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?

@charitynamechange - I think tutoring is booming and more prevalent since the post Covid teacher retention crisis so figures from 20/21 may be outdated?
Whilst it may have been a nice to have for 11 plus grammar in the past and kids who thrived on 1 to 1 from parents who have cash to burn, where I live in London parents are now having to find small group online tutors because the school has failed to eg recruit a maths or physics teacher (or a PE teacher has stepped in who can’t explain it properly!). The parents who realise this quickly are more on the ball and educationally advantaged. Many schools are now struggling in recruitment in maths and key science and computer science teachers. So people are forced to pay up at GCSE level in particular for tutoring and often even at A level. In some schools sets have been abolished and are huge as well.

How is tutoring seen as a more acceptable than paying for private? Parents are still arguing buying a privilege others can ill afford and yet it is private school parents who are asked to pay more tax not anyone tutoring or moving to a 'better' catchment area.

Among my friends, the only ones not paying for tutors for GCSE are those with kids at private schools.

The rest of us are all tutoring - especially those with kids with SEN, or those with kids who are looking for the absolute top grades.

Covid left massive gaps in core knowledge especially in subjects like the sciences and none of us want to rely on school to fill those.

It's not that it's more acceptable, it's just an easy target.

Tutoring is not something that can be easily spotted. Child A is being tutored by parent who is a secondary school Maths teacher, Child B is being tutored online by a retired physics professor based in South Africa, Child C is being tutored by an A level student who got a 9 last year and knows the syllabus, Child D is going to a professional tutoring service afterschool.

Only the last is probably traceable.

All those empty brand new flats around Battersea which are owned by foreign investors for whom it's the best investment are a disgrace.

Yes, I agree. Look at those flat at 8pm on a December evening. There will barely be a light on in the whole building.

Most of the secondary private school kids I work with have a tutor for at least one subject. They also attend sports clubs out of school for specialist training and pay for one -on-one for eg bowling practice / tennis. School fees is just part of the spend on education.

This saving that most of UK parents can't access due to kid being in school probably balances the future VAT spends for the private school parents that do foreign holidays.

www.telegraph.co.uk/travel/news/private-education-saves-families-hundreds-on-holidays/

It is a very mixed picture so hard to generalise. We were a lawyer and teacher couple paying school fees (my children have left now but my grandchildren of that age are in private school). My sons' school fees in 2017 were about £18k in outer London. This band of parents in most day private schools just about manage the fees in my view. Very few have loads of savings or investments.

When it is said above private school parents have capital gains because they own a house which has gone up in value, well our last house we sold at a loss (1990s crash) and I hope to live in my current house until I die aged about 90 so although there is some equity in the house because of my divorce in my case it is taxed already at 40% and people need a home so that is not the same as having shares and an investment property so I stand by my point that this demographic are the ones whose shoulders are used to bear the burden of one the biggest states we have ever had and the extra on school fees is a burden too far. We used all to be in it together - all paid and all paid out eg child benefit was universal. Indeed my doctor uncle had a council house in the 1940s as that was the scheme - you all paid in and all took out. We have instead moved to loads of takes and those on £100k plus give give give and now will have this extra burden. These are also the people who typically were in the 15% who sent children to university when I went and even in that area alone of education they now have student fees - the twins cost me £25k a year each at university and post grad as I chose to relieve the state of the burden of provision of a student loan to them. My parents didn't have to pay fees. In other words the hard working, fully tax paying, no tax evasion people who earn £100k and live within their means and prioritise education have the highest tax burden for 70 years and because they do the right thing by their children and pay for a good school they are going to be penalised even more.

@charitynamechange Given how much Battersea has cost to clean up, it was never going to be social housing. We like the idea of cleaning up brownfield sites but don’t understand the investment needed. Beyond housing associations I think. We need to be more creative elsewhere and not look at very expensive areas.

I heard an interesting discussion on the radio today. Our birth rate is getting lower all the time. The burdens on families is stopping people being parents. This will cause endless problems 25 years down the line.

I don't know the current state of play but JAGS has already made noises about teachers' pensions.

10 sounds a lot.

What is known so far is that a boys only school is saying they can absorb the full cost to begin with (but they have the highest fees), a girls only school is part of a group so might (speculation on my part) be able to absorb some of the VAT (and fees are lower), the 'top' school has said they will have to pass pretty much the full rate on, and the school that's had strikes isn't saying anything (and has increased fees so they are only £250pa less than the 'top' school).

There will not be a collapse.

In fact, if anything, Independent Schools will thrive. The main impact will be on bursaries and support for lower income families. For decades, the Charitable Status has seen Independents go out of their way to support less privileged kids; offering huge grants and support.

Those will all disappear. With no charitable status, why be charitable?

