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?

But I think they have made a secret of it. Starmer himself said he has 'nothing against private schools'.

Potionsmaster others in the government disagree with him:

Speaking in Leeds alongside Rachel Reeves, now the shadow chancellor, Ms Rayner said: “We will end the marketisation and privatisation of our education. We’ll do it because the evidence says that the best system for our young people’s education is a comprehensive state system. Worldwide, that’s what it says.”

Politicians staying they have nothing against a sector isn’t really relevant anyway. Any sector that gets hit with 20% tax will feel it in jobs and size.

It’s more use it to get people going about a pointless policy. Possibly damaging too.

Some children will feel it too unfortunately

Although Rayner prob would like to do as they say. Starmer is hopefully better informed and pragmatic

The figures you are quoting were only in a fourteen-day timeframe.

No one of course has any sympathy for this demographic but although since 2010 most people have had tax cuts, the group who pay school fees have had the highest tax burden for 70 years. It is a bit like we are there already on the ground with the 90% who take from us with their knee on our neck now proposing to take a pound of flesh via knife in the side of at least 20% of the school fees. If our group had had big tax cuts since 2010 and loads of spare money it might be different. Labour is choosing to bite one of the few hands that feed and can only do so because of Brexit as in the EU education even of children of the rich is seem as a social good.

Yes. The 14 days immediately before and after the election: won by Labour which means this policy is set to come in.

Like I say, I would expect more like 5000 requests for information in total.

How many do you expect:
a) over the summer holidays in time for the new academic year?
b) before the new tax comes into effect?

Surrey does have a higher % of high earners, but that's already reflected in the higher % of children currently in private education. There are 160,000 students in state schools and 40,000 in private schools (20%). Not all those private school parents will easily be able to pay the 20% extra: it doesn't make sense for none of them to be on the margins of affordability. And since there are so many in private education, it takes a smaller percentage moving to cause a capacity problem in the state sector.

The Telegraph article quoted the period as June 4 - June 19, so well before the election and a month before state schools break up. I would think if the parents were forward looking they could have been making enquiries well before this point. After all there has been an awful lot being said about VAT for months. It has also been very clear that Labour would win for quite some time.I can't see that this timeframe is a super key strategic time and would think the figures stated are just a snapshot. Agree that the requests over a wider time period are likely to be significantly more but of course we don't know how many are genuine ones.

Ah, fair enough on the time period. I guess we'll see.

The time frame actually makes it more likely that they're genuine applications. If you applied back in May, you'd need to either take up a place before the summer (ie start sending your child to the school), or lose the offer. The nearer you get to the end of the year before applying, the more likely you are to be able to hold a state offer until September without actually having to enrol your child this side of the holidays. I suspect that most of these will be genuine applications from people who still haven't quite decided whether they're staying or going, but want to have the best chance of a good state place in September so that they can make a final decision over the summer.

Lots of factors might affect the number and timing of families’ decisions, eg when the increase will come in, how private schools respond in the short term.

for moving from private to state outside the standard reception, year 7 & 12 points, and any moving due to private school closures, the main group affected will be those DC. There are strong incentives on families to seek to avoid this, especially where popular schools are full.

For choosing state at the key points far wider groups will be affected, especially if the numbers are higher than the Labour Party and others such as IFS have estimated. Well resourced families can pay for housing close to popular schools, pay for tutoring to try for state grammar/superselective entry etc.

@Xenia ,

‘No one of course has any sympathy for this demographic but although since 2010 most people have had tax cuts, the group who pay school fees have had the highest tax burden for 70 years. ‘

Really? Any evidence for this? CGT at 20% on shares and 28% on property, non dom allowances, carried interest for those who work for private equity firms, no tax on CGT on primary residence, trust structures etc etc. In my experience, few who go to private schools near where I live pay purely out of PAYE income. The highest rate was also reduced from 50% to 45%. Meanwhile, the freezing of tax bands has raised taxes for the middle group, and the ridiculous marginal rate of tax that people earning £100-120k pay is very unfair.

