Budget 2026: The food, drink and retail industries react

Commentators have said smoke and mirrors abound this week’s Budget announcement from Chancellor Rachel Reeves, with many reflecting that not only do the proposed tax rises demonstrate Labour doesn’t have spending under control, but that some spending remains largely immediately uncosted, relying on said future rises in two to three years’ time to balance the books.

The Budget was mired from start to finish – preceded by the accidental release of the OBR’s announcement (that average GDP growth will be 1.5% per year over the next five years, and demonstrating a modest deterioration in pre-measured fiscal position, with borrowing £6 billion higher, and current surplus reduced to £4 billion by 2029-30).

This was followed by uproarious outbursts throughout the Chancellor’s monologue, with the deputy speaker calling out poor behaviour from the opposition almost throughout the hour.

Beginning the Budget, Reeves said, “We are rebuilding our economy. Over the last 16 months we have overhauled our planning system to get Britain building, forged new trade deals with the United States, India and the European Union, reformed our visa system to bring the brightest and the best.”

She added that Labour had raised public investment, and called the changes she had made “fair and necessary” choices in the face of strong opposition, ruling that working people “demanded and deserve change”.

Reeves talked at length about investments not cuts, about building and stability, bringing down the cost of living, and creating a fairer and more secure Britain.

Headlines included a so-called ‘mansion tax’ to be levied on properties above £2million and paid alongside Council Tax, pay-per-mile on electric vehicles, the scrapping of the two-child benefit cap. 

Most pertinent for our readers were:

- The freezing of Personal Allowance for a further three years – putting less money into consumers’ pockets.

- A new 40% first year allowance allowing new businesses to write off more of their upfront costs, and the extension of some business rate pilot schemes until 2029.

- The extension of the sugar tax to incorporate milk-based drinks from 1st January 2028.

- Investment in transport links.

- Additional support for Britain’s manufacturers (though it’s not known if this will be extended to the food and drink industry).

- Around £1.5billion collectively going to Northern Ireland, Wales and Scotland, including £17million earmarked to support and strengthen the UK’s internal market with NI.

- A national licensing framework designed to back late-night venues and pubs, giving them greater freedoms.

- Permanent lower tax rates for over 750,000 retail, leisure and hospitality properties.

- Increasing of the minimum wage for 18 to 20-year-olds to £10.85 per hour, and the living wage to £12.71 per hour.

- A small change to agricultural IHT rules, allowing farmers who are married, or have deceased spouses, to transfer their allowance to one another if one of them dies having not used it.

These measures, Reeves concluded, will contribute to the brightness of our future, adding that everyone has to play their part, and she had acted to keep rises as small as possible.

What do industry bodies and commentators have to say?

Helen Dickinson, chief executive, British Retail Consortium: “It was a mixed bag Budget that offered relief for many shops, but brought in new costs for others. Retailers face a delicate balancing act as they strive to invest, hire, and keep prices affordable. The announced permanent reduction in retail business rates is an important step to reduce the industry’s burden from this broken tax. 

“Yet the decision to include larger retail premises in the new surtax does little to support retail investment and job creation. The welcome plan to scrap the damaging de minimis loophole was weakened by a 2029 deadline. And while increases in the National Living Wage were in line with expectations, the rise to the minimum wage for under-21s could limit employment opportunities. All in all, we will see winners and losers across retail and the impact for consumers will unfold in the coming months, but this Budget does not go far enough to mitigate the inflationary pressures already bearing down on the industry.”

Karen Betts, chief executive, The Food and Drink Federation: “We recognise the Chancellor had difficult decisions to make given the challenging fiscal situation. But we would have liked to see more in this Budget on growth. Investment in productivity and growth in our sector is the best medium-term protection against the UK’s persistently high rates of food inflation, and it preserves jobs and boosts skills. While it’s positive to see the government engaging on inflation, there’s much more government and industry can do together now to address this.

