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Sainsbury’s warns it won’t be able to absorb cost inflation after tax hikes

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London — The boss of British supermarket Sainsbury’s said changes to national insurance made by the UK government in its budget last week would add £140m to its tax bill next year and warned the move would be inflationary.

Finance minister Rachel Reeves raised employers’ National Insurance, or social security, contributions by 1.2 percentage points to 15% from April next year, and also lowered the threshold for when firms start paying, to £5,000 from £9,100 per year. She also raised the minimum wage for most adults by 6.7% from April.

“We’ll do everything we can to mitigate this, but given the margins of the industry — this is a 3% margin industry — there just isn’t the capacity to absorb this level of unexpected cost inflation that is coming at us as fast as it is,” Sainsbury’s CEO Simon Roberts told reporters on Thursday after the group reported first half results.

“As the Office for Budget Responsibility has said, it will feed through into inflation,” he said.

Roberts was also critical of the government for not doing enough in the budget to reduce retailers’ business rates burden and for tax changes affecting farmers.

On Wednesday, Marks & Spencer and JD Wetherspoon also highlighted big hits to their tax bills.

Reeves has said businesses would have to absorb some of the rises through their profits.

Sainsbury’s, whose shares fell nearly 3%, stuck to its full-year forecast of up to 10% profit growth after a 3.7% rise in the first half, with robust grocery sales offset by weakness in general merchandise.

It said its strategy of matching discounter Aldi’s prices on hundreds of essential items and providing better offers for members of its Nectar loyalty scheme, financed by cutting costs, was paying off.

The group is also benefiting from the continuing trend of Britons dining at home more, with sales of its premium Taste the Difference range up 18% in the first half.

Roberts forecast a “strong performance” at Christmas.

Sainsbury’s has a UK grocery market share of 15.2%, the latest data from researcher Kantar shows, up 40 basis points year on year.

Britain’ number two grocer after Tesco said it still expected 2024/25 retail underlying operating profit, its preferred profit measure, of between £1.01bn and £1.06bn, growth of 5% to 10% versus 2023/24.

For the six months to September 14, Sainsbury’s made retail underlying operating profit of £503m, up from £485m in the same period last year.

Second-quarter like-for-like sales, excluding fuel, rose 4.2%, having been up 2.7% in the first quarter.

Grocery sales rose 5.3% and general merchandise and clothing sales in Sainsbury’s stores were up 2.2%. However, sales at the Argos business fell 1.4%.

Reuters

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