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”

The real and more worrying growth is in children outside education completely where Government don’t even have exact figures! That is what a Labour Government should be focussing on urgently. It will soon be half the private school figure outside education and “homeschooled” - don’t those kids matter most and making sure their parents are properly supported? Why is a data base for this not an absolute priority?

There was a report by Baines-Cutler in 2018 (https://www.isc.co.uk/media/5926/isc-vat-full-report-1018-for-circulation.pdf) on the likely impact of VAT on school fees. What's surprising is how little has changed - their conclusions are very similar to the most recent reports by EDSK and the Adam Smith Institute. Specifically, they say a 17% contraction in numbers at private schools is "inevitable" within 5 years of introduction of VAT, and a 20% contraction is probable.
They project 134,000 pupils switching from private to state, 30,000 redundancies at private schools, and a net cost to the tax-payer of around 400 million per year, in perpetuity.

@Araminta1003 in our area approximately 100 children 'disappeared' from school after the pandemic.

They also need to factor in what the parents of this 17%-20% will do with the money that is no longer needed to pay school fees? Much of it will be paid into pension schemes, and because £31k of gross salary is needed to cover average school fees of £18k, this will cost the government an additional £13k in lost tax and NI.

https://hansard.parliament.uk/commons/2024-01-23/debates/BB759A20-57E1-4C7D-A1C4-97FE7D824A5A/ChildrenNotInSchoolNationalRegisterAndSupport

Has Bridget Phillipson forgotten about this? I didn’t see it in the manifesto (although I did skim read only so hoping I am wrong).

But if I am not wrong.

Are they scared that the VAT on private schools will lead to an explosion of homeschooled children?! So they are going to fail those currently homeschooled? And not even track it?

I strongly suspect that one year in Labour will reduce annual allowance (from 60k to 40k at best) and make it flat rate tax rather than based on payer's marginal rate. I'm also nearly certain that they will introduce lifetime caps on ISA and possibly reduce tax free lump sum which can be taken out of pension. This is all after they realise that non-doms don't wait patiently for "loop holes closure" and VAT won't introduce as much as they hope. This is all on the top of CGT and IHT.

My view is this will force many people in their late 40s - 50s in higher rate to reconsider work life balance and reduce hour dramatically or retire early altogether. If I can't give my DC leg up, can't pass much to them, all my savings taxed, what's the point? Unless I can jump to £200k+ (which I can't), the effort vs delta income ratio just doesn't work anymore. It's the same as £100k edge now, people drop hours to escape but there is always an option of pension. If this doesn't work anymore what's the point?

@nearlylovemyusername - whatever is introduced if tax take goes backwards then they will change it again. Just like the 50 per cent additional tax rate went back to 45 per cent quite quickly.

Regarding children though I don’t think people forgive and forget and that is my issue with this proposal. You can’t mess with children’s lives like they are pawns. It’s very different from a tax on bankers.

Exactly this.

I don't know why everybody is just accepting the "we will get 5bn or whatever from non doms". Non doms, these unicorn people whoever they are, are not going to hand the government 5bn. I imagine they will go off to Monaco, or wherever such people hang out. But they won't be staying here. And good luck to them really - I don't see why they should be bailing us out.

Absolutely! as always, you put it perfectly - they harm children and this is never forgive and never forget. The problem is it's going to be too late for current generation

I wonder why MHHQ allow people to call other posters "Tory HQ".

Troll hunting isn't allowed. If you suspect a poster is not genuine, you should report it to MNHQ so that they can look into it and delete the relevant posts.

The fact that MNHQ are not deleting the "Tory HQ" accusations speaks volumes. Politically biased volumes.

Here was my take on non-doms

https://open.substack.com/pub/mrchips4schools/p/on-non-domsand-ceding-the-moral-and?r=rco7z&utm_campaign=post&utm_medium=web

What will also happen: parents now receiving education for free at taxpayers' expense, with high marginal disutility of work will cut back hours, no longer needing school fees. The Adam Smith Insitute paper has this right. The IFS absurdly assumes 100% of school fee income will be spent on luxuries.

Despite the ridiculous stereotypes, most families just-about-affording school fees are neither buying luxuries nor are they desperate for them.

Younger families planning ahead will make their budget plans around what is realistically affordable. This affects their work incentives too. This is already happening. Everyone I speak to in law firms, consulting, accoutancy etc has a significant problem. Compared to 20 years ago, today's late 20s / 2nd or 3rd job on £70k or so, is more likely to want to move onto a civil service role, 9 to 5, WFH a lot, and aspire to own a maisonette and send kids to state school. Not enough of them want to slug it out on 70 hour weeks, winning bids and seeing if they can make a high-earning career out of it. Why? because the expectation of affording a decent house plus private school is seen as unattainable, even if they get to earn £125k or so. Taxing education only makes this worse.

