Provisional Local Government Finance Settlement
David Simmonds Excerpts(4 days, 7 hours ago)
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David Simmonds (Ruislip, Northwood and Pinner) (Con)
It is Christmas. The two wise men and the wise woman on the Government Front Bench have arrived bearing their gifts for local councils, but on closer inspection, while the goal is beautifully packaged, the box is somewhat emptier than people had been expecting.
It has been a challenging few weeks for local government. We have heard the Government’s plans to take as much of the local as they can out of local government, and it is clear that this statement will leave our local authorities facing further challenges in doing their day jobs and significant uncertainty as we go into the new year. All that comes from a Government who promised just a short time ago that they would end the bidding war, as they called it, among councils. They then promptly started a new bidding war for homelessness funding, rather than addressing it through the settlement given that it is a core statutory duty of local authorities. The consequence of the Government’s approach is that localism, on central Government terms only, represents just in London a £700 million net cut in the funding that councils will have available to deal with homelessness at a time when rough sleeping is at 27%.
Councils face uncertainty about the cost of funding elections. The Minister told us just a few days ago that he would be considering whether to cancel local elections in places facing local government reorganisation. Up and down the country in all those local authorities, our returning officers are booking and paying for the polling stations, hiring the staff and carrying out the canvassing. They need certainty as we go into the new year.
Of course, our councils face additional and uncertain challenges that were announced in the Children’s Wellbeing and Schools Bill, as well as from various statements made by other Ministers, that clearly imply a significant increase in the cost of new statutory duties coming the way of our local authorities, with no clarity about how those may be funded. All of that is on top of bringing forward local government reorganisation proposals to a deadline early in the new year. It is not clear whose interests that serves, but for all those local authorities that may be considering that, it represents a significant additional cost pressure.
As many of our councillors go away for their Christmas break and try to digest the detail of the settlement over their Christmas lunch, they will face rumbling indigestion as they realise that their budget pressures will grow significantly, especially in rural local authorities, which face huge losses from the cancellation of funding that supported the additional and quantified costs of local government services in a rural environment.
I will be fair to the Minister: the £2.7 billion black hole that we spotted at the time of the Budget announcement has shrunk by around £700 million, but when it comes to council tax increases that will be announced by our local authorities in February, how much will they have to put up council tax to meet the shortfalls? How much will they have to put up council tax to cover the Government’s new approach to asylum, which is driving up the cost of temporary accommodation? When will the Government provide clarity on the dedicated schools grant override, given the impact it has on our local authority budgets? When will they provide clarity on the election preparation costs? Given that the Local Government Association has identified a £1.766 billion shortfall just from the Government’s national insurance contributions measure, when will they announce further funding to cover those costs?
Let us consider this: the cancellation of the new homes bonus means £3 million lost by Birmingham, £3.7 million lost by Buckinghamshire, £4 million from Central Bedfordshire, £5.3 million each from Ealing and Milton Keynes, £3.7 million from North Yorkshire alone, £9.5 million from Lincolnshire, £14.3 million from the rural services grant and an £18 million cut for a rural local authority in this Budget. It is clear there are tough times ahead for local authorities as they begin to look at the detail. The new homes bonus, in particular, means the places that have built the most homes are the ones that lose the benefit. If this is fixing the foundations, I would not want to stay in the tent which is the only thing they would hold up in our local authorities.
Jim McMahon
Here we go again. I would think that after 14 years of councils being on year-to-year watch to find out what position they would be in, the Conservatives would at least welcome the preparation now for multiyear settlements. They had 14 years to get their house in order, and they could not even line up to give councils more than 12 months’ certainty about what was coming. The one thing councils were absolutely certain about was that it was only going to be bad news after bad news. When there were crises in adult social care and children’s services and when homelessness was rising at a rate of knots, the last Government were completely missing in action—that was what councils were facing. How many councils went bust on their watch? Councils were lining up saying to the Government that they could not afford—
English Devolution
David Simmonds Excerpts(6 days, 7 hours ago)
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David Simmonds (Ruislip, Northwood and Pinner) (Con)
According to the Ipsos MORI veracity index, 41% of our constituents trust local councillors, with just 19% having the same expectation of Government Ministers. That is a reflection of the value we place on local leaders who know and understand our communities. Those local leaders will be getting a clear message from this White Paper: this Government feel that the men from Whitehall know best what their place needs. This is not bottom-up local leadership, but top-down templates for local government. This is not the chance to flourish as a place and a community with a unique identity and history, but an expectation of being subsumed into an anonymous structure that knows and cares little for local areas, focusing instead on Whitehall targets. Through the back door, by stripping local politicians of a say over important planning decisions and by imposing financial assumptions that further constrain local decision making, our local democracy is undermined.
Instead of genuine devolution, this White Paper sets out a reductive approach. It is a mishmash of new tiers and new taxes, taking decision making further away from residents. If the experience in London is anything to go by, it will cost them a fortune at the same time. More concerning still, the approach fails the key test of starting with a clear understanding of what we require our local councils to do. More than 800 services are delivered by each council on average, ranging from education to public health, environmental standards, children and vulnerable adult safeguarding, early years, libraries and museums, not to mention councils’ key regulatory functions, such as trading standards, housing enforcement and acting as the billing authority for billions in taxes. It is hard to see how demanding that all those local officers simultaneously reapply for their own jobs will help them to focus on the needs of their communities, not to mention cope with the huge additional responsibilities heading their way via legislation such as the Renters’ Rights Bill.
The approach also does not build on the successes we already see. It is common for councils to share services and staff to reduce the cost to taxpayers. Breckland and South Holland have shared a chief executive for many years. Trading standards has been a shared service across London for a long time. Those measures, driven by local leadership, are what deliver genuine savings and service improvements.
Let us look at some of the most serious concerns that the Opposition have arising from the proposals, above and beyond the years of disruption to council services and rising taxes. When Labour councils are telling the Government that they are already failing on their housing targets and that their plans are undeliverable, why would the Government be focusing on removing elected councillors’ say on planning, rather than focusing on building the more than 1 million units that already have planning permission? Why elect mayors to a timetable that is not in any way clear?
At a time when our constituents are labouring under a rising tax burden, the Government set out the chilling prospect of mayoral levies. Those are charged at nil rates by Conservative mayors such as Ben Houchen and Andy Street, but now top £471 per band D household in London under Mayor Khan. The black hole in local government finances just got bigger.
Imposing mayoral control over grant funding for housing and regeneration, detaching it from the host communities, and moving those decisions to a remote mayoral tier further undermine the concept of local consent for development. Perhaps most worrying for local council tax payers are the plans around Great British Energy local power plans, with the potential for even more local authorities to be taken to the edge of bankruptcy, as local energy companies have already done in Nottingham and Bristol.
In conclusion, this announcement could have been so much more. It could have been a chance to rethink from scratch the duties, responsibilities and funding of local government, and to ensure that its form follows its function. Our local leaders, many from my own party, will do their best with what is available, and we will have their backs as they do what they can for the interests of the people they serve, but make no mistake: this is a massive missed opportunity.
The White Paper shows that rewiring our state, rethinking our approach to local government and fulfilling the aspirations of local leaders and communities are being put aside in favour of bureaucratic and structural tinkering. The Minister once stood at the Opposition Dispatch Box and called for genuine fiscal devolution of powers across things such as education and demanded more say for local people to hold decision makers to account. Whatever happened to that local champion?
Non-Domestic Rating (Multipliers and Private Schools) Bill (Third sitting)
David Simmonds ExcerptsThursday 12th December 2024
(1 week, 3 days ago)
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The Chair
Will everyone ensure that all electronic devices are turned off or switched to silent mode? Members should send their speaking notes by email to hansardnotes@parliament.uk.
We now begin line-by-line consideration of the Bill. The selection list for today’s sittings is available in the room and on the Parliament website. It shows how the clauses, schedules and selected amendments have been grouped for debate. A Member who has put their name to the lead amendment in a group is called first or, in the case of a clause stand part debate, the Minister will be called to speak first. Other Members are then free to indicate that they wish to speak in the debate by bobbing. At the end of a debate on a group of amendments, new clauses and schedules, I shall call the Member who moved the lead amendment or new clause again. Before they sit down, they will need to indicate whether they wish to withdraw or to seek a decision on the amendment or new clause. If any Member wishes to press another amendment, new clause or schedule in a group to a vote, they need to let me know. I hope that explanation is helpful. It was to me, at least. If any Member wishes to make a declaration of interest, they can do so now.
Clause 1
Determination of additional multipliers
David Simmonds (Ruislip, Northwood and Pinner) (Con)
I beg to move amendment 13, in clause 1, page 2, line 5, at end insert—
“(1A) Regulations under sub-paragraph (1)(a) must provide discretion for billing authorities with regard to the application of the higher multiplier.”
David Simmonds
It is a pleasure, as always, to serve under your chairmanship, Dame Siobhain. We have tabled a number of amendments to this legislation, but I want to be clear from the outset that we are not proposing to press them to a vote. We hope to have a response from the Minister; in many cases, that will follow up on the evidence that we heard in yesterday’s evidence sessions.
The purpose of amendment 13 is to introduce an element of discretion for billing authorities in the application of the higher multiplier; the significance of local flexibility and discretion in that was highlighted in yesterday’s oral evidence and in written evidence to the Committee. The amendment would ensure that a billing authority, which is the local authority for the area, has discretion to apply a different figure, where the authority considers that it would benefit the local economy or its residents by doing so. That flexibility has been reflected in the business rate system that has been in operation in England since the 1990s.
As we heard yesterday in evidence, the impact of the Bill is considered by most sectors and by most of the witnesses to be moderate. Therefore, the level of flexibility in the Bill does not allow for a hugely different figure from one type of business rate payer to another. However, local authorities are sometimes keen, for example, to support a local business for the purposes of sustaining employment for a period of time or because the local authority believes that the business provides an important local facility. In such an instance, the local authority may see it to be in the interests of local taxpayers to vary the application of the higher multiplier.
The Minister for Local Government and English Devolution (Jim McMahon)
Amendment 13 seeks to give local authorities discretion over where the higher multiplier enabled by the Bill should apply. In England, there are currently two non-domestic rating multipliers: the non-domestic rating multiplier for properties with a rateable value of £51,000 and above, and the small business non-domestic rating multiplier for lower value properties. The Bill will enable the Treasury, through regulations, to introduce permanently lower multipliers for qualifying retail, hospitality and leisure properties, and to fund this by introducing higher multipliers for properties with a rateable value of £500,000 or more.
Narrowing the scope of the higher multiplier would inevitably reduce the funding available to support the lower rates for qualifying retail, hospitality and leisure properties. Ratepayers in England may, however, be eligible for a range of different reliefs from business rates. Some reliefs are mandatory and provided for in legislation, whereas others are given at the discretion of the billing authority.
The Bill will not affect the very wide powers local authorities have to award this discretionary rate relief, as set out in section 47 of the Local Government Finance Act 1988. Those powers already allow local authorities to devise and deliver their own relief schemes without the intervention of central Government, where the authority is satisfied that that would be in the interest of its council tax payers. Once the Bill has come into force, local authorities will be able to use their discretionary powers to provide relief, should they so choose, to offset any impact of the new, higher multiplier. I hope that gives enough assurance to the shadow Minister to withdraw his amendment. Local authorities will still have the powers they have always had, with the flexibility to respond to local concern.
Clause 1 adds into the business rate system new additional multipliers, or tax rates. Currently, there are two multipliers, as I set out before: the non-domestic rating multiplier and the small business non-domestic rating multiplier. The legislation for those is found in part A1 of schedule 7 to the Local Government Finance Act 1988. Clause 1 adds a new chapter 3A to part A1 for the new additional multipliers.
As set out by the Exchequer Secretary on Second Reading last month, the introduction of the new additional multipliers that this clause enables is the Government’s first step towards creating a fairer business rate system. The intention of these new multipliers is to first, once set at autumn Budget 2025, provide a permanent tax cut to qualifying retail, hospitality and leisure businesses, ending the uncertainty of annual retail, hospitality and leisure relief. Secondly, it will ensure that the tax cut is funded sustainably through the introduction of higher multipliers levied on the most valuable properties. The new chapter 3A gives the Treasury new powers to set these additional multipliers.
I understand the concerns of hon. Members that we are providing for new taxation through powers in a Bill, but we face a challenge in business rates in setting the multipliers, because demand notices are issued by individual local authorities, and these must be ready to go out several weeks before the start of the financial year. We must confirm and give notice of the multipliers to local authorities before they prepare those demand notices, and that simply does not allow time for us to return to Parliament with a Bill each time we want to change the multipliers.
In recognition of hon. Members’ concerns about providing new taxation through powers in a Bill, clause 1 includes some important safeguards over the use of the powers. First, paragraph A6A(1)(a) of the new chapter 3A ensures that the Treasury cannot set a multiplier that is more than 0.1 higher than the non-domestic rating multiplier. We often, in practice, refer to multipliers as being so many pence in the pound. For example, the current non-domestic rating multiplier is 54.6 pence in the pound. In those terms, this clause ensures that the multiplier cannot be more than 10p higher than the non-domestic rating multiplier.
Secondly, paragraph A6A(1)(b) of the new chapter 3A ensures, in a similar way, that the Treasury cannot set the lower multipliers more than 0.2—20p in the pound—below the small business non-domestic rating multiplier. Thirdly, clause 1(5) ensures that where the Treasury is using those powers to set a higher multiplier, it will need to bring a statutory instrument before the House of Commons in draft for approval before that multiplier can be confirmed. To be clear, those values are the maximum parameters at which the new additional multipliers may be set. They do not represent the changes that the Government intend to implement. The parameters are guardrails that offer sensible limits with proportionate flexibility.
The decision on the level at which the new multipliers will be set will be taken at the autumn Budget 2025, factoring in the impacts of the 2026 revaluation on the tax base, as well as the broader economic and fiscal context. The clause also ensures, in new paragraph A6A(2)(a), that the Treasury cannot set more than two lower multipliers. That reflects our intention to have two multipliers for retail, hospitality and leisure: one for properties below £51,000 rateable value, and one for properties between £51,000 and less than £500,000. However, the new paragraph A6A(2)(b) ensures that we can still make adjustments to those two new multipliers if the hereditament is unoccupied or on the central rating list—although our current intention is for the same multipliers to apply across all occupied, unoccupied and central list properties.
Finally, clause 1(4) ensures that the existing arrangements in chapter 4 of part 1A of schedule 7, which concern the making and giving of notices of the multipliers, will also apply to the new multipliers. It will ensure, for example, that we must give notice of the multipliers as soon as reasonably practicable after they have been calculated, and that they are rounded to three decimal places.
David Simmonds
The Minister and I had the joy of parallel careers in local government for many years. I cannot imagine he spent a great deal of that time looking forward to the opportunity to explain non-domestic business rate multipliers in a Bill Committee. However, as he acknowledged, it is important to ensure that there is a sufficient degree of local scrutiny and flexibility so that those local authorities that are billing authorities are able to exercise their discretion in order to support their local economy. I am grateful to the Minister for outlining the Government’s intentions in that respect. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 1 ordered to stand part of the Bill.
Clause 2
Special authority multipliers
Question proposed, That the clause stand part of the Bill.
Jim McMahon
Clause 2 concerns additional multipliers in special authorities. The meaning of a special authority is already defined in section 144(6) of the Local Government Finance Act 1988 as one which on 1 April 1986 had a population of less than 10,000 and a total rateable value per population number of more than £10,000. The City of London Corporation is the only authority that meets that test. The City of London has powers to set its own non-domestic rating multipliers. For example, for the current year the non-domestic rating multiplier in the City of London is 56.4p, compared to the same multiplier in the rest of England of 54.6p. Those existing powers are in part 2 of schedule 7 of the 1988 Act.
Clause 2 inserts new paragraph 9B into part 2 of schedule 7, giving the Treasury powers to make provision for the additional multipliers in the City of London. The Treasury may only do that where it has exercised those equivalent powers in clause 1 for the rest of England. The unique powers of The City of London reflect its special circumstances, notably its very small resident population. The clause reflects the Government’s intention for the new multipliers to apply across England. In clause 2, we have replicated the same safeguards for setting the additional multipliers as apply in clause 1.
Proposed new paragraph 9B(1)(a)(i) of schedule 7 to the Local Government Finance Act 1988 will ensure the higher multipliers in the City of London cannot be more than 0.1, or 10p in the pound, higher than the City’s non-domestic rating multiplier, and proposed new paragraph 9B(1)(a)(ii) will ensure the lower multipliers in the City of London cannot be more than 0.2, or 20p in the pound, lower than the City’s small business non-domestic rating multiplier.
David Simmonds
I have no objection to these measures. Could the Minister confirm, in writing if that is more convenient, that there has been a degree of consultation with the corporation to establish what, if any, impact it would expect on its budget?
Jim McMahon
I can confirm in writing the exact consultation that has taken place. Conversations will certainly take place. I return to the point that, if we do not take these measures to include the City of London, there will be many high-value properties that we can use to support retail, hospitality and leisure in the rest of England to which these measures would not be applied. It is an important measure. I will certainly confirm in writing via my officials the consultation that has taken place.
