UK retailers warn Budget risk to inflation as large-shop tax plan looms

Britain’s cost-of-living pressures could intensify as the autumn Budget approaches, with industry groups warning that a plan to raise business rates on large shops could keep inflation elevated and push food prices higher into next year.

Overall inflation remains stubborn, running at 3.8% in the latest official figures—the highest among the G7 major economies—while food inflation has topped 5% for the first time in about 18 months, reinforcing fears that households will face a tougher winter. The Bank of England held its bank rate at 4% last week amid concerns that rising food prices are feeding through to the headline measure.

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Retailers and their trade groups say the government’s plan to reform the business rates system—lowering taxes for smaller shops while widening charges on larger premises, including warehouses used by online platforms—could inadvertently lift prices at the till. The British Retail Consortium, which represents major chains such as Tesco and Asda, argues that hitting about 4,000 large shops with higher rates risks “losing the battle against inflation” if the policy passes into law.

The chancellor has signaled a broad strategy to level the playing field between high street stores and online rivals, by compressing rates for smaller retailers and shifting more of the burden onto large commercial properties. The Treasury contends the plan would support the high street and help retailers manage cost pressures in a climate where inflation remains above target. However, the BRC’s chief executive, Helen Dickinson, warned that the plan must avoid including large shops within the new surcharge if lawmakers want to keep prices contained. “What we’ve seen is food inflation really tipping up over the course of the last year,” Dickinson said on BBC Radio 4’s Today programme, noting food inflation rose from 1.3% in August 2024 to 5.1% in the latest figures.

That view is echoed by the Food and Drink Federation, which cautions that inflation in the sector could approach 6% this year as the tax and regulatory burden feeds through to shopper prices. Economists have warned that persistent inflation threatens living standards, and retailers cite rising costs from National Insurance contributions and packaging taxes introduced in the last Budget as well as anticipated costs from Labour’s workers’ rights agenda.

The government faces a delicate balance ahead of the Budget scheduled for November 26, with retailers anxious that any additional costs could dampen consumer spending during the crucial Christmas period. Aldi UK chief executive Giles Hurley has urged policymakers to consider the broader impact of tax changes on the sector, saying higher taxes “should be considered very carefully.”

Industry surveys reflect the pressure on households: an Opinium poll commissioned by the BRC found that the majority of respondents were most concerned about prices rising faster than wages over the year ahead, underscoring the sensitivity of shoppers to any policy that could push prices higher.

As the debate over business rates continues, analysts say the outcome could shape both price dynamics and the evolution of the high street in the months ahead. While the plan aims to reduce the burden on smaller shops, critics warn that the broader tax shift could be felt in supermarkets and flagship stores that anchor town centres and employ a sizable portion of the retail workforce.

With inflation hovering near multi-decade highs and the cost of essentials under pressure, retailers say any tax move that tightens the squeeze on large premises risks feeding into household budgets just as families face renewed bills for food and everyday goods. The Budget’s reception will hinge on balancing relief for small shops with the risk of lifting prices at the till, a tightrope policymakers have to navigate as autumn turns to winter.