Non-Domestic Rating (Multipliers and Private Schools) Bill)

Consideration of Commons amendments and / or reasons
Wednesday 26th March 2025 Lords Chamber

Commons Reasons

16:19

Motion A

Moved by

[Lord Khan of Burnley]

That this House do not insist on its Amendment 1, to which the Commons have disagreed for their Reason 1A.

1A: Because the Lords Amendment interferes with the public revenue and affects the levy and application of local revenues, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

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

My Lords, in moving Motion A, I will also speak to Motion A1, Motions B and B1, Motions C to F, Motions G and G1, Motions H and H1, Motions J to M, Motions N and N1, Motions P and P1, and Motion R. These Motions concern the measures in the Bill to enable the introduction of new multipliers from April 2026 in line with the Chancellor’s intention set out at the Autumn Budget.

As a reminder, it is the Government’s intention to introduce two lower multipliers for qualifying retail, hospitality and leisure properties, and for that permanent tax cut for those RHL properties to be sustainably funded to also introduce one higher multiplier for all properties with a rateable value at or above £500,000. Given the challenging fiscal context, this prudent approach is essential to ensure that the new lower RHL multipliers can be adequately funded from within the business rates system.

Motions A to M ask noble Lords not to insist on their Amendments 1 to 12. The other place disagreed to these amendments on the basis that they interfere with public revenue and affect the levy and application of local revenues. The other place did not offer any further reason, trusting that this reason is sufficient.

The noble Baroness, Lady Pinnock, has tabled Amendments 1B and 7B in lieu of Amendments 1 and 7. These amendments seek to allow the Treasury to exclude healthcare hereditaments from the higher multiplier. The noble Baroness, Lady Scott, has tabled Amendments 2B and 8B in lieu of Amendments 2 and 8. These amendments seek to allow the Treasury to exclude anchor stores from the higher multiplier.

We have discussed during the passage of the Bill the importance of having a higher multiplier that applies to all properties at £500,000 rateable value and above, and why this is the only fair way of raising the revenue needed to fund the lower multiplier. We have ensured that the Valuation Office Agency has published data on those hereditaments in the healthcare and retail sectors with a rateable value of £500,000 or above. The impact is very limited and, for retail, mostly limited to supermarkets and retail warehouses. I have previously provided the House with the statistics that show that, and they have been published by the VOA.

Nevertheless, I assure the House that the powers already contained in Clause 3 would allow the Treasury to exclude from the higher multiplier classes of hereditament based upon their use. The amendments put forward to Clause 1 are therefore unnecessary. Therefore, I respectfully ask the noble Baronesses, Lady Pinnock and Lady Scott, not to press these amendments.

Motions N, P and R ask noble Lords not to insist on their Amendments 13, 14 and 16. The other place disagreed with Amendments 14 and 16 on the basis that they interfere with public revenue and affect the levy and application of local revenues. The other place did not offer any further reason, trusting that this reason is sufficient. The other place disagreed to Amendment 13 on the basis that the Government have already agreed to publish information about the new multipliers and further provision is not necessary.

The noble Lord, Lord Thurlow, has tabled Amendment 13B in lieu of Amendment 13 and Amendment 14B in lieu of Amendment 14. Amendment 13B seeks to require the Government to undertake a review of how provisions within the Act may affect businesses whose rateable value is close to £500,000. The amendment requires that this part of the review be laid before Parliament within six months of the day on which the Act is passed. Amendment 13B also sets out that that review must consider 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. Amendment 14B is similar to the amendment previously tabled by the noble Lord but removes the requirement for the recommendations of that review to be implemented.

As set out previously in this House and the other place, Amendment 13, and now Amendment 13B in lieu, probe the way that the multipliers in business rates currently operate and whether this may serve as a disincentive to invest. This is something the Government have already committed to looking at through their work in Transforming Business Rates. The Government have published a forward look that shows that an announcement on reforms to be taken forward will be coming later this year. Reforms will be phased in over the course of this Parliament.

Furthermore, the objective set out now in both Amendments 13B and 14B, to identify fulfilment warehouses used by online retailers that do not have a material presence on our high streets, is something the Government believe they are already exploring through the existing digitalising business rates project. As set out previously in this House, that project will allow the Government to match property-level data with HMRC business-level data. This will help us to improve the way that we target business rates and identify property and businesses within the business rates system.

For these reasons, the amendments are not necessary as they are already being pursued through other government work. Therefore, I respectfully ask noble Lords not to press these amendments. I beg to move.

Motion A1 (as an amendment to Motion A)

Moved by

[Baroness Pinnock]

At end insert “, and do propose Amendment 1B in lieu—

1B: Clause 1, page 2, line 6, at end insert—
“(1A) Regulations under sub-paragraph (1)(a) may specify that occupied hospitals, medical and dental schools, and any other healthcare settings as may be prescribed in the regulations are not subject to the higher multiplier.””

