The role of logistics in a Modern Industrial Strategy

LOGISTICS IS driving the UK’s supply chains and acting as a key pillar of the nation’s business ambitions: as the Modern Industrial Strategy states, it “makes a vital contribution to the UK economy and the competitiveness of the Industrial Strategy growth-driving sectors (IS-8), ensuring that the right goods are in the right place at the right time”. It supplies our hospitals, schools, factories, construction sites, shops and homes with everything they need, everywhere, every day – nothing in the economy moves without logistics.

As we move into 2026, it is essential that the government creates an environment where the logistics sector can thrive if our industry is to deliver the growth it has the potential to achieve. Key to achieving this ambition is avoiding further increases in the tax burden, while capitalising on investment in infrastructure and pressing government to enable a fair and pragmatic transition to a green economy.

Increased business costs inhibiting growth

The rise in employer National Insurance Contributions (NIC) in the 2024 budget was estimated to cost the logistics sector an estimated £1.7 billion this year, as it employs 2.7 million people – 8% of the UK workforce. At the time of writing, it is uncertain whether there will be further increases following the Autumn Budget. What is clear is that any increase in NIC would be a direct tax on jobs, damaging competitiveness and investment in skills

Fuel duty is another major pressure for business, with a fifth of all fuel duty collected by HMRC paid by logistics businesses. Fuel accounts for around a third of the cost of operating a 44-tonne HGV and any rise in fuel duty would risk driving up inflation and harming the health and competitiveness of the sector. The tax also hits smaller operators the hardest as they are often unable to negotiate contracts that enable them to pass on the increased cost of fuel to their customers.

When we surveyed businesses for our annual Logistics Report 2025, over 60% identified a reduction in fuel duty as the most important action the government could take to help the sector tackle the challenges it currently faces and help our industry deliver the government’s growth targets.

Logistics UK has been urging the government to work with our sector on a long-term fiscal roadmap for road pricing and vehicle taxation for some time. With logistics operators needing to make rational decisions over transport modes, any new approach must appreciate that logistics works as an integrated system. This will ensure goods are moved in the most safe, sustainable and efficient way and any plans accommodate all areas of the industry – without placing an unstainable burden on our industry or its customers.

Business rates are a significant fixed cost for logistics. Warehouses, distribution centres and logistics hubs across the country already face rising bills, with proposals for a higher multiplier on properties with a rateable value (RV) above £500,000 set to disproportionately affect our sector. This will add millions to operators’ costs, which will ultimately and unavoidably be passed on through supply chains, to retailers and consumers. Logistics UK continues to urge the Treasury to ensure reforms to the Business Rates system protect investment in logistics infrastructure and do not create additional inflationary pressures.

Infrastructure Investment

Existing bottlenecks in the UK’s infrastructure, slow planning and delivery, and the lack of long-term plans all inhibit investment. Between 2015 and 2024, the annual cost of congestion for HGVs on the Strategic Road Network rose by more than £930 million.

Further investment is essential to enable goods to be moved in the most safe, sustainable and efficient way. Historical underinvestment in infrastructure has created a growing backlog that stifles economic growth and contributes to inflationary pressures.

The UK Logistics Network, which was mapped in 2024 by Logistics UK and MDS Transmodal, aims to guide the government towards prioritising funding for future resilience and growth for the movement of goods nationwide and overseas. If the network were adopted as the government’s reference framework and given a formal role in investment planning, the needs of the sector would be well aligned with infrastructure planning and ensure it is not an afterthought.

The government’s third Road Investment Strategy (RIS3), which outlined a commitment of £25 billion between 2026 and 2031, was welcomed by the sector. This investment needs to be focused on maintenance and renewals, to ensure the network is reliable for all users, including logistics operators. RIS3 must leave the road network in a better condition by the end of the five-year period than that at the start of this investment cycle

The current poor road conditions experienced nationwide act as a “tax on business” by increasing delays and maintenance costs borne by those using the Strategic Road Network. Our members will be encouraged that the RIS3 addresses network reliability through a focus on proactive asset management and preventative maintenance, not least because it is estimated that every £1 invested in the SRN returns over £2 to society so the business case for investment is clear. Logistics UK is continuing conversations with government to ensure that this commitment to investment is maintained at pace in the coming years for the benefit of businesses right across our sector, as well as the customers they serve.

Pragmatic transition to green economy

The UK logistics sector has already made significant progress on the road to decarbonisation, investing in cleaner technologies and exploring new ways to reduce emissions. Yet despite this commitment, progress remains slower than it needs to be to meet the sector’s legal carbon reduction obligations. A lack of public charging infrastructure, grid capacity constraints and the high costs of electrification are all holding the industry back from making further progress. To achieve its sustainability goals in a fair and pragmatic way, government and our industry must continue to work together closely, and that partnership cannot overlook a serious role for low carbon fuel (LCF).

While battery electric will likely be the primary long-term solution for heavy goods vehicles (HGVs), they are not yet viable across all operations. The infrastructure to support electric HGVs at scale is still many years away, both at operating sites and en-route.. This means for many logistics businesses operating long-haul routes or time-critical deliveries, fully electric options are simply not practical.

This is why the role of low carbon fuel is critical as a complementary solution as they can provide a decarbonisation solution today and in the medium term. These fuels can be deployed quickly using existing infrastructure and supply chains, allowing operators to cut emissions now while electrification technologies mature.

Logistics UK’s members believe that the important role of LCF in supporting logistics decarbonisation must be recognised in government policy and incentives to support its adoption. With appropriate government support, logistics operators could accelerate greenhouse gas reductions across the sector, helping the UK stay on track to meet its decarbonisation obligations

Conclusion

Logistics is the lifeblood of the UK economy, underpinning supply chains and ensuring goods reach every corner of the country. Yet rising costs, infrastructure bottlenecks, and uncertainty over taxation threaten its ability to deliver for businesses and consumers. Our members remain committed to deliver for customers and the wider economy but to do this, policymakers must act decisively to create a stable, cost-effective environment where logistics can thrive for decades ahead.

Support

Logistics UK supports, shapes and stands up for efficient logistics and throughout 2026 will be holding multiple events covering the sectors most pressing issues, including decarbonisation, AI and automation, and digital transformation. The popular series of Transport Manager conferences will be running in the autumn and the year culminates with the Logistics Awards – the annual event held in December, recognising companies and individuals who have made outstanding contributions to the industry.

About

Logistics UK is one of the UK’s biggest business groups, representing logistics businesses which are vital to keeping the UK trading, and more than seven million people directly employed in the making, selling and moving of goods. With decarbonisation, new technology and other disruptive forces driving change in the way goods move across borders and through the supply chain, logistics has never been more important to UK plc. Logistics UK supports, shapes and stands up for safe and efficient logistics, and is the only business group which represents the whole industry, with members from the road, rail, water and air industries, as well as the buyers of freight services such as retailers and manufacturers whose businesses depend on the efficient movement of goods. For more information about the organisation and its work, please visit logistics.org.uk