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The leaders of the UK’s largest supermarket chains have cautioned that food prices may escalate once more if Chancellor Rachel Reeves raises taxes on the retail sector in her upcoming Budget.
In a collective letter to the Treasury, executives from Tesco, Sainsbury’s, Asda, Morrisons, Aldi, Lidl, Waitrose, M&S and Iceland indicated that families would “certainly feel the consequences” of any hike in business rates or other charges on the sector.
“Considering the expenses currently impacting the sector, including those from the previous Budget, elevated food inflation is expected to continue into 2026,” the letter asserted. “This is not a situation that we would wish to see extended by any means in the Budget.”
The supermarkets’ engagement arises amid speculation that Reeves will announce new tax initiatives to address a £22 billion gap in public finances, following the Office for Budget Responsibility’s reduction of growth predictions.
Specifically, retailers are worried about the government’s strategy for a “business rates surtax” imposed on large commercial properties — a decision anticipated to affect supermarkets and distribution centers the most.
Under the suggested modifications, smaller retailers and hospitality establishments with rateable values beneath £500,000 will enjoy lowered rates, while larger premises surpassing that limit — encompassing major retail outlets and warehouses — will confront higher expenses.
The British Retail Consortium (BRC), representing the nation’s largest grocers, stated that large stores make up only a minor proportion of retail locations yet account for roughly one-third of the industry’s total business rates.
BRC chief executive Helen Dickinson expressed: “Retailers are striving to keep food prices reasonable, but it’s a challenging endeavor with over £7 billion in extra expenses anticipated in 2025 alone. The most straightforward way to provide support would be ensuring business rates do not rise further.”
Reeves is facing one of the most daunting fiscal assessments of her administration 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 promised not to “return for additional tax increases.”
However, analysts from the Institute for Fiscal Studies (IFS) caution that slower growth, rising borrowing costs, and unbacked spending promises will nearly certainly necessitate further tax hikes.
The Chancellor has suggested that “those with the broadest shoulders should contribute their fair share,” but economists question whether targeted taxes on professional partnerships or affluent individuals can generate sufficient revenue without broader measures.
Food inflation, which peaked above 19 percent in 2023, has relaxed but remains significantly above pre-pandemic figures. The Office for National Statistics (ONS) reports that costs for essentials such as butter, milk, chocolate, and coffee have surged by between 12 and 19 percent year on year.
Retailers contend that additional fiscal strain could prolong high prices into 2026, particularly as the sector navigates global supply disruptions, disappointing harvests, and increasing wage expenses.
Tesco chief executive Ken Murphy recently stated that “enough is enough” regarding business taxation, revealing that escalated National Insurance contributions have already cost the company £235 million this year.
Despite these pressures, Tesco anticipates profits of up to £3.1 billion for the entire year, while Lidl reported its pre-tax profits more than tripling to £156.8 million in the year ending February.
A Treasury spokesperson indicated that addressing inflation “remains a priority” and underscored recent measures to reduce business rates for smaller retailers, including butchers, bakers, and high-street stores.
They added: “Business rates will be adjusted to reflect shifts in property values so that the system continues to generate the same amount of revenue in real terms. Even if a property’s valuation increases, its bill may still decrease if the tax rate is lowered.”
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