Arrangement of Business
The Deputy Chairman of Committees (Viscount Stansgate) (Lab)
My Lords, good afternoon. I hope that we will have a quiet, uninterrupted session, but if by any chance there is a Division in the Chamber, we will adjourn for 10 minutes.
Non-Domestic Rating (Multipliers and Private Schools) Bill
Thursday 27th February 2025
(1 day, 18 hours ago)
Grand CommitteeNon-Domestic Rating (Multipliers and Private Schools) Bill 2024-26 View all Non-Domestic Rating (Multipliers and Private Schools) Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 61-II Second marshalled list for Grand Committee - (25 Feb 2025)
Baroness Scott of Bybrook
“Review of impact on businesses, high streets and economic growth(1) The Secretary of State must review the impact of sections 1 to 4 of this Act on—(a) businesses,(b) high streets, and(c) economic growth.(2) The review must consider—(a) the impact on different types of business, including small businesses;(b) the impact on businesses operating mainly or solely on high streets;(c) whether the provisions have had a measurable impact on economic growth, and if so what that impact has been.(3) The Secretary of State must lay a report of the review before Parliament within six months of the day on which those sections take effect.”Member’s explanatory statement
This amendment would require the Secretary of State to review the impact of sections 1 to 4 of this Act within six months.
Baroness Scott of Bybrook (Con)
My Lords, in moving Amendment 46 I will also speak to my Amendments 53 and 54, which are all borne from the lack of detail in the Bill and the failure to publish an impact assessment for its first four clauses. The Government are asking us to agree to a Bill without clarity on the substance and the financial impact, and one which will make a real problem for businesses on the high street. They are asking us to support the Bill despite not providing any assessment of how it will impact on the high street and, while they promise to reduce business rates, the only thing that we know is certainly being reduced at this stage is the relief we offer to retail, leisure and hospitality businesses.
My Amendment 46 calls for a review of the impact of Clauses 1 to 4 on businesses, high streets and economic growth. There is no impact assessment published alongside the Bill that covers its first four clauses and no commitment to publish one when the multipliers have been decided. This is entirely unacceptable; it seems unlikely that the Government would pursue a Bill without clarity as to what impact it will have. In order to have an informed debate, we need to know what the Government think the material impact will be. If they are so certain that they are reducing the amount of tax that businesses pay through business rates, it would make sense to publish an impact assessment detailing how such an objective will be achieved.
My Amendment 53 is borne from the same concerns about the lack of information and asks for an annual report as to how much money is raised through the provisions in Clauses 1 to 4. Again, there is no detailed information to accompany the Bill and we are being asked to agree to a measure despite not knowing how it will impact on the very businesses it taxes. Amendment 54 seeks to include an annual report that breaks down the revenue from business rates by type of business, so that it is possible to evaluate how successful this arbitrary threshold is at placing further burdens on online giants, rather than on small and larger independent shops and pop-up businesses.
The Government have changed their tone in regard to business rates after an initial promise that they would reform the whole system to balance the scales between the high street businesses and online giants—the Bill does not deliver on that. I would be interested to see which businesses end up with a larger tax burden as a result of the Bill. I urge the Government to seriously consider these amendments.
Lord Fox (LD)
My Lords, as we have heard from the noble Baroness, Lady Scott, this group is about understanding the impact of the Bill. To help us focus on why this is important, my noble friend Lady Pinnock and I have produced our own notional one-dimensional impact assessment.
If a property had a rateable value of £100,000, before Covid it was paying close to £50,000 in rates. Then, when the pandemic came, if—and only if—it qualified for relief, that £50,000 would benefit from a 75% reduction. In this case, the business owner would have been paying only £12,500. Rolling forward, what do we find when the Covid relief is completely lifted? The rateable value has not changed; it is still £100,000. So, by our calculation, if—and only if—the full multiplier reduction is applied, that business will be paying £30,000 in non-domestic rates.
I am sure the Minister can spot where we are heading on this. Yes, the business will nominally have a reduction in its rates, but those are the rates it was paying before the Covid relief. In reality, it will have gone from paying £12,500 to £30,000; that is what will be hitting the business. I have two questions for the Minister. First, allowing for our slight approximations to make the maths easy, is this broadly correct and, if not, what is the actual analysis? Secondly, how on earth will this bring benefits and investment to the high street?
As the noble Baroness points out, it is right to talk about the impact assessment, both before the implementation of the Bill and once it has been implemented. The accelerated timeline for the Bill’s implementation has left insufficient time for stakeholder consultation, particularly regarding measures affecting distribution warehouses and out-of-town retail premises, as the noble Baroness just mentioned. Therefore, my noble friend Lady Pinnock and I have tabled a number of amendments to help probe different aspects of the impact the Bill will have. When we get to Report, we will hope to refine this—that is, if the Government have not put forward their own amendments, which I expect they will because this makes so much sense and is so important to the Bill.
Amendment 48 would require the Secretary of State to publish an impact assessment on Clauses 1 to 4 before they come into force—very similar to what we have just heard. Amendment 49 proposes a new clause that would require the Secretary of State to examine the effect of the introduction of the new multipliers on the amount of business rates paid by businesses occupying a single site, compared with those occupying multiple sites. This is because the relief system had a cap on it. That cap goes. The question is: does the multiplier applied across multiple sites mean that some large multisite organisations will bust the cap and benefit substantially at the expense of single-site retailers or not? Because there is no impact assessment, we have no idea. This will, essentially, help us to differentiate the effect between the size and scale of businesses.
Amendment 50 is intended to assess the cumulative impact on businesses of the changes in the Bill with the expected removal of the retail, hospitality and leisure relief—coming to the point I was just talking about. Amendment 52 proposes a new clause that would require the Secretary of State to examine the effect of the introduction of the leisure multipliers on the amount of business rates paid by businesses in different council areas. In other words, how will this affect the regional distribution? The Minister, as someone who comes from the north, will understand that there are significant differences between what happens in the north and the south-east of England. Coming from Herefordshire, I would say that there is exactly the same sort of difference there, if not even greater. Amendment 73 is consequential.
These, taken with the amendment from the noble Baroness, Lady Scott, are all about how we know what the Bill will actually do. The Government have made bold claims about the effect they assert it will cause on Britain’s high streets. On these Benches, it seems there is absolutely no way of supporting those claims because there is absolutely no data.
Lord Thurlow (CB)
My Lords, I will add a few words on this important group of amendments. It is not possible to do an impact assessment at the moment. This has been rushed, and the new valuation list will not be completed for another three or four months. Non-domestic rates are the third-highest cost to most RHL businesses, after rent and employment costs. The third-highest outgoing for these businesses is being discussed here and going into law as we speak before one of the critical ingredients of the P&L of those businesses is known. It will not make good law.
The amendments we have heard about in this group, and some of those to come in later groups, refer to a request for delay to the impact assessment so that these variables are known and businesses are not groping about in the dark trying to understand their profitability and do their business plans. It is not the right moment to be having this conversation, but all will be fine if we allow an extra year to do the impact assessments and the required consultations with the professional bodies that have the expertise, which can then be assessed by secondary legislation.
The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government (Lord Khan of Burnley) (Lab)
My Lords, these amendments seek to introduce a number of provisions into the Bill requiring reports and assessments of various types. They are concerned with the impact on the RHL—retail, hospitality and leisure—sector, including on local government revenues, businesses more generally and economic growth. Some reports and assessments would be required before Clauses 1 to 4 come into force, and others after.
First, I want to stress to the Committee the importance we attach to being clear and transparent about this policy—who will be affected and the impact it will have on revenue. The principles behind these amendments are sound. It is right that the impact of tax changes should be carefully considered in detail. However, there is a balance to be struck and some of these amendments would place an undue constraint on the Government that would likely delay the new multipliers coming into effect from April 2026. Others would duplicate existing reports or would require reports to be produced before we will have been able to collect any data from local authorities. Through a combination of existing reports and commitments already made, I am confident that we can give noble Lords the assurances they seek.
Amendments 48 and 73, tabled by the noble Lord, Lord Fox, seek to require the Government to undertake an impact assessment of the new multiplier arrangements on businesses, high streets and broader economic growth. Amendment 46, tabled by the noble Baroness, Lady Scott, would introduce a very similar requirement.
Noble Lords will be aware that policies and legislation concerning tax and the administration of tax fall outside the meaning of regulatory provisions as defined in the Better Regulation Framework. Obviously, tax measures are introduced for very different reasons from other types of legislation and are therefore not under the same requirements to be accompanied by an impact assessment. This has been the settled position for many years. In fact, the exemption for tax from the meaning of a regulatory provision was captured in primary legislation passed by this House in 2015. Section 22 of the Small Business, Enterprise and Employment Act 2015 excluded a statutory provision which makes or amends provisions imposing, abolishing or varying any tax, duty, levy or other charge. That exemption now exists in paragraph 2.3 of the Better Regulation Framework.
Nevertheless, the Government understand that there is great interest in the effects of the new multipliers, and the Treasury is committed to publishing analysis of the effects of the new multiplier arrangements when the rates are set in the Budget later this year. The reviews that Amendments 50 and 52 seek to introduce are focused on the changes in business rates paid by qualifying RHL properties and other types of businesses. I believe that what these reviews seek to understand is how the business rates liabilities of affected RHL or other properties have and will change, reflecting on the provision of retail, hospitality and leisure relief since 1 April 2020 and the introduction of the permanent lower multipliers for qualifying RHL businesses and the higher multipliers from April 2026.
Noble Lords will know that retail, hospitality and leisure relief has varied year on year since it was introduced, reflecting the particular economic circumstances, including the terrible economic shock that was created by the Covid-19 pandemic. What is more important to point out, however, is that this relief’s expansion in response to Covid was a temporary, stop-gap measure that has been rolled over repeatedly, leaving businesses in a perpetual state of uncertainty until clarity for at least one more year was provided at Budgets. The new RHL multipliers are ending that uncertainty, introducing permanent lower tax rates that will help qualifying RHL businesses to plan ahead and get on with running their businesses rather than constantly worrying about what the next Budget may bring them.
Lord Thurlow (CB)
Before the Minister sits down, could I point out that these forecasts are all going to be hypothetical? In five months’ time, the VOA will produce, or have access to, the updated new rateable values nationwide. Current rateable values will be history. Therefore, we have to anticipate what those might be. The balancing act between the larger properties subsidising the smaller RHL properties will then be reworked, but we cannot do it at the moment, which is one of the reasons why we feel that time is required for delays to the impact assessment process to take us one further year ahead.
Lord Khan of Burnley (Lab)
I thank the noble Lord for making that point. He also talked about delays, which I will pick up in a later group when we talk about implementation; I have not forgotten about the important points he raises. On the point he just made, the Budget analysis takes into account the 2026 revaluation, so that point is covered by the Treasury in its work in the build-up to the Budget.
Lord Jamieson (Con)
I did not quite understand that point. The Minister is saying that the revaluation has already been taken into account in the figures that the Treasury is coming forward with. Does that mean he can share the revaluation with us?
Lord Khan of Burnley (Lab)
My Lords, let me clarify this for the noble Lord. As I said repeatedly on day one in Committee, the Treasury will publish an analysis when it sets its multipliers at the Budget, but the work that is going on in providing that analysis will consider all the issues, in particular the issue the noble Lord raised about the 2026 revaluation.
Lord Fox (LD)
It seems to me that the Government have done an impact assessment; if it is not an impact assessment, it is an analysis that may or may not be an impact assessment. The Minister is saying that he has some data but is not prepared to let us have it, so we have to make this law blind.
Lord Khan of Burnley (Lab)
My Lords, I think I have been quite clear in stating that there is clear evidence that there is no impact assessment on taxation. However, what we are asking to do in the Bill is to set the parameters for increasing the multiplier and the flexibility for the higher rate over £500,000; and, for the lower multipliers, to support RHL, as we committed to do in our manifesto. When the Treasury works up to the announcement and makes a decision on the multipliers at the Budget, it will of course publish analysis on what the impact of that will be in 2026.
Lord Fox (LD)
I am sorry to labour the point. This may sound rude but it is not supposed to be. Given that the Treasury seems to be driving almost all of this, could we please have a Treasury Minister here, as well as the noble Lord, on Report? It would make sense to talk directly to the department that has actually made the decisions, rather than to the person who is carrying the message.
Lord Khan of Burnley (Lab)
My Lords, I take everything that the noble Lord says in a good spirit; I will come back to him on that point. Let me be clear on the remit of the Bill. On when the Treasury will set its multipliers, I understand the noble Lord’s point, but I will go away and see. As I said on day one in Committee, I look forward to meeting all noble Lords who have an interest and amendments. I am happy to sit down and discuss this; if I can get one of my colleagues from the Treasury, subject to availability and diary commitments, I will of course pursue that.
Lord Thurlow (CB)
I too do not wish to labour the point but, if I understood him correctly, the Minister said that the ministry already has access to the new valuation list. Yet Colliers, a leading firm of rating surveyors with which I have had extensive discussions on this Bill, assures me that 1 June is when the work from the VOA will be completed. It may have been completed early but, if that is the case, can we please have that detail so that businesses can do their budgets and business plans?
Lord Khan of Burnley (Lab)
My Lords, I say directly again that the 2026 revaluation has not yet been completed but, obviously, the Treasury is working on it. It is having conversations with all stakeholders, of course. In fact, it is probably also looking at forward planning on the whole future of business rates. As I said on our first day in Committee, this is the start of a huge strategic focus looking at business rates; this is the first part of it. I assure colleagues that, as soon as the multipliers are announced at the Budget, noble Lords will have an analysis—not an assessment, but an analysis.
Baroness Scott of Bybrook (Con)
My Lords, I thank the noble Lords, Lord Fox and Lord Thurlow, for their support on what I think is a really important part of the Bill. It is not about us knowing; it is about businesses knowing. We heard very strongly from the noble Lord, Lord Thurlow, about businesses, particularly those that are around the £500,000 and do not know now whether they are or are not, and the multipliers. They are trying to plan their businesses, hopefully for growth, if we hear what His Majesty’s Government want for them, but how can they do it when they do not know what the third-biggest chunk of their expenditure will be? We are trying to get the Minister to understand how very important that is to this sector.
I thank the Minister for his response but I still think, as can be heard from the questions, that we have a lot of concerns over the lack of clarity on this and, particularly, the full impact assessments. I am more than happy to work with the Minister and the Government to find a way around this, so that we can feel comfortable—not for us, as I have said, but so that businesses can fully assess the impact as soon as possible. For now, I beg leave to withdraw my amendment.
