Non-Domestic Rating (Multipliers and Private Schools) Bill (Third sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 12th December 2024
(6 days, 9 hours ago)
Public Bill CommitteesNon-Domestic Rating (Multipliers and Private Schools) Bill 2024-26 View all Non-Domestic Rating (Multipliers and Private Schools) Bill 2024-26 Debates Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 12 December 2024 - (12 Dec 2024)
David Simmonds
It is a pleasure, as always, to serve under your chairmanship, Dame Siobhain. We have tabled a number of amendments to this legislation, but I want to be clear from the outset that we are not proposing to press them to a vote. We hope to have a response from the Minister; in many cases, that will follow up on the evidence that we heard in yesterday’s evidence sessions.
The purpose of amendment 13 is to introduce an element of discretion for billing authorities in the application of the higher multiplier; the significance of local flexibility and discretion in that was highlighted in yesterday’s oral evidence and in written evidence to the Committee. The amendment would ensure that a billing authority, which is the local authority for the area, has discretion to apply a different figure, where the authority considers that it would benefit the local economy or its residents by doing so. That flexibility has been reflected in the business rate system that has been in operation in England since the 1990s.
As we heard yesterday in evidence, the impact of the Bill is considered by most sectors and by most of the witnesses to be moderate. Therefore, the level of flexibility in the Bill does not allow for a hugely different figure from one type of business rate payer to another. However, local authorities are sometimes keen, for example, to support a local business for the purposes of sustaining employment for a period of time or because the local authority believes that the business provides an important local facility. In such an instance, the local authority may see it to be in the interests of local taxpayers to vary the application of the higher multiplier.
The Minister for Local Government and English Devolution (Jim McMahon)
Amendment 13 seeks to give local authorities discretion over where the higher multiplier enabled by the Bill should apply. In England, there are currently two non-domestic rating multipliers: the non-domestic rating multiplier for properties with a rateable value of £51,000 and above, and the small business non-domestic rating multiplier for lower value properties. The Bill will enable the Treasury, through regulations, to introduce permanently lower multipliers for qualifying retail, hospitality and leisure properties, and to fund this by introducing higher multipliers for properties with a rateable value of £500,000 or more.
Narrowing the scope of the higher multiplier would inevitably reduce the funding available to support the lower rates for qualifying retail, hospitality and leisure properties. Ratepayers in England may, however, be eligible for a range of different reliefs from business rates. Some reliefs are mandatory and provided for in legislation, whereas others are given at the discretion of the billing authority.
The Bill will not affect the very wide powers local authorities have to award this discretionary rate relief, as set out in section 47 of the Local Government Finance Act 1988. Those powers already allow local authorities to devise and deliver their own relief schemes without the intervention of central Government, where the authority is satisfied that that would be in the interest of its council tax payers. Once the Bill has come into force, local authorities will be able to use their discretionary powers to provide relief, should they so choose, to offset any impact of the new, higher multiplier. I hope that gives enough assurance to the shadow Minister to withdraw his amendment. Local authorities will still have the powers they have always had, with the flexibility to respond to local concern.
Clause 1 adds into the business rate system new additional multipliers, or tax rates. Currently, there are two multipliers, as I set out before: the non-domestic rating multiplier and the small business non-domestic rating multiplier. The legislation for those is found in part A1 of schedule 7 to the Local Government Finance Act 1988. Clause 1 adds a new chapter 3A to part A1 for the new additional multipliers.
As set out by the Exchequer Secretary on Second Reading last month, the introduction of the new additional multipliers that this clause enables is the Government’s first step towards creating a fairer business rate system. The intention of these new multipliers is to first, once set at autumn Budget 2025, provide a permanent tax cut to qualifying retail, hospitality and leisure businesses, ending the uncertainty of annual retail, hospitality and leisure relief. Secondly, it will ensure that the tax cut is funded sustainably through the introduction of higher multipliers levied on the most valuable properties. The new chapter 3A gives the Treasury new powers to set these additional multipliers.
I understand the concerns of hon. Members that we are providing for new taxation through powers in a Bill, but we face a challenge in business rates in setting the multipliers, because demand notices are issued by individual local authorities, and these must be ready to go out several weeks before the start of the financial year. We must confirm and give notice of the multipliers to local authorities before they prepare those demand notices, and that simply does not allow time for us to return to Parliament with a Bill each time we want to change the multipliers.
In recognition of hon. Members’ concerns about providing new taxation through powers in a Bill, clause 1 includes some important safeguards over the use of the powers. First, paragraph A6A(1)(a) of the new chapter 3A ensures that the Treasury cannot set a multiplier that is more than 0.1 higher than the non-domestic rating multiplier. We often, in practice, refer to multipliers as being so many pence in the pound. For example, the current non-domestic rating multiplier is 54.6 pence in the pound. In those terms, this clause ensures that the multiplier cannot be more than 10p higher than the non-domestic rating multiplier.
Secondly, paragraph A6A(1)(b) of the new chapter 3A ensures, in a similar way, that the Treasury cannot set the lower multipliers more than 0.2—20p in the pound—below the small business non-domestic rating multiplier. Thirdly, clause 1(5) ensures that where the Treasury is using those powers to set a higher multiplier, it will need to bring a statutory instrument before the House of Commons in draft for approval before that multiplier can be confirmed. To be clear, those values are the maximum parameters at which the new additional multipliers may be set. They do not represent the changes that the Government intend to implement. The parameters are guardrails that offer sensible limits with proportionate flexibility.
The decision on the level at which the new multipliers will be set will be taken at the autumn Budget 2025, factoring in the impacts of the 2026 revaluation on the tax base, as well as the broader economic and fiscal context. The clause also ensures, in new paragraph A6A(2)(a), that the Treasury cannot set more than two lower multipliers. That reflects our intention to have two multipliers for retail, hospitality and leisure: one for properties below £51,000 rateable value, and one for properties between £51,000 and less than £500,000. However, the new paragraph A6A(2)(b) ensures that we can still make adjustments to those two new multipliers if the hereditament is unoccupied or on the central rating list—although our current intention is for the same multipliers to apply across all occupied, unoccupied and central list properties.
