Baroness Barran:

Moved by Baroness Barran

30: Leave out Clause 5

My Lords, I rise to speak to Amendment 30 in my name and that of the noble Lord, Lord Storey; I also support Amendment 31 in the names of my noble friends Lord Black of Brentwood and Lord Lexden, which seeks to include a review on the effect that this Bill will have across the education sector.

I think it is safe to say that both the noble Lord, Lord Storey, and I do not believe that the long-standing tradition that education should be free from taxation should be broken. Clearly, the Government do not agree with us, and we have seen this with the egregious introduction of VAT on independent school fees and now with the proposed change in this Bill to the exemption from business rates relief for independent schools with charitable status, not to mention the impact of the proposed employer national insurance contribution increases.

As the Minister knows, the majority of independent schools are small and run on tight margins. As he will remember from my speech in Committee, I believe it is a poor precedent for the Government to set to create a two-tier charity system and there has been no answer from the Government about this principle that all charities should be treated equally. This feels like a rather political move and charities, of all organisations, should be free from such moves.

I assume that the noble Lord is going to argue that there has been no sign that pupil numbers are dropping significantly following the introduction of VAT in January and that this Bill will similarly have a limited impact. But I say to the Minister that, first, the point that the principle that education should never be taxed still stands and, secondly, I do not think anyone really expected the impact on independent schools from the imposition of VAT would happen so quickly.

I am sure the noble Lord has received letters from parents, just as I have. They will go to great lengths to avoid disrupting their children’s education and I would be surprised if we see much change before the start of the new school year, and then from a reduced uptake in year 7. Indeed, the latest data from the Independent Schools Council shows a drop of 4.6% in applicants in year 7 and 3.9% in reception—and that was before the imposition of VAT.

I look forward to hearing the insights from other noble Lords and to hearing the Minister’s response, but at this point I am minded to test the opinion of the House.

My Lords, I will speak to Amendment 31 in my name. I am grateful, as always, to my noble friend Lord Lexden for his support. I also strongly support Amendment 30 from my noble friend Lady Barran. I refer noble Lords to my previous declaration of interests.

Let me explain why this amendment is important. Throughout all the debates on independent education that we have had in this House, as indeed they have had in the other place, the Government have shown themselves seemingly impervious to rational argument. Frankly, they have buried their head in the sand, wilfully refused properly to engage with the independent sector and ignored the strength of feeling in this House and the opinion of experts in the field.

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. The 6,500 teachers promised are likely to be a fantasy and will end up being just another broken promise. But the policies will end up profoundly impacting the independent sector and the lives of tens of thousands of pupils and their hard-working parents, and that will have far-reaching consequences not just for the schools themselves but in countless other areas.

Heartbreakingly, as we heard in the debate on the previous group, it will impact on the way in which our society cares for vulnerable children, those with special needs and disabilities, and their carers and families. It will impact on local communities that currently benefit from thriving and imaginative partnerships with state schools, on faith communities and on military families. It will impact on gifted children who benefit from bursaries, something that many independent schools are cruelly being forced now to review, and of course it will impact on jobs at independent schools, especially when closures of schools inevitably and tragically happen.

It is crucial that all this is rigorously scrutinised and that Parliament has an opportunity to examine the consequences of the policies contained in the Bill, taken alongside the other tax changes being made on VAT and on national insurance—a combination of measures that the Government’s impact assessment failed to do, as it related only to business rates. That is what we, particularly in this House, are here for: to scrutinise, examine and challenge. But we need a comprehensive assessment of the facts, undertaken by the Government themselves, to be able to do that, and that is what this amendment would deliver. The Independent Schools Council, which does such an exceptional job in championing the sector, and the other associations that form part of it will conduct their own analysis. Ultimately, however, it is the Government who are responsible for the delivery of public policy in these areas and who must be held accountable by Parliament and the electorate.

