Non-Domestic Rating (Multipliers and Private Schools) Bill

Luke Evans Excerpts

2nd reading
Monday 25th November 2024 Commons Chamber

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

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

Last month, the Chancellor set out the Government’s first Budget. That Budget was a once-in-a-generation event to wipe the slate clean after 14 years of the Conservatives. At that Budget, we laid the foundations for our No. 1 mission of economic growth. The scale of the mess that we inherited at the general election meant that we had to take tough decisions on welfare, spending and tax. Those decisions have been difficult, but they were necessary. They have enabled us to deliver economic stability and fix the public finances. Doing that is crucial to getting public services back on their feet, and to giving businesses the confidence they need to invest and thrive.

Stability, certainty and predictability are highly prized by businesses when making decisions about where and how much to invest. In opposition, I spoke to businesses time and again about the importance of stability, so in government we have made sure to deliver for them by publishing our corporate tax road map alongside the Budget. In my meetings with businesses about what they need to succeed, the system of business rates also came up time and again. I heard businesses criticise a system that is inflexible, that disincentivises investment and that places an unfair burden on those businesses on high streets across England.

That is why, in the Budget, the Chancellor confirmed our first steps towards creating a fairer business rates system that protects the high street, supports investment and is fit for the 21st century. We are determined to support high streets, as they are places that bring people together and serve as focal points for economic activity. Their success is what people across the country want to see, and it is a priority for the Government to deliver it. That is why, in our first Bill on business rates in this Parliament, the Government have prioritised making progress to rebalance the rates burden faced by high street businesses.

The Bill before us seeks to put into law the commitments made at the Budget by enabling the introduction from 2026-27 of permanently lower tax rates for the retail, hospitality and leisure properties with rateable values below £500,000 that make up the backbone of high streets across England. We are determined to give those businesses a tax cut, and we know that that must be fully funded in a challenging fiscal context. For that reason, the Bill also enables us to generate sustainable funding for those tax cuts through an increase of multipliers on the most valuable 1% of business properties in the country.

This targeted approach captures the majority of large distribution warehouses, including those used by online giants, as well as other out-of-town businesses that draw footfall away from high streets. It will enable us to lock in new, permanently lower tax rates for core high street businesses, providing not only a tax cut but stability and certainty after the one-year retail, hospitality and leisure relief, which has been precariously extended year by year since the pandemic. Our approach provides a permanent tax cut to help high street businesses succeed, alongside the certainty that they need to invest and the means to pay for it within our tough fiscal rules.

[Dr Luke Evans (Hinckley and Bosworth) (Con)]

The Minister talks about certainty, but one of the biggest problems for small businesses is that so many things are happening at once, including the national insurance contributions increase, the Employment Rights Bill that is coming in, and now the levy that has been cut down from 70% to 40%. The cumulative effect of all those makes a massive difference for my businesses. A hairdresser that I met only this weekend talked about how much of a problem that will be. How does the measure help to engender stability for those small businesses, which have to wait until 2026?

[James Murray]

Let me remind the hon. Gentleman that, around the difficult decision that we had to take on employer national insurance contributions, we provided explicit protection for small businesses by more than doubling the employment allowance from £5,000 to £10,500, which will benefit hundreds of thousands of small businesses across the country. I suggest that he talks to businesses in his constituency about that.

We are not shying away from the fact that difficult decisions were taken in the Budget, but he might also consult the plans that were left in operation by the previous Government in July. If we had pursued those plans, and if we had not taken any action on business rates, the retail, hospitality and leisure relief would have ended entirely next April. The cliff edge looming next April would have seen it go down to zero. We have extended it, despite the tough fiscal circumstances, for another year at 40%. That is a reasonable way forward while we put in place these permanent reforms.

As I mentioned, the measures in the Bill to level the playing field for high streets are the beginning of our efforts to transform the system of business rates. Our ambition to go further is set out in the paper published alongside the Budget, “Transforming business rates”. That paper sets out the Government’s priority areas for further reform to support investment and make the system fairer. It invites businesses and industry representatives to work with us on designing the best possible system for the future.