“Review of effect on non-domestic rating policy(1) Within six months of the day on which this Act is passed, the Chancellor of the Exchequer must conduct a review of how the measures in this Act have impacted non-domestic rating policy.(2) The review must assess—(a) potential changes required to non-domestic ratings as a result of the measures within this Act;(b) what alternatives to non-domestic ratings, if any, the Government has considered.(3) The report of the review must be laid before Parliament.”Member’s explanatory statement
This amendment would require the Chancellor to review the effects of this Act on wider non-domestic rating policy and consider alternatives, for example a commercial landowner levy.
Lord Fox (LD)
My Lords, I think we have all agreed that the Bill is tinkering with what is essentially a broken system. The Labour Party clearly knew that because it pledged in its manifesto to reform the system, so it understands that the system is broken. Speaking to the last group, the noble Lord said that businesses need certainty and that the Bill will give them it. The certainty is that they will be paying more in business rates in two years than they are now. They know the direction of travel, but they do not know how fast they will get there or how much they will be paying. We know that, no matter how broken it is now and irrespective of its impact, the Government plan to keep this system in place for three years. I think that is what I heard the Minister say.
On the one hand, I suggest that this is more than a little cavalier. As the noble Lord, Lord Thurlow, has explained, there may well be quite a number of chickens that come home to roost during that three-year period. On the other hand, it gives the Government time to carry out their much-vaunted detailed review, to properly consult and to legislate for a better and fairer system that genuinely encourages investment. Amendment 47 would require the Chancellor to review the effects of the Bill on wider non-domestic rating policy and to consider alternatives. I am sure the Minister would agree that productive capital and investment should not be the target for this tax. I suggest that one way of ensuring this is to levy rates on the value of the commercial sites and also to remove exemptions for empty or derelict commercial premises. Revaluations should happen on a more regular basis, and I think we should agree through consultation how often that should be. The nub of this is that anything a tenant invests in their business should not increase the site rateable value. If it does, which is where we are now, you are taxing investment and growth, not the actual site value.
These are the ideas and sorts of things that the Government have time to consider. They have time to radically throw this system up in the air and make sure that what comes down is fairer, rewards growth and investment, and makes sure that the right people are paying the right amount. If we are to have this tinkered-about system for three years, can the Minister assure your Lordships that the time will be used usefully to deliver a system that is fit for purpose and delivers growth across our country?
Lord Jamieson (Con)
My Lords, Amendment 47 addresses the issue that, despite the Government’s claim that they would reform the business rates system, the Bill does not offer that. We heard concerns from several noble Lords on the previous day in Committee that this is not a Bill that will support the high street and level the playing field, as promised in the Labour manifesto. My concern is that businesses will face substantially higher costs. These proposals are supposed to support the high street, with a so-called Amazon tax, yet this is clearly not the case. It is a blunt instrument that will substantially increase taxes on all properties with a rateable value above £500,000. As such, it risks harming the very businesses it is purportedly designed to help, such as anchor stores and other retail, hospitality and leisure facilities fundamental to the high street.
There is a second concern that we have already raised: the cliff-edge nature of these proposals. I, like the noble Lord, Lord Fox, have done some very basic analysis of this. For example, a retail, hospitality or leisure business with a rateable value of just under £500,000 would today pay rates of around £175,000, assuming a 0.2 discount and a multiplier of 0.55, whereas if it were to make a small investment and tip over that threshold, it would pay £320,000. Like the noble Lord, Lord Fox, I allow for a little approximation in those numbers. There are plenty of examples of this. For instance, locally to me in Bedfordshire, Luton Hoo, which is currently looking at some investment, has a rateable value of £490,000. Will that investment go ahead, knowing the additional costs? Even more locally—as Members are aware, I am a councillor and I declare my interest as a councillor in Central Bedfordshire—near my own ward, a garden centre in Toddington faces the same issue. Again, I am aware that it is looking at some investments.
We have also touched on the impact of future revaluations. The Minister has been keen to point out that this will impact fewer than 1% of properties and only 3,100 retail outlets. He said that he wants to be clear and transparent, so can he tell us how many additional properties will be above the £500,000 threshold after the next revaluation? I note that the noble Lord, Lord Fox, refers specifically to the idea of a commercial landowner levy as a proposed tax reform to replace the business rates system. I support the sentiment of requiring government to consider genuine reform, rather than the lack of change that the Bill provides. I do not agree with the specific reform proposed by the noble Lord, but I acknowledge the need to adapt the system to ensure that online businesses that operate from out-of-town warehouses pay a fair, proportionate share of business rates. Given that the Bill has been brought forth, it seems reasonable to assume that the Government have delayed any plans they had to reform the system, which will damage businesses up and down the high street. They promised lower business rates but are reducing the relief offered to retail, hospitality and leisure businesses, sending an incoherent message to our high streets. I look forward to the Minister’s response.
Lord Khan of Burnley (Lab)
My Lords, Amendment 47 seeks to require the Chancellor to undertake a review of the measures in the Bill, once passed, on broader non-domestic rating policy and to set out what potential changes may be required and/or what alternative approaches to non-domestic rating have been considered. The Government are committed to creating a fairer business rates system that protects the high street, supports investment and is fit for the 21st century. The Government commenced that journey at the 2024 Budget, when we announced our intention to permanently—I say that again: permanently—introduce lower rates for qualifying retail, hospitality and leisure properties from 2026-27, as well as a higher rate on properties with rateable value of £500,000 and above to ensure that the permanent tax cut is sustainably funded.
At the Budget, the Government also published the Transforming Business Rates discussion paper, setting out priority areas for business rates reform and inviting stakeholders to have a conversation with the Government on this matter over the course of this Parliament. The areas of interest for further reform as set out in the paper include: incentivising investment and growth, considering the frequency of revaluations and ensuring that the system is transformed to make it fit for the modern 21st century economy. The paper also focuses on tackling avoidance and evasion; for example, through the Government’s intention to publish a consultation on adopting a general anti-avoidance rule for business rates in England.
I am delighted to say that those conversations with stakeholders on priority areas for reform have commenced and are ongoing. I thank all those stakeholders who have been in contact to offer their valuable insights and experience of non-domestic rating. Furthermore, on 17 February, the Government published the Business Rates: Forward Look policy note, which provides an update on key milestones for the Government’s overall business rates reform agenda. As set out in that note, we are reflecting on engagement undertaken so far and the views expressed as part of that process. It also sets out that we anticipate further stakeholder engagement on specific reform options ahead of the Autumn Budget, when final decisions will be set out.
I am aware that there is support from Liberal Democrat noble Lords and Members of Parliament for the replacement of business rates with a commercial landowner levy. What is important to the Government is that we have a tax that works. It is not the first time that this House has heard suggestions for a tax on land values or a levy on landowners: it was as common a debate in the last century as in this one. What all those debates show is great uncertainty and a lack of evidence of the benefits: any benefits to the high street would be far from certain. We are clear on the need for reform but, to minimise disruption for businesses, the Government will make improvements to the existing system over the course of this Parliament.
Before I conclude, let me address the points that the noble Lords, Lord Fox and Lord Jamieson, raised on investment. They will understand that I am unable to comment on specific examples of live non-domestic rating bills but, as part of the Transforming Business Rates discussion paper, we will look at the effectiveness of the improvement relief scheme, which helps businesses that invest in their property. I look forward to our engagement, post Committee, in more detailed conversations. For the reasons set out, I am unable to accept the amendment. I agree that the system is broken and we are trying to fix it. It cannot go on year after year on an ad hoc basis. We need certainty and sustainability so that people can have a clear and fair system. As we said in our manifesto, we will continue to support leisure, hospitality and retail, and those above £500,000 rateable value—fewer than 1% of properties—will contribute to make sure that our system is fair and balanced.
I hope I have provided reassurance as to the seriousness with which the Government are approaching our stated task of reforming the business rates system, and I ask the noble Lord to withdraw the amendment.
Lord Fox (LD)
I thank the Minister for replying; I am not sure that I thank him for his reply. I thank him for acknowledging that the system is broken. When you try to fix something, there is no point in fixing the windows if the roof has caved in and you have subsidence. The scale of the brokenness means that the ambition to reform needs to be somewhat more than I detected from him.
I am grateful to His Majesty’s loyal Opposition for bringing up the cliff-edge point: we have to talk about putting in steps to avoid that cliff edge. The example given was not specific but an imagined, general example. We do not need specifics: we know that if a business is valued at £495,000 and it increases its value just a tiny bit, it is suddenly in a massive tax bracket. The Minister must be able to see that that is a huge barrier to investment. The only way to deal with that is to have not a cliff edge but a gradual approach. We should investigate that process together.
Lord Khan of Burnley (Lab)
The noble Lord touched on a point that the noble Lord, Lord Jamieson, made about anchor stores and valuations above £500,000. Let me be clear: many anchor stories in RHL have rateable values of properties in other parts of the country that are less than £500,000, so, equally, they will also benefit from lower multipliers in that bracket.
Lord Fox (LD)
And if the Government adopt my impact assessment, which deals with multiple retailers versus single retailers, we will know how that works.
The Minister will be pleased to hear that this is the last time noble Lords will hear from me. There is a tremendous amount of work to be done between Committee and Report on Clauses 1 to 4. There is potential for us to work together to make this better, even though, as we have all admitted, it is tinkering around the edges. With that, I beg leave to withdraw the amendment.
Lord Lexden
Member’s explanatory statement
This amendment, in conjunction with other amendments in Lord Lexden’s name, seeks to replace “private school” with “independent school” throughout the Bill.
Lord Lexden (Con)
My Lords, in moving Amendment 54A, I will offer explanatory comments that also apply to Amendments 55A, 59A, 69C, 69D, 77 and 78. All are cast in the same form and have the same purpose: to make this a Bill that, in its Title and throughout Clause 5, refers to “independent” rather than, as at present, “private” schools. The issue is clear and straightforward, and I shall be brief, having touched on the general issue on Second Reading.
I want to probe the Government’s reasons for not conforming to established practice and usage, which have hitherto ensured that independent schools are called by their correct, formal name in legislation. There may perhaps in recent years have been stray references to “private schools” in legislation—my noble friend Lady Barran, so recently a Minister at the Department for Education, may be able to comment on that point—but never before, I think, has a Bill been brought forward that has abandoned standard practice in favour of another formulation, namely “private schools”.
Does this matter? Both formulations are in general, widespread, everyday use. The words “independent” and “private” are used interchangeably in relation to schools outside the state sector of education, a sector that of course includes academies, which have a measure of independence but are not independent schools. The question is whether the comparatively new way of referring to schools outside the state sector—no one, I think, referred to “private schools” until about 30 years ago—should supersede the term long established in law and employed universally, I think, by official bodies, most notably the Charity Commission and the Department for Education.
Schools that are charities are registered by the commission as independent schools. The Department for Education keeps a register of schools outside the state sector, which for many years was overseen by a distinguished senior civil servant rejoicing in the title of registrar of independent schools. These days, the department has an independent schools division.
No plans, I think, have been announced to sweep away the terminology that has been for so long in official use and replace it with another one featuring the term “private school”, giving what is now a purely informal practice firm official status. Surely, legislation should reflect standard current formal practice and not create confusion by resorting to a term hitherto unknown in law.
There is one further consideration. The term “private school” is not universally accepted as politically neutral. It can be regarded as implying criticism of schools outside the state sector—private in the sense of separate, exclusive, cut off from the rest of the world. That is the way in which some on the left in British politics love to portray our country’s independent schools. Their falsehoods are assisted by the term “private school”. I suggest that the term has therefore to be treated with care.
Lord Black of Brentwood (Con)
My Lords, I will speak briefly to Amendment 54A and the consequential amendments in the name of my noble friend Lord Lexden, to which I have added my name. I declare my interests as chairman of governors at Brentwood School and as president of the Boarding Schools’ Association and the Institute of Boarding. I have just two brief points to add to the comprehensive remarks that my noble friend delivered with his customary eloquence, with which I agree entirely.
First, why do we need a definition in the Bill, given that the 1988 Act, as far as I can tell, does not use the term or make any reference to schools, and talks generically only of charities? If the concern is to make a differentiation between independent schools and academies as state-funded and independent schools, it would surely be much simpler to make clear that the Bill does not apply to academies. The only conclusion you can reach is the one that my noble friend reached: the novel insertion of this definition is simply to shoehorn what I am afraid is party-political dogma into this legislation, and that makes for bad law.
That leads me to my second point. At some point this legislation may well end up in the courts, when the legal definition of independent school, which has been long established in law, as my noble friend said, may become very important. Therefore, there needs to be certainty about definition, which there will not be if independent education is dealt with in different ways in different pieces of legislation. What steps have been taken to ensure that this definition is not compromised or contradicted in some way in other legislation, which will at some point down the line cause real legal uncertainty?
Baroness Barran (Con)
My Lords, as the Committee and the Minister know by now, we on these Benches are opposed to the whole of Clause 5, and I will start my remarks by making the case that it should not stand part of the Bill; rather, we urge the Government to think again and remove it.
First, as we debated at Second Reading, there is the point of principle. On what basis should the Government identify a single group of charities, with no concerns about the delivery of their charitable objects, for separate treatment in relation to business rates from their charitable peers? Sadly, the only plausible reason is that it reflects some ideology that does not respect the right of parents to choose the education for their child. I am not suggesting that the Minister sees it in that way, and I accept that the Government’s plan to tax education for the first time ever in this country’s history were in their manifesto, but I cannot find another logical basis for this choice.
Secondly, this picture is confirmed when we look at the amount of money that will be raised from this change. The Government project that only £70 million will be raised. Finally, it leaves the risk that in future legislation in this area, this or a future Government will carve out another group of charities that they believe no longer justify the business rates relief. This feels a wrong-headed choice, and I very much hope that the Minister will encourage his colleagues to review it and remove the clause.
I turn to Amendments 55, 56, 59 and 62. Amendment 55 is consequential and necessary to enable the later amendments. I have tabled it to exempt specific independent schools from this measure. Amendments 56 and 59 are probing amendments to understand what is meant by the term “or other consideration” in the context of fees payable for the provision of full-time education. I would be grateful if the Minister could give the Committee an example of where another consideration has been used in practice wholly or partly to replace fees.
