International

Supermarket giants warn tax hikes could escalate food inflation into 2026

Sunday, 26 October 2025 1:08AM UTC

Leading UK grocery chains have united to warn that proposed tax rises, including business rate surcharges, risk inflating food prices further into 2026, putting extra pressure on household budgets amid ongoing inflation and economic uncertainties.

Supermarket leaders in the UK have issued a collective warning that proposed tax increases could exacerbate the already significant rise in food prices, adding further pressure on households. Ahead of Chancellor Rachel Reeves' Autumn Budget, the chief executives of major grocery chains including Tesco, Asda, Sainsbury’s, Morrisons, Lidl, Aldi, Iceland, Waitrose, and M&S signed a letter expressing concern that additional taxes, such as hikes in business rates, would reduce the retailers' ability to provide affordable prices and lead to higher inflation that consumers would ultimately bear. The letter highlights that food inflation, already elevated due to previous cost pressures, is likely to persist into 2026 if the sector faces new fiscal burdens.

The Treasury has responded by stating that tackling food price inflation remains a priority and has announced measures to lower business rates for smaller shops like butchers and bakers, but it has not indicated relief for larger supermarkets. This leaves large retail premises, which contribute heavily to total business rates, facing potential new surtaxes that industry representatives warn could push food prices even higher. The British Retail Consortium (BRC) has emphasised the risk that imposing business rates surtaxes on around 4,000 large shops could trigger inflation exceeding 5% well into next year, compounding the strain on consumers already grappling with rising living costs.

According to data from the Office for National Statistics and other sources, the cost of essential food items has surged sharply. Butter prices have risen by 19%, milk by over 12%, and chocolate and coffee by around 15%. External pressures such as poor global harvests, droughts, diseases affecting crop yields, and escalating trade tensions have intensified the inflationary environment. Industry leaders add that the impact of higher taxes, rising minimum wages, and other regulatory costs have contributed approximately £7 billion in additional expenses for 2025 alone, making it increasingly difficult to keep prices down.

Retailers have highlighted how recent tax increases have already affected their operations and pricing strategies. Tesco, for example, reported a significant £235 million hit from the rise in National Insurance contributions but has nonetheless upgraded its profit outlook, citing increased market share amid changing consumer behaviours. Tesco’s CEO, Ken Murphy, who has remarked that "enough is enough" regarding business taxes, noted enduring shifts in shopping habits stemming from the cost-of-living crisis in 2022, where more consumers continue to prioritise home dining, benefiting grocery retailers like Tesco and enabling growth in premium product sales.

Others in the sector have voiced similar concerns. Ocado’s CEO, Tim Steiner, has stated that further tax rises are almost certain to drive price increases across stores, highlighting the compounded effect of increased labour costs and taxation on food production, distribution, and retailing. Such views underscore the challenge retailers face in balancing cost pressures with the need to remain competitive and support consumers.

Despite the warnings from the retail sector, Chancellor Reeves has indicated a difficult fiscal balancing act ahead. Following a previous Budget that raised taxes by £40 billion—including higher employer National Insurance rates—she said she did not intend to raise taxes again. However, analysts at the Institute for Fiscal Studies (IFS) suggest a fiscal shortfall of £22 billion means further tax increases are almost unavoidable, driven by rising government borrowing costs, weaker growth forecasts, and additional spending commitments since spring. The chancellor has promised "targeted action" to address cost-of-living challenges but has not ruled out revisiting income tax policies despite earlier pledges.

In summary, the supermarket industry’s united front highlights the risks of further taxation on food prices at a time when inflation remains stubbornly high and consumer finances are under strain. With grocery inflation rising to 5.2% in early October 2025, retailers warn that any escalation in business rates or tax burdens could prolong and deepen the impact on household budgets, creating a tough environment both for consumers and businesses in the lead-up to the Budget announcement.

📌 Reference Map:

Paragraph 1 – ^[1] (BBC News), ^[2] (ITV News), ^[3] (Evening Standard)
Paragraph 2 – ^[1] (BBC News), ^[2] (ITV News), ^[3] (Evening Standard)
Paragraph 3 – ^[1] (BBC News), ^[4] (Reuters)
Paragraph 4 – ^[1] (BBC News), ^[5] (Grocery Gazette), ^[7] (Grocery Gazette)
Paragraph 5 – ^[1] (BBC News), ^[6] (Reuters)
Paragraph 6 – ^[7] (Grocery Gazette), ^[5] (Grocery Gazette)
Paragraph 7 – ^[1] (BBC News), ^[3] (Evening Standard), ^[5] (Grocery Gazette)
Paragraph 8 – ^[1] (BBC News), ^[4] (Reuters), ^[2] (ITV News)