[Baroness Pinnock (LD)]

My Lords, as the Minister said, the higher rate or multiplier being introduced in this Bill is to apply to all properties with a rateable value of more than £500,000. This is a worthy attempt by the Government to have a fairer approach to business rates.

However, 290 hospitals are captured by this new banding. It means a considerable increase in their business rates—potentially, a 20% increase—for which government funding has not made provision, so hospitals will have less funding to drive down waiting lists, which is an aim that has all our support. I give just one example: University College Hospital here in London has a rateable value of nearly £12 million. With the new higher multiplier, its business rates will increase by over £1.2 million.

Amendment 1B, in lieu of Amendment 1, would provide the Government with the option, by regulations, to exclude hospitals from this higher banding. At this late stage, I urge the Minister to agree. None of us wants to see waiting lists not going down as fast as they could because of the Government’s reluctance to exclude hospitals—not from business rates, just from the higher multiplier.

I will speak very briefly to the other Motions. Motion B1 in the name of the noble Baroness, Lady Scott of Bybrook, is very important to the viability and vitality of our town and city centres. We on these Benches are minded to support the noble Baroness on this issue if she wishes to take it to a vote.

Motion N1 in the name of the noble Lord, Lord Thurlow, would provide the Government with a way forward to address cliff-edge issues when there are hard divides between different multiplier levels. This is of concern to businesses and, again, we will support the noble Lord if he intends to divide the House on this issue. I beg to move Motion A1.

[Baroness Scott of Bybrook (Con)]

My Lords, first, I declare my interest as a vice-president of the Local Government Association. This group of amendments addresses the ongoing issues with Clauses 1 to 4 that have been debated throughout the progress of the Bill. These clauses present two major problems. They do not reflect the Government’s previously stated ambition to reform the business rates system in order to protect the high street and ensure that online businesses pay their fair share. The higher multiplier will damage businesses on the high street and drive them out of town centres.

The Bill is an attempt by the Government to deliver on their manifesto commitment to reform the business rates system, but they have instead used a blunt instrument as a cut-off. That means that a number of businesses will be paying this higher multiplier, which they should not be doing. The Government will be hitting stores up and down the high street. Despite promises that reform will follow, the Bill leaves a number of important high street businesses paying higher rates, with no certainty at all as to when the situation will improve.

16:30

My Motion B1 seeks to give the Secretary of State the discretionary power to retain the higher standard multiplier for anchor stores. This would allow the Secretary of State to remove the higher multiplier if it becomes apparent that there are a number of integral businesses leaving the high street or opening new stores outside town centres. It does not require any action, but instead gives the Secretary of State the discretion to exempt these shops should our fears that the Bill will harm our high streets prove to be correct. Nothing that I have heard from the noble Lord at the moment gives me any reason to believe that this has been dealt with. Therefore, I intend to test the opinion of the House on Motion B1.

It is also important to protect our healthcare properties. The noble Baroness, Lady Pinnock, as she said, is seeking to protect our health sector. Should she choose to divide the House on this issue, we will support her.

The amendment of the noble Lord, Lord Thurlow, calls on the Government to review both the £500,000 threshold and a specific use class for fulfilment warehouses. It is important that the Government follow through on their manifesto commitments, so I see no reason why they should not accept any amendment that calls on them to do so. If the noble Lord chooses to divide the House, we will support him, too.

[Lord Thurlow (CB)]

My Lords, I shall speak to Motion N1. We have already had reference to this, but I have noted the Commons’ objections to my amendment on Report, and I have revised it and wish simply to sketch the alterations. This revised amendment, therefore, is about reviews exclusively—first, a review of the £500,000 threshold of rateable value, which is the cliff edge that the noble Baroness, Lady Pinnock, referred to, and the impact it will have on businesses. This is a vital review because at present, it will be untenable for organisations that just exceed the £500,000 rateable value and will be compelled to pay a higher band of rates. The second review concerns how to address the appropriate tax rateable value on the big warehouse retailers—the internet retailers such as, but not exclusively, Amazon. Fairness between the high street and these big-box retailers is what we seek. We want to establish a new use class, purely for the benefit of business rates and no other reason, but without insisting upon implementation, which was in the previous amendment and rejected in the other place. The Government will then be able to apply the new rateable value to these big gorilla retailers at the flick of a switch at any time in the future, but they are not compelled to do so.

All sides of the House want fairness for the high street against these big retailers. Let us not duck it or leave it in the long grass. I am afraid I am not convinced by the comments of the Minister so I, in turn, wish to press my Motion at the appropriate time.

