UK retailers to raise prices in response to budget tax hike, survey shows

By James Davey

LONDON (Reuters) - Two thirds of British retailers will raise prices this year in response to higher employer social security costs introduced in the new Labour government's first budget, a survey of finance chiefs showed on Wednesday.

Trade body the British Retail Consortium (BRC) said its survey of chief financial officers and finance directors at 52 major retailers also found that around half plan to reduce staff hours and headcount at their head offices and stores.

Almost one third said the increased costs would lead to further automation.

Over two thirds of respondents were “pessimistic” or “very pessimistic” about trading conditions over the coming 12 months.

As the UK economy struggles to grow, the government's solution is a hike in employer taxes to raise money for investment in infrastructure and public services, which has prompted criticism from the business community.

Retailers have said the increased National Insurance payments, a rise in the national minimum wage, packaging levies and higher business rates - all coming in April - would cost the sector an additional 7 billion pounds ($8.5 billion) a year.

"The majority of retailers have little choice but to raise prices in response to these increased costs," BRC Chief Executive Helen Dickinson said, reiterating the industry's plea for reforms to business rates to make a meaningful difference to retailers’ tax bills.

The BRC survey, which chimed with another from the British Chambers of Commerce published on Monday, found the finance chiefs expect shop price inflation, as measured by the BRC, to hit an average of 2.2% in the second half of 2025. Food inflation was forecast to hit an average of 4.2% in the second half.

Official UK inflation data for December will be published later on Wednesday. It hit an eight-month high of 2.6% in November.

Last week, retailers including Next, Tesco, Sainsbury's and M&S reported robust Christmas trading but flagged concerns about rising costs, the strength of the economy and the consumer in 2025.

($1 = 0.8209 pounds)

(Reporting by James Davey; Editing by Bernadette Baum)