Finance Bill

Damian Hinds Excerpts

Committee of the whole House
Wednesday 11th December 2024 Commons Chamber

[Dr Sandher]

The point is that by ending the tax breaks for the wealthiest, we are able to raise the revenue that we need to invest in our nation’s prosperity. That is the point of the programmes that we are setting out—programmes such as “Get Britain Working”, the affordable homes programme, and the expansion of early years childcare. We need to raise that money from somewhere, which is why we are proud of the tax changes that we are making. We are creating a great nation where every single person and every single child can get a decent education and a great job and afford a decent home, and where we all know that working hard means that we can achieve a decent life. We are raising tax revenue from the wealthiest and ensuring that the broadest shoulders carry the heaviest load, so that we can build a nation where every single person thrives.

[Damian Hinds (East Hampshire) (Con)]

I rise to speak to new clause 8, and to refer to clauses 47 to 49.

Clearly, just six or so months in, we will not have seen the full effects of these measures, but we will have started to see them. We will have heard whether there are concerns from faith leaders, and what the early effects are on the number of applications for EHCP plans and so on. It is also right that we have asked that, within 18 months of this Act being passed, we report back on the impact of the music and dance scheme, on which we know there has been a partial concession from the Government, but it remains a very sensitive area none the less.

The Government say that they expect to raise £1.5 billion from this measure in 2025-26, rising to £1.7 billion—I think—in 2029-30. They expect 3,000 children to be displaced in academic year 2024-25; 14,000 in academic year 2025-26; and 35,000 eventually. These are enormous numbers of children who could have their education disrupted. Parents will be denied a choice that would be open to them in most other places in the world. It is also important that we look at the assumptions behind these numbers from HMRC’s policy paper—they are the exact assumptions that may then come into question in that post-legislative review, which our new clause 8 calls for.

The Government first expect fees to rise by 10% on average as a result of these measures. In fact, the actual mathematical cost of putting 20% VAT on fees is, in fact, an increase in cost of about 15%, by the time we net off the ability to reclaim cost on inputs. More significantly, we must put it in the context of everything else that is going on. This year, we are also seeing a business rates increase for about half of private schools, an increase in contributions on the teachers’ pension scheme, and as with so many other sectors, a massive hike in national insurance contributions. Those are on top of any other normal cost pressures that other organisations might have. Those are three things, as well as the VAT increase, that are direct transfers from the independent school sector to the Exchequer. Although, technically speaking, they may not be the measures that we are discussing today, they very much affect the ability of schools to be able to absorb any of those price increases.

To inform their conclusion on how many children will be displaced in the private sector, the Government have, to an extent, relied on one statistic. They say that the number of private pupils has remained steady, despite a large real increase in average school fees since 2000. Considering price elasticity is a mathematically flawed approach. Up until very recently, we used to talk about 7% of children going to private schools. Now we say that it is 6%, because the proportion has come down. But at a time when pupil numbers have been growing, other things being equal, we would expect the number of children at private schools to have been increasing as the proportion stayed roughly constant.

Moreover, it makes no sense at all to look at gradual price increases over a 10, 20 or 20-plus year timeframe and to say we could conclude anything from that on the effect of an overnight price increase of 15%, 20% or more. The Government have come to the conclusion that we will end up with a long-run steady state of 37,000 fewer pupils in private education in the UK.

[Freddie van Mierlo]

The right hon. Gentleman is right to interrogate the Government’s numbers. Does he share my concern around SEND provision with children returning to state schools and the fact that teaching assistants are not fully paid for in state schools? That will be an additional burden on those schools.

[Damian Hinds]

Of course, there has been a huge increase in the number of teaching assistants over the past 14 years, but the hon. Member is right that there are particular issues for children with special educational needs, which I will come on to.

The Government estimate that there will be 37,000 fewer children in private schools and of those, 35,000 will go to state schools. What happens to the others? Some will be international students who will not come to this country, so that is a loss of export earnings, and some will be home-schooled. The hon. Member for Twickenham (Munira Wilson) mentioned that, and we have not talked about it a great deal, but it is significant. The Government will say, “It’s only 35,000.” That is like a pretty substantially sized football stadium if we picture the number of children whose education will be changed by the measure. They say, “Don’t worry because it is only a small proportion of the total number in state schools.” At the end of the day, the number is from a spreadsheet; there is no guarantee that it will be 35,000 or any other particular number. In fact, it is rather odd that they came up with a single number at all. I would think that in any economic analysis like this we would at least have a range in which there is a central planning assumption, but also a reasonable worst-case scenario.

More importantly, as my right hon. Friend the Member for Hertsmere (Sir Oliver Dowden) mentioned earlier, the effect will not be even. I have lost count of the number of parliamentary questions I have put down trying to get out of the Government where they think those 35,000 children will show up, because there is a huge difference in where they show up. It is worthless having empty places in primary schools in inner London if that is not where the children will be displaced to from private schools. In broad terms, there will not be that much of an impact on state primary schools. There will be on state sixth forms in London, but the big effect will be on individual places, particularly in 11-to-16 education. They include not only in counties we might guess, but also Bristol, Bury, Surrey, Salford and a much longer list besides.

On why the proposed review is so important, and we need to examine this in the post-legislative scrutiny, the Government say the revenue costs will be £270 million a year. That is, in other words, the cost of educating those extra 35,000 in the state sector. They go on to say that they have calculated the number based on the average spend per pupil in England in 2024-25. That is wrong. It is a mistake to base it on the average pupil because we know children with special educational needs will disproportionately have to transfer, and that will have a higher cost to their education.

Moreover, we will get more families—we do not know how many—applying for an EHCP. The limiting case is where a child is in a private school right now and their parents are paying considerably more than the average place. They will find that they cannot afford the extra 20%, so they will apply for an EHCP and the child could get placed back in the same school, with the entire cost now being picked up the state.

[Edward Morello (West Dorset) (LD)]

Those at an independent primary school in my constituency told me that approximately 20% of their students would be in receipt of an education, health and care plan if they were in the state system, but have no additional requirements in their educational establishment, and a number of West Dorset pupils receive six-figure support. Does the right hon. Gentleman agree that more students going into the state system will increase costs for local councils, and that independent schools save the taxpayer money?

[Damian Hinds]

The hon. Gentleman raises an important point. I will come to exactly where the money to meet the costs will come from. We have talked about revenue costs, and the policy paper from His Majesty’s Revenue and Customs covers that, but what about capital costs? What if whole new places need to be created? What if entire new year groups need to be created—or even entire new schools in some cities or local authority areas? Where is the allowance for the capital costs? Then there is, as the hon. Gentleman rightly says, the question of how the costs will be met. The money follows the pupil, so a school will be reimbursed for any pupil who presents there—but after the census date, so it depends on exactly when the pupil turns up—but the question is: from where does the money come? Does it come out of central Treasury coffers, or will the Department for Education be told, “No, we have given you your annual budget, so if more children come into the state sector, you must fund them”?

Will councils be reimbursed additionally if more children come out of independent schools and get EHCPs, or will they also be told that they have to absorb the cost of that, and meet it from their already stretched budgets? Then there are the indirect costs, as trade unions have pointed out, such as teachers being made redundant and, because it is not the turn of the academic year, potentially dropping out of the profession altogether.

[Mr Jonathan Brash (Hartlepool) (Lab)]

The right hon. Gentleman has spoken eloquently and at great length about the needs of children with special educational needs. Does he regret the state of special educational needs provision in this country, and that some people feel that they have to pay because they cannot otherwise get the service that they would like for their children? Does he regret that legacy of the previous Government?

[Damian Hinds]

Look, I want every child to have the best education available to them. When I was working at the Department for Education, I regarded it as part of my job to ensure that nobody thought, “I have to send my children to a private school”—but I would not have denied them the choice. State school improvement over that time will be one of the things that drove the figure I mentioned from 7% to 6%. A huge amount of additional money is going into high needs. The hon. Member for Dartford (Jim Dickson) shakes his head, but it is true; that is in the Treasury’s own figures. It is also true that demand has greatly increased. There is much more to do to ensure that we have the high-needs system and resourcing that we all want.