Amendment 62 highlights the position of smaller independent schools, many of which charge significantly less than the independent school average of £27,642, which was the figure the Minister in the other place gave as the mean annual day fee as of January 2024. I appreciate that the Government are unlikely to agree with the fee level in my amendment, but it would be helpful for the Committee to hear whether there is a fee level below which this legislation would not apply. As the Minister knows, some faith schools in particular charge lower fees than the state school equivalent per pupil funding rate. Would the Government consider exempting schools that charge less than the per pupil funding rate from this tax.
As we have heard, Amendments 54A, 55A, 59A, 69C, 69D, 77 and 78 in the names of my noble friends Lord Lexden and Lord Black of Brentwood would replace the use of “private school” with “independent school”. I agree with my noble friends’ analysis of the importance of this and some of the factors that sit behind it. The term “private school” is much more informal, and in legislation it is more commonplace to use “independent school”. We support those amendments fully; I hope the Minister will give careful consideration to them.
Baroness Pinnock (LD)
My Lords, Clause 5 is an interesting add-on to the legislation as a whole, which is focused on non-domestic rates as applied to business premises. Here, we suddenly have one sector of businesses being pulled out for special treatment, which is curious to me. It becomes a very strange Bill with Clause 5 added to it. However, for Liberal Democrats, as I have probably said many times in the course of my public sector career, education is the single most important and best investment that any Government can make in our children, their future and the country’s future. The clause is important to us because it relates to education.
The Government’s policy in this Bill, removing the current exemption for relief of business rates, combined with the introduction of VAT and the impact of employers’ national insurance increases, will undermine two important principles for Lib Dems. The first is that education should not be taxed. All education provided by an eligible body, including universities, music lessons and tutoring, is currently exempt from VAT, and VAT should not be imposed on these things—and, hence, neither should business rates. The exemption should not be removed from these schools. The second principle is that parents have a right to choose the education setting that they believe is the best for their children. We champion choice and believe nothing should get in the way of parents making those choices.
The best outcome of all would be that state-funded education was funded at the same level as that experienced by children in the private, or independent, sector. It is curious to me that the gamut of changes that the Government are making in relation to the costs imposed on the private, or independent, sector will not release sufficient funding to make a significant impact on children’s education in the state sector, so it is hard to understand what the Government are seeking to achieve.
It has been an interesting debate. Lots of points of definition have been raised, and I hope the Minister will be able to respond to the interesting points about the importance of having an accurate definition of the sector. I look forward to his response. But in summation: education is most important, and parents have the right to choose, as long as those choices do not have a negative impact on everybody else, which in this case they clearly do not.
Lord Khan of Burnley (Lab)
My Lords, Amendments 55 and 62 seek to carve out from the Bill all private schools that charge fees of less than £27,642 per year through exempting schools that meet this criteria from the definition of a private school. I am conscious that other amendments tabled by noble Lords seek to carve out other private schools from the Bill definition, and we will discuss these in more detail as part of today’s proceedings. However, it would be helpful for me to set out the purpose of Clause 5 for when the Committee decides whether to agree the clause. At the same time, I can elaborate further on the meaning of “or other consideration” as per Amendments 56 and 59, and the use of “private school” as opposed to “independent school” in response to the amendments in the name of the noble Lord, Lord Lexden.
The Government believe in parental choice but are also determined to fulfil the aspiration of every parent to get the best education for their child. The removal of business rates charitable relief, as set out in Clause 5, legislates for the Government’s commitment to secure additional funding to help deliver the Government’s commitment to education and young people, including the more than 90% of children who are educated in state schools.
Clause 5 removes the charitable rate relief from private schools by amending paragraph 2 of Schedule 4ZA and paragraph 2 of Schedule 4ZB to the Local Government Finance Act 1988 to exclude private schools from the rules in relation to the application of charitable rate relief. Amendments to the rules in relation to the application of charitable relief can be made only through primary legislation.
The Bill inserts new sub-paragraph (3) to paragraph 2 of Schedule 4ZA to remove charitable relief from occupied hereditaments wholly or mainly used for the purposes of carrying on a private school. Ancillary and support buildings, such as offices, will also lose their relief—for example, classrooms and sports fields that are wholly or mainly used for the purposes of a private school.
The rest of Clause 5(2) is concerned with the definition of a private school. To answer directly the points raised by the noble Lord, Lord Lexden, the terminology “private school” has been used because the term “independent school” includes state-funded academies, which are not in scope of this policy and therefore of the measures in the Bill. The term “private school” has been used to avoid uncertainty regarding which schools are in scope, and I am sure it is not the noble Lord’s intention to bring academies into scope of this Bill.
Baroness Barran (Con)
Before he sits down, can the Minister respond to one point that I made? If he does not have an example today, perhaps he could write to me and share the letter with other Members of the Committee. Does he have a real-life example of where “other consideration” has regularly—or even occasionally—been used in practice to replace fees, either wholly or partly? I have visions of, I do not know, farmers arriving with trailers loaded with whatever it might be. If the Minister does not have an example now, perhaps he could let me know.
I also ask the Minister to confirm something. I take his point about the property value not necessarily being linked to the fees, but can he commit to considering, where a school charges less than the per pupil rate of state funding, whether this policy will still apply?
Lord Khan of Burnley (Lab)
My Lords, as the Committee will understand, it is difficult for me to talk about examples at this time, but I take the noble Baroness’s point. I would like to hear more about the examples that she has, in particular to see what examples we can discuss in depth when we meet post Committee. It is difficult to talk about non-domestic rating examples now.
Baroness Barran (Con)
To be honest, I do not have examples, but the Bill suggests that fees might be paid by means of “other consideration”. I would be grateful if the Minister could write to me about whether that has ever been used, either wholly, partly, regularly or occasionally.
Lord Khan of Burnley (Lab)
I am happy to write to the noble Baroness on those two points; I will also pick them up when we next meet.
Lord Lexden (Con)
My Lords, please forgive me: I forgot to make a declaration of interest at the outset. I am a former general secretary of the Independent Schools Council and the current president of the Independent Schools Association, which consists of 700 schools—mainly smaller ones—that will be badly affected by this legislation and other actions of the Government in the realm of taxation.
The Committee will have listened carefully to what the Minister said in response to noble Lords. It is unlikely that the Minister’s reply will have given complete and utter satisfaction in every respect. We will return to these matters on Report. As far as my amendments are concerned, I am sorry that the Minister does not understand the reasons why the word “private” is very difficult because of its connotations. The problem with using it in legislation is considerable.
The Minister referred to the position of academies. Another way could have been found of dealing with VAT without introducing independent schools in the way that this has been done in legislation. There are many serious matters that naturally require further consideration and debate. That is why Report will be so important. I beg leave to withdraw my amendment.
Baroness Barran
Member's explanatory statement
This amendment seeks to probe whether institutions providing foundation courses would be considered private schools.
Baroness Barran (Con)
My Lords, in moving Amendment 57, I also speak to Amendments 58 and 68. Amendments 57 and 58 are linked and refer to the same part of the Bill. The second definition of an independent school refers to an institution that is
“wholly or mainly concerned with providing education suitable to the requirements of persons over compulsory school age but under 19”,
which to me seems a definition that could be made clearer. My Amendment 57 is a probing amendment that seeks to understand whether an institution providing foundation courses required before university would be captured under this definition. It would, after all, be providing education suitable for those under the age of 19 but over compulsory schooling age. Indeed, there are further education colleges that provide such foundation courses and, if they were to be captured by this, it would be counterproductive. Of course, foundation courses tend to charge a fee but, despite that, they are not similar institutions to independent schools—or private schools, as I know the Minister would prefer us to refer to them. I would be concerned that, if they were included, it would have the potential to reduce access to universities for those from lower socioeconomic backgrounds. I hope that the Minister will be able to reassure me that this is not the case.
Amendment 58 refers specifically to the use of “wholly or mainly”, which the Minister referred to briefly in his earlier remarks. Can he clarify what this means in a numerical sense? My assumption is that it would be 50%, as it is for pupils with an education, health and care plan—the Minister is nodding encouragingly—but I would like to put the question to the Minister to confirm the criteria that the Government are planning to use. If it is different, what will it be and who would make that judgment? I wonder whether the Minister could give a couple of examples of institutions that might fall either side of the “mainly” line. If there are no examples to give today, perhaps he could write to me.
Amendment 68 seeks to protect private schools with a nursery attached from this change to the legislation. Early years providers are not included in the general definition of a private school, as the noble Lord just said in his remarks on the earlier group, but there exist a substantial number of nurseries attached to existing private schools. I hope that the Minister can see that it feels very illogical to exempt stand-alone independent nurseries from this tax but not those that are part of a wider school. Our amendment suggests exempting schools that have an in-house nursery altogether but, at a minimum, perhaps the Government would consider exempting that part of their property that relates to nursery provision. Have the Government considered this and, if not, will the Minister undertake to do so before the Bill returns on Report? Although the amount raised is small, this opens the door to the concept of taxing early years education specifically, which is a very concerning precedent to set, especially when it is a sector already suffering the potential costs of the employers’ national insurance increase. It feels counterproductive to do this at a time when the Government are clear in their commitment to encouraging early years education and giving children the best start in life. I look forward to the Minister’s response.
Baroness Pinnock (LD)
My Lords, there are some very important and interesting issues in this group of amendments. The first is about the provision of foundation courses to enable young people to move into further education or training. It is important that the Minister has an answer to the questions of the noble Baroness, Lady Barran, that will put us at ease that they will not be penalised in this way. Often, young people who do foundation courses do so because they missed out earlier in their school careers, for many reasons that might be associated with their family or their own health issues. I do not think the Government would want to penalise those young people by putting at jeopardy those courses available to them.
The next issue, about nurseries, is interesting because different parts of a premises can be assessed separately by the non-domestic/business rate regime. I say to the noble Baroness, Lady Scott, that even in an Amazon building, the facilities for the employees will be rated at a separate value from the rest of the building. For instance, I have been looking—surprisingly—at the implications for large hospitals, which were raised in the debate on Monday. Different parts of the premises will be rated in different ways. If there is a clinic, that is one thing; the main hospital is another; the café is another; a shop is another. It is possible to assess rateable values, for business rate purposes, in the same premises in different ways, so it is possible to assess nursery sections of a private school separately from the rest of the school. Therefore, it is possible to exclude these from the proposals in Clause 5. I look forward to the Minister being able to confirm that that is the case and that nurseries can be readily and easily excluded from business rate applications, even if the Government insist on removing the charitable status from the rest of the premises.
Lord Khan of Burnley (Lab)
My Lords, Amendments 57, 58 and 68 from the noble Baronesses, Lady Barran and Lady Scott of Bybrook, concern early years provision and private further education institutions. The definition of a private school in the Bill includes institutions that wholly or mainly provide education suitable to persons over compulsory school age but under 19, where such full-time education is wholly or mainly provided for a fee or consideration. This brings private sixth forms into the scope of the Bill measure but excludes general FE colleges. The Bill also includes a specific carve-out for independent training and learning providers. Due to the mechanisms whereby the Government provide funding to these institutions, it was necessary to provide a carve-out in the legislation to ensure that these institutions did not inadvertently come into the scope of the measure.
The Government’s view is that all schools that offer full-time education to children of compulsory school age and/or to 16 to 19 year-olds for a charge should be within scope of the Bill measure. This is to ensure consistency and fairness in the Government’s treatment of private schools. The Bill measure includes stand-alone private sixth forms as well as those private sixth forms that operate as part of private schools that also cater for children of compulsory school age. Amendment 57 would remove entirely this part of the private school definition, the resulting impact of which would be that all private sixth forms would be out of scope and therefore retain charitable rate relief.
The noble Baroness indicated that through this amendment she is seeking to understand whether institutions providing foundation courses would be considered private schools. Foundation courses are a level 5 qualification and as such are classed as higher education. Foundation courses are in the main provided by higher education institutions such as universities. Institutions that are focused on the delivery of higher education are not within the scope of the Bill, and where they are charities they will continue to receive charitable relief. However, any private sixth forms that provide a few higher education courses, such as foundation courses, will still lose their relief if they are wholly or mainly concerned with providing education suitable to the requirements of persons over compulsory school age but under 19 years old. Given that business rates are a tax on property, the Government believe that this is a sensible line to draw for when the relief is removed.
Amendment 58 would amend the Bill definition of a private school. It would remove the “wholly or mainly” requirement in relation to the concern with providing full-time education suitable to the requirements of persons over compulsory school age but under 19 years old for a fee or consideration in such institutions. In business rates, “wholly or mainly” generally means over 50%. Therefore, under the Bill definition, institutions that are more than 50% concerned with providing education suitable to the requirements of persons over compulsory school age but under 19 years old, and where more than 50% of such full-time education is provided for a fee or consideration, will be within scope of the measure and will no longer qualify for charitable relief.
The inclusion of the “wholly or mainly” test in the further education definition has been drafted in recognition that there may be some state-funded institutions where a small minority of pupils pay a fee for the courses they attend. The Government understand that these circumstances are rare but may include international students undertaking further education courses where they do not qualify for a state-funded place.
The noble Baroness, Lady Barran, asked for examples of institutions that may be around 50%. Regarding these schools, which mainly provide education suitable for those over compulsory school age but under 19 years old, it will be for local authorities to implement this test. I do not think it would be right for us to say whether a particular school passes that test, but we do not expect many of them to be at the margins.
Without including “wholly or mainly” in respect of new sub-paragraph (4)(b)(i), the Bill could inadvertently capture state-funded colleges of further education, which is not the intention of the Government’s policy. Similarly, it could risk capturing fee-paying institutions that predominantly provide higher education courses if one pupil who meets the broader further education definition is present. As set out, it is not the Government’s intention to capture higher education institutions within the Bill’s definition.
I should explain that the impact of this amendment would mean that the presence of one fee-paying pupil within the age bracket as per the current definition may result in the institution being brought into scope of the Bill, resulting in it losing charitable relief. In contradiction to Amendment 57, Amendment 58 would mean that more institutions would be in scope of the Bill and so would lose their rates relief. But I understand the purpose of the amendment, which is to understand better the meaning of the words “wholly or mainly”, and I hope I have been able to clarify that for noble Lords.
Amendment 68 seeks to carve out from the Bill private schools that also provide early years provision. For clarity, private nurseries that are on their own hereditament are not within scope of the Bill definition, and where they are charities they will retain charitable relief. The Government have decided that where private schools that provide for pupils of compulsory school age also have nursery classes within the school, the presence of nursery-age children should not remove the whole school from the business rates measure. This approach best ensures consistency with the underlying policy intent.
