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.

Our intention through this Bill is to introduce two new lower multipliers. One multiplier offers a tax cut for retail, hospitality and leisure properties with a rateable value of between £51,000 and £499,999 that currently pay the standard non-domestic rating multiplier. The other new multiplier will provide a tax cut for retail, hospitality and leisure properties paying the small business non-domestic rating multiplier—that is, those with a rateable value of less than £51,000.

I have already spoken of the Government’s responsibility towards the public finances. Of course, any permanent tax cut must be sustainably funded. For that reason, the Bill allows for the introduction of a higher tax rate on the most valuable properties—those with a rateable value of £500,000 and above. This represents less than 1% of business properties in England and captures the Majority of large distribution warehouses, including those used by large online businesses, as well as other out-of-town businesses that draw footfall away from our high streets. By introducing this higher tax rate, the lower tax rates for retail, hospitality and leisure businesses can be sustainably funded from within the business rates system—a prudent approach that aligns with the principle of ensuring that any tax cut is fully funded.

I anticipate that noble Lords may raise questions about the delegated powers in the Bill that will enable the Government to introduce these new tax rates from April 2026. Unlike many taxes, which are generally paid after an event, business rates Bills are calculated in advance for the whole year and are issued by billing authorities often several weeks before the start of the financial year. Therefore, changes to the multipliers—in other words, the tax rates—have to be made in advance and be in place several weeks before the start of the financial year if they are to be included in demand notices. Therefore, this Bill does not set the level of the tax rates; that will be done later this year at the Budget, taking into account the outcomes of the 2026 business rates revaluation. The Bill instead provides a power to set them.

To put it simply, without introducing delegated powers there would be insufficient time to introduce the tax rates at the Budget and pass the required primary legislation for those tax rates with sufficient time left for billing authorities to prepare for the changes at an operational level. That is why the Bill provides the ability to set these new tax rates through secondary legislation.

Nevertheless, as is expected and good practice, the Government have carefully considered the approach to these powers and constrained them accordingly. The lower tax rate for retail, hospitality and leisure properties cannot be set more than 20p below the small business non-domestic rating multiplier for that year and can be applied only to qualifying retail, hospitality and leisure properties, the exact definition of which will be set out through secondary legislation later this year. However, it is the Government’s intention for the definition to broadly follow that which is in place for the current retail, hospitality and leisure relief. The higher tax rate cannot be set more than 10p above the standard non-domestic rating multiplier for that year and can be applied only to properties with a rateable value of £500,000 and above. It is important to say that these are not the intended tax rates—as I have said, they will be set at the Budget later this year. These are the maximum parameters within which the new tax rates may be set, not the target tax rates.

I appreciate there may be interest from noble Lords with regard to how these multiplier changes may impact on the funding available to local authorities from levying business rates. Since 2013, the business rates retention scheme has allowed local government to retain a portion of the business rates that it collects. The measures contained in the Bill will affect the level of business rates income collected by authorities differently in different areas. I reassure noble Lords that the Government are committed to ensuring that, as far as practically possible, local government income will be unaffected by business rates tax policy changes. It is worth noting that the Government have committed to reform the local government funding system to help deliver this, and, as intended since 2013, business rates growth will be subject to redistribution across the country through a business rates reset in 2026-27.

I am aware that, at the start of my speech, I set out the Government’s ambition that the transformation of the business rates system should go broader than the measures within the Bill before us. Indeed, noble Lords questioned me extensively about our wider plans during Question Time on Monday. I will briefly touch on those plans now.

At the Budget, the Government published the Transforming Business Rates discussion paper, which set out the priority areas for reform and invited stakeholders to co-design a fairer business rates system. The areas of interest within that paper include incentivising investment and growth, tackling avoidance and evasion, the frequency of revaluations, and ensuring that the system is fit for purpose, reflecting our modern, fast-paced economy. I am pleased to say that many stakeholders have already engaged with the Government on these matters, providing valuable insight and expertise. Any changes will be phased over the course of the Parliament, and the Government will publish an update in due course.

