Food gets more expensive as Reeves’s tax raid pushes up prices

Supermarkets pass on costs of National Insurance raid and minimum wage rises

Daily Telegraph 

27/05/25

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Food inflation is accelerating as supermarkets pass on the cost of Rachel Reeves’s tax raid.

Figures from the British Retail Consortium (BRC) and NielsenIQ showed food price inflation rose to 2.8pc in May, up from 2.6pc in April. It marks the fourth month in a row of rising food inflation.

Helen Dickinson, the chief executive of the BRC, said the acceleration was driven by retailers passing on increased labour costs after measures from the Chancellor’s October Budget took effect last month.

Ms Dickinson said: “With retailers now absorbing the additional £5bn in costs from April’s increased employer National Insurance contributions (NICs) and National Living Wage, it is no surprise that inflation is rearing its head once again.”

Fresh food was the main driver of higher prices during the month, with the produce inflation rate jumping from 1.8pc to 2.4pc in May. The cost of steaks and burgers also increased as wholesale beef prices rose.

It follows months of warnings from retailers that increases in employment costs would lead to higher prices on shelves.

Ms Reeves unveiled a 6.7pc rise in the National Living Wage to £12.21 an hour in her October Budget, alongside an increase to NICs for businesses. The Chancellor also lowered the threshold at which companies have to pay the tax on employees’ wages. The changes came into force last month.

Mike Watkins, of NielsenIQ, said: “Whilst shoppers are seeing savings at the checkout as retailers increase promotional activity, increasing prices is still an extra challenge to consumer spending alongside rising household bills.”

Overall inflation rose to 3.5pc in April, its highest level in more than a year, driven by increases in energy costs and household bills.

Retailers face fresh pressure from a packaging tax coming into force later this year and Labour’s workers’ rights overhaul, which is currently making its way through parliament. The changes are expected to make it more difficult to hire temporary staff at peak periods.

Ms Dickinson said: “Later this year, retailers face another £2bn in costs from the new packaging tax, and there are further employment costs on the horizon from the implementation of the Employment Rights Bill.”

Families will continue to see food prices climb if retailers face more and more fixed costs, she warned.

Last week, pub groups wrote to the Sir Keir Starmer to urge the Prime Minister to delay the introduction of the controversial recycling tax, which is officially known as the extended producer responsibility (EPR) levy.

There are fears the changes – which will see food and drink companies charged a levy based on how many tonnes of packaging such as glass, aluminium and plastic are used in products – will lead to higher prices for consumers and costs for businesses without driving an increase in recycling rates.