Non-Domestic Rating (Multipliers and Private Schools) Bill

Report stage
Tuesday 18th March 2025 Lords Chamber

Report

15:37

Clause 3: Application of multipliers

Amendment 1

Moved by

[Baroness Pinnock]

1: Clause 3, page 3, line 26, after “hereditament” insert “other than a qualifying healthcare hereditament”
Member’s explanatory statement
This amendment, together with Baroness Pinnock’s amendments to page 3, line 37, page 4, line 6, and page 4, line 17, would have the effect of retaining the standard multiplier for hospitals, medical and dental schools, or any other healthcare setting to be determined by regulations.

[Baroness Pinnock (LD)]

My Lords, I remind the House of my relevant local government interests, in particular that I am a councillor in Kirklees. At the outset, I wish to express my thanks to the Minister and his officials for their time in discussions on the details of the Bill. I had assurances at those meetings that the measures in the Bill are not designed to increase business rates revenue, although that ignores the consequence of the Bill that, for RHL—retail, hospitality and leisure—businesses, Covid relief disappears, and the difference is partly funded by those businesses. Importantly, the Minister also confirmed that local government funding in totality would not be affected and that, “as far as is practicable”, no individual council would find itself worse off as a result.

What is unfortunate, though, is that the Government have been unable to share the basic assessment that must have taken place to provide the assurances given. Thus there is no clarity about the impact of these changes on individual properties—hence Amendment 1 and consequential Amendments 9, 10 and 17 in my name and that of my noble friend Lord Fox, which seek to understand the impact of the changes on the NHS.

The useful information shared by the Minister from the Valuation Office Agency shows that 290 NHS hospitals will be caught by the new £500,000 threshold. Given that the standard multiplier is currently 0.546, or 54.6 pence, in the pound and the Bill enables the multiplier to increase to 0.646, or 64.6 pence, in the pound, for these higher-band properties, this will cost those hospitals dearly.

I warned the Minister that his failure to provide examples would mean that I did the calculations. For example, the Great Ormond Street Hospital for Children has a rateable value of £5.9 million, and its business rates costs will rise from £3.2 million to £3.8 million, an additional burden of £600,000 per year on business rates alone. The John Radcliffe Hospital in Oxford has a potential business rates increase from £3.4 million to £4.1 million. Going further north to my own county of Yorkshire, the Hull Royal Infirmary could see its bill rising from £1.8 million to £2.1 million. Those are typical figures for hospitals across the country. I do not believe that it is the Government’s intention to reduce hospitals’ ability to drive down waiting lists, yet that will be the impact of these changes and the consequent higher charges.

Amendment 1 seeks to exclude hospitals from the higher threshold multiplier to prevent a further burden of taxation falling on the NHS. The Minister will, I am sure, want to comment on the fact that, while NHS hospitals will see a huge rise in their rates, about one-third of private hospitals have charitable relief of 80% of their rates. He will no doubt say in his reply that it is not possible to allow exclusions to the Government’s scheme, but that just demonstrates that the whole business rates system is no longer fit for purpose, because the rateable values on which it depends are inevitably higher in cities and urban areas, while distribution warehouses benefit in rateable terms from being out of town. The whole system is topsy-turvy.

The Government’s express purpose was to tax those fulfilment warehouses more to help save our high streets—in their words. They failed to say that this will also clobber our NHS. That will not do. Hospitals must be excluded from the higher multiplier. I beg to move.

[Baroness Scott of Bybrook (Con)]

My Lords, first, I declare my interest as a vice-president of the Local Government Association. The amendments in the name of the noble Baroness, Lady Pinnock, seek to retain the standard multiplier for healthcare hereditaments. They address the unintended consequences of the Bill, as we have heard very strongly from the noble Baroness.

As mentioned in Committee, I understand the desire for a reformed business rate system and, indeed, if such a system were proposed, I would be more inclined to support it. But despite the Government’s manifesto commitment to level the playing field between the high street and the online giants, the Bill does not deliver on that. I understand that this is only the first step in the Government’s plans, as I am sure the Minister will point out, but it is not a step in the right direction.

15:45

A number of sectors will be negatively affected by the changes proposed in the Bill, including anchor stores, which we will debate shortly. The Liberal Democrats are seeking to protect our hospitals and our health sector, as we have heard. The Government are doing the opposite by giving to the NHS with one hand and taking away with the other. I hope the Minister will look favourably on these amendments, but if the Liberal Democrats choose to divide on this issue, we will support them.

[The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government (Lord Khan of Burnley) (Lab)]

My Lords, these amendments seek to remove healthcare hereditaments, including medical and dental schools, from the higher multiplier.

Throughout the passage of the Bill, the Government have explained the importance of taking a sector-agnostic approach with regard to the application of the higher multiplier. This is the fairest approach to ensure that the Government can sustainably fund the lower multipliers. In Committee I set out that of the 16,780 properties at or above the £500,000 threshold, based on the current rating list, only 350 are in the health sub-sector. Of these, 290 are NHS hospitals and only 30 are doctors’ surgeries or health centres. These numbers are rounded to the nearest 10.

This Government fully support the healthcare sector. Our great National Health Service, which has delivered universal healthcare for nearly 80 years, is something the Government are extremely proud of. We recognise that the NHS needs support and reform to ensure that it can continue to deliver world-class healthcare to all for the next 80 years and beyond. The noble Baroness may feel that I do not appreciate her point, but I assure her that I do. This Government want to create an environment in which the healthcare sector can thrive. As I have set out, the impact on this sector is limited and where it does apply, much falls to the public sector.

The noble Baroness will be aware that phase 2 of the spending review is currently under way, following the fixing of the spending envelope at the Autumn Budget. As part of setting departmental budgets at the spending review, the Government will consider the full range of priorities and pressures facing departments. This includes considering any impact of the higher multiplier.

I am sure noble Lords appreciate that I cannot pre-empt the outcome of the spending review, but I reassure them that the impact of the higher multiplier on the public sector is an active consideration. The immunity of the Crown from business rates was removed 25 years ago and since then all of the public sector has been on the same footing as business. The Government are not going to reverse this position, which was intended to drive fairness between the public and private sectors and the most efficient use of property in the public sector. For these reasons, I cannot accept the noble Baroness’s amendment and I respectfully ask her to withdraw it.

[Baroness Pinnock (LD)]

My Lords, I thank the Minister for his response, which, I am afraid, was much as predicted. I really do not know how a Labour Minister can say that the Government are agnostic about our NHS. You can be agnostic in approach, but surely not about the NHS. The Minister said that they are taking an agnostic approach to the sector, but that includes agreeing that our NHS will be clobbered by even higher rates bills than it has now, while some private hospitals have the 80% charitable relief. That will not create the level playing field that he talked about.

On these Benches, we are determined to support our NHS to enable it to push down waiting lists. Given that the Minister was unable to give me any hope that there will be a change of heart, I beg leave to test the opinion of the House.

15:50

Division 1

Ayes: 272

Noes: 157

16:00

Amendment 2

Moved by

[The Earl of Lytton]

2: Clause 3, page 3, line 26, after “hereditament” insert “other than a qualifying retail, hospitality or leisure hereditament”
Member's explanatory statement
This, together with another amendment in the name of the Earl of Lytton, would have the effect of leaving large RHL properties paying the standard multiplier rather than the supplement, consistent with previously stated policy intentions.

[The Earl of Lytton (CB)]

My Lords, as this is the first time I have spoken at this stage of the Bill, I declare an interest as a chartered surveyor, a member of the Rating Surveyors’ Association, and a member of the Institute of Revenues, Rating and Valuation. In fact, these are the three bodies referred to in Amendment 32, which is in this group, under the name of the noble Lord, Lord Thurlow.

I thank the Minister for his willingness to engage and for yesterday’s meeting—I appreciate that very much. If it is any comfort to him, that is at least part of the reason why I felt that I should not press these amendments today, most principally because they go to the heart of the philosophy of how the financial backcloth of rating is dealt with. That would be a very diffuse target at which to try to aim at this stage in the Bill.

Before dealing with Amendment 2 and speaking to Amendment 11, which is also in my name in this group, I remind your Lordships how we got here. During our deliberations in Grand Committee, the Minister referred to the 2024 Budget, in which the Chancellor set out a Budget to “fix the foundations” and to take

“difficult but necessary decisions on tax, spending and welfare to repair public finances, to increase investment in public services and the economy … Part of that agenda included transformation of the non-domestic rating or business rates system, including delivering on the Government’s manifesto pledge to support the high street”.

The Government’s manifesto pledge did a good deal more than just support the high street: it talked about dealing with the online giants. That is why Amendment 1, which we just voted on, in the name of the noble Baroness, Lady Pinnock, causes me to remind your Lordships of what I reminded them of at an earlier stage of the Bill: the very large number of non-target species that are swept up by this particular Bill. I enumerated a significant number of them—not all, I might add—of which hospitals were one.

The Minister went on to say that the Government intended to provide

“a permanent tax cut for qualifying retail hospitality and leisure properties and, in doing so, better ensure the ongoing vibrancy of high streets up and down the country”.

He then referred to this whole

“challenging fiscal position that the Government inherited”.

We can fairly say that business ratepayers have been subject to an unsatisfactory means of levying this particular tax for a very long time. I have been on my feet on innumerable cases during the two periods that I have been in this House challenging that perception and showing how this is very negative in its effects on business confidence.

The Minister said that the system

“should work in a sustainable way”.

There are two bits of sustainability: whether the Treasury can balance the books and find the most convenient shortcut through in dealing with its affairs, and what you might call the politically most expedient way. The other way is the one that looks at how businesses make decisions and how the prospect of a surcharge impacts on what businesses do. I have said many times in this House that it is a poor tax that itself starts shifting the dial for people trying to get away from its effects.

The Minister said that

“the Government are asking those with the most valuable 1% of properties to pay more to support the viability of high streets”.

I find it difficult to relate the benefit to the high street by the means shown in this particular Bill. The Minister also said that the process that the Government has alighted on would be equitable and would

“capture the majority of large distribution warehouses, including those used by online giants”.—[Official Report, 24/2/25; cols. GC 444-45.]

Fair enough, but it catches an awful lot else besides, so it is very poorly targeted.

On 17 March, in the other place, in a Written Answer to a Written Question from the shadow Secretary of State for Levelling Up, the Exchequer Secretary commented first on the Valuation Office Agency publishing its official statistics detailing the number of non-domestic properties in England with a rateable value of £500,000 and over, broken down by sector. He then went on to say:

“There is no special category code for ‘internet retail warehouses’. You may find the data for ‘retail warehouses and food stores’, and ‘large distribution warehouses’ helpful”.


I do not find that in the least bit helpful. These are charging people who are not part of the target species. It appears that the Government have no idea how many large warehouses are occupied by the online giants that they claim to be targeting in the first place.

There are lots of questions here, some of which have already been put on previous occasions by the noble Baroness, Lady Pinnock. Why was this threshold set at £500,000? What is the metric? How are the Government able to justify this figure? The manifesto said that the reforms would

“raise the same revenue … in a fairer way”.

When the Government are planning to raise an additional £2.65 billion by making businesses pay for the retail, hospitality and leisure relief and discounts, which up to now have been funded centrally, that makes me wonder precisely what the business of raising the same revenue in a fairer way amounts to.

If the intention was really to charge more to online giants, one would have to ask why the 90% of hereditaments to which the supplement might apply—the £500,000 rateable value and above—are dealing also with warehousing and other things that are clearly outside that. Some 90% of what they propose to charge does not fall within the category of online giants. It goes on from there. I have already raised the question as to why we cannot get to a more comprehensive reform of business rates—already referred to by the noble Baroness, Lady Pinnock—because this is starting to be an active disincentive to businesses.

That question is not answered by saying that other variable cost elements for businesses are better in this country than elsewhere. This is a direct, in-your-face fixed cost that businesses have to deal with. I cannot see that this is consistent with a growth agenda that intends to attract inward investment.

My interrelated Amendments 2 and 11 are aimed at not worsening the situation for the large retail, hospitality and leisure properties, the inclusion of which in the supplement cannot be justified on property terms. I would prefer the discounts to be applied to all such RHL properties, but this would be even less acceptable to the Government. However, it involves the removal of less than 25% of the total rateable value to which the Bill proposes to apply the supplement. When one looks at the mathematics of this, it really does not stack up. Even at the maximum level of potential supplement, it is substantially less than the extra revenue that the Government will raise from shifting the costs of the RHL relief from the Exchequer to the business rate payer—so it is not very large beer.

I said yesterday in a meeting with the Minister, and I say again, that I and a lot of rating practitioners, and certainly business rate payers, would be a great deal happier if we could have an assurance that the Government will move at reasonable pace to remedy the deficiencies of the current business rate system by whatever means. There needs to be comprehensive thought about this whole process so that we do not simply drift on and create more and more division and less and less confidence. Even at this late stage in the process, can the Minister give a reassurance that this is forthcoming within the current Government, for the better achievement of their aims on investment and growth? I beg to move.

[Lord Shipley (LD)]

My Lords, I remind the House that I am a vice-president of the Local Government Association. I have great sympathy with the contribution of the noble Earl, Lord Lytton, and agree with the conclusions that he has so carefully reached. I know that these Benches would support his amendments.