Finally, clause 1(4) ensures that the existing arrangements in chapter 4 of part 1A of schedule 7, which concern the making and giving of notices of the multipliers, will also apply to the new multipliers. It will ensure, for example, that we must give notice of the multipliers as soon as reasonably practicable after they have been calculated, and that they are rounded to three decimal places.
David Simmonds
The Minister and I had the joy of parallel careers in local government for many years. I cannot imagine he spent a great deal of that time looking forward to the opportunity to explain non-domestic business rate multipliers in a Bill Committee. However, as he acknowledged, it is important to ensure that there is a sufficient degree of local scrutiny and flexibility so that those local authorities that are billing authorities are able to exercise their discretion in order to support their local economy. I am grateful to the Minister for outlining the Government’s intentions in that respect. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 1 ordered to stand part of the Bill.
Clause 2
Special authority multipliers
Question proposed, That the clause stand part of the Bill.
Jim McMahon
Clause 2 concerns additional multipliers in special authorities. The meaning of a special authority is already defined in section 144(6) of the Local Government Finance Act 1988 as one which on 1 April 1986 had a population of less than 10,000 and a total rateable value per population number of more than £10,000. The City of London Corporation is the only authority that meets that test. The City of London has powers to set its own non-domestic rating multipliers. For example, for the current year the non-domestic rating multiplier in the City of London is 56.4p, compared to the same multiplier in the rest of England of 54.6p. Those existing powers are in part 2 of schedule 7 of the 1988 Act.
Clause 2 inserts new paragraph 9B into part 2 of schedule 7, giving the Treasury powers to make provision for the additional multipliers in the City of London. The Treasury may only do that where it has exercised those equivalent powers in clause 1 for the rest of England. The unique powers of The City of London reflect its special circumstances, notably its very small resident population. The clause reflects the Government’s intention for the new multipliers to apply across England. In clause 2, we have replicated the same safeguards for setting the additional multipliers as apply in clause 1.
Proposed new paragraph 9B(1)(a)(i) of schedule 7 to the Local Government Finance Act 1988 will ensure the higher multipliers in the City of London cannot be more than 0.1, or 10p in the pound, higher than the City’s non-domestic rating multiplier, and proposed new paragraph 9B(1)(a)(ii) will ensure the lower multipliers in the City of London cannot be more than 0.2, or 20p in the pound, lower than the City’s small business non-domestic rating multiplier.
David Simmonds
I have no objection to these measures. Could the Minister confirm, in writing if that is more convenient, that there has been a degree of consultation with the corporation to establish what, if any, impact it would expect on its budget?
Jim McMahon
I can confirm in writing the exact consultation that has taken place. Conversations will certainly take place. I return to the point that, if we do not take these measures to include the City of London, there will be many high-value properties that we can use to support retail, hospitality and leisure in the rest of England to which these measures would not be applied. It is an important measure. I will certainly confirm in writing via my officials the consultation that has taken place.
Question put and agreed to.
Clause 2 accordingly ordered to stand part of the Bill.
Clause 3
Application of multipliers
David Simmonds
I beg to move amendment 14, in clause 3, page 3, line 25, after “more,” insert—
“and is not a retail premises which is open to customers for more than 18 hours a day”.
This amendment would exempt retail premises which are open to customers for more than 18 hours a day from having the higher multiplier used to calculate their non-domestic rates. It is linked to Amendments 15 and 16.
David Simmonds
This group revolves around amendments 14, 17 and 20 and includes consequential amendments on relevant language in further paragraphs. They aim to address an issue that has been raised extensively in public evidence sessions, written evidence submitted to the Committee and the wider debate about measures in the Bill. That is, the circumstances of certain types of businesses, for example those that are unusual in that they are open for very long hours because they may be the only retailer in a location and are therefore of particular significance to that community, or those that are host to a post office. We all hear examples of local post offices co-locating with shops. We are very keen to ensure that those businesses are sustainable for the wider benefit of that community and access, particularly for vulnerable residents, to those services is maintained.
Progress has been made in developing banking hubs, often in premises that are co-located, sometimes with post offices. We know that has been important in ensuring access to cash in communities where it might otherwise be lost, as well as access to more general banking services, for both small businesses and vulnerable residents. These types of business can be absolutely critical, especially in rural locations, but sometimes also in suburban areas where elderly residents in particular may struggle to access those types of shops and services if we do not ensure their continued support.
The purpose of the amendments is to introduce specific exemptions or provisions to ensure that the measures are enacted in a way that continues to support retailers with long opening hours that provide services that might otherwise not be available, access to a post office or access to a banking hub.
Jim McMahon
Amendments 14 to 25, tabled by the shadow Minister, would exclude certain properties from the higher multiplier. Properties that are open to customers for more than 18 hours a day, properties that are shared with a post office and properties that are shared with a banking hub would be excluded from the higher multiplier.
These are very important sectors. The Post Office delivers essential services that are hugely valuable to both individuals and small or medium-sized enterprises in urban and rural areas across the country. Those services include mail, parcels, cash, basic banking, utility bill payments and Government and public services. That is why post offices are eligible for the existing retail, hospitality and leisure relief, which gives eligible retail, hospitality and leisure properties 40% relief on their business rates bills, up to a cash cap of £110,000 per person, in the 2024-25 financial year.
With regard to banking hubs, the Government understand the importance of face-to-face banking to communities and high streets, and we are committed to championing sufficient access across the country as a priority. That is why the Government are working closely with banks to roll out 350 banking hubs across the UK. The UK banking sector has committed to deliver those hubs by the end of the Parliament. Over 90 banking hubs are open to the public, and the Government continue to work closely with high street banks to ensure communities and local businesses have access to the banking services they need.
To provide certainty and permanent support for the retail sector and the high street, through the Bill we are introducing permanently lower tax rates for retail, hospitality and leisure properties with a rateable value under £500,000. The existing RHL relief has been repeatedly extended year on year as a temporary stopgap, creating cliff edges for businesses and significant financial pressures. The Government are currently developing with the sector the definition of “qualifying RHL properties”, which will be introduced through secondary legislation in 2025. The sector definitions will broadly follow those already defined in the current retail, hospitality and leisure relief system.