On the equalities impacts, it may surprise some people to learn that Independent Schools Council census figures show that the proportion of children from ethnic minorities, and, as we have been discussing, the proportion of children with special educational needs, is higher at independent schools than in the state sector. However, the really big equalities issue relates to faith. I am pleased that the Treasury seems to have dropped its earlier assertion that people of faith will not be disproportionately affected by the measures. That assertion can only have been based on the notion that most children of a religious faith are in state education anyway, and are mostly Catholic or Church of England and in denominational or non-denominational schools. However, we cannot pretend for a moment that families of the Haredi Jewish community, or who have children in Muslim independent schools, or who are of certain Christian traditions, will not be affected more than others.

To come to a close, this is a bad policy overall. Education is a public good that simply should not be taxed. That principle is observed by Governments of the left and right all but universally, right across the world. In this country, in education, there is no tax break; in fact, families whose children go to independent school save the state money. Independent schools cater for some needs, such as those met through the music and dance scheme and the needs of small faith groups, that the state sector simply does not. In any case, parents are entitled to choose what they think will be right for their child, whatever the reason.

This measure does not even do what we think gets Labour MPs excited about it. It does not hit its target, because not every parent with a child at a private school is rich, and believe it or not, in some of those schools, including some of the fee-paying Muslim or Jewish Haredi schools I mentioned, the cost of a place is less than the average cost at a state school. Here is the bigger point: there are plenty of parents with children at state schools who are wealthy. If Labour Members really wanted to soak the rich, to tax the wealthy, there are more efficient ways of doing so—and more honest ways of doing so.

Most importantly of all, this policy will have an adverse effect on state education, especially in places where secondary schools are already or almost full. Labour challenges us to say whose side we are on—do we stand with the 94%, or with the 6%? We refuse to choose, because they are all children. There is no need to set one part of our education system against the other, and this tax will be bad for both.

[Shivani Raja (Leicester East) (Con)]

In my constituency, thousands of hard-working families diligently strive to give their children the best possible start in life. Some choose our excellent state schools, while others opt for independent schools that they believe more closely meet their child’s individual needs. The crucial point is that until now, parents have enjoyed the freedom to make that choice, rather than the decision being imposed on them from on high. Today, more than 1,000 pupils in Leicester East attend independent schools, and their families are not the super-rich. These are ordinary, hard-working people who have scrimped, saved and carefully budgeted.

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[Damian Hinds]

In principle, what is the distinction between full-time private schooling and private tuition, from the point of view of what it is right to tax? Will he guarantee that no tax will be put on private tuition?

[James Murray]

If the right hon. Gentleman is referring to the comments I just made in response to the shadow Minister’s remarks, teaching English as a foreign language and higher education are exempt from the provisions of the Bill.

[Damian Hinds]

No, I mean families who send their child once or twice a week for an hour for academic study or something extra-curricular. Why should that be tax exempt, when if it is done for all the hours in the school week, it is not?

[James Murray]

In designing the Bill and making sure that it is clear, we decided to focus on those schools that provide full-time education. Following feedback during the consultation on the Bill, we decided to clarify some of the treatments, such as for nurseries, which I mentioned earlier, to ensure that they are treated appropriately. If they are fully stand-alone nurseries, they are not covered. In the original drafting of the legislation, we referred to nurseries that wholly comprise children below the compulsory school age. We changed that to wholly or almost wholly to ensure that having, for example, one pupil over compulsory school age would not trip a nursery into being covered.

[Damian Hinds]

rose—

[James Murray]

I am going to make some progress, because I will come to the right hon. Gentleman’s point in a moment, and I want to mention the points made by other hon. Members in the debate.

We heard from the hon. Members for Twickenham (Munira Wilson) and for Richmond Park (Sarah Olney). Yet again from the Liberal Democrat Front Bench, we see a party that is happy to support our extra investment in education for all children, but that cannot bring itself to support the measures that we put in place to help pay for that investment in education.

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[James Murray]

The right hon. Gentleman is tempting me into hypotheticals and into trying to give advice to a school that does not yet exist—I will hold back from that, because I think the principles of our Bill are very clear on what VAT at the standard rate is applied to and what can be made exempt, in line with the existing rules on VAT.

We heard several times from the right hon. Member for East Hampshire (Damian Hinds). I assure him that the Government costing has, of course, been fully scrutinised and certified by the Office for Budget Responsibility. He also spoke about capital funding. Obviously, pupil numbers fluctuate for a number of reasons. The Government have already announced more than £700 million to support local authorities over this academic year and the next to provide places in new schools and expand existing schools. I did note, however, that in response to an intervention by my hon. Friend the Member for Hartlepool (Mr Brash), the right hon. Gentleman seemed implicitly to admit to his Government’s failure to improve high-needs education in the state sector, which is precisely why our measures today are so important.

[Damian Hinds]

First, the Minister knows I said no such thing. I spoke about the additional investment that had gone into the high-needs budget under the previous Government, particularly since 2019, and said that there was more to do.

Since I am on my feet, can I ask him to expand on what he just said about capital? What he has just spoken about is capital for places that are already planned, but what if a lot more children present in some places? Has he budgeted for that capital? Does he guarantee that whatever capital goes to the DFE will be on top of the existing capital budget?

[James Murray]

As I said to the right hon. Gentleman, pupil numbers in schools fluctuate regularly for a number of reasons, and the Department for Education, and indeed the devolved Governments, already work with local authorities to identify pressures and take action where necessary. As I said in my earlier remarks to him, the Government already provide capital funding through the basic need grant to support local authorities in England to provide school places, and the Government have already announced £700 million over this academic year and the next, which can be used to provide places in new schools and to expand existing places.

Finally, the hon. Member for Bexhill and Battle (Dr Mullan) raised the motivation behind our policy, which other Opposition Members also spoke to. Let me be clear on this: our decision to fix the public finances to fund public services, including education, means that difficult decisions have to be taken. Our choice to end the VAT exemption for private school fees has been a difficult but necessary decision that will secure additional funding, which will help to deliver on our commitments to improve education for all.

Oral Answers to Questions

Damian Hinds Excerpts

Tuesday 3rd December 2024 Commons Chamber

[Rachel Reeves]

In the past four weeks since the Leader of the Opposition was elected, the Conservatives have made £7 billion of commitments to cut taxes, but with no idea of how they would cut public services to afford them. I do not know how they will vote on national insurance, but we can see pretty quickly how they ended up leaving us a £22 billion black hole.

[Damian Hinds (East Hampshire) (Con)]

The single most important factor in raising living standards, driving income equality and improving children’s life chances is having a job. Why is the Chancellor disregarding that fundamental truth, with tax policies that will actively harm employment, particularly youth employment?

[James Murray]

If we look at the OBR forecasts for this Parliament, employment will increase from 33.1 million to 34.3 million. The right hon. Gentleman talks about youth employment. I suggest that he read our “Get Britain Working” White Paper, which sets out in detail what we will do to help get young people, and people suffering from ill health, back into work.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Damian Hinds Excerpts

2nd reading
Tuesday 3rd December 2024 Commons Chamber

[James Murray]

We are protecting public services by providing relief directly to Departments and other public sector employers. Third parties, private organisations, or those who have a contract with the public sector are dealt with differently and they should approach their local council, or whoever is sponsoring them, to talk about their funding arrangements. I might draw the hon. Lady’s attention to the fact that local government financing is increasing by 3.2% next year as a result of decisions that this Government have taken. I expect she would probably support that increase in funding, but sadly she does not have the guts to support what we need to do to raise the money in the first place.

[Damian Hinds (East Hampshire) (Con)]

On the £22.6 billion for the NHS, or the figure just mentioned for local government, have the Minister or his officials calculated what the numbers would be, net of the national insurance cost? Those bodies— the national health service and local government—carry on with exactly the same services as before, but now face extra bills for national insurance contributions. Have they done the maths?

--- Later in debate ---

[Mark Ferguson]

I thank the hon. Member for his point. This is what is known as a balanced Budget, and we on this side of the House are going to do something remarkable. The amount of money that we raise will match the amount of money that we spend. I know that might seem alien to some of those on the Opposition Benches, but that is what we are going to do.

