Non-Domestic Rating (Multipliers and Private Schools) Bill

2nd reading
Wednesday 29th January 2025 Lords Chamber

Second Reading

18:08

Moved by

[Baroness Taylor of Stevenage]

That the Bill be now read a second time.

[The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government (Baroness Taylor of Stevenage) (Lab)]

My Lords, on behalf of my noble friend Lord Khan of Burnley, I beg to move that this Bill be now read a second time, and in doing so I send my condolences to my noble friend on the death of his mother.

It is a great pleasure to open the debate on the Non-Domestic Rating (Multipliers and Private Schools) Bill. I very much welcome the interest shown by noble Lords in the matters related to this Bill and for the opportunity for both I and my noble friend Lord Khan to engage on key points of the Bill.

A few months ago, the Chancellor of the Exchequer set out our Government’s first Budget: a Budget to commence a decade of renewal and deliver on the Government’s primary objective of economic growth. The decisions taken in the Budget, some of them very tough, are necessary to enable the Government to deliver economic stability, restore the public finances and deliver our plan for change. It is right that the Government do not shy away from the challenge before us, doing all they can to restore our public services and give businesses the confidence and stability they need to thrive. Stability, certainty and predictability are essential to business decision-making and, while the Government cannot completely remove all the uncertainty that may arise through running a business, there are elements that are within our control.

We have heard from businesses that they have long-standing frustrations with the business rates system. They have said that it is inflexible, that it stifles investment and that it is unfairly skewed against property-intensive sectors such as the high street. The changes we are making to business rates, including through this Bill, will address those concerns.

I think noble Lords will agree that our high streets sit at the very heart of our communities. They should, and do, represent the very best of our thriving and vital community life. They are centres of economic activity so important to the economic health of our country, but they are also meeting places for vibrant communities, whether it is families enjoying a meal together, work colleagues relaxing after a hard week’s work, friends shopping for a new outfit or gadget, or the multitude of other reasons that people use our town centres. The Government have committed to transforming the business rates system to make it fit for the 21st century, an endeavour that will be delivered across the course of this Parliament. That journey starts with this Bill. Through it, the Government have begun the important task of rebalancing the business rates burden faced by our high streets.

The Bill before us today seeks to enable the commitments made by the Chancellor at the Budget to introduce permanently lower tax rates for qualifying retail, hospitality and leisure properties with a rateable value below £500,000 from April 2026. This permanent intervention ends the uncertainty of the stopgap retail, hospitality and leisure relief that has been extended year on year since the Covid-19 pandemic. That relief was always intended to be a temporary measure, born out of the extraordinary context of the early 2020s, and necessary for the time but at great cost to the Exchequer. In the challenging fiscal context we now find ourselves in, it is not financially responsible to continue that indefinitely.

Our intention through this Bill is to introduce two new lower multipliers. One multiplier offers a tax cut for retail, hospitality and leisure properties with a rateable value of between £51,000 and £499,999 that currently pay the standard non-domestic rating multiplier. The other new multiplier will provide a tax cut for retail, hospitality and leisure properties paying the small business non-domestic rating multiplier—that is, those with a rateable value of less than £51,000.

I have already spoken of the Government’s responsibility towards the public finances. Of course, any permanent tax cut must be sustainably funded. For that reason, the Bill allows for the introduction of a higher tax rate on the most valuable properties—those with a rateable value of £500,000 and above. This represents less than 1% of business properties in England and captures the majority of large distribution warehouses, including those used by large online businesses, as well as other out-of-town businesses that draw footfall away from our high streets. By introducing this higher tax rate, the lower tax rates for retail, hospitality and leisure businesses can be sustainably funded from within the business rates system—a prudent approach that aligns with the principle of ensuring that any tax cut is fully funded.

I anticipate that noble Lords may raise questions about the delegated powers in the Bill that will enable the Government to introduce these new tax rates from April 2026. Unlike many taxes, which are generally paid after an event, business rates bills are calculated in advance for the whole year and are issued by billing authorities often several weeks before the start of the financial year. Therefore, changes to the multipliers—in other words, the tax rates—have to be made in advance and be in place several weeks before the start of the financial year if they are to be included in demand notices. Therefore, this Bill does not set the level of the tax rates; that will be done later this year at the Budget, taking into account the outcomes of the 2026 business rates revaluation. The Bill instead provides a power to set them.

To put it simply, without introducing delegated powers there would be insufficient time to introduce the tax rates at the Budget and pass the required primary legislation for those tax rates with sufficient time left for billing authorities to prepare for the changes at an operational level. That is why the Bill provides the ability to set these new tax rates through secondary legislation.

Nevertheless, as is expected and good practice, the Government have carefully considered the approach to these powers and constrained them accordingly. The lower tax rate for retail, hospitality and leisure properties cannot be set more than 20p below the small business non-domestic rating multiplier for that year and can be applied only to qualifying retail, hospitality and leisure properties, the exact definition of which will be set out through secondary legislation later this year. However, it is the Government’s intention for the definition to broadly follow that which is in place for the current retail, hospitality and leisure relief. The higher tax rate cannot be set more than 10p above the standard non-domestic rating multiplier for that year and can be applied only to properties with a rateable value of £500,000 and above. It is important to say that these are not the intended tax rates—as I have said, they will be set at the Budget later this year. These are the maximum parameters within which the new tax rates may be set, not the target tax rates.

I appreciate there may be interest from noble Lords with regard to how these multiplier changes may impact on the funding available to local authorities from levying business rates. Since 2013, the business rates retention scheme has allowed local government to retain a portion of the business rates that it collects. The measures contained in the Bill will affect the level of business rates income collected by authorities differently in different areas. I reassure noble Lords that the Government are committed to ensuring that, as far as practically possible, local government income will be unaffected by business rates tax policy changes. It is worth noting that the Government have committed to reform the local government funding system to help deliver this, and, as intended since 2013, business rates growth will be subject to redistribution across the country through a business rates reset in 2026-27.

I am aware that, at the start of my speech, I set out the Government’s ambition that the transformation of the business rates system should go broader than the measures within the Bill before us. Indeed, noble Lords questioned me extensively about our wider plans during Question Time on Monday. I will briefly touch on those plans now.

At the Budget, the Government published the Transforming Business Rates discussion paper, which set out the priority areas for reform and invited stakeholders to co-design a fairer business rates system. The areas of interest within that paper include incentivising investment and growth, tackling avoidance and evasion, the frequency of revaluations, and ensuring that the system is fit for purpose, reflecting our modern, fast-paced economy. I am pleased to say that many stakeholders have already engaged with the Government on these matters, providing valuable insight and expertise. Any changes will be phased over the course of the Parliament, and the Government will publish an update in due course.

I turn now to the second measure set out in the Bill: the removal of private schools’ eligibility for business rates charitable relief. The Government are committed to breaking down barriers to opportunity for all. While we believe in supporting parental choice, we must ensure that every child has access to high-quality education that helps them achieve their full potential and thrive. The Government must concentrate on improving the state education sector, where more than 90% of our children are educated. That is why the Government are ending tax breaks for private schools, to help raise revenue to fund the state education priorities that we set out clearly in our manifesto.

As I said earlier, the Government have had to take very difficult but necessary decisions to restore our public finances and, in doing so, enable the restoration of public services. State education is one such public service that is used by the majority and available to all who require it. At the Autumn Budget, the Government announced an increase of per pupil funding in real terms, with a £2.3 billion increase to the core schools budget in 2025-26. This includes a £1 billion uplift to high-needs funding in 2025-26, providing additional support for the more than 1 million children in the state sector with special educational needs and disabilities. This funding needs to be paid for. To help make that happen, the Government are ending tax exemptions for private schools, as we set out in our manifesto.

I am aware that there has already been a great deal of discussion in this House of the Government’s policy to remove tax breaks for private schools, and the Government genuinely welcome the scrutiny that noble Lords have brought to this matter. I am sure there will be some more this afternoon.

Noble Lords will be aware that the measure relating to VAT is being legislated for through the Finance Bill. Ending the VAT exemption of private school fees and removing eligibility for business rates charitable relief from private schools that are also charities will together raise approximately £1.8 billion by 2029-30. This will help deliver the Government’s commitments to education and young people.

The Bill before us today covers the business rates change only, and that is where I am going to focus my comments. There are over 2,400 private schools in England, of which approximately half are charities able to benefit from business rates charitable relief. This Bill removes that eligibility. It provides a specific definition of a private school as a school that provides

“full-time education … for pupils of compulsory school age … where fees or other consideration are payable for that … education”.

In respect of further education, the institution is one that

“is wholly or mainly concerned with providing education suitable to the requirements of persons over compulsory school age but under 19”,

and where education is provided to those persons full-time which is “wholly or mainly” for a fee or other consideration.

I am aware that noble Lords have raised questions over how this change will affect pupils with special educational needs and disabilities. The Government have carefully considered the design of the policy to ensure that effects on those pupils with the most acute needs are minimised. The Bill provides 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. For clarity, the definition of “wholly or mainly” in business rates generally means 50% or more. This will operate alongside the existing business rates exemption for properties that are wholly used for the training or welfare of disabled people. Properties that qualify for this exemption pay no business rates at all, and any private schools that currently qualify for that particular exemption will continue to do so.

Taken together, the existing and new provisions are intended to make sure that the majority of private special schools will be unaffected by this measure. In fact, the Government expect that any private special schools losing eligibility for charitable rate relief will be the exception. It is worth adding that stand-alone nursery schools with their own rates bills are not within the scope of the Bill and, if charities, will retain eligibility for the existing relief. As previously announced, it is the Government’s intention that this measure will come into effect from 1 April 2025. As business rates is a devolved tax, the measures in the Bill will apply only to England; there are different measures in place in Scotland and Wales.

The measures in the Bill partly deliver on two of the commitments within the manifesto on which the Government were elected. The measure to enable the introduction of new multipliers is commencing the Government’s plans to transform the business rates system. It begins our journey to fulfil the ambition to deliver a business rates system fit for the 21st century; one that supports our high streets in a sustainable way, offers stability, promotes investment and drives economic growth. The measure to remove charitable rate relief from private schools will contribute to our overall ambition to break down barriers to opportunity and help all children to receive the high-quality education they deserve and their parents aspire to. I beg to move.

