The Government has stood firm in its bid to scrap tax relief for private schools and push ahead with business rates reform.
The Non-Domestic Rating (Multipliers and Private Schools) Bill is designed to end charitable rate relief eligibility for those private schools in England that are charities.
This would see about 1,040 private schools, roughly 40% of all independent schools, lose their current right to the tax break.
Peers had voted to amend the Bill to enable the Secretary of State to reverse the policy in future.
But the House of Commons voted 302 to 167, majority 135, to disagree with the Lords amendments on Monday evening.
The move to end charitable rate relief eligibility follows the imposition of VAT on private school fees, which was introduced under a separate measure.
Communities minister Jim McMahon said ending rate relief for private schools would deliver on the Government’s “commitments to young people and education”.
He told MPs: “To eliminate the barriers to opportunity we need to concentrate on the broader picture towards the state sector where, let us remember, over 90% of children are educated.”
Shadow communities secretary Kevin Hollinrake said it was the Conservatives’ view that “education should never be taxed”.
The Bill also would allow the Treasury to introduce new business rate “multipliers”, or tax rates, which would increase business rates for larger properties and reduce them for retail, hospitality and leisure properties, as part of the Government’s commitment to support the high street.
MPs voted against Lords amendments which sought to exclude health settings and large retail anchor stores from the higher rates, as well as a review into how the changes would impact businesses close to the £500,000 rate value.
Mr McMahon said the amendments are “unnecessary as the powers that they seek already exist in the Bill”.
He added: “The Government is fully committed to transforming the business rate system. This is simply the first step of a wider programme of change for a system that is long overdue for reform.
“The Chancellor set out with the spring statement last week that the Government will publish an interim report that will set out a clear direction of travel for reform with further policy detail to follow at the autumn budget.
“As I previously said, reform for the business rate system will be phased in over the Parliament.”
Mr McMahon later said: “The challenging fiscal environment that the Government faces requires that it is right that any tax cut must be appropriately funded, a part of our commitment to sound financial management.
“To do this, the Government intends to introduce a higher multiplier for all properties with a rateable value for more than £500,000 and above.
“And it’s important to say, because we need to settle down some of the arguments that have been made on this, that affects less than 1% of properties in England.
“So less than 1% of properties in England will pay more of course, but to fund that lower multiplier for the businesses we all recognise for our town streets, town centres and our high streets, and that’s what we need to do.”
Mr Hollinrake said the changes “shine a spotlight on Labour’s muddled priorities, exposing an approach which punishes aspiration, squeezes business, and increases the cost of living for consumers”.
He added: “Setting the threshold for this high multiplier at £500,000 is a blunt instrument, as the minister concedes, I can assure the Government that this will have consequences for businesses that are not big tech giants.
“This will hit large supermarkets, supermarket delivery and large department stores, showing that the Labour Government has not thought this through.”
Mr Hollinrake later said: “In (Mr McMahon’s) manifesto it says the new system will level the playing field between the high street and online giants. That’s not what this does, not exclusively.
“He knows that this is levying extra taxes, extra business rates on high street stores, large department stores, supermarkets, football stadiums, many other things. They are not online giants.”
Mr McMahon replied: “The ratings system reflects adequately the scale of the properties involved, so the less than 1% of properties that are in the business rate system that will be captured under the higher multiplier to fund that tax break for lower multipliers on the high street.”
The Bill will return to the Lords for further consideration.