Question put and agreed to.
Clause 2 accordingly ordered to stand part of the Bill.
Clause 3
Application of multipliers
David Simmonds
I beg to move amendment 14, in clause 3, page 3, line 25, after “more,” insert—
“and is not a retail premises which is open to customers for more than 18 hours a day”.
This amendment would exempt retail premises which are open to customers for more than 18 hours a day from having the higher multiplier used to calculate their non-domestic rates. It is linked to Amendments 15 and 16.
The Chair
With this it will be convenient to discuss the following:
Amendment 17, in clause 3, page 3, line 25, after “more,” insert—
“and is not a premises which is shared with a Post Office”.
This amendment would exempt premises which are shared with a Post Office from having the higher multiplier used to calculate their non-domestic rates. It is linked to Amendments 18 and 19.
Amendment 20, in clause 3, page 3, line 25, after “more,” insert—
“and is not a premises which is shared with a banking hub”.
This amendment would exempt premises which are shared with a banking hub from having the higher multiplier used to calculate their non-domestic rates. It is linked to Amendments 22 and 24.
Amendment 21, in clause 3, page 3, line 34, leave out “has such meaning” and insert
“and ‘banking hub’ have such meanings”.
This amendment is consequential on Amendment 20.
Amendment 15, in clause 3, page 4, line 5, after “more” insert—
“and is not a retail premises which is open to customers for more than 18 hours a day”.
This amendment would exempt retail premises which are open to customers for more than 18 hours a day from having the higher multiplier used to calculate their non-domestic rates. It is linked to Amendments 14 and 16.
Amendment 18, in clause 3, page 4, line 5, after “more” insert—
“and is not a premises which is shared with a Post Office”.
This amendment would exempt retail premises which are shared with a Post Office from having the higher multiplier used to calculate their non-domestic rates. It is linked to Amendments 17 and 19.
Amendment 22, in clause 3, page 4, line 5, after “more” insert—
“and is not a premises which is shared with a banking hub”.
This amendment would exempt retail premises which are shared with a banking hub from having the higher multiplier used to calculate their non-domestic rates. It is linked to Amendments 20 and 24.
Amendment 23, in clause 3, page 4, line 14, leave out “has such meaning” and insert
“and ‘banking hub’ have such meanings”.
This amendment is consequential on Amendment 22.
Amendment 16, in clause 3, page 4, line 27, after “more” insert—
“and is not a retail premises which is open to customers for more than 18 hours a day”.
This amendment would exempt retail premises which are open to customers for more than 18 hours a day from having the higher multiplier used to calculate their non-domestic rates. It is linked to Amendments 14 and 15.
Amendment 19, in clause 3, page 4, line 27, after “more” insert—
“and is not a premises which is shared with a Post Office”.
This amendment would exempt retail premises which are shared with a Post Office from having the higher multiplier used to calculate their non-domestic rates. It is linked to Amendments 17 and 18.
Amendment 24, in clause 3, page 4, line 27, after “more” insert—
“and is not a premises which is shared with a banking hub”.
This amendment would exempt retail premises which are shared with a banking hub from having the higher multiplier used to calculate their non-domestic rates. It is linked to Amendments 20 and 22.
Amendment 25, in clause 3, page 4, line 36, leave out “has such meaning” and insert
“and ‘banking hub’ have such meanings”.
This amendment is consequential on Amendment 22.
David Simmonds
This group revolves around amendments 14, 17 and 20 and includes consequential amendments on relevant language in further paragraphs. They aim to address an issue that has been raised extensively in public evidence sessions, written evidence submitted to the Committee and the wider debate about measures in the Bill. That is, the circumstances of certain types of businesses, for example those that are unusual in that they are open for very long hours because they may be the only retailer in a location and are therefore of particular significance to that community, or those that are host to a post office. We all hear examples of local post offices co-locating with shops. We are very keen to ensure that those businesses are sustainable for the wider benefit of that community and access, particularly for vulnerable residents, to those services is maintained.
Progress has been made in developing banking hubs, often in premises that are co-located, sometimes with post offices. We know that has been important in ensuring access to cash in communities where it might otherwise be lost, as well as access to more general banking services, for both small businesses and vulnerable residents. These types of business can be absolutely critical, especially in rural locations, but sometimes also in suburban areas where elderly residents in particular may struggle to access those types of shops and services if we do not ensure their continued support.
The purpose of the amendments is to introduce specific exemptions or provisions to ensure that the measures are enacted in a way that continues to support retailers with long opening hours that provide services that might otherwise not be available, access to a post office or access to a banking hub.
Jim McMahon
Amendments 14 to 25, tabled by the shadow Minister, would exclude certain properties from the higher multiplier. Properties that are open to customers for more than 18 hours a day, properties that are shared with a post office and properties that are shared with a banking hub would be excluded from the higher multiplier.
These are very important sectors. The Post Office delivers essential services that are hugely valuable to both individuals and small or medium-sized enterprises in urban and rural areas across the country. Those services include mail, parcels, cash, basic banking, utility bill payments and Government and public services. That is why post offices are eligible for the existing retail, hospitality and leisure relief, which gives eligible retail, hospitality and leisure properties 40% relief on their business rates bills, up to a cash cap of £110,000 per person, in the 2024-25 financial year.
With regard to banking hubs, the Government understand the importance of face-to-face banking to communities and high streets, and we are committed to championing sufficient access across the country as a priority. That is why the Government are working closely with banks to roll out 350 banking hubs across the UK. The UK banking sector has committed to deliver those hubs by the end of the Parliament. Over 90 banking hubs are open to the public, and the Government continue to work closely with high street banks to ensure communities and local businesses have access to the banking services they need.
To provide certainty and permanent support for the retail sector and the high street, through the Bill we are introducing permanently lower tax rates for retail, hospitality and leisure properties with a rateable value under £500,000. The existing RHL relief has been repeatedly extended year on year as a temporary stopgap, creating cliff edges for businesses and significant financial pressures. The Government are currently developing with the sector the definition of “qualifying RHL properties”, which will be introduced through secondary legislation in 2025. The sector definitions will broadly follow those already defined in the current retail, hospitality and leisure relief system.
To ensure that this tax cut is sustainably funded, we intend also to introduce a higher rate on the most valuable properties—those with a rateable values of more than £500,000. To be clear, that only applies to the highest value properties, and less than 1% of all non-domestic properties across England. I understand that the hon. Member for Ruislip, Northwood and Pinner wants to exclude some properties from the higher charge. However, the Government want to take a fair approach, which is why we intend to ask all properties with rateable values of £500,000 and above to contribute more to support the high street. The Government do not intend to exclude any properties with a higher value, applying the approach in the fairest possible way.
There are practical implications that make it difficult to apply different multipliers to retailers based on their opening hours. Local authorities require certainty about which multiplier will be applied to which property ahead of the billing year. That cannot be determined based on opening hours, which businesses can rightly change at their own discretion, subject to legal requirements. For the reasons I have set out, the Government cannot accept the amendment, which would carve out certain premises from the higher tax rate. However, I hope the Committee is reassured of the Government’s commitment to post offices, banking hubs and the retail sector.
David Simmonds
I am grateful to the Minister for talking us through the complex set of reliefs that are available. It is an issue that colleagues who represent rural areas have been concerned about, because there are often multi-use sites in those areas—a petrol station and a post office, or a banking hub and a small supermarket. Those are potentially larger premises that are critical to the operation of the local community. I am grateful that the Minister has set out how existing reliefs may operate. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Chair
In the absence of the hon. Member for Mid Dorset and North Poole, I call Martin Wrigley.
Jim McMahon
For this grouping, I will first speak to clause 3, then return, after other contributions, to amendment 10 and new clauses 2 and 4.
We have previously discussed clause 1, which allows the Treasury to introduce new additional multipliers. Clause 3 deals with how we will determine which properties those multipliers should apply to. The clause is split into three main parts, dealing with occupied hereditaments in subsection (2), unoccupied hereditaments in subsection (3), and hereditaments on the central list in subsection (4). Properties on the central list are typically utility networks spanning many local authority areas, such as gas, electricity and water networks. Each of those subsections is essentially identical, so, to save the Committee from much repetition, I will explain the provisions on occupied hereditaments in clause 3(2) only.
The most important part of subsection (2) is the small amendment made by paragraph (a) to existing powers in the Local Government Finance Act 1988. Under those powers, the Treasury already has the ability to determine in regulations which multiplier applies to which property. Those powers, in respect of occupied properties, are in paragraphs 10(9) and 10(10) of schedule 42A to the 1988 Act. Clause 3(2)(a) amends that part of the 1988 Act to extend those powers to cover all the additional multipliers. This means that the Treasury will be able to determine, by regulations, which properties pay on which multiplier. Actually, Dame Siobhain, may I just correct the record? I think that I referred to “schedule 42A”, but it is actually schedule 4ZA.
As in clause 1, we have included in clause 3 safeguards on to how the Treasury may use these powers. First, clause 3(2)(b) amends paragraph 10 of schedule 4ZA to ensure, through proposed new sub-paragraph (9B)(b), that the Treasury cannot apply the higher multipliers to any hereditaments with a rateable value of less than £500,000. This will ensure, based on the current rating list, that 99% of hereditaments are unaffected by the higher multiplier.
Secondly, proposed new sub-paragraph (9B)(c) will ensure that the Treasury, when setting new lower multipliers, can apply them only to qualifying retail, hospitality and leisure hereditaments. The precise meaning of qualifying RHL properties will be set out in regulations, but we have been clear that we intend to broadly follow the existing definition that applies to the current relief scheme for those sectors.
Thirdly, the Treasury, when using the existing powers to determine who pays on which multiplier, will need to bring that statutory instrument in draft to both Houses of Parliament for approval before that can be confirmed. This requirement is not on the face of the Bill because the powers already exist, but if hon. Members wish to be reassured on this point, it can be found in section 143(7B) of the Local Government Finance Act 1988.
The power to define qualifying RHL properties—in proposed new paragraph 10(9C) of schedule 4ZA to the 1998 Act—follows the negative resolution procedure, given that this power only allows us to reduce the rates for certain ratepayers.
Finally on clause 3, the existing powers for determining the application of the multiplier allows the Treasury to do that by reference to a list of factors found in paragraph 10(10) of schedule 4ZA to the 1988 Act. This is a non-exhaustive list that includes factors such as its rateable value, its location or its use.
For the introduction of the lower multipliers in 2026, we intend to replicate the process and the broad eligibility in the current RHL relief. As with the current system, local authorities will determine eligibility, but rather than that being against guidance, we will lay down criteria in regulations. Clause 3(2)(c) gives the Treasury the scope also to determine the application of the multipliers by reference to the description that the Valuation Office Agency will put in the rating list.
As I have said, the remaining parts of clause 3 make the same provisions that I have described, but in relation to unoccupied properties and those on the central rating list. It is usual for powers applying multipliers across occupied, unoccupied and central rating list properties to align.
David Simmonds
I will speak to amendment 10 and new clauses 2 and 4, which stand in my name. They are designed to address concerns raised in evidence which there was some debate about yesterday: the objective of setting out, as far as we can in advance, the impact these measures would have on affected businesses; providing for a review and scrutiny process to follow up to confirm that the assessment had been correct or otherwise; and seeing what lessons can be learned from it. I appreciate that the Government are very keen to press ahead on this and will be reluctant to accept amendments that have that effect.
None the less, I am sure Members will recognise that when making decisions it is important to have a sense of what the impact is likely to be, in particular when we know that the impact of some of the measures will affect businesses that may be marginal. In many communities the loss of a large supermarket or warehouse or logistics centre that may be affected will have a major impact on the availability of services and local employment. That is the thinking behind bringing these measures forward. With your leave, Dame Siobhan, I will move them for debate.
The Chair
We will come on to whether you wish to withdraw those amendments later.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Clause 4
Consequential amendments
Question proposed, That the clause stand part of the Bill.
Jim McMahon
I thought I was going to come back at the end of that debate, but it is fine.
David Simmonds
On a point of order, Dame Siobhan, having moved those amendments, I did indicate that subsequent to the debate I would be minded to withdraw them. I have moved them, but I am not aware that we have made a decision on withdrawal.
The Chair
It has been suggested that the decisions on those amendments come later, and there is no further point to debate them. Is that okay?
David Simmonds
Further to that point of order, Dame Siobhan. I will not press the amendments to a vote.
David Simmonds
I beg to move amendment 26, in clause 5, page 5, line 37, leave out from “persons” to the end of line 38 and insert
“who have special educational needs.
(5A) In subsection (5) ‘special educational needs’ has the same meaning as in section 20 (when a child or young person has special educational needs) of the Children and Families Act 2014.”
This amendment would mean that a school that is wholly or mainly concerned with providing education to persons with special educational needs would not be a private school for the purposes of the Act, and as a result would retain charitable relief from non-domestic rates.
We are moving on to a different area. This amendment is designed to address concerns raised in evidence, and by many across the House in debates, about the impact on children with special educational needs and disabilities. We recognise that the Government have introduced measures to address some of those concerns, but there have been many changes to the SEND system over the years. In particular, the provision about wholly or mainly providing education to children who are in receipt of an education, health and care plan specifically addresses those at the most significant end of special educational needs and disabilities.
The previous Labour Government introduced a system, in the days of statementing, that included measures called school action and school action plus. If a child had a form of special educational needs that was not so severe that they required the statementing process, but needed additional resources in the classroom, that classification triggered additional resources for the school. In the 2014 reforms, that was morphed into SEN support. Beneath the education, health and care plan, for the most significant levels of need, there is an SEN support set-up whereby local authorities direct additional funding towards schools because children are classified at those levels.
One of our concerns is that some children who have found their way to an independent school—for example, because it has a reputation for providing a good level of support to children with SEN—have not been through a process whereby they have been formally categorised. Gesher in my constituency is an independent special educational needs and disability school that charges fees. A proportion of its students are there because their parents have made the choice, and have not been through a local authority process. Others are there because they have an education, health and care plan and it is the named school paid for by the local authority. All children attending that school have some form of special educational need or disability and are therefore attending private school.
The rationale behind this amendment is that we do not want independent schools that provide education to large numbers of children with SEND but are below the education, health and care plan threshold to be put in a very difficult financial position. Potentially, the Government do not intend to go down that route. Most of us are aware that the extent of SEND provision in the independent sector is very large. Indeed, the amount of money that local authorities have to pay in fees to place significant numbers of children in sometimes very specialist provision is a major concern to them. We also hear from constituents who have identified that a moderate level of special educational needs may be met in the independent sector without the child’s having gone through the process of an education, health and care plan.
We are seeking to ensure that schools that educate children with special educational needs, in a broader sense, are not missed. For those reasons, I commend the amendment to the Committee. I am sure the Minister will have more comments to make, further to what he said in the evidence sessions.
Jim McMahon
Amendment 26 would result in the exemption of fee-paying schools from the measure if they wholly or mainly cater to pupils with special educational needs, whether or not those pupils also have an education, health and care plan, as defined in section 20 of the Children and Families Act 2014.
The Government are aware of the concerns raised about pupils with special educational needs in private schools that may lose their charitable relief because they are not wholly or mainly composed of pupils with EHCPs. We have carefully considered our approach to minimise the impact on pupils with the most acute needs. The Bill provides that schools that are charities that wholly or mainly provide education for pupils with EHCPs will remain eligible for charitable rates relief. For business rates, “wholly or mainly” generally means more than 50%. In practice, that will ensure that most special schools are not affected by the measure. We expect any special schools losing charitable rates relief to be the exception; the number may even be in the single figures.
Private schools that benefit from the existing rates exemption for properties that are wholly used for the training or welfare of disabled people will continue to do so. Most children with EHCPs already have their needs met in mainstream, state-funded schools. If an EHCP assessment concludes that a child can be supported only in a private school, the local authority funds that child’s place. Any changes to fees as a result of this measure will not impact on the parents or families of those pupils.
In private schools, just 5.7% of pupils have an EHCP, and they are predominantly in private special schools. Some 97% of pupils with an EHCP in private schools already have their place funded by a local authority. Where an EHCP has not named a private school in its assessment of the child, the parent or carers may choose to place the child in a private school. That is a choice made by the parent, and does not detract from an assessment that a pupil’s needs can be catered for in a mainstream, state-funded school. There may be instances where a child’s parent disagrees with the local authority’s assessment that their child’s needs can be met in the state sector, and the EHCP system is the most appropriate channel for resolving such disagreements. Amendment 26, which would amend the basis on which fee-paying schools can retain charitable rates relief, would undermine the Government’s intention of removing tax breaks from private schools in order to raise funds to support the more than 90% of pupils who attend state schools.
The approach chosen in the Bill is targeted to ensure that the impact on pupils with the most acute needs is limited. That is ensured by exempting schools that wholly or mainly cater to pupils with EHCPs from the measure. As the Committee will know, the majority of children in England who have special educational needs, with or without an EHCP, already have their needs catered for in the state-funded sector. The Government support local authorities to ensure that every local area has sufficient places for all children of compulsory school age who need one, and work to provide additional appropriate support for pupils with SEN requirements at state-funded schools.