18:23

[Baroness Scott of Bybrook (Con)]

My Lords, first, I send our condolences to the noble Lord, Lord Khan of Burnley, and to his family in Burnley. He is always in our thoughts and prayers. This will be a difficult time for him, as I know. I declare my interest as vice-president of the Local Government Association.

This Bill represents another stealth tax for businesses. Not only are the Government increasing business rates; at the same time they are also reducing business rate relief for retail, hospitality and leisure businesses up and down this country. This is the wrong approach and we will scrutinise this Bill very closely in Committee.

Throughout the election campaign, the now Chancellor promised that the Labour Government would be the

“most pro-business government this country has ever seen”.

Yet the choices they have made indicate the exact opposite. This Budget has been decidedly anti-business and the decision to increase business rates demonstrates this Government’s failure to understand how to achieve growth.

On Monday, the CBI reported that firms expect another significant fall in activity over the coming three months, with the CBI’s growth indicator suggesting a 23% fall in the three months to January. The only official estimate of the revenue from this Bill is just £70 million for the Exchequer in 2025-26, but the impact on businesses will be disproportionate to that figure. When paired with all the other damaging tax increases in the autumn Budget, it provides a clearer picture of the campaign of crippling tax rises that this Government are imposing on our businesses.

As we scrutinise this Bill, we will be focusing in particular on the impact of these changes on our high streets, including hospitality and leisure businesses. Businesses are being asked to pay more through their employer national insurance contributions and the inflation-busting increase in the national living wage. With this Bill, the Government are hitting businesses with a triple whammy. It is our duty to hold the Government to account and to scrutinise the unacceptable negative impacts this Bill will have.

While the Bill will ensure that these online giants pay higher business rates, the Government have singularly failed to protect businesses on the high street, some of which will also be subject to these higher rates. Although the Government set out to separate online businesses from traditional retail, the Bill uses the rateable value of £500,000 as the distinction. This will allow a higher rate for

“the majority of large distribution warehouses, including those used by online giants”.

I do not dispute that this distinction will capture many online retailers, but it will also capture additional businesses such as supermarkets, hotels and department stores. The Bill fails to distinguish between these different business types, and it will have unintended consequences. The CEO of John Lewis & Partners has confirmed this, explaining that the prime location of its stores means they have a higher rateable value than out-of-town warehouses. He has called the combination of higher business rates and the national insurance tax raid as a “two-handed grab”.

We are also concerned that the new business rate multipliers have not yet been set. We are being asked to trust the Government and give them these powers without knowing how they intend to use them. I cannot understand why the Government would not set these rates before publishing the Bill; we need clarity if we are to proceed. Would the Minister be willing to give the House an explanation of the Government’s plans in this area before we go into Committee?

We are deeply concerned about the impact these changes will have on businesses, which will be hard hit by these measures. We know the Bill will mean that retail, hospitality and leisure businesses on high streets up and down this country are going to be closed. This will be yet another setback for our high streets, which we already know are struggling. The Minister claims these higher rates will affect only 1% of businesses, but I am certain that the impact will be wider spread and it is vital that we protect our high streets. In the world of public finances, the Bill does not raise an extraordinary amount. The £70 million referred to in the impact assessment will not go very far, but the impact on businesses that are forced to close as a result of this, alongside other measures included in the Budget, will have a wide-reaching impact on our economy, as well as on our communities across the country.

The Government claim the Bill will leave retail, leisure and hospitality businesses with a lower bill to pay, but this will not be the case for many businesses that our high streets rely on. The anchor stores of our high streets will be hit. I agree with the Government that independent stores are important on our high street, but that does not mean that the larger stores are not. I am worried that the Bill will have the effect of forcing retailers out of their high street locations and instead moving them to out-of-town locations where the value of property is lower. I cannot see how that is going to benefit anyone.

The second part of the Bill removes charitable relief for private schools. My noble friend Lady Barran will speak about this part of the Bill in more detail in her closing speech. This is a mean-spirited attack on private schools, and Clause 5 raises many issues. I am concerned about the exemption only for pupils with EHC plans. We have been clear that taxing education is wrong, but taxing education for children with special educational needs is unconscionable.

The Government may have made an attempt to retain charitable relief for schools that wholly or mainly educate pupils with SEND, but the way that the Bill has been drafted fails to account for special educational needs pupils who do not have an EHC plan. We know it is exceptionally difficult to get one of those plans and it takes a very long time, so many parents choose to send their children to private schools instead. The Bill will place an additional cost on the many parents in that position. Surely that cannot be right. We will bring forward an amendment in Committee to address this clear failure in drafting.

Alongside the issue of SEND education in private schools, I do not think the Government have considered the effect of the Bill on private schools’ engagement with their local communities, which often involves sharing facilities with state schools, summer schools and other community organisations. Many private schools go above and beyond in providing facilities for the other schools in their areas but, with the number of extra costs the Government are piling on them, they will be unable to provide the same level of help. The Bill may have the perverse effect of forcing private schools to reduce that support as they seek to cover the tax bill imposed on them by the Government through lettings at a higher commercial rate. I ask the Minister to confirm whether that has been considered.

In conclusion, the damage that the Bill will wreak on our high streets cannot be ignored, nor can we allow the principle that education should not be taxed to be abandoned without any challenge. We will take a robust approach to the Bill in Committee and hold the Government to account for the negative impacts that these measures will have on our towns, our high street and our educational system.

18:32

[Lord Fox (LD)]

My Lords, I join the noble Baroness, Lady Scott, in sending our condolences to the noble Lord, Lord Khan, and his family. It must be hard for him at the moment, but he can be sure of the warmth from your Lordships’ House.

In speaking to the Bill, I will not comment on Clause 5 because I am sure that quite a few others will speak at some length on it, and we will certainly have a chance to revisit it in some detail at later stages. Instead, I will dwell on business issues, which corresponds with my Front-Bench duties. I declare that I have a family member who owns an independent shop.

There is an aphorism that perfection is the enemy of the good. The Bill is not perfect, and its lack of transparency makes it hard to see what may be good about it. I hope that, during the course of this debate and the later stages of the Bill, the Government see fit to shine more light on it and offer more transparency so that we can get a better feel for all the moving pieces.

However, the Bill is evidently not a comprehensive reform of the business rates system, despite Labour’s manifesto commitment to do so. We know that the business rates system is deeply flawed. Of course I would say that a commercial landowner levy, as proposed by the Liberal Democrats at the last election, would go a long way towards addressing many of the entrenched problems in the current system.

I turn to concerns directly about the Bill. First, it fails to address the core issue of the imbalance between businesses that trade from out-of-town premises to those that trade from bricks and mortar shops within a town centre. The noble Baroness, Lady Scott, analysed this problem, but, of course, this Government inherited it from the noble Baroness and her colleagues, so although they are able to analyse it now, they failed to do anything to address these issues when they were in their control.

At the heart of this issue is the imbalance between in-town and out-of-town valuations. Historically, as the noble Baroness, Lady Scott, pointed out, valuations on high streets massively outstrip those on warehouses. This mismatch in valuations looms large when considering business rates. We look forward to future reviews of that when and if they come; it would be helpful if the Government could give us a timetable for what will happen in addition to this Bill.

Furthermore, the Bill does not ensure that businesses that invest in their properties will not face an increase in their rate bills. Will the Minister exclude any new investment made now from future business rate valuations from April, so that businesses are able to invest in their future and will not see that investment push up their rate bills even higher? That is an inverse relationship and makes no sense.

The Bill is intended to help retail, hospitality and leisure businesses—the so-called RHL—and has been heralded by the Government as a cut in business rates for them. However, there is no guarantee of that. As I have said, there are a lot of moving pieces and, when all things are considered, businesses could still face increases in the tax burden of their businesses.

The Bill spells out the end of small business rates relief, but we do not know what the intended tax rates will be. As a result, a number of smaller and independent high street businesses will likely be hit hard by this process because, although we do not know what will happen, we can only assume that the Government will not slash rates in the future. Research by the House of Commons Library that was commissioned by my honourable friend Daisy Cooper MP, the member for St Albans, shows that from April 2026 these reforms to business rates could leave small and independent businesses in effect much worse off than the big chains—to some extent, a different version of a problem set out by the noble Baroness, Lady Scott. We cannot both be right, but either way that creates a problem.

I shall explain. At the moment, the 75% relief is capped at £110,000, but when the relief goes to zero then that cap will no longer exist. I understand why the cap was there; it was implemented because business rate relief is classified as state aid. The cap therefore ensures that businesses do not benefit from a subsidy above the limit specified in the Subsidy Control Act 2022—one of the Bills that I had the great pleasure of working on. The new multipliers will comprise lower tax rates for specified sectors rather than reliefs and therefore will not engage the subsidy control regime. That is why the cap of £110,000 will be scrapped from 2026-27. I am sorry for explaining things, but it helps me to understand them even if it does not help anyone else.

The Library research shows that the net effect of abandoning the cap could be that small businesses end up 80% worse off, while big multiple outlet chains could be 40% better off because they can aggregate their gains and off-set their costs across their chain. I appreciate that the Government plan to review business rates in the 2026 financial year—at least, that is what they have said—which I hope will analyse the impact on business rates, but it is also important to understand that differential assessment now, while we are assessing the Bill.

Has the Minister’s department gamed out the whole rates system and its effect on large chains versus single individual outlets? Will there be an impact assessment that sets out the impact on small businesses on high streets? Will she publish all this analysis, and ensure that the Government at least do not rule out introducing new small business relief in a targeted way to support such small independent businesses? That is one reason why the absence of an impact assessment of the Bill’s effect on the high street seems, frankly, inexplicable. How can a Government propose a change such as this without looking at the impact, and how can we consider the Bill without knowing what its effects will be?

RHL businesses are a very important part of most high streets—I would say a key part—but they are only one element of a well-functioning, prosperous high street, and the Bill does not offer immediate support to businesses outside the RHL sector. What about banking hubs and Post Offices? What about small businesses, such as accountants and those in the creative industries? What about the light engineering and manufacturing sector? In the Commons, the response has been that this Bill is targeted at the RHL sector, but look at the short title and the long title and you will see that it is not. It can definitely include these other elements, and so will the amendments that we will bring in Committee.