It is for individual private schools to decide how they wish to meet additional costs as a result of the business rates measure. The allocation of costs in private schools that also provide early years provision on the same hereditament is a matter for those private schools. It is worth mentioning that government early education and childcare entitlements can be used for childcare in any approved childcare provider; this includes private school nurseries, although the numbers undertaking early years entitlement in private school nurseries are relatively small. Similarly, private school nurseries are also eligible to receive tax-free childcare funding as long as they are registered with Ofsted or an equivalent regulatory body.
Accepting these amendments would remove many private schools from the Bill’s measure. This would reduce the amount of revenue that could be raised and, consequently, may reduce the funding available to the Government to deliver on their commitments to young people and the state-funded education sector, where over 90% of pupils in England are educated. The outcome of the tax changes on private schools will have a significant impact on the Exchequer, enabling the Government to fulfil their commitments on investing in state education and young people. Together with the policy to apply VAT to private school fees, these policies are expected to raise around £1.8 billion a year by 2029-30.
I hope that this provides further clarification on the drafting of the definition, as well as on the Government’s position regarding the inclusion of private further education and private schools that also cater for nursery-age children alongside compulsory school-age children. For the reasons set out, I respectfully ask the noble Baroness, Lady Barran, to withdraw her amendment.
Baroness Barran (Con)
I thank the Minister for his remarks and for addressing the points I made in relation to each of these amendments, in particular Amendment 58. I heard the Minister say that relatively few schools or private providers will be at the margins of “wholly or mainly”. I thank him for the example of the international students who might be fee-paying.
On Amendment 68, I understand the Minister’s push-back in relation to exempting a whole school—I hope I addressed that in my opening remarks—but I am grateful to the noble Baroness, Lady Pinnock, for her explanation of how local authorities can separate out different parts within a hereditament. I would be grateful if the Minister could take back to the department that this measure just feels really illogical. It will not be a significant amount of money that is raised by withdrawing the relief where an independent nursery is part of a school but not withdrawing it where an independent nursery is not part of a school, particularly in the light of the noble Baroness’s expert insights into how that could be achieved.
With that, I beg leave to withdraw my amendment.
Baroness Barran
Member’s explanatory statement
This probing amendment seeks to understand how many students will be required to have an EHC plan in an institution to be exempt from private school status.
Baroness Barran (Con)
My Lords, in moving Amendment 60, I will speak also to Amendment 61. These amendments seek to probe the Government’s willingness to extend the definition for pupils with special educational needs and disabilities, and to test the appropriateness of the 50% threshold.
Amendment 60 probes the use of the “wholly or mainly” criterion and seeks to question why the Government have chosen a 50% threshold. It appears to be a rather arbitrary number, and although in our meeting before Committee, for which I am very grateful to the Minister, he indicated there were no schools close to being just either side of that threshold, we still have concerns. I would be grateful if he could confirm again at the Dispatch Box that the Government believe there are no schools in that bracket of being close to the 50% threshold. It would obviously be helpful if the Government could publish the data that supports that. If I have misunderstood in any way, perhaps the Minister could clarify.
Baroness Pinnock (LD)
My Lords, Amendments 60 and 61 are important, focusing on children with special educational needs and disabilities. SEND provision is in crisis across the country, whichever sector of school children attend. The reason, as the noble Baroness, Lady Barran, has raised, is the huge delay in assessing children who may need an education, care and health plan, often because of the lack of educational psychologists. There are often very long delays getting what used to be called a statement of need but is now just an EHCP.
The consequences for schools in this sector is that they qualify only if their children have ECHPs, and because ECHPs are so difficult to access, many parents send their children to private school in desperation because their children’s needs are not being adequately met in the state sector. There is no criticism attached to that because there is huge pressure on the state sector. If you have a child with special needs then, if you are able, you look to where those needs are best met.
In the days before children with dyslexia were recognised, parents often took children with severe dyslexia out of the state sector and into one of the several independent schools set up around the country that had the expertise to help those children. I have a lot of sympathy with these amendments because we want all children to have their needs met, but schools helping young people with particular needs are in danger of having their relief removed because of the threshold in the Bill.
There is little recognition that children have special needs even without an EHCP, simply because of the huge backlog. The backlog exists because there is also a funding crisis within SEND. On all those issues, the Government really should think again, particularly on Amendment 61. I hope that the Minister will have some positive words in support of the amendments tabled by the noble Baroness, Lady Barran.
Lord Khan of Burnley (Lab)
My Lords, Amendments 60 and 61 are concerned with the carve-out within the Bill’s measures for private schools that wholly or mainly provide education to pupils with education, health and care plans. Amendment 60 seeks to remove the “wholly or mainly” requirement, the effect of which would be to carve out from the Bill’s measures private schools that provide full-time education to any number of persons for whom an education, health and care plan is maintained.
I understand from the accompanying explanatory statement that this amendment seeks to understand the definition of “wholly or mainly”. As I have said elsewhere on a previous group on business rates, wholly or mainly generally means more than 50%. In practice, the Government believe that this will ensure that most private special schools will not be affected by the measure. We expect any private special schools losing charitable rates relief to be the exception; they will potentially be in single figures. Private schools that benefit from the existing rates exemption for properties that are wholly used for the training or welfare of disabled people will continue to do so. This general exemption means that they pay no rates.
I am aware that some concerns have been raised—the noble Baroness has raised them in clear and categoric terms—in relation to the possibility that some mainstream private schools may be just under or over the 50% threshold for the EHCP carve-out within the Bill. In private schools, including private special schools, just 5.7% of pupils have an EHCP, with the majority of those pupils in private special schools. Therefore, we do not expect there to be many mainstream private schools near the 50% threshold.
To add to that point, if there are any marginal cases, the test in law is whether the institution is wholly or mainly concerned with providing education to ECHP pupils. While it will be for the local authority to decide, this wording should avoid the need for schools at the margin to jump in and out of entitlement for charitable relief following small movements in pupils.
The majority of private special school places are funded by local authorities. The 2024 school census shows that in more than 80% of the sector more than nine in 10 pupils have an EHCP plan that stipulates that the place is funded by the local authority.
Amendment 61 would result in the exemption of fee-paying schools from the measure if that fee-paying school wholly or mainly catered to pupils who have special educational needs as defined under the Children and Families Act 2014, and regardless of whether or not those pupils also have an EHCP. The Government are aware of the concerns raised with respect to pupils with special educational needs in private schools that may lose their charitable relief, because the school is not wholly or mainly concerned with providing full-time education to persons for whom an EHCP is maintained. The Government have carefully considered their approach to ensure that the impact on pupils with the most acute needs is minimised.
The Bill provides that schools that are charities and wholly or mainly concerned with providing full-time education for persons with an EHCP remain eligible for charitable rates relief. The Government recognise that where a private school has only a few pupils with EHCPs, it will lose its eligibility for charity relief. Mainstream schools throughout the private and public sector cater for pupils with special educational needs. Most children with EHCPs already have their needs met within mainstream state-funded schools. If an EHCP assessment concludes that a child can be supported only in a private school, the local authority funds the child’s place.
The noble Baroness, Lady Pinnock, touched upon the issue of the wider problem in terms of delay, which I will address. Local authorities aim to process all education, health and care plans and the respective applications in time for the start of the next school year, so that parents can make an informed decision as to which school they send their child to. In special cases, the local authority is able to pre-pay one term’s fees if the education, health and care plan is not complete but the outcome is foreseeable. Likewise, some private schools will forgo the first term’s fees for pupils who are expected to be granted an EHC plan in the future.
The Government are committed to improving inclusivity and expertise in mainstream state schools, restoring parents’ trust that their child will get the support that they need to flourish. Private schools can provide choice, high-quality education, economic benefit and public benefit through partnerships and means-tested bursaries, but most parents cannot choose private schools. We need to improve provision for the 93% of pupils at state schools, and that is rightly our focus. The Government are also committed to reforming England’s SEN provision to improve outcomes and return the system to financial sustainability. The Government will provide an uplift of around £1 billion in high-needs funding in the 2025-26 financial year.
Mainstream schools throughout the private and public sector, as I said before, cater for pupils with special educational needs. Amending the basis on which fee-paying schools are able to retain their charitable rates relief in the way that this amendment proposes would undermine the Government’s intention to remove tax breaks for private schools in order to raise funds to support the more than 90% of pupils who attend state-funded schools. As the Committee will know, the majority of children in England who have special educational needs—with or without an EHCP—have their needs met in the state-funded sector. The approach chosen in the Bill is targeted to ensure that the impact on pupils with the most acute needs is limited.
It is for the reasons cited that I cannot accept the noble Baroness’s amendments, but I hope that, with this further information, I have provided satisfactory explanation as to the Government’s approach and reassurance that the approach adopted ensures that the impact on those children with the most acute needs is minimised. I request that the noble Baroness withdraws her amendment.
Baroness Barran (Con)
My Lords, I thank again the noble Baroness, Lady Pinnock, for the vivid picture that she painted in her remarks of the desperation of some parents whose children are struggling in a state-funded school, and who make huge sacrifices to send their child to an independent school. I also thank the Minister for his clarification, as I have understood it, in relation to my Amendment 60. I think he is saying that independent special schools are exempt in this legislation but mainstream ones will not be, because they are extremely unlikely to be anywhere near the 50% threshold in terms of EHCPs.
Baroness Barran
“(5A) An institution is not to be considered a private school for the purposes of sub-paragraph (3) if it is wholly or mainly concerned with providing full-time education where at least 7% of gross income is spent on means-tested fee assistance.”Member's explanatory statement
This amendment seeks to exempt schools where they offer bursaries or other means-tested assistance to pupils that amounts to more than 7 per cent of their gross income.
Baroness Barran (Con)
My Lords, in moving Amendment 63, I will speak to all of the other amendments in this group. Amendment 63 would exempt schools that provide bursaries that amount to more than 7% of a school’s income. This is a small cost, but comes at a time when private schools are already facing higher costs from the Government’s decision to impose VAT on them. I am concerned that schools will not have room in their budgets to continue providing the same level of means-tested fee assistance. I hope the Minister agrees that the provision of bursaries is an important factor in enabling children from less affluent homes to access independent education.
Amendment 64 would exempt schools which provide education for gifted arts students, including music and drama. These schools tend to be small independent schools, which will not be able to absorb the costs that the Government are imposing on them. Our worry is that they will be forced to close, and the culture that is so essential to our society will no longer be available in the same way. The Minister will know of the real concerns in this sector and the impact that it risks having on our creative industries, which are such an important engine of growth in this country. These are students who attend a private school based on their exceptional talent. I hope the Minister will reflect on how best to avoid narrowing opportunities for children who access this small group of schools.
Amendment 66 would exempt schools where 10% of pupils have a parent or guardian in the Armed Forces. If I have understood correctly, it seems unfair that while the children of foreign diplomats and international military personnel will be exempted from these additional costs on independent schools, specifically VAT, the same benefits are not being offered to the children of our own Armed Forces personnel. As such, it seems fair to suggest that the children of those personnel, who provide invaluable service to this country, are treated with the same level of respect.
I very much support the spirit of my noble friends Lord Black and Lord Lexden’s Amendments 69A and 69B. Clearly, the spirit of Amendment 69A aligns with my amendments in this group, and Amendment 69B highlights the invaluable work that some independent schools do in relation to children in care. I beg to move.
Lord Black of Brentwood (Con)
My Lords, I will speak to Amendments 69A and 69B in my name and that of my noble friend Lord Lexden as well as to Amendment 64 in the name of my noble friend Lady Barran, to which I have added my name. I refer to my earlier declaration of interests and, for this group, I add that I am the chairman of the Royal College of Music.
On music, let me start with Amendment 64, which is an extremely important amendment. It would have long-term ramifications well beyond the terms of this Bill because specialist music education for gifted students is central to the future of our creative economy, and it therefore needs to be seen in a wider context. As noble Lords will be aware, the UK’s creative industries are vital to our future. With the economy stalling, this is one sector which, for the time being, continues to grow. It employs hundreds of thousands of people, earns huge amounts in exports and provides an essential component of the UK’s soft power, something that is more important now than ever. Right at the centre of the creative economy is music, which powers the rest of the industry.
In turn, the future of music depends absolutely on first-class, specialist music education in schools, conservatoires and universities to provide a pipeline of talent into the sector. Without that education, music dies. However, music education, including that provided by specialist schools in the independent sector, is in trouble and has been for a long time. Music has been squeezed out of the curriculum. The number of pupils taking music at GCSE and A-level has plummeted. Many schools no longer have dedicated music professionals teaching the subject. Indeed, if pupils have access to a dedicated music professional today, it is likely to be because of a partnership with an independent school. From primary schools right the way through to the end of full-time education, music is under threat as never before.
We see the results of that every day, most recently with the appalling decision of Cardiff University to close its school of music, the largest in Wales, something that the world-renowned composer Sir Karl Jenkins has put down to the decline of specialist music education in schools. The closure of the school follows hard on the heels of the closure of the junior department of the Royal Welsh conservatoire, which has enormous repercussions for music in Wales and beyond. At such a time of crisis for music education, which I have to say has not improved in any way since the general election, despite so many promises before it, the last thing we need is for independent specialist music schools, those providing education for gifted students under the music and dance scheme, as well as the leading choir schools to be threatened. It is crucial that they continue to provide music, dance and drama teaching to the most gifted students if we are to protect the pipeline of talent into the music industry.
The future of these schools and their continuing ability to provide world-class teaching will be much more secure if they are protected from full business rates. This is not a niche subject or special interest pleading; it is fundamental to the artistic future of our country and the success of the creative economy. Does the Minister acknowledge the vital importance of the pipeline of musical and dramatic talent into our creative industries? If he does, will he explain why the Government are putting it in jeopardy in this way?
Amendments 69A and 69B deal with boarding schools. Boarding schools play a vital role in our education system, with around 65,000 boarding pupils educated in the independent sector. They contribute just over £3 billion each year to our economy, generating £900 million in revenue for the Exchequer and supporting more than 64,000 jobs. Like the rest of the sector, they are a vital instrument of soft power and one of our strongest exports. Like the rest of the independent sector, they are already under significant strain as a result of not just VAT but the damaging increase in employers’ national insurance contributions. For many, especially the smaller schools, the end of business rates relief will be a huge added burden. Already the signs of the impact are clear: the Government’s figures show that visa applications to study at UK independent schools fell by 23% in the first two quarters of 2024 compared to the same period in 2023. That is a significant straw in the wind.
Recently, one agent told the Boarding Schools Association:
“This tax penalty is making our clients think twice and wonder if the UK is still the holy grail of academia”.
