Non-Domestic Rating (Multipliers and Private Schools) Bill

Second Reading

Moved by

That the Bill be now read a second time.

My Lords, on behalf of my noble friend Lord Khan of Burnley, I beg to move that this Bill be now read a second time, and in doing so I send my condolences to my noble friend on the death of his mother.

It is a great pleasure to open the debate on the Non-Domestic Rating (Multipliers and Private Schools) Bill. I very much welcome the interest shown by noble Lords in the matters related to this Bill and for the opportunity for both I and my noble friend Lord Khan to engage on key points of the Bill.

A few months ago, the Chancellor of the Exchequer set out our Government’s first Budget: a Budget to commence a decade of renewal and deliver on the Government’s primary objective of economic growth. The decisions taken in the Budget, some of them very tough, are necessary to enable the Government to deliver economic stability, restore the public finances and deliver our plan for change. It is right that the Government do not shy away from the challenge before us, doing all they can to restore our public services and give businesses the confidence and stability they need to thrive. Stability, certainty and predictability are essential to business decision-making and, while the Government cannot completely remove all the uncertainty that may arise through running a business, there are elements that are within our control.

We have heard from businesses that they have long-standing frustrations with the business rates system. They have said that it is inflexible, that it stifles investment and that it is unfairly skewed against property-intensive sectors such as the high street. The changes we are making to business rates, including through this Bill, will address those concerns.

I think noble Lords will agree that our high streets sit at the very heart of our communities. They should, and do, represent the very best of our thriving and vital community life. They are centres of economic activity so important to the economic health of our country, but they are also meeting places for vibrant communities, whether it is families enjoying a meal together, work colleagues relaxing after a hard week’s work, friends shopping for a new outfit or gadget, or the multitude of other reasons that people use our town centres. The Government have committed to transforming the business rates system to make it fit for the 21st century, an endeavour that will be delivered across the course of this Parliament. That journey starts with this Bill. Through it, the Government have begun the important task of rebalancing the business rates burden faced by our high streets.

The Bill before us today seeks to enable the commitments made by the Chancellor at the Budget to introduce permanently lower tax rates for qualifying retail, hospitality and leisure properties with a rateable value below £500,000 from April 2026. This permanent intervention ends the uncertainty of the stopgap retail, hospitality and leisure relief that has been extended year on year since the Covid-19 pandemic. That relief was always intended to be a temporary measure, born out of the extraordinary context of the early 2020s, and necessary for the time but at great cost to the Exchequer. In the challenging fiscal context we now find ourselves in, it is not financially responsible to continue that indefinitely.

My Lords, first, I send our condolences to the noble Lord, Lord Khan of Burnley, and to his family in Burnley. He is always in our thoughts and prayers. This will be a difficult time for him, as I know. I declare my interest as vice-president of the Local Government Association.

This Bill represents another stealth tax for businesses. Not only are the Government increasing business rates; at the same time they are also reducing business rate relief for retail, hospitality and leisure businesses up and down this country. This is the wrong approach and we will scrutinise this Bill very closely in Committee.

Throughout the election campaign, the now Chancellor promised that the Labour Government would be the

“most pro-business government this country has ever seen”.

Yet the choices they have made indicate the exact opposite. This Budget has been decidedly anti-business and the decision to increase business rates demonstrates this Government’s failure to understand how to achieve growth.

On Monday, the CBI reported that firms expect another significant fall in activity over the coming three months, with the CBI’s growth indicator suggesting a 23% fall in the three months to January. The only official estimate of the revenue from this Bill is just £70 million for the Exchequer in 2025-26, but the impact on businesses will be disproportionate to that figure. When paired with all the other damaging tax increases in the autumn Budget, it provides a clearer picture of the campaign of crippling tax rises that this Government are imposing on our businesses.

As we scrutinise this Bill, we will be focusing in particular on the impact of these changes on our high streets, including hospitality and leisure businesses. Businesses are being asked to pay more through their employer national insurance contributions and the inflation-busting increase in the national living wage. With this Bill, the Government are hitting businesses with a triple whammy. It is our duty to hold the Government to account and to scrutinise the unacceptable negative impacts this Bill will have.

My Lords, I join the noble Baroness, Lady Scott, in sending our condolences to the noble Lord, Lord Khan, and his family. It must be hard for him at the moment, but he can be sure of the warmth from your Lordships’ House.

In speaking to the Bill, I will not comment on Clause 5 because I am sure that quite a few others will speak at some length on it, and we will certainly have a chance to revisit it in some detail at later stages. Instead, I will dwell on business issues, which corresponds with my Front-Bench duties. I declare that I have a family member who owns an independent shop.

There is an aphorism that perfection is the enemy of the good. The Bill is not perfect, and its lack of transparency makes it hard to see what may be good about it. I hope that, during the course of this debate and the later stages of the Bill, the Government see fit to shine more light on it and offer more transparency so that we can get a better feel for all the moving pieces.