Amendment 32, tabled by the noble Lord, Lord Thurlow, concerns an important issue. The Government promised in their manifesto to make the payment of business rates fairer and more balanced between retail distribution warehouses and high street shops. Indeed, the Chancellor said in the last Budget that she wanted to shift the burden. Yet all the signs are that nothing will happen until next year at the earliest. I hope that the Minister can give us an update on the timing for the outcome of the review that the Government apparently are undertaking. I say that because this is, as the noble Earl made clear, an urgent matter. Business rates are a major burden on retail high street shops. Sainsbury’s said a few months ago that half of its total tax bill is for business rates.

The system needs urgent reform. One step would be to accept the proposals in this group of amendments. In particular, Amendment 32 sets deadlines for when the Government must have acted. I hope that, if there is an opportunity, we on these Benches can support the amendments in this group.

[Lord Thurlow (CB)]

My Lords, I do not wish to talk for more than a moment, as I have Amendment 32 coming in the next group.

[Noble Lords]

It is in this group.

[Lord Thurlow (CB)]

I apologise. In that case, let me just consult my notes.

My proposal is not dramatic and does not involve tax; it tries to define a very difficult aspect of non-domestic rates: the effect on retailers. I thank the Minister for his time last night, when we discussed my proposal at length. However, subject to his comments in a few minutes, I will decide whether to press my amendment later.

16:15

The onslaught of internet-based retailing is not going to cease; it is going to grow. We cannot prevent that, but we can try to help our high streets cope, survive and grow, with fairness and a level playing field. Non-domestic rates in the retail arena are the first step of that process.

I am anxious not to repeat comments made in Committee. I also want to stress that my amendment refers to the large, Amazon generic type of retailer that is not represented on the high street. I am not focusing my amendment on the Marks & Spencers of this world, which have a huge and vital high street presence but also have fulfilment centres in warehouse locations that deal with their internet retailing and supplies; they are very different beasts. The Marks & Spencers of this world provide the cohesion, the glue and a lot of the attraction to the high street for local communities. They are not the target of the definition for a new use class that I would like to see constructed for the warehouse retailing giants.

My proposal suggests that, within three months of the Bill becoming an Act, a committee must be formed that must respond with its recommendations within three more months. That committee would be made up of experts and professionals in their field: chartered surveyors, rating surveyors and others who have been practising in the field for a long time. I would be delighted if the VOA and the Treasury were represented too—I see no reason why not. We are trying to achieve fairness and a level playing field.

Even announcing this inquiry would bring so much cheer to the high street. Shops, in particular small retailers, are going bust every week, and rates are the third-highest cost to a high street retailer. I did a little bit of research and asked Colliers—a nationwide firm of surveyors—for some help. I asked for both the high street rental value and the rental value of warehouses in Burnley. I was intrigued to learn that high street rents, which are constructed using a complicated formula, represent only 25% of what a warehouse in Burnley would cost on a floor-area basis. However, the warehouse in Burnley, if it is for a guerilla retailer, will produce far more in profits per square foot than anyone on the high street. My example refers to the prime pitch in Burnley high street and the latest pre-let of a big warehouse on the edge of Burnley.

The numbers themselves explain the unfairness of the current system. I am talking not about the £500,000 threshold that is being proposed but about the simple rates burden. All I seek is an inquiry; it would report in a year and would not be lost in the long grass.

[Baroness Pinnock (LD)]

My Lords, the noble Earl, Lord Lytton, is right to challenge the Government’s intentions in relation to saving our high street. The Government are in a quandary: retail, hospitality and leisure businesses have continued to benefit from Covid-related relief, which is currently at a rate of 75% but will fall to 40% from April and not exist in the following year. The challenge for the Government then will be to square the circle of the commitments made.

The slogan of saving the high street depends on ensuring that businesses at the heart of the high street are not priced out of financial viability by large changes in business rates—hence the Bill. However, the evidence from Wales and Scotland—which have and have used the right to alter the Covid rate relief in a previous year—is that the effect of the reduction in Covid relief was a rise in business closures above what would normally be anticipated.

As will be debated in the next group of amendments, large retail stores are an essential ingredient for a thriving shopping centre in a city, large town or retail park. It is already clear that retailers are moving more and more of their business online, partly in response to consumers but also as a consequence of the rising costs of bricks and mortar retailing—our high street that the Government intend to save. The high street will not be saved unless these larger stores are classified with all other RHL properties and charged the lower multiplier. A failure to do so simply underlines the Government’s inability to appreciate the rising taxation burden imposed on high street retailers.

Amendment 32 in the name of the noble Lord, Lord Thurlow, seeks to push the Government into wider reform of the system to fulfil the promises made about charging more to fulfilment warehouses—the Amazons of this world—to help level the playing field with traditional retailers. As the Minister knows, I have regularly provided evidence of the iniquity—I should have said inequity, but it is probably iniquity as well—of the business rating system, which has failed to be radically changed in the face of the online revolution. If the noble Lord, Lord Thurlow, wishes to test the opinion of the House on his proposals to push the Government into making deeper and lasting reform of the property taxation issue, we on these Benches will support him.

[Lord Jamieson (Con)]

My Lords, I declare my interest as a councillor in Central Bedfordshire. I will speak to the amendments in the names of the noble Earl, Lord Lytton, and the noble Lord, Lord Thurlow.

Amendments 2 and 11 are broad amendments that seek to retain the standard multiplier for all retail, hospitality and leisure hereditaments, rather than them facing higher business taxes. The noble Earl, Lord Lytton, is right to raise the issue of higher taxes on RHL businesses above the £500,000 threshold, as the Government’s stated policy intentions are not reflected in the reality of this Bill. We share similar concerns about the impact that this will have on high streets, which is why my noble friend Lady Scott of Bybrook has tabled an amendment to protect anchor stores and I have tabled an amendment on the cliff-edge effects of the £500,000 threshold.

Amendment 32 in the name of the noble Lord, Lord Thurlow, seeks to introduce a review of the introduction of a specific use class that targets businesses that operate solely out of fulfilment warehouses—the Amazon tax. The Bill does not deliver on the Government’s manifesto commitment to ensure that online giants are paying their fair share of business rates. Indeed, we expected this Amazon tax to be introduced through this Bill, and it is disappointing that the Government have not delivered anything close to such a reform in this legislation. As such, we will support the amendment from the noble Lord, Lord Thurlow, should he choose to press it.

[Lord Khan of Burnley (Lab)]

My Lords, I thank the noble Lord, Lord Thurlow, and the noble Earl, Lord Lytton, for a very constructive and positive meeting yesterday. This group of amendments seeks to amend the approach taken in the Bill regarding the targeting of the higher multiplier. They would require the removal of qualifying retail, hospitality and leisure from the higher multiplier and commit the Government to undertake a review of the merits of creating an additional multiplier and use class for fulfilment centres of retailers that do not have a material presence on our high streets. As set out at the Budget, the Government intend to introduce a permanent tax cut for qualifying RHL properties from 2026-27 by introducing two lower RHL multipliers for these properties that have a rateable value below £500,000. The Bill makes provision to enable this through secondary legislation.

In consideration of the challenging fiscal environment that this Government face, it is important that the permanent tax cut is funded sustainably, which is why the Government intend to introduce a higher multiplier to fund the tax cut from within the business rates system. It is the Government’s intention for the higher multiplier to apply to all properties with a rateable value of £500,000 and above. This ensures that sufficient funding is raised to enable the Government to provide that permanent tax cut for RHL properties with rateable value below £500,000. I thank noble Lords here today for their contributions on this topic.

The Government recognise that a small number of RHL properties fall above the £500,000 threshold. However, the helpful information published by the Valuation Office Agency shows that this is comparatively small. As per the current rating list, of the 16,700 properties in England with a rateable value at or above the £500,000 threshold, a little over 3,000 fall into the shops subsector. There is more behind this: of those falling into this subsector, around 72% are supermarkets, large food stores or retail warehouses. That leaves fewer than 1,000 stores, of which around 600 are located in London and the south-east. For most other regions, the number of shops affected is fewer than 50.

A similar pattern is present when looking at hospitality and leisure sectors. That data also shows that 670 hereditaments fall into the assembly and leisure subsector, of which 380 are located in London and the south-east. Only 550 fall into the hotels, guest and boarding, and self-catering subsector, of which 450 are located in London and the south-east. So the impact is not widespread when it is considered that there are over 450,000 shops; over 80,000 hotels, guest and boarding, and self-catering properties; and over 180,000 assembly and leisure properties with a rateable value below the £500,000 threshold. It is imperative that any tax cut is funded sustainably, so the Government do not intend to remove any properties from the higher multiplier.

Against the challenging fiscal environment, the Government have to take tough decisions. This is the fairest approach that ensures a sustainable solution to ensuring that the permanent tax cut for RHL properties can be funded from within the business rates system. For these reasons I cannot accept the amendments from the noble Earl, Lord Lytton, and I respectfully ask him not to press them.

I turn to Amendment 32 from the noble Lord, Lord Thurlow, and I appreciate his interest in Burnley warehouses. This amendment also concerns the new multipliers and how we might target online retailers that operate from large distribution warehouses and tend not to have a presence on the high street. This matter has attracted interest not just during the passage of the Bill but in the course of several reviews of business rates over recent years.

16:30

The noble Lord has brought a fresh perspective and idea to this familiar question, and I welcome that. He has raised an interesting suggestion about how we might in the future isolate those warehouses used by the online giants from those otherwise very similar warehouses used by, for example, supermarkets or high street retailers.

As I have said, this Bill is just one part of our plans to reform business rates. In relation to this Bill, the object of the higher multiplier is to ensure that the lower multipliers for RHL properties can be sustainably funded. The higher multiplier will affect fewer than 1% of properties. Targeting only online warehouses or even just warehouses more generally would cut the potential funding for the lower multipliers, so, in relation to the measures in this Bill, we do not see the need for different categories of property within the warehouse sector. For this reason, we are unable to accept the amendment.

However, improving the knowledge and data we hold on properties and ratepayers is an important part of our wider reforms. In the Transforming Business Rates discussion paper published at the time of the Budget, the Treasury confirmed its intention to deliver a system of digitalising business rates by March 2028. That project will allow us to match property-level data with HMRC business-level tax data. This will help us improve the way we target business rates and secure the type of data that the noble Lord is seeking through his amendment.

I understand that the noble Lord is concerned that the existing project may take too long and cover all business rates. I have looked at whether his amendment could be a faster route to the data. However, the business rates system covers more than 2 million properties and is operated by several parts of government and more than 300 local authorities. It is therefore vital that we adopt a systematic and digital solution in reaching this data on the warehouse sector. This is what the digitalising business rates project will do.

In addition, the noble Lord’s amendment does not just ask for a review but seeks recommendations and commits the Government to implementing those recommendations without knowing what they will be. I hope that the House will understand that this is not something that the Government can reasonably agree to do. However, as I said, I have looked further at this. I have asked my officials to take away the substance of the noble Lord’s amendment and explore how the information that he is seeking to prise out of the system can be found through the digitalising business rates project and how his suggestion can support that.

The noble Lord has previously mentioned professional bodies and the expert knowledge that they can bring on business rates. I agree. I assure the noble Lord that the digitalising business rates project is being developed in consultation with representatives of local government and the rating surveyors profession and that we will ensure that the RICS, IRRV and RSA continue to be consulted during its development, including on the definitional issues he identifies in his amendment.

On the question asked by the noble Lord, Lord Shipley, in relation to the timescale for further reform of the business rates system, the Government are creating a fairer business rates system that protects the high street, supports investment and is fit for the 21st century. Transforming the business rates system is a multiyear process and reforms will be phased over the course of the Parliament to provide certainty for businesses and local government finance. On 17 February, the Government published Business Rates: Forward Look on GOV.UK, setting out the timetable for further reform.

I hope that, with the explanation and assurances that I have given to noble Lords, the noble Earl will feel able to withdraw his amendment.

[Baroness Pinnock (LD)]

Before the Minister sits down, at the beginning of his response to the amendment moved by the noble Earl, Lord Lytton, he said that there would be a permanent business rates cut for RHL businesses. Yet, the House of Commons Library briefing states that the British Property Federation said in written evidence to the Public Bill Committee that there would be an increase in total business rates liability of £2.6 billion. Can the Minister explain that?

[Lord Khan of Burnley (Lab)]

My Lords, yes, I can explain that, because we are talking in particular about the retail, hospitality and leisure sector. The point is very clear. We cannot have a system where every year businesses do not know what their business rates bill is going to be. Over the years—I accept that there has been Covid—we have not had a long-term approach to this. This is part of a wider reform of the whole business rates system. I am sure that the noble Baroness will understand that having a multiyear approach to this will provide more certainty and stability for businesses, which will know what their bills will be. The higher £500,000 threshold properties, which amount to 1%, are supporting the retail, hospitality and leisure sector, in particular, across the country.

[The Earl of Lytton (CB)]

My Lords, I am grateful to all noble Lords who have spoken to this group—and in particular my colleague on these Benches, my noble friend Lord Thurlow, for introducing his amendment.

I appreciate that the Minister has effectively gone as far as his brief permits, but I hope he realises that there is a serious job of work that needs to be done. A reforming Government who come in with a manifesto commitment need to do something better than shuffle the chairs on the deck of a ship that appears to have a very large hole in it, as far as I am concerned.

Before I conclude, I will make three or four comments. If the full 10% supplement is applied on top of—I paraphrase —a 55p in the pound multiplier, that is getting on for 20%. Maybe it is 18%—I have not done the maths—but it is a very substantial proportionate increase. On the Minister’s own admission, it serves to disadvantage what he regards as a “very few”, for the uncertain and, indeed, undetermined benefit of what we take to be numerous smaller fry.