The Government say that their measures, including those in Clause 5, will raise a certain amount of money to be invested in state education. I doubt it will raise anything like that, but let us see. They say they will be able to recruit additional teachers. I very much doubt it, but let us see. They say there will be no consequences for children with special needs and those in faith schools—let us see. If they are really confident that their policies can deliver what they say without damaging consequences elsewhere, why would they not want to have a review of them to prove the point? What are they fearful of?

Perhaps it is just possible that they might be wrong and will end up undermining and weakening the independent sector, which is the envy of the world, without delivering for the state sector—which means, of course, that they would have to think again. We need answers to that. That is why I believe they must commit to a thorough review of their policies, then Parliament, including our House, can scrutinise it, debate it and make recommendations for change.

My Lords, I agree with both amendments in this group. If you believe in “education, education, education”, you should not tax independent schools in the way that the Government have decided they want to. The Government have argued that taxing independent schools will increase the number of teachers in state schools, but the Government’s own figures show that they reached only 62% of their postgraduate secondary ITT recruitment target in 2024, so there will be pressure to increase the pay of existing teachers rather than to appoint new ones. In any case, most of the extra £1.5 billion estimated to come per year from this clause will go on special educational needs.

I suggest, very much in line with Amendment 25 from the noble Lord, Lord Lexden, that the Government’s priority should be to cut the backlog in assessments for education, health and care plans, rather than taxing parents who want the best for their child with special needs and think it can be delivered only in the independent sector. 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.

I have concluded that Clause 5 is a distraction. It will fail to deliver the Government’s ambitions for the state sector, and it is better for our education system as a whole to remove Clause 5.

My Lords, again, I support the amendments in this group. Perhaps I should clarify for the Minister that I do so, to paraphrase something said in a different context, on the basis of being without a directly selfish economic or strategic interest in the issue. Let me highlight why I say that, in coming from a background of education in Northern Ireland.

This provision does not affect Northern Ireland, as the Minister rightly pointed out; it is an English-only matter, because all these aspects are devolved issues. Consequently, from that point of view, it will not impact on any of my former constituents in that regard, nor indeed on Northern Ireland. We have a strange patchwork of school types across the United Kingdom in our delivery of education. Northern Ireland’s background is largely one in which the independent sector is extremely small. Indeed, you could make an argument, particularly at post-primary level, that on the definition of what most people would regard as independent schools, there is perhaps one independent school in Northern Ireland that is directly akin to those in England.

I am trying to look at this as objectively as possible, but from that point of view there are three main reasons why these amendments need to be supported. First, the prospect of imposing additional burdens and taxation on schools sits deeply uncomfortably with me. The idea of penalising parents by saying, “Because of the educational choice that you are making, we are going to single out your schools for an additional financial burden to tax education” is fundamentally wrong.

Secondly, there is at least a perception—I am sure the Government would deny it—that this is a highly ideologically driven proposal and part of a wider set of seeming attacks on independent schools, as seen particularly by the changes in VAT. As such, there is a concern that, rather than looking at what is of educational benefit, this is some red meat being thrown out to some ideological Labour supporters. It is an easy target to go after.

The third reason is that of unintended consequences. We are asked to look at different figures and projections as to the impact that these various changes will make. As I highlighted in the previous group, this is perhaps a less significant change than the changes to VAT, but again, it will have a level of tipping impact and lead to the closure of schools. This is not mere theory.

If I may draw on an example of relatively recent history in Northern Ireland, roughly 12 years ago, the then Minister of Education, who was a member of Sinn Féin, made changes to a level of funding that was available to preparatory schools in Northern Ireland. In those circumstances, the vast majority of fees were paid by parents and the schools were largely supported directly by them; it was at least 70%-plus. The state paid a small proportion of what would normally go to support children in state schools. There was a significant cut made to that. It was not completely wiped off the face of it, for the reason that the then Minister would have had to bring it to get executive approval had it done so. The arguments used were that it was some sort of financial benefit, which could then be ploughed back into state education, so it was an egalitarian move.

