Bulletin: Budget special

The Budget

The Chancellor has delivered the first budget of the new Labour government, announcing significant tax changes and long-term public sector investment. Alongside this, the Office for Budget Responsibility (OBR) has set out its expectations for the UK economy.

To read our full analysis, see our article The Budget: what it means for the food system.

Outlined below are eight key measures impacting the food system.

1.    GDP

GDP is forecast to rise by just over 1% this year, rising to 2% in 2025, before declining to around 1.5% until 2029.

2.    Inflation

Inflation is forecast to be 2.6% in 2025 and then gradually fall back to the target rate of 2%.

3.    National Living Wage

The National Living Wage (NLW) will increase by 6.7% to £12.21 per hour from April 2025. The NLW for 18 to 20-year-olds will also rise from £8.60 to £10.00 an hour.

4.    Employer national insurance (NI)

Employer NI payments will increase by 1.2% to 15% from 6 April 2025. The Secondary Threshold – the level at which employers become liable to pay NI on each employee’s salary – will reduce from £9,100 per year to £5,000 per year.
There will be relief for small businesses as the Employment Allowance will increase to £10,500 from £5,000 and be extended to all eligible employers by removing the £100,000 cap, allowing firms to employ up to four NLW workers full-time without paying employer NI on their wages.

5.    Retail crime

The Chancellor has committed to additional funding “to crack down on organised crime which targets retailers.” The government will scrap the effective immunity for low-value shoplifting below £200.

6.    Business rates

Business rates relief has been extended, albeit with a reduced discount, from 75% to 40% for retail, hospitality and leisure, up to a cap of £110,00 per business. The small business rates multiplier has been frozen.

Further reform to business rates is planned from 2026/27.

7.    Alcohol duty

Alcohol duty will be uprated in line with RPI, except for most drinks sold in pubs. Alcohol duty will be cut by 1.7% for draft alcohol sold in pubs.

8.    Fuel duty

Fuel duty will be held at the current level for one year. The temporary 5p cut to fuel duty will be extended to 22 March 2026.

IGD Opinion

Many key policy elements were described in the Labour election manifesto or otherwise trailed in advance so there were few major surprises.

However, this budget marks a change in approach compared to the previous government, with a clear focus on boosting investment to drive economic growth. With the Budget forecast to raise £40bn in taxes to support public services and finance borrowing, it marks the biggest tax-raising budget since 1993.

The government will be hoping that the significant increase in public sector investment, particularly over the long term, funded through increased borrowing, will help to boost economic growth.

For food and drink businesses, an increase in the cost of labour, driven by changes to NI and the NLW could be challenging – and likely inflationary, given the low margins of many businesses.  It is expected that much of this will be felt by workers, with wage rises expected to be lower than they might have been. It will be of some comfort that there is relief for smaller businesses. It is also welcome that business rates relief has been extended, however most businesses will still see their rates bill rise.

Businesses across the food system have been calling for more support to tackle retail crime. The Chancellor's announcements will be welcome.