We do not know how that is going to work out, as we have explored in previous stages of this his Bill. It does not target the high street; it does not target it with that benefit, at least not obviously so. For all the hospitals, police stations, theme parks, offices and manufacturing units, along with the distribution network of large warehouses serving conventional retail, it will just result in higher costs to consumers, including, indirectly, via local authorities owning leisure centres and installations of that sort.

So the problem does not go away just because the Government have found the least painful strategy for dealing with these things. I think we will be seeing the ill-effects of this for some time to come, not least in the attrition of confidence of which I spoke earlier. However, with that said, I do appreciate what the Minister has done and his willingness to engage and again thank all noble Lords for their contributions. I beg leave to withdraw Amendment 2.

Amendment 2 withdrawn.

Amendment 3

Moved by

[Baroness Scott of Bybrook]

3: Clause 3, page 3, line 27, after “more,” insert “and is not an “anchor store”,”
Member’s explanatory statement
This amendment, along with others in the name of Baroness Scott of Bybrook, seeks to exempt anchor stores because of their role in increasing footfall on the high street.

[Baroness Scott of Bybrook (Con)]

My Lords, I rise to move Amendment 3 in my name and to speak to its consequential Amendments 8, 12 and 16.

These amendments seek to retain the standard multiplier for anchor stores, given their ability to drive business on our high streets. Throughout Committee, there were several noble Lords who acknowledged the importance of these stores and the role they play in the commercial ecosystem of our high streets up and down this country. I thank the noble Lord, Lord Thurlow, and the noble Baroness, Lady Pinnock, for their support on this matter.

As anyone who has worked in local government will know, when you get an anchor store such as a large Tesco, M&S or Primark—or one of those rare but well-loved independent department stores—on the high street, it allows the high street to flourish. I can certainly attest to that from my experience. The importance of these stores absolutely cannot be overstated. Without them, many high streets would seriously suffer due to the reduced footfall.

It is those very shops that draw people to the high street, and their presence encourages people to spend in the smaller, independent businesses. So the reason that these anchor stores should not be subject to the changes in the Bill is due to their role in aiding those small businesses. The Government claim that the Bill helps small businesses because it will leave them with reduced business rates, but if the anchor stores move away from the high street, they will not be able to sustain themselves at all. The Minister has many times continued to state that there are only a few of these stores in number, but if it is your high street that contains one of these, or if you want to bring one into your high street, then it is very important to you.

Not only will this push current stores away from the high street, but it will also mean that in future, when businesses are evaluating where to open new branches, they will be increasingly likely to choose locations out of town, where property costs less and where they will not be forced to pay the new higher multiplier. Large businesses will leave town centres, and I am concerned about the impact that that will have on the future of our high streets and the reduction in footfall that it will cause.

If the Government continue to increase costs on businesses in the same way as they have begun, there will not be any businesses left on our high streets to tax. The combination of the minimum wage, which we support, and the increase in employers’ national insurance has already led to many businesses increasing their costs or reducing their head count. This may well not be the most costly tax they face, but it could end up being the straw that breaks the camel’s back.

My amendments would give the Treasury the power to define specifically what an anchor store is. I am sure we are all aware that it is not the easiest term to specify, as the Minister mentioned in Committee. I understand that it might be difficult but, with the input of or indeed the discretion for local authorities included, I am sure the definition can easily be reached.

In order to safeguard our high streets, we must protect the businesses that allow them to thrive. We understand the need to create a more fair and equitable system, but that is not what the Bill promotes. As such, we are highly concerned about the consequences, whether intentional or not, that it will have.

I look forward to hearing from the noble Lord, Lord Fox, on the topic of manufacturing. It is a sector of huge importance and must be protected.

I hope the Minister will recognise the importance of exempting these stores and will accept these amendments. If he does not, I intend to test the opinion of the House.

[Lord Shipley (LD)]

My Lords, I support the amendment by the noble Baroness, Lady Scott of Bybrook. The issue of anchor stores seems fundamental in increasing footfall into traditional shopping centres, and it is right that there should be a power to exempt those anchor stores from higher rates.

One note of caution that I want to mention is that a Government would need to ensure that there was not a tendency by landlords to try to increase rents in the face of lower business rates. I am sure there are ways in which that can be done. Where councils are the landlord then they would have control of that, but when the landlord is in the private sector we need a mechanism to ensure that that can be done—and it should be done. If the noble Baroness decides to test the opinion of the House, I am sure she will have the support of these Benches.

The noble Baroness, Lady Scott, mentioned Amendment 4 on manufacturing. My noble friend Fox is in another meeting in the House at this very minute, so I will be saying a few things about that amendment. It is important that something is done to support the manufacturing sector. There has been a drop in confidence in the sector since the autumn. There is a big increase in manufacturers’ costs. Reductions in markets, making business development more difficult, have become very clear. Orders in general are reported to be smaller in size. The Brexit impact urgently requires a reset with the European Union. Manufacturing industry has high energy costs, and there are now concerns surrounding tariffs which are affecting confidence.

16:45

It may well be that something will be done about this in the Spring Statement, but at the moment, in the absence of an industrial strategy, it is important that the Government maintain the capacity to opt to apply a lower multiplier for manufacturing industries. There was a recent report by Barclays Bank which concluded that the words “Made in Britain” were worth an additional £3.5 billion to UK exporters. I hope very much that the Minister may be able to reassure us that the Government are aware of the stresses on the manufacturing sector, that the drop in confidence that has occurred since the autumn needs to be reversed and that one way of doing that is to give the Government the power to keep open the option of applying a lower multiplier in business rates. That is the purpose of Amendment 4, and I hope we will hear some positive words from the Minister when he comes to reply.

[Baroness Pinnock (LD)]

My noble friend Lord Shipley has just made a powerful case for the disaggregation of manufacturing from the standard multiplier and for those businesses to benefit from the lower multiplier. The economic case is a strong one, as my noble friend has just said, and the Government’s go-for-growth strategy, especially in the context of world events, will fundamentally depend on British manufacturing. More encouragement needs to be provided to the sector to invest and to innovate, and a government decision to reduce the rate burden will be one such indicator that the Government are showing they are determined to support those businesses that produce the wealth on which our public services rely.

The noble Baroness, Lady Scott of Bybrook, has led this group with the case for the Government to take especial notice of so-called anchor stores, on which the viability, as she rightly argues, of our high street absolutely depends. I urge the Government to accept Amendment 4, in my name and that of my noble friend Lord Fox, to show that the importance of manufacturing will be recognised. If the Minister seeks to ignore that argument, then we on this side will test the opinion of the House.

[Lord Thurlow (CB)]

My Lords, I add my support to the important comments from the noble Baroness, Lady Scott of Bybrook. The importance of anchors cannot be overemphasised, particularly in smaller towns. We all know a shopping centre near where we live, and not a brick of development for that shopping centre would have been laid if it was not for a pre-let to an anchor.

It is important to explain that. They do not just create the footfall for the retailers generally—which of course they do—but they also catalyse the funding for the developer to build it. They are the anchor. They are the golden goose for the high street. Taxing them more simply risks losing them. The damage to society locally in losing them will be difficult to restore, and social cohesion will suffer. I strongly support the amendment from the noble Baroness, Lady Scott, and will support it if it goes to the vote.

[Lord Khan of Burnley (Lab)]

My Lords, these amendments seek to remove anchor stores from the higher multiplier. They also seek to expand the cohort of hereditaments that qualify for the lower multipliers by bringing manufacturing properties into scope alongside qualifying retail, hospitality and leisure.

As set out at the Budget, the Government intend to introduce a permanent tax cut for qualifying RHL properties from 2026-27 by introducing two lower RHL multipliers. The Bill makes provision to enable this through secondary legislation. In consideration of the challenging fiscal environment that this Government face, it is important that the permanent tax cut is funded sustainably, which is why we intend to introduce a higher multiplier to fund the tax cut from within the business rates system. It is the Government’s intention for the higher multiplier to apply to all properties with a rateable value of £500,000 and above. This ensures that sufficient funding is raised to enable the Government to provide that permanent tax cut for RHL properties with rateable values below £500,000.

I thank noble Lords for their contributions on this topic. As she did in Committee, the noble Baroness has set out the important role that anchor stores play on our nation’s high streets. We have heard that they are a linchpin, that they drive footfall and that they help support the broader high street ecosystem by attracting other businesses. The Government recognise this and the information published by the Valuation Office Agency shows that a relatively small number of shops fall above the £500,000 threshold. In my response to the debate on the previous group, I set out that the impact on shops is not widespread. I will not repeat those numbers here.

Furthermore, anchor stores are often part of large retail chains that will also have a number of properties with a rateable value below £500,000 and, in the case of those properties, will benefit from the lower RHL multipliers. Moreover, whereas RHL relief is currently limited to a cash cap of £110,000 per business, the Government intend to have no such limit on the new RHL multipliers to better ensure more widespread support for the high street.

On the amendments tabled by the noble Lord, Lord Fox, the impact of this Bill on the manufacturing sector has been a recurrent theme throughout its passage. In the other place, the Government heard calls for manufacturing to be included in the cohort qualifying for the lower multipliers, citing the threat of tariffs, our isolation from our neighbours and growing competition from other countries. These amendments would bring manufacturing properties with a rateable value below £500,000 into scope of the lower RHL multipliers.

Noble Lords are aware of the difficult task that this Government face. The current fiscal backdrop is challenging and, in this context, I hope they understand that widening the scope of the properties qualifying for the lower multipliers, as well as taking properties out of scope of the higher multipliers, as these amendments seek to do, is likely to dilute the support that the Government are able to provide to RHL properties with a rateable value below £500,000.

Throughout the passage of the Bill, the Government have emphasised our desire to ensure that we move to a fairer, rebalanced and sustainable business rates system. We have been clear that any tax cut must be sustainably funded. To expand the cohort and number of properties qualifying for the lower multipliers while reducing those to which the higher multiplier will apply risks this policy no longer being sustainable—a key principle that the Government have stated throughout the Bill’s passage.

As I said, against the challenging fiscal environment, the Government have to take tough decisions. This is the fairest approach, which ensures a sustainable solution so that the permanent tax cut for RHL can be funded from within the business rates system. Of course, noble Lords have made sensible points. Anchor stores are part of high streets, as is light manufacturing in some areas, a point made by the noble Lord, Lord Fox, in Committee.

The Government are committed to ensuring the longevity and survival of our vibrant and diverse town centres, and there are many ways in which we are pursuing that endeavour. In December, we introduced high street rental auctions, a new power which allows local authorities to auction off the lease of persistently vacant commercial units. The new regulations will make town centre tenancies more accessible and affordable for businesses and community groups, while helping to tackle vacancy on our high streets.

Through the English devolution Bill, we will also introduce a strong new right to buy for valued community assets, which will help this Government safeguard our high streets. This measure will empower local communities to reclaim and revitalise empty shops, pubs, and community spaces, helping to revamp our high streets, increase footfall and eliminate the blight of vacant premises.

Furthermore, at the Autumn Budget, the small business multiplier for properties with a rateable value of under £51,000 was frozen at 49.9p, meaning that, together with small business rate relief, over 1 million properties will be protected from a 1.6% inflationary increase. Alongside this, the Government continue to support our valuable manufacturing sector through other means.

The noble Lord, Lord Shipley, asked what in particular we are doing. At the Autumn Budget, the Government announced £975 million for the aerospace sector over five years, over £2 billion for the automotive sector over the same period, and up to £520 million for a new life sciences and innovative manufacturing fund. The Budget also saw two key programmes extended, promoting innovation across UK regions and manufacturing. The innovation accelerator programme will continue for another year, focusing on high-potential clusters across the UK. Meanwhile, the Made Smarter innovation programme will continue to be funded, empowering manufacturers to adopt digital technologies and enhancing productivity and sustainability by connecting digital solutions providers with industry.

I hope that it is clear to noble Lords why the Government cannot accept these amendments. The permanent tax cut for RHL properties must be funded sustainably. Furthermore, the Government fully recognise the importance of the British manufacturing industry, but we are supporting that sector through other avenues. It is for those reasons that I cannot accept the amendments in the name of the noble Baroness, Lady Scott, and the noble Lord, Lord Fox, and I respectfully ask them not to press them.

[Baroness Scott of Bybrook (Con)]

My Lords, I thank noble Lords for contributing to this debate and for their support. I would like to say something about Amendment 4, on manufacturing. It is a sector of great importance to our economy, as the noble Lord, Lord Shipley, said. He is correct that in January GDP fell by 0.1%, which was attributed largely to a 1.1% fall in manufacturing output. Not only did manufacturing fall in January but, as the noble Lord said, it fell in the three months to January. Since it was the largest contributor to GDP shrinkage, the importance of this sector cannot be ignored by the Government. If the Liberal Democrats divide the House, we will vote with them.

Anchor stores are incredibly important to businesses on the high street, as we have heard. To lose them would be highly detrimental to the economic viability of most high street businesses. As the noble Lord, Lord Thurlow, said, it will also stop any future new anchor stores being given permission. I am not satisfied with the Minister’s response. Therefore, I wish to test the opinion of the House.

16:58

Division 2

Ayes: 283

Noes: 177

17:09

Amendment 4

Moved by

[Baroness Pinnock]

4: Clause 3, page 3, line 31, after “hospitality” insert “, manufacturing”
Member’s explanatory statement
This amendment seeks to include the manufacturing industry in the types of business that can qualify for the lower multiplier.

[Baroness Pinnock (LD)]

My Lords, manufacturing is at the heart of what this country does. We need to support it, and we can through the Bill by reducing the burden of business rates on those businesses. I therefore beg to test the opinion of the House.