I turn now to the second measure set out in the Bill: the removal of private schools’ eligibility for business rates charitable relief. The Government are committed to breaking down barriers to opportunity for all. While we believe in supporting parental choice, we must ensure that every child has access to high-quality education that helps them achieve their full potential and thrive. The Government must concentrate on improving the state education sector, where more than 90% of our children are educated. That is why the Government are ending tax breaks for private schools, to help raise revenue to fund the state education priorities that we set out clearly in our manifesto.

As I said earlier, the Government have had to take very difficult but necessary decisions to restore our public finances and, in doing so, enable the restoration of public services. State education is one such public service that is used by the majority and available to all who require it. At the Autumn Budget, the Government announced an increase of per pupil funding in real terms, with a £2.3 billion increase to the core schools budget in 2025-26. This includes a £1 billion uplift to high-needs funding in 2025-26, providing additional support for the more than 1 million children in the state sector with special educational needs and disabilities. This funding needs to be paid for. To help make that happen, the Government are ending tax exemptions for private schools, as we set out in our manifesto.

I am aware that there has already been a great deal of discussion in this House of the Government’s policy to remove tax breaks for private schools, and the Government genuinely welcome the scrutiny that noble Lords have brought to this matter. I am sure there will be some more this afternoon.

Noble Lords will be aware that the measure relating to VAT is being legislated for through the Finance Bill. Ending the VAT exemption of private school fees and removing eligibility for business rates charitable relief from private schools that are also charities will together raise approximately £1.8 billion by 2029-30. This will help deliver the Government’s commitments to education and young people.

The Bill before us today covers the business rates change only, and that is where I am going to focus my comments. There are over 2,400 private schools in England, of which approximately half are charities able to benefit from business rates charitable relief. This Bill removes that eligibility. It provides a specific definition of a private school as a school that provides

“full-time education … for pupils of compulsory school age … where fees or other consideration are payable for that … education”.

In respect of further education, the institution is one that

“is wholly or mainly concerned with providing education suitable to the requirements of persons over compulsory school age but under 19”,

and where education is provided to those persons full-time which is “wholly or mainly” for a fee or other consideration.

I am aware that noble Lords have raised questions over how this change will affect pupils with special educational needs and disabilities. The Government have carefully considered the design of the policy to ensure that effects on those pupils with the most acute needs are minimised. The Bill provides that private schools that are charities that wholly or mainly provide education for pupils with an education, health and care plan will remain eligible for charitable rate relief. For clarity, the definition of “wholly or mainly” in business rates generally means 50% or more. This will operate alongside the existing business rates exemption for properties that are wholly used for the training or welfare of disabled people. Properties that qualify for this exemption pay no business rates at all, and any private schools that currently qualify for that particular exemption will continue to do so.

Taken together, the existing and new provisions are intended to make sure that the majority of private special schools will be unaffected by this measure. In fact, the Government expect that any private special schools losing eligibility for charitable rate relief will be the exception. It is worth adding that stand-alone nursery schools with their own rates bills are not within the scope of the Bill and, if charities, will retain eligibility for the existing relief. As previously announced, it is the Government’s intention that this measure will come into effect from 1 April 2025. As business rates is a devolved tax, the measures in the Bill will apply only to England; there are different measures in place in Scotland and Wales.

The measures in the Bill partly deliver on two of the commitments within the manifesto on which the Government were elected. The measure to enable the introduction of new multipliers is commencing the Government’s plans to transform the business rates system. It begins our journey to fulfil the ambition to deliver a business rates system fit for the 21st century; one that supports our high streets in a sustainable way, offers stability, promotes investment and drives economic growth. The measure to remove charitable rate relief from private schools will contribute to our overall ambition to break down barriers to opportunity and help all children to receive the high-quality education they deserve and their parents aspire to. I beg to move.