Peers vote to keep charitable business rate relief for private schools

Peers voted through six amendments, as well as agreeing 10 related, consequential amendments. These would:

• Retain the standard multiplier for hospitals, medical and dental schools, and other healthcare settings as determined by regulations.
• Set up an expert committee to make recommendations on recalibrating the share of rates paid by retailers not on the high street.
• Exempt anchor stores from the higher multiplier.
• Expand eligibility for the lower multiplier to include the manufacturing industry.
• Remove Clause 5 (Removal of relief for private schools) from the Bill.
• Mandate a review to assess the impact of the legislation on businesses with a rateable value near the £500,000 threshold.

These changes, backed by Liberal Democrat, Conservative and Cross Bench peers, were opposed by the government, who argued that a higher multiplier for some properties is necessary to maintain the funding balance.

A summary of the debate and amendments is provided below. The debate can be read in full here and amendment papers can be viewed here.

The Non-Domestic Rating (Multipliers and Private Schools) Bill aims to introduce higher business rate multipliers for large properties, lower rates for retail, hospitality, and leisure properties, and remove charitable rate relief from private schools. It is applicable only to England.

The Bill now proceeds to its third reading in the Lords on 24 March before returning to the House of Commons, where these amendments are likely to be overturned.

Healthcare settings

Lead amendment - amendment 1 (Lib Dem) - would retain the standard multiplier for hospitals, medical and dental schools, and any other healthcare setting to be determined by regulations (passed)

Baroness Pinnock (Lib Dem) introduced her amendments which seek to exclude hospitals and other healthcare settings from the higher threshold multiplier, arguing that a government policy aimed at taxing fulfilment warehouses to support high streets will also “clobber our NHS” unless these amendments are adopted.

Baroness Scott of Bybrook (Conservative) supported the amendments in this group, stating that while the government gives to the NHS with one hand, it takes away with the other.

The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government, Lord Khan of Burnley, responded for the government. Rejecting the amendments, he emphasised a “sector-agnostic approach” to applying the higher tax multiplier to ensure fairness and sustainable funding. He argued that the government fully supports the healthcare sector and will consider its impact as part of broader departmental budgeting.

The minister went on to explain that the immunity of the Crown from business rates was removed 25 years ago and since then all of the public sector has been on the same footing as business. “The government are not going to reverse this position, which was intended to drive fairness between the public and private sectors and the most efficient use of property in the public sector,” he told peers.

Votes

Amendment 1 (Lib Dems) was passed by 272 votes to 157.

Also passed (without division) were related Lib Dem amendments 9, 10 and 17.

Large Retail, Hospitality, and Leisure properties and warehouses

Lead amendment - amendment 2 (Cross Bench) – would leave large Retail, Hospitality, and Leisure (RHL) properties paying the standard multiplier rather than the supplement

The Earl of Lytton (Cross Bencher), a chartered surveyor, criticised the current business rates system, saying that “business ratepayers have been subject to an unsatisfactory means of levying this particular tax for a very long time”. On the effect of the bill, he said that, “If the intention was really to charge more to online giants, one would have to ask why the 90% of hereditaments to which the supplement might apply—the £500,000 rateable value and above—are dealing also with warehousing and other things that are clearly outside that.” He said that his amendments 2 and 11 aim to prevent a worsening of the tax burden on large retail, hospitality and leisure properties, arguing that the inclusion of all RHL properties in the tax supplement is unjustifiable.

Another crossbencher, Lord Thurlow, echoed this message, explaining that his amendment 32 proposes the formation of an expert committee to provide recommendations on recalibrating the share of non-domestic rates paid by retailers not on the high street. He said he would like to see a new use class constructed for “the warehouse retailing giants”.

Lord Shipley (Lib Dem) stressed that business rates are a significant burden on retail businesses, citing Sainsbury's bill – which is half of its total tax bill – as an example. He called for urgent reform and supported amendments that set deadlines for reform action, adding: “The numbers themselves explain the unfairness of the current system”.

Another Lib Dem peer, Baroness Pinnock, criticised the government for failing to address the rising tax burden on high street retailers and supported wider reform to level the playing field between traditional retailers and large fulfilment warehouses.

Lord Jamieson (Con) expressed disappointment that the government did not introduce an ‘Amazon tax’ through this Bill. He indicated his support for the amendments in this group.

The minister, Lord Khan, defended the government's position, explaining that the higher multiplier is necessary to sustainably fund a permanent tax cut for qualifying (i.e. lower value) RHL properties. “Targeting only online warehouses or even just warehouses more generally would cut the potential funding for the lower multipliers, so… we are unable to accept [amendment 32].”

He emphasised ongoing efforts to improve business rates data and reform the system over the next few years, telling peers that the government are “creating a fairer” system that protects the high street, supports investment and is fit for the 21st century.