17:10

Division 3

Ayes: 271

Noes: 179

17:21

Amendment 5

Moved by

[Lord Jamieson]

5: Clause 3, page 3, line 34, at end insert—
“(9BA) The Secretary of State must by regulations increase the figure in subsection (9B)(b) on 1 April 2029 in line with the average aggregate change in rateable values, as recorded by the Valuation Office Agency for three tax years preceding 1 April 2029.”

[Lord Jamieson (Con)]

My Lords, in moving Amendment 5, which is in the name of my noble friend Lady Scott, I shall speak to Amendments 18 and 20, which are consequential. The amendments seek to introduce an increase in the threshold for the higher multiple, in line with the average aggregate increase in rateable values in the three years preceding the re-evaluation of the business rate multipliers. I am concerned that the Bill will introduce a stealth tax that will result in more and more businesses being subject to the higher multiple, if the higher multiple is fixed at £500,000 and does not increase with rateable values.

I listened to the points raised by the Minister in Committee and adjusted the amendment so that it considers the re-evaluation that will take place in 2029. Although the Minister claims that an alternative system will be introduced, this is uncertain. As such, it makes sense to introduce protection in the Bill.

Amendments 7, 15 and 19 seek to introduce into the Bill the definition provided for the RHL relief, which seems unnecessary given that the definition already exists in government guidance.

I look forward to the response from the Minister on the issues that have been raised. I beg to move.

[Baroness Pinnock (LD)]

My Lords, Amendment 7 and consequential Amendments 15, 19 and 22 probe the Government on the definition of retail, hospitality and leisure businesses. This is absolutely critical because those businesses currently receive 75% relief, which will fall to 40% in April, and the relief will be non-existent by April 2026. The Bill introduces the lower multiplier by way of reducing the impact of the removal of the Covid relief. It then becomes crucial for businesses to know which multiplier will apply to them.

The House of Commons Library’s detailed briefing stated that there is currently

“no definition in law of ‘retail, hospitality and leisure’ properties”.

It would be really helpful if the Minister confirmed that this essential definition will be determined in secondary legislation.

Throughout deliberations on the Bill, the Minister has repeated that RHL properties in the new regime are identical to those that received Covid relief. If that is so, surely the legal definition must already exist and can be shared in our debates on this group of amendments.

During the debate in the other place, Daisy Cooper MP wanted to know whether large RHL businesses that currently have a £110,000 cap on the Covid relief received will have that cap removed and benefit from the lower multiplier. If that is the case and they get the cap on their relief removed but also benefit from the lower multiplier, it will mean that smaller businesses end up subsidising the larger chain stores within this definition of RHL. Again, I feel sure that it is not the Government’s intention to let small shops subsidise larger ones. If that is not the case, can the Minister explain what is going on?

Can the Minister confirm that the new rating system being introduced in April 2026 will be fixed for three years, as he stated in earlier debates on the Bill, and that the small business relief will be uplifted in line with inflation? That is very important for small shops in villages and small towns. Currently, rateable values of less than £12,500 receive 100% business rates relief, and then a sliding scale exists. It is therefore critical that the rateable values are revised upwards to reflect property values. Otherwise, ever fewer businesses will qualify—fiscal drag for business rates. This is also the argument made by the noble Baroness, Lady Scott, in relation to the higher threshold being introduced. Failure to increase the £500,000 threshold results in pulling more businesses into the higher rate.

In the end, as we have heard from across the House this afternoon, tinkering with the system fails to address the fundamental problem that businesses are not what they were 100 or even 20 years ago, and property taxation must change to create a fairer, more equitable approach that does not penalise traditional businesses, which end up providing a larger portion of the tax take than is justified.

[Lord Khan of Burnley (Lab)]

My Lords, the amendments in this group touch on a few different areas in the Bill, so I will speak to each topic in turn.

Amendments 5, 18 and 20 in the name of the noble Baroness, Lady Scott of Bybrook, would require the £500,000 threshold for the higher multiplier to be increased at the 2029 revaluation in line with the average aggregate change in rateable value for the preceding three years. In Committee we similarly discussed whether the £500,000 threshold should be uprated over time. The amendments we considered in Committee would have uprated the threshold in line with annual inflation, and I explained—and I think the Committee recognised—why that was not appropriate.

Amendments 5, 18 and 20 are closer to the more appropriate considerations for changes to the threshold. As I said in Committee, the 2029 revaluation will be the next logical moment to consider whether the £500,000 threshold remains appropriate for the new higher multiplier, and at that time we will consider whether the threshold in the regulations continues to be appropriate. I can assure the noble Baroness, Lady Scott, that the total change in the rateable value at the 2029 revaluation will form part of those considerations. But it will not be, and should not be, the only consideration.

As well as the movement in all rateable values, we may want to look at the movement in rateable value for the cohort of properties near or above the threshold. We will need to consider in 2029 the level of continued support that we should provide to qualifying RHL and, in turn, the revenue needed from the higher multiplier to fund that support. That should form part of the considerations of the threshold on the higher multiplier.

17:30

I hope, therefore, that the noble Baroness and the House will acknowledge that there is a multitude of factors that the Government should consider when defining the appropriate threshold and not just those in her amendments. Equally, I hope I have assured her that the movement in rateable values at the 2029 revaluation will be one of those considerations.

Amendments 7, 15 and 19, tabled by the noble Baroness, Lady Pinnock, seek to define retail, hospitality and leisure in the Bill. These amendments would remove the power in the Bill that enables the Treasury to define qualifying retail, hospitality and leisure through secondary legislation—a question she asked. Amendment 22 would require the Government to produce an assessment of the expected impact of Clauses 1 to 4 on RHL businesses, and to provide a comparison of the expected amount of non-domestic rates paid by these businesses since 1 April 2020.

Throughout the passage of the Bill in this House and the other place, the Government have been clear that the precise definition of qualifying RHL will be set out in secondary legislation later this year. However, as has been set out many times before, it is the Government’s intention for the definition of qualifying retail, hospitality and leisure to broadly follow the definition that is used for the current retail, hospitality and leisure relief. Providing a power to enable the definition of qualifying retail, hospitality and leisure to be set through secondary legislation—as opposed to having it set out in the Bill, as these amendments seek—provides greater flexibility for the Government to react to changing economic conditions in the future.

At this time, it is our intention to broadly follow the definition which is currently in use for RHL relief. However, in the future, the Government may need to amend that definition to bring in new property types that may emerge as the economy grows and evolves. This is a common practice when using definitions in business rates. To accept the amendment would limit flexibility in the Bill’s provisions that is important to their longevity. For these simple reasons, I cannot accept Amendments 7, 15 and 19.

On Amendment 22, tabled by the noble Baroness, Lady Pinnock, I appreciate that she is seeking to understand how the introduction from 2026-27 of the RHL multipliers will affect those businesses currently receiving RHL relief. I will discuss in more detail the Government’s approach to analysis and the information already published on business rates during the debate on the next group.

The noble Baroness will appreciate that we do not yet know the impact, as the tax rates for the new multipliers are not yet set, and nor has the 2026 revaluation progressed sufficiently. The Treasury has committed to producing, once that information is in place, an analysis of the new multipliers. It will do that when the tax rates are set at the Budget later this year. We have given that commitment. The Bill includes sensible parameters on the setting of the new multipliers and sets out that the new lower RHL multipliers cannot be set more than 20p below the small business multiplier.

I hope that I have given the noble Baroness, Lady Pinnock, and the House, a clear assurance that we intend broadly to follow the definition that we currently use for RHL relief. That should give those businesses the assurances that they need. Similarly, I hope that noble Lords appreciate why we cannot provide the analysis that the noble Baroness seeks at this time. That analysis of the new multipliers will be available once they have been set. Having set out that information, I respectfully ask the noble Baroness, Lady Scott, to withdraw her amendment.

[Baroness Scott of Bybrook (Con)]

Before the Minister sits down, I heard for the first time the Minister say “near or above” the higher multipliers. Why would that be? Are the Government assuming the amount of money that they are going to get in future years? It seems to be a new context to this debate that he used those words.

[Lord Khan of Burnley (Lab)]

I alluded to this point in Committee. The review with stakeholders and businesses is currently taking place. We will come back as we look at the reform of business rates. In the context of the business rates review and reform, consideration is being given to hereditaments that are near, above or within a small distance of the £500,000 threshold.

[Lord Jamieson (Con)]

My Lords, I thank the Minister for his response. Although we remain concerned regarding the increased business taxes as a result of the impact of fiscal drag, having reflected on the Minister’s assurances we will not be pressing Amendment 5.

Amendment 5 withdrawn.

Amendment 6

Moved by

[Baroness Pinnock]

6: Clause 3, page 3, line 35, after “hospitality” insert “, manufacturing”
Member's explanatory statement
This amendment seeks to include the manufacturing industry in the types of business that can qualify for the lower multiplier.

Amendment 6 agreed.

Amendment 7 not moved.

Amendment 8

Moved by

[Baroness Scott of Bybrook]

8: Clause 3, page 3, line 36, leave out “has such meaning” and insert “and “anchor store” have such meanings”
Member's explanatory statement
This amendment, along with others in the name of Baroness Scott of Bybrook, seeks to exempt anchor stores because of their role in increasing footfall on the high street.

Amendment 8 agreed.

Amendments 9 and 10

Moved by

[Baroness Pinnock]

9: Clause 3, page 3, line 37, at end insert—
“(9D) In sub-paragraph (9B), “qualifying healthcare hereditament” includes hospitals, medical and dental schools, and any other healthcare settings as may be prescribed by the Treasury in regulations.”;” Member's explanatory statement
This amendment, together with Baroness Pinnock’s amendments to page 3, line 26, page 4, line 6, and page 4, line 17 would have the effect of retaining the standard multiplier for hospitals, medical and dental schools, or any other healthcare setting to be determined by regulations.

10: Clause 3, page 4, line 6, after “hereditament” insert “other than a qualifying healthcare hereditament”
Member's explanatory statement
This amendment, together with Baroness Pinnock’s amendments to page 3, line 26, page 3, line 37, and page 4, line 17, would have the effect of retaining the standard multiplier for hospitals, medical and dental schools, or any other healthcare setting to be determined by regulations.

Amendments 9 and 10 agreed.

Amendment 11 not moved.

Amendment 12

Moved by

[Baroness Scott of Bybrook]

12: Clause 3, page 4, line 7, after “more,” insert “and is not an “anchor store”,”
Member's explanatory statement
This amendment, along with others in the name of Baroness Scott of Bybrook, seeks to exempt anchor stores because of their role in increasing footfall on the high street.

Amendment 12 agreed.

Amendments 13 and 14

Moved by

[Baroness Pinnock]

13: Clause 3, page 4, line 11, after “hospitality” insert “, manufacturing”
Member's explanatory statement
This amendment seeks to include the manufacturing industry in the types of business that can qualify for the lower multiplier.

14: Clause 3, page 4, line 15, after “hospitality” insert “, manufacturing”
Member's explanatory statement
This amendment seeks to include the manufacturing industry in the types of business that can qualify for the lower multiplier.

Amendments 13 and 14 agreed.

Amendment 15 not moved.

Amendment 16

Moved by

[Baroness Scott of Bybrook]

16: Clause 3, page 4, line 16, leave out “has such meaning” and insert “and “anchor store” have such meanings”
Member's explanatory statement
This amendment, along with others in the name of Baroness Scott of Bybrook, seeks to exempt anchor stores because of their role in increasing footfall on the high street.

Amendment 16 agreed.

Amendment 17

Moved by

[Baroness Pinnock]

17: Clause 3, page 4, line 17, at end insert—
“(6C) In sub-paragraph (6A), “qualifying healthcare hereditament” includes hospitals, medical and dental schools, and any other healthcare settings as may be prescribed by the Treasury in regulations.”;” Member's explanatory statement
This amendment, together with Baroness Pinnock’s amendments to page 3, line 26, page 3, line 37, and page 4, line 6, would have the effect of retaining the standard multiplier for hospitals, medical and dental schools, or any other healthcare setting to be determined by regulations.

Amendment 17 agreed.

Amendments 18 to 20 not moved.

Amendment 21

Moved by

[Lord Fox]

21: After Clause 4, insert the following new Clause—
“Impact assessment(1) The Secretary of State must publish and lay before Parliament an assessment of the impact of sections 1 to 4 of this Act on—(a) businesses,(b) high streets, and(c) economic growth.(2) An impact assessment under subsection (1) must consider—(a) the impact on different types of businesses, including small businesses; (b) the impact on businesses operating mainly or solely on high streets;(c) whether the provisions will have a measurable impact on economic growth.”Member's explanatory statement
This amendment, together with another in the name of Lord Fox to Clause 6, would require the Secretary of State to publish an impact assessment on sections 1 to 4 of the Act before they come into force.

[Lord Fox (LD)]

My Lords, all the amendments in this group provide for reviews of different aspects of the Bill. In moving Amendment 21, I will speak to Amendment 33 in my name and that of the noble Baroness, Lady Pinnock.

It is very clear from everything that we have heard in Committee and on Report that we are still very much in the dark as to how this Bill, when it becomes an Act, will affect our high streets. It was billed from the beginning as a measure that would save our high streets—that was clearly how it was marketed in the Commons. However, without the details that we seek, and without the context of those details, we really do not understand.

