The budget has set the stage for a tough business environment

Let us be candid. Yesterday was not a great day for UK business in general, and food and drink in particular. But it is an harbinger of what is to come.

There were some small mercies. National Insurance exemptions for smaller businesses are welcome and politically very well judged. Retailers may feel ‘it could have been worse’ on business rates. Meanwhile, hospitality businesses will be pleased with the treatment of draught beer.

But many, perhaps most, businesses will be counting the cost of the triple-whammy of higher National Insurance contributions, lower thresholds, and a whopping increase in the national living wage.

Farmers are appalled by the £1m cap on agricultural property relief. Food manufacturers should be pretty concerned that the nation’s largest manufacturing industry didn’t merit a mention among the Chancellor’s name checks for modern manufacturing.

It might reasonably be argued that all of these difficult changes are part of an inevitable economic reckoning. Rachel Reeves – in an assured, confident and really rather impressive performance – had the grisly task of closing a £40m fiscal black hole, left by the failure of previous governments to fund some or all of the promises they made.

And that’s not even providing for the compensation costs of the infected blood and subpostmasters scandals. Some might also argue a majority of the electorate support tax rises to fund the fixing of our battered public services and drive growth.

All businesses – but particularly those in food and drink, laced as they are through every community in the country – will benefit from an improved NHS, better school facilities and filled-in potholes. It’s reasonable therefore that business should disproportionately bear the costs. It can afford it. The Chancellor has done her worst – it’s a one-off reset. Things, as someone once said, ‘can only get better’.

Unfortunately, that’s comforting but wrong.

UK food and drink needs to quickly come to terms with some new economic realities. Yesterday was not a one-off tax raid. It is very likely the start of a series of revenue-raising sorties. Neither the Chancellor nor the Office of Budget Responsibility expect inflation to fall below 2.1% over the five-year life of this government.

Indeed, given the increase in labour costs driven by national living wage changes, 2.1% is likely to be an underestimate. That means interest rates can’t possibly fall as far or as fast as many were previously expecting. Incidentally, it also probably means the food industry will once again be in the firing line for putting up prices, as ours arrive first and are noticed most.

This government knows if it wants to be re-elected, it has to move the needle on fixing public services, and in particular the NHS. It calculates it can live with the consequences of business disapproval because most businesspeople don’t vote Labour, and its own voters are content to see business clobbered to pay for better public services.

But Reeves will only be able to avoid coming back every year for more funding if her forecasts for economic growth are correct. And yesterday we learned that the next major public policy milestone will be the publication of Wes Streeting’s NHS 10-year plan.

Very few of the costs involved in that plan were accounted for in yesterday’s announcements. You can bet your boots that obesity taxes and tighter regulation – all of them targeted at the food and drink industry – will be front and centre of the plan.

The budget announcements also take no account of a changing political landscape. Leaving aside the apocalyptic human costs of war in Ukraine and the Middle East, the supply and cost implications of deepening conflict cast a very long economic shadow on food and drink.

Arguably the most important economic event of the year won’t be Reeves’ speech, but will come next Tuesday across the Atlantic. If Donald Trump wins and keeps his election promises, all trade with the US, including vast swathes of UK food and drink exports, will quickly be subject to 20% tariffs. That could have terminal consequences for those businesses with exposure across the pond.

UK food and drink needs to plan actively for the risks of further tax rises to fund spending, lower growth, persistently high interest rates, and a global trade war. They won’t all happen, but many may crystallise at the same time.

We need to be clear that yesterday’s budget was not the single most important event in the parliament. It was, instead, a platform for the future, a curtain-raiser. The main show is just beginning.