[Damian Hinds]

Will the hon. Gentleman give way?

[Mark Ferguson]

No, I have been more than generous in taking interventions so far.

It is amazing to see the anger that has been generated among Conservative Members. Let us remember their record, because it is important for the context. In government, they doubled the national debt, stagnated wages—which is awful for businesses, by the way, especially small businesses that rely on local people spending money—and caused a cost of living crisis. Their own Prime Minister, Liz Truss—remember the name?—delivered a Budget made up of £45 billion of unfunded tax commitments and crashed the value of the pound to its lowest ever value against the dollar. The British people suffered, waiting lists soared, schools crumbled, buses did not come on time or at all and we waited hours for ambulances or years for surgery.

I am concerned about GPs, because I am sick of people having to call at 8 o’clock every morning to demand an appointment for themselves or for their child, only to be told that there are no appointments that day. This Government will invest in our NHS to tackle the GP crisis, because that is what hurts working people. When people are unwell, when people cannot go to work and when there is crime in their communities, that has an impact on business. It is false to say otherwise, and we cannot continue having this debate. We are taking a balanced and, in my view, reasonable position, which is why I will be voting for the Bill this evening. We raise taxes and we spend the money on things that are good for society. We cannot pretend that we can do good things for society without raising the taxes to pay for them.

Like many Labour Members, I have a huge amount of experience of opposition. I have never sat on the Opposition Benches and I do not want to sit on them any time soon, but I have a huge amount of experience of the business of opposition, and I would gently offer some advice that I doubt will be taken. You are going to have to do a lot better than this if you want to convince—[Interruption.] Sorry, Madam Deputy Speaker, I do apologise. The Conservatives will need to do a great deal to convince the British people that they have heard the lesson that was given to them in July. If they continue in this vein of listening to only one side of the conversation—the one that they want to hear—they might not like the answer they get.

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[Tom Hayes]

I have literally just said that this debate should not be about party politics, but about the scrutiny of this Government’s Budget. Instead of asking questions about the nature and substance of the Budget, the Opposition are resorting to party politics. [Interruption.] As my hon. Friend the Member for Harlow (Chris Vince) says from a sedentary position, we could list debates such as the Grenfell Tower inquiry debate yesterday, during which Conservative Members were deserting their Benches.

The burden of tax has fallen on working people for far too long under the Conservatives. Working people have suffered in many more ways, too: they have been unable to get the NHS appointments they want, the mortgages they want and all the services they should be entitled to. When I have knocked on doors in Bournemouth East and spoken with thousands of people over the last two years, the overwhelming feeling has been of hopelessness. It is the feeling that nothing ever changes in politics because there is a constant back and forth between our Benches about unimportant things rather than a focus on what those people actually want.

People want an NHS that will truly deliver. They want the 40,000 additional appointments a week. They want the billion pounds that is being invested in SEND. They want the £600 million going into social care. They want the £22 billion going into our NHS to start to fix the problems that have been ongoing for 14 years. I say to Opposition Members that if they are dedicated to their constituencies, if they care deeply about putting our public services back on track, and if they care about an economy that grows so that we have private businesses supporting our investment in the public sector, they should be voting with the Government tonight. I am disappointed to see so many of them saying that they will not be doing so.

[Damian Hinds (East Hampshire) (Con)]

We are the Opposition. You are the Government.

[Tom Hayes]

We are the Government taking decisions in the national interest. The Conservatives are the Opposition taking decisions on behalf of their party’s interest. That is why, I am afraid, the Conservatives will not be coming back into power any time soon. They are not prepared to listen to what voters want, they are not prepared to take the tough decisions, and they are not prepared to come to the table, be constructive and try to put right the problems that they have created.

We have a long road ahead to put our NHS our economy and our public finances back on track, but this is a Government with a historic majority and a historic mandate to serve our nation’s interest. I call on those on the Opposition Benches—obviously not the Conservatives—to support this Government in what we are doing, because, together, we can put this country back together.

[Damian Hinds (East Hampshire) (Con)]

We have a mission-led Government. I am not sure whether anybody knows exactly what that means, but we do know what the mission is meant to be: delivering for working people. But I am afraid that the Government have forgotten how working people become working people. It is the people—the other people—who employ them. All of us in this House want excellent public services, but it is only the Conservatives who understand that to get excellent public services, business needs to generate the wealth. The Government have a bit of a “four legs good, two legs bad” mantra that sees business as a cash cow to be milked to pay for the public sector. They have forgotten that fundamental dependency. They have even messed up the “four legs good, two legs bad” theory, because they seem to have forgotten that a very large part of what delivers our public services is people—people who are not directly employed by the public sector.

Let us take nurseries as an example. We have had another mission this week on early years education, which I welcome, but it will be hampered in its delivery by this national insurance contributions rise. Then there are the universities. They received a bonus of £390 million from a fee increase a couple of weeks ago, but they will be paying £400 million in extra national insurance contributions.

I have also heard from many GPs across my constituency in East Hampshire, who see the Government giving with one hand and taking away with the other. The Minister says that the Government will take care of this in the settlement for GPs, which is fine, but it should have come on top of what they should have been doing for GPs anyway. Lord Darzi and the Secretary of State have been talking about increasing the focus on primary care. We know how the Treasury works when it is making its spending allocations to Departments; things will be tucked in under that settlement, so we need to see it rise. How do the Government think GP practices plan? Here we are in December, and the new financial year starts at the beginning of April. Do Ministers not think that, in the national health service, general practitioners need certainty now about what is going to happen?

The wider point is this: the Treasury can reimburse GPs, but it cannot reimburse the private sector. Ultimately, there is no such thing as a tax on business. Taxes can only ever ultimately fall on people. They fall on the owners of that business, the customers of that business, or the employees of that business. The analogy for the Treasury reimbursing GP practices for their increased costs is the employees of a private company reimbursing their employer for that cost. It is they who will ultimately pay. Economists are united in saying that employer national insurance contributions are only ever, in the end, seen in lower wages or lower employment figures. The Government talk about difficult decisions, but difficult decisions are the ones that employers will be faced with: do I cut down my wage settlements or do I let people go?

[Jim Shannon (Strangford) (DUP)]

Not more than half an hour ago, I met a businessman from Northern Ireland whose firm employs 1,200 people. He said national insurance contributions will cost the firm almost £1 million a year. The cost will ultimately be passed on in its food prices, which will rise by between 15% and 20%, and the ordinary man or woman on the street will pay for it. Does the right hon. Gentleman agree that that is where the Labour party has got this wrong?

[Damian Hinds]

The hon. Gentleman is quite right. This is not some trivial increase that is easy for an organisation to absorb. While 1.2 percentage points may not sound like much, with the serious decrease in the threshold at which it starts being paid, it is a lot of money. The cost of employing the average worker on medium earnings goes up by £900. For a 21-year-old on the legal minimum wage working full time, the cost goes up by £770. Moreover, it is regressive because it will fall more harshly on people at the lower end of the wage spectrum and on people who are part time. It cannot be seen in isolation; it must be seen alongside all the other things the Government are doing. Of course, the national living wage has risen. That increase is a good thing in itself, but the effect compounds with the other measures being taken.

Two of the three volume employer sectors in this country—retail and hospitality—are also seeing a massive reduction in the business rates relief they are getting next year. When unemployment hits, young people are always hit first and most, and that will be true again. It will hit those furthest from the labour market, those who need most help, those coming back to work after a long period and those who were ex-offenders. I sometimes wonder if Ministers talk to each other about the contradiction and irony of one of them producing a document called, “Get Britain Working” while their colleague is hellbent on doing the opposite.

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[Dan Tomlinson]

The economy was not growing at a fast pace when we took over; we were growing slower than five other G7 countries in the quarter before the Conservative party lost power. That is the truth. Conservative Members can deny it if they want, and come up with a fancy way to analyse the economic statistics in order to claim that we were the fastest-growing economy in the G7, but in the final quarter before they lost office—and in 2023—we were growing slower than five other G7 countries. We were growing faster than other countries in 2022 only because we were recovering from the pandemic. They know that that is the case.

