Scroll on if you prefer - VAT and opportunity cost

[Lovetotravel123]

Yes, I know it’s yet another thread on this topic, but I wanted to draw attention to an element that doesn’t seem to have been mentioned yet.

So, considering that a lot of families who send their kids to private school aren’t super rich, it means that if they have to pay VAT on school fees they have an opportunity cost on other things. It means that they can no longer spend money on other items that would have attracted VAT anyway. So, the net effect is neutral and whether it is tax on fees or tax on a holiday, it doesn’t matter.

Of course, there will be those who are richer and have less of an opportunity cost, but even if they keep it invested then it attracts capital gains tax.

I am definitely no expert on this and so those who are more economic- and tax- savvy than I am are welcome to explain why this would generate more revenue.

I’m just thinking that if it doesn’t generate more tax revenue then it is a policy just about envy.

Getting desperate now OP

If they don’t care about that on other items / massively over-inflated costs that impact consumer spending, why care about private schools?

I mean, think about the obscene amount of money spent on housing. That could boost the economy if spent elsewhere. No one cares about that.

If you went to private school, ask for a refund!

Not only is your maths flawed, your argument is actually against the point you're trying to make.

You are basically admitting that it's not a case of VAT being unaffordable, just that other optional luxuries might have to be compromised to pay it

I very much doubt that the whole 20% will be past on by most schools, given that fees have been rising for years anyway and the VAT option has been a possibility for some time. I think it would be very poor planning on private schools If they haven't taken this into consideration in recent years.

OP let's implement the policy and just see what happens.

Sigh

You don't make sense
Sau school fees cost £100 a day for ease of reckoning .
Imposing vat hives a yield of £20 gor those who stay in private.
Not imposing vat gives yield of £20 x20% £4 if they spend vat saving.
Parents withdrawing from independent generate vat of £20 if they spend it all on other things.

I didn’t go to private school. Please explain why the maths is flawed, as I genuinely like to learn. I’m not here for an argument; I am here to see if my theory is correct or if I have missed something.

Yes, my point isn’t that it is unaffordable. It is that it won’t bring in more tax revenue for the government.

By itself the VAT rise will only affect the poorest private school parents - ie the ones already struggling with fees. But Labour are also planning to raise income tax (and National Insurance), raise corporation tax, and tax pensioners. So as part of an overall tax strategy I’d be shocked if it doesn’t result in the highest earners leaving the country.

Cutting holiday expenditure is a net positive for the U.K. economy if money is spent in the U.K. rather than abroad. Similar for second homes abroad, and benefits for communities if there are fewer U.K. second homes.

In the last 20 years, private school fees have increased by 50%, and the number of kids privately educated has stayed flat.

Sorry, my response was a bit flippant.

So if fees are £1000/month. Introduction of VAT will mean an additional £200 to the government.

To be neutral people would have to spend £1000 less which doesn't make sense. If they spend £200 less then the VAT loss is only £40. So in that scenario the government is £160 up.

This is absolute rollocks - do you work for Rishi Sunak?

Labour have ruled out income tax rises, NI rises and VAT rises other than those specified in the manifesto.

You have been reading some made up stories on FB I think.

Well, given that droves of privately educated children are apparently going to be flocking to the state sector as a result of this policy - that is, if you believe what you read on MN - it seems that there will be an awful lot of ex-private school parents around with a sudden surplus of disposable income.

As many have assured us that they have had to sacrifice all manner of luxuries to be able to afford the private school fees for their kids that they will no longer paying, one might expect that they will start treating themselves with some of the money that they're saving. So I expect it will cancel out the loss of spending from those who choose to pay the slightly higher fees.

What's your evidence for saying that Labour are planning to raise income tax and National Insurance, given that they have explicitly said that they won't?

Is this taken straight from Rishi's little book of lies, or did you see it on a bus somewhere?

Well, your theory is flawed if it means families now won't be able to have foreign holidays. The money would mostly have been spent out of the country anyway.

Well, not a tax expert. But say (for instance) I buy a coffee. The government gets the 20% VAT, but also (rather importantly, I'd have thought!) the coffee shop gets my business and employs people! Of course, I could just hand 100% the price of the coffee to the government, and make myself a cup of instant at home. What I can't do is spend the same money twice.

The IFS report that Labour rely on as evidence of the fiscal impact of this policy assumes that if people remove their DC from private school they will use the spare cash to spend it on other VATable items. I think this is flawed because lots of private school parents are very financially savvy and their focus on work is often related to paying the fees. I think it’s more likely that they will pay down their mortgages, put more into pensions or work less hours (or a combination of all of these). Getting to your point, I do think that some parents will also cut back on items which will result in less tax being generated whether that be VAT or income tax for the people providing the service (e.g. cleaners).

