Government needs to act on Middle East impacts, retailers warn

•    Four in five people (80%) worry the Middle East conflict will increase the cost of food
•    Prices will rise, but how much depends on what action government takes now
•    Retailers call on ministers to act on costs that are within government's control
 
The British Retail Consortium (BRC) is calling on the government to act on soaring domestic policy costs, as new polling shows four in five people (80%) fear the Middle East conflict will push up food prices.
 
Retailers are already absorbing significant additional costs from the conflict. Rising gas and electricity prices are pushing up production, shipping and distribution costs throughout the supply chain, with knock-on effects for fertiliser, manufacturing and logistics. While retailers will do everything they can to mitigate impacts on customers, those pressures will inevitably filter through to the till over the coming months.
 
But the situation in the Gulf is only part of the picture. Over the past two years, retailers have absorbed £6.5 billion in additional employment costs from rising employer NICs and the National Living Wage, alongside a new packaging tax (EPR) costing £1.6 billion. Further regulatory burdens are imminent, including guaranteed hours provisions under the Employment Rights Act and the proposed reformulation of thousands of food lines under the new Nutrient Profiling Model - both due to land on a supply chain needs to focus on its resilience in the months ahead.
 
Unlike wholesale energy prices, these policy costs do not ease when global markets stabilise, because they are determined by government and regulators, not by supply and demand.
 
The warning from retailers comes as new polling by Opinium for the BRC lays bare the scale of public anxiety. Four in five people (80%) fear the conflict will push up food prices, while 73% expect it to raise the price of other products. Meanwhile, 81% are worried about rising energy bills, 76% about petrol and diesel, and 68% about tax increases.
 
Food retailers met with the Chancellor Rachel Reeves in early April and set out three specific asks, each targeting costs within government's direct control:
 
1.    Remove non-commodity energy costs. These are the policy levies, network charges and system fees that now make up between 57% and 65% of a typical business electricity bill - up from around 20% a decade ago and projected to reach 75% by 2030. They do not fall when global energy markets ease. Removing legacy Renewables Obligation and Feed-in Tariff costs would deliver immediate relief for businesses. Germany has already acted, moving renewable energy levies off business bills and onto general taxation. EU leaders are now actively considering the same in direct response to the Strait of Hormuz crisis.
 
2.    Delay implementation of the Nutrient Profiling Model. This requires manufacturers to reformulate thousands of food lines while simultaneously managing an energy crisis and supply chain disruption is an avoidable additional burden. Adjusting the timetable costs government nothing.
 
3.    Review of the triple packaging levy. The new Extended Producer Responsibility levy, the Plastic Packaging Tax and Packaging Recovery Notes are three overlapping charges on the same activity, together costing retailers more than £2 billion each year. No comparable European retail sector faces a burden of equivalent scale and simultaneity.
 
Helen Dickinson, Chief Executive of the British Retail Consortium, said:
"The Middle East conflict is driving up costs across the supply chain and families are right to be concerned. But not every pressure bearing down on retailers comes from the Gulf. Higher national insurance, packaging levies, new regulations, and business energy charges are all domestic policy decisions, made in Westminster, and they can be addressed there. Such action by government would help retailers to keep prices affordable for households.
 
"Other governments are already acting. Germany has reduced electricity costs for businesses by moving levies off bills and EU leaders are actively discussing similar responses to this crisis. The UK should be moving in the same direction, not treating global instability as cover for inaction on costs of its own making.
 
“Retailers are working hard to hold prices down, but they cannot do it alone. Every cost government chooses not to address is a cost that will find its way into someone's shopping basket. That is a political choice, and it is one ministers still have time to change – but the window to act is closing.”