Grenfell Tower Inquiry: Phase 2 Report

Debate between Baroness Pinnock and Lord Khan of Burnley

Thursday 27th February 2025 Lords Chamber

[Baroness Pinnock (LD)]

My Lords, 72 people died in the Grenfell Tower fire seven years ago in the most horrifying of circumstances. This phase 2 report on the Grenfell Tower inquiry from Martin Moore-Bick is an excellent analysis and provides a strong challenge to the Government for the decisions they need to make.

It is therefore disappointing that the Secretary of State’s Statement fails to be absolutely clear that the recommendation from the inquiry will be implemented in full. Instead, the words used are that the Government

“accept the findings … and will take forward … the recommendations”.

That is simply unacceptable.

The inquiry exposed a culture of greed and indifference, which must be rooted out of all the organisations associated with this wholly avoidable tragedy—I emphasise that it was wholly avoidable. The Government have a duty to ensure that all buildings with flammable cladding, and where the constructors deliberately omitted fire safety features, are fully remediated, and that the cost is borne entirely by those responsible for those failings.

Leaseholders must not be required to pay anything. Living in a building that is not safe is itself a cause of immense anxiety. Added to that is the scandal of huge rises in insurance costs and service charges, when leaseholders should not be paying anything.

The ministry’s figures show that 9,000 to 12,000 buildings of above 11 metres will need remediation, yet only 4,771 have so far been identified—of which less than half have had work started. The National Audit Office has called for the costs of this work, over and above that funded by the taxpayer, to be placed on developers. That is absolutely right. Can the Minister explain how the costs of this essential work are to be met? For information, the estimate is around £7 billion.

I turn to the 58 recommendations in the report. It recommended a single construction adviser, which the Government have accepted and will appoint. I fully support that. However, Dame Judith Hackitt’s report of 2018, made immediately following the Grenfell Tower fire, also recommended that there be a formal log of every element during construction work, including building improvements which may follow. The report recommended that that log should be signed off by the person responsible for the work. This seems to be the fundamental change that is needed. Can the Minister advise whether this particular change is to be implemented?

One of the other key changes proposed by the Hackitt report was that the overall responsibility for building control should return to the local authority for independent oversight. Can the Minister explain why the Statement simply refers to a “review” of building control? Currently, constructors can appoint their own building inspector. The failure of that system is seen in the fire safety corner-cutting in Grenfell Tower and in many other buildings. Does the Minister agree that an independent building inspector is a key change that has to be made?

The failure of the regulatory system that enabled flammable cladding to be added to the walls of many high-rise blocks is at the heart of this scandal, yet the Statement has little to encourage us to believe that essential reform is coming. The Government have published a construction products Green Paper, which is positive but long overdue. The safety of construction products partly depends on the testing regime, which was exposed in the report as being deficient. What are the Government’s intentions for the future of the Building Research Establishment?

Finally, the report refers to “higher-risk buildings”. It states that

“to define a building as ‘higher risk’ by reference only to its height is … arbitrary”,

and recommends that the use of the building is vitally important. Are the Government intending to review the definition as a matter of urgency, as required by the recommendations in the report?

What is needed now is a sense of urgency and purpose. It is more than seven years since that dreadful fire. Survivors need to see that radical change is being made. The tragedy of 72 lives cruelly ended must not have been in vain.

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

My Lords, I thank your Lordships for your comments today. I know that I speak for all of us when I say that what happened on that terrible night in June 2017 must never be allowed to happen again. It was a national tragedy and an immensely personal tragedy: 72 innocent people, 18 of them children, lost their lives. The Grenfell inquiry exposed damning and painful evidence of political, corporate and individual failings over decades. I thank the inquiry chair, Sir Martin Moore-Bick, and his team, for their hard work over seven years to shine a light on these failings. Yesterday in the other place, the Deputy Prime Minister announced the Government’s response to the Grenfell Tower inquiry’s final report and apologised on behalf of the British state.

I want to say again how deeply sorry I am and this Government are for the failures that led to the tragedy. We accept that the inquiry’s final report must be a catalyst for a long-lasting system change. That message has been re-emphasised by the points raised today. That is why the Government accept the findings of the report and will take forward all the recommendations. Our response addresses all the recommendations and sets out wider reforms of social housing and the construction sector. Alongside this, we published a construction products Green Paper with detailed proposals for rigorous system-wide reform to address the critical gaps in how construction products are regulated.

Reforming construction products means that safety will come first. The culture that allowed the tragedy to happen will be transformed. We are focused on prioritising residents, ensuring that industry builds safe homes and providing transparency and accountability. In doing so, we will rebuild trust. The Government commit to publishing progress on implementing the inquiry recommendations every quarter from mid-2026. Also, we will provide an additional update to Parliament. The Government’s response is explicit on the need to bring about the transformational change that the people of this country deserve. As the Deputy Prime Minister said yesterday, to have anyone anywhere living in an unsafe home is one person too many. Yesterday I joined the Deputy Prime Minister and Minister Norris in meeting the bereaved and victims of the horrible tragedy. It was an emotional and difficult experience, but they need justice.