Furthermore, the implication we have heard from ministerial quarters is that these non-RHL businesses have a choice where they locate. This is a pernicious assumption. In other discussions, where we have talked about the need to enhance our high streets and market towns, much has been said about creating a mixed environment and a mixed economy. That means a mix of not just retail, hospitality and leisure outlets but banks, Post Offices, small businesses, offices and light engineering, all playing a role in bringing people to an area and creating a lively local economy. The Bill works diametrically counter to this, and will make it less likely that such beneficial mixed use happens. Moreover, we are increasingly seeing large tracts of towns being owned by one landlord. In this way, competition for rents is eliminated, making it even harder for small concerns to negotiate a reasonable rent.

Finally, the Bill fails to address the issue of business rates non-payment, which runs at a higher level even than council tax avoidance. In the days where councils are even more cash-strapped, they need help in collecting what is due.

In summary, this Bill is very unlikely to materially help market towns across our country. The change from a system of capped temporary relief to an uncapped lower multiplier will inadvertently end up with small businesses subsidising, and doing worse than, big corporations. We on these Benches believe that the Government should complete the consultation before unfreezing the rates relief, which could badly affect small businesses in our high streets. The Government say that they want growth, and so do we—we all do—but these business rates changes will stifle the growth of small businesses and our high streets at a time when we should be unleashing them. We urge Ministers to think again.

18:42

[The Earl of Lytton (CB)]

I thank the noble Baroness, Lady Taylor, for her introduction to the Bill and add my best wishes to her colleague, the noble Lord, Lord Khan. I express my thanks to him for his willingness to engage prior to this debate.

I commend the briefing from your Lordships’ Library, which is a most useful explanation of what is rather a niche specialism. I am grateful for comments from two rating specialists, Jerry Schurder and Simon Green from Newmark, formerly Gerald Eve, and to fellow professionals from the RICS rating and taxation forum. However, I stress that the views I express are mine and not in any way an official view of any other person or body.

I remind your Lordships that I come to this matter from a technical standpoint, with on-off professional involvement going back over 50 years in business rates and local government finance matters. I am also the beneficiary of a small business exemption on a very small rural business hereditament. I hold no brief from any professional body or any relationship with any commercial business rates payer or school.

The Bill has been described as a rebalancing measure, and that has been a repeated theme. We have heard that it imposes supplementary charges on less than 1% of some 2.15 million hereditaments where the value is £500,000 rateable value or over. According to my information, that amounts to 16, 857 separate hereditaments. I understand also that the Bill is the first step to meet the Labour manifesto commitment to

“replace the business rates system”

and

“level the playing field between the high street and online giants”.

At the moment, as we have already heard, there is a long-standing, and I believe just, criticism of the overall burden of business rates. Like for like, they are the highest of any OECD country. I am told that Jaguar Land Rover has a plant in Germany where the comparable tax burden is just one-sixth of the English plant equivalent. This is repeated constantly across many different types of business.

I remind noble Lords that when I first joined your Lordships House, back in 1985, I made my maiden speech on something called the Local Government Finance Bill—noble Lords may remember that that brought in the poll tax. In those days, there was a unified system of rateable values for all residential and commercial, and of course it has now been split. There is discrepancy in the whole local government finance arrangements between the burden borne by the capped council tax payers—who, as it happens, are almost certainly the main consumers of the goods and services produced by local government—and the rather higher level placed on business rates payers, who, it must be added, do not have a vote.

Any changes in taxation should aim to make the process more certain, clear, simple, speedy, efficient and so on, as we have heard. This is the expectation of businesses and the general public. The importance of business rates revenues is such that HM Treasury strives to protect the revenue stream at all costs, despite wider economic contraindications. Accordingly, it follows that the appetite so far within the Treasury for a root and branch reform has been rather modest. I hope that the consultation will produce real change.

As ever, the real rebalancing becomes evident in the other details. First, there was Covid assistance for retail, hospitality and leisure, or RHL, as the noble Lord, Lord Fox, referred to. The previous Government put that in place, but it is now progressively being withdrawn and will disappear by April 2026. It was previously worth £2.5 billion, but is now worth about £1.7 billion. The Government say they are not removing this relief, but from 2026 onwards it will have to be funded internally by the ratepayers themselves, rather than being an extra grant from the Government. This follows the fiscal neutrality principle, whereby however you shuffle the deck of the burdens within the business rates system, the thing will still yield the same amount or more. The situation now is whether the lack of adequate tapering—I think there is a problem with that—is going to produce a cliff edge in demands when we get to April 2026 and this is brought in.

Secondly, and much more significantly, the overall burden of business rates is set to rise. Currently, I believe it is about £26 billion gross—so I am told—but according to the last OBR budget report it is set to rise to £39 billion by 2029-30. That is a 50% increase over five years. I have really no idea at the moment how this is going to be achieved—will it be by broadening the tax base or simply by increasing the rate in the pound multiplier for existing businesses? That is another uncertainty. One must accept that businesses are not stupid; they can see what is coming down the track and will take a view accordingly. The rebalancing is not quite what one might expect. The Bill seems to be a redistribution of fiscal risks without attempting to deal with the underlying problem, and I have difficulty with that.

Noble Lords will note—it has been mentioned by the noble Lord, Lord Fox, and the noble Baroness, Lady Scott—that there is no financial impact assessment for this Bill, because it relies on the level of values, both cumulative and individual, in the as yet unpublished rating list for 2026. The explanation is that the figures on which such an assessment may be made are currently unknown.

This means that, effectively, we are being asked to sign off something without really having any idea of how it is going to work. The noble Lord, Lord Fox, referred to the number of moving parts. Yes, absolutely. I have been constantly saying that this has more moving parts than a Swiss watch. I make no apology for that analogy. We just do not know how much individual businesses will face, because the manner in which the reliefs apply and their response to them is, of course, entirely opaque. Government would set the relative multipliers in the Budget speech: I understand that they could set a different one in each successive Budget. There will be at least two multipliers on the sub-£500,000 rateable value cohort, which is the majority of the hereditaments.

There is a discrepancy between what the Bill allows and the admitted policy. For instance, the Bill allows for many higher multipliers, but, apparently, the policy is to have only one. Because policy can presumably be amended at relatively short notice, and the multipliers will be decided in each Budget speech, I cannot see that this does anything other than create a level of uncertainty that could be avoided. I am unclear whether the supplemental multiplier—that is, for the £500,000 value and above—will in the end apply to all the hereditaments in that category, or to only some.

The Government suggest that the current guidance for small business relief will become statutory regulation and thus more certain. I welcome that, but I wonder whether, of itself, it will generate arguments at the margins about whether something is in or out, creating further problems and uncertainty about the yield that the tax will produce. Going back to the number of moving parts, pushing one bit means that several other bits keep moving on the way. It is a very difficult thing to keep track of. So that is one of the things that is there. If the OBR estimates are right about this 50% rise in the burden, this has to give us thought as to the implications for business confidence, investment and growth.

I will leave other noble Lords to say—and I hope somebody will—how this might impact billing authorities and their ability to deal with it. The retail, hospitality and leisure uses do not necessarily coincide with high streets. We keep hearing about this as if they are almost interchangeable. They are not. They are different templates. High street health depends on many more things than business rates. It depends on local policies for planning, core time servicing, pedestrianisation, parking, congestion and air pollution charges, disruptive roadworks and things such as national insurance, minimum wage and other legislative and regulatory functions.

I will say a quick word on properties that might be affected. They include some 4,600 odd offices; 2,443 large warehouses, of which—as we have heard—some will be fulfilment centres; 1,802 superstores; 955 factories; 947 schools; 860 shops—some of them in major shopping centres—534 hotels, and so on. They also include some 325 hospitals—places such as large London teaching hospitals, at least one of which I know has a £12 million rateable value at the full rate. That will be £1.2 million. Well, I leave your Lordships can work out how many nurses and doctors or rehabilitation of hospital wings that could deal with.

I will conclude with three points. First, I will repeat what I have long maintained, namely that the impact of business rates is, of itself, a material mover and shaker of business decisions and policies. It does not exist in isolation. Why put oneself in a tangible, fixed asset such as highly rented business premises if one can operate from something else or in another way? I will leave that at that point.

Secondly, rates and rents are intertwined. Businesses naturally look at the overall costs of occupation when comparing their options, one area with another. If rate reductions simply bolster rents, nothing is gained. If rents are diminished by rates burdens, beware of impeding investment decisions in favour of high streets where one might want that investment to occur.

Finally, I will say a quick word on charitable relief. I do not call into question anything to do with the political policy that sits behind it. From a practical point of view, premises used for charitable and some not for profit community or social purposes—not just registered charities—can get 80% mandatory relief and may get another 20% discretionary relief on top. Of course, some of these compete with regular retailers, but I struggle to understand the rationale of the proposed selective denial of relief for private schools operating as charities in educating the young, as against any other philanthropic sector such as animal welfare, the arts, conservation and so on and so forth.

Noble Lords will all know of situations that apply. This strikes me as arbitrary, if not actually discriminatory, that this should take place, especially when we are told that it is not policy under this Bill to differentiate, say, teaching hospitals or public service-type buildings from the £500,000 and above cohort. Well, if you can identify one particular lot of schools, you can certainly identify another lot and say, “Well, we won’t incorporate them”. I cannot believe that, in this modern age of computer technology, you cannot pick them out and make a pretty accurate and granular decision on how you are going to deal with these things. So it seems to me that this is an incredibly blunt instrument that is being applied here. I also think it requires further and better justification, particularly in relation to the charitable relief on private schools, because it appears to lack consistency.

All in all, the normal expectations of tax reform in the area of the manifesto pledge do not appear to be met in this Bill as presented. I, for one, certainly hope that between us we can change that for the better.

18:56

[Lord Waldegrave of North Hill (Con)]

My Lords, it is a pleasure to follow the noble Earl, Lord Lytton. He speaks with immense knowledge on these matters. I join in sending condolences to the noble Lord, Lord Khan, as he passes through one of the terrible watersheds of life that we all pass through.