Another commented:
“The reputation of British boarding is already damaged and while it was the destination 10 years ago, it is now one of many”.
With international numbers down and likely to fall further, now is not the time to be adding to the increasingly intolerable burden on so many boarding schools with the withdrawal of business rates relief.
Boarding schools play a crucial role in a number of areas, including the provision of places for military personnel serving our country at home and abroad, as my noble friend said, and for vulnerable pupils with special educational needs and disabilities. My two amendments seek to recognise their importance and, in certain circumstances, exempt them from the withdrawal of relief.
Amendment 69A would discount boarding facilities from a school’s business rates bill if 10% of boarders are on a government continuity of education allowance, or CEA. This reflects the importance of boarding provision for the children of those who serve our country and often risk their lives for it. In the last academic year, 4,000 pupils were supported by CEA for 2,666 service personnel and their families. By easing the commercial pressures on them, this exemption would give a measure of continued support and protection to schools providing places for CEA pupils and reflect the inherent public benefit in ensuring that service families have confidence that they can provide a stable school life for their children.
In the same vein, Amendment 69B would discount boarding facilities from a school’s business rates bill if that school is supporting looked-after pupils supported either directly by local authorities or by charities. It recognises the hugely important role of boarding schools in educating some of the most vulnerable children and the significant pastoral support that they provide. One of the best known charities supporting this work is the Royal National Children’s SpringBoard Foundation. The RNCSF widens access to the opportunities available for young people facing the greatest barriers to their development. Along with local authority and community organisation partners, it works with boarding and independent schools to help them target their fully funded school places on the young people who need them most and help them access them effectively. To date, it has supported more than 1,000 pupils, 98% of whom get two or more A-levels, compared to 16% of disadvantaged children.
Brentwood is one school the RNCSF works with, taking students into boarding places, hosting regional interview days and supporting its excellent campaign to help children in care who are applying to university with their UCAS applications. This is clear public benefit work, supporting not only society’s priorities for vulnerable children but assisting our stretched local authorities support children in their care to achieve their full potential. This is, rightly, an intensive and involved process for any school to engage in to ensure that pupils have the right level of support and guidance around them at school. If anything properly fits the definition of a charitable activity clearly in the public interest, it is this. My question to the Minister is: why on earth do the Government judge that the facilities that care for and support these young people are unworthy of charitable relief?
These are all focused amendments which do not in any way challenge the central tenets of the legislation but recognise the special importance and public policy significance of crucial aspects of independent education. They seek to protect those schools educating gifted students whose careers will power the creative economy, children of military families who serve our country and those who are vulnerable because of special needs. I hope the Minister will accept them. Not to do so would, frankly, be callous and short sighted.
Lord Lexden (Con)
My Lords, I will add briefly to the powerful comments that my noble friend Lord Black just made on Amendments 69A and 69B, to which I have added my name, in order to pay tribute to the achievements of our country’s excellent boarding schools, which have been transformed so greatly for the better during my lifetime, and to support the measures proposed in these two amendments, which would exempt them from business rates on aspects of their work that are of great public benefit.
Baroness Pinnock (LD)
My Lords, I will speak to Amendments 66, 64 and 69B. Children in Armed Forces families have a very difficult time. My noble friend Lady Garden of Frognal’s husband was in the Royal Air Force for 30 years, I believe, and in that time they moved 24 times. By the time their children were nine, they were in their seventh school. That is why so many military families choose to find a boarding school as an option for their children, so that they can have continuity and consistency of education.
I cannot remember how many times I had to move during my school life; it was not seven by the time I was nine, but about five times. Each time you move, it is difficult to get into the system of a new school, make new friends and all the rest of it. There is a very strong argument for children of families in the military to have the exclusion argued for in Amendment 66. At a time when as a country we are thinking more about defence and security and, I guess, trying to encourage more young people to become part of the military in many different ways, they will think about what will happen to their families as they move so constantly. I urge the Minister to give special consideration to Amendment 66.
On Amendment 64, the noble Lord said that musical education has been neglected and allowed to decline. That is absolutely true, and we ought to give a bit of thought to how it has been allowed to decline and when. It is a cause of huge concern to me. I have a daughter who went from a state school to the Royal Academy, so I understand a bit about the importance of musical education. I urge the Government to give more attention to musical education in our state schools. What is particularly discouraging is the decline in opportunities for young people in state schools to learn a musical instrument. In the town where I live, they have declined considerably. In my view that is a tragedy, for the reasons that have been given.
Finally, on Amendment 69B, looked-after children ought to have a special place in our concerns. If there is a charity that I have not heard of that offers some young children who are looked after the opportunity for getting away from the place that has caused a lot of difficulty and trauma in their lives, I hope the Government will look at it sympathetically. I do not know enough about that—although I know quite a bit about children looked after within a local authority setting. But if there is a special opportunity for children who need to escape their surroundings to do so in this way, it ought to be given sympathetic consideration by the Government. I look forward to the Minister giving a good response to these pleas.
Lord Thurlow (CB)
I have not added my name to these amendments, but I feel strongly about them. This vital group, articulated so well by the noble Lord, Lord Black of Brentwood, is directly focused on those in need. I want to consider for a minute this group from a different point of view—the point of view, if you like, of the child. The noble Baroness, Lady Pinnock, gave the example of five schools by the age of seven—or seven by the age of five, I do not remember. I was one of those children. My parents were civil servants serving abroad, and they chose to keep me at home well into my teens, whereas most in similar positions were sent back to the UK to attend an independent school and be given the continuity of education that is required at home, wherever home may be.
The price I paid was 13 schools through the course of my education. Most of those were attempts to cram or correct for the next stage, because I was always turning up half way through a term, starting on a Wednesday in a class of 25 people—having never seen any of them before—after coming 3,000 miles. Then I was off again two years later, and there was a different syllabus—and a different language in one case. I ended up here in the UK knowing a great deal about Captain Cook, the South Pacific and the Māori but absolutely nothing about English history or any of the other normal curriculum subjects.
I spent my last few years at school on the back foot in a special independent school, trying to catch up. Had I not had that opportunity, I certainly would not be proud or competent enough to stand here today and address your Lordships. It taught me some self-confidence in the absence of any sort of academic success. University was out of the question. I give this example simply because it is terribly important that those serving abroad, whether in the Armed Forces or in the Civil Service, are given the opportunity to give their children an equal start.
I am very pleased that I had the alternative, because my parents wanted to keep us at home, wherever home was. It did not really do me any harm at the end of the day, but I got no GCSEs, O-levels or A-levels, other than the odd one—usually called something like technical drawing or one of these back-door opportunities. I mention this simply to drive home, perhaps, the importance of what is being discussed, raised by the noble Lords, Lord Lexden and Lord Black, and the noble Baroness, Lady Barran. Let us not destroy the opportunity for those young people.
Lord Khan of Burnley (Lab)
My Lords, it is a pleasure to follow that very eloquent contribution about the noble Lord’s personal journey. I will talk first to Amendments 63, 64 and 66, which seek to provide carve-outs from the Bill measure: in the case of Amendment 63, for private schools that wholly or mainly provide full-time education where at least 7% of gross income is spent on means-tested fee assistance; in the case of Amendment 64, for all private schools that wholly or mainly provide full-time education for gifted arts students, such as those attending specialist music and dance schools or performing arts colleges; and, in the case of Amendment 66, for private schools that wholly or mainly provide full-time education where at least 10% of students have at least one parent or guardian serving in the military.
The contributions that we have heard today reflect concerns about how the Bill may affect pupils from lower-income backgrounds, including those from military families, or those who are gifted arts pupils. Providing means-tested fee assistance is one way that charitable private schools can demonstrate public benefit, a requirement that accompanies charitable status. The Bill does not remove the charitable status of private schools and the Government expect private schools to continue to demonstrate public benefit. What is more, we do not think that Parliament should be putting in place incentives for charities to act in the public’s benefit in the way that Amendment 63 might encourage. Acting in the public benefit is something that a charity should inherently wish to do. Charitable private schools will continue to operate as charities and this Bill does not make any tax changes affecting their charitable status. For example, they will still be able to claim gift aid on donations and will not pay tax on their charitable surplus, as for-profit schools are taxed on their profits.
In designing the policy, the Government listened very carefully to representations and reached the view that, with the exception of the existing carve-out in the Bill for private schools wholly or mainly concerned with full-time education for pupils with EHCPs, no other private schools would be carved out of the measure. This approach was adopted because to carve out some private schools and not others would be unfair. However, the Government listened carefully to concerns raised and, in relation to pupils from military families or those attending specialist arts schools, the Government have taken appropriate steps in relation to two government schemes.
I will elaborate further. The Government offer a means-tested bursary scheme for pupils who attend any one of eight specialist performing arts private schools. The music and dance scheme provides means-tested bursaries and grants totalling around £32 million per year to enable children and young people with exceptional potential to benefit from specialist music or dance training. It is available to qualifying families if their child has a place at any one of the aforementioned eight private schools.
Baroness Barran (Con)
I thank the Minister for his remarks, although some of the points raised, particularly by my noble friends Lord Black of Brentwood and Lord Lexden, perhaps deserve more consideration by the Government. I will come back to those in a moment.
In relation to my Amendment 63 regarding bursaries, I think that I am right in saying that the provision of education is a public benefit in its own right, not the provision of bursaries. The noble Lord may be trying to dial up the public benefit, but education sits firmly within that definition.
My noble friend Lord Black of Brentwood was extremely eloquent in relation to my Amendment 64. I thank him for the examples that he gave of the impact of pressure on these specialist schools more widely, for the economy and for our higher education sector, as in the example of Cardiff University. As he said, these are not niche issues but absolutely central to our thriving creative industries. The Government rightly talk about growth as their primary objective but if their actions will limit growth rather than promote it, that is cause for really serious concern.
The noble Lord talked about adjustments for the music and dance scheme, but he will obviously be aware that the sector is extremely worried about what will happen after 2025-26. There is an adjustment for the current year but no visibility beyond that. Similarly, in relation to Amendment 66 and the recalculated rates for those eligible for the continuity education allowance, the same question mark remains over the longer term.
If there is one thing in this group that the Minister should reflect on very hard, it is Amendment 69B regarding children in local authority care who attend our independent schools. I join my noble friends in absolutely lauding the work of the Royal National Children’s SpringBoard Foundation.
In closing, to quote my noble friends again, whichever way the Government want to look at it, we either have clear public benefit from all the work that is reflected in the amendments in this group or we have drivers of growth, whether through international students—where, as we have heard, numbers are now at risk of falling sharply—or through providing a kind of fuel for our creative industries. Whichever perspective one looks from, threatening these schools is an unwise strategy and I hope very much that the Minister will reflect on these remarks. With that, I beg leave to withdraw my amendment.
Baroness Barran
“(5A) An institution is not to be considered a private school for the purposes of sub-paragraph (3) if it has a religious character or other special character and there is no maintained school or academy of the same character within the specified distance from the school.(5B) In this paragraph— “religious character” has the meaning given under section 69 (duty to secure provision of religious education) of the School Standards and Framework Act 1998;“other special character” has the meaning as defined by the Secretary of State by regulation;“specified distance” is the distance specified under section 444(5) (offence: failure to secure regular attendance at school of registered pupil) of the Education Act 1996.(5C) Regulations under this section are to be made by statutory instrument.(5D) A statutory instrument containing regulations under this section may not be made unless a draft instrument has been laid before and approved by a resolution of each House of Parliament.”Member's explanatory statement
This amendment seeks to exempt schools that are faith schools.
Baroness Barran (Con)
My Lords, Amendment 65 is a probing amendment to understand the Government’s thinking in relation to faith schools. As we have heard on numerous occasions in Committee, our concerns about the financial viability of the sector relate to the combination of VAT, the potential increase in employers’ national insurance contributions and now business rates. This combination is potentially most acute for faith schools, for three main reasons.
First, as the noble Lord knows, they often charge lower fees than other independent schools and have less financial resilience. This is particularly true for some Muslim and Jewish schools. Secondly, for parents where choosing a faith school is really important, there will often be no state-funded alternative at all locally, in the case of smaller faiths, or, for the larger faiths, provision with spaces available for these children at short notice.
Finally, if this is the case, we are concerned that this could contribute to an increase in children who are educated at home, which is something I know the Government plan to contain through the Children’s Wellbeing and Schools Bill. Our concern is that the combination of pressures on these schools will cause them to close with the unintended consequences that I have outlined. I would be grateful if the Minister could explain what assessment the Government have made of each of these three risks, and how they plan to mitigate them. I beg to move.
Lord Khan of Burnley (Lab)
My Lords, Amendment 65 would mean that a private school with a religious or other special character maintained its eligibility for charitable relief where there is no maintained or academy school of the same religious character or other special character within the statutory walking distance as set out in the Education Act 1996. It would create an additional delegated power within the Bill whereby the Government, by secondary legislation, would be able to define what is meant by a special character. While the amendment does not indicate what may constitute a special character, we understand from the contributions made in the other place, as well as from the noble Baroness’s contribution, that this could be used to carve out schools that follow a particular method of education or provide specialist tuition.
Amending the basis on which fee-paying schools are able to retain their charitable rates relief in the manner in which this amendment proposes would undermine the Government’s intention to remove the VAT and business rates tax breaks for all private schools. As we have said, removal of the business rates charitable relief is necessary in order to raise funds to support the more than 90% of pupils who attend state schools. The Government have carefully considered their approach and have decided that private schools that are charities will be carved out from the Bill measure only where they wholly or mainly provide education for pupils with EHCPs.
It would be inconsistent and unfair to exempt any other types of private schools from this Bill measure. However, the Government value parental choice and recognise that some parents want their children to be educated in a school with a particular faith, ethos or other characteristic, such as following a particular education method. Pupils who follow a particular faith, education method or other characteristic can be accommodated in the state sector. All children of compulsory school age are entitled to a state-funded school place if they need one, and all schools must comply with their obligations under the Equality Act 2010. In addition, schools are expected to promote fundamental British values, including the values of mutual respect and tolerance for those with different faiths and beliefs. The Government are not considering further exemptions to this policy, and therefore there is no need, as the amendment attempts, to give the Secretary of State the power to establish and define new designations of schools’ character in order to then exempt them from this measure. For these reasons, I am unable to accept the noble Baroness’s amendment.