The differences between these several amendments are, more or less, on the timing of when the review would happen. In our Amendment 21, the timing is that, before the Act comes into force:

“The Secretary of State must publish and lay before Parliament an assessment of the impact of sections 1 to 4 of this Act on businesses, high streets, and economic growth”.


If the Government are serious about their assertion that they are going to save our high streets, they need to be able to support that. Nothing the Minister has said at any point has underpinned that this will save our high streets.

An impact assessment must consider the impact on different types of businesses, including small ones, and the impact on businesses operating mainly or solely on high streets, and whether the provisions will have a measurable impact on economic growth. That is the key because, from everything my noble friend and others have said, it seems that at the end of this process most businesses will be paying more in rates than they are currently paying—and how that delivers any kind of economic growth is something of a mystery to me.

So that is the nature of Amendment 21. We also support the other amendments in this group. Amendment 24 in particular requires the Secretary of State to review the impact on

“businesses whose rateable value is close to £500,000”.

That of course brings us to the plateau issue. I will leave the noble Baroness on the Conservative Benches to speak to that, but in the event that she decides to push the amendment to a vote, we on these Benches will support it. I beg to move.

[Lord Jamieson (Con)]

My Lords, I rise to speak to Amendment 23, in the name of my noble friend Lady Scott, and Amendments 24 and 34 in my name. Amendment 23 seeks to include a review of the impact of this Bill on businesses. The lack of any kind of assessment of the impact that this policy will have on businesses needs to be addressed—hence this amendment.

Amendments 24 and 34 seek to include a requirement for a report on the impact that the £500,000 threshold will have on businesses. I am particularly concerned about the cliff-edge nature of the £500,000 threshold and its impact on business decisions. A business crossing the threshold, even by £1, will see an almost 20% increase in business rates payable. This is bad enough for most businesses, but a business in the retail, hospitality and leisure sector will see a near doubling. For instance, an RHL business with a hereditament of £495,000 that invested in its property just enough to push it over the threshold would potentially see an increase in rates from around £175,000 to £325,000 as a result of the Bill. This is meaningful in terms of business decision-making.

Not only is this unfair but it is a distorting tax. This Government say their priority is growth, but think about all those businesses up and down the country facing this dilemma and the impact on their individual decision-making. I thank the Minister for his engagement on this and I appreciate that this is being driven by the Treasury and its simple spreadsheet analysis. However, these are real decisions with real-world impacts, not simply numbers on a spreadsheet.

This Bill was initially presented as one that would increase the tax share of out-of-town warehouses, dubbed the “Amazon tax”, but that is not the Bill we have been presented with. As the Minister has said previously, only around 10% of businesses paying the higher tax will be warehouses. This Bill will actively encourage businesses to stop investing in their property to avoid paying a hefty increase in business rates. We want to develop our high streets. We want to encourage businesses to invest. This not only disincentivises that critical investment but creates a perverse incentive at the margin.

17:45

My consequential Amendment 34 seeks to require that this review be published at least three months before the new business rates begin. If the Government are going to change the business rates system in this way, it is important that we know what the impact of the change is likely to be. This concern is shared across the House, as evidenced by the amendment from the noble Lord, Lord Fox—I appreciate that he will be supporting this—which calls for an impact assessment. This is an important amendment and I hope noble Lords will understand why the cliff-edge threshold will likely have negative impacts on investments. I look forward to the Minister’s response and I hope he will accept it: if he does not, I intend to test the opinion of the House.

[Lord Khan of Burnley (Lab)]

My Lords, these amendments would require the Government to undertake various forms of impact assessment or review, either ahead of Clauses 1 to 4 coming into effect in April 2026 or shortly following their implementation. Throughout the passage of this Bill, noble Lords have raised valid questions. What properties would be subject to the higher multiplier? What properties will qualify for the lower retail, hospitality and leisure multipliers? What will be the impact on the public sector, anchor stores or manufacturing? Throughout the Bill’s passage, the Government have sought to be as clear as possible. I appreciate that noble Lords may feel otherwise, but this does not detract from the fact that the Government have done what they can to provide as much information as possible.

I will reiterate two key points on the application of the new multipliers. With respect to the higher multiplier, it is the Government’s intention that this will apply to all properties with a rateable value of £500,000 and above. The VOA last month helpfully published an ad hoc data release, providing further detail on the number of properties and their rateable value that would fall above this threshold, broken down by region and by subsector, so noble Lords can see further details on the make-up of the fewer than 1% of properties that fall above the threshold. This is based on the current 2023 rating list, because the 2026 rating list is still being prepared and is not yet available.

The lower multipliers will apply to qualifying RHL properties, with the Government’s intention being to introduce one multiplier for qualifying RHL properties with a rateable value below £51,000 and one for qualifying RHL properties with a rateable value between £51,000 and £499,999. Noble Lords want to know who will qualify. We have been very clear on this, previously and today: the definition of qualifying RHL will broadly follow that currently in use for the existing RHL relief and will be set out later this year. With regards to the proposed amendments for various impact assessments or analysis, as I have explained previously in the House, tax is not subject to the requirement to undertake an impact assessment, and that has been the case for many years. However, the Treasury has committed, and remains committed, to producing analysis of the impact of the new multipliers at the Budget when the tax rates are set and when the outcome of the 2026 revaluation is clearer.

Furthermore, as I set out in Committee, my department already has established and detailed processes in place to collect and publicly report on the business rates collected by local government. My department produces annual forecasts for the coming year, called NNDR 1 returns, and then on the actual amounts collected by local government, called NNDR 3 returns. These are published on the department’s website at both national and local authority level. From the 2026-27 NNDR 1 onwards, these will reflect the new multipliers that the Bill makes provision to introduce. It would not be appropriate or prudent to pre-empt the Budget or the outcomes of the 2026 revaluation, but I hope that, in reiterating the commitments already made and setting out the information that my department already reports on as a matter of course, I will reassure noble Lords.

I note that the amendments tabled by the noble Baroness, Lady Scott of Bybrook, and the noble Lord, Lord Jamieson, also seek to investigate how the £500,000 threshold the Government intend to introduce with the higher multiplier will impact on businesses that have a rateable value around that threshold. I am aware that the interest here is in particular with regard to how that may affect business behaviour around investment. I will make a couple of points on that more specific area.

As acknowledged in the Transforming Business Rates discussion paper published at the Autumn Budget, the Government are aware that some stakeholders have argued that cliff edges in the business rates system may disincentivise investment. In that paper, the Government committed to exploring options for reform in this space. We have recently completed an initial stage of engagement to understand stakeholder views and areas of interest for reform and we are open to receiving written representations in response to the priority areas for reform, until the end of March 2025.

Your Lordships will understand that transforming the business rates system is a multiyear process, and that reforms taken forward will be phased over the course of the Parliament, but I hope noble Lords are reassured that the Government have publicly set out that an announcement on reforms will be made later.

I know that noble Lords have repeatedly raised how any evaluation or analysis should consider the impact of the new multipliers on economic growth and the viability of our high streets. What is being described is what the Government do as a matter of course and as Governments have done for centuries: if a policy is not having the desired effect, it will be changed. Your Lordships should rest assured that the Government will be keeping all this under review, as we do with all tax policy. I respectfully ask the noble Lord to withdraw his amendment.

[Lord Fox (LD)]

My Lords, I thank the Minister for his answer and for reminding us of the central purpose of Clauses 1 to 4. However, I do not think that he addressed the point made by the noble Lord, Lord Jamieson, in any sense. The investment and growth effect from, literally, a £1 difference in a property’s rateable value will obviously be an issue. Without that, we cannot really understand how the Act will affect our high streets. On that note, however, I beg leave to withdraw Amendment 21.

Amendment 21 withdrawn.

Amendments 22 and 23 not moved.

Amendment 24

Moved by

[Lord Jamieson]

24: After Clause 4, insert the following new Clause—
“Review: threshold effect(1) The Secretary of State must undertake a review of how the provisions in this Act may affect businesses whose rateable value is close to £500,000.(2) The Secretary of State must lay the review under subsection (1) before Parliament.”

[Lord Jamieson (Con)]

I beg to move.

17:52

Division 4

Ayes: 255

Noes: 165

18:03

Clause 5: Removal of relief

Amendment 25

Moved by

[Lord Lexden]

25: Clause 5, page 5, line 39, leave out “for whom an EHC plan is maintained” and insert “with special educational needs and disabilities, as defined in the Children and Families Act 2014”
Member's explanatory statement
This amendment seeks to expand the exemption of schools beyond those catering for EHCP pupils, to all those wholly or mainly organised for SEND education.

[Lord Lexden (Con)]

My Lords, Amendment 25 has the support of my noble friend Lord Black of Brentwood. We are both profoundly conscious of the importance of the contribution the independent sector of education makes to providing for children with special educational needs and disabilities. I hope the Government also recognise this important contribution and will join us today in paying tribute to it.

One-fifth of pupils in independent schools receive SEND support—a significantly higher proportion than in the state sector. The small schools, which are so numerous in the independent sector of education, are ideal places for such pupils. They thrive under the careful, compassionate supervision of their dedicated teachers and the staff who support them. Many of these schools, cherished by pupils and parents alike, are members of the Independent Schools Association, of which I am president, giving me an interest, which I declare.

The continued success of these schools needs to be safeguarded at a time when SEND provision in the state sector is in crisis—a crisis which will not be relieved for some time through the plans for significant improvement that the Government are quite rightly making. Everyone hopes that the Government’s plans will eventually succeed, but arrangements are needed of the kind for which this amendment provides.

Amendment 25 would help safeguard the future of independent schools that specialise in SEND provision, which are so badly needed in our country today. Under this amendment, an independent school that has 50% or more pupils with a registered SEND need would retain its charitable rate relief. The Government say that such relief must be confined to schools with some 50% of pupils with education, health and care plans. That is the wrong dividing line. There are nearly 100,000 pupils with a registered SEND need in independent schools whose parents do not want or, in many cases, have been unable to get an EHCP, which is notoriously difficult to acquire, since a long and often expensive obstacle course awaits those who apply for it.

In Committee, the Minister was at pains to stress that the majority of children with special educational needs have those needs met in state schools. Of course that is so, but it is wrong to neglect or diminish the crucial extent to which independent schools supplement the state’s provision, working in the spirit of partnership which is the predominant characteristic of the independent education sector today.

Without this amendment, invaluable SEND schools can be expected to find themselves in grave difficulty or will be forced to close. I beg to move.

[Lord Black of Brentwood (Con)]

My Lords, I will speak to Amendment 26, in the name of my noble friend Lady Barran, to which I have added my name. I support all the amendments in this group, especially Amendment 25 from my noble friend Lord Lexden, who put his case so powerfully. It is shameful that the Government refuse to recognise the extraordinary role that independent schools play in the care of those with special educational needs. If, even at this late stage, they do not agree to the modest suggestions put forward by my noble friend, they will stand charged with putting the interests of party dogma ahead of the needs of some of the most vulnerable in our society.

I declare my interest as chairman of governors at Brentwood School, president of the Boarding Schools’ Association and Institute of Boarding, and, for this group, chairman of the Royal College of Music.

When I spoke in Committee on the issue of gifted arts students, I made one simple point: in an economy that is flatlining, the creative economy is one of the few areas of sustained economic growth with unlimited potential to expand even further. It provides hundreds of thousands of jobs, is part of a huge export market and contributes billions in revenue. We should nurture it, not attack it. Music, as well as being a huge British success story in its own right, powers it by supporting so much of its rich tapestry, including film, television, computer games, drama, advertising and so on. In turn, its future depends absolutely on first-class music education in schools, conservatoires and universities, providing a pipeline of talent into the sector. Without that continuing education, and new musicians and new teachers entering the profession, music dies. It is as simple as that: no pipeline, no music.

But music education—where it all starts—is in real crisis. I acknowledge that this began under the last Government, but we have yet to see any signs of change, despite the new Government having been in office nearly 10 months. From primary schools right the way through to the end of full-time education, music remains under threat as never before.

With music education already in such crisis, why on earth would the Government want to make matters even worse by jeopardising the very real achievement of specialist music, dance, choral and drama teaching in independent schools? The amendment from my noble friend reflects the success and importance of the Music and Dance Scheme schools and their unique contribution, and that of our leading choir schools, to artistic life in this country. Nearly 1,500 pupils—the stars of tomorrow—receive means-tested bursary support to attend renowned specialist performing arts schools which are the envy of the world. Their position is already under threat because most parents are now charged VAT on their fee contributions, with only a small number receiving increased funding to offset it. That is bad enough, and we should not pour fuel on the fire.

This amendment is based on a proposition that is very simple for even the most dogmatic of minds to understand. The future of these schools, which are already facing such pressure, and their continuing ability to provide world-class teaching can be made more secure if they are protected from full business rates. The Government say that their entire agenda is focused on growth, yet here we have a policy that is absolutely anti-growth. Even on the number one item on their agenda for this Parliament, their opposition to independent education is so all-consuming that they are prepared to jeopardise it on the altar of ideology. I hope that even now the Government will see the strength of these arguments and accept my noble friend’s amendment.

[Lord Moynihan (Con)]

My Lords, I rise to speak to Amendments 27 and 29 in my name, and I declare my interests in sport as set out in the register. I thank the Minister for his sympathetic response to my amendments in Committee, our subsequent conversation and the clear personal priority that he attaches to sport, particularly for disadvantaged communities, and the way it can bring them hope and opportunity in life.

There was a time when this Chamber had many contributors to any debate that impacted the world of sports policy. One notable absentee, who retired from the House three years ago, is my noble friend Lord Coe, and I am sure that the whole House will want to take this opportunity to wish him well as he seeks election on Thursday to become the first British president of the International Olympic Committee.