I am going to speak primarily on the second part of the Bill and declare my very recent interest as provost of a famous school—namely, Eton College. Provost means chair of governors in ordinary language. Before we come to that, until a couple of years ago, my wife and children owned a small, historic pub in Dorset Street in Marylebone in which, I am sorry to say, I now have no interest. My daughter Harriet was the licensed publican. She reminded me that it had a very annoying rateable value of £51,000, which was always just above some decimal threshold.

As the noble Earl, Lord Lytton, and the noble Lord, Lord Fox, both said, so many moving parts are coming along in the rating relief world in the next year that it is very difficult to tell whether the Barley Mow will gain or lose, but I recommend that noble Lords give it the benefit of the doubt and go there to support it against any possibility of trouble.

I shall speak mostly today about the sense of sadness—and it is a sadness—that I have about the educational approach of this Government. There are many things about this Government, such as in prison reform and other areas, which I strongly support, but there is a genuine sense of grief about what is happening in secondary education in particular. I have been involved in policy for quite a long time, as have many in this House—in my case since 1971, when I was a civil servant—and I know that very few important things are ever achieved by Governments unless they are persisted with for decades. It is utterly ludicrous, for example, to suppose that the underlying growth rate of a country can be changed in a year or two, or three or possibly even 10. You only have to look at the long-term trends to see that. The same is true of the NHS, for which I once had the privilege of being Secretary of State. Any reform of that great leviathan needs a decade, probably, of consistent working, across party, in the same direction to make any real change. The same is true of education.

The miracle was that it was thanks to visionary Ministers on both sides of the Houses. I name the noble Lord, Lord Adonis, Mr Nick Gibb, my noble friend Lord Baker and Mr Michael Gove. I could also name many who spoke in the debate last week, including the noble Lord, Lord Harris, and many others, such as our new Member, the noble Lord, Lord Young of Acton, who have taken part in the establishment of academy chains and free schools and, more important than the details, the establishment of a more or less bipartisan approach to education over the last 20 years or so.

The biggest element of that—I will not repeat last week’s debate, which I found very moving—has been the spread of academy chains, with their freedoms and drive. I name, for example, the one with which Eton was in close co-operation, Star Academies, which emerged out of Blackburn with a great deal of help from Mr Jack Straw, under the brilliant leadership of Hamid Patel, now rightly Sir Hamid. It is a quite extraordinary academy chain, and there are many others like him. Since that debate, we have had the added voice of the Children’s Commissioner making the same points that so many made last week, and from different sides of this House.

That was the main plank of the bipartisan approach: the spread of academy schools and the release of extraordinary energy, originality and social entrepreneurship of the best kind in so many schools. A lesser but not trivial plank of the bipartisan policy was the chivvying and pressing of those private schools with charitable status to work with the public sector to exchange expertise—both ways, I have to say—and to develop an educational ecology, if you like, in Britain where the two sectors work together for mutual benefit.

I was chivvied as provost of Eton by the noble Lord, Lord Adonis, who rang me up and said that I had such a distinguished governing body that I should jolly well get on with it and sponsor a new free school—and we did. We became the academic sponsor of, and in various other ways sponsored, Holyport College, the first new state boarding school for many years. I was chivvied peremptorily by my noble friend Lord Cameron, who, as Prime Minister, sent for me to come to Downing Street at a moment’s notice. I was allowed to park my car on Horse Guards Parade; it was very smart. So we went faster: we were one of the partners in the London Academy of Excellence, that outstanding school in Stratford East, which has created an ecology there that other schools, such as Brampton Manor Academy, have now followed. They compete with it; some are doing even better, which is wonderful and everything we hoped.

Eton was in the process of proposing, with Star Academies—maybe it will still happen; I pray that it does—similar schools to the London Academy of Excellence in Oldham, Dudley and Middlesbrough. Our analysis, with the help of people in those localities, was that GCSE results there were perfectly good but there was not good passage into top universities. Statistically, there must be just as many people in Middlesbrough who deserve to go to Oxford, Cambridge or King’s, and all the other great universities that we have, but they were not getting there. In our school, we really know nothing about and could not contribute to one of the other great things that needed to be done—my noble friend Lord Baker is the great leader on this—of spreading better technical education. But we knew that we could help with getting clever people into really good universities, and that is what we proposed to do.

All this kind of partnership is now put under threat. That is what is so sad; it genuinely saddens me. It is not easy to find many areas of our national life where we have been outpacing our many competitor countries, such as France, Germany and the United States, over the last 20 years, but in the PISA tests and other tests we have been. It has not always been upwards, but it has been compared with what they have done, so we have outperformed them. Now backwards we go towards the old days, with academies threatened with being robbed of some of their crucial freedoms, and Britain the only country that I know of seeking to drive a wedge between private and public, by making independent education subject to tax. I think we are virtually alone in the advanced world on that.

I come in particular to the effect of the taxation of charitable schools, which is removing from charitable schools their rating relief and charging the parents VAT. Then there is a sort of hidden tax of the Teachers’ Pension Scheme, which is unfunded. State schools are reimbursed for it, so the Treasury can really put any number it likes on it. It is another source of taxation on those independent schools which have teachers in that scheme.

This divide will get worse. First, of course, the charitable test goes back to a great judgment of that wonderful and famous jurist of the latter half of the 20th century, Lord Wilberforce. His seminal judgment said that there are plenty of charities that have to charge fees. His judgment was actually attached to a supplier of medical scanners, which charged fees, but he said that the test is not whether you charge fees—plenty of charities do that—but whether you make what you provide available to enough people who cannot pay the fees.

The first thing that the charitable schools will have to do with this additional taxation burden is to withdraw everything back into the bursary provision. I have nothing against bursary provision; Eton has spent more than £10 million a year on bursaries, to the great benefit of the school and, I hope, the pupils who benefited from them. That will be the first place where schools will have to put the money. Everything will have to go back into that, because the Charity Commission does not give direct credit for outreach or partnership things; it should but does not. The bursaries will have to come first. For many schools, including Eton, which is one of the richest, the search for economies to try to protect parents as best they can in future, and to protect the bursaries, will lead them to say, “We can’t really do so much of the other side of the thing that Lord Adonis and co. were rightly chivvying us about”.

The paradox here is that one of the Back-Benchers on the government side in the House of Commons said, “Oh, these things are just businesses like any others”. Well, there are schools that will be “just businesses” over which the Government and society will have no control at all, and there will be more. In the half of independent schools that are charitable, we have a whole structure of regulation to ensure that we carry out social benefit but we will have schools, like in America, France, Germany and Switzerland, that have no particular social benefits at all. There are no levers for the noble Lord, Lord Adonis, or my noble friend Lord Cameron to pull. That seems to me really paradoxical; we will end up with a much wider division between that different kind of independent school and those that are charitable. Build on the charitable levers and pull them; I am sure that is the right approach.

Finally, the noble Earl, Lord Lytton, made a point that I have not seen much made elsewhere; namely, this is the first time, to my knowledge—I may be ignorant and probably am—that we have taken one little group of charities and aimed taxation at it. I wish people would not refer to it as a tax loophole or tax break. That is like saying that not having VAT on children’s clothes is a tax loophole. It was a decision taken, by all the countries of Europe and wider, that education, as a public good, should not be taxed. It was not a loophole. That is just shoddy language.

The danger of this is the precedent that is now being set. Imagine that an incoming, right-wing Government—perhaps too right-wing for me and led, goodness knows, by he who shall not be named—finds that some charity has just published a great paper, based on what this incoming Government says is out-of-date Marxist economics. It says that we owe the Republic of India £23 trillion, so is called inconvenient nonsense, being Marxist and so on. That Government might say, “Look at that charity: they’ve got shops all up and down the high street. Let’s take their rating relief away”. This is setting a precedent which will be used by others. The Bill’s supporters will be to blame for it, and they really might want to think again about that.

I was Chief Secretary to the Treasury once, a wonderful job where you get into all the nooks and crannies of government. Do not believe a word about the hypothecation of this taxation. The Treasury never hypothecates anything—it never lets you do that. That is just political flummery. We have done it in the past—everybody does it. The proof that it is not actually hypothecation is that if the Government do not raise the money they expect to out of this, which they probably will not, they will not change the policy or cut the number of teachers they say have been financed by it. That is just politics. It is bad principle taxation and it will do long-term damage. Above all, it is breaking up that consensus, and, my goodness, in this country we need more areas of consensus, not fewer.

19:10

[Lord Maude of Horsham (Con)]

My Lords, it is a great pleasure to follow my noble friend, and indeed the noble Earl, Lord Lytton, who is a neighbour of mine in Sussex. I had the pleasure of him being a constituent of mine, when I was a Member in the other place. He speaks with enormous authority on this subject. The issue around the multipliers, with which he dealt with great expertise and subtlety, is one of horrendous complexity, as he says, with many moving parts. I seem to recall that my noble friend Lord Waldegrave had at one stage the delight of being the Minister for Local Government and had to grapple with all these issues. I say to the current Minister that the Government would do very well to listen to the noble Earl, Lord Lytton, who speaks with such authority and credibility on this complicated topic.

I declare an interest. I would like to say that I am the provost of Brighton College—I like the ring of that—but I have to say, much more humbly, that I am the chair of governors of Brighton College, which is now the top performing co-educational school in the country. It is a charity, as most independent schools are, and it will suffer from the actions of this Government. I hope that Ministers will at some stage give up the fiction that this is about building up the maintained sector. As my noble friend rightly says, there is no hypothecation. There is no credible impact assessment of the effect of the removal of rates relief from educational charities of this kind. The amount of money that is purported to be raised—which is, I guess, very optimistic anyway—gets lost in the roundings of any Treasury arithmetic. We should be very clear, as my noble friend set out extremely eloquently, that this is not about building anything up but about pulling something down—something quite important that has a benefit for the country much wider than the benefit for those pupils fortunate enough to attend these schools.

My noble friend talked about, for example, the London Academy of Excellence. Brighton College was the principal driver of setting that up. It provides an extraordinary education for the most disadvantaged children from the most disadvantaged borough in the kingdom, and it would not have been done without the input, drive and innovation provided by independent schools, which are charities. That was part of the public benefit that charitable independent schools are rightly expected to provide, and while they continue to have charitable status they will continue to be expected to provide public benefit. But the “quid” for that very substantial “quo”—the public benefit—is being removed, not just through the removal of this business rates relief but through the imposition of VAT, as well as the much more widespread hit, as my noble friend says, of the increase in teachers’ pension contributions and the huge hike in employers’ national insurance contributions. It is not just a triple whammy for independent schools but a quadruple whammy, and that will have an effect.