I will now focus on the issues raised by the noble Baronesses, Lady Scott and Lady Pinnock. On why we are not committing to meet the inquiry’s recommendation on the single regulator, we accept the inquiry’s recommendation and will create a single construction regulator. However, we must avoid creating a conflict of interest within the regulator. We do not believe it appropriate for a single regulator to undertake testing and certification of construction products and issue certificates of compliance. This would create a new conflict of interest within the regulator. It would set the rules, test and issue certificates, and police compliances with those rules. Through our Green Paper, we are putting forward wider measures to significantly strengthen conformity assessment in order to provide the confidence and rigour that is essential as part of that system-wide reform.

We are acting now through the regulators to ensure that enforcement action is taken against safety breaches and that new buildings meet our more rigorous standards. The new building safety regime is stopping bad designs becoming bad buildings. The inquiry exposed regulation of the construction industry as too complex and fragmented. Merging responsibility for regulating construction products and professionals, and monitoring the operation of building regulations, provides the best basis for a regulatory system with clear standards, no regulatory conflict and clarity and certainty on how the industry must conduct itself. In autumn 2025, we will set out further details of the pathway to establish the single regulator.

On the point that the noble Baroness, Lady Pinnock, made, the Government accept all the inquiry’s findings and will take action on every recommendation directed at us. There are 58 in total. Where we have accepted nine recommendations in principle, we will deliver the intended outcome in a slightly different way, to ensure that it meets the aims and is a lasting success. We want to be clear that the Government accept all the inquiry’s findings and will take forward action on every recommendation.

The noble Baroness, Lady Scott, mentioned the remediation acceleration plan. I want to update the House. We are focused on speeding up remediation. The plan will create certainty about which buildings need remediation and who is responsible for that. The plan will make obligations for assessing, completing and regulating remediation clearer, with severe consequences for non-compliance, and give residents greater control in situations of acute harm where landlords have neglected their responsibilities. We will update regularly on that process. The legislative commitments are detailed in the remediation action plan.

On construction products, the noble Baroness, Lady Pinnock, asked what action the Government are taking to address criticisms over the key institutions found culpable in their role. The Government have taken full account of the criticisms in the inquiry report, including those of identified institutions. We are addressing those criticisms through the government response to recommendations, as set out in the Green Paper, as part of the measures for system-wide reform.

Non-Domestic Rating (Multipliers and Private Schools) Bill

Debate between Baroness Pinnock and Lord Khan of Burnley

Committee stage
Thursday 27th February 2025 Grand Committee

[Baroness Pinnock (LD)]

My Lords, Clause 5 is an interesting add-on to the legislation as a whole, which is focused on non-domestic rates as applied to business premises. Here, we suddenly have one sector of businesses being pulled out for special treatment, which is curious to me. It becomes a very strange Bill with Clause 5 added to it. However, for Liberal Democrats, as I have probably said many times in the course of my public sector career, education is the single most important and best investment that any Government can make in our children, their future and the country’s future. The clause is important to us because it relates to education.

The Government’s policy in this Bill, removing the current exemption for relief of business rates, combined with the introduction of VAT and the impact of employers’ national insurance increases, will undermine two important principles for Lib Dems. The first is that education should not be taxed. All education provided by an eligible body, including universities, music lessons and tutoring, is currently exempt from VAT, and VAT should not be imposed on these things—and, hence, neither should business rates. The exemption should not be removed from these schools. The second principle is that parents have a right to choose the education setting that they believe is the best for their children. We champion choice and believe nothing should get in the way of parents making those choices.

The best outcome of all would be that state-funded education was funded at the same level as that experienced by children in the private, or independent, sector. It is curious to me that the gamut of changes that the Government are making in relation to the costs imposed on the private, or independent, sector will not release sufficient funding to make a significant impact on children’s education in the state sector, so it is hard to understand what the Government are seeking to achieve.

It has been an interesting debate. Lots of points of definition have been raised, and I hope the Minister will be able to respond to the interesting points about the importance of having an accurate definition of the sector. I look forward to his response. But in summation: education is most important, and parents have the right to choose, as long as those choices do not have a negative impact on everybody else, which in this case they clearly do not.

[Lord Khan of Burnley (Lab)]

My Lords, Amendments 55 and 62 seek to carve out from the Bill all private schools that charge fees of less than £27,642 per year through exempting schools that meet this criteria from the definition of a private school. I am conscious that other amendments tabled by noble Lords seek to carve out other private schools from the Bill definition, and we will discuss these in more detail as part of today’s proceedings. However, it would be helpful for me to set out the purpose of Clause 5 for when the Committee decides whether to agree the clause. At the same time, I can elaborate further on the meaning of “or other consideration” as per Amendments 56 and 59, and the use of “private school” as opposed to “independent school” in response to the amendments in the name of the noble Lord, Lord Lexden.

The Government believe in parental choice but are also determined to fulfil the aspiration of every parent to get the best education for their child. The removal of business rates charitable relief, as set out in Clause 5, legislates for the Government’s commitment to secure additional funding to help deliver the Government’s commitment to education and young people, including the more than 90% of children who are educated in state schools.

Clause 5 removes the charitable rate relief from private schools by amending paragraph 2 of Schedule 4ZA and paragraph 2 of Schedule 4ZB to the Local Government Finance Act 1988 to exclude private schools from the rules in relation to the application of charitable rate relief. Amendments to the rules in relation to the application of charitable relief can be made only through primary legislation.

The Bill inserts new sub-paragraph (3) to paragraph 2 of Schedule 4ZA to remove charitable relief from occupied hereditaments wholly or mainly used for the purposes of carrying on a private school. Ancillary and support buildings, such as offices, will also lose their relief—for example, classrooms and sports fields that are wholly or mainly used for the purposes of a private school.

