Matthew McDermott, head of food and drink at Henderson Loggie, urged ministers to review employers’ National Insurance contributions and introduce a permanent cut in VAT ahead of the Budget. The firm wants the UK Government to overhaul VAT and National Insurance contributions.

Mr McDermott is warning the country’s food and drink sector could face critical challenges if urgent action isn’t taken to address outdated tax policies impacting the industry. 

Scotland’s food and drink industry is facing one of the highest VAT burdens in Europe. In Ireland, restaurant and catering services pay 9%, while in Germany, it’s 7% and the majority of food and drink related hospitality businesses in France, Italy and Spain pay 10%.

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

Founders and business leaders are warning the sector is facing a potential cliff edge due to complex taxation policy, increased rates, rising employment costs, inflation, energy prices and ongoing recruitment challenges.  

Recent estimates of the sector suggest operating profit margins in the industry could now be as low as 3%, with many new business owners warning expansion or continued growth is now impossible. 

Matthew McDermott 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 success. 

“Producers and exporters are continuously faced with increased regulatory burdens and spiralling 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.” 

A Treasury spokesperson said: “The Chancellor is fully focused on his priorities, to boost business, help with the cost of living and support people in every postcode.

“As has always been the case, the Chancellor will set out decisions at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”

The Scottish Government have been approached for comment.