Britain’s biggest supermarkets have issued a stark warning to Chancellor Rachel Reeves that a new business rates surtax could push food prices even higher, intensifying the squeeze on household budgets already struggling with the cost of living. In a coordinated move, senior executives from Tesco, Sainsbury’s, Marks & Spencer, Waitrose, Morrisons, Asda, Aldi, Lidl, and Iceland signed a joint letter urging the government to exempt large retail premises from the proposed surcharge, which they say would unfairly burden their sector and risk prolonging food inflation into 2026.
The letter, organized by the British Retail Consortium (BRC), was delivered as speculation mounts over Reeves’s upcoming Autumn Budget. The government is widely expected to introduce a business rates surtax on commercial properties with rateable values above £500,000, a measure set to take effect from April 2026. While smaller high street businesses such as butchers and bakers are expected to benefit from reduced business rates, supermarkets fear they will be left to shoulder a disproportionate share of the tax burden.
“If the industry faces higher taxes in the coming Budget – such as being included in the new surtax on business rates – 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 reads, as reported by Sky News and the BBC. “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 supermarkets’ collective message is clear: large retail premises are a tiny proportion of all stores, yet they already account for a third of the retail sector’s total business rates bill. “Another significant rise could push food inflation even higher,” the bosses warn. The BRC’s chief executive, Helen Dickinson, emphasized the mounting pressures, stating, “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 timing of the letter is no accident. With the Chancellor’s Budget just weeks away, the retail industry is seeking to influence policy at a critical moment. According to the BBC, Rachel Reeves is widely expected to raise taxes following bleak economic forecasts and a string of reversals on welfare cuts that have made it more difficult for her to meet her self-imposed borrowing rules. The influential Institute for Fiscal Studies has estimated a £22 billion shortfall in the public finances, suggesting Reeves will “almost certainly” have to find new sources of revenue.
But supermarket leaders argue that targeting their sector would have unintended consequences for ordinary families. Food inflation, which has already forced up the price of staples such as butter, milk, chocolate, and coffee by double-digit percentages over the past year, remains stubbornly high. According to the Office for National Statistics, butter prices are up 19%, milk over 12%, and chocolate and coffee by 15%. As Express reported, the International Monetary Fund estimates the UK will have the highest inflation in the G7 in both 2025 and 2026, a worrying prospect for millions of households.
The letter from supermarket bosses stresses that their “ability to absorb additional costs is diminishing” and that “six out of ten UK households have seen a drop in weekly disposable income.” The signatories argue that “large retail stores sustain nearly one million British jobs and already contribute a third of all retail’s business rates, despite being a tiny proportion of all stores.” They urge the Chancellor to “address retail’s disproportionate tax burden,” saying that doing so would “send a strong signal of support for the industry and of the government’s commitment to tackling food inflation.”
Despite these concerns, the Treasury has maintained that tackling food price inflation is a priority. A spokesperson told Express, “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 Treasury further explained, as reported by the BBC, that business rates would be adjusted to reflect changes in the overall value of the tax base, so 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, meaning that even if a specific property’s rateable value goes up, its bill could still decrease if the reduction in the tax rate is large enough to offset the increase in value.
Still, retailers remain unconvinced. Tesco, the UK’s largest supermarket, reported that the higher National Insurance rate had cost it £235 million this year, though it has upgraded its earnings outlook for the year, forecasting full-year profits of between £2.9 billion and £3.1 billion. Meanwhile, Lidl revealed its pre-tax profits tripled to £156.8 million for the year ending February 28, 2025, with sales increasing by 7.9%. These robust financial results, however, have not softened the industry’s stance on the proposed surtax, as they argue that ongoing and future costs threaten their ability to keep prices in check for consumers.
The debate has also become political. Shadow Chancellor Sir Mel Stride criticized the government’s tax rises, claiming they are fueling inflation and driving up the cost of living. “When even supermarkets – fighting to keep prices down for millions – are saying the Chancellor’s decisions are pushing costs higher, it’s clear Labour has lost control,” he said, as quoted by Express. He pointed to the government’s business rates reforms, arguing that a Conservative government would lift thousands of shops out of business rates altogether.
In the face of these competing pressures, the Chancellor has signaled a focus on “targeted action to deal with cost of living challenges” in her upcoming Budget, though she has refused to rule out raising income tax, according to the BBC. The government insists that its deal with the European Union will help make food cheaper, and recent figures show that food inflation decreased from 5.1% in August 2025 to 4.5% in September 2025 – the first fall since March. Nevertheless, supermarket leaders say that unless their sector is shielded from further tax hikes, households will continue to feel the pinch well into next year and beyond.
As the Budget approaches, all eyes will be on whether the Chancellor heeds the industry’s warnings or presses ahead with the new surtax. For now, Britain’s grocers and their customers are bracing for a decision that could shape the price of food – and the cost of living – for months to come.
