Non-Domestic Rating (Multipliers and Private Schools) Bill

Lord Thurlow Excerpts

Committee stage
Thursday 27th February 2025 Grand Committee

[Lord Fox (LD)]

My Lords, as we have heard from the noble Baroness, Lady Scott, this group is about understanding the impact of the Bill. To help us focus on why this is important, my noble friend Lady Pinnock and I have produced our own notional one-dimensional impact assessment.

If a property had a rateable value of £100,000, before Covid it was paying close to £50,000 in rates. Then, when the pandemic came, if—and only if—it qualified for relief, that £50,000 would benefit from a 75% reduction. In this case, the business owner would have been paying only £12,500. Rolling forward, what do we find when the Covid relief is completely lifted? The rateable value has not changed; it is still £100,000. So, by our calculation, if—and only if—the full multiplier reduction is applied, that business will be paying £30,000 in non-domestic rates.

I am sure the Minister can spot where we are heading on this. Yes, the business will nominally have a reduction in its rates, but those are the rates it was paying before the Covid relief. In reality, it will have gone from paying £12,500 to £30,000; that is what will be hitting the business. I have two questions for the Minister. First, allowing for our slight approximations to make the maths easy, is this broadly correct and, if not, what is the actual analysis? Secondly, how on earth will this bring benefits and investment to the high street?

As the noble Baroness points out, it is right to talk about the impact assessment, both before the implementation of the Bill and once it has been implemented. The accelerated timeline for the Bill’s implementation has left insufficient time for stakeholder consultation, particularly regarding measures affecting distribution warehouses and out-of-town retail premises, as the noble Baroness just mentioned. Therefore, my noble friend Lady Pinnock and I have tabled a number of amendments to help probe different aspects of the impact the Bill will have. When we get to Report, we will hope to refine this—that is, if the Government have not put forward their own amendments, which I expect they will because this makes so much sense and is so important to the Bill.

Amendment 48 would require the Secretary of State to publish an impact assessment on Clauses 1 to 4 before they come into force—very similar to what we have just heard. Amendment 49 proposes a new clause that would require the Secretary of State to examine the effect of the introduction of the new multipliers on the amount of business rates paid by businesses occupying a single site, compared with those occupying multiple sites. This is because the relief system had a cap on it. That cap goes. The question is: does the multiplier applied across multiple sites mean that some large multisite organisations will bust the cap and benefit substantially at the expense of single-site retailers or not? Because there is no impact assessment, we have no idea. This will, essentially, help us to differentiate the effect between the size and scale of businesses.

Amendment 50 is intended to assess the cumulative impact on businesses of the changes in the Bill with the expected removal of the retail, hospitality and leisure relief—coming to the point I was just talking about. Amendment 52 proposes a new clause that would require the Secretary of State to examine the effect of the introduction of the leisure multipliers on the amount of business rates paid by businesses in different council areas. In other words, how will this affect the regional distribution? The Minister, as someone who comes from the north, will understand that there are significant differences between what happens in the north and the south-east of England. Coming from Herefordshire, I would say that there is exactly the same sort of difference there, if not even greater. Amendment 73 is consequential.

These, taken with the amendment from the noble Baroness, Lady Scott, are all about how we know what the Bill will actually do. The Government have made bold claims about the effect they assert it will cause on Britain’s high streets. On these Benches, it seems there is absolutely no way of supporting those claims because there is absolutely no data.

[Lord Thurlow (CB)]

My Lords, I will add a few words on this important group of amendments. It is not possible to do an impact assessment at the moment. This has been rushed, and the new valuation list will not be completed for another three or four months. Non-domestic rates are the third-highest cost to most RHL businesses, after rent and employment costs. The third-highest outgoing for these businesses is being discussed here and going into law as we speak before one of the critical ingredients of the P&L of those businesses is known. It will not make good law.

The amendments we have heard about in this group, and some of those to come in later groups, refer to a request for delay to the impact assessment so that these variables are known and businesses are not groping about in the dark trying to understand their profitability and do their business plans. It is not the right moment to be having this conversation, but all will be fine if we allow an extra year to do the impact assessments and the required consultations with the professional bodies that have the expertise, which can then be assessed by secondary legislation.