It is not as though such schools are enriching anyone. They are, by definition, schools that are not for profit—that is what a charity is. I think of a school, lamentably little known but actually an incredible national treasure, called Christ’s Hospital. Again, I had the pleasure of representing it in my constituency of Horsham. It is an extraordinary school, completely unique, with a huge endowment greatly supported by the City of London Corporation and livery companies. It is genuinely needs blind. It selects children, but on the basis of those who come from the most disadvantaged families, as long as they meet a minimum ability standard. Those who need the help most are the ones admitted. Christ’s Hospital will be hit by this quadruple whammy. The public benefit is not just what a school such as Christ’s Hospital provides outside; it is manifest in what you might call its day job.

We should be very clear that this is not about building up maintained schools, which we all want to do and which has been done, as has been said, through an extraordinarily long-term consensual bipartisan approach, not just since the Blair Government but before then, which has had great results. The PISA rankings—which do matter—have risen remarkably in England. England has raced up the rankings, in stark contrast with Scotland and Wales, which have not had the same consensual and benign approach.

Such an approach is about creating difference and allowing innovation—allowing great leaders of schools, academies and free schools to innovate and create not so much competition as emulation, where other schools can see what can be done and can follow and build on that. It is the opposite of the bureaucratic approach of “uniformity must rule”; it is about saying that you can innovate and do things differently, and that that will benefit others as well. It is a great shame that that approach has been abandoned. It will do harm to children going to schools now and in the future, because the public benefit that comes from it will be diminished over time.

On the very day the Chancellor of the Exchequer has been expounding the benefits of economic growth and how important it is that we do everything to support it, it is important to make the point that independent schools are internationally renowned earners for this country, through young people from overseas coming to schools in the UK and through the growing number of schools overseas that take the names of great UK schools and are created in their image. There are clearly soft power benefits but also hard currency earnings. At a time when we are told that everything must be done to support growth, in this sector, where there has been growth, innovation, investment and excitement—not just obviously, or even mainly, in the independent sector but supported by the independent sector—the Government are talking the talk but walking in a different direction.

The Government would do well to think again on this. Much that this Government have done since they were elected in July has had the hallmark of not being well thought-through. We are all conscious of the law of unintended consequences, but a lot of the consequences that will flow from Clause 5 of the Bill are, I suspect, not wholly unintended, and are the more to be regretted for that.

19:20

[Lord de Clifford (CB)]

My Lords, I join other noble Lords in sending my condolences to the noble Lord, Lord Khan of Burnley, and his family for their recent loss of a senior member of their family.

I express my interest in the non-domestic rates Bill. I wish the House to note my interest in the matter as a non-domestic rates payer for five properties as part of the veterinary business I manage. My knowledge of non-domestic rates is not as extensive as it could be, and certainly not as extensive as that of my noble friend Lord Lytton.

Non-domestic rates reform has been a topic of discussion for many years for businesses. High street retailers, pubs and hospitality venues have been part of my early morning walk, listening to business news while I walk my dog, for many years. Businesses complain about the financial burdens this tax puts on them. I welcomed the Treasury report Transforming Business Rates in October 2024 and the call for evidence from stakeholders by the end of March. Therefore, I feel that this Bill is the start of a transition on business rates reform, and it is certainly not the solution.

I commend the general direction of the Bill in providing a possibly clearer and more certain system for how non-domestic rates are calculated for businesses, as the current rate is confusing, complex and not guaranteed. Two multipliers are included for retail, hospitality and leisure businesses. They are lower than the standard multiplier and possibly apply to two bands of rateable values of up to £500,000, which is welcome. My reservation is that the maximum reduction of 20 pence or 0.2—however it is expressed—will give savings to the RHL sector, but there is no indication from the Government as to the possible level of the lower multipliers that will be announced in the Budget in the autumn.

I agree with the noble Baroness, Lady Scott, the noble Lord, Lord Fox, and my noble friend Lord Lytton that it is difficult at this point to estimate and predict whether these businesses will make a saving in the coming years. Can the Minister say whether an assessment has been made of how much lower the standard multipliers would have to be to ensure that small businesses end up paying less or similar amounts of business rates than they currently pay, including the current reliefs that have been in place since the pandemic? I am aware of one leisure business that is already looking forward to 2026-27 with no indication of any relief expected. It is budgeting for a substantial increase in its non-domestic rates bill of thousands of pounds. As a result, it is looking into how to it can absorb those costs.

I welcome the addition of the higher multiplier for properties with rateable values of over £500,000, which is around 1% of the properties charged business rates. What proportion of the 1% are high street shops? These large shops are vital to our city centres, high streets and shopping centres as they attract great numbers to those locations. If this additional cost burden is too great for these large shops, it could have the opposite effect from the one the Government desire of trying to keep the high street alive.

I thank the Minister’s team for the briefing on the Bill last week and the confirmation that it is intentionally meant to be fiscally neutral, with the only additional funding coming from the removal of rate relief for charitable private schools. I have a concern about the removal of the relief. As expressed in the other place, although relief is being given to schools in which over 50% of their young people have an education, health and care plan, some schools that are charities and educate people with special educational needs do not have EHC plans in place for some of their students. If a school has a large number of these pupils, it may not qualify for relief. Those schools will see a significant cost added to their ever-increasing cost burden.

For families that send a child to these schools, this will add a financial burden. They already face certain challenges and need the extra support of these schools to ensure that the child is educated and can fulfil their potential in life, both at home and in the workplace. Has any further evidence been ascertained on the number of schools that provide education to SEN pupils but would not be eligible for the relief that will be removed?

I listened with interest to noble Lords’ many comments and contributions to this debate and to the issues raised. I look forward to contributing further at the next stage.

19:25

[Lord Lexden (Con)]

My Lords, I continue the discussion about independent education. I do so with some temerity in view of the fine speeches made by my infinitely more distinguished noble friends in this debate.

I declare my interest as former general-secretary of the Independent Schools Council and the current president of the Independent Schools Association, one of the council’s constituent bodies, which has just under 700 member schools. Most of them are small in size, operating on tight budgets without any reserves whatever. They are dependent on fee income which, in some cases, can be as low as £3,000 per pupil a year. The council—the chief representative of the independent education sector—acts on behalf of some 1,400 schools. They are immensely diverse in character and are educating with marked success around 80% of the 600,000 children in the independent sector. No responsible Government would seek to make life difficult for these flourishing schools, some of world renown. Yet severe difficulty is exactly what this Government are creating for them.

This Bill continues and extends the Government’s attack on independent schools—one that recognises no distinction between the very varied types of school in the independent sector of education. The Government treat them as it they are all the same and all equally capable of shouldering the new financial burdens, each one of them unprecedented in character, that they are inflicting on independent schools in quick succession. Perhaps the Government believe that all independent schools can somehow find the means to pay their unprecedented financial exactions. If they believe that, they are putting hostile prejudice before reality.

Over 1,000 independent schools, 40% of the total in England, have fewer than 100 pupils, according to the Department for Education’s figures. Is it not obvious that these numerous small schools will suffer particular hardship as a result of the unprecedented financial pressures the Government are piling on them? Some will go under. Evidence is accumulating. The Independent Schools Council will ensure that all of it is placed prominently before the public.

This will add to what is already known. A revealing short debate on Monday, introduced by the noble Lord, Lord Morrow, brought to our attention the sharp fall of no less than one-third in the number of prep schools in Northern Ireland after Sinn Féin made them pay VAT. It is well known that Northern Ireland has some of the best schools in the country, achieving spectacular exam results. It is deplorable that their number should have been reduced by a VAT burden.

On 1 January, just four weeks ago, the Government slapped VAT at 20% on all independent schools, having given them no more than a few months to rework the budgets they had already drawn up for the current school year. It was a terrible thing to do. As they endeavour to come to terms with Labour’s new education tax, independent schools must now prepare for two more financial burdens: the increase in national insurance contributions and the full payment of business rates for the first time ever under the terms of this Bill. Independent schools face a threefold assault from this Labour Government—an assault carried out in just six months.

The Government rejoice that, through this Bill, they will end tax breaks. What do they mean by this? Presumably, they want us to think that they are taking away from independent schools exemptions from taxes that they did not deserve in the first place but somehow managed to acquire. It is absurd. There are no special arrangements which have hitherto enabled independent schools to get out of paying taxes. They have shared with all other providers of education services exemptions from VAT. Those schools which are charities have, until now, shared in the tax arrangements that cover the charitable sector as a whole.

This Bill will create a two-tier charity system in our country, with independent schools in the bottom tier, where other charities may join them in due course as the Government find fresh targets to hit. This Bill will establish for the first time that charities that the Government do not like can be stripped of their charitable treatment even while they comply with their obligations and serve the community at large through work of great public benefit. For independent schools, public benefit work increasingly takes the form of partnership with state school colleagues, as we have heard from my distinguished noble friends. Up and down our land, the two education sectors work together in thousands of partnership schemes.

The increased costs the Government are inflicting on independent schools will endanger that invaluable work. Remarkably, the Bill will inflict grave damage on independent schools without raising significant revenue. The Budget documents estimate that some £70 million will be raised in 2025-26—just 0.1% of the core schools budget. Could there be any clearer evidence of the Government’s hostility to independent schools? Is this, by the way, the first legislation to substitute “private schools” for “independent schools” in its wording? Over the last 30 years or so, the habit has grown up of referring to independent schools as “private” schools. It is in an informal, everyday term. “Independent” is the correct, formal term. Why are the Government now abandoning it? The education department has always registered schools outside the state sector as independent schools. The department has an independent schools division. Should not legislation respect formal, correct usage?

It will be evident that my chief concern is the damage that this Bill will do to small schools, which abound in the independent education sector, as a result of a threefold financial assault being made on them at such speed. I think of the 20,000 children who attend independent Muslim faith schools, charging pupils on average £3,000 a year. I think of the 20,000 children at the United Kingdom’s 80 independent Jewish schools. Their representatives said last month that they

“cannot absorb the cumulative financial pressures”,

adding that

“it is likely we will see a significant proportion”—

of children—

“being left without a school to attend. Many will be left with no alternative but to be educated at home”.

