If you have kids in private education, what is your school planning to do re VAT?

[Ladychaise]

I have two kids at a London independent school and currently just about scrape the cost of fees. Labour’s intention to add 20percent on the fees would make it impossible to keep them there, if all that cost goes to us - it is a worrying time.

The school’s bursar is being lovely but it’s very much a ‘let’s cross that bridge when we come to it’ take on it! I get that we don’t know for certain if Labour will get in or how fast they will implement this - but surely schools should be planning for this and working out how much of the VAT, if any, will be ‘covered’ by the school?

Aware there is a lot of uncertainty but does anyone else’s school have a plan in place? Thanks so much

Well, I agree with you on the importance o if taxing wealth rather than income. And I also agree that private schools are just one part of the bigger picture - there is a whole lot more that we need to do to fix inequalities in the state sector, and the revenue generated by this policy will only be a drop in the ocean. But a drop is better that nothing! We will have to agree to disagree about the benefits of taxing private education - I think it's a fair way of raising a bit of extra tax revenue that can be used to help the most disadvantaged kids, I regard private education as a non-essential luxury and applying VAT is consistent with the way in which we tax other non-essential luxuries. Others will feel differently, which is fair enough.

But if private school confers no enduring advantage then why do we need to level the playing field between state and private?

Leveling is needed to reduce the gap in spending per pupil between state and private sector that has widened from about £3,500 in 2010 to over £7,000 now.

The only way to do that is by raising tax. While the money raised by VAT change alone isn't sufficient to close the gap, it's something, and if well targeted, can make a difference.

@Medschoolmum wholeheartedly agree with the need to better serve children who are poorly served today, but this doesn’t do that. Any money raised (and I suspect it will be minimal if not neutral/negative revenue gain) has been promised several times over, but some of the promises include teacher bonuses (unlikely to meaningfully impact teacher retention) and online mental health counselling (which is mostly rubbish).

as @twistyizzy suggests they need a proposal that raises revenue (on paper at least), and this is all they have. A broader based tax increase is what is needed (alongside a tangible reform plan - also missing) but that would be deeply unpopular.

i would happily pay more in income tax or wealth tax (which would potentially hit us harder than VAT) if I felt real issues were being addressed- this is just irresponsible and poorly considered political theatre

@justanotherdaduser but if they achieve the same results, why is more money needed per pupil? Does that not indicate waste/inefficiency in the private sector? surely we should applaud the state sector for so efficiently delivering exactly the same outcomes at half the cost?

I truly do not understand the logic that can hold that private schools are no better but also unfair to the point of requiring redistribution.

@Labraradabrador
but if they achieve the same results, why is more money needed per pupil?
I didn't say they achieve the same result. I said that for the same A level grades at entry, state school students outperform their independent school peers in university.

With average private school spending per head 90% higher than state, I would assume that for a given student ability, private school outcome will be better.

£1.3bn is the high water mark of policy potential - if it achieves half of that I would be impressed, and I wouldn’t be surprised if it ended up costing more to implement and administer than it collected in revenue.

£1.3 billion is lower end of their estimate. £1.5 billion is the higher end.

The biggest source of uncertainty in the IFS report is how parents respond to an approx 15% fees rise. IFS assumed an elasticity between 0.2 to 0.5 - causing a fall in student numbers between 20,000 to 40,000 over time (In contrast, the Independent School Council funded report assumes an elasticity of 1, causing a fall of 90,000)

IFS finds no drop in demand for private education despite a 55% rise in fee in real terms in the last 20 years, and concludes that elasticity is low.

Only time will tell, but I will extremely surprised if the policy becomes net revenue negative. Entirely anecdotal, but in my own London bubble, vast majority of people would continue sending their DC to private schools. No one likes the policy, but it won't stop them from using private schools.

Arguement around this reminds me of the arguments in 1999 just before Labour introduced minimum wage. There were blood curdling predictions in newspapers and magazines. Eventually, nothing happened.

@justanotherdaduser you said:But I am not at all sure that this advantage persists later on, even in university, let alone in the job market. ..Whatever advantage a private sector educaton confers does not seem to endure in universities. Or at least it is not visible in their former students' academic achievements later in life.

Why should we pay more for an advantage that does not even endure through uni?

Medschoolmum
I see your point about drop in the oceans being worth it, but it's very telling to me that the drop they go for is the one that affects the middle rather than ones that would make a difference. It's short term political football.

They've not proposed to look at the huge amount of money going into private firms to run basic state services for profit, which if ran by government for citizens could be better services. The money going to make the rich richer could he spent on running better services so state schools can educate instead of being schools, mental health support, family support, social services, and so on.

Tinkering with tax on private education is so far down the list for me. I'd probably welcome it down the line after more impactful policies were implemented.

@Labraradabrador
Why should we pay more for an advantage that does not even endure through uni?

I cannot tell why you should pay, people will have different reasons.

