The heads of Britain’s largest supermarket chains have warned that any further tax increases on the retail sector could push food prices higher, adding to the strain on already struggling households. In a joint letter to Chancellor Rachel Reeves ahead of next month’s Autumn Budget, top executives from Tesco, Asda, Sainsbury’s, Morrisons, Lidl, Aldi, Iceland, Waitrose and Marks & Spencer said higher taxes would make it harder for them to keep prices affordable for consumers.
The grocers cautioned that the government’s plans to increase business rates or introduce new levies on large retail premises could have a direct knock-on effect on grocery bills. “Our ability to deliver value for our customers will become even more challenging, and it will be households who inevitably feel the impact,” the letter stated. They further warned that with high food inflation expected to persist into 2026 due to existing cost pressures, any new tax measures could worsen the situation.
Speculation has been mounting over Reeves’s fiscal strategy as she prepares her second Budget since taking office. Economic analysts expect her to raise taxes amid weak growth forecasts and a widening £22 billion shortfall in public finances, as estimated by the Institute for Fiscal Studies (IFS). The IFS attributed the gap to rising government borrowing costs, sluggish economic performance, and new spending commitments made earlier this year.
Although Reeves had previously pledged not to return for more tax hikes after introducing £40 billion worth of rises last November—including an increase in employers’ National Insurance contributions—her recent refusal to rule out changes to income tax has fuelled uncertainty. The Treasury, meanwhile, has maintained that tackling food price inflation remains a key priority and noted that it has already reduced business rates for small retailers such as butchers and bakers.
Supermarket leaders, however, argue that the new “business rates surtax” on large commercial properties unfairly penalises major retailers. Under the proposed reforms, stores and warehouses with rateable values above £500,000 would pay higher rates starting April 2026, while smaller shops would benefit from relief. The industry contends that although large retail sites represent only a small portion of total stores, they shoulder nearly one-third of the sector’s total business rates bill.
Helen Dickinson, chief executive of the British Retail Consortium, said the retail industry faces “over £7 billion in additional costs in 2025 alone,” including from higher taxes. “Retailers are doing everything possible to keep food prices affordable, but it’s an uphill battle,” she said. Tesco’s chief executive Ken Murphy echoed similar frustration, saying “enough is enough” on business taxes. Tesco reported that the higher National Insurance rate alone cost it £235 million this year, even as it raised its profit forecast to up to £3.1 billion.
Despite the broader cost pressures, discount chain Lidl revealed this week that its profits tripled in the past year, with pre-tax earnings rising to £156.8 million on the back of 7.9% sales growth. Yet, across the market, food prices continue to soar, with staples such as butter up 19%, milk over 12%, and chocolate and coffee about 15% higher than last year, according to the Office for National Statistics.
As households continue to grapple with high living costs, supermarket leaders are urging the Chancellor to avoid measures that could further squeeze consumers. “Ensuring that retail’s rates burden doesn’t rise further would be one of the simplest ways to help curb inflation,” Dickinson said. The Treasury, however, has insisted that any changes to business rates will be balanced to maintain stable revenue, suggesting that if property values rise, tax rates may be adjusted downward.
With Reeves facing competing pressures to control inflation, plug fiscal gaps, and deliver on Labour’s cost-of-living promises, next month’s Budget could set the tone for the political and economic year ahead — and determine just how much more Britons will pay at the till.