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

My Lords, these amendments seek to introduce a number of provisions into the Bill requiring reports and assessments of various types. They are concerned with the impact on the RHL—retail, hospitality and leisure—sector, including on local government revenues, businesses more generally and economic growth. Some reports and assessments would be required before Clauses 1 to 4 come into force, and others after.

First, I want to stress to the Committee the importance we attach to being clear and transparent about this policy—who will be affected and the impact it will have on revenue. The principles behind these amendments are sound. It is right that the impact of tax changes should be carefully considered in detail. However, there is a balance to be struck and some of these amendments would place an undue constraint on the Government that would likely delay the new multipliers coming into effect from April 2026. Others would duplicate existing reports or would require reports to be produced before we will have been able to collect any data from local authorities. Through a combination of existing reports and commitments already made, I am confident that we can give noble Lords the assurances they seek.

Amendments 48 and 73, tabled by the noble Lord, Lord Fox, seek to require the Government to undertake an impact assessment of the new multiplier arrangements on businesses, high streets and broader economic growth. Amendment 46, tabled by the noble Baroness, Lady Scott, would introduce a very similar requirement.

Noble Lords will be aware that policies and legislation concerning tax and the administration of tax fall outside the meaning of regulatory provisions as defined in the Better Regulation Framework. Obviously, tax measures are introduced for very different reasons from other types of legislation and are therefore not under the same requirements to be accompanied by an impact assessment. This has been the settled position for many years. In fact, the exemption for tax from the meaning of a regulatory provision was captured in primary legislation passed by this House in 2015. Section 22 of the Small Business, Enterprise and Employment Act 2015 excluded a statutory provision which makes or amends provisions imposing, abolishing or varying any tax, duty, levy or other charge. That exemption now exists in paragraph 2.3 of the Better Regulation Framework.

Nevertheless, the Government understand that there is great interest in the effects of the new multipliers, and the Treasury is committed to publishing analysis of the effects of the new multiplier arrangements when the rates are set in the Budget later this year. The reviews that Amendments 50 and 52 seek to introduce are focused on the changes in business rates paid by qualifying RHL properties and other types of businesses. I believe that what these reviews seek to understand is how the business rates liabilities of affected RHL or other properties have and will change, reflecting on the provision of retail, hospitality and leisure relief since 1 April 2020 and the introduction of the permanent lower multipliers for qualifying RHL businesses and the higher multipliers from April 2026.

Noble Lords will know that retail, hospitality and leisure relief has varied year on year since it was introduced, reflecting the particular economic circumstances, including the terrible economic shock that was created by the Covid-19 pandemic. What is more important to point out, however, is that this relief’s expansion in response to Covid was a temporary, stop-gap measure that has been rolled over repeatedly, leaving businesses in a perpetual state of uncertainty until clarity for at least one more year was provided at Budgets. The new RHL multipliers are ending that uncertainty, introducing permanent lower tax rates that will help qualifying RHL businesses to plan ahead and get on with running their businesses rather than constantly worrying about what the next Budget may bring them.

--- Later in debate ---

I appreciate that there is great interest here and I trust that my reassurance that His Majesty’s Treasury will be publishing analysis of the new multiplier arrangements at the 2025 Budget allays noble Lords’ concerns. The Government, as a matter of course and good practice, keep all tax policy under review. As such, to seek to impose such a requirement in legislation is not necessary. I respectfully ask the noble Baroness to withdraw her amendment.

[Lord Thurlow (CB)]

Before the Minister sits down, could I point out that these forecasts are all going to be hypothetical? In five months’ time, the VOA will produce, or have access to, the updated new rateable values nationwide. Current rateable values will be history. Therefore, we have to anticipate what those might be. The balancing act between the larger properties subsidising the smaller RHL properties will then be reworked, but we cannot do it at the moment, which is one of the reasons why we feel that time is required for delays to the impact assessment process to take us one further year ahead.

[Lord Khan of Burnley (Lab)]

I thank the noble Lord for making that point. He also talked about delays, which I will pick up in a later group when we talk about implementation; I have not forgotten about the important points he raises. On the point he just made, the Budget analysis takes into account the 2026 revaluation, so that point is covered by the Treasury in its work in the build-up to the Budget.

--- Later in debate ---

[Lord Khan of Burnley (Lab)]

My Lords, I take everything that the noble Lord says in a good spirit; I will come back to him on that point. Let me be clear on the remit of the Bill. On when the Treasury will set its multipliers, I understand the noble Lord’s point, but I will go away and see. As I said on day one in Committee, I look forward to meeting all noble Lords who have an interest and amendments. I am happy to sit down and discuss this; if I can get one of my colleagues from the Treasury, subject to availability and diary commitments, I will of course pursue that.

