Non-Domestic Rating (Multipliers and Private Schools) Bill

Jim McMahon Excerpts

Report stage
Wednesday 15th January 2025 Commons Chamber

[David Simmonds]

Having served as a governor in three different state schools during my local government career, I know that many state schools have facilities that they are very happy to share—some have swimming pools, some have libraries, some have adult education facilities. The sharing of facilities among schools of all kinds is normal, but the Bill introduces additional pressure that will take away access to those facilities. Isolated communities in particular, which benefit most from that access, risk losing it.

The basic fact that schools will end up net worse off demonstrates that, contrary to what has been said, this policy fails the basic test of equity and efficiency. It harms some people in our country, with no corresponding benefit to anybody else. Let me address the argument proposed by a number of Members that the consequences are marginal. We heard a lot of evidence from different people. The hon. Member for Erewash (Adam Thompson) referred to an academic who has built a career writing tracts attacking the private education sector. That is not somebody I consider to be an expert. I will take the word of mums and dads, the Independent Schools Council, institutions that represent people across our country and the House of Commons Library over the word of a single left-wing academic.

The hon. Member for Wolverhampton North East (Mrs Brackenridge) said, “It’s not fair because schools in the state sector pay business rates.” She may not be aware that there is already an 80% mandatory business rate relief for voluntary aided, foundation and academy schools, and 100% of all state school business rates liability is paid for by central Government anyway, so no school budget is burdened by the cost of business rates, whereas the consequence of the Bill will be that every independent school is burdened by those costs.

Many of us in this Chamber will see the added value that independent education brings. Many of those experts whose opinion we value have spoken profoundly about the fact that so much of our special educational needs provision is in the private sector. I made reference in Committee to Gesher school in my constituency. I defy any Labour Member visiting Gesher to come away saying, “That is a private business that deserves to be taxed.” Such institutions have emerged—in many cases over a long time—to cater to very specific and profound special educational needs and disabilities, and they are looking aghast at the consequences of the Bill.

There are a number of reasons for that, some of which are technical. The Government’s solution is to introduce the “wholly or mainly” provision. Schools that wholly or mainly provide places for children with an education, health and care plan—by which the Government mean 50% or more—will be exempt from the provisions. The problem with that policy is that many children who have well-established, diagnosed special educational needs and disabilities do not have an education, health and care plan.

Indeed, beneath statementing, which was the term at the time, the previous Labour Government introduced a number of tiers: school action and school action plus. Children with moderate to severe special educational needs and disabilities could fall into those categories and be supported in a mainstream setting. The statementing and education, health and care plan process was only ever intended to make provision for children with the most significant and severe needs. That is already the case across the state sector. We know from the evidence of many parents up and down the land that they found provision in local independent schools, and at their own cost, for children who had not qualified or had not yet achieved an education, health and care plan. It is very clear that the Government’s solution underestimates, and falls well short of accounting for, the number of children with special educational needs and disabilities. This is a Government whose Secretary of State for Education stood at the Dispatch Box last week and talked about how much they believe in inclusion. Well, their actions in support of this Bill say otherwise.

The Bill also fails to address the needs of parents who wish to secure a place for their child at a school that has a special character. This is particularly important in rural areas, but it is an issue across the country. We all know that there are schools that have the ability to provide specialist training or coaching in a sport that a child excels in and wishes to pursue, and there are schools that have a faith or cultural identity that is incredibly important to the family.

By requiring all those types of school to pay these significantly hiked taxes, this Government are bearing down on choice in the education sector and pushing up costs for mums and dads. These are not wealthy families, but ordinary people in this country who are seeking to do the best for their child and who, in some cases, are willing to take on the responsibility of paying for their child’s education even if they could still pursue the opportunity of an education, health and care plan for them through the state system. They choose to do the right thing by their child, and this Government will be penalising them.

The amendments we have tabled seek to address the shortcomings I have described as best we can. We will also support some of the amendments tabled by other parties where they clearly fulfil our shared objectives, but as the speeches and other contributions to this debate by Conservative Members have shown, there could have been so many more amendments seeking to get this Bill right.

In conclusion, all of the hereditaments that are covered by this Bill are important to our economy and to growth, and in many cases they are vital to our communities. Since the Chancellor’s Budget, growth has flatlined, inflation has revived, borrowing costs are rising and employment opportunities are diminishing. It is not too late for this Government to choose a different path, and we invite them to do so this afternoon.

