Supermarkets Warn of Food Price Hikes Amid Tax Increases

Concerns Over Rising Food Costs in the UK

The UK retail industry is sounding alarm bells regarding potential hikes in food prices if the chancellor decides to impose new taxes on supermarkets in the upcoming Budget 2025. Major supermarket leaders from chains such as Tesco, Asda, Sainsbury’s, and Morrisons have expressed their concerns in a formal letter addressed to Rachel Reeves, emphasizing that households would "inevitably feel the impact" of any tax increases on the sector.

Implications of Possible Tax Increases

In their joint correspondence, the supermarket executives warned that if the government implements higher taxes, such as an inclusion in the new surtax on business rates, it would significantly affect their capability to provide value to customers. They stated, "If the industry faces higher taxes in the coming budget, our ability to deliver value for our customers will become even more challenging, and it will be households who inevitably feel the impact.”

They also pointed out that the ongoing costs burdening the industry, exacerbated by the previous budget, could lead to persistent high food inflation, projecting that it may last through 2026. The letter reflects the industry’s desire to avoid prolonged inflation, which they believe would have adverse effects on consumers.

Mounting Pressure on the Chancellor

As the chancellor prepares for the budget announcement on 26 November, there is increasing pressure to raise taxes to address a shortfall in public finances. Supermarkets have already expressed grievances over previous budget impacts, particularly following Rachel Reeves’ announcement of a £25 billion increase in employer national insurance contributions and a 6.7% rise in the national living wage, effective from April this year.

The British Retail Consortium (BRC) has raised alarms that large retailers could face significantly higher business rates if they are included in the government’s new surtax for properties valued over £500,000. Helen Dickinson, the BRC’s chief executive, noted that exempting supermarkets from this surtax could help mitigate food inflation. She stated, "The chancellor has rightly made tackling inflation her top priority, and with food inflation stubbornly high, ensuring retail’s rates burden doesn’t rise further would be one of the simplest ways to help." Dickinson further emphasized that this exemption would not cost taxpayers anything, as larger office and industrial properties, which have a smaller proportion of their costs allocated to business rates, could contribute more instead.

Current Economic Landscape

Recent official data reveals that UK inflation remained steady last month at 3.8%, while annual food price inflation has decreased from 5.1% in August to 4.5% in September—the first decline in this rate since March. Despite this slight easing, the cumulative impact of rising prices means that grocery bills are significantly higher compared to previous years.

Industry Solidarity and Government Response

The letter, which garnered signatures from executives at Aldi, Lidl, Marks & Spencer, Waitrose, and Iceland, underscores the retail sector's call for addressing what they describe as a "disproportionate tax burden." They believe that alleviating this burden would send a powerful message of support for the industry and demonstrate the government’s commitment to combating food inflation.

A spokesperson for the Treasury responded, stating, "Tackling food inflation is a priority, which is why we’re boosting incomes through increasing the national living wage, lowering business rates for butchers, bakers, and other shops, and sticking to our fiscal rules to bring inflation down.” The government maintains that even if a property’s rateable value increases, the structure of the system allows for adjustments that would not overly burden the retail sector.

Conclusion: Navigating the Economic Challenges

The dialogue between the retail industry and the government highlights the intricate balance needed to navigate the UK cost of living crisis. As supermarkets brace for potential tax increases, the focus remains on ensuring that consumers are not unduly affected by rising food prices. The sector's leaders are advocating for support measures to stabilize the industry and maintain affordable grocery options for households across the country.