[Lord Jamieson (Con)]

My Lords, I declare my interest as a councillor in central Bedfordshire. I rise to speak in support of the noble Lord, Lord Thurlow, and his Motion N1. The noble Lord has been persistent in his efforts to get the Government to listen and bring forward a serious review of the case for a separate use class for retail fulfilment centres that are not on the high street. He is an excellent example of a Peer who brings his experience and expertise to your Lordships’ House. As a professional chartered surveyor, he has brought that expertise to bear during the debates on the Bill, and I am very grateful to him for that.

The Bill fails to deliver on the Government’s manifesto commitment to replace the business rates system and level up the playing field between the high street and the internet giants—a so-called Amazon tax. It fails on both counts. The reviews proposed in this amendment would provide the basis to achieve this. The new £500,000 threshold for the higher multiplier is a blunt tool that will impact many organisations that were never intended to be hit with higher business taxes. It does not deliver on the Government’s objective of targeting online giants. I have consistently made the point that a £500,000 threshold is a cliff edge that will create perverse incentives at the margins, disincentivising investment, particularly on the high street.

The noble Lord, Lord Thurlow, has gone further arguing forcefully that the Government must review the case for a separate use class for retail fulfilment centres that are not on the high street. I am grateful to him for including my concerns about the impact of the £500,000 threshold in his Motion N1, and I am pleased that my party will vote for it should he choose to test the opinion of the House.

[Lord Thurlow (CB)]

My Lords, I realise that I omitted to refer to Motion P1, which is in the same group. It is consequential on Motion N1 and will depend on the outcome of that Division.

[Lord Khan of Burnley (Lab)]

My Lords, I thank all noble Lords who took part in this short debate. We heard concerns that the measures in the Bill for new multipliers do not deliver on the stated intention of the policy as announced at the Budget. I do not agree with that. At the Budget, the Government announced their intention to introduce two lower multipliers for qualifying retail, hospitality and leisure properties and, in particular, to end the uncertainty of annual RHL relief. RHL is a temporary stopgap measure that has been extended year on year since the pandemic, and it does not provide the certainty that businesses require. The Government, through this Bill, are taking steps to address that. It was also announced at the Budget that the permanent tax cut for RHL businesses needs to be sustainably funded. This is an appropriate and prudent approach. The challenging fiscal environment that the Government face requires this, but it goes without saying that any tax cut must be funded as part of sound financial management. To do this, the Government intend to introduce a higher multiplier for the most valuable properties, those with a rateable value of £500,000 and above. The higher multiplier will affect less than 1% of properties in England. This delivers on the policy set out at the Budget by the Chancellor. Furthermore, it represents the Government’s first step to delivering on their manifesto commitment to transform the business rates system to one that is fairer, protects the high street and is fit for the 21st century.

I have explained to noble Lords here today while the amendments tabled in lieu are not necessary. For these reasons and the other reasons I have already set out, I respectfully ask noble Lords not to press their Motions containing Amendments 1B, 2B, 7B, 8B, 13B and 14B.

[Baroness Pinnock (LD)]

I thank the Minister for his response, which gave me no hope that the Government are considering relieving hospitals of the higher multiplier. We agree with him that retail, hospitality and leisure businesses should benefit from the lower multiplier in the Bill, but it should not be at the expense of the NHS. There are other ways of doing it, and I am appalled that the Minister has not sought to find alternative sources of income. So because we on these Benches wish to make sure that our hospitals do not lose a penny more in business rates to the Government, I beg leave to test the opinion of the House.

16:40

Division 1

Ayes: 278

Noes: 165

16:52

Motion B

Moved by

[Lord Khan of Burnley]

That this House do not insist on its Amendment 2, to which the Commons have disagreed for their Reason 2A.

2A: Because the Lords Amendment interferes with the public revenue and affects the levy and application of local revenues, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

[Lord Khan of Burnley (Lab)]

My Lords, I have already spoken to Motion B. I beg to move.

Motion B1 (as an amendment to Motion B)

Moved by

[Baroness Scott of Bybrook]

At end insert “, and do propose Amendment 2B in lieu—

2B: Clause 1, page 2, line 6, at end insert—
“(1A) Regulations under sub-paragraph (1)(a) may specify that occupied anchor stores are not subject to the higher multiplier (and may define “anchor stores” for this purpose).””

[Baroness Scott of Bybrook (Con)]

My Lords, in support of businesses on high streets up and down this country, I intend to test the opinion of the House.

16:53

Division 2

Ayes: 277

Noes: 172

17:05

Motion C

Moved by

[Lord Khan of Burnley]

That this House do not insist on its Amendment 3, to which the Commons have disagreed for their Reason 3A.