What was the ultimate impact of that? For many of those schools which were already under a level of financial burden, it became the final nail in their financial coffin, with the end result that, 12 years on, the number of prep schools in Northern Ireland has gone down by just over a third and the number of pupils going to those prep schools is down by more than 40%. That single move made a number of those schools unsustainable.

Instead of the state contributing around 30% of the costs, for those pupils who then transferred into the state system, the state was then picking up 100% of the costs, wiping out—indeed, more than wiping out—the impact. It was not something that happened overnight but, over a period, that is what developed. It seems clear to me that this will have an impact on parents; it will have an impact on schools, and it will, inevitably, take a number of those schools to the wall.

If we are to look at this from an egalitarian point of view, we all know that within our society the very richest and wealthiest will always be able to find a way to afford some form of private education. It will not be the Etons or the Harrows of this world that will go to the wall; it will be the smaller independent schools—those that, for example, specialise in SEN—that will be most dramatically hit. That is probably not the intention of the Government, but that will be the net impact.

There is a real risk, drawn out by practical experience, that instead of creating a windfall for the state sector, we end up creating an additional financial burden on the state sector, while destroying the educational opportunities for many of our children. This is a much more clear-cut way of dealing with it, and I urge the House to back Amendments 30 and 31.

My Lords, I support Amendment 30 in the name of my noble friend Lady Barran and the noble Lord, Lord Storey. In doing so, I should explain that leaving Clause 5 out of the Bill is the only way to protect all pupils with SEND who attend independent schools, like those I attended, where the proportion of children with SEND is much lower than 50%. I understand the Government argue that protecting only schools where a majority of pupils have education, health and care plans, or EHCPs, is adequate—as if they can ignore the inconvenient truth that almost 100,000 pupils receive SEND support in independent schools without an EHCP.

I wonder whether the Government have joined the dots and thought of the impression that this gives. The sad fact is that, in the Government’s eyes, the damage to many of these children’s life chances seems to be a price worth paying. They are expendable, immaterial, inconsequential, collateral damage, caught in the crossfire of what appears to be an ideological obsession with punishing anyone they perceive as rich. Yet many of these children’s families, as we have already heard from across the House, are not rich and the Government know it, but they seem not to care. They seem not to care that this is a deeply damaging and wholly disproportionate measure which, as we have already heard, will not raise significant revenue but will harm schools and particularly pupils with SEND who, as I did, come from modest backgrounds. Their life chances will be badly affected by its implementation. They seem not to care, but schools could close because of it. They seem not to care about the incomprehensible incompatibility of putting, as we have already heard, even more pressure on an already overstretched state sector, which the Government know and the National Audit Office has shown, is already failing to meet demand. They seem not to care, incredibly, about the mental health of pupils with SEND, which will undoubtedly be hurt by the impact of this measure unless Clause 5 is left out of the Bill. I say again to the Minister that I refuse to believe that this is the Government’s intention, but it is definitely the impression given.

So I fear that we have lost sight of the people who matter most: the almost 100,000 children with SEND who receive SEND support in independent schools without an EHCP. This amendment gives us the opportunity to send a clear message as a House that we stand with them in solidarity and with their families. That is why I urge noble Lords on all sides of the House to support it and to remove Clause 5 from the Bill.

My Lords, I had not originally intended to intervene on this amendment, but I cannot help but see a wider point of principle that is involved with Clause 5 of the Bill.

I should explain that rating law serves to exempt premises used by charities and occupied for their charitable purposes, with 80% mandatory relief and 20% discretionary relief given by the billing authority. There is also some discretion for billing authorities to give similar treatment to local not for profit or community enterprises. I hope I have got that right.

What disturbs me is that, clearly, the Government think that some charities are more deserving than others. This throws up a wider issue of an arguably discriminatory policy on which a wider debate across the country is warranted. What might be more or less meritorious when considering organisations concerned with human disease, animals, wildlife or conservation, building preservation and so on? But education is the very basis of what we leave and pass on to future generations in knowledge, citizenship and values. I fail to comprehend what this clause in the Bill is, and that is why I feel compelled to support these two amendments. If we do not secure its complete removal, we should certainly have the review advocated by the noble Lord, Lord Black.

