So here we are again, as the leaves begin to fall and summer gives way to autumn, it’s Budget time.
And although this year’s entry (which is incidentally both John Healey’s and Andy Burnham’s first) is on a markedly smaller scale than the previous two Labour Budgets, there is still plenty for the food and drink sector to sink its teeth into.
The topline news is perhaps the fact that existing industrial energy support measures will not be extended to food and drink manufacturers, with Healey’s Budget preferring to focus on targeted help for households instead.
This has prompted strong criticism from the Food and Drink Federation (FDF), which has also highlighted how the Government’s decision to remove tariffs on more than 100 products, including baked beans and chocolate, will further hit the industry’s bottom line.
“This Budget offers nothing to ease the pressures food and drink manufacturers are under,” said Karen Betts, chief executive of the FDF.
“Instead, one of the Chancellor’s flagship announcements, removing tariffs from some food and drink products, will have no meaningful impact on consumer prices. But it will undermine British factories and their workers, grappling with much higher costs, producing the same products.
“The Government has chosen not to extend energy support, available to other manufacturing sectors, to food and drink businesses, which would have helped to strengthen our sector in the face of overwhelming pressures. Our energy costs are double the European average, and this is hitting investment, jobs and growth.
“If government is serious about tackling the cost of living, there is plenty they can do. But today they have made a clear choice to do nothing.”
The Budget does outline longer-term plans to reduce exposure to volatile gas prices between 2028 and 2030, but these are not an immediate solution for hard-pressed food and drink firms.
Healey’s decision to cut tariffs, which will also see suspensions extended on 269 goods, including grape juice and tomato paste, has equally been panned by the National Farmers’ Union (NFU), which, like the FDF, believes the overall positive impact will be minimal.
Focusing on the cut to fertiliser tariffs in particular, NFU president Tom Bradshaw said: “Unfortunately, the fertiliser tariff reductions being talked about today are unlikely to make a meaningful difference to farm businesses or household food bills.
“Any impact at farm level will depend hugely on whether the products covered are those UK farmers use and whether those reductions are passed through the supply chain. As we have said repeatedly, strengthening domestic food production is the best way to improve food security and cost of living pressures.”
SMEs handed rates relief boost
On a more positive note, the Budget does contain some welcome rates relief for SMEs. The Small Business Rates Relief threshold will rise to £18,000 for 100% relief, with a higher threshold for tapered relief. This means qualifying retail, hospitality and leisure properties in England will benefit from a package of real-terms freezes, reductions or zero bills from April 2027.
This has, however, been counteracted for many businesses by the impending 3.9% rise in the National Living Wage for workers aged 21 and over, from £12.71 to £13.21 an hour.
This is something which Rupert Ashby, chief executive of the British Frozen Food Federation, believes will directly impact businesses’ ability to create jobs.
“The business rates measures announced in the Budget will be welcome for those smaller businesses in the frozen food sector that qualify for the additional relief. However, the wider cost base facing the food industry remains a serious concern,” he said.
“Previous increases to employer National Insurance contributions and the National Living Wage have placed significant pressure on businesses. With the minimum wage rising again, employers face further costs at a time when they need to recruit, develop the next generation of talent and invest in the resilience of the UK food supply chain.”
He added: “Our members have worked hard to absorb these pressures, but there is a limit to how long businesses can continue to do so. A resilient food industry needs the capacity to invest, innovate and create jobs, rather than simply manage another round of rising costs.”
Small alcohol producers receive targeted support
A £10 million boost in annual support for smaller alcohol producers is another measure aimed at giving SMEs some breathing room, with more than 2,000 businesses set to benefit.
Changes include a more generous discount taper for products below 3.5% ABV and an uprating of the marginal discount for products between 3.5% and 8.4% ABV from 1 February 2027.
For bigger firms, however, there is considerable discontent over the fourth consecutive duty increase on spirits, which Scotch Whisky Association chief executive Mark Kent has called a “damaging blow” for the sector, adding that the move will “see the tax burden on the average bottle of Scotch whisky rise to 74%”.
Fuel duty freeze welcomed
And last, but certainly not least, the freeze in fuel duty has drawn praise across the board, especially from the logistics industry, which is a vital partner to food and drink manufacturers across the UK.
“The Government’s decision to retain the 5p per litre cut in fuel duty is a wise decision which will help keep trade moving, support growth across the economy and avoid adding further inflationary pressures,” said Ben Fletcher, chief executive of Logistics UK.
“We are delighted that the Chancellor has listened to Logistics UK’s strong case for maintaining the duty cut at a time of global uncertainty and rising costs for businesses and consumers.”
Mixed verdict from industry
What we have then is something of a mixed picture for food and drink manufacturers, with many commentators bemused at the Government’s decision to once again overlook the sector for more targeted energy support, while tariff removals are set to increase competition for hard-pressed domestic producers.
The big winners, if there are any in times like these, will be the SMEs, who, let us not forget, make up the vast majority of food and drink businesses in the UK.
Many of the measures in Healey’s inaugural Budget will no doubt be welcomed, but many will be left wondering when, if at all, they will feel some tangible improvement in their circumstances.