3A: Because the Lords Amendment interferes with the public revenue and affects the levy and application of local revenues, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

Motion C agreed.

Motion D

Moved by

[Lord Khan of Burnley]

That this House do not insist on its Amendment 4, to which the Commons have disagreed for their Reason 4A.

4A: Because the Lords Amendment interferes with the public revenue and affects the levy and application of local revenues, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

Motion D agreed.

Motion E

Moved by

[Lord Khan of Burnley]

That this House do not insist on its Amendment 5, to which the Commons have disagreed for their Reason 5A.

5A: Because the Lords Amendment interferes with the public revenue and affects the levy and application of local revenues, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

Motion E agreed.

Motion F

Moved by

[Lord Khan of Burnley]

That this House do not insist on its Amendment 6, to which the Commons have disagreed for their Reason 6A.

6A: Because the Lords Amendment interferes with the public revenue and affects the levy and application of local revenues, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

Motion F agreed.

Motion G

[Lord Khan of Burnley]

Moved by

That this House do not insist on its Amendment 7, to which the Commons have disagreed for their Reason 7A.

7A: Because the Lords Amendment interferes with the public revenue and affects the levy and application of local revenues, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

Motion G1 (as an amendment to Motion G)

[Baroness Pinnock]

Moved by

At end insert “, and do propose Amendment 7B in lieu—

7B: Clause 1, page 2, line 6, at end insert—
“(1A) Regulations under sub-paragraph (1)(a) may specify that unoccupied hospitals, medical and dental schools, and any other healthcare settings as may be prescribed in the regulations are not subject to the higher multiplier.””

[Baroness Pinnock (LD)]

My Lord, this is a consequential amendment on Motion A1. Presumably, that one has passed.

Motion G1 agreed (as an amendment to Motion G).

Motion H

Moved by

[Lord Khan of Burnley]

That this House do not insist on its Amendment 8, to which the Commons have disagreed for their Reason 8A.

8A: Because the Lords Amendment interferes with the public revenue and affects the levy and application of local revenues, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

Motion H1 (as an amendment to Motion H)

Moved by

[Baroness Scott of Bybrook]

At end insert “, and do propose Amendment 8B in lieu—

8B: Clause 1, page 2, line 6, at end insert—
“(1A) Regulations under sub-paragraph (1)(a) may specify that unoccupied anchor stores are not subject to the higher multiplier (and may define “anchor stores” for this purpose).””

Motion H1 agreed (as an amendment to Motion H).

Motion J

Moved by

[Lord Khan of Burnley]

That this House do not insist on its Amendment 9, to which the Commons have disagreed for their Reason 9A.

9A: Because the Lords Amendment interferes with the public revenue and affects the levy and application of local revenues, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

Motion J agreed.

Motion K

Moved by

[Lord Khan of Burnley]

That this House do not insist on its Amendment 10, to which the Commons have disagreed for their Reason 10A.

10A: Because the Lords Amendment interferes with the public revenue and affects the levy and application of local revenues, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

Motion K agreed.

Motion L

Moved by

[Lord Khan of Burnley]

That this House do not insist on its Amendment 11, to which the Commons have disagreed for their Reason 11A.

11A: Because the Lords Amendment interferes with the public revenue and affects the levy and application of local revenues, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

Motion L agreed.

Motion M

Moved by

[Lord Khan of Burnley]

That this House do not insist on its Amendment 12, to which the Commons have disagreed for their Reason 12A.

12A: Because the Lords Amendment interferes with the public revenue and affects the levy and application of local revenues, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

Motion M agreed.

Motion N

Moved by

[Lord Khan of Burnley]

That this House do not insist on its Amendment 13, to which the Commons have disagreed for their Reason 13A.

13A: Because the government has already agreed to publish information about the new multipliers and further provision is not necessary.

Motion N1 (as an amendment to Motion N)

Moved by

[Lord Thurlow]

At end insert “, and do propose Amendment 13B in lieu—

13B: 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 review must consider 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.
(3) 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.
(4) The Secretary of State must lay the review under subsection (1) before Parliament within six months of the day on which this Act is passed.””

[Lord Thurlow (CB)]

My Lords, I wish to divide the House.

17:08

Division 3

Ayes: 277

Noes: 162

17:18

Motion P

Moved by

[Lord Khan of Burnley]

That this House do not insist on its Amendment 14, to which the Commons have disagreed for their Reason 14A.

14A: Because the Lords Amendment interferes with the public revenue and affects the levy and application of local revenues, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

Motion P1 (as an amendment to Motion P) not moved.

Motion P agreed.

Motion Q

Moved by

[Lord Khan of Burnley]

That this House do not insist on its Amendment 15, to which the Commons have disagreed for their Reason 15A.