However, the Bill is evidently not a comprehensive reform of the business rates system, despite Labour’s manifesto commitment to do so. We know that the business rates system is deeply flawed. Of course I would say that a commercial landowner levy, as proposed by the Liberal Democrats at the last election, would go a long way towards addressing many of the entrenched problems in the current system.

I turn to concerns directly about the Bill. First, it fails to address the core issue of the imbalance between businesses that trade from out-of-town premises to those that trade from bricks and mortar shops within a town centre. The noble Baroness, Lady Scott, analysed this problem, but, of course, this Government inherited it from the noble Baroness and her colleagues, so although they are able to analyse it now, they failed to do anything to address these issues when they were in their control.

At the heart of this issue is the imbalance between in-town and out-of-town valuations. Historically, as the noble Baroness, Lady Scott, pointed out, valuations on high streets massively outstrip those on warehouses. This mismatch in valuations looms large when considering business rates. We look forward to future reviews of that when and if they come; it would be helpful if the Government could give us a timetable for what will happen in addition to this Bill.

I thank the noble Baroness, Lady Taylor, for her introduction to the Bill and add my best wishes to her colleague, the noble Lord, Lord Khan. I express my thanks to him for his willingness to engage prior to this debate.

I commend the briefing from your Lordships’ Library, which is a most useful explanation of what is rather a niche specialism. I am grateful for comments from two rating specialists, Jerry Schurder and Simon Green from Newmark, formerly Gerald Eve, and to fellow professionals from the RICS rating and taxation forum. However, I stress that the views I express are mine and not in any way an official view of any other person or body.

I remind your Lordships that I come to this matter from a technical standpoint, with on-off professional involvement going back over 50 years in business rates and local government finance matters. I am also the beneficiary of a small business exemption on a very small rural business hereditament. I hold no brief from any professional body or any relationship with any commercial business rates payer or school.

The Bill has been described as a rebalancing measure, and that has been a repeated theme. We have heard that it imposes supplementary charges on less than 1% of some 2.15 million hereditaments where the value is £500,000 rateable value or over. According to my information, that amounts to 16, 857 separate hereditaments. I understand also that the Bill is the first step to meet the Labour manifesto commitment to

“replace the business rates system”

and

“level the playing field between the high street and online giants”.

At the moment, as we have already heard, there is a long-standing, and I believe just, criticism of the overall burden of business rates. Like for like, they are the highest of any OECD country. I am told that Jaguar Land Rover has a plant in Germany where the comparable tax burden is just one-sixth of the English plant equivalent. This is repeated constantly across many different types of business.

My Lords, it is a pleasure to follow the noble Earl, Lord Lytton. He speaks with immense knowledge on these matters. I join in sending condolences to the noble Lord, Lord Khan, as he passes through one of the terrible watersheds of life that we all pass through.

I am going to speak primarily on the second part of the Bill and declare my very recent interest as provost of a famous school—namely, Eton College. Provost means chair of governors in ordinary language. Before we come to that, until a couple of years ago, my wife and children owned a small, historic pub in Dorset Street in Marylebone in which, I am sorry to say, I now have no interest. My daughter Harriet was the licensed publican. She reminded me that it had a very annoying rateable value of £51,000, which was always just above some decimal threshold.

As the noble Earl, Lord Lytton, and the noble Lord, Lord Fox, both said, so many moving parts are coming along in the rating relief world in the next year that it is very difficult to tell whether the Barley Mow will gain or lose, but I recommend that noble Lords give it the benefit of the doubt and go there to support it against any possibility of trouble.

I shall speak mostly today about the sense of sadness—and it is a sadness—that I have about the educational approach of this Government. There are many things about this Government, such as in prison reform and other areas, which I strongly support, but there is a genuine sense of grief about what is happening in secondary education in particular. I have been involved in policy for quite a long time, as have many in this House—in my case since 1971, when I was a civil servant—and I know that very few important things are ever achieved by Governments unless they are persisted with for decades. It is utterly ludicrous, for example, to suppose that the underlying growth rate of a country can be changed in a year or two, or three or possibly even 10. You only have to look at the long-term trends to see that. The same is true of the NHS, for which I once had the privilege of being Secretary of State. Any reform of that great leviathan needs a decade, probably, of consistent working, across party, in the same direction to make any real change. The same is true of education.

My Lords, it is a great pleasure to follow my noble friend, and indeed the noble Earl, Lord Lytton, who is a neighbour of mine in Sussex. I had the pleasure of him being a constituent of mine, when I was a Member in the other place. He speaks with enormous authority on this subject. The issue around the multipliers, with which he dealt with great expertise and subtlety, is one of horrendous complexity, as he says, with many moving parts. I seem to recall that my noble friend Lord Waldegrave had at one stage the delight of being the Minister for Local Government and had to grapple with all these issues. I say to the current Minister that the Government would do very well to listen to the noble Earl, Lord Lytton, who speaks with such authority and credibility on this complicated topic.

