British manufacturers are set to incur an additional £940 million annually in business rates due to recent changes introduced by Rachel Reeves, which are set to take effect this month.
According to an analysis by MakeUK, an industry advocacy group, manufacturers are facing a disproportionately high business rates burden, primarily because they operate large factory spaces. The group highlighted that factories represent approximately 20% of the rateable property value in England and Wales, while manufacturers contribute only about 10% to the overall economic output.
The Chancellor announced an increase in business rates during the budget presentation in November, which included a new surcharge for properties with a rateable value exceeding £500,000.
The government’s initial proposal faced significant opposition, particularly from pubs and live music venues, prompting a partial reversal in January with the introduction of £80 million in relief. This decision came after warnings that many of these establishments might be forced to close. Retailers also successfully campaigned against even steeper rate increases.
MakeUK has urged the government to extend similar considerations to manufacturers, alongside retailers and hospitality sectors, particularly as these industries contend with rising energy costs exacerbated by geopolitical tensions, including the US-Israel conflict over Iran. The organization recommends that the government provide a year’s notice before implementing any future rate hikes.
Verity Davidge, policy director at MakeUK, stated, “The existing business rates framework is antiquated and serves as a blunt tool, resulting in manufacturers shouldering a disproportionate financial load compared to their scale.”
She added, “This rate increase is poorly timed and threatens to severely impact one of the government’s crucial strategic sectors, which is already grappling with significant challenges from soaring energy and labor expenses that are beyond their control. For many companies, merely surviving these imposed burdens will be a remarkable achievement.”
Business rates are utilized to finance vital local government services and are calculated by applying a “multiplier” to the property’s rateable value, which is reassessed every three years by the Valuation Office Agency in England and Wales, or equivalent bodies in Scotland and Northern Ireland. This system means that larger properties often pay higher rates, irrespective of business performance. MakeUK advocates for a more equitable approach, suggesting that rates should be correlated with business turnover, size, and type, and that small and medium enterprises should receive discounts.
In England and Wales, there are approximately 380,000 manufacturing facilities. MakeUK reported that property categories such as “industrial” and “factories, mills & workshops” are valued at £14 billion, which constitutes over 20% of the total rateable property value across these regions.
Among the 132 manufacturers surveyed by MakeUK, one-fifth are expected to incur the “high value” multiplier for properties valued above £500,000.