15A: Because the Lords Amendment interferes with the public revenue and affects the levy and application of local revenues, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

[Lord Khan of Burnley (Lab)]

My Lords, in moving Motion Q, I shall also speak to Motions S, T and U. These Motions relate to the measure in the Bill to remove charitable rate relief from private schools that are charities.

This Government are committed to breaking down barriers to opportunity and raising standards for every child and young person, no matter where they come from or their financial background. To do this, the Government need to concentrate on the broader picture towards the state sector, where most children are educated. That is why the Government committed in their manifesto to remove the eligibility for charitable rate relief from private schools that are charities in England to raise revenue to help deliver these important commitments.

This is a tough but necessary decision. This Government must act to restore public services and improve opportunities for all. Removing the eligibility of private schools for charitable relief will raise approximately £140 million per year. Taken together with the removal of the VAT exemption from private school fees, these policies are expected to raise £1.8 billion a year by 2029-30, which will help to deliver the Government’s commitments in relation to education and young people. The approach to this policy has been carefully considered. The Government have sought to ensure that the impact of this change on those children with the most acute needs is minimised.

Motions Q and S to U ask noble Lords not to insist on their Amendments 15, 17, 18 and 19. The other place disagreed to Amendments 15 and 17 on the basis that they interfere with the public revenue and affect the levy and application of local revenues. The other place did not offer any further reason, trusting that this reason was sufficient. Similarly, the other place disagreed to Amendments 18 and 19 on the basis that these amendments are consequential on Amendment 15, with which the other place disagrees for the reason stated.

The noble Baroness, Lady Barran, has tabled Amendments 15B, 15C, 15D and 15E in lieu of her original Amendment 15. These amendments move the decision to remove the charitable rate relief from one made by this Parliament to one which would be made by the Secretary of State by regulations subject to the affirmative resolution procedure for that statutory instrument.

17:21

Sitting suspended.

17:27

[Lord Khan of Burnley (Lab)]

My Lords, the noble Baroness, Lady Barran, has tabled Amendments 15B, 15C, 15D and 15E in lieu of her original Amendment 15. These amendments would move the decision to remove the charitable rate relief from one being made by this Parliament to one which would be made by the Secretary of State by regulations subject to the affirmative resolution procedure for that statutory instrument.

As I have said, this Government are clear that the relief should be removed from private schools. We believe that this is a matter that Parliament should decide, and we have invited Parliament to do so through this Bill. The amendment therefore seeks unnecessarily to move this decision from Parliament to the Secretary of State. I respectfully ask the noble Baroness not to press her amendments. I beg to move.

Motion Q1 (as an amendment to Motion Q)

Moved by

[Baroness Barran]

At end insert “, and do propose the following amendments to the words so restored to the Bill—

15B: Clause 5, page 5, line 14, after “But” insert “the Secretary of State may by regulations made by statutory instrument provide that”

15C: Clause 5, page 6, line 11, at end insert—
“(8) A statutory instrument containing regulations under sub-paragraph (3) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”

15D: Clause 5, page 6, line 14, after “But” insert “the Secretary of State may by regulations made by statutory instrument provide that”

15E: Clause 5, page 6, line 18, at end insert—
“(2C) A statutory instrument containing regulations under sub-paragraph (2A) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.””

[Baroness Barran (Con)]

My Lords, my Amendments 15B to 15E would allow the Secretary of State to reverse this policy in future.

The Bill introduces two things with which we fundamentally disagree: a tax on education and a two-tier charity system. Both are political choices made by this Government and both are, we believe, mistakes. I cannot see why the power for the Secretary of State to reverse this decision would be rejected. It does not require the Secretary of State to do anything but offers the flexibility and ability to change, if this policy—coupled with the introduction of VAT on independent school fees and the increase in employer national insurance—has wide-reaching and damaging impacts, not just on independent schools but on their neighbouring state-funded schools. That is particularly the case in areas of tight capacity, where there are not spare places for children to go if their independent school closes as a result.

The Government talk about wanting to remove barriers to opportunity. I hope that every single Government always want to remove barriers to opportunity, but there is a risk that this policy does the reverse and that there will be a lag before we see its impact, as parents strain every sinew to try to continue to send their child to the school of their choice.

17:30

The data in one or two years’ time will be much more telling. If that paints a negative picture and shows that pressure is being put on local state-funded schools—schools that have not had time to prepare and create additional capacity— as a result of the closure of independent schools, my amendments would give the Secretary of State a way to reverse this policy in the interests of children.

I thank all noble Lords who have contributed to this debate throughout the progression of the Bill. I hope that the Minister will, on reflection, accept my amendments.

