Non-Domestic Rating (Multipliers and Private Schools) Bill
Monday 25th November 2024
(2 days, 13 hours ago)
Commons ChamberRead Full debate Non-Domestic Rating (Multipliers and Private Schools) Bill 2024-26 Read Hansard Text Watch Debate Read Debate Ministerial Extracts
21:34 - The House having divided: - Ayes: 173 / Noes: 335 - Question accordingly negatived.
21:50 - The House divided: - Ayes: 336 / Noes: 175 - Question accordingly agreed to.
Madam Deputy Speaker (Ms Nusrat Ghani)
The reasoned amendment in the name of Kevin Hollinrake has been selected.
The Exchequer Secretary to the Treasury (James Murray)
I beg to move, That the Bill be now read a Second time.
Last month, the Chancellor set out the Government’s first Budget. That Budget was a once-in-a-generation event to wipe the slate clean after 14 years of the Conservatives. At that Budget, we laid the foundations for our No. 1 mission of economic growth. The scale of the mess that we inherited at the general election meant that we had to take tough decisions on welfare, spending and tax. Those decisions have been difficult, but they were necessary. They have enabled us to deliver economic stability and fix the public finances. Doing that is crucial to getting public services back on their feet, and to giving businesses the confidence they need to invest and thrive.
Stability, certainty and predictability are highly prized by businesses when making decisions about where and how much to invest. In opposition, I spoke to businesses time and again about the importance of stability, so in government we have made sure to deliver for them by publishing our corporate tax road map alongside the Budget. In my meetings with businesses about what they need to succeed, the system of business rates also came up time and again. I heard businesses criticise a system that is inflexible, that disincentivises investment and that places an unfair burden on those businesses on high streets across England.
That is why, in the Budget, the Chancellor confirmed our first steps towards creating a fairer business rates system that protects the high street, supports investment and is fit for the 21st century. We are determined to support high streets, as they are places that bring people together and serve as focal points for economic activity. Their success is what people across the country want to see, and it is a priority for the Government to deliver it. That is why, in our first Bill on business rates in this Parliament, the Government have prioritised making progress to rebalance the rates burden faced by high street businesses.
The Bill before us seeks to put into law the commitments made at the Budget by enabling the introduction from 2026-27 of permanently lower tax rates for the retail, hospitality and leisure properties with rateable values below £500,000 that make up the backbone of high streets across England. We are determined to give those businesses a tax cut, and we know that that must be fully funded in a challenging fiscal context. For that reason, the Bill also enables us to generate sustainable funding for those tax cuts through an increase of multipliers on the most valuable 1% of business properties in the country.
This targeted approach captures the majority of large distribution warehouses, including those used by online giants, as well as other out-of-town businesses that draw footfall away from high streets. It will enable us to lock in new, permanently lower tax rates for core high street businesses, providing not only a tax cut but stability and certainty after the one-year retail, hospitality and leisure relief, which has been precariously extended year by year since the pandemic. Our approach provides a permanent tax cut to help high street businesses succeed, alongside the certainty that they need to invest and the means to pay for it within our tough fiscal rules.
Dr Luke Evans (Hinckley and Bosworth) (Con)
The Minister talks about certainty, but one of the biggest problems for small businesses is that so many things are happening at once, including the national insurance contributions increase, the Employment Rights Bill that is coming in, and now the levy that has been cut down from 70% to 40%. The cumulative effect of all those makes a massive difference for my businesses. A hairdresser that I met only this weekend talked about how much of a problem that will be. How does the measure help to engender stability for those small businesses, which have to wait until 2026?
James Murray
Let me remind the hon. Gentleman that, around the difficult decision that we had to take on employer national insurance contributions, we provided explicit protection for small businesses by more than doubling the employment allowance from £5,000 to £10,500, which will benefit hundreds of thousands of small businesses across the country. I suggest that he talks to businesses in his constituency about that.
We are not shying away from the fact that difficult decisions were taken in the Budget, but he might also consult the plans that were left in operation by the previous Government in July. If we had pursued those plans, and if we had not taken any action on business rates, the retail, hospitality and leisure relief would have ended entirely next April. The cliff edge looming next April would have seen it go down to zero. We have extended it, despite the tough fiscal circumstances, for another year at 40%. That is a reasonable way forward while we put in place these permanent reforms.
As I mentioned, the measures in the Bill to level the playing field for high streets are the beginning of our efforts to transform the system of business rates. Our ambition to go further is set out in the paper published alongside the Budget, “Transforming business rates”. That paper sets out the Government’s priority areas for further reform to support investment and make the system fairer. It invites businesses and industry representatives to work with us on designing the best possible system for the future.
I am grateful to all those businesses and representative bodies that I have spoken with in the last few weeks for their engagement already. We will consider what more the Government should do to incentivise investment and growth, including by looking at the efficacy of improvement relief and empty property relief, the impact of losing small business rate relief on expanding businesses, and the cliff edges within the current system.
Andrew George (St Ives) (LD)
If the Minister is looking for other methods by which public finances could be effectively deployed, will he look carefully at the last decade, during which small business rate relief has been used by second home owners to flip their properties to business rating and pay nothing at all? In Cornwall alone, that has resulted in over £500 million of taxpayers’ money being paid out to wealthy second home owners through covid aid and the small business rate relief. Will he look at how wealthy people have been incentivised to use that method to their advantage? Will he ensure that we have a much fairer system that puts first homes before second homes?
James Murray
The hon. Gentleman raises a crucial point about ensuring that the tax system is fair and that it supports the behaviour that we seek to incentivise.
That leads me neatly to my next point. As part of the discussion paper on transforming business rates, we have committed to consulting on adopting a general anti-avoidance rule for business rates in England. Although that might not necessarily address the exact problem the hon. Gentleman highlights, it speaks to the general issue of avoidance in relation to business rates.
We will also look at how the burden adjusts with the economic cycle, and we will assess the merit of a further increase in the frequency of re-evaluations. I look forward to working closely with businesses and representative organisations to deliver a business rates system that is fit for the 21st century, and that work begins today with the powers in this Bill to deliver our permanent tax cut for high streets.
As I said earlier, the tough decisions that the Chancellor set out in the Budget to deliver economic stability and fix the public finances enable us to give businesses the confidence they need to invest, and to get public services back on their feet. One public service that is crucial to breaking down barriers to opportunity is the education system, which is why the Government have prioritised ensuring that every child has access to the high-quality education that they deserve.
Jim Shannon (Strangford) (DUP)
Like others, I have repeatedly raised the need for exemptions for religious schools. For the Free Presbyterian Church in Northern Ireland, for example, the expression of its faith and treasured beliefs does not sit comfortably with mainstream schooling, and it is the same for many other faiths. If the Government are determined to press ahead, does the Minister agree that exemptions must be made, at the very least, for such schools? On behalf of those Churches, those faiths and those people, I have to say that the Government must think again.
James Murray
I thank the hon. Gentleman for a rare intervention, but this Bill is about business rates in England. Some of his wider points may relate to the removal of the VAT exemption for private school fees in other countries and nations of the UK. Those provisions will be debated as part of the Finance Bill on Wednesday and, if he repeats his comments, I might be able to address them more specifically.
Today, we are addressing the business rates system that applies in England. This is important because every parent aspires to get the best education for their child, and we as a Government are determined to ensure that those aspirations are met. At the Budget, the Government announced a real-terms increase in per pupil funding, with a £2.3 billion increase to the core schools budget for the financial year 2025-26, including a £1 billion uplift in high-needs funding.
This funding increase needs to be paid for so, to help make that happen, the Government are ending the tax breaks for private schools, as set out in our manifesto. This includes ending charitable rate relief eligibility for those private schools in England that are charities. This Bill will do that, and its measures operate alongside the ending of the VAT exemption for private school fees, which is being delivered through the Finance Bill that I will be moving on Wednesday. Together, these measures will raise £1.8 billion a year by 2029-30.
Dame Caroline Dinenage (Gosport) (Con)
The Bill makes provision for maintaining the charitable status of institutions that are wholly or mainly concerned with providing full-time education for pupils with an education, health and care plan. Will the Minister set out the definition of “wholly or mainly”? What support will be put in place for councils to afford the burden of extra pupils moving into mainstream education? Schools will be facing the double whammy of losing charitable status and VAT being imposed on school fees. Hampshire county council is already under financial strain, and it will face a crisis point by 2026-27 under these proposals.
James Murray
As I will explain, the test of “wholly or mainly concerned” is 50% of pupils, or more, having an EHCP specifying that their educational needs can be met only in a private school. I will provide some more detail in a moment.
Of course, the Government have prioritised funding for the state education system in this Budget. The £2.3 billion increase, including a £1 billion uplift in high-needs funding, is possible only because of the difficult decisions that we have taken on taxation, including in the Bill.
Chris Vince (Harlow) (Lab/Co-op)
Does the Minister agree that the Budget’s prioritisation of state schools should be welcomed? I have talked to teachers in Harlow and, under this Labour Government, they feel hope for the first time in 14 years. Is it not shocking that the Conservative party is still bemoaning the removal of tax exemptions from private schools, rather than focusing on the mainstream education attended by 96% of children?
James Murray
My hon. Friend is right that we, as a Government, are focused on improving state education for children across the country, because we know that every parent aspires for their child to get the best possible education. That is what our plans seek to achieve, and I would welcome it if the Opposition supported our efforts for the good of children across the country.
Members will have the chance to scrutinise the detail of this Bill in Committee, but I will now spend a few moments outlining how the Bill’s provisions are intended to operate.
Munira Wilson (Twickenham) (LD)
Does the Minister recognise that many independent schools, such as Lady Eleanor Holles school and Hampton school in my constituency, are involved in a huge amount of partnership work with schools in disadvantaged areas, like Feltham’s Reach academy, to help disadvantaged children to have opportunities that they would not otherwise get? Does he recognise that both the measures in this Bill and the introduction of VAT on private school fees will lessen that partnership work, which will have a detrimental impact on many state schools?
James Murray
I thank the hon. Lady for her intervention, but what will have a positive impact on state schools across the country is the extra funding that we announced in the Budget. If Opposition Members want to support extra funding for schools, they have to support some of the tough decisions to raise that revenue in the first place. They cannot have it both ways. I know the new Leader of the Opposition is very keen to oppose tax rises while claiming that she supports the investment, but she cannot have it both ways. If Opposition Members want to support extra funding for schools, the NHS and other public services, they have to have some responsibility and accept the decisions that we are taking, or propose some of their own.
Kevin Hollinrake (Thirsk and Malton) (Con)
Will the Minister confirm the continuation of small business rates relief for the rest of this Parliament?
James Murray
I will come to business rates. The hon. Gentleman will have a chance to respond in full in just a moment. [Interruption.] I see that he is impatient to tell us how much he supports the Bill—or am I misreading the signs from across the Dispatch Box?
As I have said, this Bill will enable the introduction of new multipliers in the business rate system from 2026-27. The provisions in this Bill will enable the introduction of two lower tax rates, which may be applied only to qualifying retail, hospitality and leisure properties. The definition of “qualifying properties” will ultimately be set out in secondary legislation but, for the avoidance of doubt, it is our intention that the scope of these new tax rates will broadly follow that used for current retail, hospitality and leisure relief. These new rates will provide permanent tax cuts, offering certainty to businesses by ending the continued uncertainty of retail, hospitality and leisure relief, which has been rolled over annually since covid-19.
Our intention is for a lower rate that offers a tax cut for retail, hospitality and leisure properties that currently pay the standard multiplier, with a rateable value between £51,000 and £499,999. Another rate will offer a larger cut to the retail, hospitality and leisure properties currently paying the small business multiplier, which are those with a rateable value below £51,000.
We are clear, however, that any tax cut must be sustainably funded. For that reason, the Bill will also enable the introduction of higher multipliers, which can be applied only to the most valuable properties—those with a rateable value of £500,000 and above, which represents less than 1% of all properties in England. The rates for any new multipliers will be set in the 2025 autumn Budget in the light of the outcomes of the 2026 revaluation. The Government recognise, however, that it would be inappropriate to take unfettered powers that allowed the Government to change tax liabilities by unlimited amounts. For that reason, the Bill includes sensible guardrails to limit the use of those powers.
The guardrails determine that the two lower tax rates, when introduced, may not be set lower than 20p below the small business non-domestic rating multiplier, and that the higher tax rates, when introduced, may not be set higher than 10p above the non-domestic rating multiplier. Let me make it clear that those values are maximum parameters and do not represent the changes that we intend to implement. They are guardrails that offer sensible limits with proportionate flexibility. They ensure that the Government can respond to future revaluations as well as the changing economic and fiscal context. As I said, the exact rates for 2026-27 will be set out in next year’s Budget.
Alongside the provisions on multipliers, the Bill contains provisions relating to private schools that will raise around £140 million a year. There are more than 2,400 private schools in England, of which approximately half are charities and are able to benefit from business rates charitable relief. The Bill will remove the eligibility of private schools that are charities for that relief. The Bill provides a specific definition of a private school as
“a school…at which full-time education is provided for pupils of compulsory school age…where fees or other consideration are payable for that…education”
or
“an institution…which is wholly or mainly concerned with providing education suitable to the requirements of persons over compulsory school age but under 19…where the provision of full-time education…is wholly or mainly provision in respect of which fees or other consideration are payable”.
A number of right hon. and hon. Members have questioned how the Government’s plans will affect pupils with special educational needs and disabilities. My officials and I carefully considered the design of the policy, and the provisions in the Bill mean that private schools that are charities that wholly or mainly provide education for pupils with an education, health and care plan will remain eligible for charitable rate relief. To be clear, in answer to the earlier question from the hon. Member for Gosport (Dame Caroline Dinenage), “wholly or mainly” in business rates generally means 50% or more. The Government believe that will ensure that the majority of special educational needs schools will not be affected by the measure.