I fear that, in their stance today, Conservative Members are again covering themselves in the pong of the Liz Truss Administration. That Administration made the mistake of not making efforts to balance day-to-day public spending and tax increases. That is what caused interest rates to rise and the economy to be in much turmoil. The Labour Government are ensuring that increases in day-to-day spending are matched by increases in tax revenues—[Interruption.] I said increases in day-to-day spending are being matched by tax revenues.

[Damian Hinds]

rose—

[Dan Tomlinson]

I will give way.

Finance Bill

Damian Hinds Excerpts

2nd reading
Wednesday 27th November 2024 Commons Chamber

[Damian Hinds (East Hampshire) (Con)]

It is a very long-standing principle, observed all but universally around the world, that we do not tax education, because it is a public good. Some families find that independent education caters to needs that the state simply does not; that is the case with schools in the music and dance scheme or in certain faith communities. In some cases, a family chooses an independent school because of their child’s special needs—or because, for whatever reason, that is the place where their child can be happy. Whatever the circumstances and whatever the reason, we believe in the sanctity of the principle of parental choice. Many places around the world recognise the value of that choice through the tax system. This country is not one of them. There is no tax break for using independent education providers. Everybody contributes—[Interruption.] Does someone want to make an intervention? I would love to hear it.

[Nesil Caliskan]

I thank the right hon. Member for inviting me to intervene. I remind him that the IFS has confirmed that there is enough capacity in the state sector for the transfer of pupils. Also, on the point of special educational needs—

[Damian Hinds]

Thank you.

[Madam Deputy Speaker (Caroline Nokes)]

Order. The right hon. Member will know full well that it is for me to decide if the hon. Lady’s intervention is too long.

[Nesil Caliskan]

The right hon. Member may also recognise that the Government have been clear that when special educational needs are being met in the private sector, VAT will not apply.

[Damian Hinds]

On three counts, I am afraid that is incorrect. First, it does not cover everybody with special needs at a private school. Secondly, the IFS has not said that there is ample space in state schools, nor could it possibly know that. Thirdly, and most importantly, the point on which I was heckled, and on which I invited somebody to intervene, was a completely different one. My point was that unlike in quite a large number of countries, here there is no tax break for those using independent education providers. Everybody contributes towards state education through general taxation; if we take up a private school place, that contribution does not reduce.

In the modelling that goes with the Finance Bill, the Government say that they expect a little over £1.5 billion to be raised from the measure in maturity. We do not know the detail of the modelling and how robust the analysis is. However, I agree, intuitively, with the Treasury that a small part of the effect will be felt immediately in January, but that the effect will really start from September 2025. It will be felt gradually, through some children leaving the independent sector; the bigger effect will probably be from those who do not start in the independent sector in the first place, or who do not start their next phase of education in the sector.

I am not totally clear from what the Treasury has published whether it factors in all the effects of the change. It obviously factors in families who are directly priced out of the independent sector, but what about those who are indirectly displaced, because they were at a school where a number of other families were priced out and the school had to close? Does it factor in the higher number of education, health and care plan applications that will be made, and the much higher than average per-place cost that the state will have to meet for those displaced?

I am also unclear whether the Treasury’s analysis looks at all the effects on independent education cumulatively. Yes, there is the VAT, which is in the Finance Bill, but there are also a number of other measures being taken this year that materially affect the cost base of independent schools, and that is likely to be reflected in fees. They include the increased contribution to the teacher pension scheme; business rates changes, which affect about half of independent schools; and the massive hike in employer national insurance contributions, which will affect so many sectors.

All those are transfers from the independent state sector to the Exchequer, so the real increase in the cost base for that sector will be considerably more than 20% over the course of the year. In the Minister’s summing up, I would love her to tell us what assumption was made about the total average price increase. Whatever it was, the Government calculate that, in the policy’s maturity, 37,000 children will be displaced from the independent sector, and of those, 35,000 will go to the state sector. Ministers say, “Don’t worry; there are loads of places available in the state sector.” In fact, the hon. Member for Barking (Nesil Caliskan) suggested that a third party had said that as well, and the Exchequer Secretary said it again in his remarks. He said that we are talking about 0.5% of the total population in state schools. It is useless to have places available in primary schools in inner London if that is not the age group of people leaving the independent sector. The effect will be uneven across the country, and need is concentrated largely in secondary schools and sixth forms.

There are plenty of places where even a small number of children being displaced from one sector to the other could have a big effect on the state school system. What discussions have Ministers had with colleagues, and with councils in Salford, Stockport, Sale, Bury, Bedford, Bristol and so on? I could name considerably more. What contingency plans are in place?

[Chris Vince]

indicated dissent.

[Damian Hinds]

The hon. Gentleman shakes his head. I take it that means that he has not had those conversations. [Interruption.] I am happy to take an intervention from him. What contingency plans are in place for September if the displacement is greater than anticipated? We know that the money will follow the pupil if more pupils turn up in the state sector, but we have not heard whether that money is coming out of general Exchequer receipts—in other words, that the Department for Education will not be expected to find that money from elsewhere in its budget. Similarly, what are the contingency plans, and what capital has been set aside in case extra capital funding is needed? As well as the displacement of pupils, there is also potential displacement of teachers, as we have heard from the unions.

[Chris Vince]

As the right hon. Gentleman encouraged me to intervene, I will agree that there will be a movement of teachers from the private sector back to the state sector. As a former teacher, I know a number of former colleagues who left the state sector because of the failings of the last Conservative Government, and they are considering going back into state education only because of the hope that the new Labour Government have given them.

[Damian Hinds]

Well, we shall see. As a teacher, he will know that teachers move between the state and independent sectors all the time. They move in both directions, but that is not what the Association of School and College Leaders was talking about. It was talking about the fact that the change is being made mid-year, and said that it carried a risk of redundancies, and of the permanent loss of teachers to the profession.

Labour Members—the hon. Member for Harlow (Chris Vince) is one of them—frequently like to say to Opposition Members that we have to choose. They say: “Are you on the side of the many or the few? Are you with 94% or the 6%?”. Well, we refuse to choose. It is not a question of whether we care about the 94% or the 6%. We care about the 100%—all the children. It is definitely true and right that at the Department for Education—this was true when I was a Minister there—Ministers spend way more than 94% of their time and effort on the state sector. In our time in government, between 2010 and 2024, that paid off with huge results. When we supported our brilliant teachers in their great work, our results went up. We went from 27th in the world to 11th for maths, and from 25th in the world to 13th for reading. We had the best primary school readers in the western world. Free school meal eligible children were 50% more likely to go on to university, and the number of schools rated less than good was down from one in three to fewer than one in 10. That was through supporting teachers, academy trusts, a broad knowledge-rich curriculum and the propagation and spread—from school to school and teacher to teacher—of proven methods, such as maths mastery and synthetic phonics.

Yes, the system does also need money. Per-pupil funding under the last Government was higher than it was under previous Labour Governments. Among the G7 nations, it was middle of the range in cash per child, and the highest as a proportion of national income. Of course, we have to keep increasing the resourcing that we put into key services, none more so than education, but the Conservatives did that as a priority from general taxation, not by taking from another part of the wider education system. I repeat: the Government do not have to choose. These are all children.

[Tim Roca]

Will the right hon. Gentleman clarify his comment that all the education spending that he mentioned came from general taxation? My understanding is that the figures that he just quoted include the student loan system.

[Damian Hinds]

No, they do not. If the hon. Gentleman is talking about the OECD figures, they are for primary, secondary and college-based education in the state sector, but I am grateful to him for his intervention.

When Government Members talk about “the 6%” in the same tone in which they sometimes talk about “the 1%”, I think they believe that they are about to topple the toffs and achieve some sort of great victory in the class war. They are not. Eton college will not miss a heartbeat over this measure. The pupils who will be hit will be those in smaller town schools—the ones that are significant employers locally and a big part of the local community. They do not have big endowments; they do have pretty thin margins. Schools that cater to children with special educational needs will be hit. Denominational schools will be hit.

