MPs give second reading to business rates reform bill

Business rates reform

The Exchequer Secretary, James Murray, began the debate by acknowledging that the current business rates system is ‘inflexible’ and places an ‘unfair’ burden on high-street businesses. He argued that the government's bill would provide tax cuts for those businesses and bring stability and certainty. He set out the government’s broader ambition to transform the business rates system, including consulting on adopting a general anti-avoidance rule for business rates in England.

Murray said that the provisions in the bill will enable the introduction of two lower tax rates, which will be applied to qualifying retail, hospitality and leisure properties: “Our intention is for a lower rate that offers a tax cut for retail, hospitality and leisure properties that currently pay the standard multiplier, with a rateable value between £51,000 and £499,999. Another rate will offer a larger cut to the retail, hospitality and leisure properties currently paying the small business multiplier, which are those with a rateable value below £51,000.”

To fund these cuts, the bill also enables the introduction of higher multipliers for the most valuable properties — those with a rateable value of £500,000 and above. The rates for these new multipliers will be set in the 2025 autumn Budget in the light of the outcomes of a revaluation. However the bill includes – in the minister’s– “sensible guardrails” to limit the use of those powers.

Kevin Hollinrake, Shadow Secretary of State for Housing and Communities, criticised Labour’s “business-bashing” policies, including the employer’s national insurance contributions increase. He accused the government of breaking its promise of “scrapping business rates”, arguing that as a result of the bill (and the measures in the Budget) “business rates are actually going up, both for online companies and businesses on our local high streets”.

Hollinrake suggested that, due to a reduction in business rates relief, businesses would face a ‘stealth tax’ from Labour, with a £925m rise in rates next year, adding that there would also be an increase of up to £2.7bn in 2026 through higher business rates.

He called setting the new higher rate multiplier for premises with a rateable value of more than £500,000 “a blunt instrument”, adding: “I can assure the Government that it will have consequences for businesses that are not big online retailers. It will hit large supermarkets, supermarket delivery, large department stores, football and cricket clubs, conference centres and airports. Some of those on whom the new charges will be levied pay tens or hundreds of millions of pounds in rates.”

Daisy Cooper, Liberal Democrat Treasury spokesperson, argued that the ‘outdated’ business rates system is ‘unfair’ and holding back the national economy. She expressed her Party’s desire to reform business rates with a new system based on commercial landowner levy, suggesting that the government’s bill “is just more tinkering”.

Copper claimed that the bill also ‘fails’ to address other issues in business rates systems, including cliff edges and small businesses. She provided an example that properties with a value over £51,000 are not eligible for the small business multiplier, but being small businesses and with rates relief decreasing, bills for small businesses would increase. She welcomed the government's direction of travel but expressed concern that in the absence of an impact assessment “unintended consequences” could be expected.

Damian Hinds (Con), a former Treasury minister, said: “Business rates are particularly troublesome because of their fixed-cost nature—they do not flex to businesses’ sales or profitability or to the business cycle, so they can exacerbate the effect of downturns in the economy or in individual sectors”. He suggested that business rates discourage start-ups and that rates fall disproportionately on property-heavy sectors.

While emphasising that the business rates system must be reformed, Hinds believed that the bill does not make a ‘sharp’ distinction between shops and distribution sheds. He praised his party’s introduction of the digital services tax saying: “I do not believe a broader online sales tax is likely to be helpful—definitions would become difficult, and the development of some of the small businesses in our town centres that we value could be impeded—but I welcome the government talking about more frequent valuations”.

Anna Sabine (Lib Dem) welcomed the permanent business rates fall for the hospitality sector but believed that the bill does not help to support high streets. Polly Billington (Lab) claimed that it would create a ‘fairer’ regime and protect shops. She blamed the Conservatives for creating a cliff edge for high-street business and supported the small businesses tax multiplier change.