I will illustrate some of the consequences of this. I recently visited my old school as part of the Learn with the Lords programme. I ascertained that this Bill, along with other measures introduced by the Government, will cost it an additional £1 million per year and that this is likely to be reflected principally in staff reductions. I happen to know that this school has a very firm commitment to its staff, as it does to its pupils.

So Clause 5 is more than unfortunate; it is retrograde and, I feel, discriminatory. The Government ought to think again about the purpose and formulation of this particular clause of the Bill.

My Lords, the Minister has heard three very strong arguments from across the House. The first is that the principle of not taxing education should be respected and upheld. Secondly, there is the principle that charities should not be subject to any kind of political overreach. Thirdly, the Government should not introduce a two-tier system, punishing charities that do not conform to their views. I think we have heard across the House that this sets a very unfortunate precedent.

Finally, there is the point that this policy will not deliver but rather will impact children, particularly vulnerable children, who attend some of the small schools that serve them and their communities all around the country. I would like to test the opinion of the House.

My Lords, we have a right of reply.

Amendment 30 would remove Clause 5 from the Bill, and therefore the measure that removes the eligibility for charitable rate relief from private schools that are charities. Amendment 31 would require the Government to undertake an assessment of the expected and observed impact of Clause 5. Furthermore, that amendment seeks to ensure that any assessment has regard to impacts owing to any other tax change that have affected private schools since 1 January 2025, effectively seeking to create an all-encompassing review of the Budget tax changes and their effect on private schools, and the resulting impact on the state sector. I am unable to accept these amendments.

This Government committed in their manifesto to raise school standards for every child, to break down barriers to opportunity and to ensure that every child has the best start in life, no matter where they come from or their financial background. As part of that, the Government committed to removing the VAT and business rates charitable relief tax breaks for private schools, to help to raise revenue to help to deliver on their commitments to education and young people.

The Government carefully considered their approach in designing the policy to remove charitable rate relief from private schools. On 29 July, they published a technical note on removing the VAT and business rates charitable relief tax breaks for private schools. The Government received over 17,000 responses to this note, from a range of tax specialists, private schools, bodies that represent private schools and others. A detailed government response to this was published at the Autumn Budget. Furthermore, at the introduction of this Bill, the Government published a note setting out analysis of the impact of the business rates measure. This is available on the Bill page. A tax information and impact note was published in relation to the VAT change at the Budget and is available on GOV.UK.

The removal of business rates charitable relief from private schools that are charities will apply to all charitable private schools, with the exception of where a private school is wholly or mainly concerned with providing full-time education to persons for whom an education, health and care plan is maintained. As I set out in a debate on an earlier group today, under the carve-out in the Bill, the Government believe that this will ensure that most private special schools will not be affected by the Bill measure.

At the Budget, the Government announced a real-terms increase in per pupil funding, with a £2.3 billion increase to the core schools budget for the financial year 2025-26, including an almost £1 billion uplift in high-needs funding. This funding increase needs to be paid for; to help to do that, the Government are ending tax breaks for private schools, including, as this Bill delivers, ending charitable rate relief for those private schools in England that are charities. Taken together with the policy to remove the VAT exemption, these measures will raise around £1.8 billion a year by 2029-30.

I know that there have been concerns with regards the impact on the state sector caused by this policy. The impact note that I mentioned set out that, in the long run—by 2030—the Government estimate an increase of 2,900 pupils in the state sector. Based on average 2024-25 per pupil spending in England, the Government expect the revenue costs of pupils entering the state sector as a result of the business rates measure in England to steadily increase to a peak of around £20 million per annum, after several years. Overall, the expected revenue from the measure will substantially outweigh the additional cost pressures.