The measure will operate in addition to the existing business rates exemption for properties used by private schools wholly for the training or welfare of disabled people. That exemption, which we are retaining, means that those types of properties pay no business rates at all. Taken together, the existing and new provisions are intended to ensure that most private special educational needs schools will not be affected by the removal of charitable rate relief.
Victoria Collins (Harpenden and Berkhamsted) (LD)
Given the terrible SEND crisis across the country, does the Minister really think that it is good enough that only “most” of those schools will be exempt?
James Murray
I hope that the hon. Member will welcome the fact that we have committed an extra £1 billion in 2025-26 to high needs funding in the education system. The Government are committed to reforming England’s SEND provision to improve outcomes and return the system to financial sustainability. I would welcome her support for our measures in that regard.
Dr Luke Evans
I appreciate the Minister making this carve-out on SEND, but I would be grateful if he could give us some statistics. He said that “most” will be carved out. Have the Government done any work to determine how many schools will still fall under the provisions? If not, placing such an impact assessment in the Library would be useful for Members across the House.
James Murray
Let me point the hon. Gentleman to a document that has already been published: “Removal of eligibility of private schools for business rates charitable relief”, which sets out the impact and all the figures that he requests. There are 2,444 private schools in England, 1,139 of them are charities, and we expect that under our plans 1,040 will lose the relief. The schools that are wholly or mainly concerned with provision for children with an EHCP that specifies that their educational needs can be met only in a private school will retain access to charitable rate relief. I hope that that document will give him some of the statistics that he requests.
Let me add a few more details, in case they help hon. Members in understanding the policy. I can confirm that stand-alone nurseries with their own rates bills are not within the scope of the Bill. If they are charities, they will retain their eligibility for the existing relief. In addition, the Bill references independent training providers, which provide valuable vocational training courses on behalf of the Government, ensuring that there are suitable further education opportunities for all. Because of the funding mechanism used by the Government to fund independent training providers to provide full-time education and training for 16 to 19-year-olds, the Bill provides a specific carve-out to ensure that those institutions will not be affected by the measures in the Bill. As previously announced, it is the Government’s intention that this measure will come into effect from 1 April 2025. As business rates are a devolved tax, the measures in the Bill will apply only in England.
The measures in the Bill will play their part in bringing about the change that the Government were elected to deliver. The powers to introduce new multipliers serve as first steps on the road to transforming the business rates system. We are determined to transform the business rates system to support our high streets in a sustainable way, to offer stability and promote investment, and to drive the economic growth that is our mission as a Government. Our vision of a modern business rates system is one that helps to create wealth and decent jobs in every part of the country, and that ensures that high streets serve as the heart of local communities.
We are also determined to break down barriers to opportunity and help all parents to achieve their aspirations for their children. That is why the Bill will make changes to the relief from business rates that private schools that are charities currently enjoy, raising crucial funding to help to ensure that every child has access to the high-quality education that they deserve. The Bill delivers change. Change is what the British people voted for, and I commend the Bill to the House.
Kevin Hollinrake (Thirsk and Malton) (Con)
I beg to move an amendment, to leave out from “That” to the end of the Question and add:
“this House observes that the Autumn Budget 2024 has cut central Government funding for retail, hospitality and leisure business rate relief in 2025-26, and that this Government funding will end completely in 2026-27; expresses concern that the Non-Domestic Rating (Multipliers and Private Schools) Bill represents a stealth increase in business rates on high streets and the hospitality sector, as well as on larger businesses, on top of the Government’s increases in National Insurance contributions; regrets the lack of a proper cumulative impact assessment on the effect on business; notes that the removal of charitable rate relief on independent schools, taken together with the imposition of VAT, will mean fewer children going to private schools and will therefore create extra pressure on state schools, will undermine aspiration and parental choice, and mean larger class sizes in state schools and increased costs for taxpayers; and therefore declines to give a Second Reading to the Non-Domestic Rating (Multipliers and Private Schools) Bill.”
It is a privilege to speak in this debate on behalf of His Majesty’s Opposition. The Conservative party has a proud record of supporting businesses on the high street. We cut business rates to support small businesses, including doubling small business rates relief from £6,000 up to £15,000, and almost trebling higher rate relief from £18,000 to £51,000. We increased the frequency of business rate revaluations, making our business rates system fairer for businesses and more responsive to local economic trends, helping businesses to invest, create jobs and grow.
The contrast with this business-bashing Labour Government could not be greater. They have brought forward a mass of new red tape for business by means of the Employment Rights Bill. I note that the Regulatory Policy Committee released its commentary today on the impact assessment, which it said is “not fit for purpose”. It says that the annual costs to businesses could be much higher than £5 billion, and the impact assessment has received a red rating.
The Government have also imposed huge new tax increases on businesses. The worst thing is that they were not even man enough to tell businesses that they were going to do it—quite the opposite—which is why, as much as the Minister says that businesses have confidence in his plans, the Institute of Directors has said that it has seen the biggest one-month fall in investment confidence in its history. The Confederation of British Industry said today that 50% of its members will reduce headcount, and two thirds are scaling back hiring. Is that the kind of growth that he imagined he would bring forward with his legislation?
Infamously, the Labour party promised in its manifesto not to raise national insurance. Next week, we will have the Second Reading of a Bill that reneges completely on that promise by raising employer’s national insurance contributions by £24 billion a year. Labour has also hit business through the family farms tax, and our best family businesses in other sectors by halving business property relief. I remind the Minister that family businesses employ 13.8 million people in this country and pay over £200 billion every year in taxes. The Government are killing the geese that lay the golden eggs.
In its manifesto, the Labour party promised to
“replace the business rates system, so we can raise the same revenue but in a fairer way. This new system will level the playing field between the high street and online giants”.
In a speech to the House on 12 May 2022, the Deputy Prime Minister said:
“We would scrap business rates to help our high streets flourish.”—[Official Report, 12 May 2022; Vol. 714, c. 300.]
The Treasury Minister himself also stated his party’s intention to “scrap business rates” to the House on 25 October 2023. The Bill before us breaks those promises because it does not “replace” or “scrap” the business rates system. Not only that, but as a result of the Bill and the measures in the Budget, business rates are actually going up, both for online companies and businesses on our local high streets—yet more broken promises from a Government of broken promises.
Maybe the Government do not realise exactly what they are doing, perhaps because members of their Cabinet have no experience of starting and running a business. Shamefully, there has been no consultation with businesses about the changes. True to form, the Government have not published a full regulatory impact assessment alongside the Bill on the changes to business rates multipliers. It is a discourtesy to the House and to our constituents for the Government to refuse to consult with businesses, consider the impact their policies will have or publish the information that would allow Members of the House to scrutinise the plans properly. Instead, they are using their majority to ram through the half-baked damaging measures in the Bill.
Charlie Maynard (Witney) (LD)
I find it more than ludicrous to hear the Tories lecturing Labour about red tape. What the Tories have served up to the country through Brexit and the damage they have done to our economy is a disaster. To hear them masquerading as—
Madam Deputy Speaker (Ms Nusrat Ghani)
Order. Only interventions relevant to the speech in hand should be made. There is no need for that performance.
Kevin Hollinrake
I am grateful to the hon. Gentleman for his intervention. I remind him that it was not the Conservative party that voted to leave the European Union, but the people of this country. We respect democratic mandates.
I hope every Member on the Government Benches who walks through the Lobby to support the Bill tonight realises the price their constituents will pay for that decision. If the Government will not publish the likely consequences of the Bill, let me set out what I believe the consequences will be.
The Government claim to be cutting business rates relief for retail, hospitality and leisure businesses in England, but that is not the case. The business rates relief for retail, hospitality and leisure businesses that we introduced cuts 75% off bills, but that support is being reduced by the Labour Government. They are almost halving that relief to 40%, meaning that shops, restaurants, cafés, pubs, cinemas, music venues, gyms and hotels will all see their business rates rise.
James Murray
Was that 75% business rates relief for retail, hospitality and leisure businesses due to expire in April 2025?
Kevin Hollinrake
As the Minister knows, it had been renewed every year since 2021. The Conservative party supports businesses. When that 75% was passed on in England, the same moneys were provided to Scotland and Wales. What did Wales do? Only 40% relief was passed on, not 75%. That is the Welsh Government’s attitude to business. The Conservative party supports businesses, but the Labour party does not because it does not understand them.
Businesses face a stealth tax from Labour, with a £925 million rise in rates next year. That will add more than £5,000 to the business rates bill for the average pub, on top of £5,000 per year in extra costs for national insurance rises. It will also add more than £9,000 to the rates bill for the average restaurant, on top of the £12,000 national insurance increase, which means an additional £21,000 in total per annum for a typical business.
There will also be an increase of up to £2.7 billion in 2026 through higher business rates via the new multipliers, despite Labour’s manifesto promise not to increase the amount raised by the levy. These tax rises, as the CBI has said again today, will be passed on to workers through lower wages and to consumers through higher prices, making a mockery of Labour’s claim that it would not raise taxes for working people. The British Retail Consortium has warned the Government:
“The sheer scale of new costs and the speed with which they occur create a cumulative burden that will make job losses inevitable, and higher prices a certainty.”
The Bill will replace retail, hospitality and leisure relief with a lower multiplier for businesses with a rateable value below £500,000. That will be funded by the new higher rate multiplier for premises with a rateable value of more than £500,000, as the Minister set out. Setting the threshold at that higher level is a blunt instrument. I can assure the Government that it will have consequences for businesses that are not big online retailers. It will hit large supermarkets, supermarket delivery, large department stores, football and cricket clubs, conference centres and airports. Some of those on whom the new charges will be levied pay tens or hundreds of millions of pounds in rates. At the maximum level, it will mean a 20% increase to their rates bill.
It is no wonder that the outgoing chief executive of John Lewis has criticised Labour’s lack of business rates reform and warned that, alongside the national insurance increase, this is a “two-handed grab” from businesses. The Cold Chain Federation has warned that the business rates changes and the NICs increases could lead to the cost of food and medicine going up. That might be a double whammy for consumers, as the National Farmers Union has warned that the cost of food will go up because of the family farm tax. The Labour Government do not seem to have thought that through. The Labour party used to say that the business rates system created uncertainty, but now KPMG has described the Government’s plan to change the business rates system, as set out in the Bill, as “creating uncertainty for businesses”.
The Bill is silent on the matter of small business rates relief, which is a lifeline for many businesses on our high streets. When the Minister for Local Government and English Devolution winds up the debate, will he confirm that the Government intend to retain small business rates relief for the rest of this Parliament? Business is listening, and it needs to know.
Let me address the sting in the tail of the Bill: Labour’s education tax. The shadow Education Secretary, my right hon. Friend the Member for Sevenoaks (Laura Trott), feels passionately, as do all Conservative Members, that the Government are making the wrong decision. This Bill is part of the Government’s education tax, because removing the charitable rate relief from private schools that are charities goes hand in glove with the utterly wrong-headed, anti-aspirational and counterproductive policy of charging VAT on private school fees.
Chris Vince
Will the shadow Minister tell us how many state schools there are in his constituency, and whether he will talk so passionately about them when he talks about the decisions that this Government are making to support state schools?
Kevin Hollinrake
The Bill is about raising rates on private schools, which is why I mention them, but I am very happy to talk in glowing terms about the state schools in my constituency, including the one that I attended as a boy and the ones that my children went to. I am for state schools, but I am also for independent education. Why is it either/or? Why would anyone ever tax education?
Josh Fenton-Glynn (Calder Valley) (Lab)
The Stop School Cuts campaign website estimates the combined school cuts since 2010 in Thirsk and Malton, the shadow Minister’s constituency, as more than £70,000. Will he point to where in the public record he has spoken out about that?
Kevin Hollinrake
I was part of the fairer funding formula for schools in my area, which had the worst-funded local authorities in the country. I reassure the hon. Gentleman that schools in my constituency improved under the stewardship of the Conservative Government. Surely that is the key metric, rather than just how much money is put in.
Dr Luke Evans
The impact of taxing private schools with VAT will be that thousands of pupils move out into the state system. That will take away funding. It is already having an impact, but no mitigation has been put in place. The Education Secretary said that 3,000 was not the correct number, but she would not give out the number of pupils who have moved. The Government know those numbers and they need to come clean, because the impact of those pupils moving will eat away at whatever the tax raises.
Kevin Hollinrake
My hon. Friend is absolutely right. I understand that 90,000 pupils will be transferring to the state sector as a result of these plans. We Conservatives hold firmly to the principle that education should not be taxed. The only other nation to have tried is Greece, which abandoned the policy within months because of the disastrous consequences.
The Independent Schools Council has said that some independent schools will close entirely and others will scale back the education they offer, causing significant upheaval and disruption to the lives of tens of thousands of children. As surely as night follows day, that will mean fewer children going to private schools and increased pressure on state schools.
I would be grateful if the Minister enlightened me about whether this policy complies with article 14 of the European convention on human rights. The legal issues memorandum considers the principle of non-discrimination regarding the difference in treatment between private schools and state schools, but not between private schools that are charities and other charities that will still qualify for charitable rates relief. I look forward to the Minister’s clarification.
During our time in government, England became one of the top-performing countries for education in the western world, a legacy that this Government seem determined to trash. In short, this Bill may be short, but it is long on disastrous consequences. I implore Government Members to think about their local schools and their high street businesses that are about to be clobbered, and about the resulting job losses, higher prices and boarded-up shop fronts. I ask all Members to think about what is in their constituents’ best interests, do the right thing and vote against the Bill.