David Simmonds
I am grateful to the Minister for acknowledging that the vast majority of the children that we are talking about will have their needs provided for in the state sector. I think we are all very much aware of that, and generally consider it something of which we can be proud. However, a significant number of children find their way into the independent sector because their parents did not pursue the process of statementing, or of seeking SEN support with an attached budget. Conservative Members are concerned that there is a risk that a significant proportion of those children will find themselves displaced into the state sector by a range of measures that the Government have taken—a sector that is not especially well geared to cope with their needs at the moment. In particular, the restriction of the relief solely to those who have an education, health and care plan will mean it is available solely to those with needs that are at the most significant end of the range, so a large number of children will be at risk of losing out. However, I recognise that the Government have the numbers, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
David Simmonds
I beg to move amendment 7, in clause 5, page 5, line 38, at end insert
“, or
(b) a local authority makes a determination that they wish to apply discretion to the application of rate relief for the institution within the meaning of section 47 (Discretionary relief) of the Local Government Finance Act 1988.”
This amendment would provide that a school is not a private school for the purposes of exempting it from charitable rate relief if a determination is made to that effect by the billing authority.
The amendment is on a related subject to one that we have already debated, so I will not speak about it at great length. We are very much aware that the independent sector is critical to our catering for special education needs and disability. Its coverage across the UK is variable, especially when it comes to provision for children with very significant special needs that a wide range of SEND provision cannot easily address. A local authority that hosts a small school providing for a very small number of children may wish to exercise discretion.
There are charities of many types that are service providers that charge people fees for the provision of such services. That can include anything from adoption placement to fostering and safeguarding in the children’s sector. A large variety of charities charge to provide services such as home care, and care for adults with disabilities. The point was made yesterday in evidence that there is a risk of creating a two-tier charity sector; a school that charges for providing for children with significant needs might not be considered a charity for the purposes of business rates relief, whereas a charity providing, for a fee, residential care for adults with a learning disability would be eligible for relief. That remains a concern for Opposition Members. We need to make sure that we sustain our network of provision—particularly provision at the complex end of need—in the UK. I look forward to hearing what the Minister has to say on the amendment.
Jim McMahon
Amendment 7 seeks to preserve the discretion of local authorities to award relief to private schools. Currently, any charity that uses its property wholly or mainly for charitable purposes is entitled to a mandatory 80% relief. The local authority must award that 80% relief when the conditions are met. The Bill will remove private schools’ entitlement to that mandatory 80% relief. However, it will not disturb the very wide power that local authorities have to award discretionary rate relief above and beyond that.
That power is found in section 47 of the Local Government Finance Act 1988. It already allows local authorities to top up the mandatory 80% charity relief with a further 20% discretionary relief. When the Bill is in force, local authorities can still use section 47 to grant discretionary relief to private schools, if they wish. They can grant relief of 80%, or any other level of relief that they consider to be appropriate. That is a matter for local discretion, and for local authorities to decide. With the assurance that that will still be in place, I hope that the hon. Gentleman will be content to withdraw his amendment.
David Simmonds
I am pleased to hear the Minister once again championing the value of local discretion in decision making; I think we mutually acknowledge that it is incredibly important. I am aware that concern remains, particularly in the SEND sector and especially for residential special schools, about how the change will play out. Local authorities may face a Hobson’s choice between being expected to raise a certain amount of revenue by applying the maximum possible business rate to a setting, and doing what they need to do to support the needs and interests of children in their community—and of schools that may be the only centre nationally that can provide for very special needs. However, again, I recognise that the Government have the numbers, so with the leave of the Committee, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
David Simmonds
I beg to move amendment 8, in clause 5, page 5, line 38, at end insert
“, or
(b) has a religious character or other special character and there is no maintained school or academy of the same character within the specified distance from that school.
(5A) In sub-paragraph (5)(b)—
(a) ‘religious character’ has the meaning given under section 69 (Duty to secure provision of religious education) of the School Standards and Framework Act 1998,
(b) ‘other special character’ has the meaning as defined by the Secretary of State by regulation,
(c) ‘specified distance’ is the distance specified under section 445(5) (Offence: failure to secure regular attendance at school of registered pupil) of the Education Act 1996.
(5B) Regulations under this section (5B) are to be made by statutory instrument.
(5C) A statutory instrument containing regulations under this section may not be made unless a draft instrument has been laid before and approved by resolution of each House of Parliament.”
This amendment would provide that charitable rate relief would continue to apply to a school with a religious or other special character, if no maintained school or academy with the same character was within the statutory walking distances (as set in the Education Act 1996) from that school.
On Second Reading, we heard representations from a number of Members about access to faith schools, but those are not the only schools with a special character; there are a number of types of education of a special character. Some schools offer particular sporting opportunities. Organisations such as Montessori provide a particular method of education, and parents may wish to exercise their discretion to access that for their children. The objective of the amendment is to ensure that where the only school that has a particular special or religious character in a given location is an independent school, it is not subject to the measures in the Bill. That will support access to those schools of special character for mums and dads, and for the children who need those schools, across the country.
The amendment relates to legislation on the distance travelled to school. There are regulations designed to ensure, in the interests of health, the environment and the community, that children can access sustainable transport—can walk, cycle, or use public transport where possible. We are very conscious, however, that in many parts of the country there is limited access to certain types of faith school and schools of special character. Clearly, it would therefore inhibit parental choice if those schools could not be accessed, if that were the only way for those families to access the type of education that they wished to access.
Jim McMahon
Amendment 8 would require a private faith school to maintain its eligibility for charitable relief if there is no maintained or academy school of the same faith within the statutory walking distance, as set out in the Education Act 1996. The amendment would also provide that schools with a currently undefined special character be exempted from the Bill measure when defined in regulations. The Government value parental choice and recognise that some parents want their children to be educated in schools of a particular faith, but all children of compulsory school age are entitled to a state-funded school place if they need one. State education is suitable for children of all faiths, and all schools are required to follow the Equality Act 2010, which means fostering and promoting an environment that encourages respect and tolerance of children and families of all faiths and none.
We have already made provision to ensure that private schools “wholly or mainly” concerned with providing full-time education to pupils with an education, health and care plan remain eligible for business rate relief. The Government are not considering any further exemptions to the policy, so there is no need to give the Secretary of State the power to establish and define new designations of school character to then exempt schools of that character from the measure in future, as the amendment would provide for.
The Government have listened carefully to arguments on this matter, and have decided that a carve-out for faith schools or similar schools cannot be justified. It is the Government’s position that state-funded education is suitable for all children of compulsory school age. For that reason, we are unable to accept the amendment.
David Simmonds
I need to be clear that I am not here to act as an advocate for faith education; I am not personally a fan of it. I recognise the Minister’s point, but we need to acknowledge that many Members on both sides of the House, and many of our constituents, believe very strongly that they should be able to access a school of a particular character.
There will be some children in the state sector who may be able to access, for example, a specialist sports academy with particular facilities to develop and nurture their talent, but such a school may not be available in all parts of the country. An independent school may be the only one able to foster and nurture that talent, and we would not wish to see any measures taken that would deprive anybody of that opportunity. Once again, however, I recognise that the Government have the numbers, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
David Simmonds
I beg to move amendment 9, in clause 5, page 5, line 38, at end insert—
“(5A) Where a private school offers nursery provision, that school must be considered to be comprised of two separate hereditaments, one of which would be a nursery school.”
The question of hereditaments is certainly not one that I remember from English classes when I was at school, but it is quite significant in the context of business rates. The way in which business rate legislation operates is that it designates a given property, which clearly makes it easier to tax, because the ownership or possession of a property is very hard to move or disguise.
In respect of schools where, for example, there is a nursery on site as part of the overall premises that are considered to be the hereditament for the purposes of business rate legislation, the Opposition are concerned that such premises that would be exempt from business rates or eligible for relief if they were physically separate from the school to which they are connected will not be eligible for that relief because they are on the same site. We know that the Government are very keen, as we were in government, to see an expansion of access to high-quality childcare, a very large proportion of which is in the private sector. The Government—commendably, in my view—have set out a policy of expecting maintained state schools that have nurseries on site to significantly increase the childcare offer to support local parents, which is a very good thing.
In many locations, a nursery connected to a private school may be chosen by parents using tax-free childcare, and there are measures in legislation to support all parents, but primarily lower-income parents, to access that provision. If business rates apply to such premises, however, that would load an extra cost on to them because they are, in effect, co-located and part of a single hereditament.
The purpose of the amendment is to separate those premises out. Where there are premises on a site that become subject to business rates as a result of the Bill, but would not otherwise be subject to them because of their purpose, use and location, they should be considered as separate institutions, so we do not apply the measures to those institutions that we seek through other parts of legislation to support and encourage.
Jim McMahon
I am grateful to the hon. Member for tabling the amendment. It may assist the Committee if I briefly explain how the Bill will apply to nurseries and nursery classes within the setting of private schools.
The Bill will ensure that nursery schools, where they have their own hereditament and therefore their own rates bill, will be excluded from the provisions and, where they are charities, will retain their charitable rate relief. That is the effect of proposed new sub-paragraph (4)(a)(iii) to schedule 4ZA of the Local Government Finance Act 1988, at line 23 of page 5, in clause 5.
A nursery school is likely to have its own hereditament and therefore its own rates bill when it is run and occupied by a separate body from the private school. An example would be where a separate charity from the private school runs the nursery. A nursery school may also have its own hereditament if it has its own dedicated buildings site that is located away from the rest of the school. Where the same charity runs the private school with some nursery provision, however, and does so from the same site, it is likely to have one hereditament and one rates bill.
I want to make it clear that private schools that include some nursery classes in the way I have described will still be considered as private schools and will lose their relief entirely. The Government have decided that where private schools that mainly provide education for pupils of compulsory school age also have nursery classes within the school, the presence of a minority of nursery-age children should not remove the whole school from the business rate measure. That approach best ensures consistency with the underlying policy intent.
For that reason, we are unable to accept the amendment. It would not be appropriate to attempt, as the amendment would do, to create new artificial hereditaments for nursery classes at private schools merely to preserve some of the charity relief for that private school. I hope the Committee will recognise the steps we have taken to protect nurseries with their own hereditaments, and it will, of course, continue to be the case that nurseries that are run and occupied by separate charities with their own hereditaments will continue to receive relief.
David Simmonds
Once again, I recognise that the Government have the numbers to do as they wish, but I am concerned by what the Minister has outlined. This is not simply an amendment about nursery schools, which are a specific thing. It is about nurseries, which provide childcare. For younger children we have the early years foundation stage, which is not compulsory but is provided and followed by the vast majority of childcare settings, and which aims to ensure a level of educational progression that can be measured from the very youngest children to those who are ready to start school. That is provided in a different way from what is provided by nursery schools, which are specific institutions of which there are several hundred in the country.
In London constituencies such as the one that I represent, it is quite common to find nursery providers that are run as part of private school institutions in the same location, but that are used by parents who have no intention of sending their child on to that private school. Because the fees charged are in line with the local childcare market, and those fees are significantly supported by measures such as tax-free childcare, those nurseries are an affordable means of securing good-quality childcare. Those children will go on to a range of local provision.
I remain concerned about the Bill insisting that a nursery located on a premises shared by a private school within the scope of these measures should be subject to a significantly higher rates bill than if it were located in a physically separate building just down the road. I suspect that that will remain an issue of contention during the passage of the Bill. Clearly, although an impact assessment or a review will not be specifically proposed in the legislation, there will be an opportunity to see its impact in due course. For those reasons, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Jim McMahon
Clause 5 removes charitable rate relief from private schools. Under the current law, all charities are entitled to 80% charitable relief on any properties that they occupy and use wholly or mainly for charitable purposes. That rule is found in paragraph 2 of schedule 4ZA to the Local Government Finance Act 1988, and clause 5(2) amends it to exclude private schools from that rule. Proposed new sub-paragraph (3) removes from charitable relief hereditaments wholly or mainly used to carry on a private school. That will ensure that ancillary and support buildings, such as offices, will also lose their relief—for example, classrooms and sports fields wholly or mainly used for the purposes of a private school.
The policy to remove the eligibility of private schools that are charities from charitable rate relief is a tough but necessary decision that will secure additional funding to help to deliver the Government’s commitment to education and to young people.
David Simmonds
Clearly, the Government have set out their direction of travel and they are determined to proceed. It is important to acknowledge, given the rationale around diverting funds to the state sector, that our state schools, by all significant measures, are now the highest performing that they have ever been. Although I would be the last to claim that everything in the state sector is perfect—there are significant issues that need to be addressed, as there always are—there has been enormous progress in the last decade or so both in the educational outcomes for children in our state schools and in the opportunities for those young people. That is reflected in that fact that youth unemployment today is half what it was in 2010.
I suspect that there will be a degree of disappointment among many state school heads who heard that a tidal wave of money was coming in their direction, because it must be acknowledged that even if all the funds raised by the changes to business rates, VAT and so on were diverted to them, it would amount to less than one third of the cost of a single classroom teacher. We have already seen announcements, however, that that money will also fund a wide range of other activities.
Clearly, the purpose to which the Government seek to put the funds is outside the scope of the Bill, but many people will look at the clause and recognise that the significant harm that it does to part of our education sector is simply not justified by the benefit to anybody else. For that reason, I am sure that we will oppose the measure when it finally comes back to the House. I recognise that the Government have the numbers in Committee, however, so I look to them to proceed.
Question put and agreed to.
Clause 5 accordingly ordered to stand part of the Bill.
Clause 6
Commencement
David Simmonds
I beg to move amendment 11, in clause 6, page 6, line 20, at end insert
“, provided that the condition in section [Requirement for the Government to commission an independent review on the impact of the 2026 revaluation of hereditaments on provisions of this Act] is met.”
This amendment provides that the provisions of Clauses 1 to 4 of the Bill would only come into effect when the Government has held an independent review that will consider the impact the effect of the 2026 revaluation on those provisions.
The Chair
With this it will be convenient to discuss the following:
Amendment 12, in clause 6, page 6, line 22, at end insert
“, provided that the condition in section [Requirement for the Government to commission an independent review on the impact of the 2026 revaluation of hereditaments on provisions of this Act] is met.”
This amendment provides that the provisions of Clause 5 of the Bill would only come into effect when the Government has held an independent review that will consider the impact the effect of the 2026 revaluation on those provisions.
Clause stand part.
New clause 3—Requirement for the Government to commission an independent review on the impact of the 2026 revaluation of hereditaments—
“(1) The condition in this section is that the actions set out in subsections (2) to (5) have been completed.
(2) The Secretary of State must appoint an independent person to carry out a review assessing the potential impact of the 2026 revaluation of hereditaments for the purposes of non-domestic rates on the operation of the amendments made to the Local Government Finance Act 1988 by this Act.
(3) After the review, the independent person must—
(a) prepare a report of the review, and
(b) submit the report to the Secretary of State.
(4) A report prepared under subsection (3)(a) must be submitted to the Secretary of State within twelve months of the appointment of the independent person under subsection (2).
(5) On receiving the Report, the Secretary of State must, as soon as is reasonably practicable, lay a copy of the Report before Parliament.
(6) In this section, references to an ‘independent person’ are to a person who appears to the Secretary of State to be independent of the Government.”
This new clause requires the Government to hold an independent review that will consider the effect of the 2026 revaluation on the provisions of the Bill.
David Simmonds
I will be brief, because we touched on this matter in the evidence sessions yesterday. The amendment and new clause both seek to ensure that the measures contained in the Bill have a review mechanism and impact assessments. The Minister said earlier that he was minded to proceed, regardless of the outcome, but there will no doubt be an opportunity for Parliament to scrutinise the impacts in due course. It is my intention, subject to the Minister’s response, to withdraw the amendment and new clause.
Jim McMahon
Clause 6 provides for when the provisions in the Bill will commence. The provisions in clauses 1 to 4 provide for the new additional multipliers to take effect from 1 April 2026. As hon. Members will have heard, the Chancellor will set out the new multipliers at the Budget in autumn 2025, and those multipliers will take effect from 1 April 2026. Clause 5, which removes charitable relief from private schools, will take effect from 1 April 2025.
As hon. Members will be aware, this Government are determined to fulfil the aspiration of every parent to get the best possible education for their child. It is right that, in pursuing that aim, we focus on the more than 90% of school-age children who attend state schools. The clause will raise approximately £140 million per year by 2029-30. By introducing the clause and the policy to apply VAT to private school fees, the Government will raise around £1.8 billion by 2029-30, which will help to deliver our commitments to education and young people.
Ahead of 1 April 2025, my Department will work with local government to explain the Bill’s provisions so that private schools that should not receive relief can be identified. As we have shown in the impact note published alongside the Bill, we expect around 1,000 private schools across England to be affected by the measures, so we are confident that the relief can be removed from 1 April 2025.
David Simmonds
I am sure that most mums and dads will be glad that excellent education is already available in England’s schools, given the transformation that has taken place in standards. However, we are here to concentrate on finances. For that reason, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 6 ordered to stand part of the Bill.