I think of the many wonderful schools making superb provision for children with both complex and more moderate special needs at a time when the state SEND system is in such deep trouble. About 100,000 families will have to pay more as a result of the Government’s tax increases. A number will be driven into the broken—the Government admit that it is broken —state SEND system, unless the tax rises are eased.

There will be much to consider in detail as we move to the Committee stage of this unfortunate Bill.

19:33

[Lord Jamieson (Con)]

My Lords, I also pass on my condolences to the noble Lord, Lord Khan of Burnley, and his family.

While I understand the strategy of switching the burden from bricks and mortar retailers to internet retailers to support our high streets, I think this is far too blunt an instrument. I agree with my noble friend Lady Scott of Bybrook that increasing NNDR on large businesses risks damaging some of our key high street retailers, particularly anchor stores, high street cinemas and leisure, that help drive footfall. However, I would like to speak about the wider impact on growth of these measures.

This morning, the Chancellor talked about the Oxford- Cambridge arc as Europe’s Silicon Valley. I declare my interest as a councillor and former leader in central Bedfordshire, which is at the centre of that arc. I agree with the Chancellor about the potential of the arc to support economic growth and improve jobs, but this needs to be nurtured and not taxed. In central Bedfordshire, we have many world-class businesses, such as Lockheed Martin, Millbrook Proving Ground, MBDA, Nissan and Cranfield University—not to mention the potential of Universal Studios coming to our area. All of them will see significant increases in their NNDR.

As a councillor, I worked hard to support the growth of these and other businesses, yet in the past few weeks, talking to local businesses, they have made clear to me the headwinds that they are facing from national insurance increases, employment rights and changes to minimum wages, which have led them to review some of their growth plans. A potential 20% increase in NNDR risks being yet another nail in the coffin of growth, not only in central Bedfordshire—I use that as an example—but across the country.

One of the many attractions of Bedfordshire for international companies and their international staff is the excellent Bedford Harpur Trust schools, notably as they provide the international baccalaureate. Yet, here again, we see the impact of government policies of charging VAT and increases in national insurance and, now, NNDR—to that I will add the pension issues raised by my noble friends—making this option much less attractive for those businesses and their employees.

We have also previously raised the important role private schools provide for those with SEND. Just this morning, I had a council leader raise with me the issue of a parent who had sent their child to a private school and now, with the additional cost of VAT, they are seeking an EHCP so that that burden will now fall on the local council to pay the fees. Again, adding NNDR will only exacerbate this trend.

Finally, I want to touch on the hospitality and leisure sector, which will lose its discounts this year. While many small businesses will benefit from the proposed NNDR changes, larger local businesses such as Center Parcs and Woburn tell me that they will face the double whammy on NNDR, in addition to the impact of national insurance, extension of worker rights and minimum wage increases—yet more headwinds to growth. This is a Government who are focused on growth yet they seem to think more about taxing growth.

As I said earlier, this is too blunt an instrument. There is no clarity on the business rate multipliers and two little information on the impact. I ask the Minister whether the Government will commit that there will be no net negative impact on council finances from these measures and what the impact of the measures will be on high street businesses, businesses in general, jobs and economic growth.

19:37

[Baroness Pinnock (LD)]

My Lords, I hope I am okay in asking the Minister to pass on my condolences to the noble Lord, Lord Khan of Burnley, and his family at this particularly sad time for them all.

I remind the House of my relevant interests as a councillor and as a vice-president of the Local Government Association. As my noble friend Lord Fox has indicated, a radical overhaul of taxation of business properties is long overdue. Successive Governments have tinkered with the multipliers and valuation periods. In addition, the increasing discrimination of the system against town centre businesses has been recognised and the response has been in the shape of various levels of relief. All that demonstrates, however, is that the non-domestic ratings system is no longer fit for purpose. The Government have admitted that to be the case. Unfortunately, this Bill does not address fundamental reform— at which point, I commend to the Minister the Liberal Democrat policy of a commercial landowner levy; I am sure she will read that with interest.

However, the Bill makes a small step in the right direction by attempting to make a significant change to the balance of rates paid by some small businesses, with a larger share demanded, rightly, of the warehouse distribution sector.

What it fails to do is assess the impact of those changes with the loss of relief that is also proposed. As the noble Earl, Lord Lytton, and my noble friend both said, you cannot deal with one without dealing with the other, and it is very difficult to assess what changes these proposals will make.

We on the Liberal Democrat Benches have long argued that online retailing should have business rates comparable with those of small businesses in town centres. The Bill proposes that retail, hospitality and leisure businesses based in town centres—whatever that means—should have a multiplier that is up to 20p in the pound lower than it is now. The Government’s argument is that these changes will help to support small businesses in local centres and encourage the community and economic value they provide. However, this change is restricted to a sector of businesses located in town centres. Can the Minister first provide a definition of them? I believe she did say, in her opening speech, that a definition of retail, hospitality and leisure businesses will come later. To be frank, I do not think that that is acceptable when we are being asked to understand changes that are going to be made, yet we are not sure of a clear definition of those businesses. Do they include, for instance, council-run indoor markets? Those are retail businesses in town centres: my understanding is that they might be excluded. I would love to know from the Minister, because for me it is an important question.

Can the Minister say why professional businesses in town centres are not able to benefit? Solicitors and accountants are at the heart of the commercial operation in small towns, as are post offices and doctors’ surgeries. If the aim is to support our high streets, all these businesses should be included.

Many local centres also include small manufacturing businesses of various sorts, which provide local employment and are often the source of innovation. Can the Minister explain why these businesses in town centres are excluded? How much better it would be to have a blanket of small businesses in town centres all being part of this reduction in the multipliers.

Out-of-town warehouse distributors have long had a competitive advantage over their bricks-and-mortar counterparts. The Bill proposes that the multiplier for these businesses should be up to 10p in the pound greater than it is now. However, the Bill fails to link the valuations of these warehouses compared with to those in small centres. I think I have quoted this before in your Lordships’ House, but an Amazon warehouse in South Yorkshire is valued at around £25 per square metre, whereas a small shop in my town centre has a valuation of £250 per square metre. That is at the heart of business rates because, if those do not change, tinkering around the edges with multipliers will still leave disadvantages for town centres. That is at the heart of the problem we would seek to address in order to redress the balance between online retailers and those in our town centres.

The other issue concerns larger stores, often located in large town centres, and out of town retail centres. It would be interesting to know how those will be judged in this new Bill. Will they be in that 1% or not? If they are, that will put the business model of some of them in jeopardy. The basis of the valuation of rental values makes life very difficult. Can the Minister explain why it is that, despite the number of empty shops in many towns, the rental valuation does not appear to be on the same declining path? My noble friend had a potential answer to that question when he said that the problem is that properties in many market towns are increasingly owned by a single owner. Certainly, in my local small town, most of the properties are in the ownership of two people, and that makes competitive rental values difficult to achieve. I am sure that the Minister will ask her officials about that.

I am very grateful to the noble Lord, Lord Khan, who I met, and his officials for their time in understanding the impact of all these changes, but the main question I had was not satisfactorily answered, I am afraid. It was, “Where is the impact statement?” I was told that, because impact assessments are not published for tax changes, there was not going to be one, but the Government must have done their sums, so let us see them. Otherwise, we cannot understand. We are all making estimates of the various moving parts, as various noble Lords have said, and how those are going to change. The Government must have done those sums, so it would be really good if they would share them and, if the Minister cannot share them today, perhaps she will be able to before Committee.

I will move on. It is also vital that councils know what the impact will be on business rate income, as that contributes a very large slice of funding for local services. I was told that the overall impact will be neutral, but, in her opening speech, the Minister suggested that, although the overall impact would be neutral, it would be difficult to ensure that no council loses out by these changes. Actually, as I know the Minister understands, every pound for a local council is now critical, so, again, I hope she will be able to find the answer to that before Committee.

I will move on, I think. The other major sector of the Bill is about private schools, about which we have heard various noble Lords speak this afternoon. As we know, it removes the business rate exemption for those schools which are charities, and Liberal Democrats are opposed in principle to the taxation of education. I think in particular of the 100,000 or so children with SEND in private education without education and healthcare plans. Those families will be hit hard by the proposals in the Bill when they are already facing more challenges than most of us. Private education provision has already faced the introduction of VAT and the NIC increases on employers. The removal of business rate exemption is the third financial hit in as many months. Well-endowed private schools will weather the financial storm, but others may not, resulting in increasing pressure on state school places.

In conclusion, this Bill is a small step in the right direction, but it fails to assess all the moving parts. As many speakers have said, the Government should think again about the exemption of relief to private schools, and we urge the Government to rethink the totality of the impact of the Bill on business.

19:50

[Baroness Barran (Con)]

My Lords, I would like to add to the noble Baroness’s list of messages to send to the noble Lord, Lord Khan, and his family. I send my very best wishes to them at this time.

I listened very carefully to the speeches made by your Lordships this evening. I am struck by the range of concerns expressed across the House, based, as they appear to be, on a lack of transparency in the Bill and the number of moving parts. In fact, the clarity is so absent that my noble friend Lady Scott and the noble Lord, Lord Fox, ended up with very different analyses of where the impact of the Government’s proposed changes will fall.

The Government are rightly focusing on much-needed growth in our economy, and I do not doubt their commitment to achieving that, but there is a lack of alignment in the actions that they have been taking in order to deliver on that aspiration. This Bill comes after the harmful decision to increase employers’ national insurance and ahead of the impact of the Employment Rights Bill—one where, as the noble Baroness knows, the Regulatory Policy Committee has been deeply critical of the Government’s impact assessment, deeming it not fit for purpose and, crucially, stating that the cost to business will be higher than the £5 billion forecast by the Government. My noble friend Lord Jamieson was spot on when he said that businesses needed to be nurtured and not taxed.

I echo the concerns of my noble friend Lady Scott of Bybrook and other noble Lords. This Bill does not achieve what the Government committed to in their manifesto—namely, the reform of the business rates system: as the noble Earl, Lord Lytton, said, quoting again,

“the levelling of the playing field between the high street and the on-line giants”.

