Supermarkets face “difficult decisions” on food prices as a result of Labour’s £40bn tax rise, Sainsbury’s CEO Simon Roberts has warned.
Sainsbury’s costs would increase by £140m from April, 50% year on year as a result of the planned increase in National Insurance outlined in Chancellor Rachel Reeves budget last week.
Combined with the “barrage” of the proposed increase in the national living wage, as well the continued “disproportionate” impact of business rates on the food and hospitality sector, Roberts said it was “difficult to disagree” with the Office for Budget Responsibility’s prediction that the impact would lead to higher inflation across the board.
“We will do everything we can to mitigate the impact,” Roberts said. “But given the margins of the industry – this is a 3% margin industry – there just isn’t the capacity to absorb this level of unexpected cost inflation that is coming at us as fast as it is.”
While it was too early to be specific, Roberts said the costs were “significant” given that retail and hospitality sector were the UK’s largest employers.
“We’ve got to work through the implications of this, there will be some difficult decisions to take as a result,” he said during Sainsbury’s half-year results presentation on Thursday.
In the run-up to the budget, Sainsbury’s had been supportive of Labour’s plans to ‘make work pay’. However, Roberts said this had been on the basis of a “clear expectation that fundamental reform of business rates would happen”, as pledged by Labour in its manifesto.
The government has also indicated that reforms from 2026 will include higher rates for larger businesses occupying property with a rateable value over £500,000 in order to fund lower rates for smaller businesses.
Sainsbury’s currently paid around £1bn in tax a year, roughly half of which was currently through business rates, said Roberts.
“On the outcome of last week, business rates next year will actually go up for us,” he said, adding that 80% of Sainsbury’s stores had a rateable value of £500,000.
Roberts urged the government to move more more quickly on reforming business rates before the current commitment to review them in 2026.
Reeves used her maiden budget last week to increase the rate of employer National Insurance from next April by 1.2 percentage points to 15%. She also reduced the threshold at which employers become liable to pay National Insurance on each employee’s salary, from £9,100 per year to £5,000 per year, adding roughly £615 to the bill businesses pay per employee.
Meanwhile, the national living wage will rise from £11.44 an hour to £12.21 from April.
Roberts also expressed concerns over the impact of the budget across the grocery supply chain, and urged the government to “listen to the concerns” of British farmers.
Proposals to lower the threshold for inheritance tax on agricultural properties has caused outcry among farmers, many of whom have already been battling soaring costs and extreme weather conditions.
“We need a resilient, successful, productive food system to make sure we can produce here what we need,” Roberts said.
Sainsbury’s sales rise
While Roberts was downbeat about the budget, he hailed Sainsbury’s half-year results.
Grocery sales grew 5% in the 28 weeks to 14 September, thanks to an increase in bigger basket shops and premium own label lines ahead of Christmas. Total pre-tax profit grew 3.7% to £503m.
“We’re delivering the biggest market share gains in the industry and we’re growing our volumes really strongly,” Roberts said. “There’s a real confidence and focus in our business right now.”
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