The rest of Clause 5(2) is concerned with the definition of a private school. To answer directly the points raised by the noble Lord, Lord Lexden, the terminology “private school” has been used because the term “independent school” includes state-funded academies, which are not in scope of this policy and therefore of the measures in the Bill. The term “private school” has been used to avoid uncertainty regarding which schools are in scope, and I am sure it is not the noble Lord’s intention to bring academies into scope of this Bill.

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[Baroness Pinnock (LD)]

My Lords, there are some very important and interesting issues in this group of amendments. The first is about the provision of foundation courses to enable young people to move into further education or training. It is important that the Minister has an answer to the questions of the noble Baroness, Lady Barran, that will put us at ease that they will not be penalised in this way. Often, young people who do foundation courses do so because they missed out earlier in their school careers, for many reasons that might be associated with their family or their own health issues. I do not think the Government would want to penalise those young people by putting at jeopardy those courses available to them.

The next issue, about nurseries, is interesting because different parts of a premises can be assessed separately by the non-domestic/business rate regime. I say to the noble Baroness, Lady Scott, that even in an Amazon building, the facilities for the employees will be rated at a separate value from the rest of the building. For instance, I have been looking—surprisingly—at the implications for large hospitals, which were raised in the debate on Monday. Different parts of the premises will be rated in different ways. If there is a clinic, that is one thing; the main hospital is another; the café is another; a shop is another. It is possible to assess rateable values, for business rate purposes, in the same premises in different ways, so it is possible to assess nursery sections of a private school separately from the rest of the school. Therefore, it is possible to exclude these from the proposals in Clause 5. I look forward to the Minister being able to confirm that that is the case and that nurseries can be readily and easily excluded from business rate applications, even if the Government insist on removing the charitable status from the rest of the premises.

[Lord Khan of Burnley (Lab)]

My Lords, Amendments 57, 58 and 68 from the noble Baronesses, Lady Barran and Lady Scott of Bybrook, concern early years provision and private further education institutions. The definition of a private school in the Bill includes institutions that wholly or mainly provide education suitable to persons over compulsory school age but under 19, where such full-time education is wholly or mainly provided for a fee or consideration. This brings private sixth forms into the scope of the Bill measure but excludes general FE colleges. The Bill also includes a specific carve-out for independent training and learning providers. Due to the mechanisms whereby the Government provide funding to these institutions, it was necessary to provide a carve-out in the legislation to ensure that these institutions did not inadvertently come into the scope of the measure.

The Government’s view is that all schools that offer full-time education to children of compulsory school age and/or to 16 to 19 year-olds for a charge should be within scope of the Bill measure. This is to ensure consistency and fairness in the Government’s treatment of private schools. The Bill measure includes stand-alone private sixth forms as well as those private sixth forms that operate as part of private schools that also cater for children of compulsory school age. Amendment 57 would remove entirely this part of the private school definition, the resulting impact of which would be that all private sixth forms would be out of scope and therefore retain charitable rate relief.

The noble Baroness indicated that through this amendment she is seeking to understand whether institutions providing foundation courses would be considered private schools. Foundation courses are a level 5 qualification and as such are classed as higher education. Foundation courses are in the main provided by higher education institutions such as universities. Institutions that are focused on the delivery of higher education are not within the scope of the Bill, and where they are charities they will continue to receive charitable relief. However, any private sixth forms that provide a few higher education courses, such as foundation courses, will still lose their relief if they are wholly or mainly concerned with providing education suitable to the requirements of persons over compulsory school age but under 19 years old. Given that business rates are a tax on property, the Government believe that this is a sensible line to draw for when the relief is removed.

Amendment 58 would amend the Bill definition of a private school. It would remove the “wholly or mainly” requirement in relation to the concern with providing full-time education suitable to the requirements of persons over compulsory school age but under 19 years old for a fee or consideration in such institutions. In business rates, “wholly or mainly” generally means over 50%. Therefore, under the Bill definition, institutions that are more than 50% concerned with providing education suitable to the requirements of persons over compulsory school age but under 19 years old, and where more than 50% of such full-time education is provided for a fee or consideration, will be within scope of the measure and will no longer qualify for charitable relief.

The inclusion of the “wholly or mainly” test in the further education definition has been drafted in recognition that there may be some state-funded institutions where a small minority of pupils pay a fee for the courses they attend. The Government understand that these circumstances are rare but may include international students undertaking further education courses where they do not qualify for a state-funded place.

The noble Baroness, Lady Barran, asked for examples of institutions that may be around 50%. Regarding these schools, which mainly provide education suitable for those over compulsory school age but under 19 years old, it will be for local authorities to implement this test. I do not think it would be right for us to say whether a particular school passes that test, but we do not expect many of them to be at the margins.

Without including “wholly or mainly” in respect of new sub-paragraph (4)(b)(i), the Bill could inadvertently capture state-funded colleges of further education, which is not the intention of the Government’s policy. Similarly, it could risk capturing fee-paying institutions that predominantly provide higher education courses if one pupil who meets the broader further education definition is present. As set out, it is not the Government’s intention to capture higher education institutions within the Bill’s definition.

