Britain's inflation fight at risk as Reeves faces warnings on business rates ahead of budget

LONDON — Britain's war on inflation faces a fresh challenge as retailers warn ahead of the budget that Labour’s plan to tax larger shops could lift food prices for millions of households. The British Retail Consortium said Chancellor Rachel Reeves risks losing the fight against inflation if she presses ahead with higher business rates on around 4,000 premises, including supermarkets.

Inflation remains stubborn, with the latest figures showing 3.8% year over year, the highest among G7 economies and more than twice the pace seen when Labour first raised taxes in October. Food inflation has climbed to about 5.1% in September, up from 4.9% the prior month, underscoring renewed worries about cost of living pressures. The plan to shift taxes onto larger premises would: by design, raise rates on warehouses used by online retailers and large stores while offering relief to smaller shops. Retailers say the policy could, in effect, pass higher costs onto consumers and erode any gains in inflation reduction.

The Government’s plan, as described by Labour, aims to level the playing field between High Street retailers and online rivals by reforming the business rates system. Labour would lower rates for smaller shops by imposing higher taxes on larger premises, including warehouses used by e-commerce giants such as Amazon. But the BRC argues that removing anchor stores from the surcharge would avoid adding further costs to businesses and would help avoid higher prices for shoppers. Helen Dickinson, the BRC’s chief executive, said the biggest risk to food prices would be to include large shops, including supermarkets, in the surtax on large properties, warning it would be “robbing Peter to pay Paul” by raising input costs that would be passed to customers.

Separately, the Food and Drink Federation joined the warnings that inflation in the sector could approach 6% this year as tax and regulation push up prices. The group said the Government must shield food and drink businesses from further cost pressures in the Budget. Labour has argued that reforming the rates system is needed to keep online and physical retailers on a level playing field, and to reduce the incentive for large online-only operations that could erode town centres. Economists have been warning about living standards as inflation remains elevated, and Reeves’ acknowledgement that “families are finding it tough” has added to the sense of urgency around policy choices.

An Opinium survey of 2,000 people conducted for the BRC found that the public’s top concern was prices rising faster than wages, with 57% agreeing. Retailers have faced roughly £7 billion in cost increases over the past year due to higher National Insurance Contributions, wage costs and packaging taxes. Firms also anticipate costs from Labour’s upcoming workers’ rights proposals, which could add to the cost pressures already weighing on retailers.

With the Budget scheduled for November 26, industry leaders worry about the timing and its impact on consumer spending in the run-up to Christmas. Several supermarket executives have publicly urged the Chancellor to avoid imposing further costs. Aldi UK chief executive Giles Hurley said higher taxes should be “considered very carefully,” underscoring the tension between fiscal consolidation and price stability for households.

The clash over business rates comes as Labour seeks to demonstrate a plan to boost high-street competition and protect consumers from persistent price pressures, while critics warn that some policy choices could inadvertently push inflation higher. As the budget approaches, the immediate question remains whether Reeves can balance reforming the tax system with the fierce low-and-middle-income price pressures that have defined the inflation landscape for more than a year.