Adam Thompson (Erewash) (Lab)
I will focus on the removal of private schools’ eligibility for charitable business rates relief. Before I was elected to the House I was a scientist, but before I was a scientist I trained as a secondary school teacher. In school, I saw at first hand the dedication and resilience of my colleagues, but I also bore witness to the challenges that they faced—challenges that led many, many teachers to leave the profession after only a few years. I left after only my training year, citing the unsustainability of marking books at 1 o’clock in the morning, planning lessons at the weekend and never seeing my family as the reasons why I could not continue in the profession, despite loving being a teacher. I chose to leave the profession to do something that I feel is much easier: to take a doctorate in engineering.
When I trained 10 years ago, teaching had a profound retention issue, but now it is worse. One in 10 new teachers leaves after just one year in the role; one in four leaves after just three years. Little over half of teachers see their career last more than 10 years. Many are outstanding teachers who do not want to leave the profession. Even now, I miss teaching every day.
The picture in our education system gets worse when we look at maths and science, subjects that I know the whole House believes are vital. The maths teacher shortage began in 2012, and in 2023 the intake of new maths teachers was just 60% of the Government’s target. I was a physics teacher, and in 2023 there were six times as many vacancies for science teachers as there were in 2010. In my view, the failures of the previous Government’s education policy led to this abysmal state of affairs, and they are profoundly unacceptable.
Patrick Spencer (Central Suffolk and North Ipswich) (Con)
I appreciate that the hon. Gentleman is talking from personal experience about an important part of our education system. He talks a lot about teachers and the previous Government’s failed education policy, but will he take a moment to recognise the vast improvements in our performance in international league tables and the fall in the disadvantage gap in the years leading up to covid-19? Will he at least give some credits to the outputs, not just the inputs?
Adam Thompson
I will come to some of those points further on in my speech, if the hon. Gentleman is willing to hang on for a few minutes.
I trained as a teacher when the former Member of Parliament for Surrey Heath was Education Secretary. He made significant changes to the education system during his tenure, as the hon. Member for Central Suffolk and North Ipswich (Patrick Spencer) has just alluded to. Those were changes that I and the vast majority of my colleagues at the time strongly disagreed with. Those changes ignored decades of pedagogical research and favoured the metrification of our children over learning. They harked back to the rote learning of 50 years ago and set pedagogy back decades.
Austerity was already being very much felt in the sector. Teachers were expected to put in the same effort, but with fewer resources and with their pay frozen. Now it is worse. After a decade of Conservative Education Secretaries following in the footsteps of the former Member for Surrey Heath, teachers’ pay has taken a significant real-terms cut. In many ways, he inspired me to enter politics as a Labour Member—a sentiment that I know many of my colleagues on this side of the House share. Opposition Members may challenge me about why I raise these points, but I think they are all part of what the Bill is about. They are about keeping teachers in their jobs, paying them fairly and giving them the resources that they need to give our children the education that they deserve.
The previous Government set a goal that all children should finish year 11 with at least GCSEs in maths and English. That is a laudable goal, which has my full personal support, but last year just 45% of children in England—not even half—achieved it. Only one state secondary school in my constituency of Erewash attained results above that average, and even in that top-performing school, just half their children in year 11 attained GCSEs in maths and English. Every other state secondary school in my constituency was below that 45% average, and at the worst-performing the result was fewer than a third.
I should note that I place none of the blame for those issues on the local schools themselves. I have met several local heads and many teachers, all of whom it is powerfully obvious to me have made incredible sacrifices to deliver excellence in our local education system, and all of whom have been burned by the failures of education reforms introduced throughout the past decade. The people of Erewash elected a Conservative Member of Parliament in 2010, 2015, 2017 and 2019, and in return the previous Government let their children down.
I have been talking a lot about state schools, which is only natural when they are the schools that 94% of our children attend, but I would also like to highlight the major independent school in my constituency, Trent college in Long Eaton. In the run-up to the election and since then, I have been around as many of the schools in Erewash as I can, and Trent college is no exception. I have spoken many times to staff and pupils, and this weekend I attended a show put on by the incredible Wildflower community choir at the school’s chapel. It is a wonderful school, with excellent staff led by the brilliant Bill Penty. The staff provide fantastic opportunities to all the pupils who attend. The facilities are the best I have ever seen in a school and the staff do a huge amount for our community, but it is a simple fact that the vast majority of my constituents cannot afford to send their children to Trent college and that many of its pupils come from outside my constituency.
A great part of what this Bill is about is making sure that the incredible opportunities received by the children at Trent college, and the aspirations that they are encouraged to have, are available to all children in Erewash. I want every child in Erewash and the country to receive the best education they possibly can. This Bill will support the extension of those opportunities to every child in every state school in Erewash and the country.
Graham Stuart (Beverley and Holderness) (Con)
The hon. Gentleman is giving a thoughtful and impassioned speech. Notwithstanding his support for the Government’s policy, I wonder whether he regrets the fact that it is being introduced midway through the year, so that children, including those with special educational needs, will find themselves struggling to get involved with the curriculum and to fulfil the examinations for which they have put in a lot of effort and preparation.
Adam Thompson
I remind the right hon. Gentleman that if Opposition Members did not want us to have to take drastic measures to re-establish our country’s economy, they should not have left a £22 billion black hole in it.
I want to flag a particular failure in the education system that was brought to crisis by the previous Government: the provision of SEND education. It has long been under-supported, and after the past decade, things are worse. Opposition Members will claim that the Bill will make SEND provision worse still. Let me tell them that for SEND children and their families in my constituency and across Derbyshire it is scarcely conceivable that things could get any worse. Some 20% of the casework that I receive in my office relates to SEND problems. The recent Ofsted report on SEND services offered by Conservative-run Derbyshire county council found that it had “widespread” weaknesses, that communication with parents was “poor” and that children’s needs were often not accurately identified or provided for. The report is utterly damning—it is the worst Ofsted report I have ever seen—and Derbyshire county council’s failures are extreme. For my constituents, the local elections cannot come soon enough.
I was very pleased when the Chancellor announced in the Budget an extra £1 billion to support SEND services. Having spoken extensively to parents of SEND children in my constituency, I can say that they are not worried about whether private school fees might increase; they are worried about whether their children will be able to go to school at all. This Bill is about providing equality of opportunity. It is about ensuring that a child’s postcode or their parents’ income does not determine their chances in life. This Bill will provide funds to fix our state schools, reverse the bite of austerity, get more teachers into school and help them to stay there, ensure that all children are properly included, and ultimately provide them with the education they all deserve.
I feel strongly that supporting this Bill is my duty to my Erewash constituents and to its schools, its teachers, its children, their parents and the future of our towns and villages. It is my duty, therefore, to vote for the Bill.
Madam Deputy Speaker (Ms Nusrat Ghani)
I call the Liberal Democrat spokesperson.
Daisy Cooper (St Albans) (LD)
The Great British high street is on life support. Many bricks-and-mortar businesses are barely surviving and, where they are, it is often against the odds. Changes in our trading relationship with Europe, the covid-19 pandemic, energy prices, the cost of living and the Conservatives’ disastrous mini-Budget have all taken their toll, but for years one measure has stifled high street businesses more than any other: the broken business rates system.
The business rates system is unfair on companies, bad for our local communities and damaging to our national economy. It penalises manufacturers when they invest to become more productive and energy-efficient. It leaves pubs and restaurants with disproportionately high tax bills and it puts bricks-and-mortar shops at an unfair disadvantage compared with online retail giants. In too many places pubs, restaurants and shops are being forced to close, taking with them jobs, opportunities and treasured community spaces, and consumers are seeing the cost of this unfair tax passed on to them.
More broadly, this outdated system inhibits business investment, job creation and economic growth, holding back our national economy, yet for too long it has been allowed to continue. In their 2019 manifesto, the previous Conservative Government promised a fundamental review of business rates to ease the tax burden on smaller businesses. Yet in 2022, when I challenged the then Chancellor, the right hon. Member for Godalming and Ash (Jeremy Hunt), on his personal commitment to making that happen, he admitted in this place that it was
“Another of the promises I now vainly wish I had not made”.—[Official Report, 17 October 2022; Vol. 720, c. 430.]
Businesses are tired of being treated with such cynicism and of relying on a patchwork of last-minute temporary reliefs. They cannot plan, they cannot invest and they cannot grow. They are crying out for fundamental reform and a new, fairer system. Before this autumn Budget, Liberal Democrats called on the Chancellor to reform business rates completely, with a new system, and to do so no later than April 2026. We believe the new system should be based on our Liberal Democrat calls for a commercial landowner levy—a bold move that would deliver a real shot in the arm for our high streets.
Instead of pursuing fundamental reform, instead of fair reform, this Bill is just more tinkering. Rates relief has been a sticking plaster—but, boy, is that plaster being ripped off in April, with a big reduction in relief. Many small businesses now say that the increase in business rates, combined with the increase in national insurance contributions, will be too much for them to absorb.
Andrew George
My hon. Friend is making an excellent case. Along with the point I made in my previous intervention about the opportunity for abuse under the rates relief system, particularly by holiday homes, does she accept that the methodology used by the current rating system for parking spaces in out-of-town retail outlets such as supermarkets hands a massive advantage to those supermarkets in comparison with town centre shops, and that we need a rating system that actually levies a rate on that benefit at a level that ensures an even playing field?
Daisy Cooper
My hon. Friend is absolutely right that this broken business rates system is unfair in many ways and it is the big giants, online or otherwise, that are getting an easier ride.
The Bill fails to address many other problems with business rates. For example, it does nothing to support businesses outside the three sectors of retail, hospitality and leisure, meaning it excludes key sectors such as manufacturing that are particularly negatively affected by the current system. It does not address the £51,000 cliff edge. Properties with a value over that threshold are not eligible for the small business multiplier, even though they are small businesses, and with rates relief going down, business rates bills for small businesses will go up. From next April, business rates relief for retail, hospitality and leisure will be cut from 75% to 40% and this Bill does nothing to avert that blow.
The Minister said he wants to rebalance business rates. I welcome that direction of travel, if it turns out to be true, but in the absence of an impact assessment, I am particularly worried about unintended consequences. I say this in the spirit of constructive opposition: it appears as though the Government are moving from a system of temporary relief to a lower multiplier. At the moment, a small business enjoys 75% business rates relief, but a very large chain has its relief capped at £100,000. If I have understood it correctly, independent shops will see their relief drop from 75% to 40%, while big chains such as pubcos and supermarkets may see their relief uncapped, which could give them a tax reduction of tens of millions of pounds. I would be grateful if the Minister wrote to me to share some modelling to reassure me that that is not going to happen and that we will not see independent businesses inadvertently subsidising big chain stores and multinationals.
The impact of the Government’s changes to business rates will have a massive effect on small businesses in my constituency. The oldest pub in Britain—or so they claim—Ye Olde Fighting Cocks, will see a whopping increase of £30,000 per year in its business rates alone. The Save St Albans Pubs campaign says that even an average pub in St Albans, with a rateable value of £100,000, will face an additional £19,000 in its business rates bill from April. If we assume that an average pub makes 30p profit per pint, each of those pubs would need to sell an extra 60,000 pints a year, or almost 1,200 pints extra a week—and that is before factoring in the increase in national insurance contributions.
Other low-margin, large-premises businesses, such as children’s soft play activity centres, will also lose out under these changes. DJ’s Play runs much-loved indoor play centres across Hertfordshire, which exist in large warehouse-style premises. The buildings are large, but the profit margins are not. DJ’s Play and many others like it provide a valuable and enriching educational experience for children, but they too will struggle to keep their heads above water.
The Liberal Democrats are also opposed to the Bill because it would levy a tax on education by removing the business rates exemption for private schools that are charities. We are opposed in principle to the taxation of education, because it is a public good. We believe that parents must be given choice when it comes to their children’s education. Many families feel that, whether due to bullying, SEND provision, mental health issues or other factors, the state system cannot meet their child’s needs.
Josh Fenton-Glynn
One of the first things the coalition Government voted to do was to scrap the Building Schools for the Future programme, which impacted schools in my constituency including Calder high school, Brooksbank and Todmorden high school. Will the hon. Lady reflect on whether that was a mistake by her party and whether it has prevented state schools from being able to provide for more students?
Daisy Cooper
I am grateful to the hon. Gentleman for his intervention. He may know that during those coalition years, both the health and education day-to-day budgets were protected and it was after the Liberal Democrats left the coalition in 2015 that capital budgets were serially raided to pay for day-to-day spending.
To return to my point, there are almost 100,000 children with SEND in private education without education, health and care plans, and it will be those families who bear the brunt of this measure.
We Liberal Democrats have tabled our own reasoned amendment setting out the reasons why we are against the Bill, but I have a number of questions for the Minister that I would be grateful if he could address in his summing up. Will there be an impact assessment that sets out the impact on small businesses on high streets? Will he exclude any new investment from business rates valuations from April, so that businesses that are able to invest in their future will not see that investment pushing up their rates bills even higher? Will he think again and complete the consultation before unfreezing the rates relief, which could badly affect small businesses and our high streets? Will he confirm whether the change from a system of capped temporary relief to an uncapped lower multiplier will inadvertently end up with small businesses subsidising big corporations?
The Government say that they want growth, and so do we, but these business rates changes will stifle the growth of small businesses and high streets at a time when we should be unleashing it. We urge Ministers to think again.
Mrs Sureena Brackenridge (Wolverhampton North East) (Lab)
Like my hon. Friend the Member for Erewash (Adam Thompson), I will speak about the removal of the charitable tax status of private schools. I stand here as not just the Labour MP for Wolverhampton North East, but someone who has spent more than 25 years working in state secondary schools as a science teacher and a deputy headteacher. My experiences in classrooms have shown me the stark realities of the funding disparities across our education system.