All depends on what the alternative case in. So far we have focussed on parents pulling a kids out of private school because of the VAT increase. In that case, the parents have more disposable income but there are unemployed teachers, groundsmen, cleaners etc as the school has reduced its staff.

Now consider the case of parents who decide to stay in private despite the VAT increase. They will perhaps put less in their pensions or ISAs, slowing the growth that the country so desperately needs to repair the damage of 14 years of misguided economic policy. These parents will also probably avoid or delay big discretionary expenses, continuing to drive a decrepit old car, making do with existing appliances etc. They will certainly reduce eating out, going to the theatre etc. Hardly big sacrifices, I know, that is not the point. The point is that they will spend less in the economy and therefore again growth will be depressed for longer. When the kids finally finish school, those parents will have fewer savings, lower pensions etc, so their ability to contribute to the economy will continue to be lower for a number of years.

I think OP makes an interesting point.

Well, assuming that the first thing to be reduced by parents is what they spend on holidays, the VAT take by adding it to the cost of private school fees is very likely to increase. A £20,000 holiday generates very little VAT for HMRC. There’s no VAT on most public transport, including flights, and the government gets none of the VAT applied to accommodation, car hire, food etc when the trip is outside the UK.

This has appeared in the WhatsApp group of parents of kids in my son's year group at a private school. I despair! I work with seriously poor people who have not had any luck in life. I have no patience, no time and no sympathy for people who have £20k disposable income (that's how much the fees at my son's school are currently) who are plotting to waste resources like this. How selfish can you get!

Of course I'd rather school fees didn't go up because of Labour's plan but I have the common sense to see it in the context of far bigger issues with the education system. My older children were in state school and although they've done very well and gone on to great unis, they had long periods of rubbish supply teachers in the middle of GCSE preparation due to staff shortages amongst other things which were due to chronic underfunding.

"Hi everyone,

I have been speaking to numerous people about the VAT increase and wanted to share the following as parents at various schools are becoming much more active with this becoming a very real issue. I thought you would all be interested in hearing this.

In short, the best thing for us to do is to tell all our friends to register their child for their local state school. The reason being that the National Union of Teachers (NUT) are getting worried about not being able to provision children joining state and they will lobby to government. It’s important they start panicking about the flood of applications coming in and the reality of the situation - even if you have no intention of moving your child.

The most likely scenario is that NUT will block it if they start seeing the reality about the number of applications for state school places. Therefore if we can all make a concerted effort to email our councils and enquire about a school place for September 2024 we can hopefully help to make waves with this.

If you are also worried and would like to, please email your relevant council.

Write something along these lines. (please don’t copy paste word for word but feel free to tweak the below email)

To whom it may concern,

Childs Name + DOB

I’m looking for a place in for my child to start school in September 2024 due to having to remove them from private school if Labour add VAT to fees. Please could you tell me what options I have and where there is availability?"

VAT on school fees is a people pleasing policy which will at best be neutral. In speaking to people, most would put it in their pension or savings if they move child to a state school, occasional holiday and maybe tutors. So most won't be spent in VATable purchases. But mostly, people will stay where they are and reduce spendings in other areas. At the same time schools won't feel the need to offer bursaries or discounts/scholarships, making private schooling even more unaffordable. Not all schools will be able to absorb the increase and it is a huge risk for smaller preps, so government might need to find school places for those children.

It won’t bring in any money. I posted a link on another thread to a study that says it won’t bring in any money.

Much more sensible in my opinion to do what the previous Labour manifesto said - the state takes over all private schools and ends private education altogether.

But this makes a catchy headline and as evidenced on here is very popular with lots of people.

The reality is Labour are going to win and this is going to happen.

Nope I disagree.
My son's school fees have gone up from £17k pre Covid to £20k in the current academic year due to higher inflation, increased food costs and higher energy bills. No one has put up a fight and they've just absorbed the cost in other ways. The number of parents who have had to take their children out due to this "natural" increase in fees is tiny.

Yes, I agree this is a really childish move, but some of the parents are your school might have saved up for years to be able to afford to pay the fees and might genuinely be panicking. You just don't know other people's financial situations.

Yes, exactly, that's a big rise already. Now add on another £4000. People's mortgages have gone up, their car insurance, energy bills. If you're not starting to panic, how much disposable income do you have???