Labour confused and arguing among themselves over VAT on school fees

[Another76543]

This policy is getting more ridiculous by the day.

We have the shadow Attorney General who doesn’t understand the basic concept that the VAT position and charitable status are entirely separate issues. She also doesn’t understand that it’s parents and not schools who will pay the charge.

“the question is, is it appropriate in these circumstances for schools, such as in Eton or Winchester or whatever, to be seen as a charity and that, therefore, they should not be paying VAT on the huge fees”

This statement is factually incorrect on two things.

She also seems to think that any money raised will be spent on breakfast for children. The potential money has already been allocated to new teachers. They seem to think they can spend the same money twice.

https://www.independent.co.uk/news/uk/emily-thornberry-labour-institute-for-fiscal-studies-education-secretary-winchester-b2559439.html

The Party are also now fighting among themselves over this proposal.

https://www.independent.co.uk/news/uk/emily-thornberry-bridget-phillipson-labour-david-lynch-london-b2559684.html#

“sign of divisions within Sir Keir Starmer’s party over the policy”

It’s not their interests, it’s in the interests of their children. I’m not a private school parent or Tory faithful and it’s not scaremongering if it’s something that could have serious implications for your child.

I have to disagree as it think they have quoted it as private education, and even mentioned Eton/Winchester, to make it sound like they are getting at the rich. That’s why I see this as a policy of envy and cannot vote for it as it is trying to stir up social class hatred. The comments on this forum are the perfect example for that. If parents on here project that hatred so it is picked up by their own children, I feel very sorry for any former private school child who could be subjected to the same hatred/bullying in a state school if they needed to move there.

Oh dear. I've done my homework. Your post is really "special" even by internet forum standards.

"Hahah, yet you didn't include the cost of the tax breaks for the private schools?" Yes, hahah, if you read to the end, I did and showed how you can compare the two. However, hahah, it's not a tax break it's just part of the tax system. But if you must, the net saving is around £5-8k per pupil if I generously pretend the VAT is a cost.

"The mental gymnastics you took to get to the 8-12k figure saved do not include tax breaks given to private schools as a net cost to the exchequer, therefore are wildly inaccurate." It's not a cost to the exchequer, it's just a tax that doesn't exist. And I couldn't have been clearer or more evidence-based. Which of the facts don't you think is true/valid, and why?

"Private schools also get to reclaim VAT on purchases, yet you haven't included that." Really? I bet you a million billion pounds they don't.

"Average spend for 24/25 is also estimated, not confirmed.#" WTAF? it's from the government website, it's the per-pupil cash allocation. What number/source do you think we should use?

I have one state secondary within 6 miles. It is rated by Ofsted as Requires Improvement across all areas. That isn't unusual in rural areas.

Private schools also get to reclaim VAT on purchases, yet you haven't included that.

They can’t reclaim VAT at the moment.

The top 1% of income earners already pay 30% of all income tax revenue a higher share than at any time in past twenty years. In other words, three in every ten pounds that the government receives in income tax is paid by just over 300,000 individuals.

30% sounds like a lot, but they also earn approx. 25% of all income earned in the UK. In other words, 1 in 4 pounds earned in the UK is earned by just over 300,000 people or 0.9% of the total workforce.

Their tax equates to 22% of their income. (And none of these figures include anything outside income tax, such as Capital Gains or Dividend tax - which are lower rates). 22% is about the same % you'd pay on a salary of £70k per year.

It can seem like they are shouldering the biggest burden, but %-wise they are not any more taxed than someone on £70k a year. Those that earn their money in ways that don't attract income tax, are likely to pay less in term of % of their total earnings. And they earn a massive % of all UK earnings, despite being such a small group.

It's really quite striking, isn't it.

But as I said, I have no doubt that the PP concerned will never have voiced even a hint of their attitudes to their own DC, and all will be completely unprejudiced and open-armed in their welcome of any former private school child who enters their orbit.

The only redistribution of money this policy will bring is from private school parents to travel agents, car dealerships, and fund managers.

The net tax take will be close to zero.

I don't think I've ever talked to my children about private schools. We talk about a lot of things, but it has no relevance to them. If they had a new child start at their school I would encourage them to be friendly. We don't have loads of private schools here though, and we don't have a grammar system, so which school you go to isn't such a divisive issue

I'm not sure why you are so convinced that it's hatred and envy. I don't think private education is a good thing, I don't think it's fair, but I don't hate the parents or children. I'd like to have enough money to have more choices, but I'm not envious.

