Bulletin: Spending rises as growth stalls

Spending review

The government has published a Spending Review (SR25), covering the period up to 2030. SR25 was widely expected to be tough, with the government forced to make difficult decisions. However, SR25 specifies continued growth in spending.

The total Departmental Expenditure Limits (DELs – capital investment and running costs, but not contingencies) for Defra will move from £7.3bn in the current year to £7.4bn in 2028-29 but, due to inflation, it will shrink in “real terms” by an average of 0.7% per year over that time or 2.3% in total.

For the food system, the Spending Review could have been worse... but worse may be on its way.

See our latest article here for more details and IGD opinion.

Growth declines

Latest ONS data shows that GDP declined by 0.3% in April 2025. It is estimated to have grown by 0.7% in the three months to April 2025. This coincided with increased taxes for business, higher household bills and uncertainty from US tariffs.

Oil price rise

The price of the benchmark Brent Crude oil was up by more than 10% following the attack by Israel on Iran. We will be monitoring any possible impact on the food system and will be issuing food inflation forecasts in July.

Business rates concern

Retail union USDAW and the Retail Jobs Alliance (RJA, a group of retailers) have written to the Chancellor to highlight concern over the future of business rates.

They have asked that higher-value retail properties be excluded from plans to attach higher “multipliers” to higher-value business properties.

This comes as ONS data shows that 77% of employers with more than 10 employees reported rising labour costs in May 2025, up from 41% in the previous survey.

IGD opinion

The business rate system has been under review for some time, across several governments. Change was announced in the Autumn Budget 2024 and legislation passed earlier this year, with reform to be rolled out from 2026-27.

A key part of the plan is to create lower multiplier bands for retail, hospitality and leisure properties with lower rateable value, which will benefit most convenience format stores.

This is to be funded by higher multipliers for higher-value properties, including large distribution warehouses used by online retailers.

Only a small number of stores are expected to fall into the higher rate bands, but these may be of high strategic value, acting as footfall drivers and “anchors” for high streets, and for some grocers they represent a significant proportion of their property portfolio. Any reform will impact not only food retail but also Away-From-Home.

Slowing labour market

New data from the ONS shows that labour demand in the UK continues to soften, slowly. On the positive side, employment has been stable for the last year and average wages continue to rise ahead of inflation, meaning real-terms gains for those in work.

However, unemployment has now been creeping upwards for nine months, moving from a low of 4.1% in July 2024 to 4.6% in March 2025.

The number of vacancies is falling and the ratio of unemployed people to unfilled vacancies is rising. This suggests gradual economic weakening and increasing reluctance to recruit on the part of employers.

IGD opinion

These changes seem small, but they represent significant social and economic challenges. The actual number of unemployed people has risen by about 200,000 between July 2024 and March 2025.

To put this in perspective, the UK armed forces currently employ about 180,000 people. This represents not only a social challenge but a fiscal and economic one.

For this reason, the government is highly focused on moving unemployed people back into the workforce as soon as possible.

Baby food guidance change

The Department of Health and Social Care has introduced new guidance regarding baby food on its the NHS Start for Life website. In a new section dedicated to ‘shop-bought jars and pouches’ it suggests that these should be used only occasionally and that parents should look for products with lower sugar and avoid letting them suck food straight from pouches.

IGD opinion

The new guidance comes following a BBC Panorama investigation into baby food, which prompted many manufacturers to relabel products and make new commitments to reformulation. Campaigners have called for new marketing regulations on these products and in light of the public interest businesses may consider further reformulation and NPD in this category.

Food surplus boost

Defra has announced £13.6million in grants to food surplus charities in England to redistribute an estimated 19,000 tonnes of food directly from farms.

IGD opinion

Much of the focus of food redistribution has been in the retail and away from home sectors so this expands opportunities for redistribution to the farm gate. Alliance Food Sourcing, spearheaded by FareShare, The Felix Project and IGD, comprises 32 major UK food businesses and is creating new partnerships and processes to make food that would otherwise be wasted, rescuable. The coalition is investing in identifying and securing new sources of edible food from their supply chain, which would otherwise be wasted, to meet the increasing demand for meals. This new programme of grants from Defra builds on this work.

Ban on trawling

The government has outlined plans to ban bottom trawling (a fishing method that involves dragging large nets along the sea floor) in more Marine Protected Areas (MPAs). A consultation will run for 12 weeks from Monday 9th June to Monday 01 September.