Budget 2026: Tesco chief urges Chancellor to exempt retailers from higher rates on large properties

Tesco chief executive Ken Murphy has urged the Chancellor to exempt retailers from higher business rates on large properties, adding a second major retailer’s voice to the debate over a possible warehouse tax ahead of the Budget. Retail Gazette reported his comments after Tesco’s half-year results on Thursday. The warehouse tax itself has not been confirmed, and no government decision has been published.

LBC also reports that the IPPR think tank proposed a 2% tax on online sales earlier this week, as a way to support bricks-and-mortar businesses. Chancellor John Healey delivers his first Budget on 28 October.

Tesco chief urges Chancellor to exempt retailers

Speaking as Tesco reported its results, Mr Murphy described the current system in blunt terms. “The business rates system is fundamentally unfair,” he said. “Retailers are paying four times more than their fair share of rates and I would urge the Government for more equitable rates.”

According to Retail Gazette, he asked for retail businesses to be exempted from the higher rates multiplier that applies to properties with a rateable value above £500,000. “We genuinely believe rates need to be reformed and we urge the Government to exempt retailers from the threshold put in place last year,” he said. Retail Gazette reports that he declined to say whether any extra cost would be passed on to Tesco customers.

The intervention came as Tesco raised its full-year profit guidance. It now expects adjusted operating profit of between £3.15bn and £3.3bn for the year to February 2027, against a previous range of £3bn to £3.3bn. UK like-for-like sales rose 1.5% in the 26 weeks to 29 August, according to Retail Gazette. Retail Gazette says the wider sector has warned that higher warehouse rates could add pressure to food prices and household budgets.

John Lewis and the IPPR online sales tax

The John Lewis chair, Jason Tarry, set out his own objections in The Telegraph, as reported by LBC and IndexBox. He said the proposals rested on “a fundamental misunderstanding of how modern high streets work”. According to LBC, he argued that department stores and supermarkets, including 36 John Lewis stores and hundreds of Waitrose branches, act as anchor tenants whose footfall sustains nearby independent shops, pubs, bakeries and cafes.

Mr Tarry did not rule out change. LBC reports that he accepted there was a case for “online retail shouldering a fairer share of tax”, but rejected the idea of retail as a zero-sum contest between physical shops and online. He called for reform of the “archaic” business rates system and for tax-free shopping for foreign visitors to return.

The IPPR’s 2% online sales tax is a separate idea from the warehouse levy, and LBC does not say how it would be collected or who would pay. As an illustration only, if a retailer passed a 2% charge on in full, a £50 online order would cost £1 more. Whether that would happen is unknown, because no such tax has been announced.

Who occupies the warehouses

The debate turns on who actually uses large logistics sites. Supporters of a warehouse levy argue it would correct an imbalance between high street shops facing steep rates and online firms using cheap land. Retail Gazette cites two pieces of analysis that complicate that picture.

Property consultancy Savills found that high street retailers occupied more space in warehouses than online retailers in 2024. Separately, business rates consultancy Ryan found that the 10 warehouses with the highest rates bills are run by Lidl, Tesco, John Lewis, Sainsbury’s and Marks & Spencer.

Our own arithmetic shows what these numbers imply. The Savills figures differ by 28m sq ft, and high street retailers account for about 58% of the 166m sq ft the two groups occupy together. Mr Tarry’s figures give more than 11 stores for each John Lewis distribution centre, which illustrates his argument that a warehouse charge could weigh on shops as well as online sellers; that ratio is our calculation, not a claim he made. These are retailers’ and consultants’ figures, and the government has not published its own.

What happens next

Mr Healey is due to meet executives from businesses including Marks & Spencer, Sainsbury’s and Tesco before the Budget, according to Sky News, as cited by Drapers. One source told Sky News the Chancellor would discuss “the UK’s retail, hospitality and leisure sectors, small businesses and the high street”. Youth unemployment is also expected to come up, following a commitment by the government and more than 40 retailers to create 100,000 retail jobs by 2029.

According to IndexBox, the idea under discussion is to raise rates on large warehouses to fund a 20% rate cut for pubs, clubs and live music venues. The government has not confirmed this. LBC says Andy Burnham suggested before taking office that higher rates on warehouses and out-of-town retail developments could make tax breaks for high street shops possible. LBC adds that Mr Healey has little room for manoeuvre, with the Iran war contributing to rising inflation and borrowing costs.

Drapers said it had contacted the Treasury for comment.