Relief for schools and hospitals

Local Government Finance Bill – in a Public Bill Committee at 2:45 pm on 21st February 2017.

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‘(1) The Secretary of State shall, by regulations, introduce provision for relief from non-domestic rates in respect of hereditaments used for the purposes of—

(a) the provision of NHS secondary or tertiary care, and

(b) the provision of education in maintained schools.” —

This new clause would require the Secretary of State to make provision for business rate relief for NHS hospitals and maintained schools.

Brought up, and read the First time.

With this it will be convenient to discuss the following:

New clause 8—Relief for public buildings—

‘(1) The Secretary of State shall, by regulations, introduce provision for relief from non-domestic rates in respect of hereditaments used principally for the purposes of a public body.

(2) For the purposes of this section, a public body means any body funded principally through funds voted by Parliament.”

This new clause would require the Secretary of State to make provision for business rate relief for public buildings, defined by reference to public funding of the body for whose purposes the building is principally used.

New clause 9—Relief for licensed markets—

The Secretary of State shall, by regulations, introduce provision for relief from non-domestic rates in respect of hereditaments used principally for the purposes of a licensed market.”

This new clause would require the Secretary of State to make provision for business rate relief for licensed markets.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

Sir David, could I first dwell on the two new clauses that are linked to new clause 4. New clause 8 draws attention to the fact that many public buildings have business rates bills that they have to pay, particularly in local authorities. Essentially, that money comes back, so public services funded by revenues from Westminster have to pay a business rates bill back to the Exchequer or the billing authority, creating paperwork and bureaucracy. One wonders whether the system would not be more efficient if we tried to exempt those public buildings from business rates in the first place. Obviously, there would be a commensurate reduction in the grant or whatever to the public body in those premises, but that might help to ensure a slightly more efficient system than essentially allowing flows of money around the system, with the additional costs that that generates. New clause 8 would reduce some of the inefficiency in the business rates system.

New clause 9 would introduce a relief for licensed markets—small business at its very best. Licensed market owners essentially provide a platform—for want of a better phrase—for small businesses to come and ply their wares. One wonders whether there should not also be some benefit in relief to allow those markets to continue to operate. They are often crucial to the footfall in town centres. One wonders whether Ministers have properly thought through the potential appeal of town centres and high streets in terms of licensed markets. It would be helpful to hear the Minister’s response to those probing new clauses and what the thinking is in those areas.

I want to concentrate my remarks on new clause 4, which would ensure that relief from business rates was given to schools and hospitals. We know from the current revaluation process that NHS hospitals and GP surgeries in England, and indeed in Wales—I appreciate that Wales is not covered by the Bill, but this figure is illustrative—face a £635 million hike in their business rates in the next five years. In the context of the scale of the financial crisis affecting the national health service, one wonders whether, as a small immediate contribution to solving the crisis, Ministers could offer hospitals and GP surgeries an exemption from business rates.

Some of the country’s biggest hospitals will see their business rates bill double over the next few years, so one wonders how they will find the money to pay for that increase without having to find further savings. Many NHS trusts say that they are already cutting to the bone on the staffing they need. Analysis by Gerald Eve, a firm that advises businesses on rates, found that business rates for hospitals would rise from £328 million this year to £418 million in five years’ time, while GPs and health centres would see their costs rise from £257 million to £332 million a year over that same period. As I understand it, those figures are for England and Wales, and we are talking about only England in the context of the Bill, but the figures are illustrative and helpful to the debate.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

The hon. Gentleman mentions GP surgeries, which of course are private businesses. Does he think that dispensation should also be given to private businesses?

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

Let us be clear: GP surgeries provide a public service. I will come on to some of the difficulties that GPs face. On the news just the other day there was a report by the BBC’s excellent health editor, Hugh Pym, on GP surgeries that had had to close because they could not make the finances add up. One wonders whether, had they faced the business rates hike that we are talking about now, that would not have exacerbated the problems. Had they faced the business rates hike that we are talking about now, one wonders whether that would not have exacerbated the problems.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

My hon. Friend will be aware—as will the hon. Member for Thirsk and Malton, given that I am sure he has read the proposed new clause—that new clause 4 does not cover GP surgeries, because they are primary.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

My hon. Friend is always helpful to the hon. Member for Thirsk and Malton, as I try to be.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

I think it is a tad harsh to suggest that the hon. Member needs help, but perhaps we can offer a little guidance from time to time from this side.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

