institute for Fiscal Studies (IFS) warn that weaker growth, rising borrowing costs and unfunded spending pledges will almost certainly require further tax increases.

The Chancellor has hinted that “those with the broadest shoulders should pay their fair share”, but economists question whether targeted taxes on professional partnerships or the wealthy can raise sufficient funds without broader measures.

Food inflation, which peaked above 19 per cent in 2023, has eased but remains well above pre-pandemic levels. The Office for National Statistics (ONS) reports that prices for staples such as butter, milk, chocolate and coffee have risen by between 12 and 19 per cent year on year.

Retailers argue that additional fiscal pressure could extend high prices into 2026, particularly as the sector grapples with global supply shocks, poor harvests, and rising wage costs.

Tesco chief executive Ken Murphy said recently that “enough is enough” on business taxation, revealing that higher National Insurance contributions have already cost the company £235 million this year.

Despite those pressures, Tesco expects profits of up to £3.1 billion for the full year, while Lidl reported its pre-tax profits more than tripled to £156.8 million in the year to February.

A Treasury spokesperson said that tackling inflation “remains a priority” and highlighted recent measures to cut business rates for smaller retailers, including butchers, bakers and high-street shops.

They added: “Business rates will be adjusted to reflect changes in property values so that the system continues to raise the same amount of revenue in real terms. Even if a property’s valuation rises, its bill may still fall if the tax rate is lowered.”

Read more:
Supermarkets warn tax rises could drive food prices higher