Baroness Barran (Con)
The Minister says again that this undermines the Government’s intention, but then in the next breath says that the Government value parental choice. It is one thing to say that a child can be accommodated in a state school—the Minister knows that there are certain parts of the country where even that is not necessarily a given, where state school spaces are very limited indeed and therefore one is putting pressure on parents and children to travel further than is ideal—but there is not the ability to place a child in a school with a specific faith designation, particularly for smaller faiths, in the way that he suggests. I do not think one can say that one values parental choice and then not offer parents something that they have strived to offer to their children.
Again, as in relation to my earlier amendment, these are schools, as I said in my opening remarks, where the fees, particularly in the Muslim and Jewish communities, are often two-thirds or half of a state-funded place. We are very concerned that this will result in children being educated at home, which carries with it certainly limitations in terms of socialisation for those children, at best, and, at worst, potentially wider risks to those children.
Lord Khan of Burnley (Lab)
I am conscious that the noble Baroness made a strong point; it has just come to my knowledge that I did not address it in my response. We estimate the overall impact to be that business rates changes will lead to around 3,100 fewer places in the private sector. Of those 3,100 pupils, the Government expect 2,900 to move to state-funded schools. The remaining 200 pupils will be international students returning to schools in their home nations, or domestic students moving into home-schooling.
The noble Baroness talked about home-schooling and mentioned the Children’s Wellbeing and Schools Bill. The Government will introduce a duty on parents to inform their local authority when they choose to home-educate their child. Measures in the Children’s Wellbeing and Schools Bill will ensure that the most vulnerable children do not slip under the radar of the professionals who are there to protect them. I am grateful to the noble Baroness for allowing me to intervene to say that the overall impact of this transition for private schools is on around 3,100 pupils.
Baroness Barran (Con)
I thank the Minister for that additional clarification, but the reality is that it is one thing if those 3,100 pupils are spread across the country, but quite another if they are in a handful of local authorities that are already full. I beg leave to withdraw my amendment.
Lord Moynihan
“(5A) An institution is not to be considered a private school for the purposes of sub-paragraph (3) if 10% of students are in receipt of bursaries or scholarships for sporting excellence.”
Lord Moynihan (Con)
My Lords, in moving Amendment 67 I will also speak to Amendment 69 in my name. Both highlight the importance to this country of the contribution made by the sports facilities of independent schools and the expertise of their coaches, support staff, groundsmen and groundswomen in the independent sector. Both amendments seek to find ways of protecting and promoting opportunities for young people in sport. Both reflect the deeply damaging effect that the combination of the imposition of VAT and rates, and the increase in national insurance contributions, will have on the future success of British sport at all levels.
I declare my interests in sport, which are set out in the register. I will today draw on my time as a former Minister for Sport, chair of the British Olympic Association during London 2012 and, more recently, my three years as chair of governors at Haberdashers’ Monmouth School and now as sports ambassador for that school, which is in support of the outstanding leadership work undertaken by the great Welsh rugby international, Richie Rees, director of the Haberdashers’ Monmouth School sports academy, who pilots the school’s successful sports programme.
In speaking to these amendments, I contend that the Government should encourage state school sport wherever possible and do everything they can to encourage the independent sector to promote opportunities for sport in its schools, and, most importantly, for school sport with the local clubs and communities that use their facilities. The strength that these programmes generate at the base of the pyramid is what, at its apex, delivers our world-class, leading sportsmen and sportswomen. I appreciate that in doing so, I need to justify the importance of sport in schools. That is not difficult. We live in a time of growing obesity. School sport promotes physical health improvements, develops social skills, encourages teamwork and is central to learning how to win and how to manage losing. Sport boosts self-esteem and confidence; it teaches discipline and resilience; it is a major mitigating factor against absenteeism in schools; it promotes optimism, generates pride and positively impacts on academic performance by enhancing focus and concentration.
The phrase “Mens sana in corpore sano” is as relevant today as it was when Juvenal wrote it. Our young people should be encouraged to be not only physically fit and well but mentally sound and balanced, and sport provides the framework for a healthy mind in a healthy body. It teaches resilience, yet the state sector in this country lags close to the bottom of the global league for engagement in sport, adequately trained PE teachers and sports facilities, many of which have aged beyond their life expectancy. This is not a party- political point; a steady decline applies to all Governments over the past 20 years. Local authorities have consistently fallen behind in the provision of, for example, swimming pools, sports facilities and open spaces. Sports is a discretionary line item spend in local authorities and, inevitably, has taken the first hit in budget savings.
I emphasise to the Committee that the independent sector needs government support, not state-imposed business rates as in Clause 5. I draw the Committee’s attention to the contribution that independent schools make to sport. At the Olympic Games in Paris in 2024, 33% of Team GB’s medallists attended independent schools. In Tokyo in 2021, 40% of Team GB’s medallists attended independent schools. In Rio in 2016, it was 31% and, in London in 2012, 36%. Yet only 7% of our children go to independent schools, so top Olympians are over four times more likely to have been privately educated than the UK population overall. For me—and, I am sure, for the Minister—the tragedy behind those figures is the reality that there are so many talented young people in our state schools who are capable of representing this country at national and international level, but whose talent in never recognised nor developed, who have no access to sports facilities and good coaching and who miss the opportunities that every country from New Zealand to Poland, from France to Germany and from China to the US provides.
As my friend the Minister—he is a friend in sport—knows, in Burnley, the provision of and opportunities for sports takes young kids off the escalator to crime. It is relevant to the work of every department of state, from prison management to foreign policy, from health to education. Yet a majority of state pupils aged 14 to 16 —over 50%—are now doing only an hour of sport a week in school. The figure is worse still if you take into account the time it takes for many pupils to reach the lesson and get changed. A third of our children cannot swim. British school sport is in crisis.
Sadly, this is not a growth section of the Bill, but another example of where we drive yet another nail into the delivery of sport in independent schools. The reason that is so important is that independent schools have, rightly, had to make sure that their facilities are open to local communities and that the local population can come to use those facilities in their catchment areas. For all the independent schools now faced with the costs of VAT and rates, they will have to cut costs and reduce sports bursaries and scholarships to meet the savings demanded by government.
This will negatively impact on the delivery of sport in the UK. It will have a major impact on our sporting success, not just in terms of medals and national representation, but in the development of sports coaches, pupils and support staff who move out into the community—into the fields of participation—and on the development of excellence in a sector that has seen a steady decline in participation and growing obesity in society. To level the playing field more resources must be invested, both in state schools and though support for the work that independent schools do with communities. The solution is not to jeopardise the success of our young, up-and-coming students who benefit from sport and facilities in the independent sector.
We must reflect on the fact that many children are failing to meet the UK Chief Medical Officer’s guidelines for sport and physical activity. It is recommended that children participate in an average of 60 minutes of sport and activity every day, either in school or outside, but 50% of them are missing the target, while 29.6% are not even averaging 30 minutes of activity per day. The total hours of PE taught in English state schools annually has dropped by 41,000 hours since the 2012 Olympics—a decrease of 12%. There has been a 7% reduction in PE teachers in England in the same period.
This Bill will, I contend, worsen the situation since support for sport bursaries, free access for local communities to many independent schools’ sports facilities and the dual use of such facilities will have to be cut in order to balance the books after the imposition of Clause 5 and VAT on school fees. This will impact all independent schools.
Let me give the Minister the well-known example of Millfield School, which delivered 13 out of the 14 Millfield-educated and trained British athletes on Team GB through its means-tested financial support mechanism. The school funded 13 out of 14 of the Millfield-educated and trained British athletes on Team GB for the Paris Olympic Games who brought home between them seven Olympic medals and one Paralympic medal: four gold, three silver and one bronze. All received means-tested financial support from the school during their time at Millfield, but how can that continue? Where will the money come from when the Government themselves predict a significant fall in children going to independent schools and urge those independent schools to make major cuts to their budgets?
It would be fine if, when we looked at the country as a whole, the Government could stand up and say, “Don’t worry, the state sector is doing fantastically well in the provision of school sport”. Sadly, the reality is that that is not the case. As I say, this is not a party-political point. It is a tragedy that more than half of children aged between 16 and 18 are now estimated to be doing no school sport. Swimming is in crisis. Last year, Sport England found that 30% of children cannot swim 25 metres unaided when they leave primary school, a 7% increase on 2017-18. More than 400 public swimming pools have closed since 2010. One-third of primary schools now deliver 10 or fewer swimming lessons to pupils before they leave. The many children who have accessed independent school facilities, at the cost of those independent schools, will now find that those independent schools have to make significant savings. I agree with Sir Keir Starmer, who bemoaned that children were being locked out of emulating their heroes last year due to the lack of PE provision. The dual use of independent schools’ sports facilities is critical to addressing that issue but it is under threat, which will make matters worse.
People who are not physically active as children are, in turn, far less likely to be active in later life. The crisis in school sport is contributing to the long-term obesity epidemic. By the age of 11, 22% of children are already obese, which increases to 26% among adults. This measure, coupled with VAT on school fees, will make the outcome worse. Inactive children become inactive adults, who then become inactive parents. We need to reset children’s lifestyles if we want to change the nation’s health. If we did that, we would save far more than the VAT, rates and national insurance contributions proposed by the Government. This is not a problem that has emerged over the past six months; I fully recognise that. The London Olympic Games saw an unprecedented urban regeneration legacy in the East End of London and a great Paralympic Games, but it saw little to no sports legacy, which I have consistently argued for both inside and outside the House.
These two amendments seek to stem the tide of dual use in independent schools and to move away from that tide going out by increasingly looking to a solution that ensures that we can protect and support school sport in independent schools, especially where it reaches out to local communities, local clubs and state schools, which come in to use those facilities. The Government are telling all independent schools to cut costs, make savings, and put up fees to balance their books. Would the Minister be prepared either to sit down and think through finding a way of supporting British sporting success by accepting one of these amendments or to take them away to see what can be done to support British success in sport in independent schools and, through dual use, in communities that desperately need to rely on such schools for the use of their facilities in future and that reach out, as many independent schools have had to do, to the benefit of young children in the community who simply do not have access to sports facilities except in independent schools?
Dual use has been a magnificent development in independent schools over the past 10 to 20 years. It is now firmly embedded, but it is under threat because it is so costly for schools to continue to have that dual use, free in many cases. I was recently at Tonbridge School and noticed that it has a new running track put down every four years. The reason it is every four years is because it has double the number of people using it because the local community come to use it. Now, it says it may have to make savings by resetting it every eight years and reducing the number of people who use it.
If we took one of these amendments or worked hard together to resolve examples like this, it would be to the benefit of sport in this country, in the independent sector and, just as importantly, in the state sector as well. I beg to move.
Baroness Pinnock (LD)
I have very little to say in response to the strong plea from the noble Lord, Lord Moynihan, to improve sporting facilities and physical education for all our children in all our schools. The case he makes is undeniable, but if we wish to fulfil the aims of the strong case that has been made, it points to improving facilities and access in every school.
The town of Dewsbury, where I live, will no longer have a swimming pool. It is one of the most deprived towns in the country. That would be where my focus lies. I accept the case made where there is a private school that has strong a sporting history and excellent facilities, but in the area in which I live, there is none. I totally agree with the noble Lord, but the answer is more focus from the Department for Education on increasing sporting facilities for all our children.
Baroness Barran (Con)
My Lords, it will not surprise the Minister to know that I agree entirely with the amendments tabled in the name of my noble friend Lord Moynihan to ensure fairness and clarity in the treatment of private schools in relation to means-tested fee assistance and business rates. My noble friend was so eloquent and knowledgeable about the benefits of sport to all children. I am sure all across the Committee agree that he gave brilliant examples of both the physical and the mental health benefits. As someone who avoided sport at all costs in school and came to it later in life, I agreed with him and felt slightly guilty as I listened.
By preventing these schools being classified as private schools, the amendment highlights the value of their contribution and safeguards them from financial disadvantage. As my noble friend put so clearly, it would allow them to make sure that the sporting opportunities they offer can continue to grow, since they are so vital for our communities.
Amendment 69 addresses the valuation of sports facilities in relation to non-domestic rates and would ensure that the inclusion of sports facilities, which play such a crucial role in the development of young people, does not unfairly increase the business rates burden on schools. I am worried that the Minister will say that this amendment goes against the spirit of the legislation, so I am going to try a different approach to convince him both that this may amendment be one to focus on and to accept my noble friend’s suggestion to meet in order to try to find a way through.
First, as my noble friend said very clearly, whether we are talking about grass-roots local sport for someone as untalented and unable to hit a ball as I was or sport at the highest possible level, these schools provide opportunities in a way that we do not see widely in our communities. Secondly, my noble friend was clear about the importance of dual use for both local pupils in the wider community who do not attend the school and those who do attend the school.
The last thing I would stress is that the Minister has spoken on several occasions about the importance of raising money to invest in our state schools and the 93% of children who attend them. However, if we sat down to do the maths and tried to work out what it would cost to bring our state schools up to anywhere near the standard of what they can access in their local independent schools, I think we would find that, in capital terms, it is many times the amount that will be raised from VAT and the £70 million through this Bill.
I urge the Minister to take up my noble friend’s invitation to explore this issue and see whether we can find a way through. It is entirely reasonable to raise the bar and encourage independent schools to offer that dual use to make sure that their local communities benefit. Whether you take it from that perspective or a purely financial perspective, these amendments deserve great attention from the Minister.
Lord Khan of Burnley (Lab)
My Lords, I will now speak to Amendments 67 and 69 in the name of the noble Lord, Lord Moynihan. I just let him know that I have a great passion for rowing, developed at the time of Redgrave and Pinsent. Unfortunately, I was only two years old when the noble Lord won the silver medal in Munich in 1981, so I cannot classify him as my hero, but I know that he will be a hero to many across the country and the world.
These proposed amendments seek to introduce a carve-out in the Bill for private schools where 10% of students are in receipt of a bursary or scholarship for sporting excellence. I am aware that this type of fee support can be provided to any pupil who meets the requirements set by an individual private school; similarly, it can be provided on a means-tested basis. The other amendment tabled by the noble Lord, Lord Moynihan, seeks to ensure that no part of a private school that is used primarily for sport is included in the valuation of the school for business rates.
Providing means-tested fee assistance is one way in which charitable private schools can demonstrate public benefit—a requirement that accompanies charitable status. As I have stated elsewhere, the Bill does not remove the charitable status of private schools, and the Government expect them to continue to demonstrate public benefit, whether that is through the provision of means-tested bursaries or through other means, such as sharing facilities or working with state sector schools.
