Family-owned businesses warn UK manufacturing is under threat

Government ambitions to reindustrialise Britain risk being undermined unless ministers act on tax pressures, high energy costs and skills shortages facing the family-owned firms that form the backbone of UK manufacturing, according to a new report published today by Make UK and leading audit, accountancy, tax and advisory firm Bishop Fleming.

The report, ‘Who Inherits UK Manufacturing? The impact of tax policy on family businesses in manufacturing’, finds that family-owned manufacturers account for 65% of manufacturing businesses, contribute an estimated £94 billion to the UK economy and support around one million jobs.

It also outlines how manufacturers are showing a clear commitment and acting proactively to invest in skills, innovation, resilience and growth, but high costs around taxation and energy, alongside economic uncertainty and skills shortages, are limiting their ability to expand and pass businesses on to the next generation.

Energy is cited as the biggest barrier to growth by 59% of manufacturers, followed by taxation (cited by 47%). For family-owned firms, these pressures are also feeding into longer-term concerns over succession, with 78% worried about the impact of inheritance tax and Business Property Relief changes on passing businesses to the next generation.

The report warns this could push owners to delay investment, restructure ownership or consider a sale because of tax liabilities rather than long-term business needs.

More than one in five family-owned manufacturers are considering selling to an overseas buyer in response, while 18% are considering a UK-based sale, raising questions about who owns the UK’s manufacturing base as ministers seek to rebuild vital domestic industrial capability.

Policy and pledges
The report’s publication is particularly timely following Prime Minister Andy Burnham’s recent pledges to reindustrialise Britain through a new 10-year plan and make greater use of procurement to back British industry. Make UK said delivery will depend on whether policy supports the family firms sustaining domestic capacity, skilled jobs and long-term investment.

Fhaheen Khan, senior economist at Make UK, said: “Family-owned manufacturers are not a niche part of the economy. They anchor skilled jobs, long-term investment and the industrial know-how Britain needs to make reindustrialisation a reality, something the Prime Minister is right to put back at the centre of the economic debate.

“But ambition must now be matched by action on the barriers holding firms back, from the highest industrial energy prices in the G7 to rising tax pressures and skills shortages. Inheritance tax changes are causing real concern for family-owned firms, and if policy pushes owners to restructure, delay investment or sell overseas to reduce tax bills, the UK risks losing valuable domestic capability at the very moment it is trying to rebuild it.

“Reducing energy costs, reviewing inheritance tax changes, strengthening apprenticeship funding and turning the Industrial Strategy into practical support on the ground are now essential if Britain is serious about securing the future of its manufacturing base.”

Dan Phillips, head of manufacturing at Bishop Fleming, said: "What struck us most from both the survey and our conversations with manufacturing leaders is that succession planning is no longer simply a tax discussion. Business owners are thinking longer term about future leadership, attracting talent, protecting jobs and ensuring the businesses they have spent decades building remain successful for generations to come.

“The manufacturers we spoke to continue to invest in people, digital capability and operational resilience despite significant economic uncertainty. The challenge is ensuring those businesses have the confidence and flexibility to continue making those long-term decisions.”

The report also highlights concerns over the skills pipeline. Although 63% of manufacturers are planning moderate to significant investment in training, rising apprenticeship costs and delays to funding reform risk weakening a key route into skilled manufacturing work.

Lack of technical skills is already a barrier for 32% of businesses, at a time when more than one million young people aged 16 to 24 are not in education, employment or training.

Strategic outcomes
According to the report, 91% of manufacturers say they have yet to see benefits from the Government’s Industrial Strategy one year on. Make UK said the strategy remains welcome, but delivery must now address concerns around energy costs, tax, skills, finance and investment incentives.

The report argues that family-owned manufacturers are not only important employers, but custodians of industrial capability, specialist expertise and long-established supply chains, with today’s decisions shaping the UK’s future productivity, resilience and competitiveness.

Make UK is calling on the Government to review recent inheritance tax changes, including the Business Property Relief cap, after 42% of manufacturers said they want them reversed. It said tax policy must not discourage long-term investment or create barriers to succession.

It is also calling for action to reduce industrial energy costs, a review of employer National Insurance Contributions, apprenticeship funding reform and stronger investment incentives, including extending capital allowances to software and refurbished second-hand plant and machinery.