Non-Domestic Rating (Multipliers and Private Schools) Bill

Polly Billington Excerpts

2nd reading
Monday 25th November 2024 Commons Chamber

[Ms Polly Billington (East Thanet) (Lab)]

At the general election, businesses in my community were crying out for change. They felt the need for stability and certainty after more than a decade of chaos and incompetence had hit them all hard. One of the things they welcomed was Labour’s pledge to reform business rates and ensure that the online giants, which suck so much out of our local economies, would pay their fair share. Small town high streets such as those in Margate, Broadstairs and Ramsgate desperately need the support that a change in business rates will give them. It is vital that we create a fairer business rates regime to support investment and protect our high streets.

More widely, I heard real anxiety on the doorstep about the need for more teachers in our schools and access to quality education, so often unavailable for the 94% of children who go to state schools. Reforming business rates for private schools, which serve only 6% of the population, makes sense; it is carefully costed and will make a difference to so many children in Thanet and across our country.

I hope, in particular, that this reform is a driver to increase access to the creative disciplines so that children can learn to expand, develop and harness their imaginations, appreciate the arts in all their forms, with good-quality creative education delivered by qualified teachers who love their subject. It should go without saying, but it does need to be said, that children raised with good-quality creative education have the potential to go on to contribute to our local economy through the creative industries, including by starting their own businesses.

Our business rates system has disincentivised investment and created huge burdens on our high streets. The Conservative party created a cliff edge for high street businesses across the country as temporary reliefs were due to end. Providing certainty through a 40% relief rate and the freezing of the small business tax multiplier is very welcome.

I welcome the Chancellor’s intention to permanently lower rates for retail, hospitality and leisure; this is crucial for constituencies such as East Thanet, where creative industries and tourism businesses are crying out for help. I have been working with the Ramsgate empty shop campaign to revive the town’s high street. Despite its wonderful heritage, thriving creative community and extraordinary environmental assets, Ramsgate’s local economy is far too seasonal, and that makes running a business all year round harder. That in turn has driven many businesses to the brink and left the high street echoing with the silence of empty shops. Spaces that should be seen as an opportunity for entrepreneurs have become a sign of desolation. That must change.

The importance of business rate changes is also highlighted in the other aspect of this Bill: the removal of private schools rates relief. Every parent wants the best for their children; that impulse is not exclusive to those who choose to send their children to private school. There is nothing wrong with ambition. If we are to enable all families to fulfil their ambitions, we must ensure that they all have access to the very best quality education. It is our duty as a society and a country to ensure that all those children’s talents, aptitudes and interests are nurtured.

Vast swathes of working-class children do not have access to the kind of education that would be genuinely transformative. For example, the last Government cut back radically the amount of arts education in state schools, locking working-class children out of the opportunities to find their talent, tap into their imagination, and learn how to play an instrument, express themselves through dance, wield a paint brush, work with clay or look deeply and critically at the world around them and respond to it. They pursued a curriculum that damaged the prospects of those children.

In contrast, private schools know that creative education is good for children’s wellbeing and academic outcomes. That is why they put so many resources into developing it. That is why they allocate the resources, build the assets and invest in the teaching staff to ensure that their children get that access to the creative arts that contribute to society in every dimension.

Unsurprisingly, 40% of those working in the film, TV and music industries were educated at private schools. Who knows the amount of untapped talent in the 94% of children in state schools that we have lost as a country because of the actions of the last Government. It is estimated that the creative sector in the UK is worth £125 billion and employs 2.3 million people. We are limiting ourselves as a country by not giving every child access to creative education. Imagine how much more we could be producing in economic prosperity as well as greater wellbeing if those children had the same access that the 6% have. So, yes, it is right to find that money from the private schools who serve the 6%. Yes, it is right that we find the money for more and better teachers in state schools with a love of the arts; with an enthusiasm for sharing their appreciation and skills; and with an aptitude for spotting talent, rewarding effort and encouraging creativity.

