Key facts
- Major UK grocery chains have jointly warned Prime Minister Rishi Sunak about potential tax hikes.
- Retailers argue that proposed tax increases, including business rate surcharges, risk escalating food prices further into 2026.
- The companies state that new taxes would reduce their capacity to offer affordable prices and put pressure on household budgets.
- The Treasury has indicated its priority is tackling food inflation but has not signaled relief for large supermarkets.
- The British Retail Consortium estimates that imposing business rate surtaxes on approximately 4,000 large shops could push inflation above 5% into the following year.
Leading UK grocery chains have collectively warned Prime Minister Rishi Sunak that proposed tax increases could exacerbate food inflation, potentially pushing prices higher into 2026 and straining household budgets.
In a letter ahead of Chancellor Rachel Reeves’ Autumn Budget, chief executives from major retailers including Tesco, Asda, Sainsbury’s, Morrisons, Lidl, Aldi, Iceland, Waitrose, and M&S expressed concern that additional taxes, such as hikes in business rates, would limit their ability to offer competitive pricing. They argue that such fiscal burdens would ultimately lead to higher inflation for consumers.
The Treasury has stated that addressing food price inflation is a priority and has introduced measures to lower business rates for smaller shops. However, no relief has been indicated for larger supermarkets, which face potential new surtaxes on their business rates.
The British Retail Consortium (BRC) warned that imposing business rate surtaxes on approximately 4,000 large retail premises could trigger inflation exceeding 5% well into the following year, adding to the existing cost-of-living pressures on consumers.
Data from the Office for National Statistics indicates significant price surges for essential food items, with butter up 19%, milk over 12%, and chocolate and coffee around 15%. Retailers attribute these increases to external factors like poor harvests and trade tensions, compounded by rising operational costs.
Industry leaders estimate that higher taxes, increased minimum wages, and other regulatory costs have added about £7 billion in expenses for 2025 alone, making it challenging to maintain current prices. Tesco, for instance, reported a £235 million impact from the rise in National Insurance contributions but has still upgraded its profit outlook, citing market share gains.
Ocado’s CEO, Tim Steiner, echoed these concerns, stating that further tax rises would almost certainly lead to price increases across stores, noting the combined effect of taxation and rising labor costs.
Chancellor Reeves faces a significant fiscal challenge, with analysts at the Institute for Fiscal Studies (IFS) estimating a £22 billion shortfall. This situation suggests that further tax increases may be unavoidable due to rising government borrowing costs and weaker growth forecasts.