I should explain that the impact of this amendment would mean that the presence of one fee-paying pupil within the age bracket as per the current definition may result in the institution being brought into scope of the Bill, resulting in it losing charitable relief. In contradiction to Amendment 57, Amendment 58 would mean that more institutions would be in scope of the Bill and so would lose their rates relief. But I understand the purpose of the amendment, which is to understand better the meaning of the words “wholly or mainly”, and I hope I have been able to clarify that for noble Lords.

Amendment 68 seeks to carve out from the Bill private schools that also provide early years provision. For clarity, private nurseries that are on their own hereditament are not within scope of the Bill definition, and where they are charities they will retain charitable relief. The Government have decided that where private schools that provide for pupils of compulsory school age also have nursery classes within the school, the presence of nursery-age children should not remove the whole school from the business rates measure. This approach best ensures consistency with the underlying policy intent.

It is for individual private schools to decide how they wish to meet additional costs as a result of the business rates measure. The allocation of costs in private schools that also provide early years provision on the same hereditament is a matter for those private schools. It is worth mentioning that government early education and childcare entitlements can be used for childcare in any approved childcare provider; this includes private school nurseries, although the numbers undertaking early years entitlement in private school nurseries are relatively small. Similarly, private school nurseries are also eligible to receive tax-free childcare funding as long as they are registered with Ofsted or an equivalent regulatory body.

Accepting these amendments would remove many private schools from the Bill’s measure. This would reduce the amount of revenue that could be raised and, consequently, may reduce the funding available to the Government to deliver on their commitments to young people and the state-funded education sector, where over 90% of pupils in England are educated. The outcome of the tax changes on private schools will have a significant impact on the Exchequer, enabling the Government to fulfil their commitments on investing in state education and young people. Together with the policy to apply VAT to private school fees, these policies are expected to raise around £1.8 billion a year by 2029-30.

I hope that this provides further clarification on the drafting of the definition, as well as on the Government’s position regarding the inclusion of private further education and private schools that also cater for nursery-age children alongside compulsory school-age children. For the reasons set out, I respectfully ask the noble Baroness, Lady Barran, to withdraw her amendment.

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[Baroness Pinnock (LD)]

My Lords, Amendments 60 and 61 are important, focusing on children with special educational needs and disabilities. SEND provision is in crisis across the country, whichever sector of school children attend. The reason, as the noble Baroness, Lady Barran, has raised, is the huge delay in assessing children who may need an education, care and health plan, often because of the lack of educational psychologists. There are often very long delays getting what used to be called a statement of need but is now just an EHCP.

The consequences for schools in this sector is that they qualify only if their children have ECHPs, and because ECHPs are so difficult to access, many parents send their children to private school in desperation because their children’s needs are not being adequately met in the state sector. There is no criticism attached to that because there is huge pressure on the state sector. If you have a child with special needs then, if you are able, you look to where those needs are best met.

In the days before children with dyslexia were recognised, parents often took children with severe dyslexia out of the state sector and into one of the several independent schools set up around the country that had the expertise to help those children. I have a lot of sympathy with these amendments because we want all children to have their needs met, but schools helping young people with particular needs are in danger of having their relief removed because of the threshold in the Bill.

There is little recognition that children have special needs even without an EHCP, simply because of the huge backlog. The backlog exists because there is also a funding crisis within SEND. On all those issues, the Government really should think again, particularly on Amendment 61. I hope that the Minister will have some positive words in support of the amendments tabled by the noble Baroness, Lady Barran.

[Lord Khan of Burnley (Lab)]

My Lords, Amendments 60 and 61 are concerned with the carve-out within the Bill’s measures for private schools that wholly or mainly provide education to pupils with education, health and care plans. Amendment 60 seeks to remove the “wholly or mainly” requirement, the effect of which would be to carve out from the Bill’s measures private schools that provide full-time education to any number of persons for whom an education, health and care plan is maintained.

I understand from the accompanying explanatory statement that this amendment seeks to understand the definition of “wholly or mainly”. As I have said elsewhere on a previous group on business rates, wholly or mainly generally means more than 50%. In practice, the Government believe that this will ensure that most private special schools will not be affected by the measure. We expect any private special schools losing charitable rates relief to be the exception; they will potentially be in single figures. Private schools that benefit from the existing rates exemption for properties that are wholly used for the training or welfare of disabled people will continue to do so. This general exemption means that they pay no rates.

I am aware that some concerns have been raised—the noble Baroness has raised them in clear and categoric terms—in relation to the possibility that some mainstream private schools may be just under or over the 50% threshold for the EHCP carve-out within the Bill. In private schools, including private special schools, just 5.7% of pupils have an EHCP, with the majority of those pupils in private special schools. Therefore, we do not expect there to be many mainstream private schools near the 50% threshold.

To add to that point, if there are any marginal cases, the test in law is whether the institution is wholly or mainly concerned with providing education to ECHP pupils. While it will be for the local authority to decide, this wording should avoid the need for schools at the margin to jump in and out of entitlement for charitable relief following small movements in pupils.

The majority of private special school places are funded by local authorities. The 2024 school census shows that in more than 80% of the sector more than nine in 10 pupils have an EHCP plan that stipulates that the place is funded by the local authority.

Amendment 61 would result in the exemption of fee-paying schools from the measure if that fee-paying school wholly or mainly catered to pupils who have special educational needs as defined under the Children and Families Act 2014, and regardless of whether or not those pupils also have an EHCP. The Government are aware of the concerns raised with respect to pupils with special educational needs in private schools that may lose their charitable relief, because the school is not wholly or mainly concerned with providing full-time education to persons for whom an EHCP is maintained. The Government have carefully considered their approach to ensure that the impact on pupils with the most acute needs is minimised.