Removing the charitable tax status of private schools is necessary and fair. Many staff working in state schools across the country will empathise with me when I say that in recent years, something as basic as a class set of glue sticks or reliable access to working printers has become a luxury. We have to make tough choices. We are struggling to provide subject and department capitation budgets for subjects such as science, art, design and technology and music and to provide the resources needed for students to thrive with hands-on learning. We are struggling to fix leaking roofs and fund much-needed support services for vulnerable students. These are not decisions that any school leader should face, but they are the reality in too many state schools. Contrast that with the resources available to private schools, which benefit from the charitable tax exemption, giving them a financial advantage. Is it fair that while state schools struggle to afford basic supplies, private schools enjoy tax breaks that widen the gap? I think not.
The gulf in top GCSE results between private schools and state schools is vast. This year, almost 50% of the GCSEs taken by private school students were at least a grade 7, while less than 20% of results from students in comprehensives and academies reached the same level. By removing tax exemptions on private schools, we have the opportunity to generate an estimated more than £1.5 billion annually. Those funds will catalyse the transformation needed in our state schools. Imagine recruiting and retaining more talented teachers, modernising ageing buildings, expanding student wraparound support services and ensuring that every child, no matter where they are from, has access to high-quality education. This is not about punishment; it is about fairness. Some will argue that this policy could drive up fees, putting private education out of reach for some families, but let us be clear: private schools are businesses. Many have financial reserves, endowments and donations that they can draw on. They can adapt, just as state schools and school leaders like myself have had to adapt and balance constrained budgets for many years.
This new Government’s record on education will be one of fairness and equity. We are investing in early years education, free breakfast clubs, great-quality apprenticeships and staff recruitment and retention, but we need resources to make those ambitions a reality. Removing charitable tax exemptions is a necessary and responsible step in building an education system in which a child’s potential is not defined by their family’s wealth. I have seen what state schools can achieve when they are given the resources they deserve—when a child who once struggled to find their confidence suddenly excels because they finally have the support that they need. Removing tax exemptions from private schools is not just a policy to me; for the students I have taught, the colleagues I have worked alongside and the countless young people still waiting for their opportunity, this is about fairness, just as they deserve.
Damian Hinds (East Hampshire) (Con)
In my time as a junior Treasury Minister, one important thing I learned was that there is a really good argument against every tax: VAT is inflationary, corporation tax reduces investment, income tax disincentivises work, excise duties typically fall more heavily on lower-income groups and so on. As a result, the policy tends to be, “We will do a little bit of a large number of taxes.” That is not a bad policy, but business rates are particularly troublesome because of their fixed-cost nature—they do not flex to businesses’ sales or profitability or to the business cycle, so they can exacerbate the effect of downturns in the economy or in individual sectors. Business rates discourage start-ups and scale-ups.
Rates fall disproportionately on property-heavy sectors. With the development of e-commerce and delivery businesses, the hurt to those with costlier premises is relatively greater. Due to the accumulation of those factors, UKHospitality and the British Retail Consortium estimate that hospitality, retail and leisure account for more than a third of business rates while accounting for under a tenth of the economy as a whole. That matters to us as parliamentarians because of the role that such businesses play in our town centres, village centres, city centres and high streets. There is both the direct effect that an individual shop, café, restaurant or pub has on footfall into the town, and the indirect impact due to the interdependence of businesses and the network effect.
We often lump hospitality and retail together due to the commonality of pressures that affect both, but there are also differences between them. Hospitality has taken on more of the burden of supporting our town centres over time relative to retail, because there are different levels of opportunity in e-commerce—there is some with retail businesses, but there tends to be little with hospitality businesses, because by definition if someone takes something from a vending machine, that is not hospitality.
I support the concept of fundamentally reforming business rates. The world has changed, with the growth of e-commerce and, thankfully, the growth of wages at the lower end of the wage distribution. We need to make a sharper distinction between shops and distribution sheds, but this Bill does not do that. The distinction that the Bill makes in its reform is between large premises with large rateable values and smaller premises. A quick read of the wording of the “transforming business rates” document, which explains the policy, would almost make one think that the changes are designed to distinguish online businesses from traditional retail, but they are not. The document mentions
“properties with rateable value £500,000 or more,”
which captures
“the majority of large distribution warehouses including those used by online giants”.
That is true, but that will also capture lots of other businesses, such as department stores and hotels, which are clearly part of the retail and hospitality sectors. Conversely, some parts of the distribution network of online businesses will not be captured. One very large, well-known online retailer has already moved to a more distributed hub and spoke network with its regional fulfilment approach. I dare say that those one-hour delivery grocery people have even smaller individual premises.
In reforming business rates, I hope that the Minister will consider that they cannot do all the work. I strongly welcomed the previous Government’s introduction of the digital services tax, which was always put forward as an interim measure pending wider reform of international taxation through the OECD. I do not believe a broader online sales tax is likely to be helpful—definitions would become difficult, and the development of some of the small businesses in our town centres that we value could be impeded—but I welcome the Government talking about more frequent valuations. Any reform of business rates must address the cliff edges that the hon. Member for St Albans (Daisy Cooper) talked about, as well as another problem that we as MPs worry a great deal about, which is vacant premises.
Right now, I am most concerned about right now. The Government promised that they would raise
“the same revenue but in a fairer way”.
That is not what is about to happen. Let us be very clear: the amount of money to be raised from business rates is about to go up, and it is about to go up on the back of retail and hospitality businesses. The Government will say—the Minister has already said—“But we are extending a relief that was going to come to an end.” Believe it or not, ladies and gentlemen, there is even a line in the “transforming business rates” document that says the Government will save the average pub £3,300 a year. They may say that, but that is not how it will feel to that pub or to the typical retail, leisure or hospitality business in any of our constituencies when they discover that the relief on business rates is coming down from 75% to 40%. For many businesses, in real terms, that means a doubling or more of the business rates they pay, and we cannot see that in isolation—it comes on top of many other pressures.
The increase in the national living wage is a good thing. The national living wage has been a very successful policy that, since 2015, has reduced the number of people in work on low pay from one in five to less than one in 10. However, I am afraid that the further increase in the national living wage—which I welcome—comes with things that I do not welcome, particularly the great extra cost pressure on employer’s national insurance contributions. A lot of nonsense has been talked about whether that counts as a tax on working people. Everybody knows that in the end, employer taxes on labour only ever show through in lower employment figures or wages lower than they otherwise would have been. On top of that, there are the French-style labour laws. While higher employer’s national insurance contributions may result in lower employment at any individual institution, the effect of the business rates hike will be that some establishments will close altogether.
Before I sit down, I want to say a word about schools, a topic on which impassioned speeches have been made by Members across the House. Most of what colleagues have said will probably be discussed again on Wednesday, when the Finance Bill has its Second Reading—I can assure the Minister that we will be back for that debate, too. Relatively speaking, the measures in this Bill are small compared with the VAT changes. This Bill is projected to eventually raise £70 million for the Treasury and another £70 million for local authorities, compared with £1.6 billion through the VAT hike. These measures also have a relatively small effect on displacement into state schools, but let us be clear: there is still displacement into state schools. That is a cost to the state, but more importantly, when it comes to individual places, it will be a strain on some of our local school systems, on class sizes and, ultimately, on parents’ prospects of getting the first choice for their child—the school they want to go to.
Although colleagues on both sides of the House have said that we cannot talk about the rates alone, but have to put them together with VAT, there are four things happening this year that will increase the amount of money going out of independent schools into the Exchequer. Business rates is one of them; VAT is the second; the third is the rise in employer’s national insurance contributions, which will have a big effect on this sector; and the fourth is the five-percentage-point increase in employer contributions through the teachers’ pension scheme. I estimate that for most schools, that measure on its own accounts for about 3.5% of total costs. All this matters because of the uneven effect it will have on displacements into state schools. Whether a person is in Salford or in Surrey, in Bristol or in Bury, they may find that great and unexpected strains are put on the schools in their area.
This measure, as well as the VAT measure, will also have a disproportionate effect on low-cost faith schools, many of which rely partly on donations to keep going. Those are not businesses that are in some way well endowed; they are doing something because they believe it serves the needs of their faith, something that they cannot find in the state sector. Some of those schools are charging less than the cost of the average state school place in our country, and it seems bizarre that this Government wish to hammer them. It will also create a two-tier charity system in which some charities can be disfavoured fiscally even while complying with their charitable obligations and serving their communities. It is a new and most unwelcome example of state overreach, and I will be voting against the Bill this evening.
Imran Hussain (Bradford East) (Ind)
I will base much of my contribution on the latter part of this Bill, which deals with private schools. However, before I go into that, I welcome the changes that the Minister is proposing through this legislation that will massively benefit our high streets. The reality is that the past 14 years saw our high streets devastated by the previous Government. In particular, I welcome the permanent lowering of business rates in the retail, hospitality and leisure sectors, which I think will be a huge boost to our high streets.
On the schools part of the debate, it would be remiss of me not to start by mentioning the 14 years of brutal Tory cuts that have led us to this moment, in which state schools are hanging on by a thread. They were abandoned for 14 years by a Government who brought zero investment to schooling—who simply watched the sector struggle through the covid-19 pandemic and left school buildings laden with asbestos or crumbling concrete. They knew that teachers were paying out of their own pockets for school supplies and food for hungry students, but instead of supporting them, the previous Government chose to attack public workers who were close to breaking point. Teachers have long paid the price, leaving the education system in droves, and can we blame them, given the treatment they have had over the past 14 years? In my constituency of Bradford East alone, 95% of schools have faced cuts to per pupil funding—cuts of £15.6 million since 2010. That is over £680 less per pupil.
As such, it is refreshing to finally see a Government share my values and my commitment to not leave state schools at breaking point, with a clear plan to deliver a much-needed lifeline directly to those schools by ending private schools’ eligibility for business rates charitable rate relief and VAT relief. The Minister was right to note that VAT relief is dealt with in a separate piece of legislation that is yet to come before this House, but both are connected in this debate, so I will also make mention of the VAT relief that private schools currently enjoy.
Frankly, the £1.5 billion that will be raised will go towards improving the education and life outcomes of all children by funding the recruitment of thousands more teachers and much-needed breakfast clubs for children. Many will welcome the Government ending the discount on education that the richest schools and the richest parents currently get, because what kind of Government arrange concessions for the wealthiest while working-class children go hungry as they learn? Despite some of the arguments we have heard and will hear, that is not a society that champions freedom of choice; it is one where the wealth bracket of someone’s parents, their postcode and their school determines the success of their life. If we let this inequality entrench itself any longer, we will never be able to end it.
I fully understand and endorse the spirit of the decision to close the tax loophole on private schools, but I also note the growing fear and concern in my constituency and other constituencies, particularly for the smaller independent and faith schools that, as we should also recognise, provide excellent and often specialised schooling for children. That is why I am pleased that the Government have confirmed that, where private schools are charities that provide education for children with education, health and care plans, they will retain the charitable relief, as they rightly should. My view is that the impact on smaller independent and faith schools should be considered too, and I firmly believe that it is not in the spirit of this legislation to punish them. We should draw a clear distinction.
Graham Stuart
The hon. Gentleman is quite right to highlight the impact on small schools, which often have pretty low fees, so is he going to vote against the Bill tonight? The spirit of this legislation is to hit everything in the private sector, as if every institution was Eton, when he knows and we know that they are anything but.
Imran Hussain
The right hon. Gentleman is a brave soul because he often tries to defend the indefensible. He and I have often sparred between these Benches, but I would say to him that the place he comes from and the place I come from are distinctly different. I support the spirit and ethos of this legislation because I do not think it is right to give tax concessions and subsidies to the richest in society while the poorest of our kids go hungry in schools, so we come from different places. If he lets me make the point about where I am coming from about genuinely smaller and faith schools, I think it may at least answer part of his question.
When we talk about these schools, let us be clear that the average fees for some of the smaller schools are about £3,000, which is a great deal less than the average. They are maintained through community support and donations, and they are not in the same league as the Etons of this world. They do not reproduce class inequalities, and in fact they enable some of the most deprived communities to flourish. It would be a travesty if these schools were inadvertently punished by a decision designed to tackle the same inequality that some of them work so hard to break down.
If we do not consider the impact on them, the schools charging the lowest fees, which are often located in extremely deprived communities, will suffer and, sadly, the children whose working-class parents have often saved up for many years to get them into these schools will have to leave. Again, while I of course support children moving from that sector into the state sector, the reality is that 14 years of underfunding and under-investment have left us with serious capacity issues in the state sector, which is something Conservative Members may want to address when they speak.
I want to take this opportunity to recognise the massive contributions that faith schools make to society. I have a number of Muslim faith schools that do some excellent work in my constituency, and I want to put on the record my thanks to them for all they do. I must therefore urge Ministers to put in safeguards for smaller independent and faith schools, many of which, sadly, will not survive the policy in its current form. This can be achieved, because I believe the money that would be generated from the smallest of these schools is not at a level that would have an impact on the overall spirit of this legislation.
Madam Deputy Speaker, you are staring at me in a very telling way—although there is no time limit, I know that look. To conclude, I agree wholeheartedly that we cannot keep funding tax breaks for the top end of society while neglecting the rest. This is something I have spoken on and championed my whole life, and I believe this policy is the right one for our state schools. However, I must urge the Government to reconsider, and not let smaller independent and faith schools, which are some of the lowest-charging schools, to pay the price. I must urge Ministers to listen to their concerns, and put in safeguards as this and other relevant Bills progress through to their next stages.
Anna Sabine (Frome and East Somerset) (LD)
I refer the House to my entry in the Register of Members’ Financial Interests and the fact that I own a high street café.
