Retailers Warn Tax Rises Could Prolong Inflation as Shop Prices Climb

Published: 30 September 2025. The English Chronicle Desk

Retailers across the United Kingdom have voiced strong concerns to the government that additional tax rises could intensify inflationary pressures, just as shop prices recorded a fresh increase in September. The latest figures show that rising costs for household and gardening goods have offset stabilising trends in food prices, creating renewed worries for both businesses and consumers already burdened by a difficult economic climate.

According to the latest monthly report from the British Retail Consortium (BRC) and data analysts NIQ, annual shop price inflation rose to 1.4% in September, up from 0.9% in August. This marks a sharp reversal of the deflationary trend in non-food goods that had persisted for the past 18 months. In September, prices on non-food items stood just 0.1% lower year-on-year, compared with a more substantial 0.8% annual drop the previous month, indicating that the long period of deflation is likely coming to an end.

The rise was partly driven by increased prices in the home improvement and gardening categories, which overshadowed falling costs of certain back-to-school products such as laptops. On the food front, inflation held steady at 4.2% year-on-year in September, the same level recorded in August, following a steady climb in previous months. While food prices may have plateaued, they remain considerably high compared with historical levels.

Helen Dickinson, chief executive of the BRC, highlighted the strain households are facing as shopping grows increasingly expensive. She pointed out that the impact of global factors, coupled with the government’s tax increases and higher wage bills, is filtering through to consumers. “Households are finding shopping increasingly expensive. The impact on retailers and their supply chain of both global factors and higher national insurance and wage costs is playing out in prices for consumers,” Dickinson said.

She emphasised that high energy and labour costs continue to put pressure on supply chains. Farmers, in particular, have been hit by rising production expenses, keeping dairy and beef prices elevated. Employers’ national insurance contributions, which rose under government policy earlier this year, are further compounding difficulties for producers and retailers.

Despite these challenges, Mike Watkins, head of retailer and business insight at NIQ, suggested that low consumer confidence is forcing businesses to temper price rises with promotions and discounts. “With inflationary pressures persisting, many shoppers remain concerned about their personal finances and are becoming increasingly price-sensitive,” Watkins said. Retailers are therefore having to balance their need to cover higher costs with the reality that consumers are reluctant to spend more without offers.

The BRC’s data adds to mounting evidence that food inflation has peaked and could begin to ease either towards the end of this year or early in 2026. However, wider inflationary pressures remain a concern for policymakers. Earlier this month, the Bank of England decided against lowering interest rates, citing worries that sustained high food prices were continuing to feed into headline inflation figures.

At the political level, Chancellor Rachel Reeves has signalled that new fiscal measures may be necessary as the Treasury grapples with a spending gap estimated at up to £30 billion. The shortfall is linked to slower-than-expected economic growth and anticipated revisions to official productivity data. Reeves has suggested that either tax rises or spending cuts could be on the horizon, sparking unease in the retail sector about the impact such measures could have on household finances.

One particular worry for retailers is the new packaging tax, set to take effect in October, which is expected to put further upward pressure on prices. Dickinson warned that any additional levies introduced in the chancellor’s upcoming budget would prolong inflationary pressures. “While retailers continue to absorb higher costs as much as possible and deliver value to customers, any further tax rises in the upcoming budget would keep shop prices higher for longer. Ultimately, it is British households who will bear the consequences – positive or negative – of the chancellor’s decisions,” she said.

The BRC has estimated that retailers are facing a £7 billion increase in costs this year alone, as a result of changes to employers’ national insurance contributions, packaging levies, and higher minimum wage requirements introduced in April. These cost pressures have placed significant strain on businesses, many of which are already struggling to balance their books after several years of turbulence caused by the pandemic, global supply chain disruptions, and rising energy costs.

For households, the implications are clear. While inflation has slowed from the peaks seen in 2022 and 2023, the cost of living remains elevated, with consumers finding little relief in everyday shopping. For retailers, the challenge is equally stark: to sustain operations and meet government obligations while keeping prices competitive for customers. The government, for its part, faces the difficult task of balancing fiscal responsibility with ensuring economic growth and stability, all while trying not to deepen the financial strain on households already at breaking point.

As the debate over fiscal policy intensifies and the next budget approaches, the retail sector is bracing for what could be another round of financial challenges. The tension between government policy, business sustainability, and consumer affordability remains at the heart of the UK’s ongoing struggle with inflation, with little sign of immediate resolution.