[Lord Thurlow (CB)]

I too do not wish to labour the point but, if I understood him correctly, the Minister said that the ministry already has access to the new valuation list. Yet Colliers, a leading firm of rating surveyors with which I have had extensive discussions on this Bill, assures me that 1 June is when the work from the VOA will be completed. It may have been completed early but, if that is the case, can we please have that detail so that businesses can do their budgets and business plans?

[Lord Khan of Burnley (Lab)]

My Lords, I say directly again that the 2026 revaluation has not yet been completed but, obviously, the Treasury is working on it. It is having conversations with all stakeholders, of course. In fact, it is probably also looking at forward planning on the whole future of business rates. As I said on our first day in Committee, this is the start of a huge strategic focus looking at business rates; this is the first part of it. I assure colleagues that, as soon as the multipliers are announced at the Budget, noble Lords will have an analysis—not an assessment, but an analysis.

--- Later in debate ---

[Baroness Pinnock (LD)]

My Lords, I will speak to Amendments 66, 64 and 69B. Children in Armed Forces families have a very difficult time. My noble friend Lady Garden of Frognal’s husband was in the Royal Air Force for 30 years, I believe, and in that time they moved 24 times. By the time their children were nine, they were in their seventh school. That is why so many military families choose to find a boarding school as an option for their children, so that they can have continuity and consistency of education.

I cannot remember how many times I had to move during my school life; it was not seven by the time I was nine, but about five times. Each time you move, it is difficult to get into the system of a new school, make new friends and all the rest of it. There is a very strong argument for children of families in the military to have the exclusion argued for in Amendment 66. At a time when as a country we are thinking more about defence and security and, I guess, trying to encourage more young people to become part of the military in many different ways, they will think about what will happen to their families as they move so constantly. I urge the Minister to give special consideration to Amendment 66.

On Amendment 64, the noble Lord said that musical education has been neglected and allowed to decline. That is absolutely true, and we ought to give a bit of thought to how it has been allowed to decline and when. It is a cause of huge concern to me. I have a daughter who went from a state school to the Royal Academy, so I understand a bit about the importance of musical education. I urge the Government to give more attention to musical education in our state schools. What is particularly discouraging is the decline in opportunities for young people in state schools to learn a musical instrument. In the town where I live, they have declined considerably. In my view that is a tragedy, for the reasons that have been given.

Finally, on Amendment 69B, looked-after children ought to have a special place in our concerns. If there is a charity that I have not heard of that offers some young children who are looked after the opportunity for getting away from the place that has caused a lot of difficulty and trauma in their lives, I hope the Government will look at it sympathetically. I do not know enough about that—although I know quite a bit about children looked after within a local authority setting. But if there is a special opportunity for children who need to escape their surroundings to do so in this way, it ought to be given sympathetic consideration by the Government. I look forward to the Minister giving a good response to these pleas.

[Lord Thurlow (CB)]

I have not added my name to these amendments, but I feel strongly about them. This vital group, articulated so well by the noble Lord, Lord Black of Brentwood, is directly focused on those in need. I want to consider for a minute this group from a different point of view—the point of view, if you like, of the child. The noble Baroness, Lady Pinnock, gave the example of five schools by the age of seven—or seven by the age of five, I do not remember. I was one of those children. My parents were civil servants serving abroad, and they chose to keep me at home well into my teens, whereas most in similar positions were sent back to the UK to attend an independent school and be given the continuity of education that is required at home, wherever home may be.

The price I paid was 13 schools through the course of my education. Most of those were attempts to cram or correct for the next stage, because I was always turning up half way through a term, starting on a Wednesday in a class of 25 people—having never seen any of them before—after coming 3,000 miles. Then I was off again two years later, and there was a different syllabus—and a different language in one case. I ended up here in the UK knowing a great deal about Captain Cook, the South Pacific and the Māori but absolutely nothing about English history or any of the other normal curriculum subjects.

I spent my last few years at school on the back foot in a special independent school, trying to catch up. Had I not had that opportunity, I certainly would not be proud or competent enough to stand here today and address your Lordships. It taught me some self-confidence in the absence of any sort of academic success. University was out of the question. I give this example simply because it is terribly important that those serving abroad, whether in the Armed Forces or in the Civil Service, are given the opportunity to give their children an equal start.

