Supermarkets have been handed a mixed Budget, with lower fuel and food import costs offering some relief while rising wages continue to put pressure on margins.

The UK’s supermarkets are set to benefit from measures aimed at cutting food and operating costs in the government’s Budget, although higher wages will continue to weigh on grocery retailers.

Chancellor John Healey announced the suspension of tariffs on more than 100 food and drink products, including baked beans, plant-based drinks, dried fruit and chocolate.

The government said the measures are expected to reduce consumer costs by between £120m and £185m a year, with the latest package taking the total expected saving from food tariff suspensions to between £245m and £595m. The measures will remain in place for two years, until December 2028.

The tariff changes could reduce the cost of importing some products, although the extent to which these savings are passed on to shoppers will depend on individual supply chains and supplier agreements.

The move comes as grocers continue to compete heavily on price, with Aldi and Lidl putting pressure on the traditional big four and supermarkets investing billions in price cuts and promotions.

Fuel relief for supermarket supply chains

The extension of the 5p fuel duty cut will also provide some relief for supermarkets, which operate large delivery fleets and rely heavily on road transport to move food from suppliers and distribution centres into stores.

The government has extended the cut until 1 July 2027 and deferred a planned RPI-linked increase until the same date.

Diesel prices have exceeded £2 a litre in October, according to the government, making the extension particularly relevant to grocery retailers with large HGV fleets. The Budget also maintains the HGV road tax holiday.

The saving could help supermarkets absorb some of the costs associated with distribution, home delivery and store replenishment.

Living wage increase adds pressure

The National Living Wage will rise by 3.9 per cent to £13.21 an hour from April 2027, while the National Minimum Wage for 18- to 20-year-olds will increase by the same percentage to £11.27.

The government said the increase will benefit around 2.3 million workers.

The rise will affect supermarkets particularly heavily given the size of their frontline workforces, with thousands of employees working in stores, warehouses and distribution operations.

For grocers, the increase comes alongside other employment costs and could make labour productivity, automation and the use of technology increasingly important.

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Business rates relief less relevant to large grocers

The Budget’s business rates package will offer greater support to smaller retail businesses, but its impact on the UK’s largest supermarkets is likely to be more limited.

The government is increasing the Small Business Rates Relief threshold for qualifying retail, hospitality and leisure properties from £12,000 to £18,000 for 100% relief, with tapered relief increasing from £15,000 to £21,000.

It will also freeze business rates bills in real terms for qualifying retail, hospitality and leisure properties for two years.

While this will be welcomed by smaller grocery businesses and convenience retailers, the major supermarket groups operate large portfolios of stores with rateable values well above the relief thresholds.

The government said the package means around 110,000 retail, hospitality and leisure properties will see their business rates bills fall next year, while half of all qualifying properties will pay no business rates.

Could households spend more?

The Budget could also provide a boost to supermarket sales if measures designed to ease household finances translate into greater disposable income.

Up to 20 million households in England will receive a £100 Household Energy Payment from January 2027, while the temporary VAT cut on domestic electricity has been extended to July 2027. The government estimates the VAT measure will reduce the annual Ofgem price cap by around £50 in April.

For supermarkets, the potential benefit is less about the £100 payment itself and more about whether lower household bills give consumers greater confidence to spend.

The weekly food shop remains one of the largest regular household expenses, meaning grocery retailers are likely to remain central to consumers’ efforts to manage their budgets.

What does it mean for supermarkets?

Overall, the Budget provides supermarkets with some relief on key operating costs, particularly fuel and the cost of importing certain food products.

But it does little to remove the structural cost pressures facing grocery retailers.

Higher wages will increase the cost of running stores and distribution networks, while supermarkets remain locked in a highly competitive battle for price-conscious shoppers.

The tariff suspensions could give grocers another tool to manage food prices, but the impact on shoppers will ultimately depend on how much of the saving is passed through the supply chain.

Therefore, the Budget is likely to be viewed as helpful on costs, but far from transformative.