If there is an exodus as reported (despite the fact there haven't been over the years of inflation of fees) there might be some richer grandparents, a lot of private school parents seem to be on the recipients of that sort of benefit payout. I wonder what they will spend the money on?

@Wetellyourstory

"It’s not their interests, it’s in the interests of their children"

Which are one in the same no?

There will be no VAT on nursery fees or extra curriculars etc, that is just scaremongering.

"That’s why I see this as a policy of envy and cannot vote for it as it is trying to stir up social class hatred"

Oh please, it is not the politics of envy. It's fiscal policy designed to decrease inequality. "The politics of envy" is just a way to dismiss what is quite a well though through policy which raises tax revenue which is being hypothecated into schools spending.

"They can’t reclaim VAT at the moment."

They can on some things with charitable status, can claim 5 % VAT on some things and 0 rate VAT on others such as construction and scientific equipment, as well as imported goods.

To help you out of your muddle. Schools that are charities pay 5% rate on fuel which they cannot reclaim because you can't reclaim VAT where there is no VATable supply.

Some schools provide some VATable services on the side and those can lead to VAT reclaim. Almost all schools' income is not VATable therefore there is almost no reclaim to be had, and none on the construction of new buildings.

VAT considerations for schools | Crowe UK

That's what they would do with the money they saved if they took their children out of private school. I'm talking about all the things I won't be able to afford if I need the money to pay VAT. Unfortunately, I won't be cutting my Sainsbury's budget. It will be small local businesses that I won't be using any more.

If I take mine out due to the education tax, 100% either I or Mrs Chips will be cutting back work immediately.

Either we manage to get into the good (but oversubscribed) state school that's 30 minutes drive in the wrong direction for my current job, and I won't need the money anyway.

Or I'll be homeschooling which, by the way, I'll really enjoy.

Either way it's a very large reduction in income tax and NICs that I currently contribute to state schools I don't use.

I have worked in school finance in both sectors for twenty years and am also a tax specialist by training . Independent schools cannot currently claim VAT back . Perversely if the Labour policy goes ahead as advertised they will be able to the the future , this isn't worth much to your average local independent as they don't suffer much VAT but it is worth a lot to the big names to spemd a lot on capital projects

I have no children in school but this is a nonsensical policy. It will raise very little and is based on the politics of envy. It is so frustrating when there are so many real problems in education especially in special needs education and all the parties are completely silent on that . We have the most unhappy teenagers in Europe and have completely commercialised education via the academy system , where academy chains are syphoning off funds to directors and administrators. But instead of tackling that which affects well over 50% of children , they are focusing on whipping up class division.

Nowhere have I ever mentioned nursery fees or extra curricular so not sure why you mention that. In my area, parents send their children, through choice, to pre-school prior to attending primary school. Morning or afternoon sessions, ran either in village halls or as a separate session in nursery settings and not linked to any school (private or state). These are private entities so I believe it’s a valid question to need clarification as to whether these are classed as private education. They follow the early years framework and are inspected by ofsted in the same way as pre-schools linked to state schools are.

I beg to differ about this proposal decreasing social inequality as only the very wealthy may be able to afford the increase, thereby increasing the gap.

Worth noting that only 60% of independent schools are actually charities and that Labour are not proposing to change the reduced rate of VAT (not a reclaim) on electricity and stationary . So in the future they will be able to claim 100% , just illustrates how ridiculous this is .

@MisterChips No muddle, I've stated that above :) and of course they do benefit from 0 VAT when building new accommodation ( so there is the ability to claim it from construction).

I do note you went to lengths to prove your point regarding the 8-12k

I'll just do one thing, the average VAT for a school fee in the UK would be about 3200 ( the average of the primary school and secondary school averages)

Take that from your top figure of 12,000 and you have 8,800.

This is before you count in discounts from business rates, the VAT exempt status on several things, which would lower this below the 8,000 limit.

Of course, I'd also wager that the the private school figures are calculated across the total private school population, forgetting that 5% of students come from abroad with their parents living there. I'll use this figure and be generous because there are another 5% whose parents are foreign nationals and the students were born abroad who study at private school, the likelihood is that these students would not have access to state school places either.

This means that the estimated saving to the exchequer has to be lowered again. So, yes. I stand by my "wildly overestimated" just from the cash figures alone.

I'd also say that if we're doing a true cost/benefit analysis we should look at other costs and benefits too, but we'd need shadow pricing for that, and it would be too complicated for MN discussion.

" In my area, parents send their children, through choice, to pre-school prior to attending primary school. Morning or afternoon sessions, ran either in village halls or as a separate session in nursery settings and not linked to any school (private or state). These are private entities so I believe it’s a valid question to need clarification as to whether these are classed as private education."

