Rachel Reeves’ NI tax raid is pushing up the price of food and it could get worse in the autumn, experts warn
Rachel Reeves‘ tax raid on businesses is hitting households at the supermarket till, the Bank of England said.
Hikes in National Insurance contributions (NICs) and the minimum wage were contributing to shoppers paying more for their food, the Bank said – and warned the situation will likely get worse.
Food inflation hit 4.5 per cent in June, higher than economists had forecast in May, and is expected to peak at 5.5 per cent next month.
Retail industry leaders warned that grocery inflation will accelerate even further if the Chancellor pushes ahead with tax hikes in the Autumn Budget.
And the Bank flagged that Deputy Prime Minister Angela Rayner‘s upcoming Workers’ Rights Bill had piled more uncertainty on businesses.
It came as the Bank’s Monetary Policy Committee (MPC) slashed interest rates by 0.25 percentage points to four per cent after a knife-edge five to four vote – which required a second polling.
The move is bad news for savers, who will now be paid a lower rate of interest on their nest eggs, but will please mortgage holders.
Overall inflation is now expected to hit four per cent later this year, breaching the Bank’s previous expectations and double its two per cent target.
Rachel Reeves’ tax raid on businesses is hitting households at the supermarket till, the Bank of England said
Bank governor Andrew Bailey said interest rates remain on a ‘downward path’ but cautioned ‘there is genuine uncertainty about the course of that direction’.
The Bank’s Monetary Policy report, published alongside the rates cut, said that ‘domestic labour costs are an important driver of food price inflation’ partially due to the 6.7 per cent rise in the National Living Wage.
‘Overall labour costs of supermarkets are likely to have been disproportionately affected by the lower threshold at which employers start paying NICs in part because a relatively high proportion of supermarket staff is employed part-time,’ the report read.
Higher employment costs have so far added 1 to 2 per cent to food prices – and a new packaging tax later this year is expected to pile further pressure on supermarkets.
Ms Reeves – visiting Port Talbot in South Wales to announce £143million towards securing decrepit coal tips – said: ‘This fifth interest rate cut since the election is welcome news, helping bring down the cost of mortgages and loans for families and businesses.’
But Shadow Chancellor Sir Mel Stride told the Daily Mail that Mrs Reeves’ choices would make it harder for people to put food on the table, adding: ‘Labour’s economic mismanagement is turning the screw on hard-working families. Many firms have no choice but to pass costs on to consumers.’
Shoppers have already tried to reduce their supermarket spending by buying own-brand products, cheaper cuts of meat and larger value packs, the Bank report said.
Grocers have also reported strong sales of ‘premium ready meals’ as Britons hold back on eating out in a bid to protect cash.
Ms Reeves visited Port Talbot in South Wales to announce £143million towards securing decrepit coal tips (pictured)
As well as hiking prices, businesses have tried to save money by reducing staffing levels through redundancies and imposing hiring freezes, the report found. Bosses said they are looking at replacing workers with automation and artificial intelligence as well as off-shoring jobs.
Helen Dickinson, chief executive at the British Retail Consortium (BRC), said government policies would add £7billion to retailer costs this year.
‘Food prices have already been climbing steadily, and the BRC has warned this is only the beginning,’ she said.
‘If the Autumn Budget once again lands on the shoulders of retailers, then it will only serve to fan the flames of food inflation – with poorer families being hit the hardest by the Treasury’s decisions.’
Ms Dickinson added that retailers’ ‘ability to absorb further costs is extremely limited’.
‘It will be ordinary households who suffer the most,’ she said.
The Bank’s nine-person MPC was split three-ways before taking an unprecedented second vote on interest rates. Four voted for a quarter-point drop, four to keep the status quo and one for a half-point fall.
The end result was that five, including Bailey, voted to cut rates while four – including the Bank’s chief economist, Huw Pill – wanted to keep borrowing costs on hold.
‘This group seems to be particularly concerned about the impact of recent higher inflation rates, particularly for food and fuel, on inflation expectations,’ Oxford Economics chief economist Andrew Goodwin said.
‘This suggests these members are unlikely to vote for cuts again until they see evidence of inflationary pressures cooling in these categories.’