Other Lib Dem MPs, including Clive Jones and Charlie Maynard, considered the bill ‘disappointing’ with Maynard saying: “We need to be much more precise about going after big tech and taxing it appropriately”. Advocating for the Lib Dem policy of a commercial landowner levy, he also argued that if the stamp duties on commercial land were scrapped, the UK’s market in land would become more efficient.

Likewise, Vikki Slade (Lib Dem) believing that those who profit from the business should pay, said: “Business rates as described in the bill are not just related to the rateable value but are explicitly linked to the rental value. They bear no relationship to the type of business, its profitability or its broader benefits to the community or to society”.

David Simmonds (Con) asked whether following the introduction of higher multipliers on business rates, the government is also planning to introduce additional higher council tax bands for residential properties. Iqbal Mohamed (Ind) and Peter Lamb (Lab) welcomed the bill with the latter arguing that local authorities have been making the case for change for years.

The Minister for Local Government and English Devolution, Jim McMahon, reiterated the government’s commitment to rejuvenate high streets suggesting that “tax cut will be fully funded and sustained through a higher tax on the most expensive properties”.

VAT on private schools

Many opposition MPs criticised the government for ending the charitable tax breaks for private schools with Dame Caroline Dinenage (Con) labelling it a “double whammy” for schools.

Munira Wilson (Lib Dem) argued that the change would lessen private school partnerships with schools in disadvantaged areas.

For the Conservatives, Kevin Hollinrake criticised what he called the “education tax” and asked for the government’s clarification on whether this policy complies with Article 14 of the European Convention on Human Rights. He said: “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”.

Another Conservative MP, Graham Stuart, expressed concerns about the implementation time of the policy, in particular for SEND children, who may struggle to adapt to a new environment. Damian Hinds (Con) raised a concern that, by going ahead with the policy change, Labour is creating a two-tier charity system which “can be disfavoured fiscally even while complying with their charitable obligations and serving their communities”.

Iqbal Mohamed (Independent) blamed the government for not assessing the policy thoroughly, arguing that it would lead to further ‘imbalance’ in society, and affect low-income families who send their children to faith schools. He called on the government to provide exemptions for special needs schools and faith schools saying: “One easy solution would be to exempt from VAT schools that charge below per-pupil state school allowance, and allow them to retain their charitable status” – a message echoed by Jim Shannon (DUP).

Labour MPs including Adam Thompson, Sureena Brackenridge, Jo White, Chris Vince and Michelle Welsh supported the removal of the charitable tax status of private schools and considered it ‘fair’. Likewise, Imran Hussain (Independent) welcomed the measure saying: “We cannot keep funding tax breaks for the top end of society while neglecting the rest”.

The minister, Jim McMahon, acknowledged members' concerns, however he argued that based on the Treasury’s consultation and analysis by the Department for Education on removing the charitable rate relief, “it is not apparent that private faith schools will be affected by this measure any more than non-faith schools”. He added that private schools that are charities and “wholly or mainly” provide education for pupils with education, health and care plans remain eligible for business rates charitable rate relief.

Votes

Two votes took place on the bill. A Conservative motion arguing for the bill to be rejected was voted down by 173 votes to 335.

The motion read: “this House observes that the Autumn Budget 2024 has cut central Government funding for retail, hospitality and leisure business rate relief in 2025-26, and that this Government funding will end completely in 2026-27; expresses concern that the Non-Domestic Rating (Multipliers and Private Schools) Bill represents a stealth increase in business rates on high streets and the hospitality sector, as well as on larger businesses, on top of the Government’s increases in National Insurance contributions; regrets the lack of a proper cumulative impact assessment on the effect on business; notes that the removal of charitable rate relief on independent schools, taken together with the imposition of VAT, will mean fewer children going to private schools and will therefore create extra pressure on state schools, will undermine aspiration and parental choice, and mean larger class sizes in state schools and increased costs for taxpayers; and therefore declines to give a Second Reading to the Non-Domestic Rating (Multipliers and Private Schools) Bill.”

The House then voted by 336 votes to 175 to give the bill a second reading. The bill has been committed to a public bill committee which will conclude by 17 December.

Read the full debate.