Retail will be hit with additional £7bn in costs from next year, industry chiefs warn Chancellor

Retail will face an additional £7bn in costs from next year, including more than £4bn in extra tax, industry bosses have warned the Chancellor.

More than £2bn will come from an increase in employers’ national insurance from April, the letter to Rachel Reeves says.

Another £2bn will come from the implementation of new levies on packaging from October.

A further £2.7 billion will be heaped on by a rise in the national living wage from April, bringing the total to £7.06bn.

The letter, signed by chiefs of major supermarkets including Matthew Barnes of Tesco UK, Sainsbury’s Simon Roberts, Morrisons’ Rami Baitiéh and Asda chairman Lord Rose among others, warns the “sheer scale of new costs” will lead to job losses and rising prices.

It calls for a meeting to dicuss steps to ease the impact, such as phasing in national insurance increases. 

“We appreciate government’s focus on improving the fiscal situation and investing in public services; we also recognise the role businesses have in supporting this,” says the letter, dated 18 November.

“But the sheer scale of new costs and the speed with which they occur create a cumulative burden that will make job losses inevitable, and higher prices a certainty.

“Taken together, the retail industry’s costs could rise by up to £7bn a year. This will also affect our suppliers, increasing costs that retailers pay for goods and services.”

The letter also expresses concern at government plans to increase business rates for occupiers of the most valuable properties from 2026 to pay for lower rates for smaller ones.

“We are concerned the proposals merely redistribute rates within the industry and would see many retailers’ bills significantly increase,” it says. “Changes must lead to a significant, permanent reduction of rates bills for all retail properties if they are to offset the effects of the extra costs above in any meaningful way.”

Retailers already face an increase of £140 million in April 2025 due to the inflationary uplift in business rates, along with a reduction in relief available to retail, hospitality and leisure from 75% to 40%, the letter notes.

“For any retailer, large or small, it will not be possible to absorb such significant cost increases over such a short timescale,” it says.

“The effect will be to increase inflation, slow pay growth, cause shop closures, and reduce jobs, especially at the entry level. This will impact high streets and customers right across the country. We are already starting to take difficult decisions in our businesses and this will be true across the whole industry and our supply chain.”

It calls for a meeting with Reeves to discuss a change in the timings of the measures to “mitigate their harmful effects on high streets and consumers”.

Along with phasing the national insurance increase, packaging levies should be delayed, according to the letter. On business rates, proposals in the budget should be revisited.

Signatories also include the CEOs of Aldi UK, Lidl GB, M&S and Ocado Retail, among more than 70 leaders of some of the country’s biggest retailers.

“This letter reflects the strength of feeling across the industry,” they tell Reeves. “We look forward to meeting you.”

It comes after a draft version of the letter was leaked to Sky News on Wednesday last week. It also follows an opinion piece in The Grocer yesterday by treasury minister James Murray defending plans on business rates.