Will VAT on private school fees lead to a partial collapse of the sector?

[mids2019]

Will VAT on school fees coupled with cost of living drive a lot of parents from the private sector or will the majority absorb the cost? Are the numbers that potentially end up in the public sector going to offset any gains to the treasury through VAT?

Labour are working at about 4-5% transfer rate to the public sector but is this an underestimate?

Hopefully it will take a while for it to be pushed through with lots of legal challenges. Then Tories are back in and abolish it, so could be at just a couple of years of this.

Interesting article in the Guardian
https://www.google.com/amp/s/amp.theguardian.com/commentisfree/article/2024/may/20/vat-private-schools-labour-low-income-kids-tax-bursaries

Once it's been added, no subsequent government will remove it. Look at Uni fees: Labour introduced them and increased them to £3k. But by the time the Conservatives got in 12 years later, they were accepted, so they increased them again to £9k.

Taxes are usually increased. Pretty sure that after Labour add VAT to private school fees, it will end up being added to other forms of education within a few short years - either by Labour or by a new Conservative government.

I think it’s unlikely to be removed too. The damage this brings to the sector will be on Labour and it will last

Probably right, as it's 7% who are in private, probably down to 5% in a few years, so I can see why it would stay....oh well. Really hope Labour manage to mess up and not get enough votes to have a majority or a coalition with the SNP, only 2 ways I can see them getting this through. Hopefully they need the Lib Dems.

This is from Rachael Maskell. Labour MP for York.

”We must keep going [with mass migration] until we really are at saturation point, because what does it matter if we have to wait another week for a hospital visit? Or if our class sizes are slightly bigger, or if our city is slightly fuller? What does it matter if things are slightly more challenging, if we have to pay a little bit more into the system? Surely it is worth it.”

They obviously don’t care about the standard of education, or class sizes in the state system getting even bigger than they are now. Along with the influx from the independent schools, they are forging ahead with mass migration. Still no pledge for any additional revenue guaranteed for the state education system either.

Sorry if this has already been said but isn’t there a very real likelihood that any increase to the govt coffers from the VAT is just undercut by the reduction that stretched parents will be making on other goods and services? Many/most private school parents I know will be cutting right down on other luxuries/non necessities to absorb the increase. And I mean right down: from cancelling planned home improvements all the way down to cutting out a £25 weekly Starbucks habit. Irrespective of the politics involved, and whether or not it’s tiny violins for these already-privileged people etc… I don’t see how there’s going to be an increase to the Treasury’s coffers for them to spend on the state sector?? Surely if anything there’ll be a dip?! A family that now has to pay eg £5k extra per year, trying to find ways to offset that, they might even end up saving slightly more than the £5k increase. So there’d be less for the Treasury to work with?

(Not to mention The absolutely FILTHY rich parents I’m aware of who are just going to try to pre pay, if they can, and hope to do so asap before the change comes in… nice workaround for those with £250k down the back of the sofa…)

Of course that is all true however Labour are conveniently ignoring it which makes their calculations worthless.

It goes further than that though because they are also working on the assumption that any parents who move from private to state schools will continue to maintain a similar level of house hold income generated similar levels of income tax and will spend more on other things when they no longer have fees to pay.

I think that assumption is extremely flawed. Nearly everyone I know in a similar position will either work a bit less, retire earlier or revert to being a single income family again. People won’t struggle to earn a bit more, often at really high marginal tax rates, to fund stuff they don’t really need.

They don't care....of the 7% in private education. I think those who move back to the state system, say 0.5% as a guess, the money they save and will have to spend will more than cover the ones who will be more frugal to pay the additional fees etc...

Labour are doing this, as it is the politics of envy. There really wont be any benefit, but some voters will see this is a positive and vote for them. There is no doubt it will happen and most probably by January 2025 fees at the latest. Just hoping for a coalition now.......

The other point to make is that there is no way to capture any of this data - the possible changes parents & extended family could make to find more money for the VAT on fees are too diverse. Some people won't move house, others won't renovate or upgrade their car, some will get rid of their car, have fewer/ cheaper holidays or cut back on everyday discretionary spending. Or all of the above plus other measures - work more, ask family for help and so on. It's impossible to measure this so the government will have no idea what impact VAT on fees will have on wider VAT & other tax receipts.

No, unfortunately I don't see how economists will be able to separate out the impact of adding VAT and see how much money this policy has cost. So Labour won't be held to account for the damage they cause.

I'll personally be looking at private school numbers - and I know that a dip of 10% will mean that the policy is revenue negative. Not that it will make a real difference, but I want to know.

I sincerely hope that it doesn't hit the worst-case scenario, with LA's unable to find school places for children, as happened a few years ago at the peak of the baby boom. With that boom passed, inability to find places will be down to this policy. Hopefully news papers would pick that up, or else the government does also publish the stats

But the baby boom years haven’t passed yet when it comes to Sixth Form places? So what is the plan there if a whole lot of current Year 10&11s move? I wonder how many current year 11s have applied. We may know more by September.

