Manufacturing: Sector-specific predictions and implications

Our manufacturing and industrials team consider the current landscape of the automotive sector in light of the Budget, and predictions for the food and drink industry levies and duties.

Automotive sector

Faced with ambitious targets under the Zero Emission Vehicle (ZEV) mandate, automotive manufacturers and dealers have repeatedly lobbied for UK Government support measures. The announcement of a £650m Electric Car Grant in July was hailed by the SMMT as a welcome response to industry calls, but despite record battery electric vehicle (BEV) volumes of 72,779 units last month, the highest ever monthly figure, year-to-date BEV market share stands at 22.1%, significantly below the mandated 28% target.

Moreover, the extension of Vehicle Excise Duty Expensive Cars Supplement to eligible new EVs from April this year – potentially raising ownership costs for most EV drivers by more than £2,000 over six years – has created a counter-pressure, demonstrating how Budget taxation decisions can significantly impact consumer behaviour.

Ahead of this Autumn Budget, the Chancellor has shown support for the automotive industry by locking in Benefit-in-Kind (BiK) rates for EV salary sacrifice schemes until 2029. However, it is clear that enhanced measures, such as capped rates and/or targeted discounts on used electric cars, would provide a stronger incentive for consumers to make the switch.

The industry maintains that without substantive government support for consumers, the current regulatory regime is undeliverable, with vehicle production figures down by a third as at the time of publication. In particular, the government’s proposal to end Employee Car Ownership Schemes (ECOS) could trigger a loss of 80,000 new (increasingly zero emission) car sales annually, with significant knock-on effects for UK manufacturing.

The SMMT’s Chief Executive, Mike Hawes, recently reinforced the sector’s commitment to delivering shared growth and decarbonisation ambitions, while highlighting the need for whole-government alignment to the Industrial Strategy.

Food and drink

Soft drinks industry levy

Until last year, the soft drinks industry levy (SDIL) more commonly known as the sugary drinks tax which places different rates of tax on soft drinks based on their sugar content had remained unchanged since it was introduced in 2018. The rates of the SDIL are now set to increase until 2029 to reflect the 27% consumer price index increase between 2018 and 2024 as well as increase in line with the Consumer Price Index each year from 1 April 2025.

It has been rumoured that the scope of SDIL could be extended to include dairy and plant based milk drinks with added sugar. Previously, milk based drinks with added sugar were excluded from the levy on the basis that milk is an important source of calcium and other micronutrients. However, it is now understood that flavoured milk drinks only account for 3.5% of calcium intakes for children agreed 11-18 leading the government to potentially justify including this group in the levy.

Another possible proposal is to lower the threshold at which the tax applies. Currently the levy captures those drinks that have 5g of sugar per 100ml but this could be reduced to 4g per 100ml. This could potentially lead to soft drink manufacturers turning more to artificial or non-sugar alternatives to avoid the tax change which would open up a bigger debate on the types of ingredients that are used in soft drinks and their impact on our health.

Following the investment in reformulation by businesses as a result of the introduction of the SDIL in 2018, a change to the tax bracket to target the 4-4.9g range could financially impact those businesses who are already grappling with increased manufacturing costs.

A more substantial change would be for a similar levy to be introduced applying to less healthy foods, with the aim of having the same impact as the SDIL to encourage food manufacturers to reformulate their products to contain less salt and/or sugar. Where businesses do not reformulate, the increased cost may be passed on to consumers thereby possibly discouraging their purchase. If such a levy is announced, we suspect that there would be a delay before it was implemented. The SDIL gave the industry two years to adapt before the tax began being collected.

Alcohol duty

In a similar vein to last year’s Budget, those in the alcohol industry fear that further duty on alcoholic beverages will be announced on 26 November, justified by a link to the broader strategy of addressing alcohol harm at the same time as raising revenue. The spirits side of the industry were the worst hit with duty on spirits increased by 3.65% in October 2024 and the expectation is that this will be raised again. Many are therefore calling on a freeze to future duty to protect both the industry and jobs.

While an increase in duty on non-draught products seems likely, there may be some respite for the hospitality industry with draught products avoiding an increase (or the duty even being reduced again).

Packaging levy

The tax on plastic packaging currently stands at £223.69 per tonne having been increased in last year’s Budget from £200 per tonne and affects 4,927 businesses who are registered and therefore subject to the plastic packaging tax (PPT) requirements. A business is required to register if it manufactures or imports 10 tonnes or more of finished plastic packaging components within any 12 month period.

PPT is not payable if a company’s plastic packaging contains at least 30% recycled content but businesses face challenges with this as virgin plastic continues to be cheaper than recycled alternatives, leading to ever increasing cost pressures. Another concern is the lack of recycling infrastructure, with a number of recycling plants having closed in recent years which leaves businesses with fewer options than to use plastic packaging and face the brunt of the tax.

Despite some success in the volume of packaging that now contains more recycled content, it is expected that the government will turn to PPT as it looks to address a shortfall in tax revenue. A potential option would be to adjust the threshold for exemption i.e. increasing the percentage of recycled content required in plastic packaging. Given the challenges that businesses currently face with the costs associated with PPT, this is likely to add to overheads.

Extended Producer Responsibility (EPR)

Since April 2025, the EPR scheme requires producers to pay for managing household packaging waste with producers having to register, report on packaging data and pay fees based on materials used. The system is designed to incentivise lower-impact, more recyclable packaging however it has been criticised for adding to inflationary pressures for producers due to increased admin and fees.

The Budget could adjust the banding of the scheme by making the use of “green” packaging cheaper or penalising “red” packaging more harshly. Coverage of the scheme could also be extended to more types of packaging, including non-household. The government may also commit to stronger enforcement of non-compliance and change or introduce additional reporting requirements, particularly to increase the frequency of data submissions and providing more granular information on certain types of waste.

On a positive note for businesses, relief measures could be introduced to support sectors under pressure with tax incentives or grants offered which would be linked to packaging redesign, reuse or recycling.