Private schools and charity status

[The6thQueen]

Yes, another thread. But, maybe from a different angle?

I'm interested to know how many mumsnet readers know that most universities are charities or are charity exempt (including Oxford). That we don’t pay VAT on university fees, or services from healthcare providers (including non registered, if they are supervised by registered healthcare), including pharmacies and, that private healthcare suppliers fall under this exemption.

I’m raising as Labour’s altered plans with regard to charity status and taxes for private schools may be far more complicated than the public expects. Legalities and the far reaching impact the policies may have beyond education and its VAT exempt status.

I suppose my AIBU is that most of the general public don’t realise the use of charity status and VAT exemption and how removing them from the private education sector is not that simple.

“Should Tesco charge based on your income and assets too?”

No obviously not. However, the IFS report states that private schooling is in elastic and private school parents are “rich”. So why not set a level of what “rich” means and tax on that basis? So poorer parents with SEN kids are not caught out. Those on huge salaries are surely not going to mind and will continue to educate their kids privately anyway. The “asset”/wealth question is more complicated because our tax system does not currently assess that.

Let’s say your DCs are in a private school. You earn 1 million a year and you are perfectly OK to pay the 20 per cent VAT. However, most of the other parents are NHS doctors and accountants and earn between 85-130k a year. They will be hit by the 20 per cent and will leave and your private school will close down. So to me it makes perfect sense just to charge VAT for the properly rich in that school, not those earning less than 150k. Of course, there will be anomalies like two parent households on 120k each with just one DC. But there will always be anomalies. So what they need to do is work a system out, like they did for child benefit. Then the policy makes more sense.
And they should do the same for rich pensioners.

Or will they just be allowed to fall apart whilst it takes years to unwind the charitable trusts?

Maybe they will be gleefully pulled down, like statues of slave owners.

Parents using the state system are already paying their taxes, that's what pays for state schools. If you choose the luxury version, that's your personal choice and you pay the going rate which should include VAT as applied to all other luxury goods.

State nursery provision is virtually non existent, it can't be compared to formal education. Many parents can't afford nursery care, they don't earn enough to cover it so they don't work unless they have friends/family to rely on. This is economic madness. However, the have to make choices on what they can afford. If you can't afford VAT on school fees then you will have to settle on what you can afford like everyone else has to.

Or better still, stop being cowards and just whack a couple more percent on the Additional Tax Rate and then people like us who use state schools but are “rich” will pay up. Makes more sense anyway. The politicians are just cowards because they only care about being voted in, not about equality. And obviously last time the 5% Additional Tax Rate to 50% may have led to losing.

“Parents using the state system are already paying their taxes, that's what pays for state schools. “

Rich parents in state schools can also pay more taxes if Education needs funding.

“Barbadossunset · Today 08:22

Or will they just be allowed to fall apart whilst it takes years to unwind the charitable trusts?

Maybe they will be gleefully pulled down, like statues of slave owners.”

So do you want Buckingham Palace and Windsor Castle be torn down too and left to fall apart?

They're a bit behind the curve if they've only just announced this, and have set a date as distant as 2050!

Some say they are nearly there already, others working towards (announced some time ago, closer target date) and others recognise they'll never be able to afford fully needs-blind but are taking other steps to boost bursary provision (eg increasing number of fully free places and actively marketing them to state schools)

That's the snag, isn't it, people don't really know about what many schools so, and prefer the stereotypes of what posh is like. That's the same as leafy comp v bog standard v sink school, or chi chi faith school v wouldn't touch it with a bargepole (usually RC) failing place

So do you want Buckingham Palace and Windsor Castle be torn down too and left to fall apart

No, no - I don’t want the schools to close let alone fall down. I thought maybe Angela Rayner and John McDonnell and co might get carried away.

