Vat Question????????

[Anoth]

Can I ask a silly question??
We have been given our school fees for 24/25 academic year now for the school my daughter attends.
My question is if labours policy comes in half way through an academic year will the schools be allowed to put the fees up for the remainder of that academic year? Eg if we start paying X amount on September and then labour get in and introduce the added vat in October. Will the fees go up in Jan of that academic year? Normally fees remain un changed for the whole of the academic year once fees have been published but I understand this is a strange situation!
Just wanted to know if I need to prepare to save more for 24/25 fees just in case or will these that are now published still remain until the end of July 25??.
Thanks!

People affected by the VAT changes are by no means the highest earners.
They might be high earning relative to the rest of the population but they are unlikely to break the country if they choose to move elsewhere.
Why would I care if they leave? People of all kinds of earning capacity come and go all the time.

Me: "Cost to HMRC, some £hundreds of thousands."

@SomersetBrie "Why would I care if they leave?"

It's as though nobody is interested in whether tax policy raises money or not as long as you "tax the rich".

"People affected by the VAT changes are by no means the highest earners.
They might be high earning relative to the rest of the population but they are unlikely to break the country if they choose to move elsewhere"

Have you any idea how much of the country's public sector is paid-for by the top percentile / top decile? You'll miss them when they're gone, trust me.

I think moving countries is an extreme response. Within my circle, moving children to the state sector at natural transition points combined with reducing working hours / retiring early is considered much more widely. How many people will actually do this is anybody’s guess. Regardless it would result in potential loss of tax revenues to HMRC, and I would love for this to be tracked as part of the results of this VAT change (unclear how this can be done, if at all).

Sure the private school parents might only be a small percentage of overall UK adults, but I daresay they constitute a substantial part of 40%++ tax payers which I understand is around 11% of UK adults in 2022/23.

Below the top decile is the next decile.
DH and I probably contribute as much or more to the economy as households taking home 40k more per annum but spending it on school fees. I don't mean the real high earners that we are nowhere near, I mean the people who will find the VAT a struggle.
I appreciate that the country needs high rate tax payers. Some of these high rate tax payers do not have children in schools and may never have.
We are just talking about VAT on school fees here, not a more general decline of the country, which is certainly also happening.

"DH and I probably contribute as much or more to the economy as households taking home 40k more per annum but spending it on school fees."

Amazing. How do you figure that out? Your starting point's as follows:

• If you have kids at state school, you contribute £8-11k per child less to the public finances.
• Second, households earning 40k per annum on top of whatever you earn contribute £22.3k in income tax and NICs (I'm assuming 40pc marginal rate; obviously much more if they hit the 60pc or 45pc rate and if they tip over the loss-of-childcare threshold and loss-of-child-benefit threshold)
• Third, their school fees generate around £20k of downstream taxes (teachers' payroll taxes, supplier VAT, downstream multiplier, all per Oxford Economics)

So if your imaginary friends reshape their lives to resemble yours (less income, state school) it costs HMRC £50,000

Then there are customers, employers and employees, who between them value that family's output as at least £45.5k more than yours* *(gross salary plus employer NICs).

I'm really curious. I'm sure whatever you do is great, but how does it "contribute as much or more"?

Just when I think this site can’t get any weirder…

So @Quatty - you do not understand what I am saying?

In British boarding schools to date, some influential families from all over the world have mixed with each other, sometimes from jurisdictions that would not actually otherwise talk to each other. That creates dialogue and goodwill between those jurisdictions through friendship and towards the jurisdiction in which they mix. It creates diplomatic relevance. It is really not that difficult to understand.
Or did you think Brexit just harmed US? Or can you see how it harmed the rest of the EU too and potentially worldwide political stability? Yes or no?
The more the UK removes itself, the more there is some relevance. UK Education is relevant, primarily through unis but it starts with private schools. X Chinese billionaire sending their child to Eton/Winchester etc is relevant because Y, Z etc from China etc then want to come to uni here and so one. They come not just for the uni, they come for the brand and prestige and what it means back home. It is really not that complicated. It is about how Britain and British Education is perceived. And by implication, Britain at large. British Education is relevant for Britain. Whether you like it or not. It is a massive “export” that benefits us greatly including diplomatically and scientifically and the list goes on. There is really no downside economic side to it at all. Perception and reputation matters. So if an incoming Government proposes an anomalous move without precedent worldwide, it matters, a lot. Not just to a few parents who cannot pay the fees plus VAT. It is far more symbolic than that.

And it's an export worth over half a billion a year.

Well, I didn’t go to private school but I do recognise delusional, overblown privilege when I see it, and as I live and work in the real world, know that the delusion is coming to an end.

The thing that annoys me about the policy though is that private schools will become even more elitist. If you’re already paying £50k for Eton, another £10k won’t make much of a difference.

