UK retailers are set to escape being whacked with a higher business rates tax band at the coming budget, after the sector said higher charges would drive further inflation for customers.

Chancellor Rachel Reeves is reportedly set to bow to retail industry pressure, spearheaded by the grocers, by removing the sector from the top band of business rates, according to reporting by the FT.

Officials told the publication that the Treasury was set to remove large retail premises from the highest bracket of the property tax, after recent meetings with business leaders on the issue.

While officials stressed that a final decision had yet to be made, they insisted that the retail sector had been “listened to”.

At last year’s budget, the government proposed increasing business rates on the largest retail properties with values of more than £500,000, in order to offer a permanent discount for smaller retail and hospitality premises.

It argued that the new system would only affect the top 1% of properties and would even help level the playing field with the likes of ecommerce giants such as Amazon by bringing online retailer’s vast warehouses into the tax band.

However, the proposal was met with indignation and anger by the UK’s largest retailers who said it would make the biggest stores unprofitable and could lead to store closures and job losses, on top of heaping further tax pressures onto business already grappling with increases to national insurance contributions, wage increases and new packaging taxes.

The BRC ruled any business rates surcharge could lead to up to 400 store closures.

The retail lobbying group has instead urged the Treasury to exempt large stores from the higher rate, while increasing the additional levy for properties such as big office blocks to fund the discount for smaller properties.

Speaking today, Tesco boss Ken Murphy urged the government to rethink the proposals, arguing that very large retail premises are now the “anchor tenant for many shopping centres and high streets”.

“They are what draw all the other, smaller retailers to those locations,” he said. “And therefore, their viability is hugely important to many, many high streets across the country.”

He said that retailers already pay a huge amount in business rates and called on the government to “follow through on its promise and make it a fairer system”.

Should the surcharge go through at the budget, Murphy wouldn’t be drawn on whether or not Tesco would close any affected supermarkets as a result.

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