@FrancisFriedFish
Is education really a “luxury” item to a child who is not getting their needs met in the state sector? Some children with SEN are barely able to attend state schools let alone receive any education if they do manage to attend but the private sector often caters to them well. There are children in the private sector because they were badly bullied in a state school and the school didn’t address it adequately; because they are gifted and were not receiving work set at their level; because they have parents in the military and need to board; because there is no wrap around care at the state school they get into which would enable parents to stay in their jobs etc. I don’t think it’s a luxury not to be bullied at school or to receive work set roughly at the standard you can work to. It’s just that there is very little choice in the state sector and not every school will work for every child or parent. Plus there are obviously issues in the state sector which mean that some state schools don’t really provide an adequate education to any children (whilst some obviously provide a great education to most children).

There seems an inherent unfairness if some parents have to pay both for education and a tax on that education because the state sector wasn’t able to meet their child’s particular needs, while parents who are lucky enough to get their child into a good school which happens to suit that child don’t have to pay anything.

It’s always interesting on these threads that the state sector is described as perfectly adequate and anything different a “luxury” but outside of this mumsnet is full of threads about the dire state of state education, often started by teachers (accepting that this doesn’t apply to all schools).

This is what I don’t understand. How can a decent education be described as “luxury”? I think many people have visions of the children being taught in marble clad rooms and fed caviar for lunch.

The reality is that a lot of private schools have worse facilities than state schools. A local state school has amazing facilities - state of the art sports halls and pitches, fully equipped drama and recording studies, fabulous science labs etc. It’s much more “luxurious” than some private schools. The behaviour and student outcomes are less impressive though. Parents are choosing to pay for smaller classes and tailored education, for extra curricular opportunities not offered by the state.

It’s not “luxurious” to be able to sit in a classroom and learn something, rather than being bullied for working hard or having to put up with disruptive pupils which teachers struggle to control. Obviously not all state schools are like this, but too many are.

Why are people so keen to punish schools and parents providing an excellent education? All children deserve an excellent education. Let’s improve state schools so parents don’t choose the private route.

It doesn't have to be described as "luxury"

VAT is a general sales tax, not a luxury tax

Let’s improve state schools so parents don’t choose the private route
Yes, that would be ideal

Parents using the state system are already paying their taxes, that's what pays for state schools.

Private school parents are also paying these taxes.

A decent education shouldn’t be viewed as a luxury. Also, VAT isn’t imposed on all “luxury” items. Air fares aren’t subject to VAT (passenger duty is often far less than the equivalent VAT would be). Designer trainers aren’t subject to VAT in smaller sizes.

Where is the logic in imposing VAT on education, a basic human right, but not imposing it on a first class flight across the world or a £1000 children’s outfit?

A 1p increase in current VAT rates would apparently raise almost £7bn. That’s around 4 times the amount of even the most optimistic estimates of how much VAT on school fees would raise.

Surely that’s a more effective way to actually raise a decent amount of money which could be put into state schools? It also means that wealthier people would pay more, including the wealthy at state schools.

@Circe7 - I found a statistic somewhere stating that only 1/2 of top 1% earners with DC send their DC to private schools. It is generally accepted that most DC in private schools are in the top 5% earning bracket (not clear how many exactly are paying through grandparents).
However, I find it grossly unfair even for non SEN children that someone just into the top 5% bracket should be subsiding someone in the top 1% using state education?

Adding SEN, race issues etc - it really ends up being a tax on aspiration by working class trying to get up and lots of aspirational immigrant families, this is certainly the case in London. So middle aged middle class men with leftie views taxing the up and coming because they want to exclude them. Because the Government coffers don’t want to pay up for state education. Anyone marginalised who is paying up for their DC due to SEN, race or class issues should not be taxed! Especially when 1/2 of the top 1 per cent may be sitting comfortably in outstanding state schools purchased via house prices/being in the know etc. Two Russell Group university educated parents may be more inclined to choose a good state school, knowing full well that they can easily supplement at home.