Clause 7
Short title
Question proposed, That the clause stand part of the Bill.
Jim McMahon
Clause 7 merely states the short title of the Bill.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
New Clause 1
Review of impact on businesses, high streets and economic growth
“(1) The Secretary of State must review the impact of sections 1 to 4 of this Act on—
(a) businesses,
(b) high streets, and
(c) economic growth.
(2) The review must consider—
(a) the impact on different types of business, including small businesses,
(b) the impact on businesses operating mainly or solely on high streets,
(c) whether the provisions have had a measurable impact on economic growth, and if so what that impact has been.
(3) The Secretary of State must lay a report of the review before Parliament within six months of those sections coming into effect.”—(Martin Wrigley.)
This new clause would require a review of the impact of clauses 1 to 4 of the Act on businesses (including small businesses), high streets and economic growth.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Question accordingly negatived.
New Clause 5
Local retention of additional receipts
“(1) The Local Government Finance Act 1988 is amended as follows.
(2) In Schedule 7B (Local Retention of Non-Domestic Rates), after subsection (4) insert—
‘(4A) In the case of any billing authority to which 100% local retention does not apply, as far as practicable, the local and central shares are set so that any additional receipts arising from changes made to this Act by the Non-Domestic Rating (Multipliers and Private Schools) Act 2024 are locally retained.’”—(David Simmonds.)
This new clause would provide that local authorities could retain any additional funds raised by the provisions of the Bill.
Brought up, and read the First time.
David Simmonds
I beg to move, That the clause be read a Second time.
You will be relieved, Dame Siobhain, to hear that these are the last of the amendments and new clauses that I will move for debate.
The purpose of the new clause is to bring in a measure to support the local retention of additional receipts that come from the measures in the Bill. We know that we have been on a journey with local government finance over many years to ensure a greater degree of local retention of business rate proceeds, something that has had cross-party support. It has been done for a variety of reasons, and partly to encourage local authorities to promote growth in their local business community by growing their business rate base and retaining a greater share of the proceeds.
On this specific Bill, the aim is to ensure that the additional revenue derived from the measures is retained by the billing authority, rather than going to another pool elsewhere. The rationale for that is manifold. In respect of the additional proceeds that may come from private schools that are subject to the measures, we know that local authorities may find it challenging, particularly given the timing of the introduction of this legislation, to ensure that there is a place available for any child who is displaced from the independent sector into the state sector—particularly so if that child has significant special educational needs or disabilities. Therefore, ensuring that those resources are retained locally will give some additional element of resource to local authorities seeking to meet that challenge.
We know that one particular dynamic is that the areas where the private schools are fullest are often also the areas where the state schools are fullest; although there is overall a declining population of children in our state schools in England as a whole—I know that my own constituency and local boroughs are a particular example of that, having seen a very large drop and a significant vacancy rate—that is not the case at all phases of education or in all year groups. Therefore, there is already a significant challenge for those parents who have to seek an alternative place for their child, where the retention of the resource locally would give some additional support.
Further, in respect of the additional revenue that may be raised from a variety of different types of businesses, the retention of that support locally would further enable the local authority to use that money to support its local economy, for example to invest in measures to support employment or the development of new businesses. That would be in line with the agenda being set out by the Government, who wish to see growth as a major priority, and it would create a direct link between the local decisions of the billing authority and the financial outcomes that would follow. For all those reasons, I commend the new clause to the Committee.
Jim McMahon
I thank the hon. Gentleman for tabling his new clause. As we have explained, where, as a result of the introduction of additional multipliers from 2026-27, local authorities collect additional business rate income, new clause 5 would allow them to keep that income in its entirety. It would do so by requiring the Government to alter the percentage share of business rates to be retained by local government and the share to be sent to central Government.
In practice, of course, any additional income from the new multipliers introduced by clauses 1 to 4 will vary from local authority to local authority and change from year to year. Those local authorities with fewer large properties may well collect less income as a result of the new multipliers and will therefore be worse off as a result of this amendment. Furthermore, accurate data on that will not be available until some time after the end of the year, whereas the central and local percentage shares need to be set before the start of the year. In practice, we do not think this new clause would effectively achieve the intended outcome. Instead, the Government will work to ensure, as far as is practicable, that local government income from business rates is unaffected by the introduction of new multipliers. That will result in a much fairer and more stable outcome for local government than the one suggested by the new clause.
More generally, the Government have announced their commitment to reform the way in which local government is funded, to return the sector to a sustainable position. That includes the already announced reset to the business rate retention system, as intended when the previous Government established the system. We will use the reset to restore the balance between aligning funding with need and rewarding business rate growth, and we will work in partnership with local government to ensure that the new local government finance system takes into account the impact of the new multipliers on the business rates collected by local government.
I hope I have given the Committee some assurances about how local government income will be protected from the changes in the Bill. In the light of that, I hope that the hon. Gentleman will feel able to withdraw the new clause.
David Simmonds
I know that the Minister is a localist at heart and will generally support measures that increase autonomy and decision making at local level. I recognise that the Government have the numbers to reject the measure. I think the point that it is hard to model the outcome was addressed in previous amendments that the Government chose not to accept, and undertaking a forward-looking impact assessment would enable us to understand better the impact of some of the measures. Given the Minister’s observations and the numbers in Committee, however, I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Question put, That the Chair do report the Bill to the House.
The Chair
I understand that at this point, you all have to be nice to each other. Does anybody want to do that, or are you ready to get on with it?
Jim McMahon
I was going to go on an errand to Tesco to buy some mince pies. This process has been a very useful one. The time that both Opposition parties have given to the preparation of the amendments has really helped the scrutiny of the Bill. That has helped the Government to ensure that the Bill does what is intended, and to provide safeguards to ensure that it does nothing unintended. We have set out our position on the Bill clearly. The spirit in which the Opposition have approached the amendments, by withdrawing them and not pressing them to a vote, and the constructive nature of our exchanges today are to the credit of the Committee.
David Simmonds
As always, it has been a pleasure to serve with you in the Chair, Dame Siobhain. In that Christmas spirit, I thank the Minister for his constructive engagement. It is characteristic of several of the Ministers in the Department, and it has been enormously helpful. I put on record my thanks to the Whips; I appreciate that the scheduling of this relatively short piece of legislation meant that it could have taken up a great deal of time. We have recognised the point, which was made impactfully yesterday, that its overall impact is limited and moderate, so we have sought to approach it in the light of that.
We may have a fairly significant disagreement with the Government about the intent behind the Bill, in the way that it approaches both local government funding and the situation with independent schooling, but we have to recognise the numbers. I thank the Minister and his colleagues very much for the way in which they have addressed this.
Martin Wrigley
This has been my first Bill Committee experience, and it has been interesting and delightfully short. I am delighted to see it executed so effectively and efficiently. I thank the Minister for all his thoughtful and thorough explanations of the different bits and pieces, and I really hope that the legislation will provide good support to our high streets, which desperately need surety about their situation. I thank everybody involved, and I particularly thank the Clerks for their help in explaining to me how the process would work and helping us through it.
Non-Domestic Rating (Multipliers and Private Schools) Bill (Second sitting)
David Simmonds ExcerptsWednesday 11th December 2024
(1 week, 4 days ago)
Public Bill CommitteesRead Full debate Non-Domestic Rating (Multipliers and Private Schools) Bill 2024-26 View all Non-Domestic Rating (Multipliers and Private Schools) Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 11 December 2024 - (11 Dec 2024)
The Chair
We have until 2.20 pm for this segment. Dr Malcolm James is a tax and accountancy specialist and a former senior lecturer in taxation and accountancy at Cardiff Metropolitan University. Before I call the first question, I remind Members that they must remain within the scope of the Bill, which is tightly defined, and that we have to stick to the timings. I call the shadow Minister.
David Simmonds (Ruislip, Northwood and Pinner) (Con)
Q
Dr James: With reference to the private schools?
David Simmonds
In this sitting, the evidence has so far covered both private schools and high streets. You are a tax and accountancy specialist, so you have a broad overview. Is that correct?
Dr James: Yes. The vast majority of private schools are charitable institutions; as such, they have no owners. Therefore the effect of tax will have to be borne in one of two ways: the institutions will need to bear the cost through a reduced surplus, or they will need to pass it on, in whole or in part, to the families of the pupils, by raising fees.
It is clearly no coincidence that the Bill follows hard on the heels of the imposition of VAT, which will come into effect, I believe, at the beginning of next month. There has been an awful lot of coverage, of one sort or another, of the effect of that change. We are looking at the removal of the discount, which is something like 80%, on non-domestic rates. That will increase their property taxes. Although it will doubtless not be as significant as the imposition of VAT, it will have an effect. They will have either to absorb it or to pass it on to the families of the pupils.
David Simmonds
Q
Dr James: I have every sympathy with the families of children who have a variety of special needs, and I do not want to see them suffer in any way, but I want to address one of the points that private schools make, which is that the parents are virtuous and self-sacrificing because they pay again for education and thereby relieve the state of a burden.
In this country, unlike countries in the eurozone, we have a sovereign Bank of England, which creates the pound sterling. It is not revenue constrained, even though the Government usually tend to behave as if it were by convention. There are real economic factors that restrict the amount that it is wise for the Bank of England to produce, or to allow the Government to spend into circulation, but the availability of money is not a limiting factor. There is therefore no inherent reason why the state cannot provide education for children with special educational needs; it is just that various Governments of various complexions have chosen not to do so.
The question is always about the transition, because whatever we do, things are not going to change overnight. You do not want to disadvantage pupils who are currently in the system or will shortly go into the system, but there are workarounds. I do not know whether you remember this, but the parent of a child with special needs was going to be one of the people put forward to front a judicial review to challenge this proposal, and she pulled out when significant funding was found, so there are workarounds if the will is there. In the longer term, there is no inherent reason why it has to be done by the private sector.
The Minister for Local Government and English Devolution (Jim McMahon)
Q
Dr James: I am sorry; I am having a bit of difficulty hearing what you are saying distinctly.
The Chair
We have until five past 3 for this block of questions. We start with the shadow Minister.
David Simmonds
Q
Kate Nicholls: Looking specifically at this Bill, in particular, and just at those measures, I think hospitality is overtaxed when it comes to business rates. It has been for some time. If you look at the system without reliefs, hospitality pays around 12% to 13% of all business rates, but represents 5% of GDP. If you look at the system with rate relief, the high street businesses—hospitality and retail—even with those reliefs, pay 34% of all business taxes.
There is a disproportionate burden, and it has grown over time. That is particularly because there has been a move towards there being more online businesses, whereas ours are bricks and mortar, and they are in prime locations. You cannot provide our services online, so we are in high street locations, where the businesses are heavily invested. Hotels and pubs are taxed for business rates on the basis of their turnover. They can be high-turnover but low-margin businesses, therefore they bear a disproportionate burden of tax.
Reliefs have been in place for a considerable time. Through the covid pandemic, they were a vital lifeline. However, reliefs are annual discounts and they are sticking plasters. They show that the system as a whole is failing, and a systemic failure needs a systemic solution. The Bill is a systematic solution to the problem because it seeks to permanently rebalance the online and the offline—bricks and mortar, and clicks and mortar—so that there can be a permanent discount. The fact that it is permanent means that those businesses can have the certainty and stability to be able to invest over a three to five-year rental period and over the period of a revaluation.
That permanent rebalancing is undoubtedly welcome. It is a change for which we have been pushing for a considerable time, and it will materially impact and benefit the businesses that we are looking to support—the high street businesses so vital to employment across our communities—for a longer period of time.
Steve Alton: I would agree with my colleague on the core points. Pubs are uniquely disadvantaged for two reasons: first, they have to occupy those buildings at the heart of communities and high streets; and secondly, they employ huge numbers of people, many in their first job, and many part-time workers. That is why—contextually; I appreciate this is outside the scope of the Bill—the impact of the national insurance contributions is hitting employees incredibly hard. That is because of the large proportion of part-timers we support in our industry.
Business rates are business critical—they have been in terms of relief levels. Last time, when we achieved the 75% relief, that saved a huge number of pubs. That said, because of the compound impact of energy—that is still ever-present: we are paying double the rates that we were paying pre-pandemic—there is still a structural issue in the market. In addition, food and drink inflation has had compound inflation within it. We have been running at 20% a year for the past couple of years.
Then, obviously, there are labour costs. While we pride ourselves on paying above the minimum wage in many scenarios, we have many stepping-on points in our trade for the start of careers, be that front of house or back of house. We pride ourselves on accelerating those people forward. However, we obviously need a large number of those individuals within the business.
The business rate relief that we received was key, but even with that, things have been pretty perilous. We check in with our membership on a regular basis. Even before the Budget, only one in four of our members was making a clear profit, and half would at best break even. That is before the measures announced by the Government, so the compound impact of those announcements has driven our membership to believe that 80% of them will be unprofitable. Some 75% are cutting paid hours, one in three are making redundancies, and one in four fear that they will be untenable, and that they will fail as a business, when those costs come in. Bearing in mind that most pubs have, on average, 15 to 20 employees, that would have a huge impact on communities, and particularly on disadvantaged individuals who start their careers not with any great secondary education but with capability and character. We can give them that professional development.
Having certainty and a long-term reduction in business rates is critical for planning, because right now investment is being held back—in property and in the evolution of the pub. The pub is a very different vehicle from 20 years ago. If you are a non-drinker, you have a particular food that you wish to eat, or you just want to go to an event and connect with a community, safeguarding against loneliness and isolation, which are real, present issues, we provide that community service, for many reasons, and have evolved the model. As I say, the pub is no longer a drinks-led venue. Do not get me wrong: we are still very proud of what we do around great beers from the locality, but we offer so much more.
The commitment to the relief has been a lifeline. It would be great, alongside the Bill, to see the full level of relief continued, because it will drop off on 1 April, which will effectively double the rate costs being paid by small operators. When 80% are unprofitable, that might be the straw that breaks the camel’s back. Unfortunately, we will lose some long-term viable businesses, through no fault of their own. Market dynamics have put them in a very difficult position. We welcome the Bill, the two tiers, and the permanence and surety of reduced business rates, but Kate alluded to the fact that we need to reduce the overall tax burden. For every £3 that goes across the bar, £1 is coming to the Government in taxation. That is too much. Rebalancing that, which the Bill is a key part of, will unleash investment in people, in property and in providing that community service on an ongoing basis. The pub is probably the last true place that is accessible for all people in a community to come together.
David Simmonds
Q
Steve Alton: Building on that point from a pub perspective, it is about rebalancing taxation overall for pubs, and making it fair. We have always consulted with Ministers and officials across Government on solutions. Our members will always argue for VAT to be reduced on pub sales, because they saw that support in the pandemic and it was an instant injection of cash into their business. It was not about profiteering. Kate alluded to the fact that a pub is a low-margin business. It needs to be profitable because pubs need to continue to evolve the model and invest in what they are doing. We all want to go to great pubs, which do exist. Some of them, despite all these challenges, are doing very well, but they are the outliers. It is the mid-pack operators, who have been doing this for decades and have had long-term viable businesses, who now, frankly, face some very tough decisions.
We are incredibly concerned. At the moment, pubs are all busy looking after customers, which is great; you will see pubs at their best. In January, when it gets quiet and they reconcile the numbers, and there is a head-over-heart moment, I fear that we will lose a lot. If it is one in four, that could mean that we lose up to 15,000 pubs. They will not recover, because they will get boarded up. You see them in all the communities that you represent. They do not come back. When that happens, you have a whole rack of associated issues involving social deprivation and disorder. We work closely as an industry with schemes such as Best Bar None, which is all about creating safe spaces for socialising and, through that, seize the positive impact of hospitality—increased footfall, lower crime, lower social disorder and people feeling safe, because people are out and about in those communities and high streets. That is absolutely key.
Kate Nicholls: Some elements are there. This is a really welcome first step, but the pledge is for root-and-branch reform of business rates, and that is what high street businesses have been calling out for, for 20 years, really. I think that there is need for further reform of the system—you asked particularly about the business rate system—where support could be provided.
Three key elements are included within the wider package of reforms in the consultation paper that was published with the Budget. First, we in the hospitality sector often get penalised for investing in our premises. That delivers higher turnover, but then you get taxed—it is a tax on success and it happens frequently. The suggestion is for a longer period after a significant investment is made before the Valuation Office Agency can come to do a revaluation and look at taking an additional chunk in business rates. That would be incredibly welcome. We suggest that that should be at least as long as the first revaluation period post an investment being made, so that you do not get that significant change.
The second element is the interrelation between business rates and other tax factors for investment in the premises. Again, that is about the penalisation. At the moment, that is around capital allowances, but capital allowances do not extend to leased property. Only about a third of the products that are invested in when upgrading a pub or hotel are capable of being covered by capital allowances. As Steve said eloquently, you only pay corporation tax when you make a profit, and if you are not making a profit, capital allowances do not really help you. We need to look at other ways—perhaps research and development tax credits or discounts off the business rates for investment in green technology, but things that help to incentivise rather than penalise people for making an investment in their premises.
