How soon might a Labour Government put 20% VAT tax on private school fees?

[jennylamb1]

That really. Given that an election date has been declared for July, how soon might a Labour Government set their first budget?

I don't know - I don't think Labour have published a full manifesto yet, have they (or the Conservatives, for that matter)?

The point is that using "won't somebody think of the NHS workers?" as a reason to not implement VAT on school fees is a stupid argument.

Which is a shame, because it should definitely be a priority to remove them!

It's insane to disincentivise work at any income level by making it so that working more hours means you get less money. (or even just that you get to keep so little of the extra money that they'd rather just not). People just won't.

They rightly fixed that for benefits, they need to fix it across taxation at the higher income levels too.

Agree!

It's not saying "won't somebody think of the NHS workers?", it's pointing out a likely unintended consequence of the policy.

Which is that by making private schooling less unavailable/less affordable, Drs and dentists will be less likely to be willing to work in those deprived areas without good state schools within travel distance for their children (so not all deprived areas, but certainly some). Each individual makes choices by considering the impact on their own family. So since there aren't enough of Drs or dentists in the country anyway, the policy will have the unintended consequence that some deprived areas will have even fewer doctors and dentists.

The government are meant to actually think through policies they're proposing as carefully as possible, including trying to identify unintended consequences. And then weight it all up to see whether it's still worth it, or whether there's another way to achieve the positives whilst creating less serious negatives.

No tax can ever completely avoid negative consequences. But some are much worse than others! (like this one, in case that isn't obvious). Read the Adam Smith report. It goes through quite a few different negative consequences which you - and the government - haven't thought through.

@MisterChips There is no inconsistency between "(1) "school fees are expensive and out-of-reach for most" and (2) "everyone who can afford school fees is so rich they have money to spare"?" - by definition, if you can afford north of £20K per year per child for private school, you have £20K a year spare.

If you have committed that £20k to school fees then by definition it is not ‘spare’ anymore than your mortgage on a four bed home is ‘spare’. School fees are expensive and you do need to be wealthy, or have wealthy relatives, to afford them. But that does not mean you can afford to suddenly pay a lot more on school fees. Many private school parents live in modest (eg 3 bed semi) homes, run one old car and just go on uk camping holidays in order to pay school fees as it is something they prioritise. They are still ‘wealthy’ compared to most but have much less spare cash. It is not a commitment that can easily be left either. At minimum it is a terms notice, but at many points in a child’s school life they are tied in by exams and curricula considerations (aside from issues around friends and finding an alternative school place).

On the other hand, if they do decide to release that money, £20k pa is enough for payments on an additional £250,000 on a mortgage towards a house in a better state catchment.

‘won’t somebody think of the NHS workers?’ might be a poor argument but what about ‘won’t somebody think of the people in deprived regions with failing state schools who can’t recruit GPs?’

My cousin is a GP in a deprived area who sends his child to private school as the local schools are failing. For him it was a straight choice: private school or move house and job to the ‘better’ side of the city and spend the money on housing instead. If he chose the latter the already unstaffed GP practice would have been struggling to recruit two more GPs instead of just the one they have been failing to attract for a couple of years already.

In any event, every area is different. Cambridge has a ton of excellent state schools and there, the decision to go private will be completely different than in many other parts of the country. The state schools tend to be excellent there because the demographic is a whole lot of educated privileged people who read to their children from birth and feed them nutritious food and talk to them and get them to cycle and exercise and go camping. So in Cambridge only the real elite will sign up to eg. the Perse and the tendency to go private will be for the elite pushy alpha parent in the top 2% income or wealth wise or a child with SEN. State there also feeds into top unis so the argument will be totally different than in many other regions.

"There is no inconsistency between "(1) "school fees are expensive and out-of-reach for most" and (2) "everyone who can afford school fees is so rich they have money to spare"?" - by definition, if you can afford north of £20K per year per child for private school, you have £20K a year spare, and can commit to it being spare for several years, that you aren't using for anything more essential such as housing costs or feeding yourself."

Do you really believe there is just Group 1 "absolutely can't afford school fees" and Group 2 "can afford school fees and has 20% more to spare on top"? There's nobody in between "just about struggling to pay the fees and maybe won't be willing/able to pay any more"?

That's like saying "you can afford a car, therefore by definition you can afford a new one".

By definition, if you're spending what's actually average £17k a year, with the majority of schools charging less, then it's still a huge chunk of your income. Some have ££ to spare on top, others don't.

Your personal experience is you don't know nurses in private education. My personal experience, as (1) someone in private education (2) many of whose friends are in private education (3) working with a campaign group of several thousand in private education, is that I know dozens of nurses in private education.

And that's the quality of the thinking that supports this inane policy. You seem reasonably intelligent yet you're reluctant to address the logic or consider whether your personal knowledge has a boundary. Why?

If the champagne socialists who are passionate about levelling up state education (by making private parents pay twice) were serious about improving the state system, they would be calling for an additional tax on higher rate tax payers that use the state education system.

A £2k per term per child levy would raise c£7.2bn

(8m kids in state education, 15% higher rate taxpayers)

Surely this is much fairer...after all they can afford it and are using the system...and everybody using the system then benefits...

A ludicrous policy....but no more ludicrous than making people pay twice.

Precisely.
All this policy does is fuel class hate but Labour know this, that's the whole point of it.

You can't start charging higher rate tax payers for using public services - in addition to existing high taxes. You would completely lose support for taxation if the people actually paying for public services don't get to use them.