I will in a second; I have one further point. Some trusts, including Peterborough City Hospital, will see rates rise from £2.5 million to £4.8 million by 2021, while the University Hospitals Birmingham NHS Foundation Trust’s bill is set to rise from £4.2 million to £7.6 million. A further example is the Royal London Hospital in east London, which according to the Gerald Eve consultancy will see its business rates bill rise by nearly 60% to £9.7 million. I will happily give way to the hon. Gentleman; presumably he is going to say how he thinks these bills should be dealt with by the hospitals concerned.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

I wonder whether the shadow Minister will comment on whether the hon. Member for Wolverhampton South West was paying attention to his own comments, or whether he switched off in the middle, on the basis that it was he who mentioned GP surgeries? I was responding to that point.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

All I will say is that I have never known my hon. Friend the Member for Wolverhampton South West be anything other than switched on. I learned that to my cost in a statutory instrument Committee a long time ago.

When the NHS is under such huge budgetary pressures, the fact that hospitals face these new, potentially huge, business rate liabilities may result in pressure for further reductions—for instance, in staff. That must be profoundly worrying, not only to Opposition Members but to Government Members who represent hospitals facing similar business rate increases. When we consider that NHS trusts posted a deficit of £886 million at the end of the third quarter of this year alone—£300 million more than the target for the end of this financial year—we have some sense of the scale of the pressures on NHS hospitals. If Ministers were so minded, perhaps a little business rate relief now might help to ease some of the pressure on finance directors and chief executives in NHS hospitals who are trying to make hospital budgets balance.

You will know, Sir David, because you are very knowledgeable about these things, that the Secretary of State for Health, clearly as a result of the scale of the pressure that hospitals are under, has suggested that the four-hour A&E target might be downgraded and no longer apply to minor injuries. One wonders whether he would have gone to those lengths had there not been the scale of pressure on NHS hospitals that we are seeing at the moment, particularly financially. He might have been more willing to defend what is an essential management target and an indicator of the quality of healthcare in our communities. I gently suggest that abandoning the four-hour target is a total admission of failure by the Government. One can understand the context for that abandonment in the light of the financial pressures, which new clause 4 seeks to ease a little. One wonders whether the Secretary of State for Health would welcome ministerial support from the Department for Communities and Local Government in negotiations with the Treasury, perhaps through the easing of the business rates burden, to reduce some of the financial pressure on NHS hospitals.

You are knowledgeable about such things, Sir David, and have followed the debate about the business rates revaluation, so you will not be surprised to learn that some of the biggest hikes in business rates will be for hospitals in London and the south-east. The hon. Member for Thirsk and Malton does not worry about what happens in London and the south-east, but you are a representative from the south-east, Sir David, and I am a Member from London, so we share concern about the additional business rates burden on our hospitals and, implicitly, on our communities as well.

A&E departments turned patients away more than 143 times between 1 December 2016 and 1 January 2017. In one day last month, 15 hospitals ran out of beds. That is a further indicator of the scale of the financial pressure that NHS hospitals are under. I gently suggest that that is another reason that the Minister might want to consider providing additional help to the NHS by relieving the business rates burden a little.

One wonders whether the former Prime Minister, now that he has a little more time on his hands, remembers, when looking back on some of his commitments and speeches, words he offered up on the future of the NHS back in June 2011:

“We will not lose control of waiting times—we will ensure they are kept low.”

That has not happened, and in part it is because of the financial pressure on our national health service.

The new clause provides one way—one small way, granted—to ease some of the financial pressure on the NHS so that waiting times can be brought under control again. The protestations of the Conservative party that the NHS is safe in their hands—a notion that, as Labour has always known, is for the birds— might then at least look more convincing. The chief executive of the British Red Cross described the NHS as experiencing a “humanitarian crisis”. Why have we got to that point? Again, it is because of the scale of the financial pressure on the NHS, which our new clause might help to ease through business rates relief.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West 3:00 pm, 21st February 2017

Does my hon. Friend remember a single winter between 2001 and 2010 in which there was a so-called winter crisis in the NHS?

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

What I do remember is more recent comments of which I am sure my hon. Friend is also aware: people have talked about the NHS suffering a permanent winter crisis—

Order. I am listening very carefully to what the hon. Gentleman is saying and to how he is tempted to respond to that intervention, but I call on him to make his remarks conform much more closely to new clause 4.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

I am very grateful to you, Sir David. My hon. Friend the Member for Wolverhampton South West has long experience on Public Bill Committees and, out of respect for him and the experience that I suffered at his hands on a previous occasion, I always try to respond to him. However, I am grateful for your help on this occasion.