To ensure that this tax cut is sustainably funded, we intend also to introduce a higher rate on the most valuable properties—those with a rateable values of more than £500,000. To be clear, that only applies to the highest value properties, and less than 1% of all non-domestic properties across England. I understand that the hon. Member for Ruislip, Northwood and Pinner wants to exclude some properties from the higher charge. However, the Government want to take a fair approach, which is why we intend to ask all properties with rateable values of £500,000 and above to contribute more to support the high street. The Government do not intend to exclude any properties with a higher value, applying the approach in the fairest possible way.
There are practical implications that make it difficult to apply different multipliers to retailers based on their opening hours. Local authorities require certainty about which multiplier will be applied to which property ahead of the billing year. That cannot be determined based on opening hours, which businesses can rightly change at their own discretion, subject to legal requirements. For the reasons I have set out, the Government cannot accept the amendment, which would carve out certain premises from the higher tax rate. However, I hope the Committee is reassured of the Government’s commitment to post offices, banking hubs and the retail sector.
David Simmonds
I am grateful to the Minister for talking us through the complex set of reliefs that are available. It is an issue that colleagues who represent rural areas have been concerned about, because there are often multi-use sites in those areas—a petrol station and a post office, or a banking hub and a small supermarket. Those are potentially larger premises that are critical to the operation of the local community. I am grateful that the Minister has set out how existing reliefs may operate. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Martin Wrigley
We have tabled this amendment to explore the possibility of including manufacturing businesses. Manufacturing is important, and we know that it is struggling. By adding manufacturing businesses, we might be able to help them in the same way as we intend to help hospitality, retail and leisure. Manufacturing is a vital area that we have lost too much of in the past however many years. This relief would be a small help to enable manufacturing businesses to recover. That is why we would like to add the category of manufacturing to the provision.
Jim McMahon
Amendments 1 to 6 deal with eligibility for the new lower multipliers. Under the amendments qualifying manufacturing properties would be eligible for the two new lower multipliers the Bill introduces for qualifying retail, hospitality and leisure properties from 2026-27.
Let me start by highlighting that the Government recognise the importance of the manufacturing sector, and we have identified advanced manufacturing as one of the eight growth-driving sectors as part of our industrial strategy, recognising the contribution it makes to our economy. However, the provisions in the Bill are about delivering our manifesto pledge to protect the high street. To that end, we aim to introduce permanently lower tax rates for retail, hospitality and leisure properties from 2026-27. To ensure that this tax cut is sustainably funded, we intend also to introduce a higher rate on the most valuable properties—those with rateable values of £500,000 and above. As I said before, this represents just 1% of the ratings system; the context is important here.
The measures in the Bill will provide certainty and support for RHL businesses, which are the backbone of the high street. The existing RHL relief has been repeatedly extended year on year as a temporary stopgap. It has created a cliff edge for businesses, and those sectors have repeatedly demanded clarity and certainty. We have been clear that the eligibility for the new lower RHL multipliers will broadly follow those already defined in the current retail, hospitality and leisure relief system. On Second Reading, the hon. Member for Mid Dorset and North Poole spoke about her experience of owning a café and the need for Government support for such businesses. That is precisely why we are enabling the introduction of these new multipliers for those types of property through the Bill.
The amendments in the hon. Lady’s name would expand the scope of this support to include manufacturing properties, but that does not match our intended goal of supporting the high street in a targeted way through the Bill. Against the current fiscal backdrop, extending eligibility to other sectors may dilute the support that the Government can offer to retail, hospitality and leisure properties. It may even require a higher rate on properties with rateable values of £500,000 or more to fund the new lower multipliers sustainably.
I reiterate that the Government are committed to supporting the manufacturing sector. At the Budget, the Government announced £975 million for the aerospace sector over five years, over £2 billion for the automotive sector over the same period, and £520 million for a new life sciences innovative manufacturing fund. For the reasons I have outlined, we cannot accept the amendments, but I hope that the Committee is assured of the Government’s continued commitment to the manufacturing sector.
Martin Wrigley
I am a little reassured by the Government’s intentions to support the manufacturing industry and look forward to their efforts to do so. I am certainly reassured by the support for the high street, which is very important to all. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Jim McMahon
For this grouping, I will first speak to clause 3, then return, after other contributions, to amendment 10 and new clauses 2 and 4.
We have previously discussed clause 1, which allows the Treasury to introduce new additional multipliers. Clause 3 deals with how we will determine which properties those multipliers should apply to. The clause is split into three main parts, dealing with occupied hereditaments in subsection (2), unoccupied hereditaments in subsection (3), and hereditaments on the central list in subsection (4). Properties on the central list are typically utility networks spanning many local authority areas, such as gas, electricity and water networks. Each of those subsections is essentially identical, so, to save the Committee from much repetition, I will explain the provisions on occupied hereditaments in clause 3(2) only.
The most important part of subsection (2) is the small amendment made by paragraph (a) to existing powers in the Local Government Finance Act 1988. Under those powers, the Treasury already has the ability to determine in regulations which multiplier applies to which property. Those powers, in respect of occupied properties, are in paragraphs 10(9) and 10(10) of schedule 42A to the 1988 Act. Clause 3(2)(a) amends that part of the 1988 Act to extend those powers to cover all the additional multipliers. This means that the Treasury will be able to determine, by regulations, which properties pay on which multiplier. Actually, Dame Siobhain, may I just correct the record? I think that I referred to “schedule 42A”, but it is actually schedule 4ZA.
As in clause 1, we have included in clause 3 safeguards on to how the Treasury may use these powers. First, clause 3(2)(b) amends paragraph 10 of schedule 4ZA to ensure, through proposed new sub-paragraph (9B)(b), that the Treasury cannot apply the higher multipliers to any hereditaments with a rateable value of less than £500,000. This will ensure, based on the current rating list, that 99% of hereditaments are unaffected by the higher multiplier.
Secondly, proposed new sub-paragraph (9B)(c) will ensure that the Treasury, when setting new lower multipliers, can apply them only to qualifying retail, hospitality and leisure hereditaments. The precise meaning of qualifying RHL properties will be set out in regulations, but we have been clear that we intend to broadly follow the existing definition that applies to the current relief scheme for those sectors.