‘It is a bit like we are there already on the ground with the 90% who take from us with their knee on our neck now proposing to take a pound of flesh via knife in the side of at least 20% of the school fees.’

Are you serious? This is pure Marie Antoinette.

Do you understand that modern societies are based on sharing wealth to at least an extent? And that isn’t even going into whether a vast number of lawyers and people who work in finance are actually creating wealth or just being a private arm of the taxation system, taking from sovereigns and pension holders to enrich themselves.

But if you’d like an alternative, I could recommend India, S.A, Mexico or Colombia. As long as you can stay away from the great unwashed, you can live a lovely life in your gated compound and keep most of what you earn.

‘If our group had had big tax cuts since 2010 and loads of spare money it might be different. Labour is choosing to bite one of the few hands that feed and can only do so because of Brexit as in the EU education even of children of the rich is seem as a social good.’

As above……

Everyone is supported by higher tax payers and most of these are in London and the SE. So taking even more feels like an assault on a group who is already the highest taxed. They do contribute the most as higher rate income tax exceeds the amount taken in the lower tax rate. Many still do have more disposable income but without the wealth of the SE, this country would fail and huge cuts would be necessary. Brexit is making it worse. Failure to understand about how to “level up” is also an issue. However attacking the hand that feeds you is never sensible. Those creating wealth and paying high taxes should be welcome. If they are not, we know we fail as a country.

New, BBC More or less programme looked into this a month or two ago - how could these 2 statement be true - tax cuts and yet tax burden highest for 70 years. Their research showed the reduction eg in NI etc benefited many people since 2010 but the top 10% had much less. I am talking here not about the tiny tiny number of billionaires who might be making capital gains, but instead normal middle class eg £100 a year London lawyer earners, the traditional middle class professionals, 2 GPs who send their children private. These people often have 9% or even 15% student loan and post grad loan tax as well, no single person tax allowance. Most of them never make any capital gains as London house prices and rents are so high there are no savings to be made or many investments if any. Their CGT annual allowance under the Tories just went down from £12k to 6k and they have been taxed more and more and more. The stamp duty reductions for very low value properties have not helped them either and they pay massive amounts of stamp duty , enough to buy a house elsewhere (!) just to buy a property where their work is.

As I say no one cries for them, but there it is. I just tried to find the link but just found this BBC piece which certainly has to 2 claims in it that the programme analysed - lowest tax rates for years and the other claim - highest tax burden for 70 years. The BBC programme showed how both were right.

@Xenia ,

The median private school parent isn’t on the 90th wealth centile, more like the 95th.

And I don’t know what you mean about ‘billionaires making capital gains’. Anyone with properties or investments (which goes down to people with a few hundred thousands in assets) has made capital gains.

Virtually everyone I taught owned London property, few were renting. And it definitely went up in price, so they made capital gains.

And again you are choosing to focus on the bottom end of the private school parent wealth (2 gps) rather than the middle, where incomes are probably closer to £200k and there are savings and family wealth.

By the nature of private school fees, if you have more than one child and live near me, you have to fork out about £70k per annum out of after tax income (including 30% add ons, which is what most bursaries assume), so the first £100k of income is gone. You wouldn’t really be able to have a sensible life unless you had another £100k of household income (before tax), or a significant pool of capital to dip into.

Looking at the bottom of the top decile isn’t a true picture of parental wealth and income in private schools.

@Newbutoldfather - the main point is this is not a “mandatory” tax. People who want to not pay it, just need to opt for a different type of school. For some people changing behaviour, it will be “needs” based. For others, it will be because they simply refuse to pay it! Why exactly should they pay it when there is now a hugely booming national and international tutoring business to back up state schooling anyway?
And this is where the IFS failed to look at opportunity cost properly. Fuelling a tutoring business leads to more teachers leaving and to outflows internationally.