I am very pleased that I had the alternative, because my parents wanted to keep us at home, wherever home was. It did not really do me any harm at the end of the day, but I got no GCSEs, O-levels or A-levels, other than the odd one—usually called something like technical drawing or one of these back-door opportunities. I mention this simply to drive home, perhaps, the importance of what is being discussed, raised by the noble Lords, Lord Lexden and Lord Black, and the noble Baroness, Lady Barran. Let us not destroy the opportunity for those young people.

[Lord Khan of Burnley (Lab)]

My Lords, it is a pleasure to follow that very eloquent contribution about the noble Lord’s personal journey. I will talk first to Amendments 63, 64 and 66, which seek to provide carve-outs from the Bill measure: in the case of Amendment 63, for private schools that wholly or mainly provide full-time education where at least 7% of gross income is spent on means-tested fee assistance; in the case of Amendment 64, for all private schools that wholly or mainly provide full-time education for gifted arts students, such as those attending specialist music and dance schools or performing arts colleges; and, in the case of Amendment 66, for private schools that wholly or mainly provide full-time education where at least 10% of students have at least one parent or guardian serving in the military.

The contributions that we have heard today reflect concerns about how the Bill may affect pupils from lower-income backgrounds, including those from military families, or those who are gifted arts pupils. Providing means-tested fee assistance is one way that charitable private schools can demonstrate public benefit, a requirement that accompanies charitable status. The Bill does not remove the charitable status of private schools and the Government expect private schools to continue to demonstrate public benefit. What is more, we do not think that Parliament should be putting in place incentives for charities to act in the public’s benefit in the way that Amendment 63 might encourage. Acting in the public benefit is something that a charity should inherently wish to do. Charitable private schools will continue to operate as charities and this Bill does not make any tax changes affecting their charitable status. For example, they will still be able to claim gift aid on donations and will not pay tax on their charitable surplus, as for-profit schools are taxed on their profits.

In designing the policy, the Government listened very carefully to representations and reached the view that, with the exception of the existing carve-out in the Bill for private schools wholly or mainly concerned with full-time education for pupils with EHCPs, no other private schools would be carved out of the measure. This approach was adopted because to carve out some private schools and not others would be unfair. However, the Government listened carefully to concerns raised and, in relation to pupils from military families or those attending specialist arts schools, the Government have taken appropriate steps in relation to two government schemes.

I will elaborate further. The Government offer a means-tested bursary scheme for pupils who attend any one of eight specialist performing arts private schools. The music and dance scheme provides means-tested bursaries and grants totalling around £32 million per year to enable children and young people with exceptional potential to benefit from specialist music or dance training. It is available to qualifying families if their child has a place at any one of the aforementioned eight private schools.

--- Later in debate ---

Moved by

[Lord Thurlow]

74: Clause 6, page 6, line 22, leave out “2026” and insert “2027”
Member’s explanatory statement
This amendment seeks to delay the introduction of amendments 1 to 4 from 2026 to 2027 to allow more time for impact assessments and consultations to be conducted.

[Lord Thurlow (CB)]

My Lords, most of the amendments this afternoon have concerned schools. I want to return to commercial premises in my contribution on this group. Amendments 75 and 76 in the names of the noble Baronesses, Lady Barran and Lady Scott of Bybrook, are included; theirs deal with schools but the core principles of our three amendments are similar.

As we have heard from noble Lords, there is widespread concern at the haste with which the outstanding consultations and studies are to be carried out—presumably to coincide with the rating revaluation, which cuts in in a few months’ time. I am afraid that that is not a good enough reason to curtail the chance to do these studies properly; the noble Lord, Lord Lexden, has just made a powerful intervention on precisely that. We can rush it and create bad law or do it properly and get it right.

As I explained in our debate on the first group this afternoon, there is currently under way an update of rateable values, which, until I heard the Minister’s comments at that time, I understood was not to be completed until June. I am delighted to hear that it is possibly available immediately, as we would all love to see the figures.