Let me turn, as I was about to before my hon. Friend’s intervention, to the second element of the new clause, which is the issue of whether schools, too, should receive business rates relief. I was minded to make a case to my hon. Friends in the closed room to which my hon. Friend the Member for Oldham West and Royton has alluded. We thought about issues to raise in amendments and discussed the problems with school funding. The Conservative party is overseeing the first real-terms cut in school budgets for more than two decades and the steepest cuts our schools have faced since the 1970s.

You might reasonably wonder, Sir David, whether the new clause is needed. I would point to a National Audit Office report on the financial sustainability of schools. It said there will be an 8% real-terms reduction in per-pupil funding for mainstream schools between 2014-15 and 2019-20 “due to cost pressures”. Those are the words of the National Audit Office—no one can fault its impartiality. It is not a Labour body, a Conservative body or a Liberal Democrat body; it is an independent, impartial body, and it has set out clearly and explicitly the scale of the funding cuts that our schools will experience. Were Ministers willing to protect funding for pupils in the future, they might be tempted to use business rates relief as one part of the package to help our schools.

Photo of Anna Turley Anna Turley Labour/Co-operative, Redcar

Does my hon. Friend share my view that it is absurd to the point of offensive that private schools in this country get business rates relief, on the basis of being a charity, of up to 80% of their costs? Those schools are educating children on the basis of their parents’ ability to pay, not the child’s right to an education. They are reinforcing social inequality in this country and are getting rates relief of up to 80%. Would the new clause not go some way to creating a level playing field for our maintained schools to compete on?

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

My hon. Friend makes an interesting point. I would put it slightly differently. It seems odd that some schools offering a service to one group of children benefit from business rates relief, while other schools offering a service to another group of children in the maintained sector do not. My hon. Friend’s broader point about equalising the treatment of schools has considerable merit.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

I will give the hon. Gentleman some background. He is right to say that local authority maintained schools do not get the charitable relief that, say, an academy school does. However, as I am sure he will be aware, those schools are compensated for the business rate they have to pay in the funding formula provided by the Department for Education through local authorities.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

Let me address the question of the funding formula, because that opens a whole can of worms in terms of the financial pressures facing many of our schools. Some immediate business rates relief, without the compensation to school budgets suggested by the Minister, might provide an additional increase in funding to schools at a time when they most need it.

It is important that we discuss new clause 4 and relief for schools in the context of the funding formula. Almost half of the schools in this country will lose funding. They are already being hit by the 8% real-terms cut that the NAO has identified, but almost half face further cuts in 2019-20 under Department for Education proposals that are on the table for consultation.

At the Public Accounts Committee recently, a number of headteachers laid bare the scale of the challenge facing their schools. Liam Collins from Uplands Community College told the Committee that his school had reduced staff numbers by nine teachers and five support staff over the past four years. He argued:

“We cannot afford to buy text books...We cannot afford to send staff on training.”

That is a dire financial situation. Perhaps a little bit of business rates relief, without a reduction in school budgets, would provide one way to help that particular school.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

I am struggling to understand the relevance of the hon. Gentleman’s argument, for two reasons. According to the Institute for Fiscal Studies, the Opposition’s manifesto pledges on education at the last election completely mirrored ours with regard to the funding pot. In addition, their manifesto did not specify or propose anything about business rates relief, including for schools. The hon. Gentleman is playing cheap party politics.

Order. Before the hon. Member for Harrow West replies, this is revisiting old ground. I hope he will talk about his proposals for prospective funding.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

I am grateful to you, Sir David, for the offer of protection from that outrageous slur from the hon. Member for Thirsk and Malton. I suggest that Government Members might usefully remember the old maxim: when circumstances change, good politicians have to recognise that that has happened and try to adjust to the financial realities that, in this case, schools are facing. My amendment, in the context of the Bill, is simply one small effort to offer a bit of additional financial support to schools that have very serious financial problems, and Government Members should not make light of that.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

My hon. Friend will be aware that one circumstance that has changed—and that this measure would help address—is the apprenticeship levy, which will be paid by maintained schools but not by academies. That is a change of circumstance; hence the change of our position.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

My hon. Friend makes a very good point. A series of additional costs, some with the best of motives, are causing financial pressures on maintained schools. New clause 4 might be one way to provide additional financial support to deal with some of those costs and pressures.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

Despite the fact that grant maintained schools are compensated for the business rates they incur, the hon. Gentleman wants to exempt them from business rates, although he does not want the same treatment for academy schools, which by definition of the policy he advocates would be out of pocket compared with maintained schools.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

With all due respect to the Minister, I want the terrible financial situation facing schools across the country to be sorted out. I am merely proposing new clause 4 as one potential route to address one part of that problem.