Cue somebody telling us we don't need lawyers, consultants and accountants earning serious money in a global economy.

I think it just is their ONLY policy in general ……!

and here we go
China and Britain Face an Exodus of Millionaires, Study Shows - Bloomberg

@Aladdinzane any comments?

Read the report and global wealth is moving at a record rate anyway, says most of them are moving to the UAE.

These aren't the people I was discussing when saying that people are less globally mobile than they assume. Most private school parents are not this type of HNWI but more the owner operators of firms and very highly salaried.

The report puts this down to Non-dom moves rather than the above/

Saw on LBC that Starmer has said those with an EHCP will be exempt from VAT - so anyone with a SEN child who would qualify but has opted for private as a solution rather than fighting through the system is likely to be applying asap.

I have a SEN child who would almost certainly qualify for an EHCP if I went down that route. Having looked at timescales, costs and input needed to secure one, we opted to pay for tutoring and help ourselves. If DD was in a private school rather than state, and it was going to be thousands of pounds difference a year, we would have made a different choice.

These aren't necessarily non doms only though. A lot of business LTs moving as well.

So who will pay these £5.3bn tax? according to manifesto it's one of the only two (non dom loopholes and PS VAT) which will fund all services.
Any ideas? before we see reports of high earners retiring / reducing hours en masse?

For lawyers it is UAE and Saudi Arabia now - they are trying to poach the young and trained up lawyers and it makes 100 per cent sense for them personally because the Kingdom will even pay your private school fees and you can keep the kids at eg boarding school on top of that as well.

People in charge in these countries are not stupid and know exactly how to get our talent out. Dubai even has culture now as well. It is not the place it was even 10 years ago. Meanwhile here, things are getting worse.

Look if I was young right now I would be going for it for a few years. I would save a ton of tax and set myself up nicely. Places like Singapore etc are also attractive.

“So who will pay these £5.3bn tax? according to manifesto it's one of the only two (non dom loopholes and PS VAT) which will fund all services.”

These people are all leaving or the rich are paying up private school fees in advance (and those who cannot afford it will join state schools at the taxpayer expense - not to mention the huge cost when a ton of private preps all go bust which is happening already).
So this Labour manifesto is in truth unfunded. So keep telling the voter you will only do funded stuff, but then the funding does not come in! So either the pledged stuff won’t happen or the rest of us will have to pay for it! Which one is it going to be? They should at least clarify this point so the normal voter stops listening to Reform or the Tories.

The rich are always scared of being taxed when Labour get in. It does not help when they openly table two big policies on the rich. They get even more scared and pull the funds and investment out of the country! It is just bonkers to table symbolic policies like this against the rich in such an open manner when we desperately need inflows not outflows.

Saw on LBC that Starmer has said those with an EHCP will be exempt from VAT - so anyone with a SEN child who would qualify but has opted for private as a solution rather than fighting through the system is likely to be applying asap.

I may be wrong but I seem to recall they were saying that this applied to those children who are at a private school with an EHCP where no state school has the provision to cater for their needs, in this scenario the state pays the school fees. I’d like to know where they think these children will access their education then if these private schools close because of the reduction in pupil numbers.

They won't all leave,

Most if not all of the tax revenue will still be received.

I'm not concerned.

TBH I'm tired of the people for whom the country has been run for the last 14 years complaining and making threats.

You want to go? Go, don't let the door hit you on the way out.

Reduce your hours? Go for it. Someone will benefit somewhere.

More economic genius.

"take your skilled highly-productive labour away, the country doesn't need output or higher-rate taxpayers"

And that's what you teach children? god help us all.

“I may be wrong but I seem to recall they were saying that this applied to those children who are at a private school with an EHCP where no state school has the provision to cater for their needs, in this scenario the state pays the school fees. I’d like to know where they think these children will access their education then if these private schools close because of the reduction in pupil numbers.”

There are not enough SEN schools full stop - maybe someone is hoping they can get some ex private schools on the cheap and make them SEN schools to help solve the SEN crisis?

@Alladinzane “They won't all leave,

Most if not all of the tax revenue will still be received.

I'm not concerned.

TBH I'm tired of the people for whom the country has been run for the last 14 years complaining and making threats.”

What are you on about? The Tories have taxed most working people on PAYE through the roof!

Stop being so woke - it is not safe to want successful professionals to go to eg the Middle East and Asia. It is not just about macro economics, it is also about global security issues. This is not a question of being a Tory. It is also a question of supporting your own country and what is best for it.

"Stop being so woke "

Not woke at all.

"t is not safe to want successful professionals to go to eg the Middle East and Asia."

They mostly won't, it'll be a small minority.

" It is also a question of supporting your own country and what is best for it."

As said, the level of people leaving will be small, if any. Not worried about the ones that do, almost everybody is replaceable.