It is unfortunate timing, as those businesses and schools will not know their new rateable values until then, yet here we are legislating in ignorance of this new and significant fixed cost. As explained, it is the third-highest cost to an RHL business after staff and rent. I stress that this amendment would change nothing concerning the material content of the Bill. It is merely timing. I simply want a further 12 months to assess the impact on these hundreds, possibly thousands, of businesses, particularly those small businesses that are trying to make decisions regarding future investment, which the country needs to invigorate growth, but cannot until they know their cost base.

--- Later in debate ---

[Lord Khan of Burnley (Lab)]

My Lords, I will now speak to Amendment 74, moved by the noble Lord, Lord Thurlow, and Amendments 75 and 76, tabled by the noble Baronesses, Lady Barran and Lady Scott of Bybrook. These amendments seek to delay the implementation of the Bill’s measures. Amendment 74 seeks to delay from 2026 to 2027 the commencement of Clauses 1 to 4, covering the new multipliers. The reasoning behind this proposal, as provided by the noble Lord, Lord Thurlow, is to provide more time to allow for impact assessments and consultations to be conducted.

As I have set out elsewhere during the course of the Committee proceedings, the Treasury has committed to publishing analysis of the impact of the new multipliers at the Budget. To clarify, the 2026 re-evaluation of the multipliers is ongoing and is not yet completed. We expect it to be published around the Budget.

As noble Lords will remember, the Bill is the Government’s first step in transforming the business rates system, and to delay it would delay the Government’s progress in undertaking this broader ambition over the course of this Parliament. Furthermore, it would delay the introduction of the new permanent tax cuts for qualifying retail, hospitality and leisure properties, meaning that those businesses would have to wait a further year for the lower multipliers.

Amendment 75 seeks to delay the implementation of the removal of charitable rate relief from private schools, pending an impact assessment focused on access to university for pupils in private schools in receipt of means-tested fee assistance. Amendment 76 would more generally delay by one year to April 2026 the same measure in Clause 5.

I understand the concerns that the swift implementation of Clause 5 from 1 April this year does not give private schools or local authorities time to prepare for the change—a point which the noble Baroness, Lady Barran, just touched on. However, the Government announced this change in July 2024, stating then that it would be implemented from April 2025, subject to the passage of legislation. As such, private schools have been aware of this change for some time. Private schools that are impacted by the change already pay business rates. They already have a rateable value, they do not have to register with their local authority, and it is very simple for them to calculate their additional business rates bill. As these schools are already known to local authorities, the removal of the charitable relief should also be straightforward from their perspective. The Government are engaging with local authorities to support them through this change.

Delaying implementation of the Bill would forego approximately £140 million per year in funding, delaying the Government’s intended investment to deliver their commitments to education and young people and to support investment in our state sector, where more than 90% of children in England are educated.

The amendments call for an impact assessment. As Members of the Committee know full well, tax measures are not subject to full impact assessments. I continue to say this to the Committee because it continues to be correct, as it was under previous Governments. Despite this, my department has produced detailed analysis of the impacts of Clause 5, which was published alongside the Bill, as I stated earlier.

Amendment 75 also raises the question of access to higher education. Access to higher education should be based on ability and attainment, not background. Opportunity should be available to all, and it is the Government’s aspiration that no groups are left behind. That is why we are seeking, through this Bill, funding for new investment in the state sector.

I am also aware that there is concern across the Committee that the Bill’s measures may result in private schools that are charities reducing their charitable activity, of which the provision of means-tested bursaries is one such activity. It will be for individual private schools to determine how they will meet any additional costs as a result of the Bill’s measures, but they could, for example, reduce surpluses or reserves, cut back on non-essential expenditure, increase fees or use a combination of different approaches.

It is important to note that the measure does not remove the charitable status of these schools and charitable schools will continue to operate as charities. They must continue to demonstrate that they meet public-benefit tests, and the Government expect all charitable schools to continue to demonstrate this to retain their still very favourable status as charities. No other tax changes specific to their charitable status will affect private schools. They will still be able to claim gift aid on donations and will not pay tax on their charitable surplus.

As I have said, we cannot agree to delay the implementation of these measures. I hope that noble Lords can see this and will agree not to press their amendments.

[Lord Thurlow (CB)]

I thank noble Lords who have taken part in this final group, and I thank the Minister for offering an opportunity to meet to discuss this in more detail, which I will take up. I remain concerned about the unintended consequences of the rush to get this through, for both schools and businesses but, with those comments, I beg leave to withdraw the amendment.

Amendment 74 withdrawn.