[Lord Caine (Con)]

My Lords, I will speak briefly in support of the amendment in the name of my noble friend Lady Barran. I have not taken part in any of the debates around independent schools in your Lordships’ House, and, for the record, I am entirely the product of the state education system in the east of Leeds. However, I have been prompted to get to my feet today on the back of the very sad news that was announced yesterday of the closure of Fulneck School, in Pudsey, Leeds. It was established in 1753, during the reign of King George II, and will now close its doors for the final time in July.

Fulneck, for those who do not know, is famous for educating, among others, the great Liberal Prime Minister Herbert Asquith and the late great Dame Diana Rigg—otherwise known to some as Mrs Peel—along with a very close friend of mine, who was absolutely devastated to hear the news this morning. Fulneck is part of a Moravian settlement in Pudsey, which includes a grade 1 listed church and many other listed buildings. It is a unique part of the heritage of Leeds and the broader West Riding of Yorkshire, a large part of which will now be lost for ever.

I will not argue that the imposition of VAT is the only reason for the closure of the school; in fact, the school’s own statement refers to problems of falling numbers in recent years. However, the statement points to significantly rising administrative costs. Surely the broader point here is that, for a large number of small, independent schools across the country that have been struggling to keep their heads above water in recent years, the imposition of VAT and increases in employer national insurance are policies that will sink them.

As a result of the closure, 300 or so students will now have to be educated elsewhere within the locality; most, presumably, will have to find places within the state sector. I note that the school lies within the parliamentary constituency of Leeds West and Pudsey, which is represented by the Chancellor of the Exchequer. I support my noble friend.

[Lord Moynihan (Con)]

My Lords, I declare my interests in sport as set out in the register.

I have spoken in Committee and on Report about the damage that retaining Clause 5 will do to the sporting success of many talented young people in the UK who gained admission to independent schools from the state sector through sports bursaries and scholarships. The reason for this was that, in response to parental demand, many independent schools have invested in state-of-the-art sports facilities, top-level coaches, and the sports psychologists, nutritionists, physios and support staff whose presence in many of our independent schools have delivered success at international and national level, while offering those facilities, out of hours and during the holidays, to local communities through their dual-use policies.

The costs imposed by VAT on school fees, increased by higher national insurance contributions and now by business rates, means that to balance the books those schools which survive will have to reduce the many sports scholarships and bursaries currently available to talented young people. Talented young people from a wide range of backgrounds in the maintained sector would otherwise never have access to facilities and coaching expertise of this type.

To demonstrate the scale of the support, I previously drew the Minister’s attention to 14 athletes on Team GB at the Paris Olympic Games who came from Millfield School, 13 of whom came through its means-tested financial support mechanism. Those athletes brought home seven Olympic medals and one Paralympic medal—four gold, three silver and one bronze. The career path for our talented athletes has provided opportunities for thousands of young sports men and women who could not afford to go to independent schools and benefit from their sporting facilities without the bursaries and scholarships on offer. At the Paris Olympics in 2024, 33% of Team GB’s medallists had been given the chance to attend independent schools, many of whom had their fees paid in part or in whole through means-tested bursaries and scholarships.

The statistics prove the point. I would not be worried if facilities in the state sector were a substitute; that they are not is not a party-political point. Sports facilities at local authority level and state school level have been in decline for years. We had a magnificent Olympic and Paralympic Games in London in 2012. The regeneration of the East End of London was a resounding success, but we did not leave a sports legacy to London or to the country. Playing fields continue to be sold; public swimming pools are closed. Even Sport England has this month lost its statutory ability—which has had a great effect in keeping playing fields open—to appeal against the loss of sports facilities removed as part of the proposed planning reforms.

I see no evidence that these arguments were addressed in another place yesterday. By raising them today, I urge colleagues from across the House to vote for this amendment and protect the opportunities afforded to many of our aspiring young Olympians and Paralympians. I ask noble Lords not to deny those young people the same number of bursaries and scholarships that independent schools have been able to make over many years. I hope that every Member of your Lordships’ House will bear these arguments in mind when they consider whether to vote to retain Clause 5 in its current form.

[Lord Mackinlay of Richborough (Con)]

My Lords, I have not to date spoken on this Bill, but there are couple of matters which need to be aired regarding the history of charity. I am a director of a charity, and my daughter attends a private school—let us get those on the record.

The history of charity in this country goes back a very long way, with a particular flourishing during Elizabethan times. The charities of that era were often health related, certainly education related and often to do with hospice and almshouse care—of course, this Government have decided to raise a jobs tax on hospices, which we have been discussing this week. The concept of charity was founded very much on education.