The Government have undertaken analysis of the policy and provided that publicly. Furthermore, they undertake a range of monitoring, data collection and publication of data as part of usual processes, and will continue to do so when the Bill measure comes into effect. For example, the Department for Education monitors place demand and capacity as a matter of course, and works closely with local authorities to meet any demand pressures to ensure that there are sufficient school places for children who need them. All children of compulsory school age are entitled to a state-funded school place.

Pupil numbers in schools fluctuate regularly for a number of reasons, and the school funding system in England is already set up to manage that. For individual schools, the Government therefore expect changes in pupil numbers caused by these changes to be managed in the usual way. Data on the number of school pupils is published every summer, providing information on the number of pupils at different types of schools, so anyone can see how pupil numbers in both state and private schools have changed.

Part of the assessment that the amendment would require seeks to understand any impact on partnership working between private and state schools, as well as the capacity of private schools to provide fee assistance. I understand that there is concern that private schools will reduce these activities. We understand from data published by the Independent Schools Council that a lot of private-state sector partnerships relate to the hosting of joint events or providing access to facilities used by private school pupils. In many of these partnerships, the activity undertaken benefits the pupils that attend private schools, so it would not be in the interest of the private schools to stop this activity either.

Furthermore, in the provision of facilities to non-pupils, this is not universally undertaken free of charge by private schools. It will be for individual private schools to determine how they meet any additional costs as a result of the Bill measure. However, the Government expect private schools to continue to demonstrate public benefit, with partnership working, sharing of facilities and providing fee assistance as common ways in which these schools do that. Demonstrating public benefit is a requirement of the charitable status, and the Government do not expect partnership activity, provision of facilities to non-pupils or fee-assistance to decrease significantly.

With regards to the other areas highlighted for examination in the amendment, local authorities can place looked-after children at private schools when it is in the child’s interests. We do not expect placements funded by local authorities to be impacted by the tax changes. As with partnerships, we do not expect charitable schools to stop supporting these pupils as part of their demonstration of public benefit.

The Government recognise that some parents want their children to be educated in a school with a particular faith ethos. Pupils who follow a particular faith can be accommodated in the state sector. As I have said, all children of compulsory school age are entitled to a state-funded school place if they need one, and all schools must comply with their obligations under the Equality Act 2010. In addition, schools are expected to promote fundamental British values, including the values of mutual respect and tolerance for those with different faiths and beliefs.

As part of the monitoring and data that the Department for Education already undertakes as part of its usual processes, the department collects information on the number of teachers in private schools. This data is published annually. The Government do not anticipate that private schools will substantially reduce staff as a result of the business rates measure.

The Government are committed to breaking down barriers to opportunity, delivering for all children and improving the state sector, and are prepared to take the tough but necessary decisions to deliver on those bold commitments.

I thank the noble Baroness, Lady Barran, for all her contributions today and throughout the passage of the Bill through this House. She has brought great expertise and scrutiny to the process. However, I cannot accept her amendment, as the Government must proceed with delivering on their manifesto commitments.

I give many thanks to the noble Lord, Lord Black of Brentwood, for his amendment. I appreciate that there is a desire to commit the Government to undertake a detailed review. However, they already undertake a wide range of monitoring as part of business-as-usual processes, and make data available so that all can see how various factors change year to year.

I extend my gratitude to all noble Lords for their engagement during the passage of this Bill and for their thoughtful expertise, skills and knowledge, in meeting me, as well as in debate on the Bill. I hope that I have been able to reassure noble Lords here today of the work that the Government have already done and will continue to do in this space. I hope that the noble Baroness is able to withdraw her amendment.

My Lords, I apologise to the House, and particularly to the Minister, for jumping the gun with my closing remarks.

It is fair to say that, of the three points that I raised —the principle of taxing education, the differential treatment of charities and the impact of the Bill— I did not hear the first two addressed directly, and on the third I think that the Minister and I have to agree to differ. With that, I am afraid that I have to tell the Minister that I still wish to test the opinion of the House.

Ayes 232, Noes 141.

Amendment 30 agreed.

Amendment 31 not moved.