Stuart McLaughlin, head teacher of Bower Park Academy, said:

“I have cut my teaching to the bare bones. Every teacher is teaching at full capacity. I have very little spare capacity in terms of spare lessons on the timetable, so I am now starting to hit the support staff. My worry about that is that it is going to affect the most vulnerable students.”

Another example of a school in serious financial trouble for which new clause 4 might provide one route for a bit of additional support.

The Institute for Fiscal Studies has also backed up the National Audit Office conclusions about the scale of pressure on schools. It did not identify the apprenticeship levy but it talked about the additional costs from the public sector pay settlement, the increased employers’ national insurance contributions and the increase in the employer pension contribution to the teachers’ pension scheme that started in April 2015 and was not funded by the Conservative party. All that leads up to the 8% cut in real terms that our schools are facing. That situation is exacerbated by the new funding formula for at least half the schools in the country, which will see significant losses.

Organisations within the schools sector, such as the National Association of Head Teachers—not the sort of body to sound the alarm unnecessarily—are also profoundly worried about the funding situation facing schools. It is in that spirit that the Opposition tabled new clause 4. I look forward to Ministers saying why they are so determined not to solve the financial crisis facing schools and hospitals. I also look forward to the Minister’s response to new clauses 8 and 9.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government) 3:15 pm, 21st February 2017

I thank the hon. Gentleman for tabling the new clauses, which would require the Government to provide a range of additional reliefs from business rates. New clause 4 would require the Government to introduce a relief from business rates for non-domestic properties used for the provision of NHS secondary or tertiary care or the provision of education in maintained schools. New clause 8 would include a similar but wider requirement for relief to be provided to all properties used principally by public bodies.

Although I appreciate the intention to provide support to important public services, I do not agree that exempting public bodies from the payment of business rates would necessarily be a helpful step. It may help if I remind hon. Members that buildings occupied by the vast majority of public services, including NHS hospitals and maintained schools, have been subject to non-domestic rates since they were introduced in 1990. That is part of delivering a fair and consistent system of non-domestic rates.

Given that long-established position, I am sure Opposition Members will appreciate that operational costs associated with property occupied by public bodies are taken into account in determining the overall funding level for the relevant public services. More importantly, I should highlight that granting an exemption of such a nature would ultimately reduce the income under the direct control of local authorities through 100% business rate retention. It could also have a disproportionate impact on those authorities that receive a greater proportion of their business rate income from public bodies.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution)

I am not sure whether the spirit of the new clause has been understood. To clarify, my understanding is that my hon. Friend the Member for Harrow West is trying to achieve a reduction in what is effectively a paper transaction in the system. If the money was taken away from the council because a business rate was no longer payable, it would be taken away from the public body and given to the council in a different way. The money would still get to the council; the new clause would just stop the in-and-out transaction that takes place.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

I hear what the hon. Gentleman says. As I have said, the current system has been employed since 1990, and for 13 years of that period we had the misfortune of a Labour Government, who did not seek to change the system because they recognised that it was the fairest way of applying non-domestic rating to non-domestic property, including public sector buildings.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution)

This is about fairness. I am interested in the Minister’s response to this. It makes no sense for a school that was a local authority school yesterday and is today an academy to be exempt today from paying business rates.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

I think I made it clear earlier that there is no disparity in the system in that example. Local authority-maintained schools are given a dedicated sum to pay their business rates. Academy schools do not get that sum because they are exempt from business rates. There is an implication, particularly in terms of when the new clause would come into force. The way in which the system currently operates is that at a spending review, when the spending decisions about need are determined in relation to a particular public service, the cost of the business rate is taken into account.