I am grateful to all those businesses and representative bodies that I have spoken with in the last few weeks for their engagement already. We will consider what more the Government should do to incentivise investment and growth, including by looking at the efficacy of improvement relief and empty property relief, the impact of losing small business rate relief on expanding businesses, and the cliff edges within the current system.

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[James Murray]

I hope that the hon. Member will welcome the fact that we have committed an extra £1 billion in 2025-26 to high needs funding in the education system. The Government are committed to reforming England’s SEND provision to improve outcomes and return the system to financial sustainability. I would welcome her support for our measures in that regard.

[Dr Luke Evans]

I appreciate the Minister making this carve-out on SEND, but I would be grateful if he could give us some statistics. He said that “most” will be carved out. Have the Government done any work to determine how many schools will still fall under the provisions? If not, placing such an impact assessment in the Library would be useful for Members across the House.

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[Kevin Hollinrake]

I was part of the fairer funding formula for schools in my area, which had the worst-funded local authorities in the country. I reassure the hon. Gentleman that schools in my constituency improved under the stewardship of the Conservative Government. Surely that is the key metric, rather than just how much money is put in.

[Dr Luke Evans]

The impact of taxing private schools with VAT will be that thousands of pupils move out into the state system. That will take away funding. It is already having an impact, but no mitigation has been put in place. The Education Secretary said that 3,000 was not the correct number, but she would not give out the number of pupils who have moved. The Government know those numbers and they need to come clean, because the impact of those pupils moving will eat away at whatever the tax raises.

[Kevin Hollinrake]

My hon. Friend is absolutely right. I understand that 90,000 pupils will be transferring to the state sector as a result of these plans. We Conservatives hold firmly to the principle that education should not be taxed. The only other nation to have tried is Greece, which abandoned the policy within months because of the disastrous consequences.

The Independent Schools Council has said that some independent schools will close entirely and others will scale back the education they offer, causing significant upheaval and disruption to the lives of tens of thousands of children. As surely as night follows day, that will mean fewer children going to private schools and increased pressure on state schools.

I would be grateful if the Minister enlightened me about whether this policy complies with article 14 of the European convention on human rights. The legal issues memorandum considers the principle of non-discrimination regarding the difference in treatment between private schools and state schools, but not between private schools that are charities and other charities that will still qualify for charitable rates relief. I look forward to the Minister’s clarification.

During our time in government, England became one of the top-performing countries for education in the western world, a legacy that this Government seem determined to trash. In short, this Bill may be short, but it is long on disastrous consequences. I implore Government Members to think about their local schools and their high street businesses that are about to be clobbered, and about the resulting job losses, higher prices and boarded-up shop fronts. I ask all Members to think about what is in their constituents’ best interests, do the right thing and vote against the Bill.

Non-Domestic Rating (Multipliers and Private Schools) Bill

Luke Evans Excerpts

Report stage
Wednesday 15th January 2025 Commons Chamber

[Vikki Slade]

Business rates reform is long overdue. It is frequently cited by my constituents as the biggest concern for their businesses’ survival and one of the most direct inhibitors to their growth.

I was contacted this week by a constituent from a local business in Three Legged Cross, right on the edge of my constituency. He has been running it for over 40 years, and the cliff edge created by the small business rate relief means that his rates bill will go from £2,800 to £8,500 per year. The only thing that will save this microbusiness is systemic change as proposed by the Lib Dems in our manifesto, not a tax based on an arbitrary valuation that bears no relationship to the activity taking place inside his building.

High streets are trying to redefine themselves, moving from the heart of goods purchasing to literal shop windows as they struggle to compete against online competitors that do not have their overheads. It would be wrong to think that the solution is to try to return to the perfect high street of the past, as if such a thing exists.

I am old enough to remember C&A being the place me and my friends browsed for the latest fashions, and there was a Blockbuster video store and pic ’n’ mix from Woolies. Where are they now? It is dangerous and self-defeating to be caught up in toxic nostalgia, trying to reclaim the past as some kind of perfect place. Parliament must enact legislation that supports the society of tomorrow and towns that will work for a technological and multicultural age—indeed, an age in which people can no longer afford the stuff that we used to buy on a Saturday afternoon, or are choosing, as I do now, to buy their stuff from second-hand stores.