I’m watching very carefully as would be keen to send my children private for secondary. The difference between the quality of education in my local area is massive (3% grade 9 at gcse versus 70%) but vat may be the thing that tips it into being unaffordable as fees would be a stretch already. It’ll do nothing for inequality though because if I have to go for our local state, we’ll be spending a ton of money on tutors to top-up and would likely be saving some of the fee money to give to the children as a house deposit instead.

I didn’t go to private school either, and nor did my spouse. We also live and work in the real world, have experience of all walks of life so can see why this policy is a shortsighted one.

I think we've all heard enough about the delusion that harming schools and discouraging higher earners from being higher earners is going to help anyone.

"the country doesn't need higher-rate taxpayers". We've heard it all on here.

I agree with most of this. As a side note I wouldn’t assume that everyone who can afford the VAT will happily pay up. This isn’t a regular fee increase which people might accept as it reflects demand-supply (we live in the capitalist world after all). It is yet another tax on the after-tax income, and very targeted at a certain demographic. Many families would have to rethink the cost-benefit of their various life choices. Early retirement, going part time, and other ways to support children (such as housing deposit) will just become more attractive.

”Many families would have to rethink the cost-benefit of their various life choices. Early retirement, going part time, and other ways to support children (such as housing deposit) will just become more attractive.”

This rings very true. We have been running numbers and the possibility of paying fees is probably the only thing keeping my husband in his high earning, high stress job. I’m sure we can’t be the only ones in that position. There will be lots of cost-benefit discussions at the margins about value. If we knew that private school wasn’t happening, we’d be all about reducing stress/early retirement.

I don't have a problem with taxing the wealthiest.

It does seem weird though to have higher taxes for the family of high earners who are prioritising education by sending 3 kids to private schools vs another family on the same income who are putting their kids in state schools (thus costing the state more) and putting what could have otherwise been schoolfees money into their pension (saving massive taxes so costing the state more) and retiring early (so paying tax for fewer years). It would be a much more sensible way of taxing the rich to leave school fees alone and have a maximum cutoff £15,000 pa for tax relief on pension contributions (it's currently £60,000) - revenue would probably be higher too

Resding these posts I wonder why the assumption is being made that private schools will pass on 100% of the VAT to their customers. Looking at the manicured grounds and yearly re-painting of the pavilion (not to mention ALL the damn lights left on 24 hours a day even during the holidays) of the boarding school we live close to I’m sure some economies could be made and the poor cash-strapped oligarchs who send their children their could be saved a few roubles.

I am sure it's possible for schools to get rid of a few lower-paid employees as you suggest. It's a lovely sentiment. What do you think of the taxes they pay today and the benefits they will claim if un - or under-employed?

Since you're interested in the topic, here's some background:
Calculator Keir and his questionable maths (substack.com)

I'm sure you don't think 590,000 children at independent schools are all oligarch's kids. Or do you? Because as I write here, for Labour MPs vs many private school families it's very much a case of "kicking down" not kicking up. Labour's VAT policy is out-of-touch (substack.com)

You probably know if they cut back on supplies of any kind, they'll be paying less VAT on those too? And there's a downstream impact when you shrink the economy.

ISCreport2022FINALWEB.pdf (oxfordeconomics.com)

Like many, my village cricket club gets its pavilion painted annually and the pitch mown with considerable care. Subs are VAT-free. Does that make you cross too?

“schoolfees money into their pension (saving massive taxes so costing the state more)”

Hmmmm… I don’t know how the maths would balance but this seems a smidge simplistic - larger pensions means more taxable income post retirement and more likely not to require state help to pay for care (residential homes or personal carers)

@Soigneur - do you object to the manicured lawns at Cambridge university as well? Or are they exempt from your disdain? What about Westminster and Parliament itself? Ever visited?

Yet you don't recognise the irony that the VAT will only serve to make private schools more elitist as the cost becomes too prohibitive for any but the ultra wealthy? Bursaries and scholarships for poorer kids will be phased out.

They HAVE to charge VAT at 20%. That’s how VAT works.

Now, possibly the schools make economies and keep the base fee (ie the money they actually get) flat or even reduce it. But if the fee is £20k a year now, it will be £24k cost to parents. If the school drops the fee to 18k, cost to parents still z£21.6k

While they do have to charge all of the VAT, I don’t think it’s been agreed what the VAT rate would be, has it?

I think most people who chose to put money into pension have already calculated that it works out well for them. It’s self selection. For example, if you’re at 60% marginal tax rate bracket today, the benefit of putting it into pension is pretty obvious as you might be at 40% or even less when taking it out. You also gain from tax deferral as well (paying later is better than paying today).

In general the pension allowance is designed to incentivize people to save, which on a whole is good for the society. It comes with the corollary that the state will lose out a bit on this subsidy. It can be one of the options that many people who no longer need to spend on school fees will look at as an alternative use of money.

My understanding is that (a) only two VAT rates currently exist, 5% for things like
electricity and 20% for almost everything else and (b) Labour’s model has used the 20% rate.

I think 20% is 99.9% probability of being the rate.

Labour have been extremely clear it's 20% and that's why they expect £1.7bn or whatever they're claiming this week.