Thirdly, the Treasury, when using the existing powers to determine who pays on which multiplier, will need to bring that statutory instrument in draft to both Houses of Parliament for approval before that can be confirmed. This requirement is not on the face of the Bill because the powers already exist, but if hon. Members wish to be reassured on this point, it can be found in section 143(7B) of the Local Government Finance Act 1988.
The power to define qualifying RHL properties—in proposed new paragraph 10(9C) of schedule 4ZA to the 1998 Act—follows the negative resolution procedure, given that this power only allows us to reduce the rates for certain ratepayers.
Finally on clause 3, the existing powers for determining the application of the multiplier allows the Treasury to do that by reference to a list of factors found in paragraph 10(10) of schedule 4ZA to the 1988 Act. This is a non-exhaustive list that includes factors such as its rateable value, its location or its use.
For the introduction of the lower multipliers in 2026, we intend to replicate the process and the broad eligibility in the current RHL relief. As with the current system, local authorities will determine eligibility, but rather than that being against guidance, we will lay down criteria in regulations. Clause 3(2)(c) gives the Treasury the scope also to determine the application of the multipliers by reference to the description that the Valuation Office Agency will put in the rating list.
As I have said, the remaining parts of clause 3 make the same provisions that I have described, but in relation to unoccupied properties and those on the central rating list. It is usual for powers applying multipliers across occupied, unoccupied and central rating list properties to align.
David Simmonds
I will speak to amendment 10 and new clauses 2 and 4, which stand in my name. They are designed to address concerns raised in evidence which there was some debate about yesterday: the objective of setting out, as far as we can in advance, the impact these measures would have on affected businesses; providing for a review and scrutiny process to follow up to confirm that the assessment had been correct or otherwise; and seeing what lessons can be learned from it. I appreciate that the Government are very keen to press ahead on this and will be reluctant to accept amendments that have that effect.
None the less, I am sure Members will recognise that when making decisions it is important to have a sense of what the impact is likely to be, in particular when we know that the impact of some of the measures will affect businesses that may be marginal. In many communities the loss of a large supermarket or warehouse or logistics centre that may be affected will have a major impact on the availability of services and local employment. That is the thinking behind bringing these measures forward. With your leave, Dame Siobhan, I will move them for debate.
The Chair
With this it will be convenient to discuss new clause 1—Review of impact on businesses, high streets and economic growth—
“(1) The Secretary of State must review the impact of sections 1 to 4 of this Act on—
(a) businesses,
(b) high streets, and
(c) economic growth.
(2) The review must consider—
(a) the impact on different types of business, including small businesses,
(b) the impact on businesses operating mainly or solely on high streets,
(c) whether the provisions have had a measurable impact on economic growth, and if so what that impact has been.
(3) The Secretary of State must lay a report of the review before Parliament within six months of those sections coming into effect.”
This new clause would require a review of the impact of clauses 1 to 4 of the Act on businesses (including small businesses), high streets and economic growth.
Jim McMahon
Chair, can I just confirm that we are discussing amendment 10 and new clauses 2 and 4? Or have we moved on to clause 4?
The Chair
If you wished to speak to those amendments, it should have been in the previous debate.
Jim McMahon
I thought I was going to come back at the end of that debate, but it is fine.
David Simmonds
On a point of order, Dame Siobhan, having moved those amendments, I did indicate that subsequent to the debate I would be minded to withdraw them. I have moved them, but I am not aware that we have made a decision on withdrawal.
Jim McMahon
New clause 1 would require the Secretary of State to review and report on the impact of the introduction of new multipliers. Let me first set out that I understand full well why the hon. Member for Ruislip, Northwood and Pinner has been pressing this point, and I agree with it in principle. Chair, can I just check that I am speaking to the right provisions?
Jim McMahon
I will speak to both now. Clause 4 makes two small consequential amendments to the existing legislation to reflect the addition of the new multipliers. There are other amendments we will need to make to regulations to reflect the changes in the Bill, but we will do that using existing powers once the Bill has passed. We have not taken any further powers to make consequential changes.
As hon. Members will know, the Bill provides the basis for how the two new retail multipliers and the higher multiplier will be set. In doing so we are deliberately constraining the maximum levels of the new tax rates by reference to the existing business rate multipliers. Those guard rails prescribed in the legislation provide that the basis for how the new rates will be set will be at the next Budget. For the two retail, hospitality and leisure multipliers, the Bill ensures that the rate may not be more than 20p in the pound lower than the small business rate multiplier. For the higher multiplier, it cannot be more than 10p above the standard multiplier.
I have outlined how the new multipliers will be set at the next Budget, but I trust that hon. Members will also be reassured that when the new multipliers are set, the Treasury intends to publish analysis of the effects of the new multiplier arrangements, taking into account the effects of other changes in the 2026 Budget. The impact assessment that has been referred to in this debate and in the evidence session will be picked up later on in the process. That work will not stop with the next revaluation. As with all taxes, the Government will keep the policy and its effects under review. It is therefore not necessary to impose that requirement in legislation.
With that explanation of the Bill provisions, the process for setting the tax rates, and HMT’s intention to provide analysis of the effects of the new multiplier arrangements, I hope I have provided the necessary assurances for new clause 1 to be withdrawn.
Martin Wrigley
I rise to speak to new clause 1. I thank the Minister for his words. It is, as we are discovering, an incredibly complex and arcane way of creating taxes that will have an impact on many high street businesses. While the Treasury analysis will tell us how the multipliers have hit, and the numbers that are done from a taxation point of view, it will not answer whether the Bill has achieved what it set out to do, which is to provide the necessary relief.
New clause 1 looks more at the impact on the businesses and whether the provisions had a measurable impact on economic growth. That is not the same as an analysis from the Treasury of the changes in the bills that are being presented to people; it is looking at the effect and impact, to see whether the Bill is achieving the desired outcome. That is why we would like to see the measurement included.
