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”

@MyNameIsFine

Oh dear, so many remarks about my comprehension on here and then this:

"I'm not sure where you got the 2.5k from. 6 divided by 12 is not 2.5k"

I wasn't dividing their savings, I left this alone, this was the figure (30k) which was given by the previous poster for spending on everything else other than school fees, mortgage. It included holidays.

Are you seriously suggesting that someone with 2.5k a month to pay for everything after mortgage, school fees and savings, can't find a way to come up with 300 pounds ( which is 20% on the average school fee) if we even use the IFS figure of 15% and the posters figure of 25k fees, it asks them to find 312 a month.

This family has nearly as much money to spend after housing and school fees as the median family has before, and we don't think there is some flex in this budget?

Never argue with stupid
Especially zealot

Those remortgaging to cover fees are unlikely to be very wealthy. They will remortgaging to pay a tax penalty, to apparently fund the state education of others (including multi millionaires who use the state sector), whilst at the same time saving the taxpayer thousands a year by not using the state system themselves. Perhaps we should be encouraging everyone in the middle income bracket to remortgage to fund a tax aimed at improving state schools.

@nearlylovemyusername

I'm not stupid nor a zealot. But again, well done on the personal attacks

I just really don't think the disaster warnings of the impacts of this tax are anywhere near accurate.

Most households will just absorb it.

I agree, it sounds a lot.

It sounds a lot because it IS a lot.

Is 7k a year a lot when you were already spending 36k?

For many families, yes it is a lot. It’s like saying a family who’d saved for an item costing £3600, would then have no problem finding an extra £720 for the same item.

But that's it isn't it., most families aren't saving for school fees, they come out of direct income and 7,000 extra in income means ( using the IFS estimate of 15% passed on) that these people are spending nearly 46k on school fees for two children!

What a trooper.

This really isn’t the reality in many cases. Many families have planned and saved for private school long before they actually start. Some parents start saving before the children are born. Some start saving when the children are born, in preparation for primary. Some start saving at primary level ready for secondary. It’s like university fees. Families don’t just get to the beginning of university and suddenly find the money. Many families have been saving for years. Some might come out of income, but savings are often used to top the fees up. You really don’t appreciate the different types of families at private schools.

You can argue that £7k isn’t a lot of money as much as you want, but the reality is that it is a lot of money to many families. Also, £7k is the average for 2 children. Secondary fees are often far in excess of that figure, so in many cases the VAT figure for 2 children will be into 5 figures.

Wrong again.
Everyone I know who chose private planned and saved for years beforehand, as we did.
Yes some parents can afford it out of their salary or have inheritances they can use or grandparents pay but please do not say "most" because it just isn't true.

Just stop replying to him (I think we've established it's a him by now). He's would everybody up, he's had his fun. Time to stop feeding the beast.

@twistyizzy @Another76543

Some, not all, are saving for private school. But all of the calculations that you have provided here have the full fee coming out of direct income.

But again, household income is the biggest determinant of whether a child attends private school.

and I agree, that this is going to impact a small minority of parents who aren't higher earners who have made savings/already juggled household income as much as they can.

But these are not the majority of private school parents, and even then they are not as people routinely depict them "average middle class" parents.

I mean this alone: " Secondary fees are often far in excess of that figure, so in many cases the VAT figure for 2 children will be into 5 figures."

The average secondary fee is 18k. The 7k figure for two children would have one family spending over 46,000 on school fees alone already.

Again, where have I suggested otherwise? I understand that this issue is divisive but not everyone is looking for an argument.

Actually, we could well afford another child, or two. We have not even contemplated it with the fee situation, but you have a point. I still have 3 frozen embryos that might need reconsidering.

It is not really about loads of people pulling their children out of private education immediately. Some will, but very few I imagine. Some will be able to afford it. Some will limp on, maybe getting in debt etc until the next sensible leaving point (we will for dc 1). But far more will opt for state at the outset (we will for dc2- we will move to achieve the school we need). Or switch at a sensible point (dc1 will be in the appropriate catchment by switching).
So it may raise money in year 1. But it will be very short lived. Every year it will bring in less and cost more as numbers shift.

Then there is the income tax loss that is inevitable. People working 2 jobs, working extra time etc to manage won't need to once they need to call it a day. I only work because of school. I know many others like me who will reduce hours once they move to state.

Because the numbers don't add up and ut will end up costing money?

@Snugglemonkey

That depends on who's numbers you believe doesn't it.

As far as I'm aware, the % of households that privately educate their children only goes up to 5% and above once you are in the 95th percentile of household income. For many, many families it isn't going to make a major difference. It may be very small numbers migrating.

I'm not looking for an argument either. Sorry if it came across that way. I was just pointing out that one way to ease the overstretched state sector is for people who can afford to to take responsibility themselves. I think I was kind of expecting you to agree with me, actually. But fine if you don't.