The Bill provides that schools that are charities and wholly or mainly concerned with providing full-time education for persons with an EHCP remain eligible for charitable rates relief. The Government recognise that where a private school has only a few pupils with EHCPs, it will lose its eligibility for charity relief. Mainstream schools throughout the private and public sector cater for pupils with special educational needs. Most children with EHCPs already have their needs met within mainstream state-funded schools. If an EHCP assessment concludes that a child can be supported only in a private school, the local authority funds the child’s place.

The noble Baroness, Lady Pinnock, touched upon the issue of the wider problem in terms of delay, which I will address. Local authorities aim to process all education, health and care plans and the respective applications in time for the start of the next school year, so that parents can make an informed decision as to which school they send their child to. In special cases, the local authority is able to pre-pay one term’s fees if the education, health and care plan is not complete but the outcome is foreseeable. Likewise, some private schools will forgo the first term’s fees for pupils who are expected to be granted an EHC plan in the future.

The Government are committed to improving inclusivity and expertise in mainstream state schools, restoring parents’ trust that their child will get the support that they need to flourish. Private schools can provide choice, high-quality education, economic benefit and public benefit through partnerships and means-tested bursaries, but most parents cannot choose private schools. We need to improve provision for the 93% of pupils at state schools, and that is rightly our focus. The Government are also committed to reforming England’s SEN provision to improve outcomes and return the system to financial sustainability. The Government will provide an uplift of around £1 billion in high-needs funding in the 2025-26 financial year.

Mainstream schools throughout the private and public sector, as I said before, cater for pupils with special educational needs. Amending the basis on which fee-paying schools are able to retain their charitable rates relief in the way that this amendment proposes would undermine the Government’s intention to remove tax breaks for private schools in order to raise funds to support the more than 90% of pupils who attend state-funded schools. As the Committee will know, the majority of children in England who have special educational needs—with or without an EHCP—have their needs met in the state-funded sector. The approach chosen in the Bill is targeted to ensure that the impact on pupils with the most acute needs is limited.

It is for the reasons cited that I cannot accept the noble Baroness’s amendments, but I hope that, with this further information, I have provided satisfactory explanation as to the Government’s approach and reassurance that the approach adopted ensures that the impact on those children with the most acute needs is minimised. I request that the noble Baroness withdraws her amendment.

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[Lord Khan of Burnley (Lab)]

My Lords, I take the point that the noble Lord had made very strongly and passionately. In relation to this particular aspect and in contrast to the earlier part of our discussion in Committee related to multipliers, this is not a tax-particular perspective, which is why an impact note for the Bill is available. Of course, we are speaking to stakeholders and will continue to do so to ensure that we take everything into account. We have taken everything in account while bringing this Bill forward.

[Baroness Pinnock (LD)]

I thank the Minister for his response. He made the case for Amendment 70 in the name of my noble friends, I think. When I moved the amendment, I cited the 10,000 children expected to move from the private sector to the state sector, and the Minister cited 3,100. That is a discrepancy. Why? It is because they are both estimates. The Minister’s estimates are based on the Government’s analysis of expectation, but so is the private school sector’s.

The second pair of estimates that were cited related to the cost to the state sector of young people moving to it from the private sector. The estimate by the private sector is £92 million a year, whereas I think I heard the Minister quote a figure of £20 million being the anticipated cost after a number of years. He is not shaking his head—maybe I did not hear that figure correctly. However, the point I am making is that, in both cases, there is a discrepancy because these are estimates, not actual figures.

[Lord Khan of Burnley (Lab)]

I just want to clarify the point that I was making: the additional revenue to support the transition to the state sector represents substantially much more revenue than the cost to support that transition.

Non-Domestic Rating (Multipliers and Private Schools) Bill

Debate between Baroness Pinnock and Lord Khan of Burnley

Committee stage
Monday 24th February 2025 Grand Committee

[Lord Khan of Burnley (Lab)]

My Lords, I will address Amendments 2, 4 and 45 from the noble Lord, Lord Thurlow, which concern provisions relating to the new higher multiplier and the funding of the new lower multipliers.

At the Autumn Budget 2024, the Chancellor set out a Budget to fix the foundations—a Budget that took the difficult but necessary decisions on tax, spending and welfare to repair public finances, to increase investment in public services and the economy, to rebuild Britain and to unlock long-term growth. 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.

Support for the high street is an area on which I know that the noble Lord, Lord Thurlow, and others in this House have spoken passionately in prior debates on business rates legislation. I appreciate the depth of knowledge and experience that both he and the noble Earl, Lord Lytton, bring to these debates.

The Government have made clear that supporting the high streets is a priority. They are a focal point of economic activity and a point of local pride, and they can often reflect the unique character of a community. Yet, as they are property-intensive sectors, the Government are aware that they shoulder a significant business rates burden. Since the Covid-19 pandemic, a one-year relief has been repeatedly rolled over for retail, hospitality and leisure properties as a temporary stopgap. However, this has meant uncertainty for businesses about their business rates bills from one year to the next, and it has created a significant fiscal pressure for the Government.

The Bill will enable the Government 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. However, against the challenging fiscal position that the Government inherited, we have been clear that we must take difficult choices to ensure that this support is delivered in a sustainable way. I repeat: the system should work in a sustainable way.

