Non-Domestic Rating (Multipliers and Private Schools) Bill, Second Reading, House of Commons, 25 November 2024

Key messages 

• The LGA notes that this Bill will give the Secretary of State the power to set two new multipliers. It is positive that the Government has provided assurance that local authorities will be fully compensated for this and other business rates measures announced in the Autumn Budget 2024, and that this will include the funding of new burdens for any administrative expenses and IT costs. 
• Account also needs to be taken of the consequences for business rates retention and sufficient time needs to be given for implementation. 
• We ask the Government to clarify that local authority owned premises, such as markets, which are not eligible for the current retail leisure and hospitality discretionary relief will be eligible for the new multipliers. 
• We consider that councils should have the ability to set their own business rates multiplier, or at the very least be able to set a multiplier above and below the nationally set multiplier. 
• The LGA welcomes the clarification that private schools which are ‘wholly or mainly’ concerned with providing full time education to pupils with an Education, Health and Care Plan will remain eligible for relief. We look forward to work with the Government on the definition of ‘wholly or mainly’. 
• Some councils have raised concerns that the proposed introduction of 20 per cent VAT on education and boarding services provided for a charge by private schools from 1 January 2025 will result in some pupils moving from the fee-paying to the state sector, which has the potential to impact councils, who retain a duty to ensure sufficiency of school places in their areas. We therefore want to work with the Department for Education (DfE) to monitor the potential impact of these changes on councils and their schools. 

Background

Transforming business rates 

The LGA will engage with the consultation on transforming business rates. We continue to suggest that the Government: 

• Introduce further clampdowns on business rates avoidance along the lines of those introduced in Wales and Scotland. 
   
• Give councils more flexibility on business rates reliefs such as charitable and empty property relief.
   
• Give councils the ability to set their own business rates multiplier, or at the very least be able to set a multiplier above and below the nationally set multiplier.
   
• Consider alternative forms of income for local government including an e-commerce levy with the funding retained by local government.
   
• Bring forward changes in the basis of liability so that more is defined in statute. The framing of this is important as many fundamental concepts such as beneficial occupation have been set by case law leading to results which may seem puzzling to the public, such as the fact that large vacant sites may not pay business rates. 

Removing the business rates exemption for private schools 

Private schools that are charities will no longer be eligible to claim charitable rates relief and will be required to pay their full business rates liability (defined as schools at which full-time education is provided for pupils of compulsory school age where fees are payable). 

The increased rates liability will vary from school to school. however, the Government expects increased rates liabilities to have a limited impact on average school fees per pupil. 

A technical note from HM Treasury says that the Government has considered the impact that these policy changes will have on local authorities and does not expect this to be significant. As is usual, the Government will undertake a New Burdens assessment and fund any additional administrative costs to local government associated with this policy. 

VAT on private school fees: proposed changes 

As of 1 January 2025, all education services supplied by a private school for a charge will be subject to VAT at the standard rate of 20 per cent. Boarding services will also be subject to VAT at 20 per cent. Any fees paid from 29 July 2024 pertaining to the term starting in January 2025 onwards will be subject to VAT. This will be brought about not by this Bill, but an amendment to the Finance Bill. 

Nurseries will remain exempt; VAT will be payable from the first year of primary school in a private school upwards. Education and vocational training provided either at sixth forms attached to private schools or standalone private sixth form colleges will also be subject to VAT. However, education and vocational training provided by further education colleges, which are classified as public sector institutions, will not be subject to VAT. Education and boarding provided by state schools (including academies) are not affected by this policy change, meaning they will continue to be exempt from VAT. 

Where a pupil’s place in a private school is funded by a local authority (LA) because the pupil’s needs cannot be fully met in the state sector, or are best met elsewhere (for example, for pupils with special educational needs and disabilities), LAs will be able to reclaim the VAT they are charged on the fees of these pupils. LAs will be able to recover any VAT they are charged on education and boarding fees of pupils in private schools, regardless of why the LA is funding that place. For instance, if an LA is funding a child’s place in a private boarding school as an alternative to foster care, they will be able to reclaim the VAT incurred on those fees too. 

However, pupils who have an education, health and care plan (EHCP) in England whose needs could be met in the state sector, but whose parents have placed them in a private school out of choice; and their EHCP (if they have one in place) does not say placement at a private school is necessary to, or would be the best way to meet the pupil’s needs, will have VAT applied to their fees. 

Possible impacts of the VAT change 

With the application of VAT, private schools may raise their fees – making them prohibitive for some existing pupils. The Government’s impact analysis states that the number of pupils who may switch schools as a result of these changes are a small proportion of overall pupil numbers in the state sector. Therefore, Government expects that the state sector will be able to accommodate any additional pupils and that there will not be a significant impact on the state education system as a whole. 

There are particular concerns about the impact of the VAT change on pupils with special educational needs and disabilities (SEND). If parents have to move their children from the private to the state sector this of course risks disruption to affected children’s education, particularly if they have additional support needs. There are also funding implications for local authorities: 

• Pupils may require LA-funded EHCPs, where their support needs were previously being met in the private sector. 
   
• In instances where a former private school pupils’ SEND needs cannot be met in the state sector, councils would be required to meet both the private school fees and the pupil's home to school transport costs. 

The Department for Education should monitor pupil movements from the private sector to the state sector, and any increase in EHCP applications as a result of the VAT change, and any funding and placement challenge implications for local authorities. 

There are circumstances where the Government contributes to the private school fees of children of UK military service personnel and UK diplomatic officials through the Continuity of Education Allowance (CEA). The Government have committed to monitor the impact of these changes on affected military families and review the Continuity of Education Allowance at the upcoming spending review. It is important that the allowance is appropriately set at a rate that enable military personnel and their families to financially continue existing educational arrangements, and not undermine its purpose of securing continuity of a child’s education. 

The case for urgent SEND reform 

The SEND system is currently under significant pressure, which is already preventing councils from providing all children with SEND and their families with the support they need. At the same time, high needs deficits are becoming an existential threat to some councils’ financial viability. As the National SEND Review identified, ‘the SEND system in England is ‘failing to deliver for children, young people and their families’ and ‘despite the continuing and unprecedented investment, the system is not financially sustainable.’ 

The national high needs block for SEND rose from £5.3 billion in 2014-15 to £9.4 billion in 2024-25. On top of national funding, councils have spent an additional £950 million on SEND support in 2023/24 alone. We estimate that nationally local government’s cumulative high needs deficit now stands at £3.15 billion. 

The SEND system requires urgent and fundamental reform. Our recent joint report with the County Councils Network, ‘Towards an effective and financially sustainable approach to SEND (special educational needs and disabilities) in England’ sets out 8 implementable proposals to transform support and outcomes for children and young people with SEND, while putting the system on a sustainable footing. Our proposals are built on the core principle of putting inclusion at the heart of every aspect of our education system. Central to this ambition is building capacity within the mainstream state system so that all children can access the targeted support they need, at the right time, alongside reforms to empower local partners to deliver integrated specialist support for those with higher needs. 

All partners are clear that the choice of reform is when, not if. Fundamental reform will be vital to ensure that all children, whether in the state or private sector, have access to the support they need to thrive.

Contact:
Arian Nemati, Public Affairs and Campaigns Adviser
Email: [email protected]