Well my experience is that two GPs or a GP and a solicitor (or many other jobs with equivalent incomes) is the norm for private school parents. We have always used one income for fees and the other for the mortgage, bills and other household expenses. I was earning £38k before tax when I sent my oldest DC to private school 11 years ago. Yes, there are some parents who are wealthier (e.g. Premiership footballer) but the majority at my DC’s school are highly skilled professionals paying the fees out of their PAYE income. Many people are feeling the pinch due to salary stagnation and cost of living increases.

And this is where the IFS failed to look at opportunity cost properly. Fuelling a tutoring business leads to more teachers leaving and to outflows internationally.

Whatever the disadvantages of the scheme, the Labour Party won’t care. It’s a class war sop like trail hunting.
If the Labour Party actually cared about animal welfare they would ban factory farming and salmon farming - the environmental consequences of the latter are extremely serious as well as the grim conditions for the fish.

I also think that what @xenia was trying to get at is that there is a moral saturation point in paying for “others”. I think maybe the South East and London in the middle classes (not the top 1%) has simply reached that point as regards to families. There is a massive exodus out of London. People just cannot afford to buy/rent and pay the extortionate house prices and yet again there is no help for those earning over 100k towards childcare costs. Let me tell you this - for people in their 30s now, two salaries of 100k is not going to make you rich in London, far from it. So you have to move to other cities? Get jobs elsewhere or even abroad. There is a brain drain of young people happening right in front of our eyes and the Government is not dealing with it properly.

International students are not coming anymore either because they do not want to pay for everyone else here anymore and also deal with strikes etc and low quality education. The word is out now. It is not just about visas! Similarly, I think those thinking about joining the private education sector will think twice. Even the perception that Labour will do more for state schools will lead more to go state or curtail private to 11-16 type thing. People do make choices if you impose a voluntary punitive tax on them. Just like Non Doms who only came here because of the non dom status will obviously leave when you take that away.

www.suttontrust.com/our-research/tutoring-2023-the-new-landscape/#:~:text=18%25%20of%20all%20pupils%20undertook,second%20highest%20quartile%20at%2018%25.
It's a myth that state schoolers use more private tutoring than private. The Sutton Trust finds that by a small margin it's more prevalent in the private than comprehensive sector, with grammars topping the charts. Overall it's higher income bands using it - but yes, it's more popular among indie families than comp.
That's my experience at a comp. We are high income and didn't ever need tutoring, and knew no one who did. I accept that's anecdotal. But the Sutton Trust figure isn't.

I’m sorry but that’s absolute nonsense. Whilst the ‘median private school parent’ may well be on the 95th wealth centipede IN THE SE, that is certainly not the case in the entire rest of the UK. Average secondary school fees are 18k and that is when you include the huge fees of London independents and public schools - the reality in most of the country is more like 14k. For primary, it’s around the 7k mark. Obviously, this is a lot of money but it doesn’t put the average parent into the mega rich category, far from it. One of my daughters attends a prestigious independent school in the North and even there, the parents are GPs, nurses, physios, teachers, estate agents, in other words, very ordinary middle class.

Centipede? Haha stupid autocorrect. Centile!

I send my son to private school and it wipes me out but it's very good for him so I make huge sacrifices to do it. The VAT on school fees will make it almost impossible.
So not all parents WILL suck it up easily.

@Araminta1003 you point to so many wrongs and inequalities. My children have rented in London and it was crippling even though we were able to help. Not so 30 or more years ago when I needed to rent in similar income.
Housing supply and demand must be addressed. All those empty brand new flats around Battersea which are owned by foreign investors for whom it's the best investment are a disgrace.

You won’t get social housing in prime Thames side areas. We probably have to go back to high rise as we simply don’t have the land. Many other countries accept this. We don’t like it.

There are lots of jobs in London that aren’t transferable elsewhere. WFH has meant a certain shift out to the Shires but that puts up property prices there. I don’t see a huge exodus from London. Prime areas are still desirable. Plus not everyone can work from home and value being a short distance from work,

Of course, social housing by the Thames isn't a thing (tho wouldn't it be nice if it was?). But as part of the wider housing ecosystem it has an impact - pushed up land values etc etc