I made my case for these amendments in Committee. Both amendments highlight the lifeline received by many of our top sports men and women who have benefited from the sports bursaries and scholarship policies of independent schools. Today I also make the case for the widespread community use of the many outstanding sports facilities of independent schools, the expertise of their coaches, their support staff and the groundsmen and groundswomen who coach and support their pupils and offer their facilities and services to local communities through dual-use campaigns. Amendments 27 and 29 would provide protection for schools where 10% or more of students receive sports scholarships or bursaries and separately would discount all sports facilities from schools’ business rates.

These proposals reflect the commitment of independent schools to spreading opportunities in sport through fee assistance schemes and public benefit partnerships, including sharing facilities and coaching staff. Sporting opportunities are a key focus for some independent schools, and sports awards form part of the £1 billion in fee assistance delivered by independent schools in the last academic year. What is really important is that more than half the money is means tested, ensuring that support is targeted where it is most helpful, yet the imposition of VAT and the increase in the minimum wage and national insurance contributions are now compounded by the proposed imposition of business rates. Schools will inevitably have to cut back to balance their budgets, and the casualties will be the opportunities for sport and recreational activity for many dual-use local community clubs after school hours.

In moving the first of my two amendments, I drew the Committee’s attention to the contribution that independent schools make to elite sport as well. At the Olympic Games in Paris last year, 33% of Team GB’s medallists attended independent schools. At Tokyo in 2021, 40% of Team GB’s medallists attended independent schools. At Rio in 2016, it was 31%. At London 2012, it was 36%. Yet only 7% of our children go to independent schools, so top Olympians and Paralympians are more than four times more likely to have been privately educated than the UK population overall because of the bursary and scholarship policies on offer.

Let me give the specific example of Millfield, which delivered 13 of the 14 Millfield-educated and trained British athletes on Team GB through its means-tested financial support mechanism. The school funded 13 of the 14 Millfield-educated and trained British athletes on Team GB for the Paris Olympic Games, who between them brought home 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? Where will the scholarships and bursaries be paid from?

18:15

For me, and I am sure for the Minister, the tragedy behind the figures I have just given is the reality that there are so many talented young people in our state schools who are capable of representing the country at national and international level, but whose talent is never recognised or developed and who have no access to good sports facilities and good coaching and thus miss the opportunities that every country in the western world that we compete against provides. This is not a party-political point. The role of sport has dropped down the political agenda over recent years. We continue to lose playing fields, and on 10 March the Government announced that Sport England will be removed from the list of statutory consultees on planning applications that impact playing fields as part of a broader overhaul of the planning system, raising additional concerns about the impact on sport and physical activity in the communities at large.

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: 30% of children cannot swim 25 metres unaided when they leave primary school, a 7% increase from 2017-18. More than 400 public swimming pools have closed since 2010, and a third of primary schools now deliver 10 or fewer swimming lessons to pupils before they leave. The many children who have accessed independent schools’ facilities at the cost of those independent schools will now find that those independent schools have to make significant savings. I agree wholeheartedly with the Prime Minister, who last year bemoaned the fact that children were being locked out of emulating their heroes due to the lack of PE provision.

I fully appreciate the Minister’s genuine commitment to helping sport wherever he can. He has urged me not to push my amendments to a vote, and I will not do that this evening because I hope that the House will at least bear in mind the arguments that I have made when we come to the next group, when I hope that colleagues from across the Chamber will seek to remove Clause 5 and protect the likes of Millfield and all independent schools that are putting their facilities to good use through bursaries, scholarships and community use of their sports facilities, which otherwise would be threatened by further cuts.

[Lord Storey (LD)]

My Lords, I will speak briefly on these two amendments. I come from the Blair school of thought on this matter, in that if we make our state schools as good as they possibly can be, private schools will be considerably less and parents may choose, for all the reasons that have been given, to go to a state school—but the noble Lords, Lord Moynihan and Lord Lexden, both had wise words.

I remind the noble Lord, Lord Lexden, that several years ago he asked me to visit a school in Shropshire. It was a very special school that helped, supported and taught children with severe dyslexic problems. Interestingly, it was so good that local authorities paid for children to go to that school. I think there were probably about 300 or 400 pupils there and a particular programme. I was absolutely amazed. I contrast that to what is happening currently with special educational needs. We have a crisis, as we know, in special educational needs. We have parents having to go to arbitration, where 98% of those parents win their case and are put on an education, health and care plan. We know that schools are not able to cope. We know that local authorities are not able to cope. Are we seriously suggesting that we aggravate that problem by ensuring that more and more children and young people from private schools go into that system? I think we have to get our system right first, before we burden the state system with even more children with special educational needs when we cannot cope.

I was interested in the noble Lord’s comments about sport and swimming in school. He is absolutely right: it is shameful currently. We seem to be football obsessed, but we are not obsessed with other sports. In Liverpool, you can find plenty of football pitches, and we have a 50-metre swimming pool, but if you try to find netball courts, hockey fields, or a place to play lacrosse, for example, it just does not happen. We need to be able to cater for all children. I remind the noble Lord, Lord Moynihan, that Katarina Johnson-Thompson won a gold medal in the youth Olympics as well as in the world championships, and she came from a state school.

[Lord Weir of Ballyholme (DUP)]

My Lords, I shall speak briefly on these amendments. The best way forward is probably Amendment 30 in the next group, which is a cleaner way of dealing with this. I would sit a little uncomfortably with the idea of placing additional financial burdens on schools, although I understand the rationale that the Government have put forward for these changes.

The concern is that any analysis that has been done, particularly from the financial point of view, might suggest that this is perhaps a more minor element of the changes that are proposed as regards independent schools. However, there is a grave concern that the cumulative effect of this change, along with the national insurance and particularly the VAT contributions, is likely to lead to the closure of a number of schools. This is not unprecedented; I have seen it happen through various changes in other parts of the United Kingdom. As such, while this is perhaps the smallest element of those three changes, it could potentially become the tipping point for a range of schools.

Let us deal specifically with the two main amendments in this group: Amendment 25, from the noble Lord, Lord Lexden, and the amendment on sport in the name of the noble Lord, Lord Moynihan. There has been an explosion in the number of young people diagnosed with special educational needs throughout the United Kingdom, and there is much greater pressure, sometimes for very virtuous reasons. For example, we see that some children with particular physical disabilities, who many years ago would, sadly, have had a very low life expectancy, are now able to live into adulthood and, indeed, live a full life. That is something for us all to celebrate. However, there has been a massive increase in the number of children with special educational needs.

For many years, my part of the United Kingdom, Northern Ireland, has tended to have much higher levels of special educational needs, and there may be an argument that other parts of the country are almost playing catch-up with Northern Ireland. But I can give your Lordships an indication that we should not be naive and believe that we will reach a plateau as regards those with needs that have to be catered for. Even in Northern Ireland over the last five, 10 or 15 years, those numbers have gone up and up, and there is no doubt that that situation will be replicated in the different parts of the United Kingdom.

With this comes increasing pressure to find appropriate educational settings for those many children. Again, judging from my experience, within the state sector that creates increasing pressures, where schools that perhaps have not been doing so before are having to provide specialist classes. The local authorities—in Northern Ireland’s case, the Education Authority—are having to scramble around to try to find where they can provide additional facilities.

In the Northern Ireland context, there is not a sizeable independent sector, but particularly in England the independent sector plays an important role in providing a level of specialist support for many of those children with special educational needs. It provides a certain level of safety valve in reducing the pressure within the system. I doubt this is the Government’s intention, but if we inadvertently create a situation where a number of these schools are forced to close, that will ratchet up further pressure within the state system at a time when we are already facing a tsunami of pressures, as has been identified by a number of noble Lords. The VAT exemption put forward by the noble Lord, Lord Lexdenm seems to be a sensible way forward, because the placing of that additional burden, which will almost inevitably lead to further closures, will be counterproductive to our young people as regards special educational needs.

Similarly, although the case is perhaps a little less acute as regards sport, accusations can be made of Governments of different political persuasions, over many years and decades, who have not been able to provide the level of sporting facilities in this country that our young people merit. We all glory in the great sporting triumphs of this nation, but, quite often, such triumphs have occurred in spite of the facilities in place rather than because of them.

Going back many years to Prime Minister John Major, he spoke of the need to open up fields and sporting facilities, but there was not the level of success that we should perhaps have seen. It strikes me that, if we do not have some level of exemption for our sports fields when it comes to rating purposes, we are simply accelerating the process by which many of those facilities will become no longer viable.

When schools find themselves in financial difficulty, it is about seeing what assets they have and what they can get rid of. Sport, unfortunately, is quite often seen as an extra and as an easy thing to cut, but that has a detrimental impact. What particularly persuades me towards the amendment from the noble Lord, Lord Moynihan, is that it ties this in with community use. These facilities should not be castles shining on the hill, to which no one can gain admission. The partnership that should always be there between schools and the community must be at the heart of what we seek to do, no more so than in the issue of sport.

As such, whatever the Government’s intentions in relation to these changes, without some level of amendment, either through this group or the group beginning with Amendment 30, we will be taking a retrograde step, for both sports and special educational needs.

[Baroness Barran (Con)]

My Lords, I will speak to my Amendments 26 and 28 in this group. I also support Amendment 25. in the names of my noble friends Lord Lexden and Lord Black of Brentwood, and Amendments 27 and 29, in the name of my noble friend Lord Moynihan.

Amendment 26, in my name and that of my noble friend Lord Black, raises again the issue of schools that are wholly or mainly concerned with providing full-time education for gifted arts students, such as those who are part of the Government’s Music and Dance Scheme. My noble friend rightly pointed out the importance of this group of students for our economic growth. They are students who attend an independent school based solely on their natural talents, and whose parents, where they are on a lower income, are means tested.

This was debated at length in relation to the imposition of VAT on these schools. The Government need to show, first, that they understand the issues that face such schools and their pupils, and, secondly, that they want to preserve these globally respected and admired institutions, without which our country would be much the poorer.

In his letter to me, for which I thank him, the Minister pointed out that there will be no impact from the increase of VAT on the fees paid by parents. To be clear, my understanding is that that is just for this academic year; if I have misunderstood, perhaps the Minister could clarify when he comes to speak.

I believe that my point still stands: the parents of gifted children whose income is means tested will pay more in future for their children’s education because of the VAT changes beyond this academic year and because of the changes proposed in the Bill. That risks excluding some of our most gifted children from the education that they need to realise their potential.

18:30

Amendment 28 tries simply to bring consistency to the way that nursery schools, including those with charitable status, are treated for business rates purposes. I confess to being confused by what the Minister wrote in his letter to me on this point, so maybe he could clarify this. As I understand it, the Bill specifically excludes nursery schools from the definition of private schools in new sub-paragraph (4)(a)(iii) in Clause 5(2). In Committee, the Minister said:

“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”.—[Official Report, 27/2/25; cols. GC 550-51.]

However, in his letter of 17 March he writes:

“The government’s view is that it would not be proportionate to exempt parts of hereditaments within private schools used as nurseries in this way because standalone nurseries—whether they are charities or not—do not currently receive the same benefit, and the government does not intend to introduce a general exemption for early years provision”.

I hope he can see why I am confused. Those two statements appear to conflict with each other. If he is not able to clarify that now—and I appreciate his position—then maybe he could clarify it again in writing.

When reading the Bill, I had assumed that in this case the Government were concerned about nursery school and childcare capacity, hence the carve-out for stand-alone nursery schools, but this carve-out does not apply if the nursery school is part of a wider independent school. I respectfully suggest that that neither meets the common-sense test of consistency in applying this legislation nor shows any understanding of parental preferences. Clearly, if you have older children in a school, you would ideally send your child to a nursery in the same school, for practical reasons. Can the Minister clarify whether stand-alone nurseries, with and without charitable status, will be subject to business rates, and whether those with charitable status will retain charitable relief? If the answer to the first of those is no but the second is yes, my amendment retains its merit and should be addressed by the Government.

Amendment 25, in the name of my noble friend Lord Lexden, seeks to amend the Bill so that schools that provide education for children with special educational needs, as opposed to just those with an education, health and care plan, will still receive charitable rate relief. As the Minister knows, this issue has been raised at every stage of the Bill, and the points have again been put eloquently today by my noble friend and the noble Lords, Lord Storey and Lord Weir.

Amendments 27 and 29 are in the name of my noble friend Lord Moynihan. Again, my noble friend very strongly put the case for dual use, both by the community and through the provision of bursaries, to allow our most talented athletes to train in what are currently the best school facilities. I ask the Minister to think again about why the Government, rather than urging independent schools to do more in terms of community work and the provision of bursaries, are choosing to pull the rug. I hope he will say that he is going to think again on these issues.

[Lord Khan of Burnley (Lab)]

My Lords, these amendments seek to amend the definition of a private school so as to require different types of private school to be carved out of the Bill measure, or to require parts of private school hereditaments to be exempt from rating valuations. I thank the noble Lords, Lord Lexden and Lord Moynihan, and the noble Baroness, Lady Barran, for their contributions.

I shall speak first to Amendments 25, 26 and 27. Amendment 25 would result in the exemption of a private school if that private school catered wholly or mainly to pupils who had special educational needs, as defined under the Children and Families Act 2014, regardless of whether those pupils had an EHCP. Amendments 26 and 27 would carve out private schools that provided full-time education wholly or mainly to gifted arts students or persons in receipt of bursaries or scholarships for sporting excellence.