Those small businesses in my community also want to know that the children in our schools become young adults as fully rounded products of our education system, with their imagination, skills and discipline developed ready for the kind of work in the creative industries that drives our economy locally, nationally and globally. If for nothing else, I urge the House to vote for these changes for our children, our small businesses and our economy.

Non-Domestic Rating (Multipliers and Private Schools) Bill (First sitting)

Polly Billington Excerpts

Committee stage
Wednesday 11th December 2024 Public Bill Committees

[Adam Thompson (Erewash) (Lab)]

Q Thank you for joining us this morning, Mr Watson. I represent two towns in the east midlands, Ilkeston and Long Eaton. Both the high streets in our towns have suffered for a long time. We have a large number of small retailers and many have closed over a long period. A lot of work has been done locally, in particular by one member of the community, on regeneration of one of the towns especially—basically, clubbing together a lot of small independent retailers who have worked together to bring the community back up. How will the Bill tangibly affect the community and those small retailers?

Gary Watson: We have the Bill, but all the time we have the small business rate relief, which sits there. Obviously, the issue with that is that it is again limited on rateable values. In one part of the country, rateable values will be higher or lower than for the same type of property in another part. The area that might want to be looked at when the next revaluation takes place is to look at the ceilings on those rateable values. At the moment, for the small business rate multiplier, we go up to £51,000. There is that small business multiplier, so if you are trying to target, once we know what the outcome of the rateable values will be at the next reval, it may well be that the support that you could give would be through uplifting the values, as I said.

On the Bill itself, we have the flexibility of the two lower multipliers. To go back to an earlier question, I think it is right to have that flexibility, so that we can vary it depending on the circumstances. It does give flexibility, but we also need to think about the small business rate relief, and that is there anyway. That might be something to look at, in terms of targeting, when it comes to the next reval. I think that would need more secondary legislation, rather than primary legislation.

[Ms Polly Billington (East Thanet) (Lab)]

Q Thank you for your evidence. It has been very interesting. My constituency is made up of three towns, Ramsgate, Broadstairs and Margate, all seaside towns and very dependent on all the sectors we have been talking about—tourism, hospitality, leisure and so forth. You have been talking about the centrally decided approach when it comes to those sectors. What value might there be in an approach that recognises the geographical challenges of particular areas, so that we do not just have a complete free-for-all with local government picking and choosing how to do it? We could say instead, “Yes, we need to have a particular approach when it comes to the geographical challenges of some commercial centres and the high streets.”

Gary Watson: Yes, I think you could look at the Bill giving a framework. At the moment, you have the standard rate and the small business multiplier, and the flexibility with the two lower ones—one or more, depending on how you want to move those forward. From a local authority point of view, there is that national situation, but you then have to look at each of the individual areas, and no one area is the same as another, as I said. They will not always be the same—things will change—and that is where the local authority comes into play, and where you need to have the relief systems in place.

The one thing you have in the legislation anyway—I am sorry to bore you with legislation—is section 47, which allows the local authority to give relief to any ratepayer that it wants to. The only thing it has to take into account is giving due regard to its taxpayers’ interest—and obviously it is, because the taxpayers are benefiting from having a thriving high street. In a way, that relief system is already there, so I think creating the framework is fine. As I said, yes, there is that concern about the complexities of the whole system itself, but you are trying to direct it to make it more agile—as that term has been used.

There is no reason why the framework can be put together through the Bill, but the relief system cannot then be used, say, in the three towns that you referred to—I am a little familiar with those three towns, because one of my council members is from Thanet, so I know it quite well. As I say, I think the relief system is there. The issue you will have then is whether, when it comes to funding those reliefs, local authorities will have all the funding. That is where I always say that you cannot look at the property tax and local government financing separately. When you talk of reforming council tax or business rate, you also have to consider local government finance—the two always have to be considered together.

[The Chair]

That brings us to the end of the time allotted for the Committee to ask questions. I thank our witness on behalf of the Committee for giving evidence.