Closing the debate, The Earl of Lytton (Cross Bencher) said a government with manifesto commitments in this area needed to do more than “shuffle the chairs on the deck of a ship that appears to have a very large hole in it”. He argued that applying a 10% supplement on top of a 55p multiplier results in a significant increase, around 18-20%. This approach disadvantages a few for the uncertain benefit of many smaller entities, he claimed.

Votes

Amendment 2 (Cross Bench) was withdrawn.

Amendment 32 (Cross Bench) was passed by 196 votes to 135. This amendment seeks to recalibrate the share of non-domestic rates paid by retailers not on the high street through a review informed by expert advice, to be implemented within one year of the passing of this Act.

Anchor Stores and manufacturing

Lead amendment - amendment 3 (Conservative) - seeks to exempt anchor stores because of their role in increasing footfall on the high street (passed)

Baroness Scott of Bybrook (Con) moved amendment 3, arguing that anchor stores should retain the standard business rate multiplier due to their vital role in supporting high streets and small businesses. She warned that increasing costs for these stores could drive them away, leaving high streets without any businesses to support. She said: “This may well not be the most costly tax they face, but it could end up being the straw that breaks the camel’s back”.

Lord Thurlow (Cross Bench) also stressed the importance of anchor stores not only for driving footfall but also for generating the funding necessary to develop high street properties. He argued that taxing these stores more risks losing them, which would damage local communities and social cohesion.

While supporting these amendments, Lord Shipley (Lib Dem) raised concerns about potential rent increases by landlords if business rates decrease. He also spoke to a Lib Dem amendment seeking to include the manufacturing sector among those who are eligible for the lower multiplier. He cited a recent report by Barclays Bank which concluded that the words “Made in Britain” were worth an additional £3.5 billion to UK exporters. He said that maintaining the option of applying a lower business rate multiplier for manufacturing industries could help the sector.

For the government Lord Khan explained that anchor stores are typically part of large retail chains that would benefit from the lower RHL multipliers on properties with a rateable value below £500,000. He explained that RHL relief is currently limited to a cash cap of £110,000 per business, the government intend to have no such limit on the new RHL multipliers to better ensure more widespread support for the high street. He added that in December, the government introduced high street rental auctions, a new power which allows local authorities to auction off the lease of persistently vacant commercial units.

The minister warned that expanding eligibility for lower multipliers could undermine the policy’s sustainability. The government was supporting the manufacturing sector in other ways, he suggested.

Votes

Amendment 3 was passed by 283 votes to 177. Related amendments 8, 12 and 16 were passed without division.

Amendment 4 (Lib Dem) was passed by 271 votes to 179. The amendment seeks to include the manufacturing industry in the types of business that can qualify for the lower multiplier. Related amendments 6, 13 and 14 were also passed.

Thresholds and definitions

Lead amendment – amendment 5 (Conservative) – increase in the threshold for higher business rate multiplier

Proposing amendment 5 and related amendments 18 and 20, Lord Jamieson (Con) expressed concern that the Bill could introduce a “stealth tax” by fixing the higher multiplier at £500,000, without adjusting it in line with increasing rateable values. He said that increasing the threshold for the higher multiplier would protect businesses from being unfairly taxed.

Baroness Pinnock (Lib Dem) spoke to amendments 7, 15 and 19 which sought to define retail, hospitality and leisure on the face of the bill. She sought clarification on whether the new rating system will be fixed for three years, and whether small business relief will be adjusted for inflation. She closed her remarks by criticising the current system for failing to adapt to changes in business structures, saying that “businesses are not what they were 100 or even 20 years ago, and property taxation must change to create a fairer, more equitable approach”.

The minister explained that defining the appropriate threshold for RHL relief involves considering multiple factors beyond just the amendments proposed. He suggested that a revaluation in 2029 will help guide decisions.

To Baroness Pinnock he said that the definition of qualifying RHL will be set out in secondary legislation, but the government intends to broadly follow the current definition. “To accept the amendment would limit flexibility in the Bill’s provisions that is important to their longevity”, he argued. He assured peers that once the tax rates and new multipliers are set, the Treasury will provide an analysis of their impact.

Votes

None of the amendments in this group passed or was divided on. Amendment 5 was withdrawn. The other amendments were not moved.

Assessment of the impact of the bill

Lead amendment – amendment 21 (Lib Dem) – would require the Secretary of State to publish an impact assessment of sections 1 to 4 of the Act on businesses, high streets, and economic growth before they come into force

Lib Dem business spokesperson Lord Fox (Lib Dem) said that if the government is serious about saving high streets, they need to support amendment 21. He observed: “It seems that at the end of this process most businesses will be paying more in rates than they are currently paying—and how that delivers any kind of economic growth is something of a mystery to me.”

Lord Jamieson (Con) also took the view that the lack of an impact assessment for this policy needs to be addressed. His party’s amendment 23 would achieve that, he said. He also supported amendments 24 and 34, which would require a report on how the £500,000 threshold affects businesses. He warned that the “cliff-edge” nature of the threshold could lead to businesses avoiding investment to stay below it, as even a slight increase in property value could result in significantly higher taxes.