Since the Bill does not do that, it would be helpful to the House if the Minister could explain why.

We are, as the noble Lord, Lord Fox, and other noble Lords have said, once again having to respond to a Bill which does not give us clarity on how it will work in practice and what its impact will be. There has been no proper consultation with businesses, no impact assessment on Clauses 1 to 4 and no clarity on what the business rate multipliers will be. The Minister explained the technical reasons why the latter is the case, but I think—and hope—she could be sympathetic to some of the questions that have been posed to her across the House. If the Bill becomes law without amendment, it will give the Government powers to set business rates multipliers without clarity on how those powers will impact on businesses.

Therefore, can the Minister give the House a forecast for how these proposed changes in business rates will affect council budgets and the revenue they receive, and the revenues to the Exchequer? Ideally, as my noble friend Lady Scott asked, we would like an explanation before we reach Committee. Do the Government have an official estimate of the impact of these measures on jobs? As the noble Baroness knows, retail alone employs 5 million people. She will have seen the forecast from the Centre for Retail Research projecting that more than 17,000 shops are expected to close this year.

It would also help if the Minister could give the House more clarity on the impact on different categories of businesses. We have heard concerns about pubs, leisure centres and anchor stores in high streets. We know that the reduction in small business rate relief from 75% to 40% will have a big impact on many of those businesses, with hospitality, leisure and retail paying just over 30% of all business rates, much larger than their contribution to GDP overall.

We also heard concerns from the noble Earl, Lord Lytton, about the impact on local authority schools, hospitals, police stations and, potentially, our universities. The Minister will have seen calls from the Local Government Association for further clampdowns on business rates avoidance, and I wondered what the Government plan to do to respond to those. The LGA has also called for more flexibility for councils on business rate relief in relation to charities and empty properties and the ability to set their own multipliers, either above or below the national multiplier. My assumption is that that is a reflection of how they feel that they have a real understanding of their local situation and pressures, and want to be able to respond to those. Again, it would help if the Minister could respond to that.

I hope very much that the Minister, who I know does listen, will listen to those concerns from across the business community: from the Association of Convenience Stores to major retailers such as M&S and Sainsbury’s, from leisure centres to hospitality businesses, and from universities to the public sector.

Turning to Clause 5, I thank my noble friends Lord Waldegrave, Lord Maude and Lord Lexden in particular for their extremely eloquent and heartfelt arguments in favour of a more generous and collaborative approach. Certainly, I can speak personally from my time in government and say that we tried to emphasise and encourage more collaboration, and more contribution from independent schools. Now, when faced with a new schools Bill from the Government, we would argue that the flexibilities that have unlocked so much energy, as we heard from my noble friends, in preschools and academies, should be given also to maintained schools.

I went to see the most wonderful primary school—if anybody is in Oldham, I would recommend a visit—last week. It is a maintained school, but it is achieving what it is achieving despite its maintained-school status, rather than because of it. It cannot have all the flexibilities, in terms of timetabling and length of school day, that it would have if it were an academy.

The broader picture for independent schools, as we have heard, feels like continued attack, with the decision to apply VAT to fees part-way through the school year, and now the decision to remove their entitlement to business rates relief for those with charitable status. As we have also heard, schools are also hit by the rise in national insurance contributions and by the increased contribution to the teachers’ pension fund. It is hard to understand this decision in anything other than ideological terms. As we have heard, it does not raise significant sums of money: £70 million out of the £1.8 billion which the Government hope to raise from VAT and this proposal. The same change is not being proposed for stand-alone nurseries, but it will impact nurseries that are part of an independent school. As we have heard from other noble Lords, this seems a curious way, at best, to approach charity law. It will, as we have heard, create a two-tier charity system in which some charities can be disadvantaged fiscally, even when they comply fully with their charitable obligations and serve their communities.

Secondly, we are very concerned about the displacement into state schools of some pupils who are currently in independent schools, particularly those with special educational needs and disabilities. I understand that the Government have estimated this number to be just under 3,000 pupils. As I mentioned to the Minister when we met earlier this week, the national figure is not so important. What is important is what is happening in those local authorities that really have no spare places: in areas such as Surrey or Bristol or, as my noble friend Lord Lexden said, in areas such as Bury and Salford, where small, low-cost faith schools will be hit by this move.

How are local authorities in these areas going to accommodate children whose parents can no longer afford to send them to an independent school, and now need a place in the state system? Where is the capital funding going to come from to pay for these places? There are normally long lead times on pupil-place planning for a good reason; children cannot be accommodated well at very short notice.

While these specific measures will have a relatively small effect on displacement into state schools, we need to be clear that there will still be some displacement, and that is a cost to the state. More importantly, when it comes to individual places, it will be a strain on class sizes in some of our local schools and, ultimately, on parents’ prospects of getting the first-choice school they want their child to go to.

The Minister will know that we are particularly concerned about children with special educational needs and disabilities in this context. Some parents have felt they want their child to be educated privately and have made great financial sacrifices to do so. They have not sought an education, health and care plan because they do not want their child labelled in that way, and some of these children will now enter the state system and put more pressure on stretched SEND teams. What support will the department give to schools and trusts to make this workable? Will it commit to monitoring these moves and reporting on them, including any funding and placement challenges for local authorities, as the LGA has requested?

More broadly, all around the country, independent schools are involved with their local state schools, working in partnership, sharing resources such as swimming pools, theatres, academic staff and more. Have the Government assessed the impact on state schools if it becomes impossible for independent schools to continue these partnerships, as my noble friend Lord Waldegrave explained, having to focus rather on retaining bursaries, in line with their charitable objectives?

Of course, we welcome the carve-out for schools that wholly or mainly educate children with an education, health and care plan, but I would be grateful if the Minister can confirm how many schools this applies to and how many children are educated there.

This Bill raises many more questions than it answers. Maybe one could generously say that the Government’s direction of travel has been sketched out; the detail along the way certainly has not. While the Government talk about importance of certainty, businesses are not getting certainty with the Bill, apart from, of course, charitable independent schools, where the misguided decision to tax some parts of our education system is all too clear. I appreciate I have asked the Minister many questions. I look forward to her reply, but if she is not able to answer all of them, I would be grateful if she could write.

20:03

[Baroness Taylor of Stevenage (Lab)]

My Lords, with the leave of the House, I rise to close the debate. I thank all noble Lords who have taken part in the debate. The great strength of your Lordships’ House is the hugely knowledgeable and informed debates we have, and this has been a great example, with experience from across sectors such as business, education and many other areas—even veterinary practices—so I am very grateful to noble Lords for their contributions. They have demonstrated their enthusiasm and interest for our high streets, the important role they play in our local communities and the small businesses that are their lifeblood, and for ensuring that all children are able to receive a high-quality education. There is certainly consensus on that, if perhaps not on the means of achieving it, but there is a consensus that every child deserves to have all the opportunities that should be available to them.

I will make a few general comments on remarks made by noble Lords, and then I will attempt to answer most of the questions, but I expect I will run out of time long before I get there. I assure noble Lords that anything I do not get to, I will reply to in writing.

Both the noble Baronesses, Lady Scott and Lady Barran, referred to the overall policy, in relation to some of the really tough decisions we have had to take. I understand that these are tough decisions and why people think they are. However, yet again in this House we have had a bit of a swerve around the reason why those decisions were necessary; it is the inheritance we picked up when we came into government. We have to balance the books and get the fiscal picture straight so that we can deliver the reform to public services that we want to see, and tackle some of the cost of living issues that everybody faces.

I have another general comment on a point raised by a number of noble Lords. The Bill is not intended to achieve the comprehensive reform of business rates that we have set out as our intention. We are working on it and there is a consultation paper out at the moment, and I hope all noble Lords who have contributed this afternoon—and anyone else who has an interest in the business rates system—will make a contribution to the ongoing work on business rates. Having been a councillor for many years and listened to many complaints from both the public and private sectors about how business rates operate, I am in no doubt that we need comprehensive reform.

I hope that has picked up some of the general points and I will turn now to the specific points that noble Lords made.

There were, rightly, a number of questions regarding the impact of the proposed new multipliers. The noble Baronesses, Lady Scott, Lady Pinnock and Lady Barran, and the noble Lords, Lord Fox and Lord de Clifford, all mentioned this issue. As I explained in my opening speech, the actual tax rates to the new multipliers will be set at the 2025 Budget, taking into account the effects of the 2026 business rates revaluation, which we have to do, as well as the broader economic and fiscal context at that time. It is for my right honourable friend the Chancellor to make those decisions at the right time. Tax policy and legislation are not subject to the same requirement for an impact assessment that accompany other non-fiscal policy decisions. Nevertheless, the Treasury is committed to publishing an analysis of the effects of the new multipliers at Budget 2025, taking into account the broader factors that I just mentioned. I hope I set out clearly in my opening speech why we need to take these steps.

On the VOA and its property rateable values, which were mentioned by the noble Baroness, Lady Scott, the noble Lord, Lord Fox, and the noble Earl, Lord Lytton, on 5 February the VOA will publish an ad hoc release relating to properties with a rateable value of over £500,000. That will provide a breakdown by category of property type by local authority for all those properties with a rateable value above and below £500,000, so we will be able to see clearly which properties are impacted by which parts of this reform.

On the issues around the multipliers policy approach, I have heard the message that noble Lords may think this is a blunt tool for dealing with this matter—the noble Baronesses, Lady Scott and Lady Pinnock, the noble Earl, Lord Lytton, and the noble Lord, Lord Jamieson, mentioned this. The permanent tax cut for retail, hospitality and leisure properties, including those on the high street, from 2026-27, will ensure that much-needed certainty and support. That tax cut has to be funded, so we intend to introduce that higher rate on the most valuable properties. The Government’s view is that it is the fairest approach to ask all properties with a rateable value of £500,000 and above to pay a higher tax rate to support the viability of our high streets. It is the fairest way and, as I said in my opening speech, the higher rate will apply to less than 1% of all properties, and we will know which those properties are once the VOA has published its assessment.

The noble Baronesses, Lady Scott and Lady Pinnock, raised the approach being detrimental to anchor stores. I understand the concern around this. Unfortunately, we lost our Marks & Spencer store in Stevenage town centre; luckily, we managed to attract it back, and it is operating there very successfully, and it is much appreciated by our residents.