I pay for the extra curriculars, specifically, music. Plus a hope that DD's exam performance will be better than it would have been otherwise. But there is no counterfactual in real life and we will never know for sure.

Parents I know who send their DC to independent schools do not appear to believe that they are buying a life long advantage for their children.

@justanotherdaduser the greatest source of uncertainty is the exact nature of the policy. What will be included for VAT (nurseries? Uni? Dance school?) What will be excluded (after school care? Meals? SEN? Extracurriculars? Room and board?) How much will schools be able to claim back of their own VAT? What will be required to administer this policy (for example validating that all SEN exempt students are truly exempt?

Labour seem to be making up the details as they get blowback on possible downsides

there’s also questions about how schools and parents will respond: how vigorously will they challenge this policy and how defensible is whatever gets drawn up? Will schools use reductions in their own VAT obligation to offset fees for parents? Some parents might leave, but more will simply never join - what does that mean for enrollment longer term? How might specific rules around VAT shift behaviour and incur expense for the state (for example drive an uptick in EHCP requests)?

I also wouldn’t count on the inelasticity of demand - people can absorb incremental increases, but a large increase with compounding impact is another matter. Especially when it comes on top of mounting financial pressures from all sides. No doubt there will be bubbles that are immune, but I already know many families who are bowing out now because it is just too much.

Oh, I think there is a lifelong advantage- I know exactly what I am paying for. Very specifically, it will be the difference between my ND child thriving in education vs. barely surviving/ not making it through. I also think the extracurriculars, broad curriculum and hands on learning confer lasting benefits that aren’t easy to measure.

my challenge is why you can simultaneously claim there is no enduring difference between private and state, yet also believe it imperative to close the spending gap between private and state.

fwiw I DO think state schools need more resourcing, but I just don’t think it makes sense to achieve that by taking from private schools because 1) given proportional sizing it would make no difference and 2) education isn’t a zero sum game where private schools get more at the expense of the state. Close the gap by improving state schools, not by tearing down private ones.

@Labraradabrador
Labour seem to be making up the details as they get blowback on possible downsides
Sure, they do not have all the details nailed down and won't be ready in the first few months (if they win). But Labour only ever mentioned schools (and backtracked on charity status). It's mostly people who don't particularly like the policy started including Unis, nurseries and so on

Some parents might leave, but more will simply never join - what does that mean for enrollment longer term?
IFS expects private school demand to fall slightly over longer term as newer parents do not join.

That's not necessarily revenue negative though; those who don't join or those who leave will likely spend some or most of the fees money on othre things, many of which subject to VAT or other taxes.

We cannot anticipate how every household and school reacts to the policy change, but I would be very very surprised, if the policy is net revenue negative.

@Labraradabrador
my challenge is why you can simultaneously claim there is no enduring difference between private and state, yet also believe it imperative to close the spending gap between private and state.

Sorry, probably didn't express this well (English isn't my first language)

Take two children with exact same SAT score in year 6, and by all other observable charactersistics, have same ability.

One goes to a private school, another to a state school in a disadvantaged area.

The state school student is likely to have poorer GCSE outcomes. I believe this is partly caused by funding gap.

The private school DC eventually goes to university.

From this point onwards, has she got a permanent advantage for the rest of her life over her state school background peers who came to the same uni with similar grades? I don't believe so.

Right,but every new detail reduces income and increases admin cost. Unless you can make the policy really really simple (which I don’t think is possible here) it is implementation and admin that really erodes the tax take. I’ve already mentioned the Sen exclusion, but currently our school offer extracurriculars at no additional cost - if they carve that out and call it ‘after school care’ does it avoid VAT? Who gets to decide how much that should be worth, and how will that determination be reviewed?

i mean maybe it will be technically net positive, but at what point do you say why bother? is the disruption worth it for 100m? 100k? 10p? It is a lot of government time and effort for a few crappy online counselling sessions. Time and energy that could be spent devising real policy that actually aims to address bigger issues.

You would see a similar discrepancy if you compared the state school in a disadvantaged area to a state grammar / comp in a more affluent area. Why not impose a surcharge on parents in more affluent school catchments as well?

Entirely anecdotal, but in my own London bubble, vast majority of people would continue sending their DC to private schools.

London also however has an example of what happens when parents don't send their DC private.

Keir Starmer's London constituency had problems a few years ago with parents giving grandparents addresses or renting flats in the catchment of 'good' state schools.

It's also probably got the same problems where we live (not London). Wealthier parents buy houses near the 'good' state schools. House prices are now too expensive for other families so they're stuck with the 'crap' state school in the cheaper part of town. It's increased inequality and that's probably going to get worse if even some people stop sending their children private

You would see a similar discrepancy if you compared the state school in a disadvantaged area to a state grammar / comp in a more affluent area. Why not impose a surcharge on parents in more affluent school catchments as well?