The third element is not in the scope of the consultation, but it does need to be taken forward. There is a very delicate balance between rent and rates, and they are supposed to be self-correcting. In our sector they are not, because rental and lease periods are long, and there are upward-only rent review clauses in most high street and city centre premises. That means that your rent and rates bills cannot reset themselves when there are changes in the market, in the same way as with retail in the high street. There was an outstanding consultation on commercial leases, which was looking at a ban on upward-only rent review clauses. It would be significantly helpful if the Department took that forward separately, as part of a high street strategy.
Jim McMahon
Q
There will always be limitations on just how far any Government action can go, but we believe that this is a comprehensive package that gets the right balance between the online retailers and large distribution warehouses, and those on the street and in communities. On the quite stark warning that was issued about the potential for one in four pubs—15,000, potentially—to close, how would that compare with the past 10 years, say, so that we can put it into the context of the number of pubs that have closed in that period?
Steve Alton: It would be a huge acceleration. The smoking ban was a huge intervention that drove habits and change. In essence, our operators would accept now that it had a silver lining, in a sense, because they had to modernise and make pubs far more open and accessible to all, but this would be an acceleration in the magnitude of failure. We are currently losing about 50 a month. You have seen that in the figures and in the insolvency numbers. You will also see that in your local communities. It is clearly a significant acceleration if you annualise that rate. It will be a cliff edge. Certainty is important.
I will give you an example of—Kate is spot-on about this—penalising success. There is a great operator who runs a brilliant bar in the centre of Manchester. He has tripled his turnover in the past few years from £350,000 to £1 million. He employs 30 people, including a lot of part-time staff and students. He has seen business rates rise in line with that, and that has not given him a breathing space. He currently makes about £60,000 to the bottom line on a £1 million-turnover business. The Budget change will wipe all that out. People will come to a decision about whether running a pub is the right thing to be doing. As you articulated, many of our operators have a social purpose. They want to be in their communities, adding value. For them, it is not an overt commercial play. If it were, the head-over-heart decision would already have driven some of them out. They just need certainty and a little bit of hope.
We are encouraged by the direction of travel. Having the two multipliers specifically for hospitality is fantastic. I encourage applying the maximum in the Bill because it is needed now. We have got a revaluation coming up. As Kate intimated, it probably will not reflect the reality of rents because it will not take into account what happened in the Budget, how that drives the market and the pretty rapid impact that will have. By the time the revaluation comes round, it will not reflect that. There is a consideration about the underlying multiplier, from which the 20p is applied, being dropped, and that being kept under continuous review.
We do not want to penalise operators who invest money and put their heart and soul into these businesses. They want to do many things and they can do them very quickly. One of our platforms is the Sustainability Champion award. We write to all you guys about it—hopefully you will have had some letters from our organisation—applauding the efforts of operators in your localities. They do amazing things rapidly, but some of that is capital restricted. They want to move to fully electric kitchens, and they want self-generation systems and recharging points in their car parks. Some have made that leap, but they are the outliers who can afford to do it. Access to capital is a huge issue in our marketplace. A mid-tier operator cannot get it right now. Banks are just saying no. If we look at the profit and loss, we can perhaps understand why they are saying that, but it creates a negative corkscrew.
We see the direction of travel positively, but I implore the Committee to apply the maximum on the two lower thresholds and keep the overriding multiplier firmly in your sights and make sure it goes down. We want to reduce the tax our pubs pay, not because the money will go into their bank accounts but because it will unlock investment and surety. On tenure, you will know publicans who have been there for 10 or 20 years—they want to commit to those ventures long term. It is not a short-term money-making exercise. It is far more purposeful than that.
Kate Nicholls: May I answer your question about the number of closures most recently? Last year, there were 3,000 closures in total across hospitality as a whole. Since covid, there has been a reduction of about 20% in neighbourhood independent restaurants and 30% in neighbourhood independent nightclubs and late-night music venues. Closures are not just a pub issue. It is hitting across the board. It has also hit a large number of guest houses, bed and breakfasts and independent hotels.
One driver is investment in openings. Unfortunately, a small number of closures will happen every year. It is a devastating human tragedy for those involved, but business failures happen. What drives the numbers is the lack of new openings and investment coming through to reopen premises and get businesses moving again. Business rates are a significant factor in that. I have so many discussions with people about investment in the sector, whether that is foreign direct investment, major private equity or small-scale bank investment. Corporation tax never comes up. Business rates are always an inhibiting factor for investment, so this is really significant.
I echo Steve’s point about the importance of using the maximum for the two rates—the standard rate and the lower rate. There is often a misapprehension that the lower rate is small business and the standard rate is large business. That is not the case. We have many independent, single-site businesses that will be in the upper rate. Applying the 20p discount to both is therefore important. About 30% of hospitality businesses that pay business rates are in the standard multiplier tier, and they account for 60% of employment and 60% turnover.
Let us not kid ourselves, either, that the super-rate charged at £500,000-plus will not have an impact. A small but significant number of hospitality venues are caught within that multiplier. I am not sure that that was always intended, given that—as you rightly say, Minister—it was designed to capture online businesses, so we could look again at some of those higher rates. The Bill gives scope for different businesses to be treated differently in that £500,000-plus tier, and we urge you to make use of that, as well as of the maximum 20p discounts below.
Jim McMahon
That was not my point. I did not use those words.
Steve Alton: But having that assurance is a key part of it. Uncertainty has been impactful on business rates. It has stopped small operators from taking another site. If they take another site, you are talking about £300,000 to £400,000 of capital investment to build a new team of 40 employees, and there is a compound impact on the supply chain locally. A lot of people have held a station and have the ability to do it, but it is just not viable with the business rates bill as it is now. You could unlock some significant investment and growth, and, as we have shown previously, you could do so rapidly.
David Simmonds
Q
Is it your view that there should be discretion on the part of the billing authority so that if they need a sustainable hotel sector in order to meet temporary emergency housing need, or to accommodate significant numbers of refugees arriving, pending onward placement elsewhere, they are able to negotiate? If those businesses go to the wall because of a lack of profit margin, the taxpayer will have to be billed significantly more because those people will have to be placed in accommodation at a higher cost elsewhere.
Kate Nicholls: May I just say that the overwhelming majority of hotels are used by visitors for leisure and business purposes? Our hotel sector is a vital component of our tourism industry and is our second-largest service export earner, in the form of tourism. That is just to put your question in context.
As I understand it, local authorities will have discretionary powers to apply additional relief to those premises, but not to change the multiplier, which is set nationally. It is important that that is retained so that there is a national multiplier. You get distortions if you have different rates. There is discretion if a local authority wants to support a particular business—if it is impacted by flooding, for example, or the authority wants to maintain the provision of a service. The local authority can apply additional discretionary relief over and above the nationally mandated relief. That obviously comes out of its own funding. That is a better way of doing it than changing the multiplier. There is a question about whether local authorities should retain an element of the business rates so they have the discretion to fund, but that is a bigger discussion and is not within the scope of the Bill.
Martin Wrigley (Newton Abbot) (LD)
Q
Kate Nicholls: I think the line of sight and the longer change going forward is really helpful to have set out at this Budget. The rates, we understand, will have to be set when you know what the multiplier is going forward. If you had the maximum 20p discount from the current multiplier, that is broadly equivalent to 40%. That is if the multiplier stays the same; it could actually reduce. It remains to be seen, however, what happens when we come to the end of 2025-26 towards ’26-27 and the longer term. It could look as though it is broadly the same.
Regarding the 40% now, any relief is better than nothing at this point in time—we were facing a major cliff edge. We should, however, be in no doubt that those businesses eligible for relief—given there was a cap, it is the smaller businesses—are facing a significant increase in their business rates bills from April. For the sector as a whole, it is an extra £0.5 billion of tax. If you look at the Budget measures as a whole, we are facing £3.4 billion as a sector: the cumulative impact of the reduction in relief and an increase in bills. On top of everything else, they will have a big chunk of money to pay out additionally going forward. Although 40% is better than nothing, as Steve said, it is less than 75%.
I would just say that when Wales reduced relief to 40% last year, closures in Wales were a third higher than they were in England. Scotland reduced it to zero and failures in Scotland were significantly higher in the hospitality sector as a result. It does have real-world impacts. You cannot take it away from the overall context of the tax situation we are facing as a result of the Budget coming into effect in April, and there is the combined effect of all that happening at the same time.
It should, however, smooth out after that. There is longer-term certainty and, crucially, the new multipliers will apply to each and every premises—there is no state aid threshold or cap. Previously, that has been limited, where the effects of the relief were effectively limited to businesses that had two or three sites. Multi-site businesses and those with larger premises will now benefit going forward, so the industry as a whole will be on a much more sustainable footing, longer term.
The Chair
Q
Barnaby Lenon: Good afternoon, everybody. I am Barnaby Lenon, a chairman of the Independent Schools Council, which represents 600,000 pupils—about 80% of independent school pupils—in the United Kingdom. It is also worth knowing that I set up a state school in east London—the London Academy of Excellence—and I am currently a governor of 11 state schools in Birmingham.
David Woodgate: Good afternoon. I am David Woodgate, chief executive of the Independent Schools’ Bursars Association, which has 1,300 member schools, and we support those schools in all business aspects of the running of an independent school.
Simon Nathan: Good afternoon. My name is Simon Nathan, the deputy chief executive and head of policy at the Independent Schools Council.
Don Beattie: I am Don Beattie, a private-practice chartered surveyor specialising in rating. I am a technical adviser to the Independent Schools’ Bursars Association and I am here in case anything technical should arise.
David Simmonds
Q
There are a number of proposals on the nature of business rates and how they are applied. A lot of schools are not merely involved in education but have things such as nurseries and other ancillary facilities on site. Could you give us an indication of how your members would be impacted by what is proposed in the Bill? Do you consider that improvements could be made to take account of the fact that, for example, if a nursery is in a separate building on a separate site, it is not within scope, but if it is on the same site, it is within scope?
Barnaby Lenon: We are trying to make two points today. One is that the Bill is inadvertently creating a two-tier charity system—we may come back to that. The other point, which I think relates to your question, is about the impacts on our schools, including faith schools, but more particularly on our pupils and parents. David, you are probably best placed to answer the question on the finances.
David Woodgate: The impact on finances is material. I accept that we are talking about business rates today, but we cannot do that in isolation in respect of the other three financial shocks impacting on independent schools within the past 12 months. The first was the increase in teacher’s pension contributions from April last year, going from 23.6% to 28.68%. Secondly, in common with every other business, the national insurance increases and the lowering of the threshold have a material impact on our schools. Some 70% of the cost base of a typical independent school is staff costs, so clearly that will have an impact, and schools have just not had the time to prepare for that—to build it into their budgets, and indeed their fees, for the remainder of the current academic year. We also have a 20% VAT rate from 1 January, with just two months in which to have prepared for that. There was a reasonable expectation that that would not happen at least until next September.
Alongside those three financial factors, business rate relief is—dare I say it—the icing on the cake. It is the fourth leg of a quadruple whammy that will impact extremely negatively on our schools. They are considering closure. Probably the only lever that a lot of our schools have to face up to some of these challenges is redundancies. I have schools that are now looking at redundancies. Most teachers are on one term’s notice, so it has not worked through yet, but, over the course of the rest of this academic year, I think that will inevitably be the response of many of our schools. They just cannot afford those four elements all together.
If I were to make a plea, it would be to give us some grace on the implementation of the business rate relief, as a way of helping schools to get through an unprecedented number of financial shocks. If it could at least be deferred until April 2026, or perhaps phased in, with a 20% reduction over each year up to five years, that would be of tremendous assistance to schools labouring under a real financial burden that is not impacting on any other section of the economy. No other section of the economy has those four shocks simultaneously.
David Simmonds
Q
May I ask about one of the things we will consider tomorrow? I think most of us will have been contacted by constituents who have been displaced from the independent sector but are unable to secure places in the state sector. What about supporting state schools that have to deal with that in-year impact, whereby they will not be funded through the normal autumn-winter pupil count, because that has already taken place, and therefore will have to wait a long time before they see any additional funding? We could consider ringfencing the proceeds locally, so at least that would mitigate some of the impact of that displacement at a local level. I am interested in whether you have a view of what mitigations—by way of local discretion, ringfencing of the proceeds, or otherwise—we could put in place, in particular to help those families who have been pushed out of the independent sector but are unable to secure a funded state school place for their child at this point.
Simon Nathan: There is a number of areas. In terms of mitigations of the Bill and relieving pressure on the state sector, one area where we have concerns, for example, is the treatment of children with special educational needs. I say at the outset that we wholly recognise the measures in the Bill to exempt those schools with more than 50% of their pupils on education, health and care plans, but the independent sector as a whole educates 130,000 children with special educational needs—100,000 do not have EHCPs and 30,000 do. Those pupils will be scattered across different schools in the sector. Often, they will be in smaller schools with small class sizes, and not all those schools will get the protection of that EHCP threshold. Those schools will be faced with paying the business rates bill or parents seeing some of that passed on to their fees.
We know it is not the best time for there to be more SEND pupils going into the state sector. Only yesterday, the Institute for Fiscal Studies put out a report saying that high needs budgets were £3 billion in deficit. One of the mitigations we would like to see is an expansion of the exemptions given to pupils with special educational needs and disabilities, perhaps exempting schools having 50% or more of pupils with SEN but not necessarily always on an EHCP, so that they can also benefit from that type of exemption to mitigate the additional pressures on local authorities’ SEND provision.
Don Beattie: May I add to what Simon is saying? Currently, the provision is written such that that EHCP is the determinant for excluding the school from the definition of “private school”. However, in schedule 5 to the Local Government Finance Act 1988, you will find an adequate definition of “disability”, which references the Equality Act 2010.
David Simmonds
Q
Simon Nathan: We recognise that there has to be some sort of boundary, and obviously it would not be possible to draw up an exemption based on a tax on property that exempted every pupil with SEN. Our suggestion is that schools where more than 50% of pupils get SEN support would benefit from that exemption. We looked at the numbers, and that would bring in perhaps an extra 100 schools and an extra 4,500 pupils. Clearly, if you are a pupil in a school that has more than 50% SEN, you are going to have a certain level of need, and perhaps the needs cannot always be catered for in a mainstream school.
Jim McMahon
Q
Barnaby Lenon: We have a huge range of types of school. At one end, there are quite expensive boarding schools. Their fees are often quoted, but it is very expensive to run a boarding school. They are not typical, because the average independent school in our sector has 280 pupils—so it is pretty small—and half are smaller than that. I have been a governor of schools with 120 pupils, but the special needs schools we are talking about often have 50 pupils. There are plenty of faith schools, about which Simon will talk in a moment, that also have very small numbers, yet are quite important in their particular faith community.
The average fee for a day school is about £18,000, but half are less than that, and there are some with incredibly small fees—just a couple of thousand a year, which is less than would normally be spent on a pupil in a state school. There is a massive range in terms of fee and size of school. We are particularly concerned about the low-cost and small schools, because those are the most vulnerable. They are already closing. Through our surveys, they have told us that they are going to close if the situation continues as, so far as one can see, it is going to continue.
Simon Nathan: As Barnaby said, there is a range: 1,000 schools, or 40% of the schools in our sector, have fewer than 100 pupils, so they are not always very big schools.
To touch briefly on faith schools, 20,000 children attend Muslim faith schools in our sector, and those schools charge an average of £3,000 per year in fees. There are Orthodox Jewish Haredi schools in our sector—65 schools that educate 20,000 children. On average, those schools ask for about £100 a week or less, and those schools are modelled in such a way that if a family comes in that cannot afford the fees, the school will accept them anyway. It is the community that steps in and fundraises to make up that financial difference.
To give an example, those types of Orthodox Jewish Haredi schools run on a low-fee model, and quite a lot of them are in London where there are high property prices. As Haredi Jewish families tend to have more children on average, a lot of those schools will have pupil numbers of around 800, so they will be in quite large buildings and will have quite large rates bills when this change comes into effect. I have spoken to representatives of those communities who are extremely concerned by the impact that this will have. They use a low-fee model, so they do not get huge amounts of money in fees, but the rates bill could be tens of thousands of pounds, if not more. The only way that those schools can bridge that gap is through fundraising from the synagogues in the community. If that money cannot come forward, those schools just do not have the money to pay the bill, so they are very concerned.
The Chair
Rachel Kelly is assistant director of tax and finance policy at the British Property Federation. This is a one-man panel until 4 pm.
David Simmonds
Q
Rachel Kelly: Thank you for having me. I am Rachel Kelly, assistant director of tax and finance policy at the British Property Federation. We represent members who invest in property across the UK. Our investors are typically long-term institutional investors in all sorts of commercial property—not only the traditional asset classes of retail, logistics and offices, but newer asset classes of datacentres, lab space, GP surgeries and so on. That is just to give you some background.