Ending the VAT and business rates tax breaks on private schools is a tough but necessary decision to help deliver on the Government’s ambition to eliminate barriers to opportunity by concentrating on the broader picture and towards the state sector, where over 90% of children in England are educated. Barriers to opportunity also appear in the sporting world, as I am sure the noble Lord is aware. The Government are committed to improving access to sports and physical activity for all. Everybody, no matter who they are or where they are in the country, should have access to the best possible provision of sports facilities and opportunities to get active.
These amendments would reduce the scope of the Bill measure by removing private schools from the definition and thus reducing the amount of revenue raised. This would limit the additional funding secured to help deliver the Government’s commitments on education and younger people. Furthermore, it would be operationally unfeasible to implement requiring local authorities to audit the financial operations of charitable private schools to ascertain whether they meet the threshold, as per the amendments, when calculating their business rates bill for the financial year.
I shall now address the other amendment in the name of the noble Lord, Lord Moynihan. I understand that part of the reason for it is a recognition that some private schools share their sporting facilities with neighbouring schools or the general public. As I have said, the Government expect private schools that wish to remain charities to continue to demonstrate a public benefit, such as by making their sporting facilities available more generally. That will not change. The amendment seeks to remove sports grounds from rating valuations. Exemptions of this nature, where part or all of a hereditament is removed entirely from rating valuations, are the most general and exceptional forms of support in business rates. They are reserved for cases such as agricultural land, places of public religious worship and, as we have already heard during the passage of this Bill, certain property used for disabled persons.
Despite the clear value of shared sports facilities at private schools, I do not think that it would be right to confer upon them such a level of benefit, especially when exemptions of this nature are not available to other sports facilities or even to charities more generally. Although these facilities are being used for sports and may be shared with the community, they remain part of private schools and are clearly used for their purpose; indeed, for many private schools, such sports facilities are a vital part of their offer to parents. It would therefore hardly be consistent with the overall purpose of Clause 5 to exclude them.
This story is very personal to me because I was an aspiring cricketer and did not make it through the system. I know that that was because of a lack of facilities and support at my local clubs and my local school, so I understand entirely the premise of what the noble Lord, Lord Moynihan, is attempting to do. I say to him and the noble Baroness, Lady Barran, that I will take this matter away and reflect on it; I will speak to colleagues, officials and other colleagues in the Treasury.
Let me let noble Lords know that the Government are committed to improving access to sport and physical activity for everybody. Sport and physical activity are central to achieving our health and opportunity manifesto missions, with the biggest gains coming from supporting those who are inactive to move more. Everyone, no matter who they are or where they are in the country, should have access to the best possible sports provision and facilities. The Government’s arm’s-length body, Sport England, is investing £120 million between 2025 and 2029 to increase participation in sport and boost diversity at the grass-roots level in order to give more and better opportunities to all young people to explore and develop their potential. This funding will increase and enhance opportunities for talented young athletes in England to explore and develop their athletic potential, regardless of their background or financial circumstances. Through creating more inclusive talent pathways, the Government want to increase participation in sport and boost diversity at the grass-roots level in order to give all young people more—and better—opportunities to explore and develop their potential. Sport England also wants to drive greater diversity within national teams, which will in turn demonstrate to the next generation of young people that they could have the same potential to reach the Games.
The PE and sport premium is a ring-fenced grant for eligible primary schools and other educational establishments. In March 2023, as noble Lords will recall, the previous Government announced more than £600 million of funding for the 2023-24 and 2024-25 academic years. Schools must use funding to make additional and sustainable improvements to the quality of the PE, sport and physical activity that they provide.
I just want to say that this is a vital debate. I thank the noble Lord, Lord Moynihan, for his contribution. The noble Baroness, Lady Barran, said something interesting: she was not interested in sport early on but got into it in later life. Let me be absolutely clear: I learned to swim only last year. I was taught by my daughter; my 10 year-old daughter taught me to swim. I would have loved to have swum much earlier but I did not have the opportunity, resources or means to do that, so I recognise exactly the sensitive nature of what we are trying to do. The Government are supporting this through their work and funding. In particular, I recognise that the PE and sports premium is a ring-fenced grant. We must make sure that all children are supported. I thank the noble Lord for his contribution but, for the reasons I have set out previously, at this moment in time, I am unable to accept these amendments; however, I hope to go away and reflect on what the noble Lord said. In the meantime, I hope that I have provided the noble Lord with satisfactory information in relation to the difficulties and technicalities in these amendments, and I ask him to withdraw his amendment.
Lord Moynihan (Con)
It has been a pleasure to have an exchange with the noble Lord, Lord Khan. I congratulate him on his love of and belief in cricket. I must say that one of the great heroes of Burnley, the noble Lord’s hometown, is Jimmy Anderson, and he, at his best, would have been very useful yesterday, when we were getting beaten by Afghanistan. He was no doubt inspired by Jimmy Anderson. Just for the record, the Minister very kindly mentioned the silver medal I got, but, although I may be looking old, I actually got it eight years later—not in Munich but in Moscow. It takes its toll, this place, after 20 years. I wish him well with Burnley’s promotion prospects. He is sitting alongside a very fine, assiduous Whip, who has heard quite a lot of football in the last couple of months. I wish him well but please, go easy on Leeds, because that is my club and we want to make sure that we get there first.
On a serious note, I appreciate the Minister’s comments about the importance of public benefit and charitable status and that he is seeking to continue to expect that to be delivered by independent schools. It is incredibly difficult for independent schools that now face up to 25%, if you put together the VAT, the cost of national insurance and the impact of this Bill. It would be difficult if you were to slap 25% on the costs of any business. Many parents find it exceptionally difficult to pay the fees to go to an independent school and get the benefit. It is difficult for the Government to turn around and say, “We are going to increase those fees by 25% by state diktat”, and still expect schools to do everything they are doing with the local community, at their cost. So, I am grateful to the Minister for saying that he will have a conversation, take this away and just see if there is something we can do, particularly where independent schools work effectively with local communities and provide opportunities for local children to use the facilities and often benefit from coaching expertise. We need to continue to support that and it is very difficult to see how we can support it at the moment, when around 25%, on average, will be lost to the balance sheet of those schools.
I look forward to meeting the Minister on that subject but, for the time being, I beg leave to withdraw the amendment.
Baroness Pinnock
“Section 5: impact assessmentThe Secretary of State must, within six months of this Act being passed, conduct an assessment of the expected impact of section 5 on state schools.”Member’s explanatory statement
This amendment is intended to probe potential knock-on consequences of the measures in section 5 of this Bill on state schools.
Baroness Pinnock (LD)
My Lords, Amendment 70 is in the names of my noble friends Lord Storey and Lord Shipley, neither of whom is able to be here. They estimated that this group of amendments, being very close to the end of Committee, would be debated in the Committee day allocated for next week.
The purpose of Amendment 70 is straightforward: it would require the Government to assess the impact of Clause 5 on state schools. It is reported that independent schools are already losing about 10,000 pupils, who are withdrawing from private education, and that is before the implementation of VAT, the decision on which was made earlier this year. If that is the case, the removal of that number of pupils will cost the state sector £92 million, because those young people will now have state-funded places in the state sector.
Two questions then arise. One concerns the additional cost, which is borne by the Government. The second concerns the fact that there are often clusters of private schools in certain locations. There is a clutch of private schools in Newcastle upon Tyne. There are two private schools in Bradford and two private schools in Wakefield—I am moving south. When you get to the south of England and London, there is obviously a large number of private schools. If children are withdrawn from them due to the rising fees, there will be an impact not just on the cost of their education but on finding appropriate school places in their localities. That is the first impact.
The second impact, which is of particular concern, is on children with special educational needs and disabilities. This measure will put pressure on the state sector, where, as we already know and as I said earlier, SEND is in crisis. It could be very difficult indeed for those young people to find places where there is the proper support to meet their needs. The additional funding and, in the case of young people with particular disabilities having to be accommodated in the state sector, the additional facilities needed to support them could unduly add another cost to the state sector. This is not being considered by an impact assessment on the provisions in this Bill; hence the need for an impact assessment, as set out by my noble friends, so that the Government can demonstrate that they have actually considered what the overall impact will be.
I look forward to hearing what the Minister has to say on that score and I beg to move.
Lord Black of Brentwood (Con)
My Lords, I support all the amendments in this group but I shall speak in particular to Amendment 72A in my name and that of my noble friend Lord Lexden. I refer to my earlier declaration of interests.
The Minister has been very emollient and courteous in batting off all our amendments today; I thank him for the way he has dealt with them. Although he and his colleagues throughout government like to bury their heads in the sand and pretend otherwise—as we have seen, I am afraid—the impact of their onslaught on independent education, of which the removal of business rates is just one strand, will have profound ramifications for not just the sector and the children educated in it but a wide range of public policy areas. This is a bit like that game of Jenga, which we have probably all played, where blocks of wood are taken out until a point comes where the removal of one of them causes the whole edifice to crumble. That is what is in danger of happening here, with the sustained attack on independent education in danger of causing policy failure in a wide range of other areas.
Consider quite how far-reaching are the consequences of this policy underpinned by Clause 5. It impacts on public health and the care of vulnerable children; on the future of music, drama and the arts in the UK, which we have talked about today; on military families and defence personnel; on state schools, whose class sizes will increase; on multiculturalism and respect for different faiths; on jobs, export and investment; on local communities, volunteer groups, charities and so on, which depend on partnership with independent schools; on sport, as we have heard so eloquently described; and on soft power and Britain’s standing abroad. As a result of this web of different aspects that will be affected and will impinge on so many different aspects of government policy, it is vital there is an impact assessment of the consequences of Clause 5 taken in conjunction with the Government’s other policy changes. That is what my Amendment 72A provides for.
Apart from everything else, Parliament has a continuing responsibility to scrutinise the Government’s actions in this area. That is what this House, in particular, is here for. To do that, we need not just the data provided by the industry’s own excellent associations but data from across government and a detailed assessment of its implications. Given the profound changes to policy that Clause 5 exemplifies, ripping up five decades of orthodoxy about parental choice, such an impact assessment is the very least we should expect to allow us to fulfil our responsibilities and make clear to the public what its consequences are.
Baroness Barran (Con)
My Lords, I shall speak to Amendments 71 and 72 in my name and express my support for Amendment 72A in the name of my noble friend Lord Black of Brentwood. Amendment 71 would require an impact assessment on rescinded facilities that private schools offer to state schools. Amendment 72 would require an annual statement of how many pupils have been moved into the state system as a result of Clause 5. Many in this Committee have expressed concerns about the impact of the combined tax measures on private schools introduced by this Government. We had a number of examples from the noble Baroness, Lady Pinnock. The changes announced in this legislation, combined with VAT applied to private schools, will no doubt harm many institutions. Indeed, as we have heard, we are already seeing the consequences of the Government’s decisions, with a number of private schools, including, most recently I think, Bedstone College in Shropshire, closing their doors.
As my noble friend Lord Lexden said in relation to an earlier group, there appears to be an emerging trend of small, rural private schools being particularly vulnerable. This raises the real risk of thousands of pupils across England being displaced and moving into the state system. As we discussed earlier, in particular parts of the country, that is not much pressure on the state system, but is potentially the reverse. However, in some parts of the country, such as Bristol or Surrey, schools are operating at full capacity. It is essential that we have proper oversight and transparency of the impact of this legislation on the state sector. It is with that in mind that I tabled Amendment 72. I also welcome Amendment 70 in the name of the noble Lord, Lord Storey. It is clear that all of us share many of the same concerns.
On Amendment 71, as we have heard, many private schools have a long history of collaboration with state schools and of sharing their facilities and resources. My noble friend Lord Moynihan gave an eloquent exposition on the value of sports grounds, but theatres and science laboratories provided by private schools offer many state school pupils opportunities that otherwise they might not have. Therefore, the closure of such schools would be felt by state school students as well as private school students as they would lose access to these resources. The Minister says—and I understand why—that it reflects the Government’s expectations for these schools to continue to offer public benefit, and one option for that is sharing their facilities, but, as we have heard, their income is being pressured from a number of different directions, including by this legislation, so I urge the Minister to consider my Amendment 71 and all the others in this group.
Lord Khan of Burnley (Lab)
My Lords, Amendments 70, 71, 72 and 72A, tabled by the noble Lord, Lord Storey, the noble Baronesses, Lady Barran and Lady Scott of Bybrook, and the noble Lords, Lord Black of Brentwood and Lord Lexden, are focused on the impact on state schools as a result of the Bill measure. They seek to require the Government to undertake a variety of assessments of the impact of Clause 5, covering between them: pupil movement; the impact on the state sector; partnerships between private and state schools; changes in staffing; and the availability of faith education to families which desire it. Furthermore, Amendment 72A from the noble Lord, Lord Black of Brentwood, seeks to ensure that any assessment is conducted in the context of broader tax changes affecting private schools since 1 January 2025, effectively seeking to create an all-encompassing review of the Budget tax changes and their effect on private schools.
The Government carefully considered their approach in designing the policy to remove charitable rate relief from private schools. On 29 July, the Government published a technical note on removing the VAT and business rates charitable relief tax breaks for private schools. The Government received and carefully considered over 17,000 responses to this note from a range of tax specialists, private schools, bodies that represent private schools and others. A detailed government response to this was published at the Autumn Budget. During development of these policies, the Government also met numerous key stakeholders representing schools, local authorities and, in the context of the VAT change, the devolved Governments. Furthermore, at the introduction of this Bill, the Government published a note setting out analysis of the impact of the business rates measure. This is available on the Bill’s page.
Two common themes in the amendments proposed are the impact on the state sector in pupil movements and partnership activity with private schools. As I have said previously, the Government estimate that in the long-run steady state, there will be 3,100 fewer pupils in the private sector as a result of the business rates measure. Of these 3,100 pupils, the Government estimate an increase of 2,900 pupils in the state sector in the long term. This represents approximately 0.03% of the total state sector pupil population.
The noble Baroness, Lady Pinnock, in particular, talked about the important point of SEND places. The Government work to support local authorities to ensure that every local area has sufficient places for all children of compulsory school age who need them, and work to provide appropriate support where pupils with SEND require a place at state-funded schools. She raised some really interesting points about reform. The Government are committed to reforming England’s SEND provision to improve outcomes and return the system to financial sustainability. We are providing an almost £1 billion uplift in high-needs funding in financial year 2025-26.
The noble Baronesses, Lady Pinnock and Lady Barran, both talked about whether regional variation with regard to pupil movement may arise as a result of the Bill measure. They said that some regions may be more affected than others. The Government work with local authorities to support place planning and ensure there is capacity in the state-funded sector to meet demand. We have confirmed nearly £1.5 billion of capital funding through the basic needs grant to create school spaces needed over the current and next two academic years, up to and including the academic year starting in September 2026.