Another option is for local councils to ask parents to make a voluntary donation. Apparently this sometimes happens in some parts of the US - a kind of government fund raising initiative, but asking people for the money, rather than raising taxes. I think it has mixed results. But don't know if that would work here. We're a very different culture from America.

But it doesn’t require very many to leave before it stops generating income and starts costing the state. The vast majority can remain in private and yet VAT would still be revenue negative. Adam Smith puts the break even at ~10% reduction, and while we can debate exactly how we calculate that threshold, even a simplistic assessment shows that any migration + reduction in new starts has a significant impact on the financial calculation as the whole policy is premised on no one changing behaviour in the face of a very significant tax change.

our school has seen a significant reduction in enrolment at reception and y7 this year, which is probably a combination of general financial strain as well as trepidation over vat. Total school numbers down modestly (probably in line with ifs report of 3% reduction in enrolment), but if we see similar levels of enrolment at those key transition years continue it would mean a 30% reduction in enrolment over time.

we will stick for as long as we can, but 1) we will almost certainly look at state for secondary and 2) that choice might be taken from us if numbers drop too quickly and the junior school closes.

I doubt it. Much of it is down to individuals generating business and being self employed. There won't be any recruitment for a replacement.

It is not about the migration. That is just a fraction of the cost. Few will migrate for people in the system. They will mot want to disrupt children and will hang on, remortgage etc. Until the nearest sensible exit point. So you won't see mass migration, but a leakage for years

Then, what they will not do is send the next child etc. This tax only earns money if less than 10% quit, and they may not. But the lower uptake year in year rapidly diminishes the tax revenue and increases the strain on the education budget. So any gains will be significant in Yr 1, but where will they be 5 years in? Costing money. Lots and lots of money.

For those believing that money saved by people on not sending kids to PS will be spent elsewhere and still materialise in VAT - it's a huge drive and aspiration for parents to work and save and sacrifice as needed to give their DCs what they perceive to be a great education. There isn't as much drive to make the same effort to be able to buy more stuff and better life balance will take priority for many, especially women. I'll move heaven and earth to give my DC better future, I won't move a finger to buy a new handbag etc. This freed time will also help parents to support their DCs outside of school. Over time this policy will most certainly lead to proportion of mid-high earners working less.

For those believing that those jobs will be taken by others - there is huge skills shortage in the UK. In this context we are talking about highly skilled professionals and business owners. I mentioned on another thread that normal policy for businesses is to recruit for such jobs at a lower starting salary than experienced leaver had, this is practice for most large corporate - they do culling off on a regular basis and recruit a bit later but on lower packages. So overall tax take decreases.

But, even when new people take these jobs (assuming they won't be moved abroad) and reach the same level of packages, they will still hit those cliff edges plus the entire spectrum of tax rises which Labour will introduce, e.g. reduction of annual pension contribution limit, reduction of pension relief rate, likely cap on ISA, CGT increase etc. And will face the same dilemma - is this worth it to work yourself to the ground if there is a very diminishing return?

"But the lower uptake year in year rapidly diminishes the tax revenue and increases the strain on the education budget. So any gains will be significant in Yr 1, but where will they be 5 years in? Costing money. Lots and lots of money."

That's one view, others might say that there will not be any real increase in the costs due to falling rolls in primary schools which will be replicated nationwide and further up the scale later.

As others have suggested that "lots" of families save to be able to afford private education, it may also be the case that people make changes to current expenditure to be able to afford the increased fees in future ( in fact due to rapid fee rises over the last decade or so they may have had to do this anyway).

Where did you see the figure that 10% or less have to leave in order for this to make money? I'm not sure that was in the IFS study, although I may have to re read it as it was quite a while ago I did.

@Snugglemonkey

I see we are at the "we will quit our jobs and pay less tax that way" stage of the threats then.

I think some people will reduce hours if they no longer have to pay for private education, but I don't think this will be a large cohort of people so the impact will be negligible.

As is suggested here that private school parents make huge lifestyle sacrifices in order to be able to send their children to private school, I would expect there to be a corresponding rise in VAT paid on consumption for a while as families increase their living standards, and then this may taper off as pensions are paid into at a higher rate.

It might not be the case because higher income earners have a larger marginal propensity to save, as they have already achieved lifestyle goals, than middle and lower incomes, but then this would run counter to the "sacrifices" argument.

Most people working PAYE jobs are quite replaceable btw, there are skills shortages, but if you died tomorrow, they'd have replaced you in a month.

replaceable:

The NHS workforce in numbers | Nuffield Trust

"Staff shortages also vary considerably by region, with the highest percentage of full-time equivalent vacancies in London (11.6%) and the lowest in the South West (6.7%)"