There have been some concessions from the Government. They are not the most massive concessions in the world, but they are not nothing either. We should acknowledge them, and I thank the Government for them. The first is on the music and dance scheme, with extra help for families with children at the schools in question, albeit that the concession will benefit only a little less than half the total number of families in what is a means-tested scheme anyway. There is also the confirmation that centres for advanced training will be exempt, and of what the Government plan to do on the continuity of education allowance. We need to ensure that those mitigations are more comprehensive than they are now, and that they become permanent.

Of course, the Opposition would prefer the Government to drop this measure altogether and not be the international outlier by taxing education, but if they are determined to bulldoze on, we must have key changes in Committee. We must have an exemption for all children with an EHCP—not only if it specifies the individual school—children who have SEN support, and those who are currently applying for an EHCP. We must have exemptions for schools whose fees are lower than the average charge in the state sector, and for religious denominations where there is no faith school provision in the state sector.

I do not accept the notion that, as Ministers have said at the Dispatch Box, members of religious faith communities are not discriminated against by this measure. It may well be that, as a whole, people of faith are not discriminated against more than others because the vast majority of people of religious faith are in the state sector anyway, where there are plenty of Catholic schools, Anglican schools and other denominational schools, but it is not credible in the slightest to claim that there is no discrimination, and that the effect will not be felt much more strongly by members of certain traditions within Judaism, Christianity and Islam.

We also need key postponements. Children who are already in public exam years, or the year before public exams, cannot have their education disrupted in this way. The school that they move to may not even offer the same GCSEs or A-levels, the same exam board or the same syllabus. Most significantly of all, the Government must for good reasons, including simple practical reasons, at least postpone the introduction of the measure in areas where state schools are already full, or almost full, at that stage of education, because the biggest effect of this divisive, destructive tax attack will be on state schools. It will be felt in class sizes, and ultimately in all parents’ ability to get the preferred choice of school for their child.

--- Later in debate ---

[Connor Naismith]

I thank the hon. Member for making that intervention. He says that it is not a choice between one and the other, but for 14 years under the previous Government we heard his side talk about state schools having to make difficult decisions and tighten their belts. As the husband of a state schoolteacher, I know that our state schools were severely underserved by the previous Government. The money generated by ending the VAT relief on private schools will be vital to recruit the 6,500 more teachers that we need in our state schools and to roll out free breakfast clubs across the country, to ensure that no child in education goes hungry.

[Damian Hinds]

Does the hon. Member know how many additional teachers were recruited in the last Parliament without putting VAT on private education? Does he know how many breakfast clubs are already in state schools in this country? There are thousands of them, thanks to the national school breakfast programme.

[Connor Naismith]

We have heard lots of contributions from the Opposition Benches about the fantastic record of the previous Government, but that does not stand up to the lived reality of our constituents. That is exactly why we saw the result that we had in the general election. The sooner Opposition Members come to terms with that result, the better.

Non-Domestic Rating (Multipliers and Private Schools) Bill

Damian Hinds Excerpts

2nd reading
Monday 25th November 2024 Commons Chamber

[Damian Hinds (East Hampshire) (Con)]

In my time as a junior Treasury Minister, one important thing I learned was that there is a really good argument against every tax: VAT is inflationary, corporation tax reduces investment, income tax disincentivises work, excise duties typically fall more heavily on lower-income groups and so on. As a result, the policy tends to be, “We will do a little bit of a large number of taxes.” That is not a bad policy, but business rates are particularly troublesome because of their fixed-cost nature—they do not flex to businesses’ sales or profitability or to the business cycle, so they can exacerbate the effect of downturns in the economy or in individual sectors. Business rates discourage start-ups and scale-ups.

Rates fall disproportionately on property-heavy sectors. With the development of e-commerce and delivery businesses, the hurt to those with costlier premises is relatively greater. Due to the accumulation of those factors, UKHospitality and the British Retail Consortium estimate that hospitality, retail and leisure account for more than a third of business rates while accounting for under a tenth of the economy as a whole. That matters to us as parliamentarians because of the role that such businesses play in our town centres, village centres, city centres and high streets. There is both the direct effect that an individual shop, café, restaurant or pub has on footfall into the town, and the indirect impact due to the interdependence of businesses and the network effect.

We often lump hospitality and retail together due to the commonality of pressures that affect both, but there are also differences between them. Hospitality has taken on more of the burden of supporting our town centres over time relative to retail, because there are different levels of opportunity in e-commerce—there is some with retail businesses, but there tends to be little with hospitality businesses, because by definition if someone takes something from a vending machine, that is not hospitality.

I support the concept of fundamentally reforming business rates. The world has changed, with the growth of e-commerce and, thankfully, the growth of wages at the lower end of the wage distribution. We need to make a sharper distinction between shops and distribution sheds, but this Bill does not do that. The distinction that the Bill makes in its reform is between large premises with large rateable values and smaller premises. A quick read of the wording of the “transforming business rates” document, which explains the policy, would almost make one think that the changes are designed to distinguish online businesses from traditional retail, but they are not. The document mentions

“properties with rateable value £500,000 or more,”

which captures

“the majority of large distribution warehouses including those used by online giants”.

That is true, but that will also capture lots of other businesses, such as department stores and hotels, which are clearly part of the retail and hospitality sectors. Conversely, some parts of the distribution network of online businesses will not be captured. One very large, well-known online retailer has already moved to a more distributed hub and spoke network with its regional fulfilment approach. I dare say that those one-hour delivery grocery people have even smaller individual premises.

In reforming business rates, I hope that the Minister will consider that they cannot do all the work. I strongly welcomed the previous Government’s introduction of the digital services tax, which was always put forward as an interim measure pending wider reform of international taxation through the OECD. I do not believe a broader online sales tax is likely to be helpful—definitions would become difficult, and the development of some of the small businesses in our town centres that we value could be impeded—but I welcome the Government talking about more frequent valuations. Any reform of business rates must address the cliff edges that the hon. Member for St Albans (Daisy Cooper) talked about, as well as another problem that we as MPs worry a great deal about, which is vacant premises.

Right now, I am most concerned about right now. The Government promised that they would raise

“the same revenue but in a fairer way”.

That is not what is about to happen. Let us be very clear: the amount of money to be raised from business rates is about to go up, and it is about to go up on the back of retail and hospitality businesses. The Government will say—the Minister has already said—“But we are extending a relief that was going to come to an end.” Believe it or not, ladies and gentlemen, there is even a line in the “transforming business rates” document that says the Government will save the average pub £3,300 a year. They may say that, but that is not how it will feel to that pub or to the typical retail, leisure or hospitality business in any of our constituencies when they discover that the relief on business rates is coming down from 75% to 40%. For many businesses, in real terms, that means a doubling or more of the business rates they pay, and we cannot see that in isolation—it comes on top of many other pressures.

The increase in the national living wage is a good thing. The national living wage has been a very successful policy that, since 2015, has reduced the number of people in work on low pay from one in five to less than one in 10. However, I am afraid that the further increase in the national living wage—which I welcome—comes with things that I do not welcome, particularly the great extra cost pressure on employer’s national insurance contributions. A lot of nonsense has been talked about whether that counts as a tax on working people. Everybody knows that in the end, employer taxes on labour only ever show through in lower employment figures or wages lower than they otherwise would have been. On top of that, there are the French-style labour laws. While higher employer’s national insurance contributions may result in lower employment at any individual institution, the effect of the business rates hike will be that some establishments will close altogether.

Before I sit down, I want to say a word about schools, a topic on which impassioned speeches have been made by Members across the House. Most of what colleagues have said will probably be discussed again on Wednesday, when the Finance Bill has its Second Reading—I can assure the Minister that we will be back for that debate, too. Relatively speaking, the measures in this Bill are small compared with the VAT changes. This Bill is projected to eventually raise £70 million for the Treasury and another £70 million for local authorities, compared with £1.6 billion through the VAT hike. These measures also have a relatively small effect on displacement into state schools, but let us be clear: there is still displacement into state schools. That is a cost to the state, but more importantly, when it comes to individual places, it will be a strain on some of our local school systems, on class sizes and, ultimately, on parents’ prospects of getting the first choice for their child—the school they want to go to.

