Prices to rise in response to increased National Insurance costs

Two-thirds of retail leaders respondents say they will raise prices in response to increased NI costs while food inflation could hit 4.2 per cent by the end of 2025, a leading retailers' body has said citing a recent survey.

British Retail Consortium (BRC) today (15) released the findings of a survey of CFOs (Chief Financial Officers) at 52 leading retailers, revealing significant concern about trading conditions over the next 12 months.

Sentiment languished at a concerning -57 with 70 per cent of respondents “pessimistic” or “very pessimistic” about trading conditions over the coming 12 months, while just 13 per cent said they were “optimistic” or very “optimistic” (17 per cent were neither optimistic nor pessimistic).

The biggest concerns, all appearing in over 60 per cent of CFO’s “top 3 concerns for their business” were falling demand for goods and services, inflation for goods and services, and the increasing tax and regulatory burden.

When asked how they would be responding to the increases in employers’ National Insurance Contributions(NICs) (from April 2025), two-thirds stated they would raise prices (67 per cent), while around half said they would be reducing ‘number of hours/overtime’ (56 per cent), ‘head office headcount’ (52 per cent), and ‘stores headcount’ (46 per cent). Almost one third said the increased costs would lead to further automation (31 per cent).

The impact of the Budget on wider business investment was also clear, with 46 per cent of CFOs saying they would ‘reduce capital expenditure’ and 25 per cent saying they would ‘delay new store openings.’ 44 per cent of respondents expected reduced profits, which will further limit the capacity for investment.

This survey comes only a few weeks after 81 retail CEOs wrote to the Chancellor with their concerns about the economic consequences of the Budget. The letter noted that the retail industry’s costs could rise by over £7 billion in 2025 as a result of changes to employers’ NICs (£2.33 bn), National Living Wage increases (£2.73bn) and the reformed packaging levy (£2 billion).

The Budget is not the only challenge retailers are facing, with weak consumer confidence and low consumer demand also an issue. As part of the survey, CFOs offered their forecasts for the year ahead. These suggest that shop price inflation, currently at 0.5 per cent, will rise to an average of 2.2 per cent in the second half of 2025. This would be most pronounced for food, where inflation is expected to hit an average of 4.2 per cent in the second half of the year.

The forecast for sales was more muted. While sales growth is expected to improve on the 2024 level of just 0.7 per cent, at just 1.2 per cent this would still be below inflation. This means the industry could be facing a year of falling sales volumes at the same time as huge new costs resulting from the Budget.

Helen Dickinson, Chief Executive at the BRC, said, “With the Budget adding over £7bn to their bills in 2025, retailers are now facing into the difficult decisions about future investment, employment and pricing.

"As the largest private sector employer, employing many part-time and seasonal workers, the changes to the NI threshold have a disproportionate effect on both retailers and their supply chains, who together employ 5.7m people across the country.

“Retailers have worked hard to shield their customers from higher costs, but with slow market growth and margins already stretched thin, it is inevitable that consumers will bear some of the burden.

"The majority of retailers have little choice but to raise prices in response to these increased costs, and food inflation is expected to rise steadily over the year. Local communities may find themselves with sparser high streets and fewer retail jobs available. Government can still take steps to shore up retail investment and confidence.

"Business rates remain the biggest roadblock to new shops and jobs, with retailers paying over a fifth of the total rates bill. The Government must confirm the planned reforms will make a meaningful difference to retailers’ bills and that no shop will end up paying more.”