Source: Noah Wire Services

More on this

https://www.bbc.com/news/articles/c620gy43pe4o - Please view link - unable to able to access data
https://www.itv.com/news/2025-10-25/uk-supermarkets-warn-business-rates-rise-could-push-up-food-inflation - UK's leading supermarkets, including Tesco, Sainsbury's, and Aldi, have urged Chancellor Rachel Reeves to exempt large retail premises from a new business rates surtax. They warn that such a tax could lead to higher food inflation, as large stores contribute significantly to the retail sector's total business rates bill. The British Retail Consortium (BRC) expressed concern that including large shops in the surtax could result in price increases for consumers. The new surtax is expected to be confirmed in the upcoming autumn Budget and implemented from next April.
https://www.standard.co.uk/business/business-news/budget-government-ons-paul-peter-b1249126.html - The British Retail Consortium (BRC) has cautioned that food inflation could remain above 5% well into next year if the retail industry faces further tax increases in the upcoming autumn Budget. The BRC is concerned that around 4,000 large shops could see their business rates rise if included in the Government’s new surtax for properties with a rateable value over £500,000, potentially leading to price rises for consumers. A recent survey by the BRC found that 57% of respondents are most concerned about prices rising faster than wages.
https://www.reuters.com/business/retail-consumer/uk-grocery-inflation-rises-52-says-worldpanel-2025-10-14/ - UK grocery inflation has accelerated to 5.2% as of early October 2025, up from 4.9% the previous month, according to data from Worldpanel by Numerator. This rise adds to the financial strain on consumers already coping with high energy bills. Prices are climbing fastest in categories like chocolate, meat, and coffee, while items like household paper, sugar confectionery, and sparkling wine have seen price declines. Retailers cite factors such as higher taxes, regulatory expenses, and wage increases as key drivers of inflation.
https://www.grocerygazette.co.uk/2025/07/31/retailers-warm-further-tax-increases-will-push-inflation-and-job-cuts/ - Retailers have warned that the business rates hike in the next Budget may force them to raise prices, pause hiring, and lay off employees, according to new figures from the British Retail Consortium (BRC). Almost nine-in-ten (85%) of chief financial executives claimed the last Budget’s increase in national insurance fees and minimum living wage forced them to raise prices. Additionally, retail bosses expect the situation to worsen, with 65% projecting further price increases in the upcoming year. The BRC predicted that food inflation will jump from 4% in July to around 6% by the end of the year.
https://www.reuters.com/world/uk/britons-cost-of-living-crisis-habits-have-stuck-says-tesco-boss-2025-10-02/ - Tesco CEO Ken Murphy stated that British consumer habits established during the 2022 cost-of-living crisis have persisted, with more people continuing to dine at home. This shift has benefited Tesco, which saw its grocery market share rise to 28.4%, and experienced a 16% year-on-year sales increase in its premium 'Finest' range for the first half of 2025. Murphy attributed the trend to a combination of factors, including residual changes from the COVID-19 pandemic, the popularity of home entertainment, and financial prudence.
https://www.grocerygazette.co.uk/2025/07/21/ocado-ceo-blames-new-tax-rises-for-inflation/ - Ocado’s chief executive, Tim Steiner, stated that the newly proposed budget from Chancellor Rachel Reeves would lead to price increases in stores. He stated that the budget may lead to higher costs, and it will be 'unrealistic' for the new plan not to spike the costs of food. Steiner said: 'You can’t increase the cost of labour in food production and food distribution and food retailing in the way that we have, with national insurance increases and the minimum wage increases, and not expect to see prices move.'

Noah Fact Check Pro

The draft above was created using the information available at the time the story first emerged. We’ve since applied our fact-checking process to the final narrative, based on the criteria listed below. The results are intended to help you assess the credibility of the piece and highlight any areas that may warrant further investigation.

Freshness check

Score: 8

Notes: The narrative is recent, with the earliest known publication date being October 25, 2025. However, similar concerns about business rates and food inflation have been reported since August 2025, indicating that the topic has been in circulation for several months. ([retailgazette.co.uk](https://www.retailgazette.co.uk/blog/2025/08/supermarkets-at-risk/?utm_source=openai))

Quotes check

Score: 7

Notes: Direct quotes from industry leaders like Helen Dickinson and Ken Murphy have appeared in earlier reports, suggesting potential reuse of content. For instance, Dickinson's statement about the government's risk of losing the battle against inflation was reported in September 2025. ([gbnews.com](https://www.gbnews.com/money/inflation-rachel-reeves-food-prices-business-rates?utm_source=openai))

Source reliability

Score: 9

Notes: The narrative originates from reputable sources such as the BBC, ITV News, and The Standard, which are known for their journalistic standards and credibility. However, the BBC's website was inaccessible during the fact-checking process, limiting direct verification.

Plausability check

Score: 8

Notes: The claims about the impact of business rates on food inflation are plausible and align with previous reports. The British Retail Consortium has consistently highlighted concerns about tax increases affecting food prices since at least August 2025. ([retailgazette.co.uk](https://www.retailgazette.co.uk/blog/2025/08/supermarkets-at-risk/?utm_source=openai))

Overall assessment

Verdict (FAIL, OPEN, PASS): OPEN

Confidence (LOW, MEDIUM, HIGH): MEDIUM

Summary: While the narrative is recent and originates from reputable sources, the topic has been reported since August 2025, indicating potential recycled content. The reuse of direct quotes from industry leaders in earlier reports further suggests this. The BBC's website was inaccessible during the fact-checking process, limiting direct verification. Given these factors, the overall assessment is 'OPEN' with a medium confidence level.

Food inflation
UK supermarkets
Tax increases