[The Minister for Local Government and English Devolution (Jim McMahon)]

Before I speak to the amendments tabled by the hon. Members for Mid Dorset and North Poole (Vikki Slade), for Ruislip, Northwood and Pinner (David Simmonds) and for St Albans (Daisy Cooper), I thank Members from across the Chamber for their contributions and for the constructive spirit, by and large, in which they have engaged with the Bill since its introduction. Although they are not always seen, with evidence sessions and Committee stages not always being prime-time TV viewing—it is a curse, but that is the way it is—those deliberations are nevertheless essential. The contributions that were made by Members from all parts of the House in probing and scrutinising the Bill were valuable, and I hope that all Members found them interesting.

I will begin by speaking to the amendments concerning the impact of the new multipliers. New clause 1, tabled by the hon. Member for Mid Dorset and North Poole, would require the Secretary of State to review the impact of clauses 1 to 4 on businesses, high streets and economic growth within six months of those clauses coming into effect. The hon. Members for Ruislip, Northwood and Pinner and for St Albans have proposed two other new clauses. New clauses 2 and 3 would seek to impose in legislation a requirement for an analysis of the impact of the new business rate multipliers at varying points ahead of, or following, implementation of the Bill. New clause 3 also seeks to require an assessment of how the application of the new multipliers would differ between retail, hospitality and leisure businesses occupying different numbers of properties, and to compare that assessment with the impact of retail, hospitality and leisure relief from the 2020-21 financial year to the 2025-26 financial year.

We agree in principle with the points that hon. Members have raised through their new clauses. It is right that the Government consider the effects of their policies on businesses, on the high street and on economic growth, and indeed within different sectors. It is the policy of the Government that those businesses should feel a material benefit as a direct result of these measures, so let me set out how we propose to do that.

It states in the Bill that the two new retail, hospitality and leisure multipliers may not be set at more than 20p in the pound lower than the small business multiplier. The Bill also places appropriate restrictions on the higher multiplier: when it is set, it cannot be more than 10p in the pound above the standard multiplier, and cannot be applied to properties with a rateable value of less than £500,000. It is important to state that those are not the intended tax rates, but the maximum parameters to be introduced through the new business rate multipliers. As we explained during the Bill’s passage through the House, the actual tax rates will be set at the 2025 Budget, taking into account the effects of the 2026 business rate revaluation, as well as the broader economic and fiscal context at that time.

[Daisy Cooper]

The Minister has been here throughout the debate, and he will have heard a number of my interventions. I accept his point that those figures will not be published until Budget 2025. May I ask if he is in a position to give a cast-iron guarantee that small independents, with a small number of hereditaments, will not be subsidising organisations that have many, such as the big chains?

[Jim McMahon]

I did hear the hon. Lady, and I think we all accept the principle of needing to target or get support to those important small businesses, which we can all identify in our constituencies. With respect, I think there was a degree of conflation with the temporary reliefs brought in during covid, which the previous Government did not account for, that were always going to come to an end.

Our challenge was how to reconcile ongoing support for the high street with a permanent relief in law so that businesses know exactly where they are and can plan ahead with certainty. The choice we made was far fairer: to target higher-value properties of more than £500,000, which are generally—but, I accept, not entirely—the large-footprint warehouse and distribution premises used by the big online retailers.

The shadow Minister used the example of the stationery provider in my constituency. It is an online retailer, so it ought to be paying more. Why? Because for a long time—and we have all heard this from our constituents and industry—we have needed a rebalancing from online to on-street and from out-of-town to in-town, and that is exactly what this targeting does. It was never intended to be a continuation of the relief that was only temporary during covid. It is about rebuilding the foundations, and that is exactly what we have set out to do.

[Daisy Cooper]

I completely accept that point, and I am very sympathetic to the fact that the Minister inherited a sticking-plaster system from the previous Government. If during the course of this year his Government’s own analysis proves what I have discovered from the House of Commons Library research, will he ensure that the Government at least do not rule out introducing a new small business relief in a targeted way to support such small independent businesses?