Although colleagues on both sides of the House have said that we cannot talk about the rates alone, but have to put them together with VAT, there are four things happening this year that will increase the amount of money going out of independent schools into the Exchequer. Business rates is one of them; VAT is the second; the third is the rise in employer’s national insurance contributions, which will have a big effect on this sector; and the fourth is the five-percentage-point increase in employer contributions through the teachers’ pension scheme. I estimate that for most schools, that measure on its own accounts for about 3.5% of total costs. All this matters because of the uneven effect it will have on displacements into state schools. Whether a person is in Salford or in Surrey, in Bristol or in Bury, they may find that great and unexpected strains are put on the schools in their area.

This measure, as well as the VAT measure, will also have a disproportionate effect on low-cost faith schools, many of which rely partly on donations to keep going. Those are not businesses that are in some way well endowed; they are doing something because they believe it serves the needs of their faith, something that they cannot find in the state sector. Some of those schools are charging less than the cost of the average state school place in our country, and it seems bizarre that this Government wish to hammer them. It will also create a two-tier charity system in which some charities can be disfavoured fiscally even while complying with their charitable obligations and serving their communities. It is a new and most unwelcome example of state overreach, and I will be voting against the Bill this evening.

VAT: Independent Schools

Damian Hinds Excerpts

Tuesday 8th October 2024 Commons Chamber

[Damian Hinds (East Hampshire) (Con)]

I beg to move,

That this House regrets that the Government has decided to impose VAT on independent school fees; believes that educational provision should not be taxed; regrets that the Government is rushing to implement this change part-way through an academic year; calls on the Government to exempt from the VAT charge fees paid in respect of children of military and diplomatic families, all children who have an Education, Health and Care Plan, or who are in the process of applying for one, all children on SEN support, Centres for Advanced Training and schools in the Music and Dance Scheme, all children at schools whose fees are lower than the average per capita funding for a state school place, and children at religious schools of denominations for whom there is no faith school provision in the state sector; further calls on the Government to postpone imposition of the VAT charge for schools in areas where state schools in the relevant key stage are already on average over 95% full; also calls on the Government to postpone imposition of the VAT charge for fees paid in respect of children who have started a public examination course, to September 2025 for pupils currently in Year 11 or Year 13, and to September 2026 for pupils currently in Year 10 or Year 12; and calls on the Government to publish a full impact assessment of the effects of this policy on independent schools and the state sector ahead of the Budget.

There are 85 days to go until the introduction of Labour’s education tax, and we are still in the dark. Many questions remain for parents, for children and for schools—when I say “schools”, that is both independent schools and state schools—and also for the local authorities that are responsible for special educational needs provision and generally for ensuring that everyone can get a place at school.

This is a huge change, which is being made in a headlong rush. There are big worries about children with special educational needs or a disability, about military families, about the talented musicians and dancers of tomorrow, about small religious faiths and about the widest impact of all—that on state schools, because this means disruption, bigger classes, budget overstretch, and ultimately, parents being less likely to get their preferred choice of school. Even those who do not necessarily object to this in principle are saying it cannot be pushed through this fast, from the Chartered Institute of Taxation to the NASUWT.

It is a long-standing principle that you do not put tax on learning—a principle all but universally observed around the world. On the Conservative Benches we believe in that principle and we believe in the sanctity of parental choice. The vast majority of children, of course, go to state-funded schools, and we defend the right of parents to choose those schools and defend the diversity of those schools. A small number of parents choose home schooling; we defend that right too. And yes, some choose the independent sector.

Parents are the first educators of their children. The state sets an expectation of a suitable education for all children, and beyond that, parents should make the choice of what is best for their child. Parents might decide to opt out of state education for any one, or many, of several reasons—quite often simply because they have found the school that they believe is right for their child, and where their child is most happy.

[Jim Shannon (Strangford) (DUP)]

rose—

[Graham Stuart (Beverley and Holderness) (Con)]

rose—

[Damian Hinds]

I am spoilt for choice. I give way to my right hon. Friend.

[Graham Stuart]

During the election, in the Monks Walk pub, I met a constituent who has stayed in his small home and has one car for the family, because they decided their bullied daughter needed to go to another school. They have sacrificed, with the support of wider family, so that that child with special educational needs can go to a private school. It is children and families like that who will be the victims of this spiteful policy. Does my right hon. Friend agree?

[Damian Hinds]

My right hon. Friend is right to identify that many parents make great personal financial sacrifices to do what they believe is best for their children. Some parents whose children go to independent school are rich, and some are definitely not. I include in that latter bracket most of the parents sending their children, for example, to small religious schools in Hackney, Salford or Birmingham. Very many more are in the middle, including many professionals working in our public services.

[Jim Shannon]

The shadow Minister has rightly underlined the issue for those who send their children to faith schools or independent schools. Many constituents in Strangford have told me that they have saved and persevered, have not been on holidays, have not bought a second car, or have even continued to use their old car longer than they should, so that those moneys can go into their children’s education. Does he, like me, find it impossible to understand how it can be that it is the Labour party—the party of conscience, I would say—that has let us down on this issue and is going to penalise people who are hard-pressed to find education for their children?

[Damian Hinds]

The hon. Gentleman is right about the financial sacrifices some make. Let us be clear: it is possible to tax wealthier people or people with a higher income more, but the Government should be honest about it. The way to do so is through the income tax system, not through a choice that people make to have their child in an independent school. The hon. Gentleman did not mention this, but I might add that because the situation in Northern Ireland is different from that in England—by the way, the situation in Scotland is different, too—the Government need to think carefully about how the policy is applied throughout the whole United Kingdom, because VAT is a reserved matter, and about what it means for the hon. Gentleman’s constituents and others across these islands.

[Mike Amesbury (Runcorn and Helsby) (Lab)]

My late mother and dad used to run a pub, and they paid their taxes. It was a private business that made a profit. Why should these businesses not pay their taxes? Why should they not pay what is owed?

[Damian Hinds]

This is a completely different situation. Independent schools do pay tax.

[Mike Amesbury]

indicated dissent.

[Damian Hinds]

No, independent schools do pay tax on supplies. No tax is charged on education, whether in an independent school or in other settings, and that is a very long-standing principle.

Let me clear up one very important definitional point, which I ask colleagues to reflect on. There is no tax break involved. It would be a tax break if a person who had a child at an independent school and was not taking a place at a state school were charged less tax as a result. That does not happen in the United Kingdom. Everybody contributes to state sector education, whether or not they take up a place.

The principle of no tax on learning is a fast one, and once we loosen it, we do not know where we will go. Where might the Treasury look next? Private nurseries, perhaps? Music lessons? Private tutoring? What is the philosophical difference between independent school education and private tutoring?

[Alicia Kearns (Rutland and Stamford) (Con)]

Let me make a point to demonstrate how rushed and ill thought through this policy is. My understanding is that if a child in a nursery has turned five but the other children in the class have not, all the parents in that nursery year will have to pay VAT on their child’s nursery fees. That is how badly this has been thought through.

[Damian Hinds]

My hon. Friend is right. That comes from the rushed nature of the legislation. The sloppy drafting means that children who are not of school age get dragged into this tax if they happen to be in the same room as children who are, and there are concerns about what might follow in other borderline cases.

The Government claim that the policy is about revenue, not politics, but having read the Secretary of State’s twitterings, I think hon. Members could be forgiven for mistaking the motivation. It is entirely spurious, for multiple reasons, to link this tax to 6,500 teachers, mental health support or anything else. The money will go into general Exchequer receipts, and anyway, 6,500 teachers is not that many in the scheme of things, given the 468,000 there are now. That is a compound growth rate of 0.3% over five years—and, by the way, a lot fewer teachers than we recruited in the last five years. Mental health support teams are already being rolled out, and they cover primary schools as well as secondary schools. It is not clear what the difference is in the new Government’s policy on mental health support, other than that it will not include primary schools.

To the extent that the VAT revenue could be hypothecated, it looks a lot more like that revenue would reduce cuts to education resourcing, rather than increasing it. If the policy is about revenue, not politics, the Government could easily commit to one simple thing today. They are confident, they tell us, that the policy will raise a large sum of money and not create large costs. Will they commit to measuring and reporting back on that, and if it turns out, against expectations, that they were wrong, will they reverse it?