The Government intend to introduce two permanently lower tax rates for retail, hospitality and leisure properties, which will give certainty. I understand concerns that the higher multiplier may catch some of the largest and most valuable retail businesses. However, we think that the fairest approach is to ask all properties above £500,000 to pay that. This is a property tax, so whether large stores are based on the high street or in retail parks, it will still have the same impact. I remind noble Lords that the upper rate will impact on only 1% of businesses.

Retail, hospitality and leisure relief was extended year by year by previous Governments, but it has been a stopgap measure. The noble Baroness, Lady Scott, and the noble Lords, Lord Fox and Lord Jamieson, raised the issue of our process being a temporary measure. This is a permanent measure which will give certainty to those businesses. Before the intervention we are taking now, retail, hospitality and leisure relief would have ended entirely in April 2025, creating a cliff edge for those businesses. We have decided to offer that 40% discount to retail, hospitality and leisure properties up to a cash cap of £110,000 per business in 2025-26. By extending that retail, hospitality and leisure relief instead of ending it entirely, the Government have, for example, saved the average pub with a rateable value of £16,800 more than £3,300. We are doing our best to support the sector, in spite of the difficult fiscal picture that we see.

On wider business rates reform, raised by the noble Lord, Lord Fox, the noble Baroness, Lady Pinnock, and many other noble Lords, the discussion paper has been published. It builds on our plans announced at the Autumn Budget to support high streets by further highlighting areas for reform, incentivising investment and modernising the system so that it is fit for the 21st century. A number of noble Lords mentioned business rates avoidance. We will shortly publish a consultation on adopting a general anti-avoidance rule for business rates in England.

The noble Lord, Lord Fox, raised the issue of the small business rates relief which is in place to support all of our small businesses. I want to highlight that that provides 100% relief to small businesses which occupy only one property with a rateable value of £12,000. A taper of relief down from 100% is available to such ratepayers with rateable values up to £15,000. That scheme ensures that over a third of all properties, or about 700,000 ratepayers, are not paying any business rates at all. The Government have no plan to remove small business rates relief, which is permanent and set down in legislation.

The noble Earl, Lord Lytton, raised the issue of business rates being too high overall and I understand those concerns. We all know only too well that economic and fiscal stability is critical to business confidence. At the Budget, the small business multiplier for properties with a rateable value under £51,000 was frozen at 49.9p, meaning that, together with the small business rates relief, over 1 million properties will be protected from a 1.6% inflationary increase.

The Budget honours the manifesto commitment not to raise corporation tax. The UK has the lowest corporation tax in the G7, the joint most generous plant and machinery capital allowances in the OECD, and the joint highest uncapped headline rate of R&D tax relief in the G7 for large companies. I will come on to the noble Earl’s other points later, but I thank him, as usual, for his expertise, which we experienced during the levelling-up Bill and have once again had the benefit of this afternoon.

Supporting the high street and the broader government approach was mentioned by a number of noble Lords, including the noble Baroness, Lady Scott, and the noble Lord, Lord Fox. We are committed to rejuvenating our high streets and town centres. The measures in this Bill to introduce permanently lower tax rates for RHL properties will help, but they are only part of our work. In December, we introduced the high street rental auctions, a new power which allows local authorities to auction off the lease of persistently vacant commercial units. The new regulations will make town centre tenancies more accessible and affordable for businesses and community groups, while helping to tackle the vacancy rates on our high streets.

In addition, through the English devolution Bill we will introduce a new strong right to buy for valued community assets, such as shops, pubs and community spaces. That community right to buy will give local people the power to purchase community assets that go up for sale, helping to keep assets in the hands of the community. I have seen the great benefit of this in the Station Pub, in Knebworth, which the community has taken over and made a great success of. Like the pub mentioned by the noble Lord, Lord Waldegrave, it is a great place, and if noble Lords are ever in that area, they should visit. The Government continue to invest in a number of initiatives to boost town and city centres, including our high street accelerators. As part of our plan for change, we are working hard to support our high streets, and the measures in the Bill are part of that.

I thank all noble Lords for their comments on private schools, and in particular on special educational needs. The noble Baroness, Lady Scott, and other noble Lords mentioned pupils who do not have an ECHP. I used to be the education spokesperson at Hertfordshire, so I am very familiar with the sometimes lengthy delays in obtaining EHCPs. The approach adopted in the Bill has sought to ensure that the impact on pupils with the most acute special educational needs is minimised.

The Government are aware that some parents may make a choice for their child to attend private school, but this is a choice, like that made by any parent using the private sector. For most pupils with a special educational need, support is provided within a mainstream state school, and all children of compulsory school age are entitled to a state-funded school place if they need one. We support local authorities to ensure that every local area has sufficient school places for children who need them, and that appropriate SEND support is available, if needed. I recognise the issues around obtaining an EHCP. I am concerned by what the noble Baroness, Lady Scott, said about stigma around obtaining an EHCP, and I will discuss that with my noble friend the Education Minister.

The noble Lord, Lord de Clifford, spoke about what will happen to pupils with an ECHP when a school loses its charitable relief. Business rates are a tax on property; it is not possible to differentiate at the individual pupil level. Where a private school has only a few pupils with EHCPs, it will lose its eligibility for charitable rates relief. However, where a private school has been named on a pupil’s EHCP, the local authority funds the pupil’s place. Therefore, in the event that a private school loses eligibility and chooses to pass through some of that additional cost to fees, these pupils and their families will remain unaffected. In private schools, including private special schools, just 5.7% of pupils have an EHCP, predominantly in private special schools, and 97% of such pupils have their place at a private school funded by their local authority. I hope that helps clarify that point.

The Government are committed to reforming our SEND provision overall to improve outcomes and return the system to financial sustainability. We have provided a £1 billion uplift in high-needs funding for the next financial year. We know that that will not solve all the problems, but it will make a start. As part of our plan for change, we want to make sure that we are doing our very best to provide those opportunities that SEND children need, as with all children. This Bill is part of the process of driving that forward.

The noble Lord, Lord Jamieson, spoke about SEND and the state sector, and said that this approach will increase costs. We are absolutely committed to improving inclusivity and expertise in mainstream state schools, restoring parents’ trust so that their children will get the support they need to flourish. If an EHCP assessment concludes that a child can be supported only in a private school, the local authority will fund that place.

The noble Lord, Lord Lexden, whose great knowledge on this subject I respect, spoke about the Government not caring about pupils in private schools. The Government believe in parental choice, but we are determined to fulfil the aspiration of every parent to get the best education for their child. To eliminate barriers to opportunity, we need to concentrate on the broader picture and the state sector, where most of our children—93%—are educated.

Ending the tax breaks on business rates—and VAT—for private schools is a tough but necessary decision. We need to secure vital additional funding to help deliver those commitments to education and young people. As I said, there is a consensus on what we need to do, but perhaps not on the means of getting there.

The noble Lord, Lord Lexden, also mentioned the impact on faith schools. Again, the Government value parental choice but all children of compulsory school age are entitled to a state-funded school place if they need one, and schools are required to follow the Equality Act and requirements relating to British values. We expect them to foster and promote an environment that encourages respect and tolerance of children and families of all faiths. The Government have listened carefully to arguments on this matter and have decided that a carve-out for faith schools cannot be justified. However, children can attend faith schools and have their faith respected in the state sector.

The noble Lord, Lord Lexden, referred to private school closures. We expect those numbers to remain relatively low and they will be influenced by various factors, not just the removal of VAT and business rate tax breaks. Parents can seek places in other private schools or find a state school place through their local authority. There has been a traditional number of around 50 private schools closing each year, including independent special schools, but we must also note that private schools have continued to open, even after the Government announced that they would end tax breaks for private schools. The register of independent schools shows that 77 independent schools have opened between January and October 2024.

The noble Lord, Lord Lexden, felt that the timing of this was poor. Ending tax breaks on VAT and business rates for private schools is—I will say again—a tough but necessary decision, and we have had to take some measures to fill the gap in the budgets. Delaying implementation of the business rates policy would forgo around £140 million a year that is intended to fund the Government’s investment in state education and young people.

[Baroness Scott of Bybrook (Con)]

But if I remember rightly, the decision about the taxation of independent schools was made well before the Chancellor got into place and saw anything in the books.

[Baroness Taylor of Stevenage (Lab)]

Knowing the Chancellor as I do, I am sure she was extremely well prepared for taking on the commitment and had some idea of what was going on well before she came into office. I am sure that that was her being well prepared.

The noble Baroness, Lady Scott, and the noble Lords, Lord Waldegrave and Lord Maude, raised the impact on charitable activity if schools stopped or reduced their activity. They will continue to operate as charities and there will be no other tax changes specific to their charitable status.

I see I am running out of time, so I will close. I have a number of other points, including on several points of detail made by the noble Earl, Lord Lytton.

[Lord Fox (LD)]

I will read the noble Baroness’s statement in Hansard with great interest but does she recognise that, far from clarifying the issue, which has a number of moving parts, she has thrown some more moving parts into the bag? For us to have a sensible and reasoned approach to Committee, we really need some more clarity. I hope she will take that back with her from this debate. We are willing and ready to engage but it is very difficult, with the degree of murk we are currently encountering.

[Baroness Taylor of Stevenage (Lab)]

I hear the noble Lord’s remarks, and of course I will take that back. I and, I am sure, my noble friend Lord Khan will be happy to undertake any further engagement that noble Lords wish to have before we go into Committee.

The two key points seem to be that this was not a general review of business rates, which we know it is not—a further, wider review of business rates is going on—and the clarification of the VOA valuations, which will set out what categories properties over and under £500,000 will come into. Of course, we will do our best to clarify any further questions that noble Lords have as soon as we can.

I thank all noble Lords who contributed to the debate. This is our first step on the road to transform the business rates system. We want to provide certainty and support to our high streets by enabling the delivery of a permanent tax cut that is sustainable and levels the playing field between the high street and the online giants. It will also help break down barriers to opportunity and support all parents to achieve their aspirations for their children. All parents have aspirations for their children, and it is right that we do our best to support them in delivering and achieving them by raising additional revenue to support the more than 90% of children who attend a state school.

Bill read a second time and committed to a Grand Committee.