[Jim McMahon]

As with all tax policies, we will keep this under review, and I say that in a very general sense. We absolutely believe that the businesses that are the backbone of our high streets, town centres and communities would, were it not for these measures, go bust. They would not be viable and they would feel the heat very quickly. However, because of the measures we are taking, businesses will be able to plan with certainty for the future, knowing that they have a Government acting in partnership with them in that enterprise.

[David Simmonds]

I appreciate the Minister’s point, but clearly no Parliament binds its successors, so every Parliament must make its own decisions. A lot of Members have asked about small business rate relief. It would be helpful to have some certainty from the Dispatch Box about the Government’s intentions on that. Can he give us that certainty tonight?

[Jim McMahon]

I can certainly give the certainty that we are providing in law for a permanent relief for retail, hospitality and leisure businesses, and we will fund that through a very targeted additional payment for properties of more than £500,000, which will primarily be the online retailers occupying big warehouses and distribution centres. It is a promise to shift from the online to the on-street, as I talked about.

Before we move on to vote on the amendment, I will make some progress. The House will know that tax policy and legislation are not subject to the same requirement for the impact assessments that accompany non-fiscal policy decisions. Nevertheless, the Treasury is committed to publishing an analysis of the effects of any multipliers at Budget 2025, which we hope will go some way to reassuring hon. Members that we will be considering the impacts of this policy carefully before the new rates are set.

The Government will continue to keep the policy and its effects under review as a matter of course, because we believe it is good practice to do that for all taxes. However, we want to make it clear to hon. Members that the Government have heard them, and we understand the importance of robustly understanding tax changes, which is something to which we have already committed. I hope this commitment to understanding the effects of the new tax rate when it is introduced will enable hon. Members not to press their proposed new clauses.

Amendment 9 would give local authorities discretion over whether the higher multipliers enabled by the Bill should be applied. The Bill would 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. As we explained in Committee, we do not have any plans to narrow the scope of the higher multipliers as doing so would reduce the funding available for the very targeted support for lower multipliers for uses that everyone in the Chamber supports.

That does not mean that local authorities will be unable to apply local discretion to rate bills. As was set out in contributions, local authorities already have wide-ranging powers for discretionary rate relief as set out in section 47 of the Local Government Finance Act 1988 where the authority is satisfied that that would be reasonable, having regard to the interests of council tax payers. We assure the House that those discretionary powers are unaffected by the Bill and remain in place. Given that local authorities will be able to use those discretionary powers to provide relief, including for ratepayers subject to the higher multiplier, the amendment is not required. I hope that assures hon. Members.

I turn to amendments 1 to 6, which would widen the scope of the lower multipliers so that qualifying manufacturing properties would become eligible alongside retail, hospitality and leisure properties. In the Bill Committee, the hon. Member for Newton Abbot (Martin Wrigley) spoke of the vital importance of manufacturing to the British economy and of how providing them with a permanent cut to their business rates could help them to recover.

Let me reiterate the Government’s support for the manufacturing sector as a whole. It is said that Britain is a nation of shopkeepers, but it is also a nation of innovators, creators and entrepreneurs. Our manufacturing sector helps bring many of those ideas to life, and we understand its importance. But the Government must also support our high streets—the hoteliers, restaurateurs and publicans—and that is especially important with a property tax such as business rates as those sectors rely on good locations, which in the business rates system are often valuable locations. If they did not have that targeted support, they would feel the hit very strongly.

Through the Bill, we are delivering our manifesto pledge to protect valuable town centres and high streets by enabling the introduction of permanently lower taxes for qualifying retail, hospitality and leisure properties from 2026-27, ending the uncertainty of the annual retail, hospitality and leisure relief that has been rolled over year on year since the covid-19 pandemic. We have been clear throughout the process that this tax cut must be fully funded. Therefore, against the current fiscal backdrop, a widening of the scope of properties eligible for the lower multipliers might dilute the support that the Government were able to provide, or its impact might even require a higher tax rate for properties with values of more than £500,000 to fund such new multipliers. However, we respect hon. Members’ points of view and agree that our manufacturing sector should be recognised and supported.