[Dame Harriett Baldwin (West Worcestershire) (Con)]

I thank my right hon. Friend, who is giving an excellent introduction to the debate. Is it his understanding that our military personnel, and those serving in our diplomatic service, will also be hit by this tax?

--- Later in debate ---

[Damian Hinds]

My hon. Friend is absolutely right. As things stand, those who get the continuity of education allowance would be hit, in part, by the tax.

[Dr Andrew Murrison (South West Wiltshire) (Con)]

In the calculus that my right hon. Friend rightly asks the Government to publish, can we include the foreign receipts that the independent sector generates? The roll of a school in my constituency includes a very large number of children from overseas whose parents pay directly into the UK economy. That school is now under threat. The loss of that revenue will be substantial, and the local impact huge. May we have that factored in, given that, so far, we have not seen any figures on the loss of money and reputation that the closure of many such schools will entail?

[Damian Hinds]

My right hon. Friend is correct: substantial export earnings come from the sector, and from a globally mobile set of families. But I would go further; in addition to the direct export earnings effect, there is also an indirect effect. For companies deciding where to site their European headquarters, English education is a big factor. That is partly because of our brilliant state schools, which have improved so much over the past 14 years, but the availability of independent schools is also a factor.

[Kit Malthouse (North West Hampshire) (Con)]

The shadow Secretary of State makes a strong point about the sanctity of zero-rating VAT for education. I am concerned that children’s clothes, which are currently exempt from VAT, may be the next target. Notwithstanding the impact that the change to VAT will have on individual families, does he agree that private and prep schools—my constituency has five—are enormous employers of people involved in building maintenance, such as electricians and plumbers, and that the impact on the wider economy could well be profound?

[Mr Speaker]

Order. I remind Members to look towards the Chair when they are speaking, or what they say will not be picked up by the mics; I then struggle to hear them. I know that the Minister was struggling as well. If Members keep the chatter down, it will help us both.

[Damian Hinds]

My right hon. Friend is of course correct about the economic contribution that schools make locally and the large numbers of people they employ. That point was also made by NASUWT, which is worried about teachers being inadvertently pushed out of the profession if redundancies are made mid-way through the school year.

[Mims Davies (East Grinstead and Uckfield) (Con)]

My youngsters have had a mix of excellent learning, including in nursery and in state education, as have youngsters in many families. I have a personal and constituency interest in wanting all education settings to thrive, so I agree with my right hon. Friend. The economic and employment impact of this new tax will be devastating for bus drivers and maintenance teams. It will impact on so many livelihoods and communities. The people picking up the unknown impact will be in the state sector. The policy will just deliver more of the unknown.

--- Later in debate ---

[Damian Hinds]

My hon. Friend makes a very good point.

[Paul Holmes (Hamble Valley) (Con)]

rose—

[Damian Hinds]

I will take one more intervention before making progress, so as not to try your patience too much, Mr Speaker.

[Mr Speaker]

It is not that my patience is being tested, but I do worry when shadow Secretaries of States cover a subject at length. I understand, but we need to get on, because lots of Back Benchers are desperate to get in. In fact, we have a very eager Opposition Whip coming in now.

[Paul Holmes]

You will find out, Mr Speaker, that I will not test your patience. I want to take my right hon. Friend back to the point he made about the Education Secretary’s tweet, which I thought was disgraceful. [Hon. Members: “Where is she?”] The divisive language behind that tweet was a disgrace, given the many independent schools that work hard and play by the rules. Does my right hon. Friend agree that the embossed notepaper that the Secretary of State focused on is sent to many children who are being sponsored through bursaries or scholarships, and whose parents work hard to give their children the best education? The Education Secretary should apologise for that disgraceful tweet.

[Damian Hinds]

I am grateful to my hon. Friend, who, as ever, makes important points. I too am disappointed that the Education Secretary is not with us for this important debate. I will make progress, Mr Speaker, because I do not want to go on longer than I should.

To be clear, we want to talk first and foremost not about revenue, but about education, schools and children—all children. [Interruption.] No, I have been talking about schools and children throughout. If the Government insist on ploughing on with this divisive policy, they must at least exempt certain groups of children for whom it would be especially unjust or counterproductive to impose this tax. Surely, schools that charge the same as, or even less than, the average cost of a school place were not in the Government’s sights when they devised this scheme. There are small religious groups that have no state sector provision for their denomination. Why should they be disadvantaged? The continuity of education allowance exists expressly to support families who are serving our nation in the armed forces. Surely they should be protected.

The Government acknowledge the role of centres of advanced training and performing arts schools that come under the music and dance scheme, because, again, there is no equivalent specialist schooling available in the state sector. Then there are the many children who receive special educational needs support, including those with an education, health and care plan, whether or not they are at the school named in the plan, and those children who are applying for a plan.

[Joy Morrissey (Beaconsfield) (Con)]

rose—

[Damian Hinds]

I ask my hon. Friend to forgive me, as I must make progress.

As for children whose parents are priced out of a school, or face its closure, disruption to learning can be difficult at any time, but it is even more problematic when pupils have started a public examination course. Their next school might not even offer the subjects that they were taking, or the exams might not be marked by the same exam board. We need to think about those children. The tax levy should be postponed until pupils who are now in years 10 or 11, or in the lower and upper sixth form, have finished their exams—until 2025 or 2026.

The widest impact of all will be felt by state schools. Ministers have said repeatedly that there is no problem because there are plenty of spaces in state schools. We have repeatedly pointed out that that is of no help at all if those places are in the wrong places or the wrong year groups. They need to be where and for whom they are required.

[Iqbal Mohamed (Dewsbury and Batley) (Ind)]

State schools in my constituency are bursting at the seams. There are no spare spaces to move into for the more than 1,000 children being educated in independent schools there. The fees charged by those independent schools are a quarter to half of the cost of state school provision per pupil.

[Damian Hinds]

I am grateful to the hon. Gentleman.

[Joy Morrissey]

In Buckinghamshire, we do not have the places. We have a lot of children in special education needs and disabilities schools, faith schools and other private schools. We cannot cope with the capacity loss. We have parents who are sacrificing everything to send their child to a SEND school. There is no provision in the county for them. The policy will result in a crisis of transportation and places, and children will suffer as a result.

[Damian Hinds]

I am grateful to both my hon. Friend and the hon. Member for Dewsbury and Batley (Iqbal Mohamed) for their interventions. Indeed, there are many places, particularly at secondary school level, where there are insufficient spaces available to accommodate a significant minority being displaced from independent schools—places such as Bristol and Bedford, Salford and Richmond, Worcester and Wycombe, and Bury North and Bolton North East.

Let us be clear: local authorities have a duty to find spaces for children. They take that duty very seriously, and a number of them are considerably worried about what may happen. In-year admissions can be especially complicated in any case: they can involve not only governors but the fair access protocol panel and, ultimately, a Secretary of State direction, all of which can add up to months out of school. Creating additional physical space in schools obviously takes time, and building new schools takes longer still. Time is needed to adjust, which is why our motion further calls on the Government to

“postpone imposition of the VAT charge for schools in areas where state schools in the relevant key stage are already on average”

almost full.

This Government barely have their feet under the table, and already they are a Government in chaos. That chaos is exemplified by this destructive, disruptive and divisive education tax that will interrupt learning; create place demand where it cannot be accommodated; put further strain on the SEND system; hit specific groups that we ought to be trying to protect; likely generate much lower revenue than anticipated; and quite possibly even end up as a net cost to the public purse. In their headlong rush to make a political statement, the Government appear simply to not have thought through the consequences. We call on them now to announce immediately that they are abandoning the unrealistic January implementation date, to publish a proper impact assessment, and then to entirely rethink this entirely counterproductive tax.

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[Munira Wilson (Twickenham) (LD)]

Thank you very much, Mr Speaker, and I am grateful for the Health Secretary’s advice—[Interruption.] I did not need coaching—you will hear that soon enough.

When I heard that today’s debate would be about schools, I thought, thank goodness, we are finally going to give the crisis in our classrooms the attention it deserves and have a long, overdue serious debate about the squeeze on school budgets, the shortage of specialist teachers, the dangerous state of many school buildings, the crisis in special educational needs provision, or the mental health of children, but no. In fairness, expecting the Conservative party suddenly to start prioritising those issues in opposition, after it spent years neglecting them in government, would be foolishly optimistic. Nevertheless, I hope that we will have the chance to debate them properly soon.

