Britain’s manufacturers are facing an increase in their annual business rates of up to £1 billion in April when they are already set to be hammered by increased costs in their energy and employment bills according to a report and survey published yesterday.
The figures come in analysis by
Make UK of official data on Rateable Value (RV) changes of manufacturing businesses between 2023 and 2026. As a result of the changes, Make UK estimates the sector will pay an additional £939 million a year in business rates this year. The figures also show that while the sector accounts for around 10% of the economy it pays more than a fifth of business rates revenues.
A separate survey conducted by Make UK of manufacturers showed two in three companies indicated their RVs have increased by up to a fifth. However, it is alarming that 17% of businesses are reporting increases of between 20% and 50%, while a minority (3%) have seen their RV increase between 50% and 100%. This increase comes in the same month when around half of manufacturers will be renegotiating their energy contracts, as well as facing extra employment costs and burdens.
Verity Davidge, policy director at Make UK, said: “The current system of business rates is outdated and is a blunt instrument that leaves manufacturers paying disproportionately more than other sectors relative to their size.
This increase could not come at a worse possible time and is set to hammer one of the Government’s key strategic sectors which is already facing existential threats from increased energy and employment costs which are completely out of their control. For many companies right now, just to survive the burdens being imposed on them will be an achievement in itself.”
Negative consequencesMake UK’s survey shows that it is already one of the biggest, non-performance related, costs for manufacturers. For nearly a quarter (23%), business rates are their second largest cost with nearly one in 10 (8%) indicating it is their single largest expense. This means that business rate bills play a substantial role in the decision-making process for investment, innovation and recruitment with every revaluation leading to possible negative consequences for the wider economy. Make UK’s survey shows manufacturers are considering reducing their headcount in response with modelling putting at risk around 25,000 jobs.
According to Make UK, the current system of business rates already unfairly penalises manufacturers as it is based on square footage which means that companies can be classified as ‘big’ for rateable purposes even if they are an SME by turnover and employment. Although accounting for less than 10% of the economy, manufacturing accounts for more than a fifth (21%) of the RVs of properties. Furthermore, the current system of business rates also acts as a disincentive to invest in renewable energy as this increases the value of a manufacturers’ facility and therefore their business rates.
More than half (55%) of the sector’s RVs exceed £100,000, and 20% of manufacturers also sit in a facility that is worth more than £500,000. This means one in five manufacturers will be negatively impacted by the new ‘high value’ multiplier which will penalise them for having invested in their facilities. By contrast just 6% of companies have a RV of less than £20,000 which limits their access to reliefs such as the Small Business Rates Relief.
In response, Make UK is calling on the Government to make the following changes to the current system of business rates:
• Explore alternative models of taxing physical properties that account for business performance or occupancy type — for example, link business rates to business size and type, so charges better reflect who is occupying a property with a reduced multiplier for SMEs, or link directly to turnover and sales to ensure taxes are proportional to performance.
• Give businesses 12 months’ notice before new rates take effect — following a revaluation, any increase should not apply for at least one year — this can be delivered with a far more generous Year 1 Transitional Relief for businesses receiving higher rates.
• Businesses do not see the local value of what they pay. Local authorities should provide impact reports showing how business rates are used to support local communities.
The survey of 172 companies was carried out between 28 January and 19 February.