@Talbot53 they won't disappear. Independent schools need to attract talent. They give away bursaries/scholarships to talented students.
Quid pro quo
They're effectively buying talent rather than giving something away.

There is no proposal to remove charitable status. This is unrelated to the VAT issue.

But the VAT isn’t affecting charitable status. It will be interesting to see how the charitable independents do cope with this when they have to maintain their charitable acts but with fewer full fee paying parents able to stay

It will be interesting to see how the charitable independents do cope with this when they have to maintain their charitable acts but with fewer full fee paying parents able to stay.

Maybe this is all part of the plan to play the long game - ‘cast a long line to catch a big fish’ as the Chinese proverb goes. If the schools cannot fulfill the requirements of charitable status then maybe it can be removed.

Well a fair number of them have become Chinese owned the last 10 years and tailored and marketed at the Chinese marketplace so I guess a Chinese proverb is apt.
www.cityam.com/private-school-that-plans-to-absorb-labours-vat-hike-is-propped-up-by-chinese-investors/

At least one International School in Germany (Bremen) is advertising VAT-free tuition and boarding (taught in English) to GCSE and IB to UK parents fearing they can't fund private fees plus VAT. And Germany is simultaneously offering high skills migrants a discount on income tax for three years. I can't link it, because of the Telegraph's paywall, but some may find it interesting. The numbers won't be huge, but even so.

It will be interesting to see how this policy works in reality. I can't see it being all milk and honey for the state sector but only time will tell.

As for international schools, in many countries' in Europe, the governments actually provide contributions to private schools as their belief is the private school is doing good, and moreover, saving the state far more in the grand scheme. There generally is less envy and less "haves/have not" ill feeling. They just work side by side.

I do think some people who were already considering leaving the U.K. might well expedite plans. Other countries are trying to attract talent, UK seems to want to do the opposite.

@Papyrophile Denmark also has reduced income tax incentives for in demand workers looking to move.

@lavieenwhisperingangel ,

‘I do think some people who were already considering leaving the U.K. might well expedite plans. Other countries are trying to attract talent, UK seems to want to do the opposite.’

’Talent’: my favourite newspeak modern word! What you mean is wealth, not talent at all. They are not synonyms.

When Ireland had a low corporate tax regime, it was called unfair tax competition. Ditto for our non dom system, which was blatantly unfair, but did attract plenty of wealth (a lot of it absolutely talentless).

I assume you think we should go full Singapore-On-Sea to attract the talent from the EU with special low taxes for talent, then? We are in a really good position to play that game, having Brexited.

Given we have a lot of old and ill people that we need to pay for, populist policies like Brexit and VAT on school fees is just a form of self harm. You cannot just rock up in the UK and guarantee an excellent state school - it requires knowledge and navigation of a highly complex and unfair system, with substantial waiting lists for the best state schools and Councils who do not stick to legal time lines for children with special needs and often do not offer schools in advance etc.
My brother moved to Zurich a few years ago and was given a state school place immediately (he could call ahead and speak to actual people about it in the canton authority) including free German teaching in schools for his DC. So some other countries do manage this a lot better, I suspect that would be the case in Scandinavian countries as well (free language immersion and support).

You assume a lot.

I mentioned Europe as an example above, in reference to the school in Germany, but many talented doctors and nurses are leaving (some will go to EU, but some, Australia, Canada etc). this was highlighted a lot in the election. Do you not consider these might have had enough too?

As for wealth which (my assumption of you) that you don't like, these people may have built business, may be they are entrepreneurs and have created local employment and thus the multiplier effect for the coffers and the economy. Obviously not "talent" in your books but that term doesn't really matter. The point is, why would you cut this off to spite your face.

As for brexiting, well lucky for you but you now have a benefit, VAT on schools. Bravo. I wish you luck in this endeavour, but I don't think it will be the utopia for state schools you think it will.

Many countries in Europe are facing a shortage of workers especially skilled workers and many are struggling with a low birth rate. That is a fact other Governments are considering as key strategic risk areas and are developing policies accordingly to mitigate the risks.
Meanwhile over here, British exceptionalism at its best, we are just scared of anyone arriving? Because clearly we are the best place in the world and who in their right mind would ever leave or go anywhere else… you should all be grateful for paying 40 or 45 % tax and getting zero benefits! And pay VAT on top, you should all happily do it for the privilege of buying privilege. Is it not obvious?

I view this policy as purely political since it will/might raise a very small sum within the context of the 700 million government budget. Political uses could be: signaling being tough on ‘elites’. That’s left wing populism. Providing a useful reposte to people asking “where is the money coming from?” So they appeared fiscally responsible without putting any marginal voters’ taxes up. Third one: providing a trigger that can be pulled to split opposition to re-entering the Single market vat rules. If doing this means cancelling the VAT on school fees, it’s likely that the Telegraph won’t complain.