The dangerous gap between the slashing of retail hospitality and leisure relief by almost half, and a regime that brings in as yet undefined new multipliers, brings real risk. Our new clause 1 would require a review of the impact of clauses 1 to 4 on businesses, on high streets and on the real prize of economic growth that the Government mention so often. There has been a lot of talk in recent months about decisions being made without clear impact assessments. As we move through a period of reform, enshrining such an assessment in law, rather than questioning later whether it has been done, would save us all a lot of trouble and demonstrate that the Government genuinely want to make improvements.

[Dr Luke Evans (Hinckley and Bosworth) (Con)]

One issue that the hon. Lady has not yet mentioned is the impact of the Employment Rights Bill, which will create further red tape for our high street businesses when it comes into play. Do the Liberal Democrats think that the Government should consider that? Changing taxes and rates is one thing, but creating red tape at the very same time, constraining business growth, is another.

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[Sarah Bool]

My apologies, Madam Deputy Speaker; I would not dare say that about you.

If the Government are intent on punishing my constituents’ aspiration for the future of their children, the least they could do is grant the concessions that the Conservatives are asking for in all our amendments, and specifically those in amendments 7 and 10. Amendment 7 would exempt private schools that wholly or partially provide education for children with special educational needs and disabilities who have not yet obtained an education, health and care plan, or whose needs are established but not so severe as to require one. SEND support in schools helps pupils with a level of need below that of an EHC plan. Restricting relief only to those settings that provide for the most severe needs is out of step with the rest of our education system. Many families, on not being successful in applying for an EHC plan, or indeed enduring huge waiting times for the local authority to put one in place, opt to send their children to a private school. We should not punish families who choose to do what is in the best interests of their children.

Amendment 10 would delay the introduction of this tax hike for a further year to allow schools to plan their finances accordingly. That is just plain common sense. It would mean fewer schools like Carrdus having to make the unenviable choice to close their doors.

[Dr Luke Evans]

My hon. Friend has hit the nail on the head: there is a timing issue. The Labour Government were explicit and up front on this tax rise in their manifesto, but they claim that they care about children’s education and welfare. If so, why would they implement the change halfway through an academic year? The hon. Member for Erewash (Adam Thompson) just turned around and said, “Well, it doesn’t matter because it’s 120 kids in the Member’s constituency.” Actually, it really does matter, because every single child’s education matters. Does my hon. Friend agree that even if those are small amounts at the margin, it is completely justifiable to delay the measure as the schools, the experts and the parents have asked for?

[Sarah Bool]

I totally concur with my hon. Friend, who made the point powerfully. The impact goes beyond the 120 individual students to their parents’ arrangements and how they work. The headteacher of the school has a husband who was also a teacher, and they face a huge impact in respect of what they will do with their children and whether they can manage to make new school place arrangements. This policy is terribly misguided. We really need to think about what we are doing. It is a travesty that we will lose a school.

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[Damian Hinds]

There are problems with all taxes, which is why we end up with a blend of taxes. For businesses, there is tax on payroll, sales, profits and property. However, business rates are a particularly difficult and unpopular tax because they represent a fixed cost on the business that does not vary when the economy goes up or down, or according to the particular company’s success or growth, or a contraction in its sales or profits.

Over the years, I have heard many times from businesses in Alton, Petersfield, Horndean, Clanfield, Liss and elsewhere in East Hampshire about a desire for business rates reform. I am sure that a lot of small business owners were very attracted to what they heard from the Labour party—that it would to scrap business rates altogether. The Labour Government do not say that any more, but they still want us to believe that they are undertaking some great reform and cutting rates for our high street businesses. I am afraid it is all smoke and mirrors, because for those businesses, including the ones name-checked by the hon. Member for Erewash (Adam Thompson), the big effect that they feel right now is the cut in the relief for retail and hospitality business—not a small one, but from 75% to 40%.

