When Sir Keir Starmer took office last July there was no illusion that FMCG policy would take centre stage amidst a cost-of-living crisis and the highly-politicised debate around migration. However, as the Government enters its first full year of office there are plenty of watchouts for the industry – from an ambitious new Food Strategy to sweeping recycling reforms that could reshape the FMCG sector as we know it.

Pressures squeezing the bottom line

As we are all aware business currently faces a difficult economic backdrop; the Chancellor’s Autumn Budget did little to lift the spirits of FMCG retailers and manufacturers. A hefty increase in employer National Insurance (NI) contributions from April is set to add an estimated £5bn to annual operational costs, tightening already squeezed profit margins in 2025.

But this is just the tip of the iceberg. The introduction of the Extended Producer Responsibility (EPR) scheme will add yet another £3bn to the sector’s overall financial burden this year  – all while the Government grapples with the issue of illustrative base fees, leading to concerns amongst multiple material sectors and packaging users who have pointed  to disproportionate cost increases and market distortions.

All of this is playing a significant role in fuelling consumer inflation, which could explain the Government’s silence on the modest (and surprising) news of UK inflation being downgraded to 2.5% in December. There may be concern in No.11 that taking too much credit now for policy impacts in this space   would leave Rachel Reeves in a tight spot should we see inflation rises later this year when new NI rises and EPR payments begin to take shape.

National Food Strategy

One thing that was certain when Labour came into office was their ambition to deliver comprehensive, hard-hitting reforms around food.  The manifesto’s commitment to ban the sale of high-caffeine energy drinks to under-16s was a rare example of a  specific intervention in a document that intentionally lacked direct policy commitment, while a consultation to extend the Soft Drinks Industry Levy (SDIL) to milk-based drinks was issued alongside the Autumn Budget.

The cornerstone ambition to deliver a long-term Food Strategy to create a ‘healthier, fairer and more resilient food system’ – which Steve Reed has committed to publishing  in 2025 – is the culmination of Labour’s commitment to take a more rigid approach to food security and public health.

Of some comfort is Reed’s confirmation that the Strategy will be developed in partnership with industry, which could lead to a balanced approach where higher taxes for HFSS products aren’t viewed by government as the ‘silver bullet’ to tackle the obesity crisis. Health Secretary Wes Streeting has previously backed this approach, suggesting a high tax burden on HFSS products would disproportionately impact poorer families.

However, with the Government focused on revenue raising, the Food Strategy represents a landmark moment in understanding how Labour will marry health outcomes with the cost of living crisis. On timings, it seems likely the Government is keen to get over the EPR hurdle first before facing the next HFSS battle, so while there might be limited progress in H1 – now is the time for businesses to prepare and align internally on their red lines for future food policy.

Circular Economy Strategy

As we head into the first half of 2025, all eyes are on the Government’s delivery of a comprehensive Circular Economy Strategy – supported by the unveiling of Defra’s Circular Economy Taskforce in December, chaired by Andrew Morlet, former Chief Executive of the Ellen MacArthur Foundation.

Of particular interest will be the  approach taken to Simpler Recycling and the rollout of Deposit Return Schemes in light of major supermarkets urging a delay to the 2027 timeline. Still, the Government’s efforts to integrate various waste and resource policies into one cohesive plan is a step in the right direction – and one that industry has long called for.

But the big question remains: how much long-term vision will the Strategy offer? While the immediate focus will be on delivering the EPR, DRS, and Simpler Recycling reforms, the FMCG sector will be watching closely to see if the Strategy lays the groundwork for a future-focused reuse system.

How soon can we expect a truly circular economy? The answer will likely determine the long-term success of these ambitious plans.

The Bottom Line for FMCG

The policy landscape for the FMCG sector in 2025 is shaping up to be complex, unpredictable, and packed with opportunity – if you know where to look. From  inflationary pressures to sweeping food policy reforms and circular economy initiatives, it’s clear that 2025 will be a pivotal year for the sector. Navigating these changes will require strategic foresight, industry collaboration, and a clear understanding of how new policies will impact your bottom line.

To speak to our FMCG sector specialists about how we can support your business during a year of significant policy change, please contact Michael Broughton (michael.broughton@grayling.com).