We have lobbied about business rates for a very long time. We are big stakeholders in property and we want to see a functional, fair and responsive tax system, so our two fundamental and long-standing asks of business rate reform are these. First, the tax burden is very high, and the property tax burden in the UK is over double the OECD average, so we have a very high tax burden on property and we would like to see that come down. The Bill does not achieve that; it does the opposite, because the temporary relief for retail, hospitality and leisure had been funded by central Government and it proposes to bring that funding within the business rate system, so that the tax burden to fund the relief for some sectors will fall on all business.
Our second fundamental ask for reform of business rates is to have a more responsive tax system, which responds more quickly to changes in the economy and in rent. It is difficult to say, but the Bill is relatively radical—it introduces new tax rates for different asset classes, and different valuation points—so it will add a bit more complexity into the system. It will also introduce new cliff edges into the system, which arguably could create more contention on valuation. I know you have already heard from people giving evidence about the huge backlogs in the valuation system in appeals. Potentially, with the new cliff-edge points, we could create yet more appeals. All that, coupled with the additional complexity, will probably make it even harder to automate, digitalise and reach more frequent evaluations, which we think should be the ultimate goal of the business rate system.
David Simmonds
Q
Rachel Kelly: One positive, which we have heard from other people today, is that having stability, certainty and predictability around tax is important to occupiers and investors alike. Recognising the benefits of those temporary retail and hospitality reliefs to such businesses, and making them permanent, is a good thing, but Government could go a lot further. At the moment, we have a tax system where the tax rate fluctuates at every valuation, so, depending on the relative change in property values, the tax rate will change at each evaluation, and it goes up by inflation every year. That is unlike any other business tax rate. Therefore, if the Government really want to provide certainty, stability and predictability, which is good for business and good for investors, probably the best thing they could do would be to fix the tax rate so that businesses know, year on year, that really the only thing that will change their tax bill is whether their property has gone up or down in value.
Then I would reiterate my other point: we have a property tax burden in the UK that is more than double the OECD average. We are pretty much at the top in terms of the tax we levy on property in the UK. That, in and of itself, is not very competitive.
Similarly, I would come back to the point around more frequent revaluations. If you have a responsive tax system that reflects those property values more quickly, you are more able to support those businesses or sectors that are struggling more quickly, because their valuations will reflect that more quickly. That is actually better for the Exchequer as well because, as different sectors grow and improve, the Exchequer can generate revenues from those sectors more quickly.
Jim McMahon
Q
We have heard from other witnesses today about the relationship between business rates and rent levels, and in the end that is a self-correcting system when it works well. It would be useful to get your insight, from your perspective and from the industry’s, about what headroom exists, certainly for institutional landlords. There are a number of us, I think, who reflect on our own local economies and see very high rent levels being quoted for properties that have been empty for many years and have no prospects of getting tenants anytime soon. It would be helpful for us to get a feel of how the system is working as an industry.
Rachel Kelly: Sure. I did listen in to the sessions this morning, so I heard some of the discussion around the relationship between rent and rates. I will try to pick up and respond to a few of those points. There clearly is a relationship between rent and rates but, as one witness said this morning, the evidence is very thin. We conducted some research about a decade ago that showed that there was a relationship between rent and rates, but that relationship was not as strong in certain asset classes and in certain geographies, and it certainly is not as strong in retail.
We know that, for many of our high streets, where you might have 20% vacancy rates, ultimately the occupiers have much more negotiating power in those environments. So, actually, until the significant supply-demand imbalance rectifies on those high streets, we would expect the benefits of a business rate discount to predominantly fall to the occupiers. That is until such time as that supply-demand imbalance—or the vacancy rate—improves, at which point, arguably, the policy might have worked.
To the point around empty properties with artificially high rents, we represent long-term investors in property—institutional investors in property—and a lot of our investors in property are our pension funds, our insurance companies and so on. They want long-term income returns for their pension holders, unit-holders and ultimate investors, and the only rational decision for an investor is to try to seek those rental-income returns.
Perhaps, at the margins, people do keep their properties empty, but it seems wholly irrational. If I was an investor or a pension fund holder, I would not want somebody managing those assets to be keeping properties empty and not generating rental income from them. I do not think it is a pervasive issue; all I can say is that it is not something we see in our members.
David Simmonds
On a point of order, Dr Huq. I wanted to check the timings for today’s Committee. The invitations sent out to secure Members’ time had this Committee concluding at 4 pm today and tomorrow.
The Chair
We are going on until 4.40 pm, although there may be votes. The decisions were made by the Programming Sub-Committee all those days ago.
David Simmonds
I am referring to the diary invitations that were sent out. Separate information is sent to Members’ diaries electronically from what is on the agreed programme. I want to make sure that we confirm the time with Members. I am more than happy to stay here to conclude today’s business, but we need to ensure that Members know what time they need to book out in their diary.
The Chair
It sounds like a mismatch in communications. The Clerks will follow up on that.
Examination of Witness
Professor Francis Green gave evidence.
The Chair
Theoretically we have until 4.20 pm, but we are expecting to be interrupted. I call the shadow Minister.
David Simmonds
Q
Professor Green: In one word: marginal, because the sums are not enormous. I made an estimate, now a couple of years out of date, which suggested that the amount of tax subsidy was in the order of £142 million across England as a whole. In today’s money that is probably about £150 million, which you will appreciate is not enormous in the big scheme of things. None the less, it is probably a fairly fair policy. I think of my own town of Canterbury, which has quite a few private schools, including the oldest private school in the country, King’s school, which owns a lot of property around the town but pays only one fifth of the local taxes it would otherwise pay. It seems to me that by subsidising them we are mainly subsidising rich people.
David Simmonds
Q
Professor Green: I do not think it will have a great deal of effect. I offer you a small piece of evidence for that, which is the case of Scotland, which took an equivalent measure to this two and a half years ago. There was much protest beforehand from the sector that this would reduce not only the numbers attending the schools but schools’ ability to finance bursaries, which make a small difference, as you know, to making the schools a little bit less exclusive. The evidence to date, however, shows no noticeable difference whatever. It is perhaps too soon to tell, but we have seen no collapse or catastrophes as was predicted beforehand. That is one small piece of evidence that I offer you. I really do not think that it will make a great deal of difference.
Jim McMahon
Q
Professor Green: I have made no direct assessment of this particular measure, but I have made estimates using econometric studies of the impact of the imposition of VAT—which is not under discussion today, but, in terms of the magnitude of the sums involved, this measure involves much less. The best estimates of the econometric studies suggest that somewhere between 10,000 and 30,000 children might, over the course of time, be switched away from the private sector. If we take that, let us say about one tenth, in terms of the sums, you can see that the figure is relatively small.
I will admit to a certain degree of uncertainty in those estimates. We do not know enough to be precise, but I would be prepared to put my money on it that it will not be a vast number. Probably it could not be tested, because with the small changes that occur, it will be difficult to say, “That is because of this,” rather than because of the many other changes that happen—the circumstances of the particular market.
The Chair
We will move on to our next panel—the 11th panel—and hear oral evidence from Jim McMahon, Minister for Local Government and English Devolution in the Ministry of Housing, Communities and Local Government. We have until 4.40 pm, unless we are interrupted by the vote, but we will cross that bridge when we come to it. The Minister probably needs no introduction, and there are probably loads of Members who want to ask questions, but we will start with the shadow Minister.
David Simmonds
Q
Jim McMahon: Thank you. It is important to say that we are determined to create a fairer business rate system that protects the high streets, supports investment and is fit for the 21st century. To deliver that pledge we have outlined these measures, which have been well rehearsed in evidence, and we will explore them further in Committee tomorrow. We have been clear in targeting the interventions, because it is about delivering a manifesto commitment to ensure that we better reflect the changing nature of the high street. In every community, you will hear about local businesses at their wits’ end and feeling as though the Government have not been present, with the online world growing at a rate of knots and the high street getting more and more difficult. We all see that across the board.
There was particular pressure on retail, hospitality and leisure during the covid period, which saw many businesses go to the wall, but that reflects the fact that the support on offer managed to get a number of them through a very difficult period. But they knew that that 75% relief was coming to an end. It was a cliff edge. There was no accounting or provision for it going forward. Everybody in the room must have heard businesses say, “We do not know what is coming and we are nervous about the future.” These measures are about providing that permanent relief—the 40% relief will make a huge difference to high streets, town centres and communities across the country—but also about giving certainty so that businesses can plan ahead.
We are confident that these are the measures that businesses have been asking for, but they have to be self-financing. If we have learned anything, it is that there is no magic money tree. If we give in one part of the economy, it has to come from another part, so where is it best to take from to provide that rebalancing? The fairest way is to target those higher-value properties—1% of the system. We need them to give a bit more, because the high streets and communities need that back support. By and large, that will be warehousing, distribution and the large sheds on the side of motorways, and quite rightly, too, because they are doing well. Their turnover is high, and it can be used to support local businesses on the high street and in town centres.
Every piece of evidence we have heard today, whether from the pub industry, retail or even property investors, has said that the clarity and certainty of investment on business rates is important and welcome. The reach that it has across a range of different sectors will definitely have an impact. Also, the fairness in the system—those with the broadest shoulders, with the highest-value properties over £500,000—is absolutely what is needed. We are very clear about the impact.
Clearly, this is only one part of the process. The actual rates will come later and they will be subject to a separate process, but we are clear that this is the right thing to do and it has been noted in the evidence we have heard today.
Vikki Slade
Q
Jim McMahon: It will. We need to stay in scope of the Bill, but the Bill does not sit in isolation. This is a wider package of reform and intervention, reflecting the fact that businesses do not operate in isolation; they are part of an ecosystem in many places. Think about the impact of, say, an anchor department store closing, or a bank branch, a post office or an office block. What that does to the footfall in a place has a huge impact, so we need to take a range of measures. We absolutely understand the importance of town centres and high streets not just to the economy but for identity, pride and confidence in the future. I will be careful not to stray too far out of scope here, but communities often feel they lack the power to take control of their high streets. There are cases where a unit has been left vacant and there is a local business that would take it on, but the landlord is not interested, either because they are absent and missing in action, or because they are an investor where the bulk value is more important than the actual rent that can be collected.
That is why things such as the community right to buy, which gives the community the right to have assets, and a community asset register, which gives protection to assets of community value, are important. It is also important to provide more time for communities to self-organise and maybe take over some of these assets. This is an important step that will go some way to achieving that, but in isolation, it would not be enough, which is why the other steps we are taking will make a difference. Where this will make an absolute difference is that once we have dealt with the empty property, the businesses that occupy it onwards can be that bit more viable, because the business rates will be lessened on their operating costs.
Non-Domestic Rating (Multipliers and Private Schools) Bill (First sitting)
David Simmonds ExcerptsWednesday 11th December 2024
(1 week, 4 days ago)
Public Bill CommitteesRead Full debate Non-Domestic Rating (Multipliers and Private Schools) Bill 2024-26 View all Non-Domestic Rating (Multipliers and Private Schools) Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 11 December 2024 - (11 Dec 2024)
The Chair
We now hear oral evidence from Gary Watson, chief executive of the Institute of Revenues, Rating and Valuation. Before I call the first Member to ask a question, I remind the Committee that questions should be limited to matters within the scope of the Bill. We must stick to the timings in the programme order that the Committee has agreed. For this session, we have until 9.50 am.
David Simmonds (Ruislip, Northwood and Pinner) (Con)
Q
Gary Watson: Thank you for the opportunity to speak to the Committee. As a professional body, we have members in both the private and public sectors, so we look at the bigger picture when it comes to non-domestic rate, and the high street is the key part of non-domestic rate, in particular from a local government perspective.
I think it is fair to say that we welcome the focus on the high street. What I mean by that is the giving of some degree of certainty. One weakness, certainly since the Localism Act 2011, is that we have had temporary support—from one year to another. We now have an element of certainty, which is to be welcomed. As a professional body, our concern about giving that support to the high street is to do with the complexity in the rating system. At the moment, we have two multipliers, and we are going up to five or six multipliers. That is difficult for people to understand.
We have had the temporary support for the high street. It is fair to say that the high street is changing; every weekend I go down to my own high street and there are different types of shops. The high street is still thriving, but it is changing in lots of different ways, and the way that the business rate system works needs to be flexible to meet different challenges.
No one high street is the same as another. You have to recognise that a high street in one area of the country is completely different from a high street in another area, but we have a national non-domestic rate system and we very often apply a national system to local issues. Back in 1990, there were no rateable value limits to reliefs; now we have rateable limits all the time, and that means that different areas of the country get treated in different ways. The high street still needs to be a focal part of any Government measures to reform the business rate system.
David Simmonds
Q
Gary Watson: Different issues come out of that. Business rates are a major source of local government finance, and local government needs to plan its finances ahead. On ensuring that the high street is aware of the changes, the longer the notice you give, the better. Local government always reacts very quickly, and the high street should be given as much notice as possible— I would normally say a year, although you could pick a different time period. From a planning and local authority point of view, the longer you do a proper consultation—consultation is going on now—to engage with the local community, the better. There will be different high streets in different areas, so you may have more than one high street to focus on. One example of good engagement has been local authorities working with business improvement districts.
It is right to have flexibility. Obviously there are limits, with the two lower and one or more higher multipliers, and you could argue that that creates an element of uncertainty—not knowing what one multiplier will be from one year to the next. But at the moment, you really do not know what you will have from one year to the next, and that does not allow the local authority or the high street to prepare.
The Chair
We will now hear oral evidence from Paul Gerrard, director of campaigns, public affairs and board secretariat at Co-op. For this session we have until 10.20 am. Welcome.
David Simmonds
Q
Paul Gerrard: Thank you for the opportunity to speak to the Committee. The Co-op Group has about 2,500 stores right across the country. They are predominantly small stores; they are convenience stores on high streets and in local precincts. Our rates are significant: they are the third biggest operational cost we have after people and rent, and in 2024 they are expected to be just north of £100 million. Our stores are overwhelmingly small stores in communities, and the point about those kinds of stores and the high streets they are on—
The Chair
Order. Mr Gerrard, can you speak up a bit? The broadcasters are having trouble picking you up.
Paul Gerrard: That is not something I often get told, but I will try to speak a little bit louder.
Our stores are overwhelmingly in the heart of communities, on high streets or in precincts, and they are anchor institutions for many in the community. We saw during the pandemic, in technicolour, how all those local stores are genuinely the heart of communities. That is still true now—it is just perhaps a bit quieter and over a longer period. Certainly for us, when you look at communities that are facing tough and challenging times, you will see boarded-up shops. In a sense, that is the flip of a vibrant high street.
There are obviously bits of this Bill that we do not yet know: we do not know, as the previous witness said, what the revalorisation exercise will do and we do not know the precise multipliers. However, as far as we are concerned, this will have a positive effect on 92% of our estate—a significant impact. It will also, as far as I can tell from the data I have seen, positively impact about 98% of all retail stores.
This Bill will mean, I would expect, that some of our properties, depots and headquarters will pay more, but we think the value that shops bring to high streets—not just commercially, but socially—is important, and therefore we should rebalance. We have been calling for that for a long time. We very much welcome this Bill; obviously the detail is to be confirmed, but the policy principle behind it, to support small stores in communities, is absolutely right.
David Simmonds
Q
Paul Gerrard: We have about 2,750 properties, of which about 220 are not classed as retail, hospitality or leisure. Those will be depots, our funeral business, care homes, our headquarters and so on. We have about 2,500 stores, and of those about 62% have a rateable value of less than £51,000, and just over one third have a rateable value of between £51,000 and £500,000. They will go into what we are assuming will be the two lower multipliers. We do not know what the levels will be below the standard multiplier but, taking the industry’s working assumptions of 10p and 20p, that will have a significant impact.
The properties we have outside that group, which are either non-retail, hospitality and leisure or are bigger than £500,000, make up 20% of our rates bill. They will not benefit—in fact, we would expect the rates bill for the big properties to go up—so there is a bit of a balance, but for us overall, it will significantly support our stores. In addition to our 2,500 stores, the Co-op also wholesales to another 5,000 or 6,000 independent stores. I have talked to colleagues in those businesses and, again, this new structure of rates will significantly support those independent small stores as well.
Jim McMahon
Q
Paul Gerrard: You are absolutely right; many of our stores are on high streets, but a lot are just local stores that will be the corner shop on a street. The rates bill is significant—as I said, it is one of the top three costs that we have, alongside our people. As you know the Co-op has always paid the Living Wage Foundation’s real living wage, because we think that is the right thing to do, and that is for every colleague, regardless of age or employment status. The other top cost is rent, and then the third one is rates.
I do not think we close stores because of rates, but the current rate system makes it really difficult for some stores to be viable. If we then add to that issues around crime—I have given evidence in this place before on that—there are a lot of costs hitting us. The proposals here are particularly important for those small stores. I think about two thirds of our stores are underneath a £51,000 rateable value, and that rates bill will have a significant impact on the viability and profitability of those stores. You are right that, during the pandemic, when we were all told to stay at home to keep safe, my colleagues and shop workers throughout small stores went in and made sure that the shops were open so that people could get food and water to live.