Specifically, this is why, at the Autumn Budget 2024, the Government announced our intention to introduce a higher tax rate on the most valuable properties. The amendments proposed by the noble Lord, Lord Thurlow, go to the heart of this element of the Bill. They serve to prevent the Government funding the support that the noble Lord would agree is critical for the high street from within the business rates system.

[Baroness Pinnock (LD)]

Several times already we have queried the decision to make the dividing line £500,000. It would be good to know why that number was chosen. Why not £600,000 or £400,000?

[Lord Khan of Burnley (Lab)]

I will come to the noble Baroness’s points when I come back to the valuations, rest assured.

The Government have been clear that they intend to fund new lower multipliers by raising revenue within the business rates system. The lower multipliers are a necessary tax cut, but a tax cut that must be funded. By limiting it to properties with a rateable value of £500,000 and above, the Government are asking those with the most valuable 1% of properties to pay more to support the viability of high streets. Moreover, by including all sectors within this group, they are doing so equitably and will capture the majority of large distribution warehouses, including those used by online giants—a cohort that I know the noble Lord, Lord Thurlow, has previously raised in relation to imbalances in the business rates system. We are trying to make sure that we have prudent financial management of the economy and a system that is sustainable.

I come back to some particular points. First, the noble Earl, Lord Lytton, spoke in relation to the potential rise of £39 billion, as indicated by the OBR’s Budget report. The OBR forecast assumes that business rates income will vary in line with forecast CPI inflation, estimated growth in the tax base and the change to business rates relief. The main business rates forecast is gross rates yield, net reliefs, net collection costs and other reductions to contributions. The forecast is higher for future years as it assumes that retail, hospitality and leisure relief is removed. The business rates forecast considers measures only after they have been announced at fiscal events. As in normal practice, forecasts beyond 2025-26 are based on a number of assumptions, as the Government have not yet set out their policy beyond that year. This will take place at the Budget later this year: the main business rates forecast will then be updated to reflect it.

As I have highlighted today, the Bill includes constraints that I hope will reassure Members of this Committee. In addition to limiting it to the most valuable properties, the Government cannot set the higher multiplier more than 10 pence above the standard multiplier. The Government have also been clear that this is not the intended rate. It is there to provide flexibility to adapt to outcomes in 2026 following the next revaluation, while acting as a guardrail against concern about excessive increases.

As the noble Lord, Lord Thurlow, will also be aware, the Government keep all taxes under review, including rates and thresholds. As such, I can assure the Committee that the Government will, as a matter of course, actively consider whether the £500,000 threshold should be amended at the 2029 revaluation, as they approach that revaluation.

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[Baroness Pinnock (LD)]

My Lords, I thank the noble Lords, Lord Jamieson—also known as the noble Baroness, Lady Scott—and Lord Thurlow, for the amendments in this group. I have always in principle supported more powers and influence for local authorities. What I have always said should go without saying, but I repeat it.

However, I am nervous about the amendments from the noble Baroness, which seek to enable local authorities to have discretion over whether the higher multiplier should impact on businesses in their area. This is because, if you look at the Valuation Office Agency’s billing lists, you find that the vast majority—I have not worked out the percentage—of businesses in the £500,000-plus bracket are based in the south-east and London. Therefore, the income from the application of the higher multiplier in those areas is essential for the totality of the business rate take, which is then distributed to fund local authorities across the country. Areas of the country where valuations are much lower absolutely depend on the business rates raised from the south-east and London, and that has been the situation for ever.

If I were a London or south-east authority, I would see anything to encourage businesses as an opportunity and I would use that discretion, but it would be at the expense of councils in the north. Those such as mine in Yorkshire and the Minister’s over the Pennines—I dare not say the county—would suffer as a consequence, because the totality of the business rate take would reduce and the distribution of funding, which is vital for local services, would be less. If the noble Baroness comes up with an amendment which counters that, I could support it, because I support more power and discretion to local authorities. However, as we have a national system, we cannot have little local changes to the benefit of places that currently are fairly well funded or have better income already.

On the amendment from the noble Lord, Lord Thurlow, on defining retail, hospitality and leisure properties, there are later groups which try to get at the detail of this, but it seems to me—maybe the Minister can tell me whether I am wrong or right—that this whole business is associated with the removal of the Covid rate reliefs. Currently I think they are at 75%, to be reduced to 40% and then to zero. It will be quite a big hit to RHL properties to find themselves suddenly facing the totality of their business rate bill.

It seems to me that the essence of the Bill is removing that with one hand in order to provide some relief with the other hand; that is what we have got here. I think that is why the Government are in difficulty in helping us as a Committee to understand the purpose of this. It seems to me that it is that rather than trying to extract more from distribution warehouses et cetera, which we see from the lists provided are not many—of the, I think, 16,000 properties in the £500,000-plus bracket, only about 1,400 or 1,500 are large distribution warehouses. So, my plea is again: let us have an understanding of what this is about. If we had an impact assessment, we would be better able to understand it. I will keep repeating it, so perhaps before we get to Report the Minister will have extracted and published an impact assessment so we can make the judgments that we need to make.