“This includes ensuring the UK’s largest manufacturing sector receives an adequate share of government R&D funding, maintaining stable regulation, and not overlooking food and drink in support for energy intensive industries. Where regulation needs to change, government must ensure meaningful consultation with business – as there was on the Soft Drinks Industry Levy, but which we need to see on the Nutrient Profile Model too. The right engagement between our industry and government will create the conditions for sustained growth, investment, and productivity gains.”

Tom Bradshaw, president, NFU: “It’s good to see the government accepts its original proposals (for agricultural IHT) were flawed. But this change goes nowhere near far enough to remove the devastating impact of the policy on farming communities.

“It’s only right that agricultural allowances can be transferred between spouses and it’s something we’ve been calling for, but it doesn’t go anywhere near far enough in protecting the working people of the countryside. It does nothing to alleviate the burden it puts on the elderly and vulnerable.

“It is also a huge smack in the face to the Labour MPs who have been working so hard to find a way through this for their local farmers. To them, we say thank you.
The Chancellor said she wanted to ‘back working people not make them poorer’ and to ‘increase investment not cut it’. To do that, government must look again at the multiple solutions that have been put forward by industry and tax experts

“Several other announcements in the Budget will hit farming and growing businesses hard. The increase in the National Living Wage, which will have risen 12% in two years, puts further cost pressures on agricultural and horticulture businesses and further inflationary pressures on our food system. At a time when the government has an ambition to get the country eating more fruit and vegetables, it will hit the horticulture sector hardest.

“The increase in the autonomous tariff quota (ATQ) for sugar cane undercuts British growers at a time when this government says promoting growth and investment at home is its priority.
However, we believe farming may benefit from the announcements on apprenticeships and it could help bring the next generation into our food and farming sector. 

“Public support over the past year has been incredible. We will need this support to continue from all sides to create the change needed to protect those people caught up in this unjust, unfair policy. The fight continues; we cannot give up and we will work with the wider industry, supply chain and MPs on next steps.”

Patrick Clover, founder of Stampede: “Although the government plans to introduce ‘permanently lower tax rates’ for more than 750,000 retail, hospitality and leisure properties, these measures won’t completely help operators. The hike in minimum wage and ‘sugar tax’ will lead to further cost-cutting and reviews of how to improve operational efficiencies. Many operational changes made will probably only provide marginal efficiency gains, and will only get operators so far. Additionally, it’s likely that costs passed onto the sector will be passed onto consumers, so they won’t benefit either. They are already hard-pressed to spend, given existing tightened budgets and inflation. Therefore, operators have their work cut out to keep costs down, and increase footfall and revenue per head. 

“Achieving an increase in footfall depends on investing in guest engagement technology to get people through the doors. Many operators think it’s just about changing the menu, updating the ambience, or putting out social posts. More is needed. Operators must attract the right clientele through doors; and keep them coming back, irrespective of operational changes made.  While it may seem counterintuitive to invest in technology during difficult times, businesses need to ask: what hurts more - strategic spending, or empty venues and zero revenue? And, what is the point in a killer proposition if there is no one to buy into it?”

Professor Joe Nellis, economic advisor at MHA: “Has the Budget actually helped put money in people’s pockets in the short-term? Not really. The freeze on income tax and National Insurance thresholds until 2028 will drag many earners into paying higher rates of tax, and the above-inflation increase in the minimum wage could disincentivise hiring at a time of high youth unemployment and economic activity.

Movement towards fiscal stability was unclear. The financial markets appear content, increased tax revenues by £26bn has given the Chancellor a more comfortable fiscal headroom of £20bn, but the OBR and Treasury disagree on whether debt as a share of GDP will be on its way down by 2030.

The big question mark hanging over the Budget is whether it will produce the growth that the Chancellor predicts — as always, unexpected events and external shocks could push her plan off course.”