Examination of Witness

Paul Gerrard gave evidence.

--- Later in debate ---

[Patrick Spencer]

Q Have you done any analysis of the variation of impact between renters and freehold owners of shops? On my high street, the shops that own the freehold are the ones that have been there for 15 years, so they have not weathered the same problems that other shops have. Surely at the margin there is an impact on shops that own the property.

Stuart Adam: There are a couple of slightly different things there. The first is that you may have a chain of ownership: possibly a very short-term sub-let, a let, a long-term leaseholder and then the ultimate freeholder. How far and how quickly it gets passed up that chain will partly depend on how long term the contracts are, how easy it is to renegotiate and so on.

The second thing, when talking about what happens as rents adjust, is that a minority of businesses, but a sizeable minority, own their own premises. In the long run, they may not be affected in their capacity as tenants, but they are still affected in their capacity as landlords to themselves, as it were. One way to think about it is that it is almost lump sum redistribution across owners of different properties. If you own the property and your business rates bill goes down—there is no rent. You can imagine charging rent to yourself, but the reality is that you just have a lower bill to pay.

That is a one-off gain in the sense that you could sell that property and get more for it in the same way, so you are just better off if your business rates bill has gone down. Someone else looking to buy it would face a lower business rates bill, but they would have to pay more to buy the property in the first place. So yes, businesses that own their own premises would benefit from a business rate cut—or lose from a business rate increase if we are talking about those above £500,000— in their capacity as owners, essentially, rather than their capacity as the business occupying and using the property.

[Ms Billington]

Q We have a 24% vacancy rate on Ramsgate High Street for many of the reasons that Jayne gave in relation to Cornwall. Do you think that the certainty that this legislation brings will have an impact on establishing long-term help for reviving the high street, particularly when it comes to rents and increasing occupancy? The long-term drivers that have been undermining the high streets are new shopping behaviours—not only post-pandemic behaviours but online shopping. If you do not think that this legislation will help, what will?

Stuart Adam: First of all, I do not want to say that it will do nothing to help. It will certainly do something in the short run, and I am also giving the quite extreme case—the very purest—in the long run. Even in the long run, it will not be quite as simple as I am painting it. There will be some help, but as I say, it is more second order than first order. I also agree, as I emphasised earlier, that the certainty will definitely help.

I also think that we can look at other parts of the business rate system. The treatment of empty properties—empty property relief—is one, which is much more important and more directly targeted at actually getting properties back into use. I know that the Government are concerned, as the discussion paper mentions, about exploitation of empty property relief by people cycling in and out artificially and things like that. I also think that a lot of the struggles of the high street are not caused by business rates. Things such as online competition make a huge difference, and are not driven by business rates.

[Ms Billington]

Q Sorry to interrupt, but online competition is genuinely a problem with business rates. Having previously been a councillor in Hackney, I know that we got more business rates from Amazon having its headquarters there than the Treasury did from Amazon’s existence in the first place. So there is a difference.

Stuart Adam: What I am saying is that there is a big difference in business rates, but if the business rates are not changing the overall cost of the premises—rent plus business rates—they are not making much difference to the competition. The fact that people can easily shop online is fundamentally what is driving it, rather than business rates. The fact that high street retailers have to pay rent and rates in a way online retailers do not, at least not to anything like the same extent, is absolutely a driver of the difference, but I am just saying that the business rate component of the cost of the premises does not have that much impact on the overall cost of premises, because of the adjustment to rents.

There is a broader question as to what can and should be done to protect the high street. That is largely outside my area of expertise, but I know other reviews and studies have been done on that. I am largely going to duck it because it is outside my expertise, but there are things that can be done outside tax.

[Adam Thompson]

Q Thank you for coming in, Mr Adam. The argument that you have put forward is predicated on the link that you have established between business rates and rent. A quick Google Scholar search implies that a lot of papers out there suggest that that link is broken somewhat by sluggishness in the rental market. Does that not undermine your argument?