Some sort of property tax or wealth tax? I would support that too, but that's not what is on offer currently.

But not having that does not preclude VAT on independent school fees. It's easier to impse VAT on school fees because it affects small number of relatively better off people and who (on average) are (somewhat) price insensitive.

This is the bit I don't understand - opponents of the tax find various inconsistencies (why not tax Uni fee? why not nursery fee?) or other areas that could be taxed.

But the fact those inconsistencies exist does not make the proposed change infeasible. There is no law that says that every tax change made by the government must be consistent with everything else. Tax codes in most countries are riddled with inconsistencies and exceptions.

It's easier to impse VAT on school fees because it affects small number of relatively better off people and who (on average) are (somewhat) price insensitive.

It will have more affect on poorer families. They'll be priced out of 'good' state school catchments because wealthier people who can no longer afford or justify the expense of private schools will buy houses near the better state schools. This already happens but it will get worse. Poorer families will be priced out even more than they already are and get stuck with the 'crap' state school in the cheaper areas

The IFS are being absurd in their assumption that because the sector has absorbed a 55% increase over 20 years, it can also absorb a 20% increase in a few months (assuming 15% VAT with schools cushioning 5%, but still adding 5% usual fee inflation).

55% over 20yrs can be managed with relatively normal, year on year pay rises/promotions. I don’t know anyone due a 20% pay rise this year.

I'm not saying that the tax on private schools is at the top of my list either.

I absolutely agree with the point about outsourcing public services to profit-making private firms and policies that target the richest rather than just the middle classes. I just don't see it as an either/or thing. I want both.

@justanotherdaduser this report is really useful in outlining the complexities Labour’s new law would need to consider, as well as likely challenges it would face. It really is more complex than Labour’s talking points would imply.https://www.edsk.org/wp-content/uploads/2024/03/EDSK-Obstacles-to-adding-VAT-to-independent-school-fees.pdfedsk report vat

with time and careful consideration it is possible to craft a targeted law, but Labour have actively signalled that they have not intention of taking time or giving much careful consideration in favour of a quick roll out. If so, it will be a mess, with lots of litigation resulting.

Well, I think you're right that there is a valid debate to be had about how the additional revenue should be spent, and I agree that there is a danger that the Labour Party may commit to spending this revenue several times over, but I think those are separate questions as to whether it's reasonable to collect that revenue. We differ in terms of how much we think the tax will raise. I am of the view that most parents will suck it up - certainly, that is the case for the private school parents that we know.

And yes, I would gladly pay more income tax and would like to see more action on taxing wealth as well as income. I just want us to apply VAT on private school fees as well.

@Medschoolmum i think it is very easy to support a tax on other people. I fully support additional tax on people in urban areas (have easier access to public transit), couples without children (all that disposable income - they won’t feel it) and anyone holidaying abroad (luxury item). All proceeds will go to funding necessary but neglected causes (fix the nhs! Fund social care! Ensure the council collects my f*cling bins when they are meant to!), although also might be squandered on some pet political initiative that has no impact whatsoever. It won’t fix anything, but it is a step in the right direction after all…

Well, yes, it's easy to support a tax on other people but given that I've already made it quite clear that I'd also support higher taxes on myself, I don't think it's fair to suggest that that's why I'm arguing in favour of it. Equally, I won't stoop to making the assumption that you're only arguing against this particular tax because you don't want to have to pay it.

For me this is just down to economics. Living in London it seems those using private schools here and in the South East are not necessarily super rich- more earning well with 1-2 kids and typically internationally mobile. As there are now lots of other countries vying for these professionals and their kids for tax reasons to support are ageing demographic I don’t think it makes sense to alienate them for a policy which won’t raise proper money.

I don’t think the ideology will work on them either. I work with people who typically have at least 2 passports and are simply internationally mobile and I just do not think Britain can afford to harm anymore of its otherwise thriving industries. So to me this really is another form of self harm as was Brexit. If I were in charge I would be working on making sure the richer private schools use their resources more and more to help state education through partnership and online resources. I believe a lot of teachers in the private sector are like most teachers and have the best interests of children and education at heart and where funds allow it (big private players) there is potential to enhance the state sector. I also believe some private schools should not be so spend thrifty. By that I mean the management teams jetting off around the world on big marketing trips and endless sports buses chartered all over the country. Would like to see more playing sports against state schools and facilitating that seeing that we have an obesity crisis.
Finally, private schools do not buy better grades and especially not in the age of tutoring. What they provide is more attention and pastoral care/wellbeing support, sports/arts/drama/music and a one stop shop - the type of roundedness that is difficult to achieve for two full time working parents using the state sector.
A clear analysis needs to be done on the impact of families using this type of education for childcare and extra curricular. I believe this to me far more common than is acknowledged. I think the grade buying and networking angle is massively exaggerated. Networks are gained at parental level until at least age 30-35.