Britain’s leading supermarkets are ramping up pressure on Chancellor Rachel Reeves ahead of her Autumn Budget, warning that planned tax hikes could drive food prices even higher for millions of struggling households. The chief executives of Tesco, Asda, Sainsbury’s, Morrisons, Lidl, Aldi, Iceland, Waitrose, and Marks & Spencer have all signed a stark letter, coordinated by the British Retail Consortium (BRC), urging the government to reconsider imposing further tax burdens on the grocery sector.
The timing of their intervention is no accident. With the Chancellor’s Budget scheduled for November 2025 and speculation swirling about her tax and spending plans, the supermarket bosses are making their case clear: higher taxes, especially in the form of business rates reforms and a new surtax on large retail premises, will ultimately hit consumers hardest. As the BRC’s letter puts it, “our ability to deliver value for our customers will become even more challenging and it will be households who inevitably feel the impact.”
According to BBC, the supermarkets’ letter arrives as food price inflation continues to bite. The cost of staples like butter and milk has surged by 19% and 12% respectively, while chocolate and coffee have climbed by 15%, according to the Office for National Statistics. These increases are part of a broader inflationary trend that has kept the UK’s overall inflation rate at 3.8% over the past year, as reported by the Daily Mail.
Supermarket leaders argue that the sector is already under significant financial strain. Helen Dickinson, chief executive of the BRC, told The Independent, “Supermarkets are doing everything possible to keep food prices affordable, but it’s an uphill battle, with over £7 billion in additional costs in 2025 alone. From higher national insurance contributions to new packaging taxes, the financial strain on the industry is immense.”
The crux of the supermarkets’ concern is the government’s planned business rates surtax, which would apply to commercial properties with a rateable value over £500,000. While this move is intended to fund discounts for smaller high-street firms, supermarket bosses warn it will disproportionately affect large retailers. They point out that while large retail premises are a tiny proportion of all stores, they account for a third of retail’s total business rates bill. “Another significant rise could push food inflation even higher,” the letter warns.
As BBC explains, the new business rates changes are expected to come into force in April 2026, following confirmation in the Autumn Budget. Supermarkets are urging the Chancellor to ensure that these changes result in a significant reduction in the industry’s rates burden. “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,” said Dickinson.
The supermarkets’ plea comes amid a backdrop of gloomy economic forecasts. The influential Institute for Fiscal Studies (IFS) has calculated a £22 billion shortfall in the public finances, suggesting that Reeves will “almost certainly” have to raise taxes. The think tank cites rising government borrowing costs, weaker growth forecasts, and recent spending commitments as reasons for the tight fiscal position.
Despite these pressures, the Chancellor has so far refused to rule out raising income tax, even after previously stating she was “not coming back” for more tax hikes. Reeves has maintained that tackling the cost of living is a priority and that she is planning “targeted action to deal with cost of living challenges” in her Budget, according to BBC.
Supermarket executives are not mincing their words about the impact of rising costs. Tesco CEO Ken Murphy has described tax hikes as “an additional burden on the industry,” while Asda chairman Allan Leighton has called on the Chancellor to stop “taxing everything,” as reported by the Daily Mail. The letter from the nine major grocers, organized by the BRC, states: “Given the costs currently falling on the industry, including from the last Budget, high food inflation is likely to persist into 2026. This is not something that we would want to see prolonged by any measure in the Budget.”
The sector’s annual costs have jumped by £7 billion, largely due to increases in National Insurance contributions and the minimum wage after last year’s Budget. High energy and ingredient costs, as well as a packaging tax, have also played a role in driving up prices, manufacturers say. Supermarkets stress that the UK grocery market is highly competitive, with profit margins well below those found in other industries, despite some chains posting robust profits. For instance, Tesco expects to make between £2.9 billion and £3.1 billion in profits for 2025, and Lidl reported a threefold increase in pre-tax profits to £156.8 million in the year to February 2025.
However, supermarket bosses insist these headline figures do not tell the full story. “The UK grocery market is highly competitive, with narrow profit margins that are well below those found in other industries,” the letter emphasizes. The BRC and its member supermarkets argue that the ability to absorb additional costs is diminishing, and any new taxes will inevitably be passed on to consumers in the form of higher prices.
External factors are also exacerbating the situation. Food price inflation has been fueled not just by domestic policy but by global events: poor harvests, disease, droughts, and escalating trade tensions have all contributed to higher costs for grocers and, ultimately, for shoppers.
In response to the supermarkets’ concerns, the Treasury told BBC that business rates would be adjusted to reflect changes in the overall value of the tax base, ensuring the system continues to raise the same amount of revenue in real terms. “If the total value of rateable properties increases, the tax rate will generally fall,” the Treasury stated. “This means that even if a specific property’s RV goes up, its bill could still decrease if the reduction in the tax rate is large enough to offset the increase in value.”
Yet, for supermarket bosses, these assurances are cold comfort. They remain adamant that further tax hikes would be counterproductive, prolonging high food inflation and squeezing household budgets even more. The letter concludes by asking Reeves to “address retail’s disproportionate tax burden,” which it says would “send a strong signal of support for the industry and of the Government’s commitment to tackling food inflation.”
As the Chancellor prepares to deliver her Autumn Budget, the message from Britain’s supermarket giants is unmistakable: any move to increase the tax burden on grocers risks pushing food prices higher at a time when many families can least afford it. With inflation still stubbornly high and economic uncertainty on the horizon, the stakes for both retailers and consumers could hardly be greater.
