Food prices could rise by even more than they are already if Rachel Reeves pushes ahead with plans to make big supermarkets pay higher business rates, the retail sector has warned.
The British Retail Consortium (BRC) has urged the Government to drop proposals for a new “surtax” on big commercial premises — including supermarkets and department stores — arguing it could keep food inflation above 5 per cent through most of 2026.
Economists have backed the warnings that the move could drive up food prices, close hundreds of shops and hollow out town centres.
Helen Dickinson, chief executive of the BRC, told The i Paper that “thriving shops, large and small, are the beating heart of Britain’s high streets”, warning that the new policy “risks tipping many [large stores] over the edge”.
She said: “When a large shop closes, the shutters quickly spread to smaller shops nearby, causing the wider community to suffer.”
Food price inflation remains stubbornly high in the UK. It is currently at 5.1 per cent – higher than the US and EU and the highest since January this year.
It is a significant factor in the overall inflation figure of 3.8 per cent – above the government’s 2 per cent target.
While climate change has been blamed for reducing the yields of some staples such as cocoa beans, coffee and olives, retailers have also blamed higher labour costs from rises to the minimum wage and employer national insurance contributions, as well as new packaging rule.
Business rates changes from April
The government is set to introduce new business rates from April next year, with lower rates for smaller businesses paid for by a higher rate on all properties with a rateable value above £500,000 — potentially increasing bills by up to 20 per cent.
The change would apply across all sectors, including large retailers, supermarkets and hospitality venues, prompting widespread concern among business groups.
Further changes are expected to be outlined in November’s budget.
The BRC is warning that around 400 of Britain’s biggest stores could be at risk of closure if large retailers are included in the higher band, threatening thousands of jobs and more than £100m in annual tax revenue.
It argues that supermarkets and department stores act as “anchor” tenants, drawing five times more visitors than smaller neighbouring businesses. Their closure, the BRC said, could trigger a “domino effect” of local decline.
The changes form part of Labour’s pledge to “reform business rates” and support small high street businesses, but retailers fear the plan could backfire by increasing costs for the stores that support high streets.
Retailers’ profit margins already ‘squeezed’
Economists echoed the BRC’s concern, warning that the policy could entrench inflation at a time when the Bank of England has said it is proving harder to shift than expected.
Neil Shearing, group chief economist at Capital Economics, told The i Paper that businesses had “borne the brunt of tax increases under this Government so far”.
He added that retailers had already been impacted by the employer National Insurance Contributions (NICs) tax hike, a new packaging tax and the minimum wage increase.
“We’re seeing the adverse impact of that. Employment has slowed. Food inflation is up,” he said.
“There is a risk here that by increasing business taxes it could see a further slowdown in hiring and further increase in food inflation. I would be trying not to increase the tax burden on business any further.”
Ed Cornforth, associate economist at the National Institute of Economic and Social Research (NIESR), said retailers’ profit margins had already been “squeezed” by recent tax rises and higher costs.
“It would be damaging in increasing the pressure to put up prices and disincentivising firms to invest,” he said.
Supermarkets themselves have also warned against the plans. Sainsbury’s chief executive Simon Roberts said earlier this year that further increases in business rates “won’t stimulate the growth or investment into our high streets and jobs that we all want to see”.
Chris Webb, Labour MP and chair of the All-Party Parliamentary Group for Hospitality and Tourism, said reform was needed but warned against “short-term fixes” that set small and large firms against one another.
“Our high streets rely on a mix of strong independents and bigger stores that bring people in,” he said. “Knock one down to lift the other and you’ll only speed up the decline.”
Fair way to balance the high street
Vikki Slade, Liberal Democrat MP and chair of the APPG for Town Centres, said she did not agree with what she called an “either-or approach”.
“Cutting business rates for smaller firms shouldn’t mean higher rates for larger ones,” she said.
“While some big stores may be doing better, it’s wrong to suggest they’re operating in a thriving environment. The whole retail sector, and with it our town centres, is struggling. The last thing we need right now are rate rises.”
Andrew Griffith, the Shadow Business Secretary, said Labour’s plan showed the Government was “robbing Peter to pay Paul”.
“You certainly don’t help small firms by clobbering the big ones that keep them afloat,” he told The i Paper. “Piling more taxes onto retailers will only push up prices, close more shops and hollow out our towns.”
The government argues the policy could be seen as a fair way to rebalance the system helping smaller businesses without increasing general taxes. It says only one per cent of premises fall into the higher rate category, but this will include large warehouses owned by the online giants.
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In a September update Treasury secretary Dan Tomlinson wrote: “Any reforms taken forward will continue to recognise the importance of high streets as a vital source of essential services, a focal point for communities and the foundations of strong local economies.”
But the BRC said excluding large retailers from the new higher multiplier would “cost the Treasury nothing” and help protect jobs and prices.
“The Chancellor has a choice,” Dickinson said. “Protect the businesses that hold our town centres together — or risk a wave of closures that pushes prices higher for everyone.”
The Government has been contacted for comment.
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