Non-Domestic Rating (Multipliers and Private Schools) Bill

(Limited Text - Ministerial Extracts only)

2nd reading
Wednesday 29th January 2025 Lords Chamber

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.

[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.

--- Later in debate ---

[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.