Food and Drink Sector Calls for Tax Reform

Scottish accountancy firm Henderson Loggie has warned that Scotland’s food and drink sector could face serious challenges unless action is taken to address tax and regulatory pressures facing businesses.

The sector has shown considerable resilience in recent years, alongside rapid growth in the number of independent producers, retailers and hospitality businesses operating across Scotland. Food and drink is one of the country’s largest employment sectors and contributes more than £19bn to the Scottish economy, according to industry body Scotland Food & Drink.

However, business owners and industry leaders are increasingly calling for changes to taxation and regulation, warning that rising costs and complex tax policies are putting pressure on already tight margins. Higher employment costs, inflation, energy prices and ongoing recruitment difficulties are adding to the challenges facing businesses across the supply chain. The hospitality sector has continued to attract investment despite those pressures. Figures from Savills show that 38 hospitality businesses opened in Glasgow city centre during 2025, suggesting continued demand for prime locations. But operating margins remain under significant pressure, with estimates suggesting they could now be as low as 3%. Some new business owners have warned that the current cost environment is making further expansion, and in some cases continued growth, increasingly difficult.

Matthew McDermott, Henderson Loggie’s Head of Food and Drink in Scotland, is calling for longer-term measures to support the sector. These include reviewing the recent increase in employers’ National Insurance Contributions and introducing a permanent reduction in VAT. Scotland’s food and drink businesses also face comparatively high VAT rates. Restaurant and catering services are charged at 9% in Ireland and 7% in Germany, while the majority of food and drink-related hospitality businesses in France, Italy and Spain pay 10%.

The industry has welcomed the recent announcement by Prime Minister Andy Burnham that pubs, clubs and live music venues will benefit from a 20% reduction in business rates from April next year. However, industry leaders say the measures do not go far enough and are calling for broader reform to address the pressures facing businesses. There is also uncertainty over whether venues in Scotland will benefit from the planned business rates changes, with no confirmation from the Scottish Government yet. For Henderson Loggie, the concern is that without longer-term action on taxation, regulation and business costs, Scotland risks putting further pressure on an industry that plays a significant role in the country’s economy.

Matthew McDermott commented: “Given the recent growth within parts of the food and drink sector, it could be tempting to be complacent and hope for the best, but the industry is facing challenges that could genuinely put a hard brake on its long-term sustainable, successful future. Producers and exporters are continuously faced with increased regulatory burdens and spiraling cost pressures, not helped by the current geopolitical turmoil and endless inflationary pressures. For the hospitality sector, the pressures are largely homegrown with increasing costs and regulatory burdens chipping away at already slim profits.”

“When you read about the myriad of challenges facing the industry, it’s hard to imagine who would decide to enter and lead such a difficult sector, but that’s exactly why we need to support Scotland’s food and drink producers, exporters and hospitality providers. In some of the toughest of times, they’ve chosen to innovate and expand – providing employment and significant economic output. Food and drink has long been a core part of the Scottish economy and its success or failure will impact everything from tax revenues to employment figures and even the future of our struggling High Streets. Now is the time for politicians to shift gear from promises to policy and help an industry that is at the heart of Scotland’s future success.”