It would be bad enough if that was all businesses faced, but it is not. They have to cope with all sorts of difficulties the whole time. We have rising labour costs—we support the increase in the national living wage over time, but not a hike in employer national insurance contributions at the same time. Because of what is happening to the threshold, there will be a massive effect on part-time workers. That will be very difficult for retail and hospitality businesses to swallow.

In and of themselves, the cuts to the multiplier for high street businesses are welcome, but we must remember that they are balanced by increases elsewhere in the system. Sometimes, Government Members talk about big businesses and corporations as some unwelcome part of our economy, but they are the biggest employers in the country and are fundamental to our economy. In the Red Book, these changes involve increases of hundreds of millions of pounds in business rates. Who will the increased rates affect? They will affect large supermarkets—a sector that is one of the biggest employers in the country—and hotels, which are a really important employer, as well as being fundamental to travel and tourism. Will the Minister also say a word about the expected effect on the national health service?

The blurb on the Budget says, “We are going to attack distribution centres, including those used by online retailers.” The word “including” does a lot of work in that sentence, because high street retailers also have distribution centres, and the changes will add to their costs, fuelling inflation on food and everyday consumer goods.

[Dr Luke Evans]

My right hon. Friend is making an excellent observation on the impact of these costs. We know from the surveys that 75% of businesses will pass on the costs to the very people who use them. They will have an inflationary impact on the public. Does he agree that it is imperative that we think about that?

[Damian Hinds]

As ever, my hon. Friend is spot on. In the end, there is no such thing as a tax on business—you cannot tax a business; you can only tax people. Any tax on business is ultimately a tax on its employees, its customers or its owners. Before somebody jumps up and starts talking about the owners, the owners are often pension funds who are then paying out the pensions for our mums and dads.

My point is that these business rate increases will mean higher costs for bricks-and-mortar companies as well, which come on top of all the other changes, in particular the hike in employer national insurance contributions. And this from a Government who yet again this week keep talking about their growth agenda. It makes me wonder what is actually written in that growth agenda.

Overall, the effect of all these changes—we need only look at the Budget Red Book—is that the revenue from business rates is projected to increase from £32 billion this financial year to almost £40 billion in five years’ time. It is a massive further tax raid on business, and a brake on employment and economic growth.

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[Mr Sewards]

I heard the right hon. Gentleman put that question to the Minister in last Monday’s Westminster Hall debate but, just to go back to his original point—I will come to the 6,500 new teachers—we are deliberately taking these decisions in order to increase the amount of money that state schools have to teach the 94% of students who enjoy state school education.

As a basic principle, all Members of this House can get behind the idea that it is a basic function of the state to provide a well-funded, excellent state school place for all students, whether or not parents choose to take advantage of it. That is exactly what we are doing with this Bill and the other measures we have announced.

[Dr Luke Evans]

Talking of basic principles, does the hon. Gentleman therefore believe it is right to tax education—yes or no?

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First, in the context of school financing, we should recognise that the measures in the Bill and the introduction of VAT will not end up benefiting our state schools. If every single penny of all those extra taxes were to find its way into state school budgets, it would represent the cost of half the salary of a single classroom teacher. The effect of the national insurance increases alone on school budgets wipe that out straightaway. State schools unambiguously will be worse off as a result of the measures set out in the Budget.

[Dr Luke Evans]

We have heard categorically from Labour that private schools are businesses. They see themselves as part of the community and as charities. Now that they are seen as businesses, they will act as businesses and will have to look to raise revenue from all their sports facilities and anything else that they willingly gave away to the state system. Private schools work with the state system and ensure that there is support for the state system—that is the community basis of what schooling is about. Does my hon. Friend share my concern that defining them as businesses will be a big problem?

[David Simmonds]

My hon. Friend highlights a point that many of us will have heard from our local state schools: the fact that they are in sharing arrangements with private schools to access facilities. They are concerned that, as the cost drivers introduced by the Government and the Budget increase the pressure on those schools, they may lose the free or low-cost access they have.