Stuart Adam: I would be interested to see which papers on Google Scholar you have seen—

Non-Domestic Rating (Multipliers and Private Schools) Bill (Second sitting)

Polly Billington Excerpts

Committee stage
Wednesday 11th December 2024 Public Bill Committees

[The Chair]

We can hear them from here. The first Back Bencher who caught my eye was Polly Billington.

[Ms Polly Billington (East Thanet) (Lab)]

Q Thank you, Dr Huq. Steve, I would like to ask you a couple of questions on what you were talking about in terms of threats to the pub industry generally. I represent East Thanet, which is made up of Ramsgate, Broadstairs and Margate, which are heavily reliant on the leisure, hospitality and tourism industries. We have a lot of much-loved pubs in our town centres, but I am aware that many have closed over the last couple of decades. What would you identify as the drivers of the closures of those pubs? What are the numbers, just to put some context on the risks you have identified?

Steve Alton: I think there are a number of factors. We have seen a real evolution of the pub model. Inevitably, in any market, those that do not evolve and keep that connection and relevancy with their customers do, unfortunately, fall by the wayside. There is a natural evolution within the industry. The cost base has fundamentally changed. The profit and loss has changed for new pubs. It is a tight-margin business—tighter than it has ever been.

The two outliers of our model are property and people. We need a place to operate in the communities we serve, and we needs lots and lots of people. Both those have been subject to cost increases during that period. Yes, consumer tastes have changed. We know that, and we have some fabulous pubs that have completely embraced it and are full every day of the week because they are creating events. In fact, we have a major platform with our licensee of the year award, which we do every year, and we have a very proud winner who runs a high street pub in Burnley. Every day of the week—this is a grassroots, wet-led pub in the community—there is a reason for people to go in. She has a real cross-section of the community and would consider that she has got 150 locals; she knows them by name and their family background, and they go in to connect in the community. That is their hub.

[Ms Billington]

Q I am really impressed by the resilience of the pub industry in the context of those external drivers, but what legislative, tax or regulatory changes over previous decades have contributed to the crisis in the pub industry? I want to understand the context in which we are operating.

Steve Alton: As we know, employment costs have been rising disproportionately, as have the employer’s costs of living, so there is the legislation around that. We are subject not only to licensing but a number of other compound issues that we have to deal with locally with lots of different local stakeholders. All these need to be implemented with costs as well. It is the complexity, accountability and safeguarding. All those elements add layers of cost and complexity to the business. It is no longer what it was 20 years ago, when it was a far simpler model to execute, and the cost base has fundamentally changed.

During that period, tax has risen. Look at VAT as a start point. You have to control pricing with your cost base. We cannot just pass through compound inflation running at 20% a year. There is a dynamic issue at play—trade will fall off a cliff. We have seen it on certain high streets: they have just pushed that pricing too far, and consumers, who are subject to their own challenges, have fallen away. They have held that back to make it affordable, which in itself has eroded the margin and ultimately the profitability. It is a compound of all those things in play.

It is a tough business. Running a modern pub, you are full-in. It is a seven-day-a-week business. These guys are not taking minimum wage for themselves right now. You talk about protecting workers: they are workers in their own pubs, and they are not getting the rewards that they absolutely deserve for their efforts. They are willing to invest and look forward, but they need certainty. That is why the Bill is an integral part of a set of measures that need to provide that certainty, so that we do not lose fabulous publicans, licensees and families who know their communities so well and, as you know there are some fabulous pubs in East Thanet.

[The Chair]

Do any other witnesses have anything to add?

Kate Nicholls: Over the last five or six years, you cannot escape the closures due to covid and covid-related debt. That is the backdrop against which these businesses are trying to recover. You have not really had a break from covid to be able to build back resilience in the businesses. It is not just pubs; the broader hospitality sector is also facing the same challenges.

