Reduction in business rate relief could increase pressures on sector

Baroness Sater (Con) welcomed some of the announcements in the Budget including the maintenance of tax reliefs for creative sectors. However, she raised a concern that the generosity of business rates relief is being significantly reduced next year and the relief will then be abolished, which could lead to art and culture organisations being unable to foot the increased overall costs. She further asked about the government’s plans to replace the UK shared prosperity fund from 2026.

Other Conservative peers including Lord Freyberg and Baroness Fleet suggested that the increase in employer’s NIC is a tax on ‘creativity’. Lord Parkinson of Whitley Bay, quoting the National Council for Voluntary Organisations, said the increase will cost the charity sector £1.4bn. He urged the government to consider providing exemption to the sector.

While welcoming the continuation of orchestra tax relief, Lord Berkeley of Knighton (Cross Bench) referenced the Music Venue Trust which has calculated that the reduction in business rate relief could place an additional £7m burden on 350 grass-roots music venues, put at risk more than 12,000 jobs and cost more than £250m in economic activity. 

The Lord Bishop of St Albans (non-affiliated) criticised the introduction of VAT on private school fees in particular for cathedral choir schools. He suggested that these schools play a key role in providing musical education and are run on “very tight” budgets.

The Earl of Clancarty (Cross Bench) asked if the government would consider applying a levy on the big streaming companies such as Netflix to help the UK’s film and TV production. Meanwhile, Lord Vaizey of Didcot (Con) said: “As somebody who believes in simplifying the tax system, it is perhaps counterintuitive, but I am interested in Manchester’s experiment with a tourist tax and whether that can make an impact. It is perhaps something that cities should be thinking about to embed the arts in health and education”.

Lord Harlech (Con) expressed concern that the planned changes to the inheritance tax regime could mean sales of land, buildings and artworks. “Because an estate will comprise predominantly capital assets, IHT becomes an existential issue for the owners and custodians of heritage businesses. In few other sectors… must businesses relinquish 40% of their net worth at the point of a succession event — that is, death — with all the added stress that can come with a bereavement.” He encouraged the government to raise the £1m cap or limit it to assets held for less than 10 years, or provide that assets held for 10 years after succession qualify for full relief.

A Department for Culture, Media and Sport minister, Baroness Twycross, replied to the debate. She recognised members' concerns and assured them that the government values the arts and culture sectors.

On the impact of business rates on music venues, the minister emphasised that the government is working closely with the sector to “support an economically sustainable grass-roots music sector”. She said that the government will create a ‘fairer’ business rate system that protects the high street and supports investments.

With regard to VAT on private school fees, Baroness Twycross confirmed that, as set out in the Treasury’s response to the technical consultation on the VAT changes, performing arts schools that offer full-time education to children of compulsory school age and/or 16 to 19 year-olds for a charge will remain in the scope of the policy.  She said: “This is to ensure fairness and consistency across all schools that provide education services and vocational training for a charge”.

On employers’ NIC, Baroness Twycross reported that her team have spoken with several major cultural organisations to understand how it will impact them, however, she acknowledged the worry that has been caused in the sector. In response to exempting the charity sector, she added that “our tax regime….is among the most generous anywhere in the world, with tax reliefs for charities and their donors worth just over £6 billion for the tax year to April 2024”.

You can read the full exchange here.