I am proud that there are so many independent shops and high streets in my constituency of Frome and East Somerset. Midsomer Norton, in particular, epitomises the traditional British high street, with haberdashery, hardware and craft shops. On the other side of the constituency, people need only take a stroll through Frome to stumble across independent cafés, bookshops and tailors. We know that high streets are the centre of local economies and places for community cohesion. They are idiosyncratic to the needs of the communities they serve, and offer local jobs and training opportunities. They also provide social goods. For example, Denude is a zero waste shop in Frome that helps support the local community to live more sustainably.
Yet for the last nine years, small businesses and local high streets have felt the burden of economic instability and other pressures. The shops and businesses that still exist have fought hard to protect themselves, and they have in many ways defied the odds. They have had to adapt to changing consumer trends, compete with the rise of online retail giants, navigate covid-19, and survive the mini-Budget and the subsequent impact on mortgage rates and disposable income, which is still being felt. While still feeling the impact of all this, some businesses will in the short term have to pay both high business rates and national insurance contributions. Small businesses have proven that they are excellent at adapting, but I really do fear the impact that some of these changes may have on our local high streets and independent shops.
Businesses I have spoken to over the last few months often use the phrase that they are “only one bad month away from closure.” While permanently lowering business rates for retail, hospitality and leisure is a step in the right direction, it is still not enough to help our flourishing high streets thrive again, and we know that many important small businesses fall outside these categories. The Lib Dems want to see a complete overhaul of the business rates system. Instead of targeting small businesses, which are the backbone of our high streets and local communities, we want to replace business rates with a new, fairer levy on commercial property owners rather than their tenants. Small businesses can adapt, but not endlessly, and I fear that at the moment too much is being thrown at them with insufficient support.
Ms Polly Billington (East Thanet) (Lab)
At the general election, businesses in my community were crying out for change. They felt the need for stability and certainty after more than a decade of chaos and incompetence had hit them all hard. One of the things they welcomed was Labour’s pledge to reform business rates and ensure that the online giants, which suck so much out of our local economies, would pay their fair share. Small town high streets such as those in Margate, Broadstairs and Ramsgate desperately need the support that a change in business rates will give them. It is vital that we create a fairer business rates regime to support investment and protect our high streets.
More widely, I heard real anxiety on the doorstep about the need for more teachers in our schools and access to quality education, so often unavailable for the 94% of children who go to state schools. Reforming business rates for private schools, which serve only 6% of the population, makes sense; it is carefully costed and will make a difference to so many children in Thanet and across our country.
I hope, in particular, that this reform is a driver to increase access to the creative disciplines so that children can learn to expand, develop and harness their imaginations, appreciate the arts in all their forms, with good-quality creative education delivered by qualified teachers who love their subject. It should go without saying, but it does need to be said, that children raised with good-quality creative education have the potential to go on to contribute to our local economy through the creative industries, including by starting their own businesses.
Our business rates system has disincentivised investment and created huge burdens on our high streets. The Conservative party created a cliff edge for high street businesses across the country as temporary reliefs were due to end. Providing certainty through a 40% relief rate and the freezing of the small business tax multiplier is very welcome.
I welcome the Chancellor’s intention to permanently lower rates for retail, hospitality and leisure; this is crucial for constituencies such as East Thanet, where creative industries and tourism businesses are crying out for help. I have been working with the Ramsgate empty shop campaign to revive the town’s high street. Despite its wonderful heritage, thriving creative community and extraordinary environmental assets, Ramsgate’s local economy is far too seasonal, and that makes running a business all year round harder. That in turn has driven many businesses to the brink and left the high street echoing with the silence of empty shops. Spaces that should be seen as an opportunity for entrepreneurs have become a sign of desolation. That must change.
The importance of business rate changes is also highlighted in the other aspect of this Bill: the removal of private schools rates relief. Every parent wants the best for their children; that impulse is not exclusive to those who choose to send their children to private school. There is nothing wrong with ambition. If we are to enable all families to fulfil their ambitions, we must ensure that they all have access to the very best quality education. It is our duty as a society and a country to ensure that all those children’s talents, aptitudes and interests are nurtured.
Vast swathes of working-class children do not have access to the kind of education that would be genuinely transformative. For example, the last Government cut back radically the amount of arts education in state schools, locking working-class children out of the opportunities to find their talent, tap into their imagination, and learn how to play an instrument, express themselves through dance, wield a paint brush, work with clay or look deeply and critically at the world around them and respond to it. They pursued a curriculum that damaged the prospects of those children.
In contrast, private schools know that creative education is good for children’s wellbeing and academic outcomes. That is why they put so many resources into developing it. That is why they allocate the resources, build the assets and invest in the teaching staff to ensure that their children get that access to the creative arts that contribute to society in every dimension.
Unsurprisingly, 40% of those working in the film, TV and music industries were educated at private schools. Who knows the amount of untapped talent in the 94% of children in state schools that we have lost as a country because of the actions of the last Government. It is estimated that the creative sector in the UK is worth £125 billion and employs 2.3 million people. We are limiting ourselves as a country by not giving every child access to creative education. Imagine how much more we could be producing in economic prosperity as well as greater wellbeing if those children had the same access that the 6% have. So, yes, it is right to find that money from the private schools who serve the 6%. Yes, it is right that we find the money for more and better teachers in state schools with a love of the arts; with an enthusiasm for sharing their appreciation and skills; and with an aptitude for spotting talent, rewarding effort and encouraging creativity.
Those small businesses in my community also want to know that the children in our schools become young adults as fully rounded products of our education system, with their imagination, skills and discipline developed ready for the kind of work in the creative industries that drives our economy locally, nationally and globally. If for nothing else, I urge the House to vote for these changes for our children, our small businesses and our economy.
Charlie Maynard (Witney) (LD)
The Liberal Democrats would like to see a much more fundamental reform of business rates. Although there are promises of further steps, it is disappointing that our new Government, with such a large majority, are not being more ambitious now.
Our high streets will remain in deep trouble. The retail, hospitality and leisure sector will now have only 40% relief instead of 75%, but sectors such as manufacturing, which is having such a difficult time adjusting to a post-Brexit world, will get zero relief. National insurance contributions will be greatly increased, with taxes having to be paid before a business even makes a profit.
On top of that, we all know that our high streets—such as Witney’s beautiful high street, as seen in The Times today—are being eaten alive by online retail. We need to do much more to level the playing field between online and offline retail, but this adjustment is a very, very blunt instrument for doing so. We need to be much more precise about going after big tech and taxing it appropriately.
There are a few steps that we would like to see. A commercial landowner levy that taxes just the land value of commercial sites, not productive investment, has worked very effectively in Australia, Denmark and Estonia. A land value tax is much more effective at capturing the publicly created uplifts in land value, rather than leaving it to landowners to pocket them, sometimes with enormous gains. This is largely how our Victorian forebears built our railway network, and it is how countries around the world, ranging from Japan and Korea to much of northern Europe, fund new transport links—something that we want to do between Oxford and Witney.
Scrapping stamp duties on commercial land would make our market in land simpler and more efficient. Switching the tax to the owner rather than the tenant would spare 500,000 small and medium-sized enterprises the admin burden of property taxation and would save money and time in collecting the tax. Ending the exemptions on empty and derelict premises would incentivise action rather than inaction.
We very much hope that the new Government will follow through on their promises to take further substantial steps. After all, they have the votes.
Chris Vince (Harlow) (Lab/Co-op)
Over the weekend, I watched my second favourite film. At the end, the main character, or at least the main character in my opinion, utters the immortal line that
“the needs of the many outweigh the needs of the few.”
When I consider the ending of tax exemption and charitable status for private schools, I often consider that line. We want all children to have the best chance in life to succeed, and 94% of children in the UK attend state school. Like every child, they deserve the highest quality of support and teaching. I also believe that ending the tax break on private schools will help to raise the revenue needed to fund our education priorities for the next year.
But then I realised that the phrase “the needs of the many” does not quite cover it. The Conservative party talks about choice, but there are really only two reasons why parents would choose to pay tens of thousands of pounds each year to send their children to private school rather than state school—maybe three if they go to Eton. Those reasons are longer opening times and boarding facilities, and a lack of faith in local state provision. We want to take away the choice to go to private school, but not in the way that the Conservative party keeps parroting; we want to make state schools so good that no one feels the need to send their children to private school. There should be no necessity for private schools.
I think all Members in the Chamber, even on the Opposition Benches, will acknowledge the issues with SEND funding in schools. It has been underfunded. I was lucky enough to visit Newhall primary school in my constituency on Friday. I saw the work it is doing to support its SEND students, even though it is not a specialist SEND school. However, it could only do that with a small number of students. Imagine what it could do with additional funding opportunities: it could help so many more.
What many people fail to recognise is that these private schools have the choice to absorb some of the tax. We are not here to punish students or parents. Schools can choose to absorb some of the tax, in the same way that the state sector has been asked to do for the past 14 years.
Graham Stuart
I wonder whether the hon. Gentleman listened to the speech of the hon. Member for Bradford East (Imran Hussain). Many private schools actually charge less than the funding that goes to state schools. Every school is not Eton. What does the hon. Gentleman have to say about the most vulnerable schools and the children therein? Should the proper design of any policy not be grounded in looking at the most vulnerable rather than the strongest?
Chris Vince
It is very exciting to take my first intervention from an Opposition Member, but I think the right hon. Gentleman fails to recognise the point that I am trying to make. I am saying that we need to support the state sector to be as good as it possibly can so that parents do not feel the need to send their children to private school.
The Conservatives groan when we mention the £22 billion black hole, but I do not even need to mention the £22 billion black hole—in fact, I will not mention the £22 billion black hole. What I will say, however, is that we have high streets that are already boarded up and school buildings left crumbling. I visit state schools in my constituency all the time and I see children of all ages and abilities full of compassion, intelligence and potential. I had the fantastic opportunity to visit St Mark’s Catholic school in my constituency again last Friday. The students asked fantastic questions. If they are listening now, I emphasise that they can aspire to achieve everything they want in life. However, classrooms are overfilled and underfunded. Paint is peeling off the walls, and some schools—not that particular school—have faulty heating. Despite all those things, the pupils could not be filled with more excitement or more desire to learn and understand.
I can see that you are looking at me, Madam Deputy Speaker, so I had better get on. Labour is making the fair choice to support small business, to give every child the chance to succeed and to protect the public finances. I will finish with a line from my favourite film of all time, “A Matter of Life and Death”. At the beginning, David Niven says:
“Politics: Conservative by nature, Labour by experience.”
I am delighted that on 4 July, plenty of people went to the polls with that view.
Madam Deputy Speaker (Ms Nusrat Ghani)
Curiously, the hon. Member did not explain the movie he referred to in opening his speech.
Sarah Bool (South Northamptonshire) (Con)
The Carrdus school in my constituency is a small private school—it is not an Eton and it is not a Harrow—but it has already announced that it may be forced to close mid-academic year because of the Budget and this Bill.
I met the headteacher the other day. She is a passionate leader who is absolutely devastated by this. She mentioned many of the points that my right hon. Friend the Member for East Hampshire (Damian Hinds) made about the four main areas. She explained that 80% of the school’s costs are on staff salaries, so the increase in employers’ national insurance contributions is crippling. The changes to business property relief are challenging, and imposing VAT on school fees means that the uplift in fees is unsustainable for many parents. They simply cannot absorb this tax.
After these consistent hits, the school faces little choice but, potentially, to close. That means that 110 children, including children with EHCPs, will now have to plan to be rehomed into different schools, with all the disruption that that causes. The burden also falls on our local councils, which now have the responsibility to find different state places somewhere that will take those children with EHCPs. This is happening when council budgets are already stretched. Our state schools are at capacity, and this will lead to more harm for many children.
The hon. Member for East Thanet (Ms Billington) mentioned the importance of creative opportunities. I entirely agree that the arts are vital, but the Budget also hits opportunities for access to the creative arts. The Northamptonshire Music and Performing Arts Trust is a charitable organisation that offers children of all backgrounds access to lessons, but the increases in employers’ national insurance and the business property reliefs make it so much harder to offer those lessons. NMPAT is genuinely struggling. It would be devastating to lose such opportunity for our next generation. Regardless of politics, we must remember that it is our children’s education that is being penalised by these measures.
Michelle Welsh (Sherwood Forest) (Lab)
I want to speak specifically about the removal of charitable tax status from private schools. We know that the total proportion of schoolchildren who are in private school is 6%. That means that 94% of children are not. Does that 6% still matter? Of course those children matter. I believe that every child should have access to a high-quality education; I say that having spent years working on the frontline in state education under the previous Labour Government, where the framework for all children’s services was “Every child matters”.
Forgive me if I feel a little angry about some of the chuntering that is going on, because I worked in frontline education when the coalition Government came in. The Conservatives and Liberal Democrats were working together—and in the first 18 months, what did they cut? They cut the education maintenance allowance, which supported some of the most vulnerable and disadvantaged children I was working with to go to sixth form. The disadvantaged subsidy pathfinder project: cut. The National Careers Service: cut. School sport partnerships: cut. Youth services: cut. Sure Start services: cut. Sure Start maternity grants: cut. That was all within the first 18 months. That caused the rot to set in within our education system, and it is the very reason why I am standing here today.
At the school gates in the morning—this is a bit of reality—when I drop off my son, I stand side by side with parents juggling jobs and home life, who have ambitions for their child that know no boundaries. Every parent I have ever worked with wants better for their child. Whether someone is financially able to send their child to private school does not change that, yet there is a huge disparity in choice. State schools are struggling. Department for Education figures released in January this year show that last year 13% of local authority maintained schools were in deficit. That is 4% higher than in 2021-22, and there are reports that 19 of those schools are in Nottinghamshire.