A quick search on Google suggests that Private Schools are closing all the time.

I suggest that the imposition of VAT might kill off a few more but its something thats already happening.

|Clearly were there to be a mass cull, some cities such as Bristol would suffer but in many areas there are few if any private schools

100% agree with this. Sadly even the private school numbers will take several years for the full impact to play out. Many people I know will swallow the VAT until the natural transition points then move to state (and definitely not one of those poor performing ones).

https://bylinetimes.com/2024/05/28/report-on-closure-of-private-school-is-attempt-by-conservative-establishment-to-scare-voters-away-from-labour-and-has-nothing-to-do-with-partys-vat-payment-plans/

So I think we can safely say that if the school has been struggling since 2016, has been trying to turn things around for several years and has highlighted the Covid pandemic’s impact on the school’s ability to remain, all while under a Conservative government, it really isn’t Labour’s VAT plan that’s caused their closure!

I think the private school sector will shrink. Little preps that don’t offer much more (if anything) then a decent primary school are vulnerable. The parents who believe these prep schools are better are rarely rich. They survive on one salary and the second is used for fees. Plus some from grandparents. They don’t have trust funds or millions of £ in portfolios. Just a nice enough house with a mortgage. It will lead to larger preps remaining as they can look at economies of scale and make choices about what they offer. If all a prep offers is smaller classes, certainly village schools can compete for £0.

I’d say you’re right, I think it’s a pity to damage the sector in that way

That said the anecdotals about a working class parents doing 4 jobs to get their child through private school, if true may mean parents take on more work to find the money to pay for it and thereby albeit in a small way add to the economic activity and benfit to the country.

Independent Schools Council (ISC) 2023 census: 5.9% of all school attendees in the UK are in private schools. So Starmer is going for the 94% who don't.

Maybe schools like Eton and their ilk could support the sector with their enormous wealth. It doesn't help the arguement that one of the richest and most powerful institutions in the country get to avoid VAT.

Eton College is considered to be one of the wealthiest educational institutions in the UK.According to a 2021 report by Byline Times, Eton College's assets rose from £445 million in 2015 to £611 million in 2020. This represents a 37% increase in a time when national inflation was 13%. In 2020, Eton's annual income was reported to be £78 million.

@EasternStandard

I agree it’s damaging but I don’t think “name” schools will close. Often parents aren’t sure about larger schools but smaller schools don’t have the breadth of bursaries to claw money back from either. It will be survival of the richest and amalgamations.

DH and I aren’t super rich 160k joint income between us. But I grew up super poor and so have always invested — ever since I was 16. So I do have investments that pay an income and some that don’t.

I’m crunching numbers so I can have them pay us enough to cover the vat as a minimum.

Eton might be a rich school but it doesn’t have any meaningful power. The alumni might but most don’t. They just get on with their jobs. It’s also the case that ancient boys schools have many more endowments than more recently established schools. Most girls’ schools are not old: for obvious reasons. Schools with too few well off parents will struggle but why should Eton save them? Few schools can match Eton and a few others regarding wealth accumulated over many centuries.

I am not a fan of the Elitist schools and this is a bit off topic, but look at Church of England and its assets worth £10bn apparently, why should the wealthy religious institutions be exempt from tax at all?

Two interesting articles in the DM this morning, one about a fightback by the ISC, which will take it all the way to the ECHR, if necessary:
https://www.dailymail.co.uk/news/article-13469527/Lawyers-attack-private-schools-Labour-General-Election.html

And the other from Sarah Vine, who points out the flaws in Labour's maths on this issue. This one is behind the DM paywall, so look at it on archive.ph:
https://archive.is/C4Y1f#selection-1183.279-1183.445

It is interesting to see where discrimination laws may be applied. I suppose if you have a disproportionate number of single sex schools in the private sector or faith based schools there would be a case under those protected characteristics. Again similar arguments may be made about SEND. It could be this could be subject to legal challenge for years (look at the Rwanda scheme and the complex legal argument about that).

Does Labour need the press about this for a policy that may gain little economically especially if they are to be a broad church party?

https://www.google.com/search?q=rachel+reeves&oq=rachel+&gs_lcrp=EgZjaHJvbWUqBggCEEUYOzIGCAAQRRg5MgYIARBFGDwyBggCEEUYOzIGCAMQRRg80gEINDM4NGowajSoAgCwAgA&sourceid=silk&ie=UTF-8

Rachel Reeves, potential Chancellor.

Both parents teachers, excellent state school, (single sex), Oxbridge, Bank of England. , City.

exclude the state school element and we have as privileged a career trajectory as many tories. Not everyone has the ability to send children to nationally excellent state schools.

I am sure Rachel has met many privately educated people during her life time so why as shadow chancellor does she seem to have chip in her shouoder? If her parents were faced with an inadequate school in London would they have not saved for a private education for their obviously bright ambitious daughters?