Chancellor Rachel Reeves has floated her own proposal to bring in new, lower calculation bases to set rates. This amendment will only affect retail, hospitality, and leisure properties worth under £500,000. This adjustment is intended to give some relief to businesses dealing with escalating costs in an increasingly difficult economic environment. The Chancellor emphasized the need for “targeted action to deal with cost of living challenges” in her upcoming budget.
Reeves has faced scrutiny regarding potential income tax increases, raising concerns that she may be considering breaking a key Labour election pledge. On her last day of testimony she stated unequivocally, “I’m not returning” for additional tax hikes. Talk about the government’s long-term fiscal plan still goes on.
The British Retail Consortium (BRC), which represents the UK’s major supermarkets, expressed significant concern regarding the financial pressures on retailers. Helen Dickinson, chief executive of the BRC, indicated that retailers are “doing everything possible to keep food prices affordable,” but they face an uphill battle. Dickinson emphasized that retailers are set to face more than £7 billion in extra costs by 2025, mainly due to rising taxation.
In her November mini-budget, Reeves recently announced a dramatic £40 billion tax hike. At the centre of this plan is an increase in National Insurance Contributions for employers attached to funding increases. This legislation has already put a hurt on big box grocery retailers. Tesco has already announced a £235 million hit from the higher, new National Insurance rate in England and Wales this year alone.
Nonetheless, even in the face of such obstacles, Tesco surprised many when it raised its earnings guidance recently, predicting full-year profits of £2.9 billion to £3.1 billion. As of its most recent fiscal quarter, the supermarket chain had experienced a healthy 7.9% same-store sales bump. For the year ending February 28, pre-tax profits skyrocketed to £156.8 million, up from £43.6 million last year.
Yet it’s rapidly increasing prices on staples foods that concern consumers and retail executives. Data from the UK’s Office for National Statistics show that the prices of basic, essential food items have skyrocketed. Butter has spiked by 19%, milk has shot up by more than 12%, and both chocolate and coffee have hiked by 15%. The need for these price increases highlights the issue of food inflation, which Dickinson mentioned is still persistently high.
The Chancellor is due to announce the new rates businesses will be paying in next month’s Budget. These changes are scheduled to begin in April of 2026. Additionally, firms with properties worth £500,000 or over will pay increased rates under the proposed plan. The government hopes that this policy will focus primarily on large distribution warehouses, like those used by online retailers such as Amazon.
The Treasury pointed out that since the total value of all rateable properties is growing, the tax rate could potentially go down as the overall value goes up. Or a particular private property’s rateable value could increase. If instead the tax rate was to go down a lot—even by half—the tax bill would still end up going down.
“Ultimately, what businesses pay after a revaluation depends on both the new RVs and the adjusted tax rate.” – The Treasury
Supermarket heads have spoken out against impacts of increased operational costs on prices paid by consumers. They warned that their ability to deliver value would become increasingly difficult under these conditions, ultimately impacting households.
“Given the costs currently falling on the industry, including from the last Budget, high food inflation is likely to persist into 2026,” – Supermarket bosses (Tesco, Asda, Sainsbury’s, Morrisons, Lidl, Aldi, Iceland, Waitrose, and M&S)
How the government translates these priorities into action in the first budget will be watched closely by all industry stakeholders. Supermarket execs have made clear the last thing they want is a budget that adds to the financial squeeze they are already under.
“This is not something that we would want to see prolonged by any measure in the Budget.” – Supermarket bosses (Tesco, Asda, Sainsbury’s, Morrisons, Lidl, Aldi, Iceland, Waitrose, and M&S)
Discussions continue on proposals to change the tax code and their impact on the retail industry. Policymakers need to walk a fine line between fiscal duties and the growing, immediate demands of consumers and businesses on the ground.