In my constituency of Sherwood Forest, the Stop School Cuts campaign estimates that 69% of schools have faced cuts to pupil funding since 2010. That is having a huge impact on the lives of children in my constituency and on their health, wellbeing and mental health. One area of my constituency has the highest rate of male suicide in the whole country.
I regularly meet schools in my constituency. I see how hard the staff work to ensure that children still get a quality education despite the challenges that they face. One of the main challenges is funding. I want to illustrate what that means in day-to-day life. Leen Mills primary school is a fantastic school serving its community and some of the most disadvantaged children living in my community. It is unable to afford acceptable buildings and classrooms for its children to learn in—ones that facilitate learning and are comfortable for pupils and staff. Pupils have to walk outside between buildings—temporary buildings—to use the toilets in all weather, come rain or shine. That should not be the case, yet it is so hard for the school to meet the most basic requirements without having to put up a fight.
The changes to private schools’ charitable tax status will generate additional funding so that we can improve our public services for all children and young people. With more funding for schools such as Leen Mills primary school, all pupils, no matter where they live or how much their parents have, would have the right to access a safe and comfortable learning environment.
The changes are also about making sure that we have enough teachers, in particular ones who know and understand SEN provision. We know—I have seen it—that if we better invest in our public mainstream schools, that will drastically impact pupils with SEN and those from the most disadvantaged backgrounds. It should not ever be that a parent’s only option is an independent private school. That is an indictment of the previous Government—the rot set in with the coalition Government —whose failed education system continues to fail children.
The truth is that education in the state sector has been neglected. How do I know? I see it as a parent. Today, there is a 20% difference between pupils who have access to free school meals—an indicator of poverty—and those who do not at GCSE. That is not an education system achieving as it should.
I see this every day as a parent, as a governor and as a professional. When we get it right, education changes lives and transforms whole communities. This Government will once again transform education so that every child—including every child in my constituency—matters, because education should be a right, not a privilege.
Vikki Slade (Mid Dorset and North Poole) (LD)
Since becoming a Member of Parliament earlier this year, I have been heartened every time I have heard Ministers confirm that business rates reform is planned. I know what impact business rates can have on town centres through my work as a council leader and my time owning and operating a high street business for nearly 14 years in my constituency of Mid Dorset and North Poole—I do not any more, so I do not need to declare that as an interest. But that was why I was so disappointed to read the Bill, which simply tinkers around the edges and does nothing to fix the foundations of our town centres or about the inequity of business rates between physical and online businesses.
I welcome the higher rate aimed at large warehouses, but it does not go far enough. Those online businesses have sucked the life out of our high streets, and if what the Bill proposes is the extent of the change, it will not support anyone.
Iqbal Mohamed (Dewsbury and Batley) (Ind)
It is not just favourable business rates that benefit online businesses; they can use tax loopholes to avoid paying the taxes that small businesses pay as a proportion of their profits. Does the hon. Member agree that the Government have other mechanisms for raising such funding?
Vikki Slade
I agree with the hon. Member and thank him for his intervention. I was just about to say that we need a proper tech tax on online businesses, which should be ringfenced to stay in local communities, where councils could use it to support town centres in a way that works for them.
Many councils are not able to keep the business rates accrued in their areas; they are set externally and sent elsewhere to support other communities. That is not understood or even appreciated by local communities. I cannot remember the number of times that, as a local government leader, I was shouted at by people saying, “You’re making all that money as a council.” People think that the councils own the businesses and the properties and that they set the rates. The fact is, they are set elsewhere, and councils do not have the power to provide discounts without having to plug the gap not just for their own areas, but for what they send to Government. That is what real reform would look like.
Matt Rodda (Reading Central) (Lab)
The hon. Member is making some wide-ranging points. I think the Government’s policy in this area is excellent. I remind her that there are a range of other policies that local government can implement. I commend my own local council in Reading, where there has been a lot of work to try to keep local small businesses active in the town centre through planning and a range of other things. It is really important to work with the business community. Would she like to comment on that?
Vikki Slade
Absolutely. We were looking to work with the rental auctions that are coming in. When I was the Lib Dem spokesperson in a Westminster Hall debate a few weeks ago, I was encouraged to hear that they are coming through. I hope that that happens quickly, and that they do not have the loopholes that I feared they would have.
I will move on to my concerns about this policy. We need to ensure that those who profit from businesses pay. Business rates as described in the Bill are not just related to the rateable value but are explicitly linked to the rental value. They bear no relationship to the type of business, its profitability or its broader benefits to the community or to society. I would like to give an example, which I know is accurate because the figures come from the business that I used to own. It predates the retail, hospitality and leisure discount, but that it is not guaranteed to be continued anyway. I think the numbers will startle you.
We owned a café on a high street in an affluent community with an older population, with competition from several sources, including a Costa franchise and a church café, which of course pays no rates. The rent on our café was £25,000 a year. Our rates bill was £19,000. That meant that I was not eligible for a penny of small business rate relief, so my rent and rates bill was around £4,200 a month. In a ward less than three miles away, a café on that high street was being marketed with a rental of just £12,500, and a rateable value of £11,000. Thanks to small business rate relief—I am sure you will say that is a great thing, and it is—it paid no rates, so its fixed outgoings were £1,900.
I am sure that you, Madam Deputy Speaker, do not think that we could charge 2.5 times more for a tuna mayo sandwich and a cup of coffee than the café down the road. That is the problem with the way that business rates work. This inequity, and the pressure it put on my business and all those I represented when I chaired the Broadstone chamber of trade and commerce, is what got me into politics. As sad as that is, that is why I got involved and why I stand here today to say to you that the Lib Dems want you to go further. We want business rates replaced with a proper landowner levy, so that it is not the tenants who pay but those who really benefit from the property—the people who own it. The Bill may be a reasonable start, but it does not go far enough. I would love to see you go further.
Madam Deputy Speaker (Caroline Nokes)
Order. Before I call the next speaker, I say to the hon. Lady that I know she will not have intended to do so, but she said “you” repeatedly, and it was very unclear whether she was addressing me. I suspect that the last time it was to the Minister.
Jo White (Bassetlaw) (Lab)
Charitable tax relief is meant to be for organisations that do something for the good of society. They get tax breaks because they are supposed to benefit the public, especially those who need it most. But when we look at private schools, we start to see a problem. These schools are not serving the wider public. They charge eye-watering fees, and the vast majority of people simply cannot afford to send their kids there.
Here is the real issue: private schools are benefiting from a process that should be supporting the whole of society. They get tax breaks worth millions of pounds every year, and what do we get in return? An education system that reinforces and upholds structural inequalities. Meanwhile, state schools—the ones that serve the vast majority of kids—are left to scrape by, struggling with overcrowded classrooms, outdated resources and ever-decreasing funding.
The Bill is redistributive, and it means that the moneys going into private schools will be far better spent improving the chances of all children. I want fairness, as do my constituents, and an equal chance for all our children. Those on the Opposition Benches say, “Private schools give scholarships, do charity work and help kids in need.” But let us be honest: that is a drop in the ocean. Here is the kicker: private schools are not even charities in the true sense of the word. They might not make a profit, but many of them are run by private companies that make money off investments and land. We all know that the largest private schools in the country have no shortage of cash, yet they still get subsidies that could be used to fix the mess left by the previous Government in our state schools. They do not provide a benefit for the public good; they just prop up inequality and drain resources from the schools that serve the vast majority of children.
I welcome the fact that we are taking a good, hard look at the way education works, and we are putting our money where it does the most good: raising aspirations and opportunities for all our children, no matter their background. That has to be our focus.
Gideon Amos (Taunton and Wellington) (LD)
The hon. Member for Thirsk and Malton (Kevin Hollinrake), who spoke for the official Opposition—he is no longer in his place—described the Conservative Government’s approach to supporting business. I was going to say that I listened to him with interest, but I think incredulity would be a better word. My hon. Friend the Member for Witney (Charlie Maynard), who is no longer in his place, was rather harsh on the Conservatives. He said that they never followed up on their commitments on business and did not have a clear policy on business. The Conservatives had a very clear and pithily described policy on business: it began with f, had k in the middle and ended with the word “business”. And believe me, they delivered on that policy with their post-Brexit trade deal. In case the message had not been rammed home hard enough, they confirmed it with a Budget that played helter-skelter chaos with the economy.
I therefore sympathise with the new Government’s approach in terms of the Budget they are trying to set and in terms of establishing stability. That is something I would want to support, but I am disappointed that I will not be able to vote for the Bill because of the effect it will have on towns like Wellington and Taunton, which will be hit by a triple whammy. Those towns support some great independent schools, which are charities: Taunton school, Wellington school, King’s College and Queen’s College. They sustain around 1,000 jobs in the constituency, many of which are now under threat. Many workers at those schools—cleaners and catering staff—are worried about what is going to happen.
There are then the very serious effects of the rise in national insurance contributions on small businesses, particularly the many small businesses whose rateable value is over £51,000. That is quite typical for SMEs in a high street in this country—at the smaller end, I would suggest. The owner of Mr Miles Tea Room, a superb place to go in my constituency, has written to tell me about the combined effects of the Budget on his business:
“Firstly, all my staff will now see a reduction in the hours they will be scheduled. As a result, no doubt, some will leave. Where many of my employees already earn over the current minimum wage, I will not be able to increase their pay rates by as much as I have done in the past. Secondly, any full-time employees who leave our employment will only be replaced by potentially 2 or 3 part-time employees. Thirdly, I will not be investing in any capital equipment in my kitchen or new decor in my restaurant. Fourthly, there is a serious potential for me to operate on shortened trading hours, thus reducing the vibrancy of the Town Centre.”
He goes on:
“I was cautiously optimistic that a new Labour Government couldn’t possibly be worse than the previous Tory one in terms of lack of support for SMEs. Sadly, in the space of 3 short months this Government has already proved my optimism was misplaced and there will be many casualties over the next 12 months as the new measures take effect.”
I urge the Minister to reconsider both the effect on independent schools, and I am a great supporter of the state school system—
Helen Maguire (Epsom and Ewell) (LD)
There is an independent school in my constituency, Kingswood House school, which has around 50% of its pupils with special educational needs. Many of those pupils do not have an education, health and care plan. Does my hon. Friend agree that schools providing support to so many SEN children should retain their charitable rate relief?
Gideon Amos
I absolutely do agree with my hon. Friend. I am also concerned about the influx of children going to local authorities to apply for EHCPs because they will now need them to get the discount, and about the massive effect that will have on already overstretched local authorities. I worry about how they are going to cope with those applications, over and above the SEN crisis at the moment.
I am a great supporter of state schools, partly because of the record of the Liberal Democrats, who not only ringfenced the education budget in the first years of the coalition, but injected £1.25 billion by inventing the pupil premium, which now injects £3 billion—[Interruption.] The hon. Member for Sherwood Forest (Michelle Welsh) shakes her head, but these are the facts.
Michelle Welsh
The pupil premium funding was actually disadvantage subsidy pathfinder funding, introduced by the previous Labour Government. The hon. Gentleman’s party just changed the name.
Gideon Amos
The pupil premium was new money, and it went into the state school sector. It was £1.25 billion in the first year, and it is worth £3 billion now. It was in the Liberal Democrat manifesto and was delivered as part of our priority for state schools—but I do not believe in state schools just because of party policy. All four of my children attended great state schools in my constituency: Parkfield Primary School, Bishop Fox’s School, and the fantastic Richard Huish College. The idea that the only way to improve state schools is to level down independent schools shows a shocking lack of imagination and a very disappointing approach to education, and education should not be taxed.
The Minister said earlier that those of us who were going for a different approach should be willing to make clear where we would raise the money, and he was right to make that point. The Liberal Democrats have made the same point, and they have made tough decisions in the past. In our manifesto was a very clear Budget spending plan to restore the tax on the big banks’ profits. It was slashed and then taken away in 2018, but simply restoring that single tax would raise £4.2 billion for the economy. I urge the Minister to adopt the principle that if the broadest shoulders should bear the biggest burden, that should apply in the business sector as much as anywhere else. The big companies, the big banks, the giant online retailers, should be bearing the burden of this Budget, not the small high street firms like Mr Miles in Taunton High Street and the other businesses we have heard about, so I urge the Minister to think further about this.
Peter Lamb (Crawley) (Lab)
National non-domestic rating multipliers: is there any more interesting topic for nearly 9 o’clock on a Monday night? [Interruption.] Quite right: absolutely not. I am sure that the regular readers of my blog would say much the same.
Our system of taxation and local government is the product of evolution and not of design. It has its roots in Elizabethan forms of taxation that have been inherited and altered during the passage of time to adapt to modern realities, and what we are talking about today is yet again adapting to those modern realities. Like many other Members, I am a former local government leader, and I might well have been one of those who were bending the ear of the Exchequer Secretary to the Treasury, my hon. Friend the Member for Ealing North (James Murray), in asking for this change, because it is well overdue. We have heard town centres described as the heart of the community. What do we actually mean by that? Without a clear public space where the whole of society interacts, towns lack identity and a common sense of bonds between them. They tend to fall apart, and we see social degradation.
Council leaders such as me have spent the last 14 years trying to adapt to the new realities of our economy, spending a fortune in public money and investing countless hours—including countless officer hours—in trying to reinvigorate our town centres to ensure that they live on for the next generation, not simply because that is what we think best but because, overwhelmingly, it is the response that people say they want for their areas. They want their town centres to be vibrant again, and to be a fundamental part of their communities. The problem is that no matter what we do on the ground, no matter how much effort we put in, we simply cannot overcome the huge cost disparity between online retailing and physical retailing in the high street.
One would expect that, where these challenges exist, the state would use the levers at its disposal to encourage an extra boost for what we consider to be socially beneficial, as opposed to what we consider to be detrimental to society. The proposals under discussion do exactly that. They ensure that the parts of our community that our constituents want, which are fundamental to their identity, survive into the coming decades, while also ensuring that those that no longer have the profit margins they once had—surprise, surprise, in Elizabethan times the most profitable businesses were buildings next to the local church—are given a comparable break.
