Retailers warn Reeves of inflation and job losses after budget tax hikes

Some of Britain's biggest retailers have warned the chancellor that last month's budget will stoke inflation in the economy and spark job losses as tax hikes add nearly £2.5bn to the industry's annual tax bill.

Sky News has obtained the draft of a letter coordinated by the British Retail Consortium (BRC) to Rachel Reeves in which it produces a stark analysis of the impact of her maiden fiscal statement two weeks ago.

"The sheer scale of new costs in the Autumn Budget and the speed with which they occur, together with costs from a raft of other regulation, create a cumulative burden that will make job losses inevitable, and higher prices a certainty," the draft letter said.

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The BRC's members consist of the major supermarkets, including Asda and Tesco, as well as hundreds of other well-known chains, including B&Q's parent, Kingfisher.

Its intervention echoes a string of warnings from individual retailers including Marks & Spencer and J Sainsbury about the challenge of absorbing the budget increases to employers' national insurance and the national living wage.

Andy Higginson, the former Tesco executive and Morrisons chairman who chairs the BRC, referred to the existence of the letter to Ms Reeves during an interview with the BBC's Today programme on Wednesday morning.

In the draft, the BRC said it estimated that the NICs changes would increase retailers' tax burden by £2.3bn annually, three-quarters of which would come from lowering the earnings threshold from £9,100 to £5,000.

Britain's hospitality industry, which Sky News revealed at the weekend was also writing to the chancellor, argued that the number of part-time workers in the sector would have a disproportionately significant impact on its tax bill.

"The estimated industry cost of the National Living Wage uplift is £2.7bn, and business rates bills will increase by £140m in April 2025, reflecting September's rate of inflation, and businesses receiving the RHL discount will see this reduce from 75% to 40%," the BRC draft said.

"There will also be input cost pressures as our UK suppliers deal with the same changes.

"These costs are alongside other complex regulation, including Extended Producer Responsibility (EPR) and the deposit return scheme for drinks (DRS), which together will cost the industry some £2bn and also crystallise during 2025, and an estimated £300m - £800m in 2026 and beyond from the implementation of the Employment Rights Bill, based on data in the government's own impact assessment of the Bill."

The trade body also warned that business rate reforms were insufficient to offset the extra costs imposed on its members by the budget.

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It added: "Retail is a highly competitive industry and retailers' margins are low.

"Before the budget, the industry was paying 55% of profits in business taxes, the highest effective tax rate, along with hospitality, of all industry sectors.

"It will not be possible for businesses to absorb such a significant increase to their cost base over such a short timescale.

"The effect will be to increase inflation, reduce jobs and pay growth, especially at the entry level, and bring investment down.

"We are already starting to take difficult decisions about investment in our businesses and this will be true right across the industry and its supply chain.

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Hospitality chiefs called for a tiering of the employer NICs increase to soften the impact on companies whose employees work less than 20 hours a week.

In the BRC's draft letter, it called for the Treasury to consider phasing the introduction of the new lower earnings threshold to give businesses time to adjust, revisiting the timelines of the Waste & Resources Strategy, and bringing forward the timetable for business rates reform so that there is clarity on the details sooner and the benefits realised before April 2026.