Industry leaders accuse Reeves and Labour of risking further pain for consumers as the government eyes new tax hikes.
Britain’s biggest supermarkets have issued a stark warning that food prices could rise even further if Chancellor Rachel Reeves presses ahead with tax increases in her upcoming Budget.
In a joint letter to the Treasury, bosses from Tesco, Asda, Sainsbury’s, Morrisons, Aldi, Lidl, Waitrose, Iceland and Marks & Spencer said that higher business taxes would make it “even more challenging” to keep prices down for shoppers already struggling with the cost of living.
“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. The executives cautioned that “high food inflation is likely to persist into 2026” and urged the government not to “prolong” the problem through new fiscal measures.
Reeves under pressure over Budget plans
The warning piles further pressure on Reeves, who is expected to announce another round of tax rises next month following a series of Labour U-turns on welfare spending and disappointing growth forecasts.
After imposing £40 billion in tax increases in her previous Budget last November, including a rise in employers’ National Insurance contributions, Reeves insisted at the time she was “not coming back” for more. But the Institute for Fiscal Studies (IFS) has since calculated a £22 billion shortfall in the public finances, suggesting that further tax hikes are “almost certain.”
Despite Labour’s election promises, Reeves last week refused to rule out raising income tax, sparking accusations that she may again break key pledges.
Supermarkets warn of ripple effects
The grocers’ letter focused on the government’s proposed business rates surtax on large commercial premises, which they argue would unfairly target major retailers. The measure would hit supermarkets particularly hard, as their larger sites fall above the £500,000 rateable value threshold.
Retailers say that although large outlets make up a small fraction of the sector, they already shoulder a third of retail’s total business rates. They urged the chancellor to “ensure that the proposed changes to business rates result in a significant reduction to the industry’s rates burden.”
Helen Dickinson, chief executive of the British Retail Consortium, said:
“Retailers 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.”
Tesco chief executive Ken Murphy was more blunt, previously declaring that “enough is enough” on business taxes. Tesco says the National Insurance rise alone has cost the company £235 million this year.
Even as some retailers, such as Lidl, have posted soaring profits, its pre-tax earnings tripled to £156.8 million, industry leaders argue that sustained tax increases will feed directly into consumer prices.
Treasury response
The Treasury insisted it remains focused on curbing inflation, claiming that business rates are being lowered for “butchers, bakers and other shops.” A spokesperson said the system “will continue to raise the same amount of revenue in real terms,” suggesting that if rateable values increase, the overall tax rate could fall.
However, critics say Labour’s approach risks compounding the very cost-of-living pressures the government claims to be addressing. Reeves has billed tackling inflation as her “top priority,” yet her own fiscal policies now face accusations of fuelling the fire.
With food staples such as butter up 19%, milk up 12%, and chocolate and coffee up 15% according to the Office for National Statistics, any further squeeze on supermarkets is likely to make life even tougher for households already feeling the pinch.
As one retail executive put it privately, “The chancellor talks about affordability, but every move she makes seems to make food less affordable.”
