Supermarkets ask Chancellor to ‘increase inflation’

Friday 24 October 2025 23:59
| Updated:

Friday 24 October 2025 18:37

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Britain’s biggest supermarkets have asked Rachel Reeves to exclude all stores from upcoming changes to business rates, warning that any rise in input costs would further fuel food inflation that is already at double the Bank of England’s target.

In an open letter to the Chancellor, the heads of nine of the UK’s biggest supermarkets warned of the “disproportionate tax burden” retailers face, and added that without exemptions from the business rates overhaul, shoppers would continue to face big price rises into next year.

“Given the losses the industry is currently experiencing, including from the last Budget, high food inflation is likely to continue into 2026,” the executives wrote. “This is not something we want to extend by any measure in the Budget. Large retail locations make up only a small proportion of all shops, but account for a third of the total retail business rates bill meaning another significant rise could push food inflation even higher.”

The government’s £25 billion in tax breaks and higher-than-inflation national insurance increases have combined with several food shortages to cause food inflation to reach double the World Bank’s target of two percent for several months. The introduction of a new tax on packaging – known as the Extended Producer Responsibility levy – has added to rising input costs for the sector, which the British Retail Consortium (BRC) estimates will cost retailers £7 billion this year.

Although food price increases have eased from a high of more than five percent in official data last week, the International Monetary Fund (IMF) expects Britain to experience the highest overall inflation of any major country next year.

Reeves is expected to avoid inflationary tax increases

The Treasury is expected to avoid inflationary tax increases in next month’s Budget – such as VAT or a repeat of the national insurance policy – ​​to avoid further price increases for consumers. But they are likely to follow through on long-planned changes to business rates – the equivalent of the council tax that companies pay to cash-strapped local authorities – which economists say will raise prices by adding to business costs.

Under the plan, which will come into force in April next year, small retailers and hospitality businesses will benefit from lower tax rates to ease the burden on independent companies. But to cover the fiscal shortfall, large retailers with sites worth more than £500,000 will face a higher bill known as business rates surtax.

In a letter organized by the BRC, bigwigs from the likes of Tesco, Lidl and Morrisons warned that without similar policies given to supermarkets as those given to small businesses, prices at the till will only rise faster next year.

“While we are pleased the government is committed to supporting smaller retail properties – it is equally important that big box stores are exempt from the proposed business rates surtax for buildings with an assessable value of £500,000 or more,” wrote the signatories, which also include the chief executives of Sainsbury’s, Aldi and Iceland, as well as other bosses from Waitrose and Marks & Spencer.

“It is these locations that support hundreds of thousands of jobs, provide valuable services that local communities may not have access to, and encourage the influx of local small businesses.”

Pre-budget lobbying increases

The letter is the latest evidence of growing unease among British companies ahead of the Chancellor’s second major fiscal event, where he is expected to have to plug a shortfall of around £30 billion to meet his fiscal rules.

Reeves has widely hinted that the Treasury will target revenue generated from highly profitable bookmakers and online casinos, which some gambling bosses have warned would lead to a series of shop closures and layoffs.

The specter of a windfall tax on bank profits has also been mooted, which Charlie Nunn, Lloyds chief executive, said would hurt the number of loans lenders approve for households and businesses.

Meanwhile, others in the retail industry worry that any attempt to fill Treasury coffers through rumors of an increase in the basic rate of income tax, will dampen consumer confidence at a time when confidence is already fragile.

Roy Horgan, chief executive of Paris-listed retail technology giant Vusion in the UK and Ireland, said AM City that the retailer was “very much in tune” with customer sentiment through November 26.

“They’re very concerned that any policy that hurts consumers more will have an impact,” he said. “They will reduce their spending and consumption again, and this is a prediction that is coming true.”

Helen Dickinson, chief executive of the BRC said: “Supermarkets are doing everything they can to keep food prices affordable, but it’s an uphill battle, with additional costs of more than £7 billion by 2025 alone. From higher National Insurance contributions to new packaging taxes, the financial pressures on the industry are enormous.”

A Treasury spokesperson said: “Tackling food inflation is a priority, which is why we are increasing incomes through increasing the National Living Wage, lowering the business rates of butchers, bakeries and other shops, and sticking to our fiscal rules to lower inflation.”