“Following a substantial rise over the 2000s, total school spending per pupil fell by 8.5% in real terms in England between 2009–10 and 2019–20. This only includes day-to-day or current school spending per pupil, with larger cuts in school capital spending. This fall in school spending per pupil represents the largest and most sustained cut in school spending per pupil in England in at least 40 years, and probably a lot longer.”
https://ifs.org.uk/articles/what-happening-school-funding-and-costs-england

Note this article is by the same person as the IFS report the Labour Party are relying on.
So they should not implement this private school VAT policy without understanding the demographic of all the parents paying really closely (including SEN, race etc). Part of the problem is they don’t really have enough data on private schools. And this bit of private schooling I dislike - lack of regulation by the state and progress accounting because every child deserves that, regardless of what type of school they go to.

Anyone else want to follow this young researcher who now has near celebrity status due to the Labour Party, please read the other publications too
https://ifs.org.uk/people/luke-sibieta

It is very clear that the real issue is the lack of funding in state schools (and the big differences between state schools due to cohort challenges).

Private schools have been planning / saving for this for a while and most will not pass on the entire 20% rise to parents. Also, if VAT is charged on school fees, the schools will become VAT registered and can claim back VAT on their purchases / large building projects etc - that's a significant saving for them (eg claiming back £1m on a £5m sports hall build).

I've been a governor in both sectors, and the amount of per pupil funding in state schools is woeful. Teacher morale is shot thanks to the workload, and if all the Tories can think of to help is raising joining bonuses they've clearly never spoken to a teacher.

This 🙌

Yes totally this.

With Labour recognising that if state schools were brought up to standard, we wouldn’t need private schools.

@Another76543
Or the perversity of providing French lessons to adults potentially being exempt but teaching French to children at school not being. Sailing, dance, swimming, horse riding etc. being potentially exempt when provided outside of private schools but netball in a PE lesson isn’t. Theatre tickets exempt but not putting on a school performance.

Private schools may already be VAT registered - depending on their legal status and circumstances

That there is no VAT on fees is because VAT on preschool/school/university fees is currently exempt

“Private schools have been planning / saving for this for a while and most will not pass on the entire 20% rise to parents. Also, if VAT is charged on school fees, the schools will become VAT registered and can claim back VAT on their purchases / large building projects etc - that's a significant saving for them (eg claiming back £1m on a £5m sports hall build).”

I looked through accounts of all the local private schools and those kind of projects do not happen very often, especially not in this climate of huge building costs/cost of living issues. Plus fee income is always far larger than 20 per cent VAT on unusual capex.

Looking into the accounts, it is clear the cost will be passed on to parents mostly in full and that many private schools, if the rolls fall, will have to let go of the extra curricular staff first (sports, arts, extra MML type teaching etc) Outside music teachers if they have to charge VAT will be a problem etc too. And they will probably have to neglect their grounds and buildings a bit, just like state schools. And the teacher pension scheme will be even more difficult. That is the case for the vast majority of private schools.

https://www.ribaj.com/buildings/regional-awards-2023-south-hopkins-architects-eton-sports-aquatics-centre-education-berkshire
Sure 20% of this 21 million may be set off as you can set off up to 3 years going back. So 6 million set off potentially - capex will likely end up more. But they don’t care as they have £40mio coming in yearly via endowment. They spend more than fee income most years as using the endowment income for bursaries/research/lots of things. There are only a handful of the endowment rich top public schools in England. It is unusual.

If you can’t afford an extra 20% on school fees, you can’t afford school fees! Why put your children in private school in the first place if things are so tight?

There is not an alternative practical state provided option for nursery. Here there is only state run nursery from age 3 and not for anywhere near a full day. Private nursery is non-negotiable for working parents. There is an alternative to private school.

Because things probably weren't that tight before inflation rocketed.

“There is not an alternative practical state provided option for nursery. Here there is only state run nursery from age 3 and not for anywhere near a full day. Private nursery is non-negotiable for working parents. There is an alternative to private school.”

Incorrect, many state primaries fail to provide breakfast and after school club and a range of sports clubs. It is precisely why lots of working women pay up for private prep schools.