As an engineer and a scientist, I believe in a feedback mechanism: something that measures what has been achieved against what has been required. We believe that was missing in the Bill, and we would like to see it, which is why we have asked for new clause 1 to be considered. The work is there and will be beneficial to one and all. I do not see it as a significant barrier to the Bill progressing, but as a positive feedback mechanism that will enable us to determine the effectiveness of the support on the desired areas and businesses, including high streets, which are so important.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
David Simmonds
I beg to move amendment 26, in clause 5, page 5, line 37, leave out from “persons” to the end of line 38 and insert
“who have special educational needs.
(5A) In subsection (5) ‘special educational needs’ has the same meaning as in section 20 (when a child or young person has special educational needs) of the Children and Families Act 2014.”
This amendment would mean that a school that is wholly or mainly concerned with providing education to persons with special educational needs would not be a private school for the purposes of the Act, and as a result would retain charitable relief from non-domestic rates.
We are moving on to a different area. This amendment is designed to address concerns raised in evidence, and by many across the House in debates, about the impact on children with special educational needs and disabilities. We recognise that the Government have introduced measures to address some of those concerns, but there have been many changes to the SEND system over the years. In particular, the provision about wholly or mainly providing education to children who are in receipt of an education, health and care plan specifically addresses those at the most significant end of special educational needs and disabilities.
The previous Labour Government introduced a system, in the days of statementing, that included measures called school action and school action plus. If a child had a form of special educational needs that was not so severe that they required the statementing process, but needed additional resources in the classroom, that classification triggered additional resources for the school. In the 2014 reforms, that was morphed into SEN support. Beneath the education, health and care plan, for the most significant levels of need, there is an SEN support set-up whereby local authorities direct additional funding towards schools because children are classified at those levels.
One of our concerns is that some children who have found their way to an independent school—for example, because it has a reputation for providing a good level of support to children with SEN—have not been through a process whereby they have been formally categorised. Gesher in my constituency is an independent special educational needs and disability school that charges fees. A proportion of its students are there because their parents have made the choice, and have not been through a local authority process. Others are there because they have an education, health and care plan and it is the named school paid for by the local authority. All children attending that school have some form of special educational need or disability and are therefore attending private school.
The rationale behind this amendment is that we do not want independent schools that provide education to large numbers of children with SEND but are below the education, health and care plan threshold to be put in a very difficult financial position. Potentially, the Government do not intend to go down that route. Most of us are aware that the extent of SEND provision in the independent sector is very large. Indeed, the amount of money that local authorities have to pay in fees to place significant numbers of children in sometimes very specialist provision is a major concern to them. We also hear from constituents who have identified that a moderate level of special educational needs may be met in the independent sector without the child’s having gone through the process of an education, health and care plan.
We are seeking to ensure that schools that educate children with special educational needs, in a broader sense, are not missed. For those reasons, I commend the amendment to the Committee. I am sure the Minister will have more comments to make, further to what he said in the evidence sessions.
Jim McMahon
Amendment 26 would result in the exemption of fee-paying schools from the measure if they wholly or mainly cater to pupils with special educational needs, whether or not those pupils also have an education, health and care plan, as defined in section 20 of the Children and Families Act 2014.
The Government are aware of the concerns raised about pupils with special educational needs in private schools that may lose their charitable relief because they are not wholly or mainly composed of pupils with EHCPs. We have carefully considered our approach to minimise the impact on pupils with the most acute needs. The Bill provides that schools that are charities that wholly or mainly provide education for pupils with EHCPs will remain eligible for charitable rates relief. For business rates, “wholly or mainly” generally means more than 50%. In practice, that will ensure that most special schools are not affected by the measure. We expect any special schools losing charitable rates relief to be the exception; the number may even be in the single figures.
Private schools that benefit from the existing rates exemption for properties that are wholly used for the training or welfare of disabled people will continue to do so. Most children with EHCPs already have their needs met in mainstream, state-funded schools. If an EHCP assessment concludes that a child can be supported only in a private school, the local authority funds that child’s place. Any changes to fees as a result of this measure will not impact on the parents or families of those pupils.
In private schools, just 5.7% of pupils have an EHCP, and they are predominantly in private special schools. Some 97% of pupils with an EHCP in private schools already have their place funded by a local authority. Where an EHCP has not named a private school in its assessment of the child, the parent or carers may choose to place the child in a private school. That is a choice made by the parent, and does not detract from an assessment that a pupil’s needs can be catered for in a mainstream, state-funded school. There may be instances where a child’s parent disagrees with the local authority’s assessment that their child’s needs can be met in the state sector, and the EHCP system is the most appropriate channel for resolving such disagreements. Amendment 26, which would amend the basis on which fee-paying schools can retain charitable rates relief, would undermine the Government’s intention of removing tax breaks from private schools in order to raise funds to support the more than 90% of pupils who attend state schools.
The approach chosen in the Bill is targeted to ensure that the impact on pupils with the most acute needs is limited. That is ensured by exempting schools that wholly or mainly cater to pupils with EHCPs from the measure. As the Committee will know, the majority of children in England who have special educational needs, with or without an EHCP, already have their needs catered for in the state-funded sector. The Government support local authorities to ensure that every local area has sufficient places for all children of compulsory school age who need one, and work to provide additional appropriate support for pupils with SEN requirements at state-funded schools.
David Simmonds
I beg to move amendment 7, in clause 5, page 5, line 38, at end insert
“, or
(b) a local authority makes a determination that they wish to apply discretion to the application of rate relief for the institution within the meaning of section 47 (Discretionary relief) of the Local Government Finance Act 1988.”
This amendment would provide that a school is not a private school for the purposes of exempting it from charitable rate relief if a determination is made to that effect by the billing authority.
The amendment is on a related subject to one that we have already debated, so I will not speak about it at great length. We are very much aware that the independent sector is critical to our catering for special education needs and disability. Its coverage across the UK is variable, especially when it comes to provision for children with very significant special needs that a wide range of SEND provision cannot easily address. A local authority that hosts a small school providing for a very small number of children may wish to exercise discretion.