The Government are aware of the concerns raised in respect of pupils with special educational needs in private schools that may lose their charitable relief because the school is not concerned wholly or mainly with providing full-time education to persons for whom an EHCP is maintained. Similarly, the Government have listened carefully to representations made by all interested stakeholders more broadly with regard to the design of the policy to remove charitable relief from private schools. The view was reached that, with the exception of the existing carve-out in the Bill for private schools concerned wholly or mainly with full-time education for pupils with ECHPs, no other private schools would be carved out of the measure. That is the fairest approach, as it ensures that the impact on pupils with the most acute needs is minimised.

The Bill provides that private schools that are charities that are concerned wholly or mainly with providing full-time education for persons with an EHCP remain eligible for charitable rate relief. In practice, the Government believe this will ensure that most private special schools will not be affected by the Bill measure. In fact, we expect any private special school losing charitable relief to be the exception—potentially, in single figures. In addition, private schools that currently benefit from the existing rates exemption for properties that are used wholly for the training or welfare of disabled people will continue to do so. This general exemption means that they do not pay any rates at all.

I know that some concerns have been raised about the possibility that some mainstream private schools may be just under 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. We therefore expect there to be very few mainstream private schools near the 50% threshold. The majority of children with a special educational need, with or without an EHCP, are provided for in the state sector. 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 approach chosen in the Bill is targeted to ensure that the impact on pupils with the most acute needs is limited. This Government are committed to reforming England’s SEND provision to improve outcomes and are providing an almost £1 billion uplift in high-needs funding in the 2025-26 financial year.

I shall speak in more detail to Amendments 26 and 27, tabled by the noble Baroness, Lady Barran, and the noble Lord, Lord Moynihan. I set out in Committee the changes that the Government are making to the Music and Dance Scheme, which supports pupils from lower-income families to attend one of eight specialist arts schools. On the question that the noble Baroness asked, no decision has been made on the future of the scheme. I acknowledge that the scheme is not available for every private performing arts school in England, but I am aware that many performing arts schools, as well as specialist sports schools and private schools more broadly, choose to provide fee assistance as part of their business model.

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. It is a commercial decision for individual schools to determine how they meet any additional costs as a result of the Bill measure, but the Government do not expect activity demonstrating public benefit, such as providing fee assistance, to significantly reduce.

Amendments 28 and 29 are concerned with requiring parts of private school hereditaments to be exempt from the rateable value of that hereditament. Amendment 28 would require parts of private school hereditaments wholly or mainly used as nursery facilities, or areas primarily used by nurseries, to be exempt, while Amendment 29 would require private school sporting facilities, or areas used primarily for sport, to be exempt if those facilities are also made available more broadly to the community.

The Government have decided that where private schools provide for compulsory school-age children and have nursery classes within the school on the same hereditament, the presence of nursery-age children should not remove the school from the business rates measure. This approach best ensures consistency with the policy intent. The allocation of any additional costs as a result of the Bill measure in private schools that also provide nursery classes is a matter for those schools.

I acknowledge that the noble Baroness, Lady Barran, has sought to find a middle ground following the Committee debate, but to exempt parts of hereditaments is challenging. This is also applicable to the amendment from the noble Lord, Lord Moynihan, that seeks to exempt sporting facilities. My remarks are applicable to both circumstances.

Noble Lords will recall that I said in Committee that I would take away the question of exempting parts of private school hereditaments, particularly in the context of sport. I have done that, so I hope noble Lords present will acknowledge that this has been looked at carefully. There are a very limited number of circumstances in rating where part of a property is exempted entirely. These exemptions are the most generous forms of support in business rates and are currently reserved for cases such as agricultural land, places of public religious worship and property wholly used for the training or welfare of disabled people.

To exempt—to totally remove from rating—parts of hereditaments within private schools used as nurseries or for sports would not be proportionate. Stand-alone nurseries and sports facilities, whether they are charities or not, do not currently receive the same benefit, so to exempt them when present in these particular private schools would create a broader inconsistency in the rating system.

Furthermore, whether part of a hereditament can be rated differently is not straightforward and depends on the facts on the ground. The key principle is that a property at the same site, in the same occupation and used for the same broad purpose is treated as one hereditament. That is why nursery classes and sports facilities on the same site as a private school, and operated by that school, do not have their own rates bill. The Government have carefully considered this and are of the view that to treat separately parts of private school hereditaments used as nurseries or for sports would not be merited in this case.

Business rates are a property tax and, to clarify the position for the noble Lord, Lord Weir, are applicable only to England, as devolved Administrations have their own approach to business rates. Where a property is being used as a private school, even if that school may have nursery classes or sports facilities, it remains a private school property. Amending the basis on which fee-paying schools can retain their charitable rate relief in the way these amendments propose 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.

Before I finish, I want to echo the words of the noble Lord, Lord Moynihan, and give my best wishes to Lord Coe in his bid to be elected the first British president of the International Olympic Committee.

I hope I have reassured noble Lords regarding the reasons why I cannot accept the amendments in the names of the noble Baroness, Lady Barran, and the noble Lords, Lord Lexden and Lord Moynihan. I hope they can take from my remarks that the Government have considered the cases they made carefully, and I respectfully ask them not to press their amendments.

[Lord Lexden (Con)]

My Lords, in accordance with the custom, I thank all those who have spoken in favour of the amendments in this group. A powerful case has been made for exempting independent schools with charitable status in respect of certain parts of the valuable work they do, such as special needs education, music and sport. It is an utter tragedy that the Government cannot see that case.

I note that, in the course of his remarks, the Minister said not one word of appreciation for and thanks to the independent schools for the enormous role they play in the education system. It may be 7%, but it is a very important contribution. With that, I beg leave to withdraw my amendment.

Amendment 25 withdrawn.

Amendments 26 to 29 not moved.

18:45

Amendment 30

Moved by

[Baroness Barran]

30: Leave out Clause 5

[Baroness Barran (Con)]

My Lords, I rise to speak to Amendment 30 in my name and that of the noble Lord, Lord Storey; I also support Amendment 31 in the names of my noble friends Lord Black of Brentwood and Lord Lexden, which seeks to include a review on the effect that this Bill will have across the education sector.

I think it is safe to say that both the noble Lord, Lord Storey, and I do not believe that the long-standing tradition that education should be free from taxation should be broken. Clearly, the Government do not agree with us, and we have seen this with the egregious introduction of VAT on independent school fees and now with the proposed change in this Bill to the exemption from business rates relief for independent schools with charitable status, not to mention the impact of the proposed employer national insurance contribution increases.

As the Minister knows, the majority of independent schools are small and run on tight margins. As he will remember from my speech in Committee, I believe it is a poor precedent for the Government to set to create a two-tier charity system and there has been no answer from the Government about this principle that all charities should be treated equally. This feels like a rather political move and charities, of all organisations, should be free from such moves.

I assume that the noble Lord is going to argue that there has been no sign that pupil numbers are dropping significantly following the introduction of VAT in January and that this Bill will similarly have a limited impact. But I say to the Minister that, first, the point that the principle that education should never be taxed still stands and, secondly, I do not think anyone really expected the impact on independent schools from the imposition of VAT would happen so quickly.

I am sure the noble Lord has received letters from parents, just as I have. They will go to great lengths to avoid disrupting their children’s education and I would be surprised if we see much change before the start of the new school year, and then from a reduced uptake in year 7. Indeed, the latest data from the Independent Schools Council shows a drop of 4.6% in applicants in year 7 and 3.9% in reception—and that was before the imposition of VAT.

I look forward to hearing the insights from other noble Lords and to hearing the Minister’s response, but at this point I am minded to test the opinion of the House.

[Lord Black of Brentwood (Con)]

My Lords, I will speak to Amendment 31 in my name. I am grateful, as always, to my noble friend Lord Lexden for his support. I also strongly support Amendment 30 from my noble friend Lady Barran. I refer noble Lords to my previous declaration of interests.

Let me explain why this amendment is important. Throughout all the debates on independent education that we have had in this House, as indeed they have had in the other place, the Government have shown themselves seemingly impervious to rational argument. Frankly, they have buried their head in the sand, wilfully refused properly to engage with the independent sector and ignored the strength of feeling in this House and the opinion of experts in the field.

The unpalatable truth that they will not acknowledge is that their policies, of which the measures in this Bill are one central strand, simply will not end up benefiting the state sector in any meaningful or visible way. The 6,500 teachers promised are likely to be a fantasy and will end up being just another broken promise. But the policies will end up profoundly impacting the independent sector and the lives of tens of thousands of pupils and their hard-working parents, and that will have far-reaching consequences not just for the schools themselves but in countless other areas.

Heartbreakingly, as we heard in the debate on the previous group, it will impact on the way in which our society cares for vulnerable children, those with special needs and disabilities, and their carers and families. It will impact on local communities that currently benefit from thriving and imaginative partnerships with state schools, on faith communities and on military families. It will impact on gifted children who benefit from bursaries, something that many independent schools are cruelly being forced now to review, and of course it will impact on jobs at independent schools, especially when closures of schools inevitably and tragically happen.

It is crucial that all this is rigorously scrutinised and that Parliament has an opportunity to examine the consequences of the policies contained in the Bill, taken alongside the other tax changes being made on VAT and on national insurance—a combination of measures that the Government’s impact assessment failed to do, as it related only to business rates. That is what we, particularly in this House, are here for: to scrutinise, examine and challenge. But we need a comprehensive assessment of the facts, undertaken by the Government themselves, to be able to do that, and that is what this amendment would deliver. The Independent Schools Council, which does such an exceptional job in championing the sector, and the other associations that form part of it will conduct their own analysis. Ultimately, however, it is the Government who are responsible for the delivery of public policy in these areas and who must be held accountable by Parliament and the electorate.

The Government say that their measures, including those in Clause 5, will raise a certain amount of money to be invested in state education. I doubt it will raise anything like that, but let us see. They say they will be able to recruit additional teachers. I very much doubt it, but let us see. They say there will be no consequences for children with special needs and those in faith schools—let us see. If they are really confident that their policies can deliver what they say without damaging consequences elsewhere, why would they not want to have a review of them to prove the point? What are they fearful of?

Perhaps it is just possible that they might be wrong and will end up undermining and weakening the independent sector, which is the envy of the world, without delivering for the state sector—which means, of course, that they would have to think again. We need answers to that. That is why I believe they must commit to a thorough review of their policies, then Parliament, including our House, can scrutinise it, debate it and make recommendations for change.

[Lord Shipley (LD)]

My Lords, I agree with both amendments in this group. If you believe in “education, education, education”, you should not tax independent schools in the way that the Government have decided they want to. The Government have argued that taxing independent schools will increase the number of teachers in state schools, but the Government’s own figures show that they reached only 62% of their postgraduate secondary ITT recruitment target in 2024, so there will be pressure to increase the pay of existing teachers rather than to appoint new ones. In any case, most of the extra £1.5 billion estimated to come per year from this clause will go on special educational needs.

I suggest, very much in line with Amendment 25 from the noble Lord, Lord Lexden, that the Government’s priority should be to cut the backlog in assessments for education, health and care plans, rather than taxing parents who want the best for their child with special needs and think it can be delivered only in the independent sector. There is a very basic issue of principle here: the right of a parent to opt out of a state system where they believe their child would benefit from that. When they have paid their share of general taxation and foregone a place in the state system, thus saving the state money, then paid additionally for their child’s schooling, I submit that it is wrong in principle to tax them yet again for that decision to send their child to an independent school.

I have concluded that Clause 5 is a distraction. It will fail to deliver the Government’s ambitions for the state sector, and it is better for our education system as a whole to remove Clause 5.

[Lord Weir of Ballyholme (DUP)]

My Lords, again, I support the amendments in this group. Perhaps I should clarify for the Minister that I do so, to paraphrase something said in a different context, on the basis of being without a directly selfish economic or strategic interest in the issue. Let me highlight why I say that, in coming from a background of education in Northern Ireland.

This provision does not affect Northern Ireland, as the Minister rightly pointed out; it is an English-only matter, because all these aspects are devolved issues. Consequently, from that point of view, it will not impact on any of my former constituents in that regard, nor indeed on Northern Ireland. We have a strange patchwork of school types across the United Kingdom in our delivery of education. Northern Ireland’s background is largely one in which the independent sector is extremely small. Indeed, you could make an argument, particularly at post-primary level, that on the definition of what most people would regard as independent schools, there is perhaps one independent school in Northern Ireland that is directly akin to those in England.

I am trying to look at this as objectively as possible, but from that point of view there are three main reasons why these amendments need to be supported. First, the prospect of imposing additional burdens and taxation on schools sits deeply uncomfortably with me. The idea of penalising parents by saying, “Because of the educational choice that you are making, we are going to single out your schools for an additional financial burden to tax education” is fundamentally wrong.

Secondly, there is at least a perception—I am sure the Government would deny it—that this is a highly ideologically driven proposal and part of a wider set of seeming attacks on independent schools, as seen particularly by the changes in VAT. As such, there is a concern that, rather than looking at what is of educational benefit, this is some red meat being thrown out to some ideological Labour supporters. It is an easy target to go after.

The third reason is that of unintended consequences. We are asked to look at different figures and projections as to the impact that these various changes will make. As I highlighted in the previous group, this is perhaps a less significant change than the changes to VAT, but again, it will have a level of tipping impact and lead to the closure of schools. This is not mere theory.