The minister, Lord Khan, referenced a recently published Valuation Office Agency (VOA) data release showing that fewer than 1% of properties fall above the £500,000 rateable value threshold. He told peers that tax policy does not require an impact assessment but he assured them that the Treasury will produce analysis of the impact of the new multipliers at the Budget when the tax rates are set. He added that his department produces annual forecasts for the coming year, called NNDR 1 returns, and then on the actual amounts collected by the local government, called NNDR 3 returns. These are published on the department’s website at both national and local authority level, he concluded.

Votes

Amendment 21 (Lib Dem) was withdrawn.

Amendment 24 (Con) was passed by 255 votes to 165. This would require a review of how the provisions in this Act may affect businesses whose rateable value is close to £500,000. Related amendment 34 was passed without a vote.

Private Schools

Amendments relating to business rates exemption for private schools were grouped into two groups, with lead amendments -

Amendment 25 (Con) – expand the exemption of schools beyond those catering for EHCP (education, care and health plan) pupils, to all those wholly or mainly organised for SEND (special educational needs and disabilities).

Amendment 30 (Con / Lib Dem) – remove Clause 5 from the Bill (passed)

Introducing amendments 30 and 31 Baroness Barran (Con) said she opposed taxation on education. She argued that it breaks a “long-standing tradition” that education should be tax-free. She warned against creating a “two-tier charity system”, where some charities are treated differently. She suggested that: “This feels like a rather political move and charities, of all organisations, should be free from such moves”.

Supporting the amendments Lord Black of Brentwood (Con) believed the government’s approach was flawed, he said: “The unpalatable truth that they will not acknowledge is that their policies, of which the measures in this Bill are one central strand, simply will not end up benefiting the state sector in any meaningful or visible way”. He claimed that the government promised 6,500 new teachers would not materialise and the policy could harm independent schools and parents without benefiting the state sector.

Lord Weir of Ballyholme (DUP) and Lord Shipley (Lib Dem) also agreed with the amendment with the latter peer stating: “There is a very basic issue of principle here: the right of a parent to opt out of a state system where they believe their child would benefit from that. When they have paid their share of general taxation and foregone a place in the state system, thus saving the state money, then paid additionally for their child’s schooling, I submit that it is wrong in principle to tax them yet again for that decision to send their child to an independent school.”

Lord Lexden (Con) introduced amendment 25, arguing that independent schools specialising in SEND should retain charitable rate relief if at least 50% of their pupils have a registered SEND need. He claimed that one-fifth of pupils in independent schools receive SEND support—a significantly higher proportion than in the state sector. The Conservative peer criticised the government’s approach, saying: “The government say that such relief must be confined to schools with some 50% of pupils with education, health and care plans. That is the wrong dividing line”.

A number of other Conservative peers supported amendments in this group including Lord Black of Brentwood, Lord Moynihan and Baroness Barran. Lord Black considered the government’s stance ‘shameful’. Lord Moynihan proposed two sport-related exemptions – an exemption for schools that are wholly or mainly concerned with providing full-time education for students in receipt of sports scholarships or bursaries, and a proposal that no part of a private school which is used primarily for sport but which is also available for community use is included in the value of the land for the purposes of calculating business rates.

Lord Storey (Lib Dem) warned that the state education system is already struggling with SEND provision and said: “Are we seriously suggesting that we aggravate that problem by ensuring that more and more children and young people from private schools go into that system”.

Lord Weir of Ballyholme (DUP) while sympathetic to the government’s rationale, raised a concern that VAT, national insurance increases, and business rate changes could force independent schools to close. He continued that in England, independent schools provide crucial specialist support for SEND children, acting as a “safety valve” for the overburdened public sector.

For the government Lord Khan opposed all the proposed amendments, telling peers that the government had carefully considered their approach in designing the policy. He argued that in the long run (by 2030) the government estimates an increase of 2,900 pupils in the state sector as a result of this policy. He explained that local authorities can place looked-after children at private schools when it is in the child’s interests, adding: “We do not expect placements funded by local authorities to be impacted by the tax changes.”

Lord Khan recognised concerns around SEND but emphasised that specialist SEND schools that qualify for existing exemptions will continue to receive them. He said that in private schools, including private special schools, just 5.7% of pupils have an EHCP, with the majority of those pupils in private special schools.

The minister clarified that nurseries attached to private schools will be included in business rates to maintain policy consistency. He explained that: “The key principle is that a property at the same site, in the same occupation and used for the same broad purpose is treated as one hereditament. That is why nursery classes and sports facilities on the same site as a private school, and operated by that school, do not have their own rates bill.”

Votes

Amendment 25 (Conservative) was withdrawn.

Amendment 30 was passed 232 votes to 141.