As I said before, I think we saw in technicolour how important small stores are. The retail sector is multichannel and there are lots of different parts to it, and those different parts play different roles and have different impacts. Small stores are the beating heart of communities. We have done some work, which we are just refreshing, that says that, if you have vibrant high streets, you have better mental health. You have a whole range of better outcomes, and those small stores are at the heart of it.
Michelle Welsh (Sherwood Forest) (Lab)
Q
We have seen the demise over the years of many local stores—not the Co-op, but generally, the store in the middle of the community that knows the local people. When I worked at my local store, I knew that if someone did not turn up for their Sunday paper, there was a problem. Promoting that sort of community feeling crosses all Government Departments, not just those dealing with health and wellbeing. Do you think the Bill will help to ensure that your local stores become more accessible and that you will maintain your connections with your community, and that it will be about working with the Government in all areas that deal with combating poverty and child poverty and improving child health?
Paul Gerrard: The short answer is yes. Fundamentally, the Bill will ease the burden of rates on small retail and leisure premises. That is the bottom line. Two thirds of our estate are below £51,000; they are the sort of shops you just described. The Bill will significantly reduce the burden on them and on shops between £51,000 and £500,000, so I think it will help.
In a number of things we have done, including our loneliness campaign, and in tackling retail crime, we see how shops in general can be anchor institutions for communities. I do not think we always recognise that in policy, but I think the Bill does recognise it in saying that that is, by definition, a good thing. Government could think more about what all sorts of retail can do—not just economically or in terms of jobs, but in terms of the impact they can have in communities. The Bill recognises that as a policy principle, and I think that can be a first step to thinking more about the way shops support and function in communities.
David Simmonds
Q
The Chair
Order. That is outside the scope of the Bill.
Paul Gerrard: I can write to you after the session to explain the relationship.
David Simmonds
Q
Paul Gerrard: We have looked at the Budget and other measures in the round. It is not an insightful thing to say that the employer NICs changes will certainly cost a significant amount of money. On top of that, we have the real living wage; as I said, we pay the Living Wage Foundation living wage, which has cost us probably £160 million over the last three or four years. So there are headwinds coming toward us. I would not underestimate the impact that tackling retail crime could have. It costs the retail sector £3 billion and the Co-op £120 million, so if you can make a 10% or 20% reduction, it will be significant. As I have said, I think the rates proposals are good for the vast majority of retail.
Looking at it in the round, the headwinds we will have to face and the supporting winds are becoming clearer, which allows us to plan. We have plans to grow our business. The environment is challenging—retail always is—but overall we think we are beginning to get the certainty we need. For a national business consisting of small shops, like the Co-op is, we think the rates proposals are really supportive.
The Chair
We will now hear oral evidence from Edward Woodall, Government relations director at the Association of Convenience Stores. We have until 10.40 am for this session.
David Simmonds
Q
Edward Woodall: Thank you very much for the opportunity to give evidence. The Association of Convenience Stores represents the UK’s 50,000 convenience retailers, which trade from premises under 280 square metres—very small premises. To give you a sense of scale, the absolute biggest retailer would have a store that is double the size of a tennis court, and most are smaller than that.
The Bill is very helpful, because most of those stores will benefit from the lower retail, hospitality and leisure relief multiplier. Some 71% of our sector are independent retailers, and a large majority will benefit from the lower £51,000 rateable value threshold. In that sense, it is very positive for the sector, but it is also very positive for the places where they trade. We talk a lot about high streets—we use that as the shorthand term—but actually most of our members trade from secondary shopping parades. About 70% are in those secondary areas, servicing a neighbourhood parade—a small block of perhaps five shops—so they support the provision of services very locally, close to where people live and work. In that sense, the Bill is very beneficial. It will also hopefully help to give some more certainty and permanency to the support to the sector in the long run, and certainty about investments that they can make in the future.
I will give you some examples. For a convenience retailer just outside the small rate relief threshold—with, say, a £15,000 or £16,000 rateable value—if the multiplier were set 5p lower, that business would save something like £1,000 a year. If it were set at 20p—the full extent of the flexibility—the business would save something like £3,000 a year. Those are quite reasonable sums and would enable it to consider investing elsewhere. It could be in new software to help it manage shifts or new a CCTV system to help it address the issue of crime. So overall, the Bill is very positive.
On the question about post offices, there are, I think, 11,500 post offices in the UK, and about 8,000 are hosted within convenience stores in a Post Office Local format. There are lots of other services, such as parcel collection and bill payment. Service provision, which is very high volume, low margin, is a big part of the convenience store business. Sustaining them is challenging within the existing environment, so it is important that the support is targeted in that way.
David Simmonds
Q
Edward Woodall: Small business rate relief is incredibly important for our membership as it helps the very smallest businesses to get relief. It also has some very specific features. It is automatically applied, and there are tapers between £12,000 and £15,000 rateable value. It really supports the very smallest businesses in our sector, which trade in rural locations and often serve isolated communities. We are very keen that, with any change in business rates legislation, we get some reassurances that there is a strong commitment to retaining small business rate relief. As much as the multipliers are very helpful to businesses at the larger end of our membership, it is really important that we protect that small bit. The small business rate relief is a great mechanism for doing that.
We have lots of suggestions about how we might improve small business rate relief in the future, to make it work better for more retailers. With the upcoming revaluation, we are likely to see higher retail prices and, as a result, the thresholds need to index up with that higher cost, otherwise businesses are going to start to slip out of the small business rate relief support. Certainly, as much as we welcome this Bill, we would like to hear more about what we can do to improve small business rate relief, to help the smallest businesses in isolated locations.
Jim McMahon
Q
Edward Woodall: Very much the majority of the membership. The breakdown of the membership is that about 71% are independently operated across the convenience sector, and the other third are operated by multiple retailers—they might be a Co-operative, a Sainsbury’s Local or a Tesco Express. The large majority of those premises will sit under the £51,000 rateable value or still use the standard multiplier. Of course, when you take into account hospitality and leisure, we understand that that will be lower as well. So overall, most convenience retailers, as small format retailers trading from spaces under 280 square metres in secondary locations, will benefit from the lower multiplier.
David Simmonds
Q
The Chair
That is slightly out of scope of the Bill. Could the witnesses comment on it within the context of the Bill?
Helen Dickinson: Certainly. I will kick off. I have been doing this job for 12 years, I think, and business rates have always been a big issue for retailers of all shapes and sizes. There have been many attempts over many decades to look at how the system could be reformed. That recognition that the business rate system as it stands disincentivises investment in communities up and down the country is very welcome. The starting point is a great recognition that there is a need to reform that system. It is also great to see the importance of retail, hospitality and leisure businesses in that context and to be thinking differently about the business rate system and how it applies to those businesses, because for many other industries, business rates are a tiny proportion of their cost base, whereas for retail and hospitality, it is a much more significant part of their costs.
Our headline, in the context of welcoming that and all the potential that it has to stimulate local investment, is that it does not necessarily go quite far enough to be able to deliver the scale of investment and far-reaching change that we need to see up and down the country. The reason for that has to do with the level of £500,000 and above for the threshold. About 4,000 shops currently sit above the £500,000 rateable value threshold. Many of those shops sit on high streets up and down the country. Many of them are what in retail we might call anchor stores: they drive footfall. That is part of the ecosystem where larger businesses and smaller businesses all co-exist, and that is what makes successful high streets.
From a retail point of view, because those 4,000 shops potentially are captured by the threshold, they are, in the way many businesses think about investment, looking at what their customers want in local communities and whether that is an out-of-town shop or a shop in a high street. If you are penalising some shops to support other shops and hospitality businesses, the ability for the ecosystem of investment that we want to drive to reinvigorate high streets is being held back.
I think that is a big question, because of the way the whole Bill is set up. Does that work in the context? Are there enough other properties that are not retail and hospitality businesses to be able to still achieve the parameters of the Bill and the self-funding mechanism that it creates? About 12,000 other properties that are not retail, hospitality or leisure businesses sit above the £500,000 threshold. For those businesses, that business rates change, if there is a higher multiplier, is a tiny proportion of their profits—I think our modelling suggests about 0.2%. For all of the other companies right across the economy, this is a much smaller issue than it is within the retail industry, and the hospitality industry for that matter.
We think that either through the Bill or through some sort of assurance from Government that they will look at it—as I understand it, it does not necessarily have to be done through the Bill and the Government can actually make that decision outside it—we need to really think about how those over-£500,000 properties should be taken out of the upper-level funding elsewhere. The ability to support retail and hospitality businesses in their totality is the way that it should be thought about.
To touch on a bit that may be out of scope, this comes in the context of the significant cost changes that the Budget and particularly the national insurance changes represented. Again, just to put some numbers out there, we looked at this, and the cost of the national insurance change is about £2.3 billion across retail and hospitality. We are talking about a potential benefit of about £1.3 billion if you include all of retail within the scope of the Bill, so it is a lower amount, I suppose, than just the national insurance change. That is another reason why we think it is really important that we include all shops—the context being that nobody ends up paying more, the smaller shops end up paying less, and you just take those larger shops out of the uplift as the way to really drive that investment in local communities.
David Simmonds
Q
Tom Ironside: On the existing system and its fitness, or its ability to actually handle what may arise, I think there are long-standing concerns about the ability of the appeals system to respond effectively, with long backlogs and people reporting that they exit one revaluation not having resolved issues from the previous ones. There are real long-standing issues that need to be tackled.
Inevitably, if you look at the approach that is being taken, the introduction of a new threshold will create additional tension for companies that sit just above that threshold, and that is likely to increase the number of appeals. It may also have an impact on investment decisions as you get close to the threshold, because there is a marginal tax rate impact, which could be very significant if you move from being in receipt of a discount for retail property through to seeing an upward multiplier under the existing proposal.
Jim McMahon
Q
Also, although it can be portrayed—and has been during this evidence session—that the relief is being decreased from 70% to 40%, the truth is that the temporary relief over covid was due to come to an end. That was a cliff edge, but this measure provides a permanent relief in legislation, which gives certainty over the long term. It would be interesting to know the views of your members on that.
Helen Dickinson: I just heard the end of the previous session. Obviously we have got to get to the point of implementation, but once we are there the long-term certainty is going to be really important. I completely understand the context in which the covid support was given and how valuable that was. Painful as it may be for many businesses when transitioning from a higher discount to whatever the new system might be, longer-term certainty outweighs that because we will not be limping from year to year waiting to see what that might look like.
In the context of your point about the proportion of businesses and shops that would benefit from the proposals as they stand, I completely agree that the 4,000 shops I mentioned is less than 5% of the total number of shops. Where it becomes much more difficult is that, if you look at that small proportion of shops, it is about a third of the rateable value of all shops.
If you think about it within a retail context, what we are effectively doing is penalising some shops to support other shops. In the competitive landscape of retail, where businesses are competing for consumer business day in, day out, it is distortive to competition. We completely agree that you have to draw a line somewhere, but we think the line should sit outside retail and hospitality, rather than being drawn within retail—and hospitality, she says, with her retail hat on. Does that answer your question?
The Chair
We now come to oral evidence from Stuart Adam, senior economist on tax at the Institute for Fiscal Studies. For this session, we have until 11.25 am.
David Simmonds
Q
Stuart Adam: It basically does not do anything about them. We can argue about the pros and cons of what is in the Bill, but it is largely separate from our concerns about it. The discussion paper raises a couple of potential reforms for the longer term that are more related to it. My view is that there is an issue about possibly more frequent than three-yearly revaluations, and particularly trying to shorten the antecedent valuation date period from the valuation to when it takes effect from two years to one year, which would be good. Actually, my ideal would be to move to a land value tax for commercial property, which does not seem to be on the table. Things such as reliefs for improvements for a certain period have been introduced and there is something in there about whether that is working well and should be extended. I have a set of concerns about business rates, but they do not really have much to do with what is in the Bill.
David Simmonds
Q
Stuart Adam: There are two sections in the Bill, obviously: one about multipliers and one about private schools. We should probably separate those as they are very different issues.
In terms of the changes in multipliers, this gets widely misunderstood. What gets left out of the equation is essentially the economics, and specifically what the consequences will be for rents. Basically, business rates are not what is killing the high streets, and changes to business rates are not what will save it. As a rough first pass—and we can nuance this quite a lot—when business rates go up or down, rents tend to go down or up almost pound for pound in the long run, which means that business rates do not have a big impact on the cost of premises. That is much more about the supply of property.
There are several nuances to that. One is that to some extent business rates affect the supply of property and that will feed through into rents and affordability. You can think about the effects that this would have on the incentive to build bigger or smaller properties, or properties focused on retail, leisure and hospitality versus other sectors; or the incentives to use properties in one sector versus another; or indeed whether properties are used for commercial purposes or housing, and so on. There will be some effect from those things, and that will affect affordability as a knock-on consequence. That is clearly longer term and second order, and things like the planning regime are much more important.
If you take the supply of properties as given, to that extent, changes in business rates get offset by changes in rent. For example, in the case of the rise in business rates for properties with a rateable value of more than £500,000, I would expect rents to fall by a similar amount over the long term. Again, “over the long term” is a caveat. That is therefore a one-off hit to the owners of the land rather than to the occupiers of the property.
With reduced multipliers for retail, leisure and hospitality, the position is a bit more complicated because it depends on the extent to which there can be shifts of use in properties between different purposes. If properties used for retail, leisure and hospitality are stuck for that purpose and cannot be used for anything else, the same applies, but if shops can be converted into offices and vice versa, the situation is more complicated. We expect that, overall, the reduced multipliers would lead to an increase in rents, but a smaller increase in rents for all properties. Retail, leisure and hospitality would therefore become more affordable, but only to the extent that offices, factories and so on become less affordable. It would still wash out overall in terms of rents, and the beneficiaries would be the landlords rather than the businesses occupying and using them, but there can still be a shift between retail, leisure and hospitality and other sectors of the economy.
Jim McMahon
Q
Stuart Adam: I disagree. I think there still would be that shift over the longer term. Again, these things take time as rental contracts adjust as new tenants are found for premises. The theory is reasonably clear and the evidence that we have, which is fairly thin, supports it pretty much completely. I emphasise that in the short run we would absolutely expect respite for retail, hospitality and leisure sectors at the moment, until there is time for rents to adjust. One thing to bear in mind is that we have had more generous reliefs for retail, hospitality and leisure in recent years, and some rents have been renegotiated during that period. It is also possible that if people, firms and the market expect reliefs that are more like 75% to continue, rents may have gone up, and the fact that the relief is less generous than what it replaces means that they will be worse off in the short run than if the reliefs had never been introduced. Obviously, they are still better off than they would be if the relief were removed completely. My expectation is still that that will be reflected in rents over time.
Planning Committees: Reform
David Simmonds Excerpts(1 week, 6 days ago)
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David Simmonds (Ruislip, Northwood and Pinner) (Con)
(Urgent Question): To ask the Secretary of State to make a statement on plans for the reform of planning committees.
The Minister for Housing and Planning (Matthew Pennycook)
As the House will be aware, in our first King’s Speech in July the Government announced their intention to introduce a planning and infrastructure Bill, designed to streamline the delivery of essential housing and infrastructure across the country and support sustained economic growth. We made clear at the time that an important component of that Bill would be measures to modernise the operation of planning committees.
Planning committees play a vital role in providing local democratic oversight of planning decisions. However, if we are to undo the damage that the previous Government did to housing supply in this country and deliver homes in the places that our communities need, we must ensure that they are operating as effectively as possible. As we look to develop Government policy in this area, we are determined to avoid the mistakes of previous Conservative Administrations, who were rightly criticised for bringing forward planning legislation without sufficient engagement or consultation.
We also want to ensure that the changes to the operation of planning committees that we ultimately take forward are as robust as possible, drawing on feedback from those who navigate England’s planning system on a daily basis. That is why today we have published a working paper that sets out our initial thinking for modernising planning committees. This is just the latest in a series of working papers on planning reform, and it is explicitly designed to kick-start engagement before we launch a formal Government consultation on a more detailed proposition. As such, I assure Members across the House that there will be plenty of opportunity to engage with and debate these matters in the months ahead.
The working paper seeks views on three potential changes: first, a national scheme of delegation, setting out which types of planning applications should be determined at committee and which by expert planning officers. We believe that that would bring clarity and consistency to both applicants and communities about how applications are determined. Secondly, the introduction of dedicated committees for strategic development would allow members of those committees to dedicate energy to the most significant projects. Thirdly, the introduction of mandatory planning training for committee members would enable applicants to be confident in the knowledge of those making these decisions. Taken together, the changes are designed to help streamline local planning decision making, maximise the use of professional skills and judgment of trained planners, and focus the time of elected councillors on the most significant or controversial applications.
As I said a moment ago, the working paper published today is merely the start of our engagement with the sector on this important issue. It is not a firm set of confirmed proposals, and we will use discussions in the new year to refine our approach. We will then prepare final policy proposals, on which we will launch a consultation in the usual way.
Let me finish by making it clear that the proposals that we are testing through the publication of this working paper are merely one part of a much wider set of reforms to the ailing planning system that we inherited from the previous Government. I look forward to updating hon. Members as we proceed to deliver on other aspects of the Government’s ambitious housing and planning agenda.