You have had high levels of covid debt, which was Government-issued, to be able to remain afloat during that period. You had two years where you were operating at or below break-even, and one in three of our businesses have no cash reserves because they have not had the ability to rebuild those cash reserves. The resilience in the independent sector in particular is just lacking. Couple that to the significantly increased tax burden—pre-profit taxes in particular—that has been borne over the last six to seven years by our sector; that further erodes the margin.

If we were going into covid in 2019, the tax burden overall was 32% of turnover. It is now 38% of turnover coming out of that. If you do it as a percentage of profit, 77% of our profits go back in one form or another of taxation. I know that taxation funds vital public services, but we are the highest-taxed sector of the economy overall. As a percentage of profit, nobody else pays as much tax as we do, and you cannot get away from that when you are looking at it.

Added to that, factors outside anybody’s control have driven closures over the last six to seven years: there have been 400% increases in energy bills on the back of the war in Ukraine and 20% food price inflation, which again is on the back of the war in Ukraine and tariffs that have come through. Those are significant additional costs that you are bearing in the business that go through to erode the margin and, at the same time, there has been a cost of living crisis, which means that you cannot pass that on to your customers.

You are caught between a rock and a hard place as an operator. The bigger operators just cut their investment fully; that is £7 billion not being invested in our high streets this year to cope with the cost pressures coming through. Those businesses will remain afloat, but the independents do not have that cushion to be able to manage the situation. They run out of road, in essence.

Steve Alton: To give one illustration, small pubs are still handling their covid debt. It can be up to £1,000 a month that these guys are still paying to pay that off, of which the Government debt is obviously a core part. When you are unprofitable, and you are still paying that out, you can imagine the quandary and why we are going to hit a tipping point pretty quickly. That will mean that we lose not only the taxation they generate but the repayment of that outstanding debt as well.

Sacha Lord: Apologies if this was said before I arrived, but my concern is that a pub is not just a place that serves a pint; it is the heart of the community. We know that 64% of people said that a pub is one of the main places that they congregate and that 86% said that when a pub closes, the community suffers. We are anticipating up to 9,000 closures next year with a double whammy in April of the national insurance increase and the business rate increase. I am more concerned about closures in quarter 1 next year than I was during covid.

--- Later in debate ---

[Michelle Welsh (Sherwood Forest) (Lab)]

Q I want to go back to something that Simon said about special educational needs in independent schools, and how in some cases SEN can be met only by independent schools. Can you give further clarification on that?

I spent a long time working with special educational needs in the state sector at every key stage, in both specialised and mainstream state schools. There was not a single case that I saw that was not able to be dealt with in a state school in one way or another. With the further investment this Government are talking about, I think that will change again. I would like some clarity, because if there are such cases, they should be taken up with the local authorities and Members of Parliament—it should not be the case.

Simon Nathan: I am happy to follow up with the Committee on that, because I do not have the specific cases in front of me, but I can obviously go and find that information. I do not think it is an issue on a national scale, but there will be local areas where the independent school is filling the need that perhaps cannot be wholly fulfilled otherwise. I am not saying that the expertise is not there in the state sector; I am saying that the capacity might not always be there.

[Ms Billington]

Q I notice that the fees of private schools in the Independent Schools Council have doubled in cash terms in the last 20 years. I would be interested in the explanation for that rise—the causes behind it—and the impact on both numbers and the composition of the pupils attending those schools.

Barnaby Lenon: I have been on a number of governing bodies, and have been a headteacher of schools where the fees went up quite significantly. It happened particularly in the period between 2003 and 2008, when the fees were driven by increases in state school teachers’ pay, in national insurance and in pension contributions. We did not suddenly all want to build new buildings; it was more or less forced upon us, but you are right that they were quite big increases, and the impact has been that fewer parents have been able to afford our schools.

[Ms Billington]

Q By how much?

Barnaby Lenon: I cannot answer that. We do not know, but I am quite confident that plenty of parents will have found it too difficult.

