Food & drink industry reacts to “tough” Budget: inflation to persist into 2027

Britain’s food and drink industry reacted with disappointment and concern on Wednesday, warning that the Autumn Statement, delivered by Chancellor Rachel Reeves, failed to prioritise economic growth and instead placed a new wave of cost burdens on manufacturers and consumers alike.

The Food and Drink Federation (FDF), the sector’s main trade body, acknowledged the challenging fiscal environment but stated the Budget lacked sufficient measures to protect the economy from persistently high food prices.

Karen Betts, chief executive of the FDF, emphasised that investment in productivity was the best way to safeguard against ongoing high rates of food inflation, but noted the Budget fell short of providing the necessary incentives.

The FDF also expressed concern over changes to pension salary sacrifice, which it warned could discourage adequate retirement saving among the sector’s half a million employees.

Alcohol sector decries “hammer blow” duty hike
The most severe criticism came from the drinks industry, following the Chancellor’s decision to increase alcohol duty in line with the Retail Prices Index (RPI) measure of inflation. The Scotch Whisky Association (SWA) described the move as a failure to nurture a critical British export.

Mark Kent, chief executive of the SWA, slammed the duty hike as a “hammer blow,” pointing out that the previous spirits duty increase of 3.65% had actually proven counterproductive, reducing spirits revenue by 7%, which equated to a £150 million loss to the Treasury.

Kent warned that hiking duty for the third time in two years would “needlessly cost jobs” and place “huge additional pressure on a sector suffering job losses, stalled investment and business closures.”

The association had pleaded for a duty freeze, requesting “breathing room” rather than a tax cut, but Kent stated the government had “chosen to ignore those warnings.”

Inflation and consumer caution expected
Economists watching the sector reinforced the dire outlook for consumers. James Walton, chief economist at IGD, a research body, described the Budget as a “tough Budget for shoppers,” projecting that food inflation would continue to run ahead of overall inflation and persist into 2027.

Walton estimated that a significant portion — about a third — of the current inflationary pressure was attributable to government policy decisions, which would keep consumers “extremely cautious and reluctant to spend.”

The only notable relief for the manufacturing side came in the form of regulatory alignment. The FDF welcomed the government’s acceptance of mass balance accounting for chemically recycled plastic, a move which is expected to lower the plastic packaging tax bill for manufacturers. It also praised the announced proposals for the Soft Drinks Industry Levy (SDIL), noting that the government had finally “listened to industry” on the complexities of developing healthier products under the levy’s rules.