companies reckon with UK Budget costs

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Several of Britain’s largest employers will have to fork out more than half a billion pounds in extra costs after last week’s Budget measures, with customers facing higher prices as a result. 

Companies including retailers Marks and Spencer and J Sainsbury, no-frills pub chain JD Wetherspoon, Wagamama-owner The Restaurant Group and telecoms group BT this week laid bare the high business cost resulting from changes to national insurance made by UK chancellor Rachel Reeves as well as an upcoming increase in the minimum wage. Together the groups employ almost 350,000 people in the UK.  

Some of the companies warned they may have to raise prices, saying they were surprised by the scale of the changes, which risk stoking inflation. 

Retail veteran and Morrisons chair Sir Terry Leahy told the Financial Times that the Budget was “a very significant, straightforward tax on business — especially in retail and hospitality, which offer a lot of part-time flexible work”.

Reeves has suggested UK businesses can “absorb” her increases to employer national insurance contributions by accepting reduced profits or making efficiencies. 

From April the rate of employer NI contributions will increase by 1.2 percentage points to 15 per cent, while the earnings threshold at which employers start paying contributions will fall from £9,100 to £5,000. A 6.7 per cent rise in the national living wage to £12.21 an hour — with larger increases for younger staff — from April was also announced last week.

Sainsbury’s chief executive Simon Roberts warned on Thursday that customers will face higher grocery prices because of a £140mn hit to its tax bill, saying the “barrage of costs that are coming at us . . . fast” was “unexpected” and “significant”. 

He said Sainsbury’s “will be looking to do everything we can to mitigate the impact” from this but it will be “inflationary” given supermarkets’ wafer-thin profit margins of about 3 per cent and Sainsbury’s annual tax bill of almost £1bn before the Budget changes.

His remarks were similar to those of upmarket rival M&S on Wednesday, whose boss Stuart Machin said the group “didn’t quite see the double whammy coming up” — adding that while it was “definitely not planning to increase prices”, he could not rule out such a move. 

M&S revealed its annual tax bill would go up to about £520mn after an additional £60mn of cost from national insurance changes, plus another £60mn from the national living wage increase, although it had already budgeted for the latter. 

Meanwhile, BT chief executive Allison Kirkby described the group’s near-£100mn rise in costs as “just a new inflationary pressure that we need to suffer in our business”, estimating that changes to NI made up about 70 to 75 per cent of the total figure and the increase in the minimum wage the remainder.

She acknowledged the government faced difficult decisions but said the UK telecoms group would look at the pricing of its products and services in an indication it could raise prices as part of efforts to offset the increase in costs. Other measures to mitigate the rise include improving workforce productivity and “intensifying” its cost-cutting plans.

Separately, pub chain Wetherspoons said it expected taxes and business costs to increase by approximately £60mn, half of which stems from a rise in NI contributions and that this would fuel inflation.

“All hospitality businesses, we believe, plan to increase prices as a result,” founder and chair Tim Martin said. But as for Wetherspoons, “if our costs go up, we’ll try and remain as competitive as possible”.

However, he told the Financial Times that he would not “slash the number of staff [or] . . . the bonuses” because of it. 

Other retailers such as Primark-owner Associated British Foods and supermarket chain Co-op also highlighted big costs totalling “tens of millions” this week, while grocer Morrisons’ bill is estimated to come in at about £75mn. 

The Restaurant Group, which also owns the Mexican-themed Barburrito dining chain, said its profits would be cut by a quarter with NI changes adding nearly £9mn of extra costs and the minimum wage increase a further £8mn. 

“We are considering various actions to mitigate these cost pressures including adjusting levels of investment,” the company said.

ABF, Sainsbury’s and M&S bosses all said this week they were disappointed there was less reform than hoped on business rates despite Labour’s manifesto promise to “level the playing field between the high street and online giants”. 

Business rates are calculated based on the value of the property, which can often be located in pricier prime locations, as opposed to out-of-town business parks, where many warehouses operate. 

“I know [reform] is committed in 2026, but you’ve got costs going up in 2025 and no change to business rates to at least 2026,” Sainsbury’s Roberts said. “We’ve got a rapidly escalating cost environment.” 

Leahy added it was essential the government reduced the business rates burden to “mitigate the impact on jobs and inflation”, something retailers, pubs, bars and restaurants have been campaigning for years.