Is the UK investing enough in food and drinks manufacturing?

The post-Brexit world has posed many challenges for food and drinks manufacturers in the UK as they seek to understand, and adjust to, the new trade rules and regulations. So how are they adjusting to the changes and is the government providing enough support?

What is the government doing to support the food and drinks industry?​

Earlier this month, Chancellor of the Exchequer Jeremy Hunt presented the Spring Budget to the UK Parliament and he was quick to address investment in British manufacturing.

“In today’s Budget for long term growth, I take further steps to attract investment into our technology-related industries,” said Hunt. “I want our brilliant technology entrepreneurs not just to start here but to stay here, including when the time comes for a stock market listing.”

He went on to single out the agri-food market saying the government will set aside funding to support an agri-food launchpad in Mid Wales in addition to investment in the industry overall.

This focus on investment in the UK food and drinks industry is essential to ensuring companies do not move their operations elsewhere.

However, research​ from innovation consultancy funding Ayming UK has found that despite the government’s recent efforts to reform research and development in the UK, 84% of British food and drinks manufacturers back opposition party Labour to deliver on innovation, suggesting there is widespread frustration and fatigue towards the current government’s approach. With the UK general election on the horizon, this will be unwelcome news for the incumbent.

“It’s great to see the Chancellor’s acknowledgement of the impact of inflation on households with his cut to National Insurance,” says Karen Betts, chief executive of the Food and Drink Federation, in response to the budget. “In parallel, the food and drink manufacturing sector continues to keep prices as low as possible, conscious that many families’ budgets are now close to breaking point. But the costs of recent turbulence to our sector are real, and are illustrated in stark terms by a steep fall in investment in food and drink manufacturing, which declined by a third last year compared to 2019. Our country needs a strong food and drink sector – which underpins our food security, as well as hundreds of thousands of jobs and forward-looking science and innovation.”

What is preventing food manufacturers from investing in the UK?​

The biggest influence on UK investment in recent years is undoubtedly Brexit.

Economist Jonathan Haskel said private sector investment “stopped in its tracks” in the years following the UK’s decision to leave the EU.

However, the UK has faced further challenges with regards to investment as many companies already based in the UK are outsourcing their research and development, following an aggressive compliance programme enforced by HMRC, resulting from a number of fraud cases in the research and development tax credit scheme. This has led to friction between the government and some businesses, encouraging them to invest elsewhere.

Is the UK food and drinks industry thriving?​

Despite the challenges faced by the UK food and drinks industry, it continues to flourish.

Government statistics reveal that there are over 1600 foreign direct investment projects, across industries including food and drinks manufacturing, underway.

“Tens of thousands of new jobs are being created across the UK thanks to billions of pounds of foreign investment, helping the Government’s priority to grow the economy and levelling-up across the UK,” said a spokesperson for the UK government’s department of business and trade.

“These statistics reflect the sentiment I hear from foreign investors every day: the UK is a great place to invest and a fantastic springboard to start and grow a successful business,” said the government’s minister for investment, Lord Johnson.

This sentiment was supported by Naomi Ikeda, R&D tax incentives senior manager for Ayming, who told FoodNavigator, “the UK presents many opportunities for exporters, investors, and international buyers, with key capabilities across the food and drink supply chain and all stages of product development.”

And major companies are continuing to invest in the UK, with Danish-Swedish multinational recently announcing plans to invest in an new UK site, based in the southwest of England. At €210 million, it marks the company’s largest ever investment.

The UK’s food and drinks industry is the country’s biggest manufacturing sector, by turnover, currently valued at £104.4 billion, making it larger than the automotive and aerospace industries combined.

“Unlike many industries, ours is spread evenly across the country, with regions of real strength like the midlands, north of England, Scotland’s central belt and south Wales, where we provide good jobs and great careers in big companies and small,” explains the Food and Drink Federation’s Betts.