I am not absolutely certain of the hon. Gentleman’s intention in tabling the clause, but if, as is implied by what has been said today, the Opposition want to apply this more quickly than the next spending review, that would involve a cost for the Exchequer. That would have to be met either through increased borrowing or additional taxation. Of course, as we all know, the Labour party does not mind racking up a deficit or taxing the public for its spendthrift nature.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

The Minister is absolutely right. The shadow Minister was saying exactly that: that the hospitals would be better off. That implies that the money is not going in and out; it is just not going out any more. The £360 million would have to be found from somewhere. Would the shadow Minister find it from increased borrowings or increased taxation? There are only two places it can come from.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

That is a really good question and very pertinent in this context. It highlights one of the challenges we have with the Opposition. One party at the general election pledged significantly more money to the NHS than the other party. The Government are now putting an addition £10 billion into the NHS, while the Labour party committed to £1.5 billion extra for the NHS; that shows that the Labour party is raising a bit of a red herring, I think, to hide its embarrassment about not being willing to back the NHS as the Conservative Government have.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

May I caution the Minister about praying history in aid and going back to 1990? He referred to 13 years of a Labour Government. Under 13 years of a Labour Government, the real-terms increase in funding for Wolverhampton City Council was 40%; under a Conservative Government, the real-terms cut has been 40%. Under a Labour Government for 13 years, the national debt fell; under a Conservative Government, it has gone up by 70%.

Order. Before the Minister responds, I should say that I get the sense that the Committee is becoming demob happy. I ask the Minister and the Committee to deal specifically with the response to new clause 4 and not to become partisan and drawn by what has gone on in the past.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

Thank you, Sir David. I was tempted to go down the route of mentioning the £150 billion deficit that was left over, but I entirely take your point.

I turn to new clause 9. I am grateful to hon. Members for raising the important issue of support to licensed markets. I am sure that the Committee will agree that markets are an important and valued part of our local economies. When I was Minister for high streets, which included responsibility for markets, I was a very keen supporter of our markets and supported the “love your local market” competition, towards which the Government contributed and supported.

While we should certainly be supporting our markets to survive and thrive, I do not agree that introducing a new relief targeted at market stalls through new clause 9 is necessary or justified. At Budget 2016, the Government announced a package of cuts to business rates worth over £6 billion over five years. That included the permanent doubling of small business rate relief and an increase in the relevant threshold for 100% relief from £6,000 to £12,000. That will be of significant benefit to stall holders in licensed markets, many of whom qualify for the relief. As a result of the change, more than 600,000 small businesses will pay no rates at all.

It will be for the valuation office to decide on the facts of whether individual market stalls are rateable. Typically, temporary and infrequent markets in the street are not rateable, whereas permanent markets in their own dedicated hall or site will pay rates. I hope Committee members agree that where market stalls are rateable, it is right that they are subject to the same rules as other non-domestic properties. Again, that ensures they are treated fairly in comparison with other properties, whether a small high street shop, a café, a fishmonger’s or a baker’s.

Photo of Jim McMahon Jim McMahon Shadow Minister (Communities and Local Government) (Devolution)

Does the Minister accept that there is a fundamental difference between a market site or a market operator and an individual market trader who operates from that site? A small business will most likely be under the threshold for attracting the relief. Because the business rate is paid by the operator of the market, a market trader will almost certainly be above that threshold and liable for business rates.

Photo of Marcus Jones Marcus Jones Parliamentary Under-Secretary (Department for Communities and Local Government) (Local Government)

I have been clear that the liability for rates will operate differently in relation to different types of market. I have also been clear that the same type of regime should apply to non-domestic property, which is certainly the case in this sense. It is for the valuation office to decide on the facts whether an individual market stall is rateable or not.

To conclude, I hope the Committee is reassured that the new clauses are not necessary and would not further our collective aims to support an independent and self-sufficient local government sector. I ask the hon. Member for Harrow West to withdraw the new clause.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party, Shadow Minister (Communities and Local Government)

I am grateful for the opportunity to sum up our debate on new clauses 4, 8 and 9. New clauses 8 and 9 were very much tabled as probing amendments. Although I am not 100% satisfied by the Minister’s response—something that I have had to get used to—I do not intend to divide the Committee on the new clauses.

New clause 4 was also a probing amendment, to find out the extent to which the Minister and his colleagues have really grasped the scale of the financial crisis facing both schools and hospitals. What we have had back from the Minister and from some Government Members in interventions suggests a profoundly worrying complacency about the financial situation in schools and hospitals. One has to hope that the Chancellor of the Exchequer sees things slightly differently, but we are where we are. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 7