Non-Domestic Rating (Multipliers and Private Schools) Bill

Debate between Lord Khan of Burnley and Lord Lexden

Committee stage
Thursday 27th February 2025 Grand Committee

[Lord Khan of Burnley (Lab)]

I am happy to write to the noble Baroness on those two points; I will also pick them up when we next meet.

[Lord Lexden (Con)]

My Lords, please forgive me: I forgot to make a declaration of interest at the outset. I am a former general secretary of the Independent Schools Council and the current president of the Independent Schools Association, which consists of 700 schools—mainly smaller ones—that will be badly affected by this legislation and other actions of the Government in the realm of taxation.

The Committee will have listened carefully to what the Minister said in response to noble Lords. It is unlikely that the Minister’s reply will have given complete and utter satisfaction in every respect. We will return to these matters on Report. As far as my amendments are concerned, I am sorry that the Minister does not understand the reasons why the word “private” is very difficult because of its connotations. The problem with using it in legislation is considerable.

The Minister referred to the position of academies. Another way could have been found of dealing with VAT without introducing independent schools in the way that this has been done in legislation. There are many serious matters that naturally require further consideration and debate. That is why Report will be so important. I beg leave to withdraw my amendment.

--- Later in debate ---

[Lord Khan of Burnley (Lab)]

My Lords, Amendments 70, 71, 72 and 72A, tabled by the noble Lord, Lord Storey, the noble Baronesses, Lady Barran and Lady Scott of Bybrook, and the noble Lords, Lord Black of Brentwood and Lord Lexden, are focused on the impact on state schools as a result of the Bill measure. They seek to require the Government to undertake a variety of assessments of the impact of Clause 5, covering between them: pupil movement; the impact on the state sector; partnerships between private and state schools; changes in staffing; and the availability of faith education to families which desire it. Furthermore, Amendment 72A from the noble Lord, Lord Black of Brentwood, seeks to ensure that any assessment is conducted in the context of broader tax changes affecting private schools since 1 January 2025, effectively seeking to create an all-encompassing review of the Budget tax changes and their effect on private schools.

The Government carefully considered their approach in designing the policy to remove charitable rate relief from private schools. On 29 July, the Government published a technical note on removing the VAT and business rates charitable relief tax breaks for private schools. The Government received and carefully considered over 17,000 responses to this note from a range of tax specialists, private schools, bodies that represent private schools and others. A detailed government response to this was published at the Autumn Budget. During development of these policies, the Government also met numerous key stakeholders representing schools, local authorities and, in the context of the VAT change, the devolved Governments. Furthermore, at the introduction of this Bill, the Government published a note setting out analysis of the impact of the business rates measure. This is available on the Bill’s page.

Two common themes in the amendments proposed are the impact on the state sector in pupil movements and partnership activity with private schools. As I have said previously, the Government estimate that in the long-run steady state, there will be 3,100 fewer pupils in the private sector as a result of the business rates measure. Of these 3,100 pupils, the Government estimate an increase of 2,900 pupils in the state sector in the long term. This represents approximately 0.03% of the total state sector pupil population.

The noble Baroness, Lady Pinnock, in particular, talked about the important point of SEND places. The Government work to support local authorities to ensure that every local area has sufficient places for all children of compulsory school age who need them, and work to provide appropriate support where pupils with SEND require a place at state-funded schools. She raised some really interesting points about reform. The Government are committed to reforming England’s SEND provision to improve outcomes and return the system to financial sustainability. We are providing an almost £1 billion uplift in high-needs funding in financial year 2025-26.

The noble Baronesses, Lady Pinnock and Lady Barran, both talked about whether regional variation with regard to pupil movement may arise as a result of the Bill measure. They said that some regions may be more affected than others. The Government work with local authorities to support place planning and ensure there is capacity in the state-funded sector to meet demand. We have confirmed nearly £1.5 billion of capital funding through the basic needs grant to create school spaces needed over the current and next two academic years, up to and including the academic year starting in September 2026.

