Iceland faces price increases due to Rachel Reeves' tax hikes
Iceland, the UK-based frozen food chain founded by Sir Malcolm Walker and Peter Hinchcliffe in 1970, is currently grappling with elevated food price inflation. This inflation is primarily driven by increased costs from higher taxes, particularly rises in employers' National Insurance contributions and the National Living Wage.
According to recent reports, Iceland's market share remained steady at 2.2% during the financial year, while its turnover increased slightly, from £4.10bn to £4.11bn. However, the company has reported a pre-tax loss of £900,000 for its financial year ending March 2025, a significant decline from the pre-tax profit of £15.6m in the previous year. Profit before interest and tax also declined from £87.1m to £76.6m during the same period.
The company has attributed these financial setbacks to the recent budget announced by Chancellor Rachel Reeves, which increased employer National Insurance and minimum wage costs. These increased costs have caused suppliers and retailers to raise prices to cover their expenses, leading to higher prices for consumers.
Iceland is actively working to offset these cost increases. The company aims to maintain EBITDA over the year as a whole and recover the shortfall before the end of FY26. However, the cost recovery will be progressive, with some dilution of EBITDA expected in Q1.
In an effort to expand its presence, Iceland plans to open 20 new stores during its current financial year, primarily under The Food Warehouse brand. Despite this growth strategy, a net 13 Iceland stores were closed, and 14 The Food Warehouse locations were opened during the year.
Meanwhile, Iceland's rival, Morrisons, has faced similar challenges. Morrisons was bought by US private equity investor Clayton Dubilier & Rice (CD&R) in October 2021. The supermarket chain has cut more than 3,600 jobs as it returned to profit for the first time since the private equity-backed takeover in 2021. Morrisons' revenue also declined in the year from £18.3bn to £17bn. However, Morrisons posted a pre-tax profit of £2.1bn for the 12 months to 27 October, 2024, after making a pre-tax loss of £919m in the prior 12 months and £1.3bn in the year before that.
In a separate context, the inflation rate in Iceland the country has slightly decreased in July 2025 to 4.0%, with food and non-alcoholic beverages price inflation moderating to 5.0% from 6.0% the previous month. This suggests some easing in general food price inflation there, though it remains elevated.
In summary, for the supermarket Iceland, food price inflation is currently elevated due to tax and wage-related cost pressures caused by government policy changes. The company is balancing between absorbing costs and passing some onto consumers, with ongoing efforts to mitigate the impact over the coming fiscal year. Meanwhile, inflation in Iceland the country shows some moderation but still elevated food prices.
- The elevated food price inflation at Iceland is largely attributed to increased taxes, such as higher employer National Insurance contributions and increased minimum wages.
- The financial setbacks at Iceland are also due to increased costs from insurance, specifically National Insurance, as a result of government policy changes.
- The finance industry, including the general-news media, is closely following the story of Iceland's struggle with food price inflation, impacted by both taxes and insurance costs, and the company's efforts to offset these costs.