We have heard a great deal from Opposition Members about what parties in government over the last 14 years could, would or should have done given the opportunity, but I am sorry to say that they did not do any of it. As a council leader during that period, I was regularly making the case for changes. We were promised changes at various times, but they never happened. The one thing that we did end up with was full business rate retention. My local authority collects £120 million worth of business rates each year and we get to keep £4 million, which puts paid to the idea that words have any real meaning when they are used in connection with some of these policies.
This is the single biggest change that can be introduced to ensure that our high streets survive in the future. I am very proud that, regardless of whatever idealised form the Opposition may wish to imagine could exist, the policy being delivered in the Bill enables us to support the businesses that our communities desperately want, and will ensure that businesses that can afford to carry a bigger load do so.
Iqbal Mohamed (Dewsbury and Batley) (Ind)
I rise in support of the majority of the amendment tabled by the Liberal Democrats. Reducing the high street business rates relief from 75% to 40% will devastate the small businesses on my high streets in Batley and Dewsbury, and many of them will not be able to absorb the costs, resulting in job losses and closures. My primary topic, however, will be the implications of the Bill for private schools that do not draw their students from the richest families in our society.
When I spoke out against the introduction of VAT in previous debates, I was accused of not wanting the best for 94% of students in our country. I absolutely love state schools, and I visited Boothroyd primary academy during UK Parliamentary Week last week. The children were so excited to meet me, but I think I was more excited to meet them and their teachers. I also visited a private faith school that charges, I believe, less than £3,000 per pupil and spoke to the pupils there. There are private schools that serve poor working-class families, and there is a reason why these families have chosen to send their children to such schools. Parents would be penalised if we removed that choice. The other challenge that I have in my constituency is that schools are bursting at the seams, with very few, if any, places available to parents. Many children are going to their second or third-choice schools, away from their catchment area.
Let me come back to the removal of private schools’ charitable status, which is an extra burden on top of charging VAT at 20%. Students at such schools overwhelmingly come from low-income families, and this reality often gets lost in the debate about private schools. We are all very aware of their elitist nature. With average fees of over £15,000, rising to £50,000, they service only the children of the wealthiest. It is not the children of the wealthy, however, who attend independent schools in constituencies such as Dewsbury and Batley, where faith schools are often the only option for families who cannot get their children into local state schools due to demand, or where state schools cannot meet their religious and spiritual needs. Those families are overwhelmingly from low-income backgrounds, and the removal of business rates charitable rate relief from private schools will result in a further increase in their fees, in addition to the proposed VAT. For wealthy families, that might not be a problem. For the families in my constituency, it is a major problem.
In addition, the measures will pose a risk to the future viability of many private schools, which often charge just enough to exist. I ask the Government to consider that class is a reality in the discussion about private schools, but not in the way it is commonly presented. In many communities, faith-based schools are not the preserve of the wealthy; they overwhelmingly educate the children of ordinary working-class families. The Government’s impact assessment of the proposals shows that the average cost, per school, of the removal of charitable status ranges from £27,000 to £179,000 a year for faith schools.
This issue is more complicated than measures to raise tax, and it feels to me that some important subtleties have been lost in the debate. For many of my constituents, faith schools not only provide high-quality education; they also provide children of faith with the relative freedom to express their faith and identity without fear of stigma or recrimination. I feel that none of this reality was properly considered when we discussed VAT on private schools, and now, through abolishing business rates charitable rate relief for private schools, that imbalance continues. The Government have an opportunity now to redress that imbalance, and I request that consideration be given to extending the exclusions for special needs schools to include faith-based schools that draw their students from low-income backgrounds. One easy solution would be to exempt from VAT schools that charge below per-pupil state school allowance, and allow them to retain their charitable status.
Steve Yemm (Mansfield) (Lab)
Last week I visited Jacqueline, a franchise owner who, through sheer hard work and working her way up through the ranks, now runs a number of restaurant outlets in and around Mansfield. I witnessed at first hand her dedication to her business through the manner in which she motivates her staff as a business leader. For leisure and hospitality businesses such as Jacqueline’s, trading is tough, and has been made harder by the circumstances they were trading in—namely, the uncertainties surrounding business rates under the previous Government.
Locally, I stood on a platform to focus on five specific issues across Mansfield and Warsop, one of which was to help improve our town centre. Many in my local town centre are represented by the Mansfield business improvement district, and when I meet up with them, as I often do—sometimes together with representatives of the Shopkeepers’ Campaign—business rates come up time and again. It is clear that we need a fairer system that does not put an unreasonable burden on the small businesses that power our high streets, and that is why I welcome the reforms to business rates that are being made through the Bill.
The Bill will bring certainty and fairness to the retail, hospitality and leisure businesses that have been disproportionately disadvantaged by the current system. I am further pleased to see that the Bill creates the powers needed to ensure that we can make good on our promise to introduce permanently lower rates for those retail, hospitality and leisure properties that make up the backbone of our high streets, including in my constituency of Mansfield, and to pay for this with a higher multiplier for the most valuable properties.
As well as speaking with local businesses every week, I also visit schools across my constituency. Last week I visited a primary school that has not turned on the heating in the main part of its building for over 18 months and is reliant on the benevolence of local businesses to provide an essential breakfast club. It simply should not have to be that way, with schools relying on local businesses, and I am sure that it will not be that way under this Labour Government.
In my Mansfield constituency, more than one in four pupils are eligible for and claiming free school meals, and the schools they are taught in are crying out for additional resources to help those young people. We cannot afford to offer tax breaks to private schools operating as businesses when our children’s state education system, which is relied on by over 95% of the children in my constituency, is crumbling. That is why I will be voting to support this Bill, which will end those tax breaks on private schools and help to raise the revenue needed to fund this Government’s education priorities.
Clive Jones (Wokingham) (LD)
This Bill has several issues, but its glaring failure is the lack of immediate support for the many small and medium-sized businesses outside the retail, hospitality and leisure sectors that are important to our national economy and our local high streets.
The Government claim that they would like to have a level playing field between the high street and the online giants, but this Bill fails to properly address the issue. Many small businesses fall outside the retail, hospitality and leisure sectors and will therefore see no benefit from the Bill. These small businesses need their tax burden to be reduced too.
Labour’s plan to increase national insurance contributions and business rates will prove too much for many small businesses, including charities in my constituency that tell me their increased national insurance contributions will seriously affect them and reduce the amount of money they can spend on supporting the residents of Wokingham.
Small businesses in my constituency have seen a huge increase in both rent and costs, and they had to do their best to survive under a Conservative Government who trashed the economy. As a result of Conservative policies over the last few years, a household with a mortgage now has at least £6,000 a year less to spend on our local high streets where our friends and neighbours work. What these small businesses need now is a proper overhaul and reform of the business rates system, not a Bill that meddles around the edges to provide ineffective and short-term solutions, and they do not need an increase in employer’s national insurance contributions.
My constituency has approximately 3,585 businesses outside the retail, hospitality and leisure industries, which is roughly 70% of the businesses in Wokingham. This make-up is not too dissimilar from the national picture, so the Bill will be ineffective for businesses across the UK.
The Bill fails to offer support to the vast majority of businesses that desperately need their tax burdens to be reduced. It is clear that this Bill does not do enough, and so many businesses and charities that are so important to our high streets will be left to absorb all the extra taxation levied on them by the Government.
This Bill will not fix the broken business rates system, and it will seriously damage the retail and small business sector in our economy.
Mr Mark Sewards (Leeds South West and Morley) (Lab)
I am pleased to speak on this Bill, which introduces the powers required to reform business rates. The Government are committed to a fairer business rates system that protects the high street and supports investment, and I welcome the fact that, in the Budget, the Chancellor set out her intention to permanently lower rates for the retail, hospitality and leisure properties that make up the backbone of our high streets, including Queen Street in Morley. Of course, this will be paid for by a higher multiplier for the most valuable properties.
However, I want to focus on another aspect of the Bill. I am a teacher, so I will talk about the provision that removes the charitable relief on business rates for many, but not all, private schools. This runs alongside our general election commitment to introduce VAT on private school fees, which we will be discussing on Second Reading of the Finance Bill on Wednesday. Both measures will, of course, increase funding for state schools.
During the general election campaign in July, and in the years leading up to it, I spoke to many parents in my constituency about the removal of tax breaks for private schools. Whatever their stance was on the policy, it was clear to me that every single parent I spoke to wanted the best for their children. It did not matter whether they considered themselves wealthy or not, whether they earned enough to send their children to a private school or not, or whether they lived in New Farnley or Thorpe. Every single one of them wanted the best education for their children.
Like, I suspect, almost every Member of this House, I want an amazing education for every child, irrespective of where they come from or who they are. That is exactly what Government Members are committed to delivering, using the revenue that this Bill, and the Finance Bill on Wednesday, will raise. We live in a country where 94% of all children attend state schools. I fully accept that the parents of the 6% of children who go to private schools have worked very hard to put them there, but you know who else works hard, Madam Deputy Speaker? The parents of kids who go to state schools. They work just as hard in their jobs and professions, yet some may never be in the financial position to send their children to private schools. Those children deserve the best too, so it falls on the Government to take the decisions necessary to improve our state schools.
State schools were plagued by so many crises under the previous Government. I saw the SEND crisis, the concrete crisis and the recruitment and retention crisis myself. In my previous job as head of maths at an inner-city school, if I put out a job advert I would be lucky if I got one applicant per position, and that was not just because of me. That must change, and we must raise the money to change it. Taken together with our commitment to introduce VAT on private school fees, which I accept we are not debating today, the extra net revenue raised from this policy will be essential to recruit the 6,500 new teachers we promised the electorate we would recruit in the general election. Every child deserves to be taught by a qualified teacher in every single subject.
Alongside our commitments to roll out free breakfast clubs, invest in SEND provision, rebuild the school estate, and increase per pupil funding in real terms, we are choosing to back our children, back our schools and back our country. Given the crisis in SEND, I welcome that those in private schools mainly concerned with the provision of the education of children with EHCPs will retain their charitable business rates relief. By removing the tax breaks enjoyed by most private schools, however, we can invest in our state schools. I will be able to say to the parents I spoke to in Leeds South West and Morley that we are giving their children the education they deserve. I will be able to say that we took decisive action to break down barriers to opportunity for all, and by voting for today’s Bill and the measures in the Finance Bill, I will be able to say to them that we found the funding to fund our state schools properly.
I know that Opposition Members are opposed to these changes. However, the Leader of the Opposition has also stated that she does not object to the positive parts of the Budget, including our investment in education, so my question to Opposition Members would be: “How are you going to pay for it? What exactly is your plan? We know what you oppose, but what do you support?” I think that the Conservatives have made something like £12 million of uncosted commitments every single hour since they elected their new leader. It is hard not to conclude that we are dealing with the same old Conservative party. It is no longer a serious party of government; however, Labour is.
Education is central to our mission of expanding opportunity, enriching our society and empowering our students to be the best possible versions of themselves. Whether they live in Churwell, Gildersome, East Ardsley or Lofthouse does not matter. This Labour Government are getting on with our mandate of delivering change and ensuring that all our children have the opportunity to fulfil their true potential.
Victoria Collins (Harpenden and Berkhamsted) (LD)
I grew up helping my mum on the shop floor of small gift shops, and my memories of the wonderful work that she did to build that business and the staff she employed is a real benefit to my life. I also saw how hard she worked and how hard things got. She went down from four shops to one, then came across the classic problem of whether she was able to keep her shop open and battle with online retailers. The costs went up, business rates were too much, and she decided to close and go online.
Frankly, I am tired of us not taking support for small businesses seriously and making a change. This Government had an opportunity to make a difference, but they have squandered opportunity when it comes to business rates reform. I see the impact on businesses in my high streets. I have the privilege of representing several magnificent high streets, in Tring, Berkhamsted, Harpenden, Wheathampstead and Redbourn, but businesses there are struggling yet again. Michelle from Graze Life told me time and again about the impact the cost of business rates had on her business; eventually, she closed her high street shop down. I spoke to Peter from the Oakman Group, a booming business that started in Tring in 2007. The company is a rising star and has received prizes for being one of the best places to work for employees, but Peter now says it is on the edge of extinction. He employs 1,200 people but he says the Budget, including business rates changes, will have an impact of up to £2 million on his business, so he will look to close many of his premises.
Mr Joshua Reynolds (Maidenhead) (LD)
My hon. Friend mentions several businesses in her constituency that will be impacted by the changes. I spoke recently to a small restaurant owner in my constituency. They have six restaurants across the south of England and they say that the business rates changes, plus other Budget measures, will cost their business £150,000 just to do what they are doing today. Does she agree with me that that will not encourage such businesses to invest in the UK, open new restaurants and help grow the economy, which we all want?
Victoria Collins
Absolutely. That is the message I am hearing again and again. Another business owner in Tring said that they would love to open on the high street but they just cannot afford it. The broken business rates system is affecting our businesses, the people who work there and our communities, which are losing out on fantastic local businesses.
The Minister talked about building a confidence to invest, but business rates directly tax capital investment, rather than taxing profits or fixed stock of land. That needs to change. I reiterate the Liberal Democrats’ call for absolute reform of business rates and the introduction of a commercial landowner levy. That will tax the land value of commercial sites, not productive investments, and boost that productive investment, support our local businesses and help communities and local employers.
Many families have written to me about the changes to charitable rate relief for private schools. I support the calls from the Government Benches to improve all state schools, but parents decide to send their children to private schools for many reasons, including special educational needs, supporting their children’s specialist skills or because of bullying. We have a choice about how we raise that money. Instead of taxing the banks, is it fair to be taxing the education of other children to raise that money?
