Scotland’s £19bn food and drink industry faces ‘cliff edge’ as costs squeeze businesses

Industry leaders are calling for lower VAT, a review of higher employer National Insurance and clarity over business rates as some hospitality firms struggle with profit margins of just three per cent

Scotland’s £19bn food and drink industry risks hitting a “cliff edge” unless ministers tackle rising taxes, employment costs and regulation that businesses say are making further growth increasingly difficult, experts warned today.

Despite continued expansion in parts of the sector, including 38 hospitality openings in Glasgow city centre during 2025, estimates suggest operating profit margins in the industry could now be as low as three per cent.

Business leaders are now calling for a review of the recent increase in employers’ National Insurance contributions, a permanent reduction in VAT and greater certainty over business rates.

The industry argues that Scottish hospitality businesses also face a much heavier VAT burden than competitors elsewhere in Europe, with restaurant and catering services taxed at nine per cent in Ireland, seven per cent in Germany and typically 10 per cent in France, Italy and Spain.

There is also uncertainty over whether Scottish venues will benefit from a planned 20 per cent reduction in business rates for pubs, clubs and live music venues from next April, with the release saying no equivalent commitment has yet been confirmed by Holyrood.

Matthew McDermott, head of food and drink in Scotland at accountancy firm Henderson Loggie, said: “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.”

Scotland’s food and drink supply chain is one of the country’s largest employers and contributes more than £19bn in economic value, according to figures cited from industry body Scotland Food & Drink.

The sector has also seen rapid growth in independently owned producers, retailers and hospitality businesses in recent years.

But Henderson Loggie warned that margins in parts of the industry may now be as low as three per cent, leaving businesses with little room to absorb further increases in wages, energy costs, taxation or regulatory expenses.

It is now calling for longer-term tax and regulatory changes rather than short-term relief, arguing that the combined pressures of inflation, energy prices, recruitment difficulties and higher employment costs risk undermining otherwise successful businesses.

McDermott said: “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.”

READ MORE: Scotland’s oldest heritage charity launches £1.5m appeal to buy permanent Edinburgh home. The Society of Antiquaries of Scotland is seeking £1.5 million to buy a building in Edinburgh’s historic centre before a January deadline, in a move it says would give the country its first national heritage hub ahead of the charity’s 250th anniversary.

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_{Main image: Barrels of ageing spirits underline the importance of drinks production to Scotland’s £19bn food and drink economy, which industry leaders warn is being squeezed by rising costs, taxation, regulation and increasingly tight margins. Credit: Los Muertos Crew via Pexels}