Advanced manufacturing is one of the eight growth-driving sectors identified as part of the Government’s industrial strategy. At the autumn Budget, the Government announced £975 million for the aerospace sector over five years, over £2 billion for the automotive sector over the same period, and £520 million for the new life sciences innovative manufacturing fund. That is how the Government intend to support the innovators, creators and entrepreneurs mentioned earlier. Because we have this package in place to support manufacturing, we cannot accept the amendments, but I hope that I have been able to provide hon. Members with reassurance as to our commitment to support the sector, which I am sure the whole House recognises is vital.

I turn to amendments 7 and 8. While clause 5 will remove business rates charitable relief from private schools, the amendments would introduce new provisions or expand existing provisions in the Bill to ensure that certain private schools remain eligible for business rates charitable relief. Amendment 7 would result in a fee-paying school retaining its relief if it wholly or mainly catered for pupils with special educational needs as defined under section 20 of the Children and Families Act 2014, whether or not those pupils have an education, health and care plan. Amendment 8 would result in a private faith school or a private school with a special character maintaining its eligibility for charitable relief if there were no maintained or academy school of the same faith or special character within the statutory walking distance set out in the Education Act 1996. Although amendment 8 does not indicate what may constitute a special character, we understand from previous contributions in the House that that would include schools that follow a particular method of education. Amending the basis on which fee-paying schools are eligible to retain their charitable rates relief in the manner in which the amendment proposes would undermine the Government’s intention to remove tax breaks for private schools. As we have said, the removal of the tax break is necessary to fund school support for the over 90% of pupils who are educated in the state sector.

The Government have carefully considered their approach to minimising the impact on pupils with the most acute needs. The Bill provides that private schools that are charities and that wholly or mainly—by over 50%—provide education for pupils with an education, health and care plan will remain eligible for charitable relief. As hon. Members will be aware, most children with special educational needs, with or without an EHCP, have their needs met in mainstream state-funded schools. If an EHCP assessment concludes that a child can only be supported in a private school, the local authority directly funds that place.

Where an EHCP has not named a private school, the parents or carers of the child may choose to place that child in a private school, but that is a choice made by the parents and does not detract from the assessment that the pupil’s needs can be catered for in the mainstream state-funded sector. In instances where a child’s parents disagree with the local authority’s assessment that their needs can be met in the state sector, the EHCP system is the most appropriate channel to resolve such disagreements.

The Government are aware of the concerns raised by hon. Members and others that pupils with special educational needs in private schools may lose their charitable relief. The Government believe that most private special schools will not be affected at all by the Bill. In fact, we expect any private special schools losing eligibility for private relief to be the exception; according to our assessment, they could be in the single figures. It is important that we keep it in that context.

[Richard Tice (Boston and Skegness) (Reform)]

Will the Minister give way?

[Jim McMahon]

I do not have time for any more interventions.

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. The majority of children in England with special educational needs, with or without an EHCP, have their needs met in the state sector already. The Government’s ambition is for all children and young people with special educational needs or a disability to receive the right support to succeed in their education as they move into adult life.

As Members know, all schools are required to follow the Equality Act 2010, which includes fostering and promoting an environment that encourages respect and tolerance of children and families of all faiths and of none. We have listened carefully to arguments relating to exempting faith schools from the Bill, and we have decided that a carve-out for faith schools or schools with other special characteristics cannot be justified. For those reasons, we are unable to accept amendment 8.

Finally, amendment 10 would delay the removal of charitable rates relief from private schools by one year to April 2026. To eliminate barriers to opportunity, we need to concentrate on the broader picture of the state sector, where most children are educated. Ending the tax breaks on VAT and business rates for private schools is a tough but, in the end, necessary decision that will secure additional funding to help deliver on the Government’s commitments to education and young people. Together, these policies are expected to raise over £1.8 billion a year by 2029-30—essential funding to improve the education of the vast majority of school-age children. Delaying their implementation would forgo about £140 million, which, frankly, cannot be justified.

The House has heard a good range of amendments to the Bill, and I hope that I have been able to address them all. Although we are not able to accept the amendments, I hope that the assurances that I have outlined are accepted and Members feel able to withdraw them. If not, the Government cannot support them.

Question put, That the clause be read a Second time.

--- Later in debate ---

[Jim McMahon]

I beg to move, That the Bill be now read the Third time.