David Simmonds (Ruislip, Northwood and Pinner) (Con)
Just a few weeks ago, my right hon. Friend the Leader of the Opposition highlighted a £2.4 billion black hole in the local government budget, arising from the recent Budget. Some £3.7 billion of extra spending was announced, with only £1.3 billion of funding to pay for it. And in this Bill we begin to see how this Government propose to fill that gap. First, they came for the pensioners; then they came for the farmers; then they came for the students; then they came for the employers; and now they are coming for our high streets, our pubs and our shops, with another whammy of tax rises.
Let us not pretend that this is an essential step. The choices that were made by the Chancellor and this Government in their Budget are driving up inflation and borrowing costs, with the Government borrowing a record amount last month. They are driving up employment costs and councils will be hit, just as they are hitting the rest of our economy.
I reflect that the Minister for Local Government and English Devolution, the hon. Member for Oldham West, Chadderton and Royton (Jim McMahon), said in 2023:
“Pubs are the beating heart or the anchor of many communities, and the place where people can get together to tackle loneliness and isolation.”—[Official Report, 5 December 2023; Vol. 742, c. 238.]
Indeed, those are sentiments that many Labour Members have expressed in this Chamber and in Westminster Hall recently. But all those Members who came here to express their support and champion their local pub are about to vote for a Bill that, on average, will put up its taxes by more than £5,500 a year. All this from a Government who promised to replace business rates! Indeed, Rachel from accounts—I am sorry, Madam Deputy Speaker, I mean Rachel from complaints admin—went so far as to promise in 2021 to abolish them.
We all know from personal experience, whether in our own families or in our former lives in local government, the value of the diversity of our education system. We know about the increase in attainment brought about by the huge growth in the number of independent schools, in the form of academies, started under the last Labour Government and developed under the previous Government. But we continue to see this spiteful class war attack on schools, and this Bill continues Labour’s war on education.
Several Liberal Democrat Members have mentioned Britain’s former membership of the European Union, and of course this measure to become the only country in Europe to tax education would be illegal under EU law. The Bill still does not fully consider the needs of our special needs schools. Many have a mix of fully private and EHCP-funded pupils, and the balance will change over time. An example is the Gesher school in my constituency, which provides for a significant number of children on the autistic spectrum. One year nearly 100% may be privately funded, and the next year the vast majority will be EHCP-funded. The Bill simply does not usefully answer the question of how such settings will pay their taxes.
Several Members around the Chamber, including on the Labour Benches, have set out their serious concerns about the impact on small faith schools. The Government face ongoing legal challenges on the subject, which is incredibly important if our country is to have the diverse base of education that many Muslim communities in particular have struggled to find in the established mainstream state sector.
Labour Members have poured scorn on our education system, but I remind them of the transformation in state education standards over the past 14 years. Having been a local authority lead member for education for that whole time, I would be the last person to claim that everything in the state sector was perfect. However, we saw amazing progress on closing the disadvantage attainment gap in England under the previous Government, in the context of our progress in international league tables. When we left office, class sizes were stable at 26, which is less than the statutory limit that the previous Labour Government introduced.
As in any democracy, we must ask whether the harm that the policy does to some families and to some children’s education is outweighed by its benefits. We should reflect that if every single penny raised by these policies finds its way to state school budgets—although we already know that that will not happen, because they will also be funding the big increase in Ofsted bureaucracy that the Secretary of State set out for us a few short weeks ago—it will cover less than half the cost of a single teacher in each of those state schools, at a time when pupil rolls in England are falling. It is quite clear that the motivation for this policy is spite and class war, and that it has nothing whatever to do with standards in our schools.
If that were not enough, my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) has set out the very serious concerns about this plan that we hear from across business and particularly from the retail sector and licensed trade, from the Association of Convenience Stores, which represents the small corner shops that enable our residents to access the goods they need at all hours of night and day, to the very biggest retailers such as Sainsbury’s, which have set out in detail the damage that this Budget and this Bill are already doing to workers’ pay and to the prospects for investment, for pay growth and for training and employment growth in this country.
In reflecting on what we can be proud of from the past 14 years, I draw the House’s particular attention to the fact that when the Conservatives left office there were 4 million more people in work in this country than when we took office; youth unemployment was half what it was when we took office; and the proportion of people in this country earning their own living had grown exponentially. My right hon. Friend the Member for East Hampshire (Damian Hinds) and my hon. Friend the Member for South Northamptonshire (Sarah Bool) have set out very clearly the importance of getting it right for our communities. We need to ask whether what is proposed today will generate the transformation. Under the last Conservative Government’s 14 years in office, we saw a 70% increase in school funding, with 77.9% per-pupil growth alone over the past few years, above inflation. It is clear that we have a decent and honourable record on investment in education.
Our retail sector is the largest part of our private sector employment, with nearly 5 million workers. It is clear that businesses in that sector, from the largest to the smallest, are looking at the impact that the Bill will have on their bottom line and are translating that into lower jobs, lower growth and less investment. They are warning this Government very clearly, as Opposition Members do.
I invite the Minister to intervene. Will he tell me whether he is willing to promise that small business rates relief will be maintained? So far, the Government have refused to answer that question, causing a huge degree of concern among small businesses of all kinds up and down our high streets. As the Government move to introduce higher multipliers on business rates, we have to ask whether that signifies that they will also move—as the Labour Government in Wales have done already—to introduce additional higher council tax bands for our residential properties?
It is very clear that as well as coming for the pensioners, coming for the students, coming for the farmers and coming for the employers, the Government are coming for every council tax payer and business rate payer in this country. That is not to fill a black hole, because as we know, the black hole does not exist—[Hon. Members: “Read the OBR report!”]
David Simmonds
Thank you very much, Madam Deputy Speaker. I will take the hint. I am sure that Government Members have read the views of the Office for Budget Responsibility as avidly as Opposition Members.
Politics, we know, is about choices. We are proud of the choices that we made, which have enhanced quality of life, wages and the economy in our country. We are deeply concerned about the impact that the Bill, and the wider Budget of which it is a part, will have on our national economy and the prospects of our people. We are concerned about the damage that it will do to the life chances of our children. We are concerned that it continues to leave a black hole in our local government finances. For those reasons, we recognise that this is not really a Budget; it is a bodge-it. That is why we will vote for our reasoned amendment tonight.
The Minister for Local Government and English Devolution (Jim McMahon)
I thank all hon. Members who have contributed to this enthusiastic and impassioned debate. Whether they were speaking from the Government or the Opposition Benches, their speeches were genuinely rooted in the communities that people live in and that we represent. In a way, it has brought out the best of Parliament, but we could not quite avoid the party politics and the rewriting of history from the Conservative party.
Shall we really take lessons on saving the high street from the Conservatives, who oversaw mass bank closures and the decimation of retail on the high street, with 6,000 pubs closing in local communities? They are now the farmers’ friends, but when they were in government they oversaw the closure of 7,000 agricultural businesses. Where were they when the energy market and labour supply challenges were decimating farmers? They were nowhere to be seen. Now, though, they come riding on the horse—[Interruption.] Would the shadow Minister like to intervene? Come in, please.
David Simmonds
Because he was here for it, as I was, the Minister will recall the last Government’s massive intervention in the energy market to keep our lights on in this country. Will he tell the House whether the Government will keep the small business rates relief? Will he answer that question?
Jim McMahon
I can answer this question: it is the impact that matters. Whatever Opposition Members say as the farmers’ friends, the truth is different: 7,000 businesses closed on their watch. That is what the evidence says.
Let me move on to the reasoned amendment. This Government are fully committed to protecting and supporting our valuable high streets. The fact is that retail, hospitality and leisure rates relief was due to end in its entirety by the end of March 2025, which would have meant a cliff edge for businesses. At the Budget, we stepped in to prevent that by extending the relief further this year by 40%, with a cash cap of £110,000. We have also frozen the small business rates multiplier for 2025-26. Taken together with the small business rates relief scheme, that means that more than 1 million properties will be protected from any inflationary increases next year. That is 1 million properties protected by this Government.
Mike Wood (Kingswinford and South Staffordshire) (Con)
By the Minister’s logic, are we to assume that support on business rates for hospitality and retail is to end in April 2026?
Jim McMahon
That really was not worth giving way for. I have literally just said that 1 million properties will be supported against inflationary increases next year. The 40% will continue, with a cap of £110,000. That is exactly what this Bill is intended to do. If the hon. Gentleman supports it, he can join the Government in the Aye Lobby and vote for it.
We know from businesses that the current scheme of discretionary relief does not provide the certainty needed. That is why the Bill will enable a permanent tax cut for retail, hospitality and leisure businesses from 2026-27 through new lower multipliers, ending the year-by-year uncertainty that the previous Government hardwired into the system. That is doing what businesses have been calling for. That rebalancing—from out of town to in town, from online to on street—is exactly what people have called for in communities and in business, and Opposition Members know it. Their frustration is that they did not do it in the 14 years that they had in office. It is down to us to take the steps that are needed in government now, and we are happy to do so.
The reasoned amendment raises concerns about the impact on schools in the state sector. I can assure the House that protecting and improving state education is at the forefront of the Government’s mind. In fact, we estimate that only 2,900 more pupils will enter the state sector as a result of the removal of the business rates relief for private schools. Let us be clear about what that means in reality: that goes down to about 300 a year. In any given year across England, 60,000 pupils will move between schools; this is 300. We need to keep that in context, because we have heard a lot of scaremongering about the transfer, but that is what the evidence says. That evidence is placed in the House of Commons Library, in case Members want to take time after this debate to go and look. There might even be enough time to find the documents before the vote if they want to bring themselves up to speed.
Importantly, this is about providing much-needed investment in the state school sector. Just how many parents say, “We need specialist support for SEND, because the mainstream provision is not adequate”? How many parents—by their own admission, among Opposition Members—choose to pay for private education because they do not have faith in mainstream provision? Despite what Opposition Members have said about the glory years of the past 14 years, the truth that parents and pupils on the ground feel is very different, and they know it. We have to repair mainstream provision so that parents and pupils can go with confidence to their local school, knowing that they will get the support that they need—support for all pupils, not just some.
Several hon. Members have mentioned the impact on faith schools. I want to offer some comfort. Of course we value and understand parental choice, but based on the evidence submitted through the HMT consultation, as well as the analysis undertaken by the Department for Education on removing the charitable rate relief, it is not apparent that private faith schools will be affected by this measure any more than non-faith schools. There is no evidence of disadvantage.
Jim McMahon
I want to make progress in the time that I have, and to wind up within the 10 minutes.
The key point is that all children of compulsory school age are entitled to a state-funded school place if they need one, and all schools—and they know this—are required to follow the requirements of the Equality Act 2010 relating to British values and to promote an environment that encourages respect and tolerance towards families of all faiths and none.
A number of Members have rightly mentioned SEND provision—it has been a significant part of the debate, for understandable reasons. We have ensured on the face of the Bill that private schools that are charities and “wholly or mainly” provide education for pupils with education, health and care plans remain eligible for business rates charitable rate relief. Furthermore, private schools that benefit from existing rate exemptions for properties that are wholly used for the training or welfare of disabled people will continue to do so. Taken together, we believe those policies mean that most private special educational needs schools will not be affected by these measures at all.
We recognise that some pupils with special educational needs and disabilities will be in private schools, but without local authority funding in place, as it is judged that their child’s needs can be provided for within the state sector. Of course, parents will still be free to choose whether to be in the state sector or to remain in the private sector—that is a very important point to make. Local authorities aim to process all education, health and care plan applications in time for the start of the next school year, but in special cases, the local authority is able to prepay one term’s fees if the process is not complete. Likewise, some private schools will forgo the first term’s fees for pupils who are expected to receive their education, health and care plan in the future.
Turning to high streets, the Government are wholly committed to rejuvenating our high streets. We want to support the businesses and communities that make our town centres successful. That is why through this Bill, the Government intend to introduce permanently lower rates for retail, hospitality and leisure from 2026-27, in order to protect the high street. That tax cut will be fully funded and sustained through a higher tax on the most expensive properties—the 1% of properties that have a rateable value of £500,000 or more. The new tax rates will be set out in next year’s Budget to factor in the business rate revaluation outcomes and the broader economic and fiscal context at that time.
We were clear in our manifesto that we would look at the business rates system and support our high streets, and we meant it. We know that our high streets and town centres are the beating heart of our communities, but over the past 14 years, they have struggled to keep their heads above water. Think about all those household names that have gone to the wall—that are a thing of the past, not the future. Think about all the banks and pubs that have closed, and about the shutters that have come down on shop premises that were once the lifeblood of where people live. The previous Government had 14 years to get this right, but they oversaw the decline and decimation of our high streets. People feel that in their hearts, because town centres are more than just a place to do business; they are a place for a community to come together. That is something the Tories never understood when they were in government, but it is something that this Government absolutely understand.
With the leave of the House, I thank all hon. Members who have contributed to this important debate. This Bill is the first step on the road to transforming the business rates system. The measures within it will provide certainty and support to our vibrant high streets, enabling the delivery of a permanent tax cut that is sustainable and that finally levels the playing field between the high street and online. The Bill will also help break down barriers to opportunity, supporting all parents to achieve their aspirations for their children. We need to bear in mind, of course, that the vast majority of children in this country—over 90%—are in state schools. This investment will see them given the support that they need and deserve, and that, frankly, they have waited a long time for. I commend the Bill to the House.
Question put, That the amendment be made.
The House proceeded to a Division.
Madam Deputy Speaker (Caroline Nokes)
Because of a problem with the Division bells in Portcullis House, I am going to allow an additional minute for this Division.