Explore the vital changes that are needed to fuel prosperity in the Food & Drink industry – with insights that go beyond November’s Autumn Statement.
November’s Autumn Statement earmarked £4.5bn for key manufacturing sectors, and some beneficial changes to tax reliefs and full expensing. However, many food and drink manufacturers, especially SMEs, will have been disappointed to have been left out and will be looking to the Spring Budget for more impactful measures.
From addressing staffing shortages to incentivising innovation, our strategic advisory experts at Menzies LLP highlight key areas that demand attention in 2024.
What does the food and drink manufacturing sector need from Government policy in 2024?
The food and drink manufacturing industry has been a vital economic driver in the UK, but November’s Autumn Statement left many players in the sector feeling overlooked. While £4.5 billion in funding was allocated to strategic manufacturing sectors and various tax reliefs were introduced or adapted, the absence of provisions directly benefiting food and drink manufacturers, especially SMEs, has prompted a collective gaze towards the upcoming Spring Budget for more impactful measures. Here, Menzies LLP’s strategic advisory experts for the sector highlight crucial areas that demand the government’s attention in 2024.
Staffing shortages
In the last few years, staffing has emerged as a critical issue for the sector. A shortage of seasonal workers, many of whom previously were migrants from across Europe, poses a critical problem for the food and drink manufacturing sector, especially in agricultural harvesting and production. This inability to secure sufficient labour has a knock-on impact on the entire supply chain. And with new and more stringent rules on legal immigration and visas announced this month, the issue looks set to worsen further. Government support is imperative to address this issue, especially in the producer end of the market, whether through revised immigration policies that facilitate the influx of seasonal workers or through targeted aid and training programmes to encourage local workforce participation. By ensuring a steady and adequate labour force, the sector can maintain productivity, meet consumer demands, and prevent disruptions in the supply chain throughout 2024.
The Living Wage and National Insurance
The increase in the National Living Wage, while seemingly incremental on an individual basis, collectively impacts the cost structures of businesses across the food and drink manufacturing industry. Striking a balance between fair employment practices and sustaining competitive operations is crucial. The Government needs to implement comprehensive policies that consider the industry’s unique dynamics and support mechanisms for businesses to manage these increased costs while maintaining fair wages for workers.
And while National Insurance contributions, within the basic rate band, on the employee side were cut by 2% in November, there was no mention of a change to employer contributions. National Insurance contributions are one of the most significant costs to many businesses. Even a 1% cut on the employer side would have significant potential to ease financial burdens on businesses, particularly SMEs. By alleviating these costs, businesses can redirect resources towards growth, investment, employee development, and operational improvements.
Incentivising investment and innovation
The tax relief measures announced such as full expensing predominantly benefitted those larger entities, with annual capital spending in excess of £1m, who are able to automate many of their processes with advanced machinery, leaving SMEs with limited wins. However, for those who do invest in these areas, knowing that full expensive is permanent now allows more effective long-term investment planning, which is a positive.
Encouraging innovation, especially in areas like sustainable packaging, is critical for the industry’s evolution. Research and development (R&D) is highly capital intensive, and a tailored approach to incentivise R&D specifically for smaller innovative and agile businesses is absolutely necessary. This might involve targeted tax breaks, grants, or innovation funds to support SMEs in driving technological advancements, reducing environmental footprints, and enhancing overall efficiency. Investing in technology and innovation is pivotal for the sector’s competitiveness and long-term sustainability.
Regulation
Navigating regulatory compliance poses a significant challenge, particularly for SMEs within the food and drink manufacturing industry. While regulations are of course crucial for ensuring safety, quality, and sustainability, excessive red tape can block operational efficiency and hinder growth. Small businesses often find themselves disproportionately burdened by compliance costs and administrative complexities. Streamlining regulations, simplifying reporting requirements, and offering clearer guidance tailored to SMEs next year would go a long way to alleviating these burdens. Creating a framework that strikes a balance between maintaining necessary standards and reducing administrative complexities would enhance productivity and competitiveness within the sector.
Tackling late payments
Late payments are a persistent challenge for businesses in the food and drink manufacturing sector, adversely impacting their cash flow and financial stability. While the Government announced an update to the Procurement Act to make sure 30-day payment terms are extended to all subcontractor invoices within the supply chain for public sector contracts, no such announcement was made for the private sector. The issue of delayed payments, especially in business-to-business transactions, places undue pressure on smaller enterprises to manage their working capital effectively. Enforcing stricter penalties for delayed payments or establishing transparent reporting mechanisms could be possible measures to tackle late payments from a policy perspective. Just like large businesses must report their gender pay gap, for example, perhaps there should be increased reporting and transparency on creditor payments. Addressing this issue is fundamental in safeguarding the financial health and sustainability of smaller businesses.
Overall, a comprehensive and nuanced approach to these challenges, integrating tax incentives, labour support, regulatory reforms, and measures to improve cash flow, is imperative for the health and continued prosperity of the sector. Tailored policies that fulfil the diverse needs of food and drink manufacturing businesses will not only foster growth and innovation but also fortify its resilience over the next year.