As noble Lords know, all children of compulsory school age are entitled to a state-funded school place, and government support ensures that every local authority has sufficient places for children who need them. The Department for Education monitors place demand and capacity as part of its normal processes and will work with local authorities to meet any pressures. Data on the number of school pupils is published every summer. This provides information on the number of pupils at different types of school, so anyone can see how pupil numbers in state-funded schools and private schools have changed.
There have been suggestions that the cost of pupil moves from the private to the state sector will cancel out the revenue raised from the measure. Based on the average 2024-25 per pupil spending in England, the Government expect the revenue cost of pupils entering the state sector as a result of the measure to steadily increase to a peak of around £20 million per annum after several years. Overall, this means that the expected revenue will substantially outweigh the additional cost pressures.
Pupil numbers in schools fluctuate regularly for a number of reasons, and the school funding system in England is already set up to manage that. For individual schools, the Government therefore expect changes in pupil numbers caused by these changes to be managed in the usual way.
I have spoken only about business rates as that is the scope of the Bill. Noble Lords may also be interested in the impact of the removal of the VAT exemption, which has been mentioned. I direct them to the tax information and impact note that was produced to accompany the VAT change, which is publicly available on GOV.UK.
During the course of the Bill’s passage, we have heard a small number of examples of schools stating that they will reduce partnership activity with local state schools or will no longer be able to provide fee assistance. It is for individual private schools to determine how they manage any additional costs arising from the Bill’s measure. However, as set out previously, the Bill does not remove the charitable status of private schools, and they will need to continue to demonstrate public benefit as a requirement of that charitable status.
Data published by the Independent Schools Council indicates that a lot of partnerships relate to the hosting of joint events or providing access to facilities also used by private school pupils. In many of these partnerships, the activity undertaken also benefits the pupils who attend private schools, so it would not be in the interest of the private schools to stop this activity. The removal of charitable relief from private schools does not reduce these schools’ obligation to show public benefit. The Government do not expect partnership activity or fee assistance to decrease significantly.
I will touch briefly on the other areas that noble Lords have suggested should be examined, starting with looked-after children. Local authorities can place looked-after children at private schools where that is in the child’s interest. We do not expect placements funded by local authorities to be impacted by tax changes, as the local authorities can reclaim VAT. As with partnerships, we do not expect charitable schools to stop supporting these pupils as part of their demonstration of public benefit.
Faith has been a common discussion point in not just this group but earlier groups of amendments. As discussed earlier, on a previous group, the Government value parental choice and recognise that some parents want their children to be educated in a school with a particular faith ethos. Do I know that? Yes, I am the Faith Minister. Many stakeholders have been speaking to me about this issue. Pupils who follow a particular faith can be accommodated in the state sector. All children of compulsory school age are entitled to a state-funded school place if they need one and, as previously stated, all schools must comply with their obligations under the Equality Act 2010. In addition, schools are expected to promote fundamental British values, including the values of mutual respect and tolerance for those with different faiths and beliefs.
On the issue of staffing, the Department for Education annually publishes teacher numbers in private schools. Employment of staff is a matter for individual private schools. We do not anticipate that they will substantially reduce staff as a result of the business rates measure.
I appreciate that there is concern in this area, but we should remember that the removal of charitable relief from private schools will raise important revenue that will help the Government to deliver on their commitment to the cohort of the more than 90% of children who attend state schools. This will break down barriers and ensure that all have access to the same opportunities.
I am unable to accept the amendments, but I hope that the further information I have provided, in relation to the analysis and assessment from the Government that have already been undertaken and that we will continue to do, has reassured noble Lords. I hope that the noble Baroness, Lady Pinnock, feels able to withdraw her amendment.
Lord Lexden (Con)
The Minister has spoken at length about the Government’s hopes, intentions and plans. Surely, having done all that, it becomes more important to find out what happens in reality over the next few years: how independent schools are affected and how many children have their education disrupted. These matters need to be clearly established, and that surely points to a proper and full impact assessment.
Lord Khan of Burnley (Lab)
My Lords, I take the point that the noble Lord had made very strongly and passionately. In relation to this particular aspect and in contrast to the earlier part of our discussion in Committee related to multipliers, this is not a tax-particular perspective, which is why an impact note for the Bill is available. Of course, we are speaking to stakeholders and will continue to do so to ensure that we take everything into account. We have taken everything in account while bringing this Bill forward.
Baroness Pinnock (LD)
I thank the Minister for his response. He made the case for Amendment 70 in the name of my noble friends, I think. When I moved the amendment, I cited the 10,000 children expected to move from the private sector to the state sector, and the Minister cited 3,100. That is a discrepancy. Why? It is because they are both estimates. The Minister’s estimates are based on the Government’s analysis of expectation, but so is the private school sector’s.
The second pair of estimates that were cited related to the cost to the state sector of young people moving to it from the private sector. The estimate by the private sector is £92 million a year, whereas I think I heard the Minister quote a figure of £20 million being the anticipated cost after a number of years. He is not shaking his head—maybe I did not hear that figure correctly. However, the point I am making is that, in both cases, there is a discrepancy because these are estimates, not actual figures.
Lord Khan of Burnley (Lab)
I just want to clarify the point that I was making: the additional revenue to support the transition to the state sector represents substantially much more revenue than the cost to support that transition.
Baroness Pinnock (LD)
I accept the argument that was being made but the point I am making is not that point—that there is a net benefit to the Treasury, so the Government believe—but that both sets of figures were estimates that differed widely. This adds weight to the argument, which has been made in our debate on this group of amendments, around the need for an impact assessment following the implementation of the Bill. It is unfortunate that the Minister seems to be refusing to have one or suggesting that one is not needed.
With those points, I beg leave to withdraw Amendment 70.
Lord Thurlow
Member’s explanatory statement
This amendment seeks to delay the introduction of amendments 1 to 4 from 2026 to 2027 to allow more time for impact assessments and consultations to be conducted.
Lord Thurlow (CB)
My Lords, most of the amendments this afternoon have concerned schools. I want to return to commercial premises in my contribution on this group. Amendments 75 and 76 in the names of the noble Baronesses, Lady Barran and Lady Scott of Bybrook, are included; theirs deal with schools but the core principles of our three amendments are similar.
As we have heard from noble Lords, there is widespread concern at the haste with which the outstanding consultations and studies are to be carried out—presumably to coincide with the rating revaluation, which cuts in in a few months’ time. I am afraid that that is not a good enough reason to curtail the chance to do these studies properly; the noble Lord, Lord Lexden, has just made a powerful intervention on precisely that. We can rush it and create bad law or do it properly and get it right.
As I explained in our debate on the first group this afternoon, there is currently under way an update of rateable values, which, until I heard the Minister’s comments at that time, I understood was not to be completed until June. I am delighted to hear that it is possibly available immediately, as we would all love to see the figures.
It is unfortunate timing, as those businesses and schools will not know their new rateable values until then, yet here we are legislating in ignorance of this new and significant fixed cost. As explained, it is the third-highest cost to an RHL business after staff and rent. I stress that this amendment would change nothing concerning the material content of the Bill. It is merely timing. I simply want a further 12 months to assess the impact on these hundreds, possibly thousands, of businesses, particularly those small businesses that are trying to make decisions regarding future investment, which the country needs to invigorate growth, but cannot until they know their cost base.
The Earl of Lytton (CB)
My Lords, I support the amendment in the name of my noble friend Lord Thurlow, which relates specifically to Clauses 1 to 4. The business community was clearly expecting something rather different from what we have before us now, based on the Labour Party manifesto, so ably referred to by my noble friend. At the very least, we should be told the plans for where and when this longer-term reform, which was promised, will be mapped out. While the Treasury cannot make an accurate impact assessment until the new valuation figures are known, equally, businesses and their professionals have no idea either.
This rather matters, because it is not just a new list, as we heard from the noble Lord, which itself would come with inevitable transition arrangements, there is also the impact of the lower multipliers and the increased burden of supplements, which we believe will not be known until the Autumn Statement: that part will not be known, even if the contents of the new valuation list are known in advance. I am very doubtful whether lower multipliers will do much to move the dial on this, but I think the supplements will probably be a different matter altogether.
There is another point, which the noble Lord, Lord Lexden, touched on a few minutes ago. Parliament is entitled to be properly informed about the likely impact. I have suggested previously that this is not impossible, even without firm figures. The fact that the Government are not prepared to do this is, I feel, of particular concern, because they therefore cannot demonstrate that their policies on multipliers are actually competent and will achieve the support supposed and the rebalancing that has been claimed. For those reasons, I support the amendment, and particularly that more time should be allowed to consider the impact, to in some way soften the introduction and give businesses space to consider their options.
Baroness Barran (Con)
My Lords, I shall speak to my Amendments 75 and 76. Amendment 75 is a probing amendment to ensure that the Government have considered and made an assessment of how the provisions of the Bill will impact on the ability of students on bursaries to access universities. Despite the picture that the Government are trying to paint, private schools provide genuine benefits to their local areas and offer education at a significantly reduced rate to families, including low-income families, through their bursary schemes. We also know that pupils from independent schools are more likely to go to university. If, as was discussed in earlier groups today, these schools cannot find enough money to provide bursaries, or not in the same quantities as before, these students will no longer be able to access the same opportunities. With this in mind, I hope the Minister can reassure me that the Government have thought about this and perhaps give the Committee his assessment of its impact.
Amendment 76 would delay the implementation of Clause 5 until 2026 to allow schools time to prepare properly. Despite this not causing a large fiscal impact on schools, they are facing a number of changes and have not being given time to adapt and readjust their budgets—most notably, of course, in relation to VAT—and this is having a real and very negative impact on the ground. As we have heard in Committee this afternoon and as the Minister knows, some schools have already closed as a result of the very abrupt imposition of VAT in the middle of the school year. The amounts in this section of the Bill will make very little difference to the Government and there is no real reason to implement immediately. Rather, it would show some good will on the part of the Government to give schools time to prepare.
Turning to Amendment 74 in the name of the noble Lord, Lord Thurlow, although we are not supporting this specific amendment, I agree with him that what is lacking from the Bill is any firm indication or clarity about what its impact will be. My understanding, and perhaps the Minister can confirm this, is that the Government will not decide the multipliers until after the spending review, although I think the noble Lord, Lord Thurlow, suggested that it might be earlier. Therefore, as we have discussed throughout Committee, not having published an impact assessment is a failure on the part of the Government. I agree with the noble Lord that not enough is known about the impact that the Bill will have on our economy and, crucially, on our high streets.
Lord Khan of Burnley (Lab)
My Lords, I will now speak to Amendment 74, moved by the noble Lord, Lord Thurlow, and Amendments 75 and 76, tabled by the noble Baronesses, Lady Barran and Lady Scott of Bybrook. These amendments seek to delay the implementation of the Bill’s measures. Amendment 74 seeks to delay from 2026 to 2027 the commencement of Clauses 1 to 4, covering the new multipliers. The reasoning behind this proposal, as provided by the noble Lord, Lord Thurlow, is to provide more time to allow for impact assessments and consultations to be conducted.
As I have set out elsewhere during the course of the Committee proceedings, the Treasury has committed to publishing analysis of the impact of the new multipliers at the Budget. To clarify, the 2026 re-evaluation of the multipliers is ongoing and is not yet completed. We expect it to be published around the Budget.
As noble Lords will remember, the Bill is the Government’s first step in transforming the business rates system, and to delay it would delay the Government’s progress in undertaking this broader ambition over the course of this Parliament. Furthermore, it would delay the introduction of the new permanent tax cuts for qualifying retail, hospitality and leisure properties, meaning that those businesses would have to wait a further year for the lower multipliers.
Amendment 75 seeks to delay the implementation of the removal of charitable rate relief from private schools, pending an impact assessment focused on access to university for pupils in private schools in receipt of means-tested fee assistance. Amendment 76 would more generally delay by one year to April 2026 the same measure in Clause 5.
I understand the concerns that the swift implementation of Clause 5 from 1 April this year does not give private schools or local authorities time to prepare for the change—a point which the noble Baroness, Lady Barran, just touched on. However, the Government announced this change in July 2024, stating then that it would be implemented from April 2025, subject to the passage of legislation. As such, private schools have been aware of this change for some time. Private schools that are impacted by the change already pay business rates. They already have a rateable value, they do not have to register with their local authority, and it is very simple for them to calculate their additional business rates bill. As these schools are already known to local authorities, the removal of the charitable relief should also be straightforward from their perspective. The Government are engaging with local authorities to support them through this change.
Delaying implementation of the Bill would forego approximately £140 million per year in funding, delaying the Government’s intended investment to deliver their commitments to education and young people and to support investment in our state sector, where more than 90% of children in England are educated.
The amendments call for an impact assessment. As Members of the Committee know full well, tax measures are not subject to full impact assessments. I continue to say this to the Committee because it continues to be correct, as it was under previous Governments. Despite this, my department has produced detailed analysis of the impacts of Clause 5, which was published alongside the Bill, as I stated earlier.
Amendment 75 also raises the question of access to higher education. Access to higher education should be based on ability and attainment, not background. Opportunity should be available to all, and it is the Government’s aspiration that no groups are left behind. That is why we are seeking, through this Bill, funding for new investment in the state sector.
I am also aware that there is concern across the Committee that the Bill’s measures may result in private schools that are charities reducing their charitable activity, of which the provision of means-tested bursaries is one such activity. It will be for individual private schools to determine how they will meet any additional costs as a result of the Bill’s measures, but they could, for example, reduce surpluses or reserves, cut back on non-essential expenditure, increase fees or use a combination of different approaches.
It is important to note that the measure does not remove the charitable status of these schools and charitable schools will continue to operate as charities. They must continue to demonstrate that they meet public-benefit tests, and the Government expect all charitable schools to continue to demonstrate this to retain their still very favourable status as charities. No other tax changes specific to their charitable status will affect private schools. They will still be able to claim gift aid on donations and will not pay tax on their charitable surplus.
As I have said, we cannot agree to delay the implementation of these measures. I hope that noble Lords can see this and will agree not to press their amendments.
Lord Thurlow (CB)
I thank noble Lords who have taken part in this final group, and I thank the Minister for offering an opportunity to meet to discuss this in more detail, which I will take up. I remain concerned about the unintended consequences of the rush to get this through, for both schools and businesses but, with those comments, I beg leave to withdraw the amendment.