Food price hike fears mount after supermarkets hit with property tax rise

Supermarkets are among those who have been dealt a blow in the Budget as the Chancellor confirmed they will face a jump in business rates amid warnings the move could push up food prices for shoppers.

The Government will introduce a new business rates “surtax”, which will mean many larger commercial properties worth £500,000 or more will face a higher rate of the property tax in order to help fund a permanent discount for smaller retailer, leisure and hospitality firms.

It marks an apparent U-turn after it was widely reported that supermarkets were expecting to be made exempt from the higher level after criticism from industry bosses.

Marks & Spencer had earlier said proposals for the surtax would be “encouraging retailers to close larger high street stores”.

The Treasury said the move is designed to “rebalance the business rates system” and help smaller retail and hospitality firms by putting more of the tax onto those with broader shoulders – online giants with large warehouses.

The permanently lower tax rates for retail, hospitality and leisure properties is worth nearly £900 million a year and will benefit over 750,000 properties in these sectors, according to the Treasury.

But it will hit sectors such as supermarket retailers hard, coming against a backdrop of cost hikes for the sector earlier this year and already elevated food inflation for UK shoppers.

EY retail expert Silvia Rindone said the measures would “impact the retail landscape and influence consumer behaviour for years to come”.

She added: “The proposed tiered business rates system offers welcome relief for smaller retailers, helping to ease cost pressures at a time when margins are tight.

“However, the additional burden placed on larger operators could lead to more expensive food bills for consumers – further challenging high street vitality and consumer choice.”

Erin Brookes, European retail and consumer lead at Alvarez & Marsal cautioned over knock on effects that could see supermarkets rein in store expansion plans.

She said: “The Chancellor’s last-minute U-turn on business rates heaps further pressure on UK supermarkets, with grocers continuing to shoulder a disproportionate burden of this tax.

“The rise in the living wage and stubborn food inflation, in addition to higher National Insurance from the last budget, means costs continue to mount for supermarkets, where margins are already slim.

“Today’s news means that grocers will be constrained in the investment decisions they make, in improving store estates, sustainability and modernising their operations.

“At a time when household budgets are also stretched, this change further reduces headroom to keep prices down for customers.”

Smaller shops also cast doubt on whether the permanent lower rates will provide meaningful support.

The Association of Convenience Stores (ACS) blasted it as a “major disappointment”, saying the new business rates multiplier will be set just 5p lower than the small business and regular multipliers, which it said “fails to offset the removal of the remaining 40% relief on business rates that was first introduced during the pandemic”.

James Lowman, ACS chief executive, said: “Changes to the business rates system provide nowhere near enough support and are a major disappointment.

“Small shops will see their rates bills increase in April, and many will see further increases as a result of the revaluation.”