I declare an interest. I would like to say that I am the provost of Brighton College—I like the ring of that—but I have to say, much more humbly, that I am the chair of governors of Brighton College, which is now the top performing co-educational school in the country. It is a charity, as most independent schools are, and it will suffer from the actions of this Government. I hope that Ministers will at some stage give up the fiction that this is about building up the maintained sector. As my noble friend rightly says, there is no hypothecation. There is no credible impact assessment of the effect of the removal of rates relief from educational charities of this kind. The amount of money that is purported to be raised—which is, I guess, very optimistic anyway—gets lost in the roundings of any Treasury arithmetic. We should be very clear, as my noble friend set out extremely eloquently, that this is not about building anything up but about pulling something down—something quite important that has a benefit for the country much wider than the benefit for those pupils fortunate enough to attend these schools.

My noble friend talked about, for example, the London Academy of Excellence. Brighton College was the principal driver of setting that up. It provides an extraordinary education for the most disadvantaged children from the most disadvantaged borough in the kingdom, and it would not have been done without the input, drive and innovation provided by independent schools, which are charities. That was part of the public benefit that charitable independent schools are rightly expected to provide, and while they continue to have charitable status they will continue to be expected to provide public benefit. But the “quid” for that very substantial “quo”—the public benefit—is being removed, not just through the removal of this business rates relief but through the imposition of VAT, as well as the much more widespread hit, as my noble friend says, of the increase in teachers’ pension contributions and the huge hike in employers’ national insurance contributions. It is not just a triple whammy for independent schools but a quadruple whammy, and that will have an effect.

My Lords, I join other noble Lords in sending my condolences to the noble Lord, Lord Khan of Burnley, and his family for their recent loss of a senior member of their family.

I express my interest in the non-domestic rates Bill. I wish the House to note my interest in the matter as a non-domestic rates payer for five properties as part of the veterinary business I manage. My knowledge of non-domestic rates is not as extensive as it could be, and certainly not as extensive as that of my noble friend Lord Lytton.

Non-domestic rates reform has been a topic of discussion for many years for businesses. High street retailers, pubs and hospitality venues have been part of my early morning walk, listening to business news while I walk my dog, for many years. Businesses complain about the financial burdens this tax puts on them. I welcomed the Treasury report Transforming Business Rates in October 2024 and the call for evidence from stakeholders by the end of March. Therefore, I feel that this Bill is the start of a transition on business rates reform, and it is certainly not the solution.

I commend the general direction of the Bill in providing a possibly clearer and more certain system for how non-domestic rates are calculated for businesses, as the current rate is confusing, complex and not guaranteed. Two multipliers are included for retail, hospitality and leisure businesses. They are lower than the standard multiplier and possibly apply to two bands of rateable values of up to £500,000, which is welcome. My reservation is that the maximum reduction of 20 pence or 0.2—however it is expressed—will give savings to the RHL sector, but there is no indication from the Government as to the possible level of the lower multipliers that will be announced in the Budget in the autumn.

I agree with the noble Baroness, Lady Scott, the noble Lord, Lord Fox, and my noble friend Lord Lytton that it is difficult at this point to estimate and predict whether these businesses will make a saving in the coming years. Can the Minister say whether an assessment has been made of how much lower the standard multipliers would have to be to ensure that small businesses end up paying less or similar amounts of business rates than they currently pay, including the current reliefs that have been in place since the pandemic? I am aware of one leisure business that is already looking forward to 2026-27 with no indication of any relief expected. It is budgeting for a substantial increase in its non-domestic rates bill of thousands of pounds. As a result, it is looking into how to it can absorb those costs.

My Lords, I continue the discussion about independent education. I do so with some temerity in view of the fine speeches made by my infinitely more distinguished noble friends in this debate.

I declare my interest as former general-secretary of the Independent Schools Council and the current president of the Independent Schools Association, one of the council’s constituent bodies, which has just under 700 member schools. Most of them are small in size, operating on tight budgets without any reserves whatever. They are dependent on fee income which, in some cases, can be as low as £3,000 per pupil a year. The council—the chief representative of the independent education sector—acts on behalf of some 1,400 schools. They are immensely diverse in character and are educating with marked success around 80% of the 600,000 children in the independent sector. No responsible Government would seek to make life difficult for these flourishing schools, some of world renown. Yet severe difficulty is exactly what this Government are creating for them.

This Bill continues and extends the Government’s attack on independent schools—one that recognises no distinction between the very varied types of school in the independent sector of education. The Government treat them as it they are all the same and all equally capable of shouldering the new financial burdens, each one of them unprecedented in character, that they are inflicting on independent schools in quick succession. Perhaps the Government believe that all independent schools can somehow find the means to pay their unprecedented financial exactions. If they believe that, they are putting hostile prejudice before reality.

Over 1,000 independent schools, 40% of the total in England, have fewer than 100 pupils, according to the Department for Education’s figures. Is it not obvious that these numerous small schools will suffer particular hardship as a result of the unprecedented financial pressures the Government are piling on them? Some will go under. Evidence is accumulating. The Independent Schools Council will ensure that all of it is placed prominently before the public.