The House of Lords has dealt a significant blow to Government plans to end tax relief for private schools.
Peers voted overwhelmingly, by a majority of 91, to remove the key provision from the Non-Domestic (Multipliers and Private Schools) Bill.
The defeat follows a series of setbacks for the Government on the same bill, with peers also demanding changes to business rates plans, including exemptions for hospitals.
At the heart of the dispute is the Government's aim to remove charitable rate relief eligibility from private schools in England that are registered as charities.
This change would impact approximately 1,040 private schools – around 40 per cent of all independent schools – stripping them of their current entitlement to business rates relief.
Leading the charge against the Government's proposal, shadow education minister Baroness Barran said that education should not be taxed.
“Clearly the Government does not agree with us and we have seen this from the egregious introduction of VAT on independent school fees, and now with this Bill,” she said.
The former schools minister expressed concerns about potential "political overreach" affecting charities, warning that the government's actions could create a "two-tiered system, punishing charities that don’t conform to its views".
Lady Barran also argued that ending tax relief for private schools will impact vulnerable children, such as those with special educational needs and disabilities (Send), many of whom are currently educated in the independent sector.
The Government has said that the change of status does not apply to organisations “wholly or mainly concerned with” providing full-time education for Send pupils with education, health and care plans (EHCPs).
However, it has been argued that many children with Send do not have EHCPs and that many are educated at private schools where less than half of children have additional needs.
Conservative peer Lord Shinkwin, who himself has the genetic condition osteogenesis imperfecta and was educated at private schools, said the Government is treating children with Send as “expendable”.
He said that removing the part of the Bill set to end tax relief for private schools is the “only way to protect all pupils with Send that attend independent schools, like those that I attended, where the proportion with Send is much less than 50 per cent”.
Lord Shinkwin said: “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 are not rich and the Government knows it. But they seem not to care.
“They seem not to care, incredibly, about pupils with Send’s mental health, which is undoubtedly going to be hurt by the impact of this measure.”
The Tory peer branded the measure “deeply damaging and wholly disproportionate”, saying that schools could close as a result.
It would also put more pressure on the overstretched state sector, which is “already failing to meet demand”, he said.
The Government has said the ending of tax relief for private schools is necessary to fund improvements to state education, where 93 per cent of children are educated.
Communities Minister Lord Khan of Burnley said: “This Government committed in its manifesto to raise school standards for every child, to break down barriers to opportunity and 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 deliver on its commitment to education and young people.”
He added that Labour has promised to increase core school funding by £2.3 billion, including an almost £1 billion uplift for high needs, and that “this funding needs to be paid for”.
Lord Khan told peers that ending tax breaks for private schools – including removing their VAT exemption and ending charitable rate relief for those that are charities – will raise about £1.8 billion a year by 2029-30.
Meanwhile, the minister assured peers that the carve-out for schools that wholly or mostly cater for children with EHCPs will mean that “most private special schools will not be affected”.
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