Then I'd imagine it will.

The 0% rate is of limited application in mainstream boarding, and It’s a very complicated area and there have been several high profile cases involving VAT precedents . Also boarding schools are very much the minority of independent schools . The bulk of independent school capex is on sports facilities and theatres , arts complexes etc and all of that is standard rated . Currently this has been a cost but as VAT is a tax on the end user will be reclaimable in the future .

There are very few school nurseries where I live , the majority of nursery provision is via small private nurseries . Labour have acknowledged that there is a massive shortage of school nursery places which they propose to solve by converting redundant classrooms in primary schools .

Conservative HQ are contantly posting on MN now. I wish they would be more open rather than try and pretend to be regular MN users.

@ThursdayTomorrow

I'm not sure they're ConservativeHQ but I do think it shows a very good example of just how vocal, and influential, those who send their children privately are.

This has been a regular topic of conversation for a while and has been front page news.

Those of us who have been campaigning against the difficult situations in some state schools would love to have got this level of attention.

I think most of the 'exodus' will be in the form of families who choose not to start private (or do fewer years) rather than existing families who leave - although some who did earlier years might leave at a sensible transition point like Y7 or Y12.

So in many places it won't be obvious: except that private school numbers will shrink more than state school numbers over the next 10 years or so. (In a few places - like Edinburgh and Bristol - the numbers may be high enough to be very obvious unfortunately.)

Many who choose never to start private will keep one parent working part-time instead of full-time. Lots of families have the Mum working 3 days per week from when the kids are born and taking kids to activities (I'm sure you know some. It's nice: less stress for the whole family). Private school for 1 child is about the difference between a parent with a professional job (like doctor, dentist, accountant, solicitor) working 3 days/week vs 5 days/week. So going full time to fund private school is currently an option for those parents, especially since private schools facilitate full-time work with longer days and extracurriculars available at school. So if they don't make that choice (ie to increase hours to fund fees) then they won't actually have any 'extra' money in their pocket to spend: they just won't shift back to full time. They might not even realise it's VAT which has taken away the option. The big downside for the government is that they won't get that extra £13k per year income tax (as well as the government now having to fund the DC's education). And there usually aren't enough people with those skills as it is, so the job won't go to someone else: the work just won't be done, with impacts on the economy/growth as well as income tax.

Others - maybe those who prefer working full-time anyway (I'm sure there are some!) or are saving mutiple kids fees - will choose to put extra money into their pension. That actually has income tax consequences both immediately and also because a bigger pension will allow them to retire earlier: reducing income tax at a later date too.

Or buy a bigger house. Or one in catchment for a better school. Especially over the next 10 years or so, as people with kids just being born now make different decisions about their medium/long term future. So the government may get say an extra £20k stamp duty per family (total) in some areas with good state schools (family home in the £1mil band, prices increasing £200k due to increased pressure on catchment). But I suspect the £20k stamp duty going to the government now may be offset by lower income tax in 20 years when they downsize and use the house price growth to retire earlier.

There will probably be some extra spending on goods, maybe cars and electronics, which does attract VAT. Personally I don't think it will be a high proportion of the 'money not spent on fees', but that's a gut feel based on my own priorities: it will obviously depend on the family.

Holidays are likely to take more of the 'saved fees' than consumer goods in that income bracket I think (although that might just be my own preferences!) but still not as much as reducing work and investing in pension. Holidays don't attract VAT but would at least be neutral for income tax (ie are still money spent, which they would have paid income tax on - like fees).

None of those different outcomes seem worth the downsides and the risk. If 10% of the children who were in private schools or would have gone private go to state schools instead, the government will have less money than if they hadn't added VAT to education. So they will have to cut some other state spending they could otherwise have paid for. That's bad for everyone: whether it happens next year or whether it gets progressively worse over the next 10 years as the change filters through.

but why haven’t you? There have been numerous threads started by teachers on MN . It’s interesting that these threads are populated by posters defending the state system and claiming independent school parents are fools whilst there are just as many if not more threads bemoaning the torrid state of the state education system . If you read teachers threads on here they paint a horrifying picture of day to day life in the average state school . Why are we not focused on that , this policy will make no difference whatsoever to state schools in the U.K. It won’t stop me voting Labour but I do wish we could focus on the real problems faced by the majority of schools and stop this stupid tinkering at the edges.

I'm not any kind of shill. I'm just really pissed off that a badly thought-out, populist policy is likely to be passed which will hurt me and which I believe is likely to cause the 10% drop which means it will also hurt everyone else. So no positives. Just for stupid, political reasons.