James Walton, chief economist, IGD: “This has been a tough Budget for shoppers, with Government needing to raise significant sums of money, taking taxation to record levels. IGD expects food inflation to persist into 2027, with government policy contributing about a third of this pressure.

“Food inflation will run ahead of overall inflation, making food relatively more expensive. Therefore, food shoppers will remain extremely cautious and reluctant to spend and the operating environment for food businesses will remain extremely difficult. The next few years will be characterised by weak volume growth and tight profits across retail and away from home. 

“It’s clear there’s no immediate relief on the horizon for consumers or businesses. The increased taxation will slow volume growth which means less investment for the future resilience of the food system. There are opportunities for growth out there and targeted policy changes could unlock this, especially in horticulture and poultry.  These changes could release £5bn of investment and create 60,000 jobs, and that means genuine economic progress.”

Andrew Goodacre, CEO, Bira: “The original proposals (for business rates) talked about reducing multipliers by up to 20p for smaller properties and 10p for larger ones. What we’ve actually got is a 5p reduction - and even that is largely down to the rates revaluation rather than genuine reform. The government has missed a real opportunity to tackle an unfair tax that’s crippling high street businesses.

“This is not the transformation we were promised. Nearly all our members will be paying significantly more in rates next year. That’s simply unacceptable when businesses are already struggling with rising costs.

“This was supposed to be about levelling the playing field. Instead, we’ve got another four years of being undermined by cheap and often unsafe imports while the government drags its feet.”

Martin Lines, CEO, NFFN: “The Budget represents a huge missed opportunity to recognise the enormous value our farmed landscape can deliver for the economy. A well-supported, nature-friendly farming system provides multiple benefits for our society, yet the government has almost completely overlooked the role of our countryside and rural economy in driving growth and resilience.

“We simply have to invest in our landscapes. Nature-friendly farming and land management can deliver huge cost savings for the Government, whether that’s through renewable energy projects, nature-based flood mitigation systems or carbon storage.

“At the same time, farming with a focus on soil health, nature and clean air and water is vital for food security and controlling the cost of living. The impact of climate change on harvests, food production and prices is already visible on supermarket shelves.

“Farmers need ambitious, long-term investment, from both the private and public sector, making the government’s continued blind spot towards the industry all the more alarming.”

Stuart Wilson, owner, Lost Sheep Coffee: “As an RTD milk-based coffee brand, the extension of the sugar tax to cover milk-based drinks affects our business. However, unlike some of the biggest RTD brands, prior to the ruling, we were already below the sugar tax level (at 4.5g of sugar per 100ml) and we are planning to reduce this by nearly 40% by 2026 (to just 2.8g of sugar per 100ml.)

“As a category, it’s vital that brands get on board, as current UK advice states that free sugars should account for no more than 5% of daily energy intake, but the amount of sugar consumed in the UK right now is double that.”

Deepak Shukla, SEO, Pearl Lemon Catering: “From what I can see, the Budget lands fairly well for a lot of smaller hospitality and retail businesses. The plan to bring in permanently lower business rates multipliers for roughly 750,000 RHL properties from April 2026 is going to make a real difference to everyday running costs, especially for operators who are already cutting things as close as they can.

“There’s also that £4.3 billion support package aimed at softening the impact of the next round of property revaluations. That part feels practical, at least in the sense that it gives businesses a bit of warning and a bit of cushioning at the same time.

“The picture changes once you look at the larger end of the sector though. Bigger stores, including the supermarket chains and the big flagship sites with higher rateable values, will be dealing with a higher business rates multiplier. So while smaller operators might feel some relief coming, the big players could still be squeezed. That pressure has a habit of trickling back through the supply chain. When you add rising wages and general cost inflation into the mix, the gains for smaller businesses can get swallowed up pretty quickly.”

 

So yes, it’s helpful for many small and mid-sized food and drink businesses. It gives people a bit of room to breathe. But it’s not the full solution everyone’s hoping for, and there are still some big gaps the sector will be watching closely.