There are charities of many types that are service providers that charge people fees for the provision of such services. That can include anything from adoption placement to fostering and safeguarding in the children’s sector. A large variety of charities charge to provide services such as home care, and care for adults with disabilities. The point was made yesterday in evidence that there is a risk of creating a two-tier charity sector; a school that charges for providing for children with significant needs might not be considered a charity for the purposes of business rates relief, whereas a charity providing, for a fee, residential care for adults with a learning disability would be eligible for relief. That remains a concern for Opposition Members. We need to make sure that we sustain our network of provision—particularly provision at the complex end of need—in the UK. I look forward to hearing what the Minister has to say on the amendment.
Jim McMahon
Amendment 7 seeks to preserve the discretion of local authorities to award relief to private schools. Currently, any charity that uses its property wholly or mainly for charitable purposes is entitled to a mandatory 80% relief. The local authority must award that 80% relief when the conditions are met. The Bill will remove private schools’ entitlement to that mandatory 80% relief. However, it will not disturb the very wide power that local authorities have to award discretionary rate relief above and beyond that.
That power is found in section 47 of the Local Government Finance Act 1988. It already allows local authorities to top up the mandatory 80% charity relief with a further 20% discretionary relief. When the Bill is in force, local authorities can still use section 47 to grant discretionary relief to private schools, if they wish. They can grant relief of 80%, or any other level of relief that they consider to be appropriate. That is a matter for local discretion, and for local authorities to decide. With the assurance that that will still be in place, I hope that the hon. Gentleman will be content to withdraw his amendment.
David Simmonds
I am pleased to hear the Minister once again championing the value of local discretion in decision making; I think we mutually acknowledge that it is incredibly important. I am aware that concern remains, particularly in the SEND sector and especially for residential special schools, about how the change will play out. Local authorities may face a Hobson’s choice between being expected to raise a certain amount of revenue by applying the maximum possible business rate to a setting, and doing what they need to do to support the needs and interests of children in their community—and of schools that may be the only centre nationally that can provide for very special needs. However, again, I recognise that the Government have the numbers, so with the leave of the Committee, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Jim McMahon
Amendment 8 would require a private faith school to maintain its eligibility for charitable relief if there is no maintained or academy school of the same faith within the statutory walking distance, as set out in the Education Act 1996. The amendment would also provide that schools with a currently undefined special character be exempted from the Bill measure when defined in regulations. The Government value parental choice and recognise that some parents want their children to be educated in schools of a particular faith, but all children of compulsory school age are entitled to a state-funded school place if they need one. State education is suitable for children of all faiths, and all schools are required to follow the Equality Act 2010, which means fostering and promoting an environment that encourages respect and tolerance of children and families of all faiths and none.
We have already made provision to ensure that private schools “wholly or mainly” concerned with providing full-time education to pupils with an education, health and care plan remain eligible for business rate relief. The Government are not considering any further exemptions to the policy, so there is no need to give the Secretary of State the power to establish and define new designations of school character to then exempt schools of that character from the measure in future, as the amendment would provide for.
The Government have listened carefully to arguments on this matter, and have decided that a carve-out for faith schools or similar schools cannot be justified. It is the Government’s position that state-funded education is suitable for all children of compulsory school age. For that reason, we are unable to accept the amendment.
David Simmonds
I need to be clear that I am not here to act as an advocate for faith education; I am not personally a fan of it. I recognise the Minister’s point, but we need to acknowledge that many Members on both sides of the House, and many of our constituents, believe very strongly that they should be able to access a school of a particular character.
There will be some children in the state sector who may be able to access, for example, a specialist sports academy with particular facilities to develop and nurture their talent, but such a school may not be available in all parts of the country. An independent school may be the only one able to foster and nurture that talent, and we would not wish to see any measures taken that would deprive anybody of that opportunity. Once again, however, I recognise that the Government have the numbers, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
David Simmonds
I beg to move amendment 9, in clause 5, page 5, line 38, at end insert—
“(5A) Where a private school offers nursery provision, that school must be considered to be comprised of two separate hereditaments, one of which would be a nursery school.”
The question of hereditaments is certainly not one that I remember from English classes when I was at school, but it is quite significant in the context of business rates. The way in which business rate legislation operates is that it designates a given property, which clearly makes it easier to tax, because the ownership or possession of a property is very hard to move or disguise.
In respect of schools where, for example, there is a nursery on site as part of the overall premises that are considered to be the hereditament for the purposes of business rate legislation, the Opposition are concerned that such premises that would be exempt from business rates or eligible for relief if they were physically separate from the school to which they are connected will not be eligible for that relief because they are on the same site. We know that the Government are very keen, as we were in government, to see an expansion of access to high-quality childcare, a very large proportion of which is in the private sector. The Government—commendably, in my view—have set out a policy of expecting maintained state schools that have nurseries on site to significantly increase the childcare offer to support local parents, which is a very good thing.
In many locations, a nursery connected to a private school may be chosen by parents using tax-free childcare, and there are measures in legislation to support all parents, but primarily lower-income parents, to access that provision. If business rates apply to such premises, however, that would load an extra cost on to them because they are, in effect, co-located and part of a single hereditament.
The purpose of the amendment is to separate those premises out. Where there are premises on a site that become subject to business rates as a result of the Bill, but would not otherwise be subject to them because of their purpose, use and location, they should be considered as separate institutions, so we do not apply the measures to those institutions that we seek through other parts of legislation to support and encourage.
Jim McMahon
I am grateful to the hon. Member for tabling the amendment. It may assist the Committee if I briefly explain how the Bill will apply to nurseries and nursery classes within the setting of private schools.
The Bill will ensure that nursery schools, where they have their own hereditament and therefore their own rates bill, will be excluded from the provisions and, where they are charities, will retain their charitable rate relief. That is the effect of proposed new sub-paragraph (4)(a)(iii) to schedule 4ZA of the Local Government Finance Act 1988, at line 23 of page 5, in clause 5.
A nursery school is likely to have its own hereditament and therefore its own rates bill when it is run and occupied by a separate body from the private school. An example would be where a separate charity from the private school runs the nursery. A nursery school may also have its own hereditament if it has its own dedicated buildings site that is located away from the rest of the school. Where the same charity runs the private school with some nursery provision, however, and does so from the same site, it is likely to have one hereditament and one rates bill.
