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.

That’s a 20% rise over five years…very different to a 20% rise in one year (it may be more than 20% as there could be the usual annual increase on top) plus parents have had to deal with all the other increased costs and as people are coming off their previous mortgage deals the increased interest rates are starting to bite. I have had DC in private school for 10 years and it’s only this past 12 months that people have started to complain about costs. A third of my DC’s year 6 are transferring to state in September rather than continuing with private senior. The outstanding comp closest to the school has become one of the most oversubscribed schools in the county this year!

A third!?! I understand why, but I didn't think it was quite that many families that really couldn't find the money.

Yes! We always lose a few to the super selective grammars but lots more children leaving this year than normal. It’s an all though school so most children usually continue into year 7. The school is also reducing its reception classes from 3 to 2 this year. It will weather the storm as it’s a large school and has grown quite a lot since my oldest started there 10 years ago. However, I fear for some of the smaller schools.

Year 6 is a natural point where parents are more likely to withdraw children from private particularly if the secondary is selective. This won’t be representative across the board and might not impact the secondary — eg DS’ day secondary is now receiving applications directly from other more expensive private schools and so attritition from their private prep doesn’t impact it.

Yes it is a natural point for children to transfer to other schools but I have had DC at the school for ten years and I have never seen so many leave. It is selective but they are looking for children who are average or above and there are plenty of pupils with SEN. The only current pupil that I am aware of that don’t get a place is very intelligent. It was his poor behaviour that meant a place wasn’t offered.

Ah, you have a grammar option! Makes perfect sense now.

Yes but three times as many pupils as usual are going there this year plus lots to the now very oversubscribed comp nearest to the school.

@Dibblydoodahdah
It's actually a 20% rise over three years, not five. From 2021 to 2024.
Either way, who said schools will add 20% in one ago, if at all?

Oh well you said pre Covid so I assumed that you were referring to 2019. As for whether schools will have to pass on the full cost, it will very much depend on the school as to what VAT they can reclaim and what other savings they can or cannot make.

They didn't increase their fees at all in the first year of Covid 2020/21, not even in line with inflation, to give people a chance if they'd lost their job or been made redundant. There was a small increase in 2021/22 and a massive 10% increase in 2022/23. Then another small one in 2023/24.
They have said they'll have to pass on the VAT increase to parents but they'll do it gradually.
I can see how this is inconvenient but if it helps state school get better then I think it's a good thing and I'm saying this as a parent of a child in private education.

The great inequalities in our society stem from education. Any policy that effectively improves state schools must be a good thing.

Inconvenient for some, impossible for others. And I do not believe that it will improve state education at all. If it does raise any money (which I also think is unlikely), it will not be enough to make any meaningful difference.

You find it just inconvenient to have a 30-40% rise in your school fees between 2021 and 2025/26?

My DS finished private school last year. I now pay the 20k I would have paid in fees into a pension account. The government pay in 5k tax relief at base rate and I claim another 5k tax relief when I file my tax return.
If I’d had to withdraw DS from private school due to VAT, the government would be down 5k in VAT and another 10k tax relief on pension savings.
Most parents are not going to fritter away the money they used for school fees, if they are no longer needed they can be put to good use in pension.
The thing to remember is that they have always been ring fenced so will not be missed. So you either carry on working and find a tax efficient way of making them work for you or you reduce your hours. Even on reduced hours you are still netting considerably more income without school fees.
I took early retirement and now work one day a week. The reduced income means that DS can access almost full maintenance grant while at uni.

Whenever I hear the Tory catchphrase ‘Politics of Envy’ I am always suspicious it’s a post by a media worker from a political party.
OP we are talking tiny numbers in the scheme of things. It’s really not on most people’s radar- only the private school parents of MN.

I am not sure the argument holds water. I know a few people that send their children to private school. Generally they are very frugal with other purchases and prefer to keep their money in the bank.

The opportunity cost point is an interesting one but I think comes into play for people like me who are considering private secondary in a few years time. If I had a child already in at key exams I’d do anything to keep them in but it’s a different decision choosing to start knowing you’re potentially tied in for 5-7 years. If we pay fees, other spending would need to be managed tightly, if we don’t we’d most likely be putting more into savings/pensions, saving for house deposits t
for the children foreign holidays- all expenditure that isn’t going to benefit the local economy.