UK retailers warn higher business rates could fuel inflation and food-price rises

Britain’s cost‑of‑living squeeze could deepen if Labour’s plan to shift the tax burden onto large shops goes ahead, retailers warned on Tuesday. The British Retail Consortium said the Chancellor risks losing the battle against inflation if she raises business rates on about 4,000 shops, including supermarkets, by targeting larger premises with a new surcharge.

Overall inflation remains stubborn, running at 3.8% — the highest among the G7 economies — with food inflation having edged above 5% for the first time in 18 months, rising from 4.9% to 5.1% in the latest official figures. The BRC and other industry groups cited this backdrop as they pressed for a cooler approach to business‑rates reform, arguing that food prices would stay above 5% well into 2026 if large shops bear the new tax load.

The Food and Drink Federation also warned that inflation in the sector could approach 6% this year as costs tied to taxation and regulation pass through to consumers. BRC chief executive Helen Dickinson noted that food inflation had been rising throughout the year, up from a 1.3% level as recently as August 2024 to 5.1% in the latest figures from the Office for National Statistics. The Bank of England, meanwhile, kept its key rate at 4% amid concerns that rising prices for food and other goods could sustain headwinds for inflation.

The Treasury’s plan would lower rates for smaller shops by applying higher taxes to larger properties, including warehouses used by online retailers such as Amazon. Labour has framed the move as a reform to level the playing field between high‑street stores and online rivals, but retailers warn the policy would blanket large premises across the economy and disproportionately affect flagship stores — the anchor tenants that draw shoppers into town centres.

Dickinson argued that the central question for the Budget is whether the government wants to protect households and help retailers contain price growth, or press ahead with a surtax on large properties that would ultimately feed into consumer prices. She stressed that the most acute risk to food prices, in particular, would be the inclusion of large shops in the new surcharge, rather than other sectors where business rates weight is smaller.

Economists have long warned that inflation could erode living standards even if headline figures look steadier. Reeves has acknowledged that families are feeling the pinch, and retailers cited the consumer‑sentiment data gathered for the BRC, which show that a majority of respondents are worried about prices rising faster than wages. An Opinium survey of 2,000 people found that about 57% regarded price growth as outpacing wage growth.

Retailers faced roughly £7 billion in cost increases in the previous year as policy measures and tax changes raised the price of doing business. In addition to higher National Insurance contributions, firms have faced packaging taxes and expectations around the Labour government’s workers’ rights proposals, all of which could raise operating costs for the sector. The timing of the Budget, set for November 26, has also raised concerns that consumer spending could soften in the crucial run‑up to Christmas.

Aldi UK chief executive Giles Hurley separately warned last week that higher taxes should be considered very carefully, arguing that the sector’s ability to respond to cost pressures depends on a stable policy environment. Other retailers have echoed that sentiment, stressing the need for a measured approach to reform that protects households while preserving the high street’s competitive dynamics.

Industry groups say the stakes are high for both shoppers and businesses. The BRC’s analysis shows that food inflation, already elevated, could remain stubbornly high if large‑shop taxation proceeds, undermining efforts to bring inflation down and complicating households’ ability to budget through the end of the year. Officials in Whitehall have signaled readiness to proceed with the reforms, but the policy mix remains contentious as the Budget approaches and Christmas demand looms.

In the broader context, the debate highlights the trade‑offs policymakers face between supporting the high street and ensuring that online and warehouse operations are taxed in a way that does not simply pass costs onto consumers. For now, retailers are preparing for a testing winter, with inflation data likely to influence the path of policy and the tempo of price adjustments across food and non‑food categories alike.