I want to make it clear that private schools that include some nursery classes in the way I have described will still be considered as private schools and will lose their relief entirely. The Government have decided that where private schools that mainly provide education for pupils of compulsory school age also have nursery classes within the school, the presence of a minority of nursery-age children should not remove the whole school from the business rate measure. That approach best ensures consistency with the underlying policy intent.
For that reason, we are unable to accept the amendment. It would not be appropriate to attempt, as the amendment would do, to create new artificial hereditaments for nursery classes at private schools merely to preserve some of the charity relief for that private school. I hope the Committee will recognise the steps we have taken to protect nurseries with their own hereditaments, and it will, of course, continue to be the case that nurseries that are run and occupied by separate charities with their own hereditaments will continue to receive relief.
David Simmonds
Once again, I recognise that the Government have the numbers to do as they wish, but I am concerned by what the Minister has outlined. This is not simply an amendment about nursery schools, which are a specific thing. It is about nurseries, which provide childcare. For younger children we have the early years foundation stage, which is not compulsory but is provided and followed by the vast majority of childcare settings, and which aims to ensure a level of educational progression that can be measured from the very youngest children to those who are ready to start school. That is provided in a different way from what is provided by nursery schools, which are specific institutions of which there are several hundred in the country.
In London constituencies such as the one that I represent, it is quite common to find nursery providers that are run as part of private school institutions in the same location, but that are used by parents who have no intention of sending their child on to that private school. Because the fees charged are in line with the local childcare market, and those fees are significantly supported by measures such as tax-free childcare, those nurseries are an affordable means of securing good-quality childcare. Those children will go on to a range of local provision.
I remain concerned about the Bill insisting that a nursery located on a premises shared by a private school within the scope of these measures should be subject to a significantly higher rates bill than if it were located in a physically separate building just down the road. I suspect that that will remain an issue of contention during the passage of the Bill. Clearly, although an impact assessment or a review will not be specifically proposed in the legislation, there will be an opportunity to see its impact in due course. For those reasons, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Jim McMahon
Clause 5 removes charitable rate relief from private schools. Under the current law, all charities are entitled to 80% charitable relief on any properties that they occupy and use wholly or mainly for charitable purposes. That rule is found in paragraph 2 of schedule 4ZA to the Local Government Finance Act 1988, and clause 5(2) amends it to exclude private schools from that rule. Proposed new sub-paragraph (3) removes from charitable relief hereditaments wholly or mainly used to carry on a private school. That will ensure that ancillary and support buildings, such as offices, will also lose their relief—for example, classrooms and sports fields wholly or mainly used for the purposes of a private school.
The policy to remove the eligibility of private schools that are charities from charitable rate relief is a tough but necessary decision that will secure additional funding to help to deliver the Government’s commitment to education and to young people.
Mr Mark Sewards (Leeds South West and Morley) (Lab)
It is a pleasure to serve under your chairship, Dame Siobhain. Yesterday, we heard plenty of evidence from lots of witnesses, specifically about private schools. We also heard from Professor Francis Green, who stated that the measure would have a negligible impact on private schools. At the same time, as the Minister stated, it will raise much-needed funds to support the policies that we promised in the build-up to the general election. Does he agree that although this is a tough choice, since the Bill’s impact on private schools is relatively negligible, it is a necessary measure to raise the funds that we need to deliver our policies?
Jim McMahon
That is an important point. There is political intent behind this measure: to deliver on the manifesto commitment. At a time when, let us be honest, trust in politics is tested, delivering on an election manifesto is important. More than that, the vast majority of young people attend state schools.
In every community across the country over the past decade, all of us have seen the impact of reduced support, with many schools struggling. In some cases, that has created demand for private schools, because parents with children who have SEND or other conditions, who do not believe that their needs are being met by the state sector, feel that they have no choice but to look to the private sector. We are determined to rebuild the state sector so that every parent can have confidence that children who need additional support will get it in a mainstream setting.
David Simmonds
I will be brief, because we touched on this matter in the evidence sessions yesterday. The amendment and new clause both seek to ensure that the measures contained in the Bill have a review mechanism and impact assessments. The Minister said earlier that he was minded to proceed, regardless of the outcome, but there will no doubt be an opportunity for Parliament to scrutinise the impacts in due course. It is my intention, subject to the Minister’s response, to withdraw the amendment and new clause.
Jim McMahon
Clause 6 provides for when the provisions in the Bill will commence. The provisions in clauses 1 to 4 provide for the new additional multipliers to take effect from 1 April 2026. As hon. Members will have heard, the Chancellor will set out the new multipliers at the Budget in autumn 2025, and those multipliers will take effect from 1 April 2026. Clause 5, which removes charitable relief from private schools, will take effect from 1 April 2025.
As hon. Members will be aware, this Government are determined to fulfil the aspiration of every parent to get the best possible education for their child. It is right that, in pursuing that aim, we focus on the more than 90% of school-age children who attend state schools. The clause will raise approximately £140 million per year by 2029-30. By introducing the clause and the policy to apply VAT to private school fees, the Government will raise around £1.8 billion by 2029-30, which will help to deliver our commitments to education and young people.
Ahead of 1 April 2025, my Department will work with local government to explain the Bill’s provisions so that private schools that should not receive relief can be identified. As we have shown in the impact note published alongside the Bill, we expect around 1,000 private schools across England to be affected by the measures, so we are confident that the relief can be removed from 1 April 2025.
David Simmonds
I am sure that most mums and dads will be glad that excellent education is already available in England’s schools, given the transformation that has taken place in standards. However, we are here to concentrate on finances. For that reason, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 6 ordered to stand part of the Bill.
Clause 7
Short title
Question proposed, That the clause stand part of the Bill.
Jim McMahon
Clause 7 merely states the short title of the Bill.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
New Clause 1
Review of impact on businesses, high streets and economic growth
“(1) The Secretary of State must review the impact of sections 1 to 4 of this Act on—
(a) businesses,
(b) high streets, and
(c) economic growth.
(2) The review must consider—
(a) the impact on different types of business, including small businesses,
(b) the impact on businesses operating mainly or solely on high streets,
(c) whether the provisions have had a measurable impact on economic growth, and if so what that impact has been.
