Non-Domestic Rating (Multipliers and Private Schools) Bill

Baroness Barran Excerpts

Report stage
Tuesday 18th March 2025 Lords Chamber

[Lord Weir of Ballyholme (DUP)]

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

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

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

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

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

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

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

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

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

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

[Baroness Barran (Con)]

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

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

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

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

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

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Moved by

[Baroness Barran]

30: Leave out Clause 5

[Baroness Barran (Con)]

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

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

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

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

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

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

[Lord Black of Brentwood (Con)]

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

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

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

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

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

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

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

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[The Earl of Lytton (CB)]

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

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

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

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

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

[Baroness Barran (Con)]

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

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

[Lord Khan of Burnley (Lab)]

My Lords, we have a right of reply.

Amendment 30 would remove Clause 5 from the Bill, and therefore the measure that removes the eligibility for charitable rate relief from private schools that are charities. Amendment 31 would require the Government to undertake an assessment of the expected and observed impact of Clause 5. Furthermore, that amendment seeks to ensure that any assessment has regard to impacts owing to any other tax change that have affected private schools since 1 January 2025, effectively seeking to create an all-encompassing review of the Budget tax changes and their effect on private schools, and the resulting impact on the state sector. I am unable to accept these amendments.

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

The Government carefully considered their approach in designing the policy to remove charitable rate relief from private schools. On 29 July, they published a technical note on removing the VAT and business rates charitable relief tax breaks for private schools. The Government received over 17,000 responses to this note, from a range of tax specialists, private schools, bodies that represent private schools and others. A detailed government response to this was published at the Autumn Budget. Furthermore, at the introduction of this Bill, the Government published a note setting out analysis of the impact of the business rates measure. This is available on the Bill page. A tax information and impact note was published in relation to the VAT change at the Budget and is available on GOV.UK.

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

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

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

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

Pupil numbers in schools fluctuate regularly for a number of reasons, and the school funding system in England is already set up to manage that. For individual schools, the Government therefore expect changes in pupil numbers caused by these changes to be managed in the usual way. Data on the number of school pupils is published every summer, providing information on the number of pupils at different types of schools, so anyone can see how pupil numbers in both state and private schools have changed.

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

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

[Baroness Barran (Con)]

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

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