David Simmonds
Many of us were surprised to hear the Secretary of State tell us over the weekend that there are enough homes in this country. The planning system is an area of interest to all Members and to our constituents; I know it is to you in particular, Mr Speaker, and to your constituency. Planning matters, because it impacts the look and feel of our communities. It has been the subject of numerous parliamentary questions, both at the Dispatch Box and in writing. In response to all those questions, we have been told to await the national planning policy framework. It therefore seems a discourtesy to us to hear so much about the proposed reforms to the planning system in a series of media interviews over the weekend.
Some questions emerge from this. It is clear from the Department’s figures that 96% of planning applications are decided on by officers using delegated powers. That is up from 75% in 2000. It is that 4% to which the local democratic voice is so relevant. On the planning reform working paper, first, what assessment has been made of the impact on local democracy—for example, on the ability of ward councillors to call in a controversial application, or on cases in which reserved matters are approved, but then there is a breach by the developer, so the application needs to come back before a committee for further consideration and enforcement?
Given that 89% of major applications are decided within either 13 weeks or the agreed deadlines, will the full council still be able to call in major strategic applications that will have a significant impact on their area? Already, 87% of applications are granted by local authorities; will neighbourhood plans retain the legal status that enables the communities that write them to have a say on what goes on in their area? Given that 83% of minor applications are already agreed within timescale, who in the local authority will decide whether a matter is to be referred to a committee? Given the huge increase in housing planning permissions granted under the previous Government, when do the Government intend to start work on getting developers developing and builders building, rather than tinkering with a democratic system that has already delivered more than 1 million homes with consent in England?
Matthew Pennycook
I have to say, it is quite rich hearing the hon. Gentleman crow about planning permissions in the system. We are experiencing the lowest number of planning permissions and completions for a decade, as a result of the Conservatives’ changes to the national planning policy framework, made in December 2023, which torpedoed supply and hit growth across this country.
The hon. Gentleman also asked about the NPPF. We fully intend to bring forward a revised NPPF before the end of the year. These changes do not relate to the NPPF, as I made clear in my initial response. We are consulting, in an initial sense, on the changes before bringing forward formal proposals for consultation alongside the planning and infrastructure Bill—another part of the Government’s reform agenda.
The hon. Gentleman rightly made it clear that 96% of decisions are already made by planning officers. The other 4% of decisions, though, are incredibly important; they represent a substantial portion of total units in the planning process, because many major applications go to a planning committee for consideration. While we know that there is good practice out there, the number and type of applications that committees consider still varies widely between local planning authorities. Some committee decisions are not made in accordance with material planning considerations, and some committees repeatedly revisit or relitigate developments that have already been considered by elected members through the local plan process. We need to streamline the local planning system in order to provide the homes and places that we need, and to empower trained planning professionals to get the best use out of the system.
The hon. Gentleman also asked about neighbourhood plans. I have been very clear on several occasions in the House that the protections for neighbourhood plans in the NPPF will remain. As well as firm proposals on this proposition around modernising planning committees, we will bring forward further details about changes to the national planning policy framework in due course.
Oral Answers to Questions
David Simmonds Excerpts(2 weeks, 6 days ago)
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David Simmonds (Ruislip, Northwood and Pinner) (Con)
Ministers briefed the media over a week ago about plans for local government reorganisation and devolution. When do the Government plan to set them before the House, so that Members representing areas across the country can take a view?
Matthew Pennycook
I am not sure how that relates to planning reform, which is the subject of the question, but my hon. Friend the Minister for Local Government will set out in due course how our plans for devolution will be taken forward.
David Simmonds
Apologies if there is confusion; I was expecting to come in on question 4. [Interruption.] I am glad to hear it.
Many areas of the country stand to lose millions of pounds from the scrapping of the rural services grant—one of many local government funding streams that are expected to change. When will our councils, and this House, know the full impact of the financial changes, so that any reorganisation, devolution, or changes to local plans and other council strategies can be delivered with full knowledge of the impact that the changes will have on councils’ on the ability to lead locally?
Matthew Pennycook
Full details of the provisional settlement will be set out in the coming weeks.
Grenfell Tower Inquiry
David Simmonds Excerpts(2 weeks, 6 days ago)
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David Simmonds (Ruislip, Northwood and Pinner) (Con)
This evening’s debate has been appropriately serious and wide-ranging, and I will open by thanking the many who have enabled it to be just that: the excellent journalism of the BBC, which has ensured that not just the initial fire, but the inquiry and the lessons learned from it have remained at the forefront of public debate; and the survivors, the supporters of Grenfell United, some of whom are here tonight, and the many others who contributed to the inquiry process and to ensuring simply that Grenfell remained at the forefront of the public mind. I also thank Sir Martin Moore-Bick, who chaired the inquiry. I know it was the subject of some criticism when he was first appointed, but when we read the phase 2 report and consider everything that led up to it, we can see that it is a serious piece of work that puts us in a position to make good decisions about what needs to change.
It is our parliamentary duty to consider these most serious of matters. We need to ensure that we get it right for the sake of the survivors and the families of victims, but also for all the other people who have been spoken about in the Chamber this evening: those who live with anxiety about their own personal safety and circumstances, and those with a stake in the system, who need to ensure that the legislation that has flowed since the tragedy, and the actions that the new Government will need to continue, are fit for purpose. To that end, I confirm that the Opposition will support the Government to implement the proportionate and necessary measures that are required to keep the public safe.
Many Members across the Chamber have said that those who have intentionally cut corners on building safety need to be held to account, and the Opposition agree. While it has taken a long time, the inquiry process has gathered really good evidence, which will provide the Metropolitan police and others that may be involved, including the Crown Prosecution Service, with the beginnings of the evidence base needed to hold specific individuals to account through criminal charges and to pursue action against those developers and contractors who we now know clearly and fraudulently cut corners on building safety for their own financial gain. It has been said very clearly that we also need to ensure that the bigger businesses—the big corporates—that may have condoned that action need to be excluded from profiting from future public sector procurement activity.
There will be further lessons to learn from the inquiry. I pay tribute to a number of Members who made very serious and considered speeches. The hon. Member for Vauxhall and Camberwell Green (Florence Eshalomi) talked about the rise of the tenant management organisation. That is example of where there will be difficult questions for all parties and Government Departments to consider. The purpose of the previous Labour Government in introducing arms-length management organisations was to create a mechanism by which additional funding could be put forward to enable a higher standard to be achieved in the social housing sector.
However, I also know—the Kensington and Chelsea Tenant Management Organisation is a good example of this—that that created an additional barrier of governance between the local authorities, which in most cases were the freeholders of the properties in question, and the tenants, who in theory gained additional control through the creation of boards to oversee what happened in their buildings. However, as the phase 2 report spelt out very clearly, effective governance often failed to materialise. Instead, there was often mutual finger pointing, with each thinking that somebody else was responsible for the critical fire safety issues. Those lessons about governance, however difficult they may be for both sides of the Chamber, must not be glossed over.
It is clear, as has been set out, that the Government intend to take robust action. It is the Opposition’s contention that they have solid foundations to build on. As the hon. Member for Hackney South and Shoreditch (Dame Meg Hillier) set out, James Brokenshire—the then Minister, since sadly deceased—set out swiftly after the fire, once some initial information about its causes was available, that £400 million funding was to be made available to social housing providers and local authorities in 2018 to ensure the swift remediation of social housing settings with the most high-risk cladding on the exterior.
That was followed with legislation: the Fire Safety Act 2021, the Building Safety Act 2022 and the Social Housing Regulation Act 2023. Each was designed, as the process of inquiry was progressing and as other evidence came to light, to ensure that we were addressing, as far as we could, those things that we were legally able to do at each of those stages, first on the basics of fire safety, and then on to the broader lessons emerging about building safety and ensuring that social housing regulation—in what is a diverse sector—was fit for purpose.
Dame Meg Hillier
I thank the hon. Gentleman for giving way; I want to repeat the point I made earlier, to see if I can get a response this time. We knew at various stages that there needed to be skilled people, from surveyors to contracting, to carry out the remediation work. Looking back, does he regret that perhaps some of that effort was not put into developing those skills earlier, so that constituents of ours who are still waiting for remediation could perhaps have had it done more quickly?
David Simmonds
The hon. Member is absolutely right to highlight the lack of capacity as a huge issue in the sector. Those who have been interested in housing for a long time will know that the remediation of risks can be incredibly complex. The Bison blocks, which many of us will have in housing built in our constituencies and across London, were supposedly made safe in the 1980s in response to particular gas safety risks, and we know that other structural risks have subsequently emerged. Making sure there are people with the detailed knowledge and technical ability to address those risks effectively is critical.
We welcome the plans that the Government are setting out to accelerate the work that was under way to remove dangerous cladding. We will be scrutinising and working with the Government to ensure that that continues to progress. The previous Government made available over £5.1 billion to remove unsafe cladding from buildings identified as high and medium rise, and therefore most at risk, given the inherent risk to residents of it being on buildings with a higher number of floors. We need to ensure that that work is completed. It is positive news that, according to the Government’s figures, on 98% of the high-rise buildings with the most dangerous styles of cladding, the work to remove it had been either started or completed by July 2024, but we know that that comes in the context of many other risks about which our residents and constituents will be concerned, and we must ensure that those are addressed effectively.
When we look back to previous debates about building safety, we see that, as a number of Members have mentioned this evening, we cannot simply focus on the issue of cladding and materials and set aside issues such as the effectiveness of fire-stopping and fire doors, which have often come to light during inspections subsequent to Grenfell as being deficient in all manner of buildings. We should bear in mind the debates between the technical experts about whether sprinklers or misters are the most appropriate means of fire suppression in different types of settings, about the need to provide effective sources of water for the fire brigade, and about whether dry risers or wet risers are the most effective. Issues involving access for rescuers and fire safety operatives, and also the ability of residents to escape—again, those have been highlighted this evening—also need to feature in our thinking.
As a number of Members have pointed out, including the hon. Member for Hammersmith and Chiswick (Andy Slaughter), the emergence of new risks, such as much larger numbers of lithium batteries driving electric bikes that are being charged in residential premises, are now at the forefront of the thinking of our fire brigades, as they look not just at the historical risks, which we know about and can take action to mitigate, but at the emerging new risks. They need the equipment, the technology and the capacity to ensure that they can deal with those factors, should they encounter them in a context in which there is a risk to life.
Other Members have highlighted the importance of dealing with the problems of, in particular, constituents who may not be able to benefit from the funding already in place for social and council tenants because they are leaseholders—in some cases, leaseholders in investment properties. They find that their properties are uninsurable, and that it is very difficult to obtain a mortgage. People want to purchase those properties to be their homes or to be part of a pathway that will give their families access to the size and quality of housing that they need. Those pathways must be reopened, and people who are trapped by some of those issues must see them addressed. In all those respects, we undertake as an Opposition to support the Government in ensuring that fully effective measures are in place for the future.
While much of the debate has focused on the role of the suppliers of products used in construction, it is important to acknowledge the need to ensure that our existing estates are safe and fit for purpose. Local authorities, social housing providers and other landlords have a multitude of legal obligations, but I am conscious, from my experience as a local authority councillor, that not all occupiers wish to engage with that process. The local authorities that serve my constituency have to go to court from time to time to gain access to properties, simply in order to carry out safety checks for which they are responsible as landlords and which are an element of keeping the bigger building of which those individual homes are a part safe for the benefit of all the residents. We must ensure that those local authorities, social housing providers and other landlords have effective tools, so that the expectations we are setting for them can be realised without compromising the safety of residents, and that means being able to gain access expeditiously. As we heard from my hon. Friend the Member for Harwich and North Essex (Sir Bernard Jenkin), in what I thought was a very thoughtful and considered contribution, henceforth we must have a more effective, more independent system for managing all those risks.
When the phase 2 report was published, Councillor Elizabeth Campbell, who is now the leader of Kensington and Chelsea Council, set out, in a way that I think deserves credit, her acceptance of failure, on behalf of her local authority—I should make it clear that she was not in charge of housing before the Grenfell fire, although she was a serving member then—a willingness to take responsibility, and the ownership of that improvement journey, in response to the detailed recommendations in the report.
Clearly, the response to Grenfell has now spanned two Governments of different parties. We can be broadly proud of our record. We have passed those pieces of legislation and allocated substantial sums of money, which has built the foundations to ensure that public and private housing in this country is safer for the tenants and residents of the future. The baton has now been handed over, and it is the Government’s job to ensure that everyone else in the system is doing their job to the highest standards and in accordance with the law. The Government can count on the Opposition’s continued support in the delivery of that, but they should also expect to be held to account, because it is the interests of everybody in this country to ensure that it is achieved.
Council Tax
David Simmonds Excerpts(1 month, 1 week ago)
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David Simmonds (Ruislip, Northwood and Pinner) (Con)
(Urgent question): To ask the Secretary of State for Housing, Communities and Local Government if she will make a statement on the Government’s policy on council tax referendum thresholds in 2025-26.
The Minister for Housing and Planning (Matthew Pennycook)
Since the 2012-13 financial year, local authorities, fire authorities, and police and crime commissioners have been required to determine whether the amount of council tax they plan to raise is excessive. The Secretary of State sets thresholds on excessiveness and knows the referendum principles for different classes of authority. Since 2016-17, those thresholds have also included a social care precept, providing higher thresholds for authorities with social care responsibilities.
Decisions on the council tax levels to set, or whether to hold a referendum to go beyond the referendum principles, sit with councils. But the Government have been clear that we expect the threshold to be maintained at the current level, set by the previous Government. The Office for Budget Responsibility forecast of the last Government assumed that council tax would increase by a 3% core, plus an additional 2% for local authorities with adult social care responsibilities for the entirety of the forecast period. We will set out further details in the local government finance settlement in the new year.
Beyond that, we are determined to support local government and undo the mess that has been created over the past 14 years. That is why at the Budget we announced over £4 billion in new local government funding, including an additional £1.3 billion in the local government finance settlement. That, as the hon. Gentleman will be well aware, has been warmly welcomed by the sector.
David Simmonds
Council tax funds about £20.5 billion of expenditure in England on social care, which is 61% of all council funding. It is therefore of huge interest to our constituents. The Prime Minister and Ministers have repeatedly told the House that we need to wait for the spending review and the local government finance settlement to know what will happen with the referendum limit, including at the Dispatch Box yesterday when the Prime Minister told my right hon. Friend the Leader of the Opposition to wait. Shortly afterwards, the press were told that the 5% limit would remain in place.
Answers to parliamentary questions show that the Government are expecting spending power to increase by £3.7 billion, funded by grants of £1.3 billion. That demonstrates that the Chancellor’s Budget has opened up a £2.4 billion black hole in council finances. In addition to that, the County Councils Network has highlighted its concerns that although we have not yet had a formal statement in the House, there are proposals to change the way in which funding is allocated, further depriving local authorities in urban, suburban and rural areas of the funding that they need.
I would like to put two questions to the Minister. First, will he promise the House that funding allocations through the grant mechanism will follow the cost pressures on local authorities and not any other form of indexation or formula, to ensure that places facing the highest costs receive the funding that they need? Next, while nobody would want to see the referendum limits scrapped simply to bail out central Government, the announcement of the 5% constrains local authorities when it comes to their fundraising. Will the Minister tell the House whether it will be our high streets through increased business rates or whether significant cuts to other council services will be needed to fill the Government’s £2.4 billion black hole?
Matthew Pennycook
I thank the hon. Gentleman for his questions. Let me take them in turn. The Government are committed to a fair funding settlement for local government. We will set out further details in the usual way in the upcoming local government finance settlement, which will be presented to Parliament.
On the £2.4 billion figure, I am afraid that we simply do not recognise it. I assume that the hon. Gentleman, in his calculations, failed to take account of the over £300 million raised from business rates and £300 million in additional new houses coming along. Yes, it is right that £1.8 billion will be raised through council tax in 2025-26, but, as I made clear, that is because the Government are clear that we are maintaining the previous Government’s policy on council tax, in line with the OBR forecast made in March 2024.
The question for the Opposition is: are they saying that the cap should be abolished, as the Conservative Local Government Association group’s “Rebuilding the Road to Victory” document called for all caps to be removed, or are they saying that the limit should be reduced, which would be contrary to the policy in place when the now Leader of the Opposition was the local government Minister?
Draft Barnsley and Sheffield (Boundary Change) Order 2024
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David Simmonds (Ruislip, Northwood and Pinner) (Con)
His Majesty’s loyal Opposition have no objection to these entirely sensible proposals and will not seek to divide the Committee.
Barry Gardiner
Indeed. I am talking about the effect on the future value of these properties. Residents who have moved in under one local authority may find the value of their property affected by its suddenly being designated under another. I must stress that I respect both councils and have no doubt that they look after their populations equally well, but we should have been provided with an impact assessment to show that there are such—
David Simmonds
On a point of order, Mrs Harris. We have heard from the Minister about the strong support of the two local authorities, and that has given us a great deal of detail to reflect on. On that basis, may I move that the Question be now put?