As noble Lords know, all children of compulsory school age are entitled to a state-funded school place, and government support ensures that every local authority has sufficient places for children who need them. The Department for Education monitors place demand and capacity as part of its normal processes and will work with local authorities to meet any pressures. Data on the number of school pupils is published every summer. This provides information on the number of pupils at different types of school, so anyone can see how pupil numbers in state-funded schools and private schools have changed.

There have been suggestions that the cost of pupil moves from the private to the state sector will cancel out the revenue raised from the measure. Based on the average 2024-25 per pupil spending in England, the Government expect the revenue cost of pupils entering the state sector as a result of the measure to steadily increase to a peak of around £20 million per annum after several years. Overall, this means that the expected revenue will substantially outweigh the additional cost pressures.

Pupil numbers in schools fluctuate regularly for a number of reasons, and the school funding system in England is already set up to manage that. For individual schools, the Government therefore expect changes in pupil numbers caused by these changes to be managed in the usual way.

I have spoken only about business rates as that is the scope of the Bill. Noble Lords may also be interested in the impact of the removal of the VAT exemption, which has been mentioned. I direct them to the tax information and impact note that was produced to accompany the VAT change, which is publicly available on GOV.UK.

During the course of the Bill’s passage, we have heard a small number of examples of schools stating that they will reduce partnership activity with local state schools or will no longer be able to provide fee assistance. It is for individual private schools to determine how they manage any additional costs arising from the Bill’s measure. However, as set out previously, the Bill does not remove the charitable status of private schools, and they will need to continue to demonstrate public benefit as a requirement of that charitable status.

Data published by the Independent Schools Council indicates that a lot of partnerships relate to the hosting of joint events or providing access to facilities also used by private school pupils. In many of these partnerships, the activity undertaken also benefits the pupils who attend private schools, so it would not be in the interest of the private schools to stop this activity. The removal of charitable relief from private schools does not reduce these schools’ obligation to show public benefit. The Government do not expect partnership activity or fee assistance to decrease significantly.

I will touch briefly on the other areas that noble Lords have suggested should be examined, starting with looked-after children. Local authorities can place looked-after children at private schools where that is in the child’s interest. We do not expect placements funded by local authorities to be impacted by tax changes, as the local authorities can reclaim VAT. As with partnerships, we do not expect charitable schools to stop supporting these pupils as part of their demonstration of public benefit.

Faith has been a common discussion point in not just this group but earlier groups of amendments. As discussed earlier, on a previous group, the Government value parental choice and recognise that some parents want their children to be educated in a school with a particular faith ethos. Do I know that? Yes, I am the Faith Minister. Many stakeholders have been speaking to me about this issue. Pupils who follow a particular faith can be accommodated in the state sector. All children of compulsory school age are entitled to a state-funded school place if they need one and, as previously stated, all schools must comply with their obligations under the Equality Act 2010. In addition, schools are expected to promote fundamental British values, including the values of mutual respect and tolerance for those with different faiths and beliefs.

On the issue of staffing, the Department for Education annually publishes teacher numbers in private schools. Employment of staff is a matter for individual private schools. We do not anticipate that they will substantially reduce staff as a result of the business rates measure.

I appreciate that there is concern in this area, but we should remember that the removal of charitable relief from private schools will raise important revenue that will help the Government to deliver on their commitment to the cohort of the more than 90% of children who attend state schools. This will break down barriers and ensure that all have access to the same opportunities.

I am unable to accept the amendments, but I hope that the further information I have provided, in relation to the analysis and assessment from the Government that have already been undertaken and that we will continue to do, has reassured noble Lords. I hope that the noble Baroness, Lady Pinnock, feels able to withdraw her amendment.

[Lord Lexden (Con)]

The Minister has spoken at length about the Government’s hopes, intentions and plans. Surely, having done all that, it becomes more important to find out what happens in reality over the next few years: how independent schools are affected and how many children have their education disrupted. These matters need to be clearly established, and that surely points to a proper and full impact assessment.

[Lord Khan of Burnley (Lab)]

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