Through the latter end of my illness, my wife would drive me home at weekends for home visits. We found all manner of routes through south-east London to avoid the worst of some of Mayor Khan’s blockages that have been created through London—it did not stop us from paying the ULEZ, of course. On one of the small roads, I came across a charity called the Portuguese speakers community centre. I thought, “Well, well, well, there is such a thing”. I am sure that it does the most amazing work. On most high streets, we see a variety of charities. Lots are to do with animal support—the PDSA, Cats Protection and all manner of other charities. They all do very good work. However, they were not envisaged as the charities of the day when the big flowering of charities came to pass in Elizabethan times, but education most certainly was.

So, for the first time in the history of this nation, we are deciding to have a two-tier charitable system. Whereas that charity route of old—education—is no longer deemed of charitable-worthy status, the Portuguese community centre, for instance, which I am sure does good work, is. It is a strange day that we pass through with this legislation—it is a very sad day. The amendments in Motion Q1 will at least give the Secretary of State pause for thought and an easy way out in the future. I almost guarantee that those thoughts on raising lots of revenue will never be realised. Schools will close and, because of the VAT increase, children will move to the state sector and be a cost to the state in their education. Let us note this day and heed what is being told to the Government: “You will rue this decision”.

[Baroness Grey-Thompson (CB)]

My Lords, I rise to support the noble Lord, Lord Moynihan, and ask that noble Lords note my register of interests. I have not spoken on the Bill before, but we need to consider the impact on sport.

Over many cycles of Olympic Games, many of our medal-winning athletes have gone through the independent school sector and a significant number will have been supported with scholarships. The access it gives to high-quality coaching and facilities, and balancing education with that pathway, is important.

The Sutton Trust has noted that private schools are overrepresented among the medal-winning athletes that we have. Its data probably does not support the argument that I am about to give. The noble Lord, Lord Moynihan, was right that 33% of Team GB’s medallists at the Paris 2024 Games went through private schools—down from 40% for the Tokyo Games. Yes, that compares with just 7% of the general population. Is it right that it is disproportionate? No, it is not, but the independent sector offers amazing opportunities for athletes to succeed.

The reality is that there is so much work that we need to do in our state schools. They should provide access to good-quality sports facilities and coaching and care about our children’s education, but the reality is that we are still quite a long way from that. We already know that the state sector is struggling to deliver sports such as cricket; the ECB has noted that. We need to think about the consequences in the short term for our medal-winning athletes and our place on the medal table.

I did not think I that I would be in a debate defending independent schools, but it is important that we are able to offer the right support to young people. A lot of young people on scholarships in independent schools will lose out on the chance to represent the UK. That is not right for the foreseeable future of our elite sporting environment.

[Lord Thurlow (CB)]

I want simply to add to these very moving and persuasive comments. It seems to me the most terrible act of self-harm to tax the schools again and again. It is not just VAT and the non-domestic rates but national insurance increases on staff and employees, and, in recent years, a compulsory increase to pension provision outside any private arrangements the schools may make. Those are four separate recent taxes. When is this bleeding going to stop?

[Baroness Pinnock (LD)]

My Lords, we on these Benches believe that there is a principle at stake of not regarding independent schools as charities. Education is not a profit-making business, although independent schools have to cover their costs—which, as I have sadly heard, Fulneck School has failed to do. We will support the noble Baroness, Lady Barran, if she wishes to test the opinion of the House.

[Lord Khan of Burnley (Lab)]

My Lords, I thank all noble Lords for their important contributions in this debate. The noble Baroness, Lady Barran, has stated her firm belief that no education should be taxed. She has also reminded this House of her view, shared by the noble Lord, Lord Mackinlay, that the Government are creating a two-tier charity system. The measure delivered through this Bill is a tough but necessary choice to ensure that the Government can deliver on their commitments and break down barriers to opportunity for all. Tough choices are difficult—the Government know this—but they are also necessary. This Government will take these tough decisions because of the financial climate out there.

17:45

Let me come back to some really important points raised by the noble Lord, Lord Moynihan, and followed up by the noble Baroness, Lady Grey-Thompson, in relation to children and their access to sporting provision. The Government are committed to improving access to sports and physical activity for everybody, wherever they live. No matter where people are in this country, or who they are, they should have access to the best sports facilities and opportunities to get active. I hear the noble Lord strongly and share a lot of his passion and annoyance. As a former Olympian, he speaks from experience and depth of knowledge.

I would just reassure the noble Lord and the noble Baroness that the Government provide the majority of funding for grass-roots sport and continue to do this through our arm’s-length body, Sport England, which invests more than £250 million of Exchequer and lottery funding each year. In addition, Sport England is investing £120 million across 2025 to 2029 to increase participation in sport and boost diversity at grass-roots level to give more opportunities for young people to develop their potential. This funding will increase and enhance opportunities for talented young athletes in England. We want to see more young children go on to compete at the Olympics and win more medals—gold medals in particular.