Simon Nathan: If you look at the number of pupils in independent schools over the last 10 years according to Department for Education data, on the face of it you could say, “Well, there’s 12,000 more,” but that is during a period when the overall school population went up by 800,000. The proportion of pupils educated in independent schools went down from 7% to 6.5%. There has been a proportionate decrease.

[Deirdre Costigan (Ealing Southall) (Lab)]

Q Thank you very much for your evidence. I am a former chair of the governing body of a state school, so this is a really interesting conversation. Mr Woodgate, you mentioned that private schools might need to look at redundancies to absorb the impact of the measure. I understand that the student-teacher ratio in private schools is double that in state schools. It is something like 8.5:1 versus 18:1 in state schools, so there are significantly more teaching staff in private schools. If there were to be redundancies, have you made any assessment of whether the impact would be similar to the impact on state schools?

David Woodgate: Pupil-teacher ratios are increasing anyway. Many schools are much beyond that. That is not a typical pupil-teacher ratio in one of our schools. Many are going up towards 20—the same kind of number that you are talking about in the state sector. Inevitably, if there are redundancies, there will be fewer teachers to go around and they will be teaching more pupils.

--- Later in debate ---

[Vikki Slade]

Q I completely accept the point that a lot of the talk around the Bill is about high streets, because of the particular references to retail, hospitality and leisure. But it is a Bill that affects non-domestic rates and multipliers for businesses. Do you have any thoughts or comments on the fact that there is no reference to manufacturing and how we support manufacturing businesses? Do you think that should be included within the Bill?

Rachel Kelly: Whether that can be included in the Bill, I do not know. But yes, the issue of an uncompetitive property tax system is relevant for lots of industries, and manufacturing is the one that you raised. Ultimately, that comes back to the higher rate of tax across the board. If you are alluding to the higher tax rate for the rateable values above £500,000—yes, it strikes me as an arbitrary threshold, and it will capture lots of different businesses and sectors. Maybe there will be some adverse consequences of that, which might be counter to the policy aims, but I am not sure.

It is a tricky one to balance. Ultimately, if this relief for retail, hospitality and leisure will be funded within the business rate system, our instinct is that it would be better to fund that across as broad a spectrum of the economy as possible, rather than narrow down that tax base even further. For context, the proportion of properties with a rateable value above £500,000 is 1% of commercial property in the UK. If we condense that down even further, it is a very narrow tax base to fund these other changes, so I am not sure that is sustainable. I am not sure we can address the issue of competitiveness for other sectors without addressing the elephant in the room, which is the huge tax rate that we have for everyone else—55%, or 50% for smaller businesses. They are very high tax rates compared with any other business tax.

[Ms Billington]

Q I am grateful for your evidence, and I am interested to hear your puzzlement about the reality of empty shops. I represent East Thanet, where there are three towns—Margate, Broadstairs and Ramsgate —all of which suffer from empty shops to a greater or lesser extent. Ramsgate has a 24% vacancy rate. Can you explain to me how that might be, and what impact the legislation might have on tackling some of the challenges around large property owners resisting taking on tenants?

Rachel Kelly: The reason why we have a huge amount of vacancy on our high streets must be multifaceted. Obviously, we have gone through a huge transition in our retail sector over the last 10 or 15 years, which has had an impact on some of our high streets. The supply of property is relatively fixed, so once there is an oversupply it is difficult to rectify in the short term. Our planning system will play a big role in ensuring that we can reuse those assets for the most appropriate purpose in our current economy.

As far as I am aware, the causational relationship is between vacancy and the disposable income of the residents in a local area. Where there is high disposable income there tends to be lower vacancy; where there is relatively low disposable income there tends to be quite high vacancy. To the point about whether there are, at the margins, people who keep their shops empty, that is not something that a rational investor would do.

[Ms Billington]

Well we must have a lot of irrational investors.

[The Chair]

The Clerk is telling me that we are steering away from the scope of the Bill, so I am being told off for allowing it to continue.