I take this opportunity to acknowledge all who have contributed to the Bill’s passage through this House, particularly my private office team, for the support that they have offered during this process, officials in my Department, for the outstanding work that they have done, and colleagues in the Department for Education and the Treasury, as well as Clerks of the House, for supporting the process of this Bill.

The Bill honours the Government’s manifesto pledge to end business rates charitable rate relief for private schools in England and to fundamentally reform the business rates system. We are kickstarting this endeavour through the introduction of lower tax rates for retail, hospitality, and leisure properties.

I thank all Members who contributed to the evidence sessions, the Committee stage and today’s debate. I hope, even though there were disagreements on parts of the new clauses and on the amendments, that there is at least an acknowledgment that we have gone a long way to ensure that we get to the heart of what this Bill is intended to do when it comes to the high street and our town centres. In the end, whatever the differences—and let us be honest there are plenty—we all know how important our small businesses are to the viability of our high streets. We all recognise that these are more than just places in which to do business; they are places that people look to as the heart of their community. They are always more than the sum of their parts. Hopefully, Members will see that these measures will really make a dent in this area.

I also place on the record our thanks to those who gave evidence to the Public Bill Committee, including: the Institute of Revenues, Rating and Valuation; the British Retail Consortium; the Co-op Group; M&S; the Shopkeepers’ Campaign; the British Property Federation; and the Independent Schools Council. They have enabled us to scrutinise the Bill properly and to get evidence from professionals who understand what things are like on the ground, and that, I believe, added value to the process.

I thank those who attended and gave evidence in Committee for their time and willingness to share their expertise. I also wish to extend my thanks to hon. Members who attended the Public Bill Committee to ask questions, to foster debate, and to contribute to discussions as we take these important first steps to transform the business rates system.

The Bill will help to secure additional funding to enable the Government to deliver their commitments to the majority of children who attend state schools, which is the second part of this Bill. Ending tax breaks for private schools is a tough but necessary decision. It will come as welcome news to most parents in England, as it represents the Government’s determination to break down the barriers to opportunity and ensure that all children get a high-quality education. Let us be absolutely clear: more than 90% of children in this country go to state schools and they deserve the best, too. Now they are going to get it.

Let me assure Members that the education system in England is prepared for the relatively small number of pupils who may move as a result of the measures in this Bill. Much of what we have heard about churn in the system is not supported by the evidence and, in the end, it runs the risk of scaremongering. We need to reflect on the fact that there has always been change in the system, even before these measures were introduced. Importantly, we are organising to make sure that parents and pupils receive support if they need it, but we believe that will be around the edges.

The Bill will also provide certainty to high streets by making provision to introduce a permanent tax cut for retail, hospitality and leisure properties. We have heard a lot about the change from the covid relief to the permanent, baked-in relief that we are providing through the Bill. The Opposition have said a number of times during the Bill’s passage that it represents a reduction, but a degree of honesty is required. The Opposition know, as do we, that there was no provision—not a single pound or penny—for the continuation of the temporary relief provided during covid on which retailers, hospitality providers and leisure providers were relying.

The Opposition know that that is a fact, as do we. The only difference is that while the Opposition were willing to political point score, while businesses were waiting for maturity and for an answer to the problem, we were getting on with the job of government, and providing the permanent support that businesses need. How will we pay for it? We have heard the Opposition say a lot that they do not support measures, but they always support the investment. They support the investment in state schools, but not the measures to generate the income. They support the measures to support high streets, but seem not to support the measures to ensure that premises with a value of £500,000 or more pay more into the pot.

The reality is that this has not just come out of the blue. The Conservatives had 14 years to address the imbalance from the online to the on-street, from the out-of-town to the in-town, and they did nothing, so it is, frankly, ridiculous for them to try to present themselves during the passage of the Bill as the champions of enterprise, of our town centres and of small businesses. They now have an opportunity. We have sorted out the amendments—they were nonsense, and most people would accept that—but on Third Reading we get to vote on the substance of the Bill. The Opposition could do the right thing. They could change course and back support for state schools to get them the money that they need. They could back measures to get money to the high street in our town centres and do the right thing. Now is the time to show that they will be the mature Opposition that they promised to be, but I expect that that will not be the path they choose. Luckily, the Government are getting on with the job. I commend the Bill to the House.

[Madam Deputy Speaker (Caroline Nokes)]

I call the shadow Secretary of State.