I think the only fair way to increase funding for education (which I support) is by increasing basic income tax so that everyone who benefits from education is contributing. And that's everyone - not only those with children in schools. We all get our own education as children, and we all benefit from an educated population.

Perhaps schools and LAs could 'invite' voluntary contributions then....after all a household income of £100K with a new car, holidays etc, parents must be 'loaded' and be able to afford this?

The facility to do this already exists, guess how many parents voluntarily offer? Even those wealthy parents in state schools?

Exactly...in amongst this whole debacle the thing that make my blood boil most is the tagline Labour have created:
"end the tax breaks on private schools"
...there is no tax break; education (all types) is VAT free. The media and the opposition must call them out for this, but have been silent.

Yes, it is very annoying. What a lovely tax break which means I subsidise the government £20k per year more than I would otherwise (extra income tax + not taking up DD's education entitlement), as well as paying the whole actual cost of DD's education.

Novel interpretation of 'tax break'!

But people will always latch onto a catchy phrase which supports their prejudice that it's 'not fair'.

I think the thing to focus on is the fact that the policy is likely to cost the government money rather than bring any money in.

I'm hoping the policy will lose support once people realise that it will harm them, not just rich people who they think deserve it.

Of course the reason the tax will cost the government rather than make them money is precisely because private school is the exact opposite of a tax break.

So when people choose state over private, it costs the government more. A lot more. So much more that it won't take much change (10%) before the extra it costs the government is more than the extra money you get from those parents who stay private.

If it was a tax break, that wouldn't happen.

But I still don't think that pointing that out is the way forward. People just think that's justifications and excuses. They don't really care about the logic of it. But I think they might do when they realise it will harm them too.

The whole thing is bankrupt - people should be looking at what the IFS’s main attack on this election debate is: we need honesty on public spending. Income taxes will have to rise on everyone to fund better public services unless we are happy with cuts and anything else is fundamentally dishonest.

Does anyone know how it will work logistically? Schools add VAT onto bills, parents by the extra, the school take off the VAT from their income and then pay the government what, each January?

Then how soon will the government be ploughing that money into the state schools that need it most/recruiting 6000 new teachers? I can’t find much about how they plan to actually execute this…

our children were in state education and because we could we donated 1000s over the years to the school. We were forced to leave (the school suggested we might get better care and education for our children). When I say forced I mean we exhausted all avenues as to how to stop certain children bullying my child.

Even when we left the school we still gave some albeit a lot less to the school, because we liked the school and some people in there. Taxing people like us will leave a gap as we won’t be keen to give anymore.

additionally, I know a lot of families whose children are in state education and who are very wealthy yet never contribute anything. I know it is a personal choice but perhaps getting them to put their hands in the pocket might help those who really can’t afford… we need to fix the system but taxing us is not the way…

All the schools will need to register for VAT.

When they issue an invoice, they will add VAT to it (so the total paid by parents will be fees + 20%). This will mainly be invoices issued to parents for fees, but if they charge eg other schools to use their facilities those invoices will also have VAT added.

VAT is due every 3 months. When the school do their VAT accounting, they'll count up how much VAT they've received from parents/customers, then they'll subtract how much VAT they've paid on things they've bought (school supplies, vehicles, services they buy in like cleaning etc), and they'll send hmrc the difference.

The subtracting of VAT they've paid is why the VAT might end up costing parents a bit less than 20%. Because private schools aren't currently able to claim back the VAT they have pay on things they buy (state schools can). So they'll pay hmrc a little bit less VAT than they receive, which may allow them to not increase fees as much as they would have otherwise (increases reflecting ever-rising costs).

There's a bit of complexity when they first become VAT registered, where they can claim back the VAT not only for that 3 month period but also for things they recently paid VAT on: within the last 6 months for services and within the last 4 years for goods.

So they might be able to offset a reasonable amount of VAT initially if they've had building projects etc. But over time, it won't reduce the percentage very much since a school's main cost is salaries, which VAT isn't paid on.

I suspect the government won't wait until the VAT receipts start rolling in to spend the money.

The bigger challenge for them will be finding 6500 extra teachers to recruit, given that there are currently 2000 unfilled teaching vacancies. The breakfast clubs will hopefully be easier to implement.

We have given many thousands of pounds to our DC’s schools over the years. Also undertook PTA/governor roles and if you look at our hourly professional rates, that has been quite a contribution too. Some parents do.

Some may but I can guarantee that the majority do not.

Unfortunately, the costs which result from the policy won't be very transparent:

Opportunity cost, where falling pupil numbers could have resulted in a better teacher/student ratio and more resources per student in state schools for the same education budget... lost with private school students swelling the state school numbers, who need to be paid for from the same budget.

Lost income tax from parents making different decisions, which will just disappear into the budget.

Lost economic revenue from poorer education outcomes from children with disruptions to their education, completely invisible.

I very much hope that in 15 years time, an economic think tank does an analysis of the impacts of this policy.

When France introduced a Wealth tax that cost them billions instead of bringing in revenue, economists quantified the losses and the tax was repealed. Unfortunately, I think this one might be harder to quantify clearly. But I really hope they manage.

Is anyone keeping tabs on how many times Labour is planning to spend the VAT on school fees?

So far I have heard: 6,500 more teachers; breakfast clubs, and now 100,000 new nursery places.

It's like the feeding of the 5,000, or the famous Mumsnet chicken!

Yes the list keeps on growing 😆
Great considering the critics of IFS report warn of maximum income being 0.8-1 billion and if 10% leave then the income will be £0.