If I may draw on an example of relatively recent history in Northern Ireland, roughly 12 years ago, the then Minister of Education, who was a member of Sinn Féin, made changes to a level of funding that was available to preparatory schools in Northern Ireland. In those circumstances, the vast majority of fees were paid by parents and the schools were largely supported directly by them; it was at least 70%-plus. The state paid a small proportion of what would normally go to support children in state schools. There was a significant cut made to that. It was not completely wiped off the face of it, for the reason that the then Minister would have had to bring it to get executive approval had it done so. The arguments used were that it was some sort of financial benefit, which could then be ploughed back into state education, so it was an egalitarian move.

What was the ultimate impact of that? For many of those schools which were already under a level of financial burden, it became the final nail in their financial coffin, with the end result that, 12 years on, the number of prep schools in Northern Ireland has gone down by just over a third and the number of pupils going to those prep schools is down by more than 40%. That single move made a number of those schools unsustainable.

19:00

Instead of the state contributing around 30% of the costs, for those pupils who then transferred into the state system, the state was then picking up 100% of the costs, wiping out—indeed, more than wiping out—the impact. It was not something that happened overnight but, over a period, that is what developed. It seems clear to me that this will have an impact on parents; it will have an impact on schools, and it will, inevitably, take a number of those schools to the wall.

If we are to look at this from an egalitarian point of view, we all know that within our society the very richest and wealthiest will always be able to find a way to afford some form of private education. It will not be the Etons or the Harrows of this world that will go to the wall; it will be the smaller independent schools—those that, for example, specialise in SEN—that will be most dramatically hit. That is probably not the intention of the Government, but that will be the net impact.

There is a real risk, drawn out by practical experience, that instead of creating a windfall for the state sector, we end up creating an additional financial burden on the state sector, while destroying the educational opportunities for many of our children. This is a much more clear-cut way of dealing with it, and I urge the House to back Amendments 30 and 31.

[Lord Shinkwin (Con)]

My Lords, I support Amendment 30 in the name of my noble friend Lady Barran and the noble Lord, Lord Storey. In doing so, I should explain that leaving Clause 5 out of the Bill is the only way to protect all pupils with SEND who attend independent schools, like those I attended, where the proportion of children with SEND is much lower than 50%. I understand the Government argue that protecting only schools where a majority of pupils have education, health and care plans, or EHCPs, is adequate—as if they can ignore the inconvenient truth that almost 100,000 pupils receive SEND support in independent schools without an EHCP.

I wonder whether the Government have joined the dots and thought of the impression that this gives. The sad fact is that, in the Government’s eyes, the damage to many of these children’s life chances seems to be a price worth paying. They are expendable, immaterial, inconsequential, collateral damage, caught in the crossfire of what appears to be an ideological obsession with punishing anyone they perceive as rich. Yet many of these children’s families, as we have already heard from across the House, are not rich and the Government know it, but they seem not to care. They seem not to care that this is a deeply damaging and wholly disproportionate measure which, as we have already heard, will not raise significant revenue but will harm schools and particularly pupils with SEND who, as I did, come from modest backgrounds. Their life chances will be badly affected by its implementation. They seem not to care, but schools could close because of it. They seem not to care about the incomprehensible incompatibility of putting, as we have already heard, even more pressure on an already overstretched state sector, which the Government know and the National Audit Office has shown, is already failing to meet demand. They seem not to care, incredibly, about the mental health of pupils with SEND, which will undoubtedly be hurt by the impact of this measure unless Clause 5 is left out of the Bill. I say again to the Minister that I refuse to believe that this is the Government’s intention, but it is definitely the impression given.

So I fear that we have lost sight of the people who matter most: the almost 100,000 children with SEND who receive SEND support in independent schools without an EHCP. This amendment gives us the opportunity to send a clear message as a House that we stand with them in solidarity and with their families. That is why I urge noble Lords on all sides of the House to support it and to remove Clause 5 from the Bill.

[The Earl of Lytton (CB)]

My Lords, I had not originally intended to intervene on this amendment, but I cannot help but see a wider point of principle that is involved with Clause 5 of the Bill.

I should explain that rating law serves to exempt premises used by charities and occupied for their charitable purposes, with 80% mandatory relief and 20% discretionary relief given by the billing authority. There is also some discretion for billing authorities to give similar treatment to local not for profit or community enterprises. I hope I have got that right.

What disturbs me is that, clearly, the Government think that some charities are more deserving than others. This throws up a wider issue of an arguably discriminatory policy on which a wider debate across the country is warranted. What might be more or less meritorious when considering organisations concerned with human disease, animals, wildlife or conservation, building preservation and so on? But education is the very basis of what we leave and pass on to future generations in knowledge, citizenship and values. I fail to comprehend what this clause in the Bill is, and that is why I feel compelled to support these two amendments. If we do not secure its complete removal, we should certainly have the review advocated by the noble Lord, Lord Black.

I will illustrate some of the consequences of this. I recently visited my old school as part of the Learn with the Lords programme. I ascertained that this Bill, along with other measures introduced by the Government, will cost it an additional £1 million per year and that this is likely to be reflected principally in staff reductions. I happen to know that this school has a very firm commitment to its staff, as it does to its pupils.

So Clause 5 is more than unfortunate; it is retrograde and, I feel, discriminatory. The Government ought to think again about the purpose and formulation of this particular clause of the Bill.

[Baroness Barran (Con)]

My Lords, the Minister has heard three very strong arguments from across the House. The first is that the principle of not taxing education should be respected and upheld. Secondly, there is the principle that charities should not be subject to any kind of political overreach. Thirdly, the Government should not introduce a two-tier system, punishing charities that do not conform to their views. I think we have heard across the House that this sets a very unfortunate precedent.

Finally, there is the point that this policy will not deliver but rather will impact children, particularly vulnerable children, who attend some of the small schools that serve them and their communities all around the country. I would like to test the opinion of the House.

[Lord Khan of Burnley (Lab)]

My Lords, we have a right of reply.

Amendment 30 would remove Clause 5 from the Bill, and therefore the measure that removes the eligibility for charitable rate relief from private schools that are charities. Amendment 31 would require the Government to undertake an assessment of the expected and observed impact of Clause 5. Furthermore, that amendment seeks to ensure that any assessment has regard to impacts owing to any other tax change that have affected 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, and the resulting impact on the state sector. I am unable to accept these amendments.

This Government committed in their manifesto to raise school standards for every child, to break down barriers to opportunity and to ensure that every child has the best start in life, no matter where they come from or their financial background. As part of that, the Government committed to removing the VAT and business rates charitable relief tax breaks for private schools, to help to raise revenue to help to deliver on their commitments to education and young people.

The Government carefully considered their approach in designing the policy to remove charitable rate relief from private schools. On 29 July, they published a technical note on removing the VAT and business rates charitable relief tax breaks for private schools. The Government received 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. 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 page. A tax information and impact note was published in relation to the VAT change at the Budget and is available on GOV.UK.

The removal of business rates charitable relief from private schools that are charities will apply to all charitable private schools, with the exception of where a private school is wholly or mainly concerned with providing full-time education to persons for whom an education, health and care plan is maintained. As I set out in a debate on an earlier group today, under the carve-out in the Bill, the Government believe that this will ensure that most private special schools will not be affected by the Bill measure.

At the Budget, the Government announced a real-terms increase in per pupil funding, with a £2.3 billion increase to the core schools budget for the financial year 2025-26, including an almost £1 billion uplift in high-needs funding. This funding increase needs to be paid for; to help to do that, the Government are ending tax breaks for private schools, including, as this Bill delivers, ending charitable rate relief for those private schools in England that are charities. Taken together with the policy to remove the VAT exemption, these measures will raise around £1.8 billion a year by 2029-30.

I know that there have been concerns with regards the impact on the state sector caused by this policy. The impact note that I mentioned set out that, in the long run—by 2030—the Government estimate an increase of 2,900 pupils in the state sector. Based on average 2024-25 per pupil spending in England, the Government expect the revenue costs of pupils entering the state sector as a result of the business rates measure in England to steadily increase to a peak of around £20 million per annum, after several years. Overall, the expected revenue from the measure will substantially outweigh the additional cost pressures.

The Government have undertaken analysis of the policy and provided that publicly. Furthermore, they undertake a range of monitoring, data collection and publication of data as part of usual processes, and will continue to do so when the Bill measure comes into effect. For example, the Department for Education monitors place demand and capacity as a matter of course, and works closely with local authorities to meet any demand pressures to ensure that there are sufficient school places for children who need them. All children of compulsory school age are entitled to a state-funded school place.

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. Data on the number of school pupils is published every summer, providing information on the number of pupils at different types of schools, so anyone can see how pupil numbers in both state and private schools have changed.

Part of the assessment that the amendment would require seeks to understand any impact on partnership working between private and state schools, as well as the capacity of private schools to provide fee assistance. I understand that there is concern that private schools will reduce these activities. We understand from data published by the Independent Schools Council that a lot of private-state sector partnerships relate to the hosting of joint events or providing access to facilities used by private school pupils. In many of these partnerships, the activity undertaken benefits the pupils that attend private schools, so it would not be in the interest of the private schools to stop this activity either.

19:15

Furthermore, in the provision of facilities to non-pupils, this is not universally undertaken free of charge by private schools. It will be for individual private schools to determine how they meet any additional costs as a result of the Bill measure. However, the Government expect private schools to continue to demonstrate public benefit, with partnership working, sharing of facilities and providing fee assistance as common ways in which these schools do that. Demonstrating public benefit is a requirement of the charitable status, and the Government do not expect partnership activity, provision of facilities to non-pupils or fee-assistance to decrease significantly.

With regards to the other areas highlighted for examination in the amendment, local authorities can place looked-after children at private schools when it is in the child’s interests. We do not expect placements funded by local authorities to be impacted by the tax changes. As with partnerships, we do not expect charitable schools to stop supporting these pupils as part of their demonstration of public benefit.

The Government recognise that some parents want their children to be educated in a school with a particular faith ethos. Pupils who follow a particular faith can be accommodated in the state sector. As I have said, 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.

As part of the monitoring and data that the Department for Education already undertakes as part of its usual processes, the department collects information on the number of teachers in private schools. This data is published annually. The Government do not anticipate that private schools will substantially reduce staff as a result of the business rates measure.

The Government are committed to breaking down barriers to opportunity, delivering for all children and improving the state sector, and are prepared to take the tough but necessary decisions to deliver on those bold commitments.

I thank the noble Baroness, Lady Barran, for all her contributions today and throughout the passage of the Bill through this House. She has brought great expertise and scrutiny to the process. However, I cannot accept her amendment, as the Government must proceed with delivering on their manifesto commitments.

I give many thanks to the noble Lord, Lord Black of Brentwood, for his amendment. I appreciate that there is a desire to commit the Government to undertake a detailed review. However, they already undertake a wide range of monitoring as part of business-as-usual processes, and make data available so that all can see how various factors change year to year.

I extend my gratitude to all noble Lords for their engagement during the passage of this Bill and for their thoughtful expertise, skills and knowledge, in meeting me, as well as in debate on the Bill. I hope that I have been able to reassure noble Lords here today of the work that the Government have already done and will continue to do in this space. I hope that the noble Baroness is able to withdraw her amendment.

[Baroness Barran (Con)]

My Lords, I apologise to the House, and particularly to the Minister, for jumping the gun with my closing remarks.

It is fair to say that, of the three points that I raised —the principle of taxing education, the differential treatment of charities and the impact of the Bill— I did not hear the first two addressed directly, and on the third I think that the Minister and I have to agree to differ. With that, I am afraid that I have to tell the Minister that I still wish to test the opinion of the House.

19:18

Division 5

Ayes: 232

Noes: 141

19:29

Amendment 31 not moved.

Amendment 32

Moved by

[Lord Thurlow]

32: After Clause 5, insert the following new Clause—
“Use Class for retail services from fulfilment warehouses(1) Within three months of the day on which this Act is passed, the Secretary of State must instigate a review of the merits of a separate Use Class and associated multiplier for retail services provided by fulfilment warehouses that do not have a material presence on local high streets, to apply in England.(2) Experts in the sector must be consulted to inform the review, including but not limited to—(a) the Royal Institute of Chartered Surveyors;(b) the Institute of Revenues, Rating and Valuation;(c) the Rating Surveyors’ Association. (3) The Secretary of State must publish a report of their conclusions and recommendations within three months of the review being instigated, and lay that report before Parliament.(4) The Secretary of State must implement any recommended changes indicated by the findings of their review within six months of the date on which the report is published.(5) The Secretary of State may make provision to carry out subsection (4) by regulations made by statutory instrument.(6) A statutory instrument containing regulations under subsection (5) is subject to annulment in pursuance of a resolution of either House of Parliament.”Member’s explanatory statement
This amendment seeks to recalibrate the share of non-domestic rates paid by retailers not on the high street through a review informed by expert advice, to be implemented within one year of the passing of this Act.

[Lord Thurlow (CB)]

My Lords, we debated this amendment two or three hours ago. It would level the playing field between internet warehousing and high street shops. I am grateful to noble Lords who took part in that debate and to the Minister for his helpful and constructive suggestions, but I am afraid that they were too vague. The wait will be too long and the crisis for high street shops is pressing, so I would like to divide the House.

19:30

Division 6

Ayes: 196

Noes: 135

19:41

Clause 6: Commencement

Amendment 33 not moved.

Amendment 34

Moved by

[Lord Jamieson]

34: Clause 6, page 6, line 21, at beginning insert “Subject to the review required under section (Review: threshold effect) having been laid before Parliament three months before the start of the financial year,”

Amendment 34 agreed.