The Food and Drink Federation (FDF) has called for Government to restore business confidence by “ensuring no further burdens” are added in the upcoming Budget and partnering with industry on a long-term plan to drive investment into the sector.
According to the FDF’s State of Industry Report for Q3 2025, business confidence among food and drink manufacturers has taken another dip, plummeting to -60% in Q3 2025 (FDF Q3 2025 State of Industry Report), down from -40% in the previous quarter. This marks the sixth consecutive quarter of negative confidence, which fell after last year’s Budget, has remained weak since, and now taken another “concerning hit”.
Uncertainty over taxes and a lack of regulatory clarity, alongside relentlessly rising costs, were reported to be the drivers of depressed confidence. The FDF report revealed that 90% of food manufacturers are feeling pessimistic or nervous about the upcoming Budget.
Industry’s top concern is the prospect of additional taxes or costs for the sector (88%), while half (50%) are concerned about the risk of more burdensome regulation. Meanwhile, more than two fifths (45%) are concerned about new policies that will negatively impact household finances, given that volumes of food sales are already 8.3% lower than in September 2019.
Inflation remains “stubbornly high”
With production costs having risen 5.0% in the last 12 months (FDF Q3 State of Industry Report), food inflation has remained “stubbornly high” in 2025 and is forecasted to remain elevated through 2026. With energy and ingredient costs stabilised, FDF found that this is being driven by a “tranche of regulatory pressures”, including a £1.1 billion bill for the new EPR packaging tax and changes to National Insurance Contributions (NIC). It stated that manufacturers have been “left with no choice but to pass costs on to shoppers”, while energy bills remain high and some companies are facing “significantly higher” rates bills, too.
In response to the increased employment costs introduced in last year’s Budget, two-thirds of businesses (66%) have already or will be reducing headcount. Three quarters (74%) of businesses have had to pass on some costs to consumers and more than a quarter (26%) are no longer creating new roles, the report found.
Almost a third (29%) reduced or cancelled plans to invest in the UK to cover these costs. With growth, investment and the development of new skilled jobs being held back by regulatory pressures, two-fifths of manufacturers (40%) are concerned that there won’t be policies to drive growth in the upcoming Budget.
Karen Betts, chief executive of The Food and Drink Federation (FDF), said: “This report captures the mood of our sector and as we enter Christmas trading. The combination of tax rises in the last budget, increasing costs like EPR, and policy uncertainty makes for a tough business environment. What’s more, food companies can readily see how impacted shoppers are by continued food price inflation and how careful households are being about spending in the run up to Christmas.
“We fully support the Government’s stated ambition for economic growth, and as the UK’s largest manufacturing sector and pillar of the ‘everyday economy’, we want to partner with Government to make this happen. There are huge productivity gains to be made in our sector, alongside work to be done to improve environmental sustainability and healthy options. But we need a simpler, stable regulatory pathway if this is to happen, and one that operates across Government. And real reform of the unnecessary and out of date regulations that tie companies down and cause opportunity costs.”
FDF is calling for Government to partner with industry to unlock the growth potential of the sector. It said this could include ensuring that food and drink businesses can access support for new technologies and innovation, like the Made Smarter Innovation funding, or broadening R&D tax credits to include the development of healthier food and drink. It could also include expanding the Growth and Skills Levy to apply to short courses in AI, digital skills and engineering, and creating a new UK trade information portal to help businesses find new customers abroad.
