Scottish retailers will have to generate £3.1 billion of additional sales to offset the impact of the “colossal” tax hike at last month’s Budget, a leading industry group warned today.

The UK Government drew a furious reaction in the business world when Chancellor Rachel Reeves announced a 1.2 percentage point rise in employer national insurance contributions to 15%. Along with a reduction in the level at which employers start paying national insurance on each employee’s salary, the changes are expected to raise £25bn.

The Chancellor is looking to raise £40bn a year from extra taxes to ease the pressure on the UK’s battered public finances.

Now the Scottish Retail Consortium has revealed the addition sales retailers will have to generate to offset the hike in employer national insurance contributions, which is expected to cost retailers in Scotland £190 million per year.

David Lonsdale, director of the SRC, told The Herald: “The colossal hike in national insurance contributions hits retail disproportionately because it’s the country’s largest private sector employer and because retail employs large numbers of folk in entry-level and part-time jobs.

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“We estimate it will cost retailers in Scotland £190 million each year, which given the industry’s low profit margins would be the equivalent of having to sell an extra £3bn of goods each year to offset the cost and maintain margins. Given consumer spending is becalmed and retail sales have flatlined for five months, the notion of a double-digit year on year increase in sales revenues is wholly unrealistic.

“As a result, retailers will be compelled to act on several fronts including shedding jobs and curbing pay growth and hours, shelving stores and investments, and considering passing on some of the cost to customers in higher prices. It risks real world implications for customers, store colleagues, and the vitality of our retail destinations.

“The sheer scale of the tax hike and short timeframe for implementation has fundamentally changed the outlook. It’s imperative Scottish ministers don’t do anything in their upcoming Scottish Budget to compound the costs crunch facing retailers.”

The SRC is increasingly concerned that the Scottish Government will heap further pressure on the industry by added a business rates surtax to larger grocery stores. It emerged during First Minister’s Questions that John Swinney is considering the move as he responded to a question from Scottish Greens co-leader Lorna Slater.

In an extract from a new letter sent to the Finance Secretary Shona Robison this week, Mr Lonsdale said the introduction of a surtax would be “unconscionable”.

“The sheer scale of the cost increase announced by UK ministers is alarming, more so given Scottish retail sales have been flatlining for the past five months,” Mr Lonsdale said. “This will be incredibly difficult to absorb and will have consequences for retailers’ investment plans, staffing, and employment, and potentially shop prices. It will also affect suppliers.

“Against this backdrop, it is unconscionable that Scottish ministers could compound the costs crisis facing the retail industry by introducing a business rate surtax on grocery stores. To this end, we implore you to ditch the mooted business rate surtax. Furthermore, as set out in our Scottish Budget recommendations paper and tax strategy submission, we ask for a focus on competitiveness: restoration of the level playing field with England for firms paying the higher property rate; a blunting of any inflationary uplift on Scotland’s three business rates; and use of Barnett consequentials from reductions in English rates to reduce rates here.”