(3) The Secretary of State must lay a report of the review before Parliament within six months of those sections coming into effect.”—(Martin Wrigley.)
This new clause would require a review of the impact of clauses 1 to 4 of the Act on businesses (including small businesses), high streets and economic growth.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Question accordingly negatived.
New Clause 5
Local retention of additional receipts
“(1) The Local Government Finance Act 1988 is amended as follows.
(2) In Schedule 7B (Local Retention of Non-Domestic Rates), after subsection (4) insert—
‘(4A) In the case of any billing authority to which 100% local retention does not apply, as far as practicable, the local and central shares are set so that any additional receipts arising from changes made to this Act by the Non-Domestic Rating (Multipliers and Private Schools) Act 2024 are locally retained.’”—(David Simmonds.)
This new clause would provide that local authorities could retain any additional funds raised by the provisions of the Bill.
Brought up, and read the First time.
David Simmonds
I beg to move, That the clause be read a Second time.
You will be relieved, Dame Siobhain, to hear that these are the last of the amendments and new clauses that I will move for debate.
The purpose of the new clause is to bring in a measure to support the local retention of additional receipts that come from the measures in the Bill. We know that we have been on a journey with local government finance over many years to ensure a greater degree of local retention of business rate proceeds, something that has had cross-party support. It has been done for a variety of reasons, and partly to encourage local authorities to promote growth in their local business community by growing their business rate base and retaining a greater share of the proceeds.
On this specific Bill, the aim is to ensure that the additional revenue derived from the measures is retained by the billing authority, rather than going to another pool elsewhere. The rationale for that is manifold. In respect of the additional proceeds that may come from private schools that are subject to the measures, we know that local authorities may find it challenging, particularly given the timing of the introduction of this legislation, to ensure that there is a place available for any child who is displaced from the independent sector into the state sector—particularly so if that child has significant special educational needs or disabilities. Therefore, ensuring that those resources are retained locally will give some additional element of resource to local authorities seeking to meet that challenge.
We know that one particular dynamic is that the areas where the private schools are fullest are often also the areas where the state schools are fullest; although there is overall a declining population of children in our state schools in England as a whole—I know that my own constituency and local boroughs are a particular example of that, having seen a very large drop and a significant vacancy rate—that is not the case at all phases of education or in all year groups. Therefore, there is already a significant challenge for those parents who have to seek an alternative place for their child, where the retention of the resource locally would give some additional support.
Further, in respect of the additional revenue that may be raised from a variety of different types of businesses, the retention of that support locally would further enable the local authority to use that money to support its local economy, for example to invest in measures to support employment or the development of new businesses. That would be in line with the agenda being set out by the Government, who wish to see growth as a major priority, and it would create a direct link between the local decisions of the billing authority and the financial outcomes that would follow. For all those reasons, I commend the new clause to the Committee.
Jim McMahon
I thank the hon. Gentleman for tabling his new clause. As we have explained, where, as a result of the introduction of additional multipliers from 2026-27, local authorities collect additional business rate income, new clause 5 would allow them to keep that income in its entirety. It would do so by requiring the Government to alter the percentage share of business rates to be retained by local government and the share to be sent to central Government.
In practice, of course, any additional income from the new multipliers introduced by clauses 1 to 4 will vary from local authority to local authority and change from year to year. Those local authorities with fewer large properties may well collect less income as a result of the new multipliers and will therefore be worse off as a result of this amendment. Furthermore, accurate data on that will not be available until some time after the end of the year, whereas the central and local percentage shares need to be set before the start of the year. In practice, we do not think this new clause would effectively achieve the intended outcome. Instead, the Government will work to ensure, as far as is practicable, that local government income from business rates is unaffected by the introduction of new multipliers. That will result in a much fairer and more stable outcome for local government than the one suggested by the new clause.
More generally, the Government have announced their commitment to reform the way in which local government is funded, to return the sector to a sustainable position. That includes the already announced reset to the business rate retention system, as intended when the previous Government established the system. We will use the reset to restore the balance between aligning funding with need and rewarding business rate growth, and we will work in partnership with local government to ensure that the new local government finance system takes into account the impact of the new multipliers on the business rates collected by local government.
I hope I have given the Committee some assurances about how local government income will be protected from the changes in the Bill. In the light of that, I hope that the hon. Gentleman will feel able to withdraw the new clause.
David Simmonds
I know that the Minister is a localist at heart and will generally support measures that increase autonomy and decision making at local level. I recognise that the Government have the numbers to reject the measure. I think the point that it is hard to model the outcome was addressed in previous amendments that the Government chose not to accept, and undertaking a forward-looking impact assessment would enable us to understand better the impact of some of the measures. Given the Minister’s observations and the numbers in Committee, however, I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Question put, That the Chair do report the Bill to the House.
The Chair
I understand that at this point, you all have to be nice to each other. Does anybody want to do that, or are you ready to get on with it?
Jim McMahon
I was going to go on an errand to Tesco to buy some mince pies. This process has been a very useful one. The time that both Opposition parties have given to the preparation of the amendments has really helped the scrutiny of the Bill. That has helped the Government to ensure that the Bill does what is intended, and to provide safeguards to ensure that it does nothing unintended. We have set out our position on the Bill clearly. The spirit in which the Opposition have approached the amendments, by withdrawing them and not pressing them to a vote, and the constructive nature of our exchanges today are to the credit of the Committee.
David Simmonds
As always, it has been a pleasure to serve with you in the Chair, Dame Siobhain. In that Christmas spirit, I thank the Minister for his constructive engagement. It is characteristic of several of the Ministers in the Department, and it has been enormously helpful. I put on record my thanks to the Whips; I appreciate that the scheduling of this relatively short piece of legislation meant that it could have taken up a great deal of time. We have recognised the point, which was made impactfully yesterday, that its overall impact is limited and moderate, so we have sought to approach it in the light of that.
We may have a fairly significant disagreement with the Government about the intent behind the Bill, in the way that it approaches both local government funding and the situation with independent schooling, but we have to recognise the numbers. I thank the Minister and his colleagues very much for the way in which they have addressed this.