The noble Baroness, Lady Barran, talked about the impact on the state sector of pupil moves. All children of compulsory age are of course entitled to a state school place if they need one. Funding is also provided for post-16 education in all parts of the UK. Local authorities are responsible for ensuring sufficient state school places. The Department for Education already works with local authorities to identify pressures and take action where necessary.

The noble Lord, Lord Caine, is a former state school pupil from Yorkshire; speaking as a former state school pupil from Lancashire, I share his passion for education. I reassure him that we expect the number of private school closures to remain relatively low and be influenced by various factors, not just the removal of VAT and business rates tax breaks. Parents can seek places in other private schools or find a state school place through their local authority. Around 50 private schools, excluding independent special schools, close each year. The Government are aware that there may be some temporary increase in the school closure rate over the normal rate during the few years after implementation. The Government estimate that this may be broadly equivalent to 100 schools in total closing over the next three years, in addition to the normal levels of turnover, after which closures will return to historic norms.

As I have set out previously during the passage of the Bill, the rules in relation to the application of charitable relief are set out in primary legislation and can be amended only through primary legislation. It is for Parliament to agree to pass primary legislation, as per normal parliamentary processes. I hope I can reassure noble Lords that this Bill is not and cannot be the first step in removing charitable relief from other charities. Should the Government, or any Government, wish to make further changes to charitable relief in future, they will require parliamentary consent.

This is a matter which we consider Parliament should decide on the face of the Bill. That is what the Bill does and moving these measures to a power in the way suggested by the amendments under Motion Q1 is, we consider, not appropriate. For these reasons and the other reasons that I have already set out, I respectfully ask noble Lords not to press their Motions containing Amendments 15B to 15E.

[Lord Lexden (Con)]

Will the Minister confirm clearly that, through this measure, the country will obtain, for the first time ever, a two-tier charitable system? That is what he appeared to accept. This must be thoroughly undesirable. To remove a set of arrangements that independent schools, the vast majority of them very small schools, have enjoyed over centuries and to create two tiers must be a thoroughly retrograde step. To describe the exemptions that independent schools, like all other charities, have hitherto enjoyed as “tax breaks” is deeply unfair. Independent schools have been properly treated, along with other charities, for centuries—a position that ought to endure—and it is really shameful, given that independent schools are overwhelmingly small and cannot bear these burdens, for this state of affairs now to come into existence as a consequence of this legislation.

[Lord Khan of Burnley (Lab)]

Noble Lords will not be surprised to hear that I disagree with the noble Lord. We are putting the Bill through because we, as the Government, want to deliver on our commitments and break down barriers to opportunity for all. Ninety-three per cent of students are in the state sector. The measures are necessary, tough decisions. We know they are tough choices, but they are necessary to make sure that we can support the state sector, where 93% of students attend.

[Baroness Barran (Con)]

My Lords, I listened carefully to the Minister and I think he did not satisfactorily address the points made by my noble friends Lord Caine and Lord Moynihan, and the noble Baroness, Lady Grey-Thompson, which addressed, in different ways, how independent schools form part of the fabric of our society. Nor did he really address the points of principle raised by my noble friends Lord Mackinlay and Lord Lexden, the noble Baroness, Lady Pinnock, and the noble Lord, Lord Thurlow. He understandably repeats the point about tough decisions and tough choices, but these amendments do not force the Government to do anything: all they do is allow the Government to change their mind gracefully if they find that their policy actions do not raise the funding that they had hoped. With that, I would like to test the opinion of the House.

17:52

Division 4

Ayes: 267

Noes: 151

18:04

Motion R

Moved by

[Lord Khan of Burnley]

That this House do not insist on its Amendment 16, to which the Commons have disagreed for their Reason 16A.

16A: Because the Lords Amendment interferes with the public revenue and affects the levy and application of local revenues, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

Motion R agreed.

Motion S

Moved by

[Lord Khan of Burnley]

That this House do not insist on its Amendment 17, to which the Commons have disagreed for their Reason 17A.

17A: Because the Lords Amendment interferes with the public revenue and affects the levy and application of local revenues, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

Motion S agreed.

Motion T

Moved by

[Lord Khan of Burnley]

That this House do not insist on its Amendment 18, to which the Commons have disagreed for their Reason 18A.

18A: Because the Lords Amendment is consequential on Lords Amendment 15 with which the Commons disagree.

Motion T agreed.

Motion U

Moved by

[Lord Khan of Burnley]

That this House do not insist on its Amendment 19, to which the Commons have disagreed for their Reason 19A.

19A: Because the Lords Amendment is consequential on Lords Amendment 15 with which the Commons disagree.

Motion U agreed.