[Lord Khan of Burnley (Lab)]

My Lords, Amendments 3,18, 32 and 37, which were spoken to by the noble Lord, Lord Jamieson, on behalf of the noble Baroness, Lady Scott of Bybrook, and Amendment 43, tabled by the noble Lord, Lord Thurlow, are concerned with the role of local authorities in determining the application of the higher and lower multipliers. Amendment 3 seeks to provide local authorities with discretion over the application of the higher multiplier, and Amendments 18, 32, 37 and 43 are concerned with who sets the definition of a qualifying RHL hereditament.

Currently, the Bill includes a power for qualifying RHL hereditaments to be defined in regulations by the Treasury, as I have said. Our intention is for the definition broadly to follow that currently used in the retail, hospitality and leisure relief scheme. The criteria for the current relief scheme are contained in guidance from this department and are implemented by local authorities. Ultimately, under the current relief scheme, local authorities have the final say over and discretion about who should be awarded the relief. I understand that that is the type of arrangement that the amendments are seeking to reinstate from April 2026 for the lower RHL multipliers.

I should, for completeness, explain to the Committee that Amendment 43 replaces the Treasury’s power to define RHL on the central rating list with the relevant local authority. In fact, the central rating list is operated by the Secretary of State for my department and does not require any local authority involvement. Instead, Amendment 43 would create an unworkable section of the Bill. This would be due to the fact that central list hereditaments cross multiple local authority areas, which would create a lack of clarity around the responsibility. In addition, this amendment would inappropriately insert local authorities into the central list process. I do not think that this is the intention of the noble Baroness. I think it is important to clarify there are currently no eligible properties to be prescribed for the lower multiplier on the central list, and nor would we expect there to be in future.

Moreover, I understand from the helpful explanation provided that Amendment 32, tabled by the noble Lord, Lord Thurlow, is, in a similar way to the amendments tabled by the noble Baroness, Lady Scott of Bybrook, seeking to confer on local authorities the power to determine what is a qualifying retail, hospitality and leisure hereditament. However, as drafted, it does not do that. As drafted, Amendment 32 would completely remove the power to define a qualifying retail, hospitality and leisure hereditament in respect of unoccupied properties from the Bill. In essence, it would mean qualifying RHL for unoccupied properties would remain undefined, as the power would not automatically be granted to local authorities.

However, I understand that these amendments are intended to probe the matter of local decision-making, and that is how I have sought to discuss them here today. As noble Lords would expect from me, I fully support efforts to give local authorities more power and discretion in their areas. The Bill does not disturb the already considerable powers that local authorities have to award relief to ratepayers as set out in Section 47 of the Local Government Finance Act 1988.

However, we have to balance this against the needs of businesses. What we hear from businesses is that they really value certainty. They tell us that the current RHL relief scheme, operated through local discretion, does not give them that certainty. We hear that they do not favour a system where a national relief scheme, such as RHL relief, can be delivered differently by different local authorities. It leaves businesses, especially those with multiple stores, unsure as to where and when they will be awarded relief.

The new lower RHL multipliers will therefore operate through a single set of regulations for all of England, made by the Treasury. Those regulations will still be implemented by local authorities, using their local knowledge, but the definition will be set by the Treasury. This is something that businesses in general would support. We will work with local government over the coming year to prepare these regulations. That goes to the direct question asked by the noble Lord, Lord Jamieson, in relation to our relationships and work with local government; we are doing that already.

--- Later in debate ---

[Lord Khan of Burnley (Lab)]

My Lords, these amendments seek to change the Bill to remove healthcare hereditaments from the higher multiplier. In the previous debate on the amendments in group 4, just a few moments ago, I explained why the Government have taken a sector-agnostic approach to the higher multiplier and not excluded any sector or type of property. Of course, the same considerations apply here. This Government fully support the healthcare sector, but it would not be fair to exclude some and not others. To sustainably fund the lower multipliers, we must ensure that we can raise money from higher multipliers; the only fair way to do this is to apply it to all hereditaments at £500,000 and above.

As I said in the debate on the previous group, it is important to look at the facts. The Valuation Office Agency’s statistics show that, of the 16,780 properties caught by the £500,000 threshold, based on the current rating list, only 350 are in the health subsector. Of these, 290 are NHS hospitals and only 30 are doctors’ surgeries or health centres. These numbers are rounded to the nearest 10 and we do not have separate data on medical or dental schools. The impact on this sector is therefore limited and, where it applies, much of it falls on the NHS. The Autumn Budget fixed the spending envelope for phase 2 of the spending review, which will deliver new mission-led, technology-enabled and reform-driven budgets for departments. We will consider the full range of priorities and pressures facing departments in the round, including any impact of the higher multiplier, when setting these budgets.

On the questions about the Bill creating more cliff edges in the system, the new higher-rate multiplier will apply to properties above £500,000, which will fund and support the high street in a sustainable way. However, the discussion paper published at the Autumn Budget highlights that some stakeholders have argued that cliff edges in the system may disincentivise expansion. It committed to explore options for reform. The Government 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. That is open until 31 March 2025.

On the specific question about examples of properties that the noble Baroness mentioned, it would be inappropriate for me to discuss the rate bills of specific ratepayers, especially as one of them is a domestic property. To conclude, set in the context of these facts and assurances of how we will approach the issue in the spending review, I hope the noble Baroness is able to withdraw her amendment.