A priority for the Liberal Democrats is ensuring that every child, no matter their background, gets the support and attention that they need at school, so that they leave with the skills, confidence and resilience to be happy and successful. That means the Government investing in education as we invest in other vital infrastructure. In fact, Liberal Democrats believe that education is the single best investment we can make in our children’s potential and our country’s future. That is why in our manifesto we set out a number of ways to make that investment. We argued that putting a dedicated qualified mental health professional in every primary and secondary school was important. We argued for an increase in school and college funding per pupil, above the rate of inflation every year. We argued for school meals to be extended to all children in poverty, and for a tutoring guarantee for every disadvantaged pupil who needs extra support.

That package of investment in our state schools would improve and boost the performance and opportunities for every child, as well as closing the attainment gap that limits the life chances of too many children from disadvantaged backgrounds. Crucially, we set out in detail how it could all be paid for, including by increasing the tax on social media firms who have done so much to worsen the mental health crisis in our schools. That is a much bolder package of investment than the one this Government have set out so far, and it is paid for fairly, not by taxing parents’ own investment in their children’s education. I think the shadow Education Secretary was advocating raising income tax to invest in education—[Interruption.]

[Damian Hinds]

Even for a Lib Dem that is pushing it.

[Munira Wilson]

The shadow Education Secretary was suggesting to the Minister that that is where he could find some money—[Interruption.]

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[David Baines]

Indeed.

There is a lot that deserves to be said about our schools. We have heard many Conservative Members ask about the impact. They suddenly care about the impact of decisions made in this place, but where was their talk of impacts over the past 14 years? In St Helens North, 81% of schools have had real-terms funding cuts since 2010—over £3 million in real terms, or £239 for every pupil. Where was the consideration of impacts when the last Government cancelled Labour’s Building Schools for the Future programme and watched our state schools crumble? Where was the talk of impacts when the last Government presided over a SEND system that is failing over 1 million children and that their own Education Secretary described as a “lose-lose-lose”? Where was the concern for impacts when standards fell, which they did?

[Damian Hinds]

Will the hon. Gentleman give way?

[David Baines]

No, I am pushed for time.

Where was the consideration of impacts when the inspection system did not and does not work for parents, schools or pupils? Where was the consideration of impacts when child poverty increased? Where was the consideration of impacts when the lack of investment in school support staff and basic resources meant that teachers were buying resources for their pupils? Where was the consideration of impacts when we had a recruitment and retention crisis among teachers?

We could talk about all these issues if the Conservatives truly wanted a debate on schools, but they do not. They could have used today’s Opposition day debate to talk about these things, but instead they have used their time to talk about our decision to end a tax exemption that benefits only the wealthiest. They showed no concern whatsoever for state schools over the past 14 years, and now they are apparently concerned about impacts.

I make it crystal clear that the parents of state school pupils are every bit as ambitious, loving and hard-working as those who can afford to send their children to private schools. I stand with them, and I stand with our state schools.

Independent Schools: VAT and Business Rates Exemptions

Damian Hinds Excerpts

Tuesday 8th October 2024 Westminster Hall

[The Exchequer Secretary to the Treasury (James Murray)]

It is a pleasure to speak in this debate with you in the Chair, Dame Caroline. I start by congratulating the hon. Member for Bromsgrove (Bradley Thomas) on securing this debate, and thanking all hon. Members for their contributions. I have listened carefully and, although I do not have much time, I will attempt to address as many of the points raised as possible.

Every member of the Government cares deeply about education, and we are committed to breaking down barriers to opportunity. We are determined to fulfil the aspirations of every parent in our country to get the best education for their children. We are committed to doing so by improving state schools, and by making sure that every child has access to high-quality education.

We will start to make that happen by expanding early years childcare for all, by opening 3,000 new nurseries across England. We will recruit 6,500 new teachers, alongside improving teacher and headteacher training. We will roll out breakfast clubs to all primary schools, so that no child starts class too hungry to learn.

Those improvements to the state education system will begin our work to make sure that every parent’s aspiration for their child can be fulfilled. We want to get on with those important changes right away, and to do so, they must be paid for.

[Damian Hinds (East Hampshire) (Con)]

Will the Minister give way?

[James Murray]

I will make some progress first. That is why, to help fund those improvements to our state schools, we have made the tough but necessary decision to end tax breaks for private schools. At the July statement, the Government announced that as of 1 January 2025, all education services and vocational training provided by a private school in the UK for a charge will be subject to VAT at the standard rate of 20%. Any fees paid from the date of the 29 July statement, relating to the term starting in January 2025 onwards, will be subject to VAT. As hon. Members know, the Government also announced that private schools in England with charitable status would lose their eligibility for business rates charitable rate relief from April 2025, subject to parliamentary passage of the legislation.

Those changes were set out in a technical note published online, alongside draft VAT legislation, which formed a technical consultation. As part of that consultation, the Government, at both official and ministerial level, engaged with a broad range of stakeholders, including the devolved Governments, to make sure that we understand the impact of the policy in each nation of the UK.

We have listened carefully to the points people have raised with us. We recognise that, while this policy will raise revenue to help support improvements in the state education sector, it may lead to increased costs for some parents and carers whose children are in the private education system. Let me be clear that while private schools will now be required to charge VAT on the education services and vocational training they provide, we expect most private schools will be able to absorb a significant proportion of this new VAT charge to keep fee increases affordable for most parents. They will be able to make efficiencies and recover the VAT they incur on the things they buy.

--- Later in debate ---

[James Murray]

I do not have much time and I need to address the other points that hon. Members have made in this debate. Importantly, a January 2025 start date means that schools and parents will have had five months to prepare for the VAT change. HMRC is ready to ensure that schools are supported in delivering this change. To respond to the shadow Minister’s comment, HMRC will put in place a number of measures to ensure that all private schools can be registered ahead of 1 January 2025, including publishing bespoke guidance on gov.uk ahead of 30 October, updating registration systems and putting additional resource in place to help process applications.

Ahead of the policy being implemented, the Government have carefully the considered the impact the changes will have on pupils and their families across both the state and private sectors, as well their impact on state and private schools. The Government’s costings of this policy are currently being scrutinised by the independent Office for Budget Responsibility. The Chancellor will confirm our approach to the measures at Budget, where we will set out our assessment of the expected impacts of the change in the normal way.

We recognise, as some hon. Members have raised, the changes may lead to some pupils moving into the state education sector. However, we believe that the number of pupils who may switch schools as a result of the changes will represent a very small proportion of overall pupil numbers in the state sector and such switches will take place over several years. We are confident that the state sector will be able to accommodate any additional pupils.

[Damian Hinds]

Will the Minister give way?

[James Murray]

I have only a few moments left to address a number of points, so I will make some progress. Several hon. Members in their contributions today also raised their concern about the impact of the policy on pupils in private schools with special educational needs. We have carefully considered that element of the policy. Our proposed approach makes sure that pupils will not be impacted where they have acute additional needs and an education, health and care plan—in England, or its equivalent in other nations—specifies that those can be met only in a private school. In such cases, where a pupil’s needs can be met only in a private school, local authorities will fund their places and will be able to reclaim VAT. Similarly, on business rates, the Government are developing an approach to address the potential impact of the changes in cases where private school provision has been specified for pupils through an EHCP. More widely, as a Government, we are committed to transforming the system for supporting children and young people with SEND in all schools. We need to deliver better outcomes in a financially sustainable way.

I close by again thanking all hon. Members for taking part in this debate. In our consultation about the technical detail of this policy, we have been engaging widely and in depth, and of course the views of MPs are an important part of that. As I said earlier, it has been a tough but necessary decision to end tax breaks for private schools. We believe it is the right decision and one we need to implement as soon as possible to help raise the funding we need to deliver our priorities for state education in our country. We are determined to improve the education that is available to all, because that is how we will ensure that the aspiration of every parent to get the best possible education for their children can be fulfilled.