Labour U-turns on private schools

[Another76543]

https://news.sky.com/story/labour-u-turns-on-plan-to-scrap-charitable-status-of-private-schools-12971212

The Labour Party seem to have finally realised that removing charitable status from private schools isn’t quite as simple as they thought it would be, and that it doesn’t affect the VAT position in any case.

I quote, from the article,

“Speaking in 2021, Ms Reeves said: "Right now, private schools enjoy charitable status which makes them exempt from both business rates and from VAT at a cost to the taxpayer of £1.7bn every year.”

Even the Shadow Chancellor doesn’t understand the tax position of private schools. What else don’t they understand?

Imagine applying their logic to other policies too

We are doomed (not that we are doomed already anyways)

For clarity, any charity may be able to reclaim VAT on purchases. Whether it has to charge VAT on sales is a separate matter. A Labour government could make school fees subject to VAT without affecting the charitable status of independent schools.

Starmer is correct that schools don't have to pass on the VAT in the sense that imposing 20% VAT on fees does not necessarily mean the school has to put its fees up by that much. However, unless the school is running at a surplus and is able to reduce its fees, the 20% will indeed be passed on to parents.

The £1.7bn Labour say this will raise assumes that parents do not change their behaviour, i.e. charging VAT will not result in any change in the number of pupils at independent schools. It also assumes that schools will not reduce their fees, so parents will have to pay 20% more.

Every pupil who moves from independent schools to state schools will be a net loss to the government of around £10,500 on average - they will lose the £3k VAT on that pupil's school fees and school funding will need to increase by £7.5k if they want to maintain the current level of per pupil funding.

The IFS believe this move will be cost neutral overall. They believe that children already in independent schools will stay there, with the effect mainly being a reduction in future pupils. They also believe that the fact that the overall school population (state and independent schools) is projected to go down over the next few years means that the government won't have to put overall funding up much to maintain per pupil funding. They may be right, but I must say I'm not completely convinced.

@prh47bridge thank you for your assessment.

🙏

It is actually European Human Rights legislation that protects the rights of individuals to make private arrangements for the education of their children. The legislation also protects parents from the attempt to tax or legislate such provision out of exitence. The type of legislation proposed by the Labour party is prevented not only by European VAT law but also European Rights legislation and will therefore require the UK to withdraw from both the EU and the European Convention on Human Rights to implement it.
Article 2 of the First Protocol to the European Convention on Human Rights
“No person shall be denied the right to education. In the exercise of any functions which it assumes in relation to education and to teaching, the State shall respect the right of parents to ensure such education and teaching in conformity with their own religious and philosophical convictions.”
So private tuition by teachers for a school education cannot be subject to VAT under EU law and attempts to legislate against parents arranging education that conforms with their values is illegal under European Human Rights law.

I think it’s likely there will be legal challenges. It’s not as straightforward as the Labour Party think.

This is an interesting paper on the ECHR and private schools

https://api.repository.cam.ac.uk/server/api/core/bitstreams/ca3f6629-73f0-48e6-ab6b-e857094d31f0/content

https://www.counselmagazine.co.uk/articles/abolishing-private-schools-and-redistributing-their-assets-social-justice-at-the-expense-of-human-rights

This is also an interesting read.

We have, of course, already withdrawn from the EU, so European VAT law is irrelevant. The ECHR argument is interesting. I'm not convinced the arguments advanced by Jeremy Hyam would fly, but it is certainly arguable.

The Jeremy Hyam comment is a response to the 2019 Labour motion to abolish private schools and redistribute their assets. That clearly runs into some pretty significant huaman rights obstacles. It's trickier to make the argument on VAT alone. Of course this proposal is designed to appease the people who very much want to abolish private schools and seize their assets. I am not sure it will succeed in doing that or in raising the touted amounts of cash.

Starmer said he didn’t want to deviate from EU law though, despite not being part of the EU.