[Baroness Pinnock (LD)]

My Lords, I thank the noble Lord, Lord Jamieson, for his support for the amendments that I have tabled to try to persuade the Government to think again. The Minister talked about an agnostic approach to the application of the higher multiplier. Now, agnostic approaches are all very well until we see what we catch in the trap. What we have exposed this afternoon is that the Government intend to apply higher costs to the very public services for which they are desperate to have higher funding. They cannot, on the one hand, say that they wish to provide higher funding for some of these important public sector services when, on the other hand, they take some of the funding away. That is the consequence of an ill-considered agnostic approach. I urge the Government to think about having a more targeted approach that includes in its catch more warehouse distribution services and fewer public sector providers of important and valuable public services. At the minute, that is not what is happening.

--- Later in debate ---

[Lord Khan of Burnley (Lab)]

Just to clarify for noble Lords, there will be no change to small business rate relief—that is not changing—so they will still pay tax.

It is the Government’s view that this is the fairest approach and that trying to restrict the application of the different multipliers based on geography would create unintended consequences and would likely drive perverse incentives. It is also extremely difficult to draw a line around a town centre. I note that the noble Baroness, Lady Pinnock, made a suggestion around using the understanding of the term as per the National Planning Policy Framework, but that framework does not set a definition of a town centre. It should be noted that the framework suggests those centres identified in development plans, but this does not represent a requirement that all centres are identified. We also know that many areas do not have up-to-date development plans and that, therefore, centres that are identified may not reflect current realities.

Such an approach would essentially give local planning authorities the power to determine where multipliers should apply and could restrict their application from smaller retail centres that might be essential to particular neighbourhoods. Furthermore, it could result in the higher multiplier not being able to be applied to large warehouses used by online businesses or other properties with a rateable value of £500,000 or above if they are not located in a town centre, as these would fall outside the definition of a town centre. I do not think that is the noble Lords’ intention, but it is important to clarify that point. I hope that my remarks have helped to clarify the areas of interest and provided reassurance on the Government’s policy in this space. I respectfully ask the noble Baroness, Lady Pinnock, to withdraw her amendment.

[Baroness Pinnock (LD)]

I thank the Minister. I thank the noble Lords, Lord Jamieson and Lord de Clifford, for their supportive comments, as the Minister was not so helpful. Businesses require clarity and certainty. To tell us that secondary legislation will be needed to set out the definition of RHL means that clarity and certainty will be pushed further down the line. The Minister shakes his head, but I wrote down what he said: secondary legislation will set out the definitions. By definition, that will be after this Bill has gone through its processes.

[Lord Khan of Burnley (Lab)]

My Lords, in the very same sentence I said:

“However, I can confirm that the Government’s intention is for this to broadly follow the definition that is used for the current RHL”.

[Baroness Pinnock (LD)]

In which case, I apologise to the Minister. I must have missed that bit of his explanation. We have been saying right from the start that Covid relief would be the definition for RHL, and that is the clarity people need. I hope the Government will inform businesses that, if they currently get Covid relief, they will qualify under this Bill. Equally, we will be pushing the Government to expand that definition. It is not as inclusive as some of us think it should be if the aim is for small businesses to thrive or have reduced costs, as opposed to distribution warehouses and online retailers.

On the last amendment, I disagree with the Minister because the National Planning Policy Framework—which I have read—sets out what a town centre is. Local planning authorities have the responsibility to form a local plan. The Minister is right: far too many local planning authorities have failed in that responsibility. However, the Government have said that they expect local planning authorities to produce a local plan. In that case, all local planning authorities would produce a local plan in which they can define what is included within the boundaries of several town centres within their purview. That is really important because lots of issues follow from being within the purview of a town centre.

I hope that the Minister will perhaps go away and think with his officials about whether this could be used as a definition for businesses within the purview that will be set out in the local plan so that this Bill— the Government have stated that its aim is to help the so-called high street, which, as I have said, will be the town centre—will help businesses to thrive despite the growing competition that they face from online retailers, which, by the very nature of business rates, pay much less than those businesses do in town centres even after this multiplier is applied. With that plea to the Minister, I beg leave to withdraw the amendment.

Community Engagement Principles and Extremism Definition

Debate between Baroness Pinnock and Lord Khan of Burnley

Wednesday 22nd January 2025 Lords Chamber

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

My Lords, let me first of all say that national security will always come first for this Government, and we will always treat the threat of extremism with the seriousness that it requires. The noble Lord makes an interesting point. I confirm to the House that the Government take the threat of extremism very seriously and will continue to work with partners to tackle extremism in all parts and forms. That is why the Home Secretary commissioned a rapid review of extremism in 2024. The Government will set out their approach to countering extremism in due course and will update Parliament accordingly. I am sure that many of the issues that the noble Lord raised will be part of that review.

[Baroness Pinnock (LD)]

My Lords, knowledge and understanding of communities is crucial in this regard. Councillors are elected to serve their communities and know them well. Does the Minister agree with that proposition? Does he also agree that plans to create large wards make that more challenging for councillors? Will the Government therefore keep ward sizes appropriate to their role in knowing and representing their communities, and will the Government provide additional support to councillors in that critical role?

[Lord Khan of Burnley (Lab)]

My Lords, let me reassure the noble Baroness that, having been a councillor for 16 years in the wonderful district of Burnley, I understand the fantastic work that local councils do. I reaffirm the Deputy Prime Minister’s position that we want to work in equal partnership with the local authorities and we want to give them more power. I would not be able to comment on the size of the wards because that is the responsibility of the Minister, Jim McMahon, in the other place.