Labour’s private school tax raid ‘likely illegal’

[Zizzagaaaaaww]

Thought some may like to read this article

archive.ph/i1XD3

Sir Keir Starmer’s planned VAT raid on private schools is likely to breach human rights law, The Telegraph can reveal.
The Labour leader risks falling foul of European Court of Human Rights (ECHR) law <a class="break-all" href="https://archive.ph/o/i1XD3/www.telegraph.co.uk/money/tax/labour-private-school-tax-moronic-policy/" rel="nofollow" target="_blank">over his party’s flagship policy, one of Britain’s top constitutional and human rights lawyers has warned.
Lord Pannick, who has taken on some of the UK’s most high-profile court cases, backed legal advice warning that making private schools subject to VAT was likely to breach ECHR law.
He told The Telegraph: “It would be strongly arguable that for a new government to impose VAT on independent schools would breach the right to education.

“That is because all other educational services will remain exempt from VAT and the charging of VAT on independent schools alone is designed to impede private education, and will have that effect.”

The KC and crossbench peer said that the Labour policy risked breaching two articles in the ECHR which protect the right to education.
He referred to legal advice written in response to Labour policies as far back as the early 1980s, when the country’s most senior lawyers warned that plans to end tax exemptions for private schools or abolish the institutions altogether would likely breach international human rights law to which Britain is signed up.
Previous leaders of the party have floated the idea of taxing private schools as part of plans to integrate them into the state sector. Under former party leader Michael Foot, the Labour manifesto of 1983 pledged to “charge VAT on the fees paid to [private] schools”.
The policy to abolish the schools was eventually shot down by senior lawyers, who argued it could be at odds with the ECHR and spoke specifically about the risk of imposing VAT.
While Sir Keir has ruled out abolishing private schools, he plans to force the institutions to pay business rates and 20pc VAT on tuition fees.
In an unearthed legal opinion from 1987, seen by The Telegraph, the late Lord Lester and Lord Pannick, prominent human rights lawyers, concluded a government “could not lawfully prohibit fee-paying, independent education or remove the benefits of charitable status or impose VAT in respect of such education” while a member of the court.
A foreword to the opinion written in 1991 by Lord Scarman, who served as a Law Lord in the precursor to the Supreme Court, said it would “encourage a challenge which could be mounted by taking the argument to the [ECHR]… if ever a government should seek to abolish or discriminate against [private schools]”.
The opinion was jointly written by Lord Lester and Lord Pannick as advice for the Independent Schools Council (ISC) and later published in its journal. Lord Pannick confirmed his belief that the argument still stands today.

The overall net tax take created by the policy will be less than zero when the multitude of factors are added up.

I have worked out my own numbers and my choice of whether to use state of private for my DS will result in a 400k swing in total cost to the taxpayer depending which route I take.

I'm with you on the Arts. They should be accessible to everyone.

The students at RADA are funded by student loan, as it is a degree course.

Students at the Royal Ballet School (and several others, including specialist music schools) are accepted solely on talent, not the ability to pay. If their parents qualify due to income, they are eligible for the MDS scheme, funded by the taxpayer. It would be daft for the government to charge VAT on schemes funded by itself.

I agree but they aren't exempting these yet so they will be taxed unless they are exempted further down the line

It's estimated that this will lead to around 7% of private school pupils leaving, at most. The overall costs from one blip in EHCP applications certainly will not outweigh the tax take from the remaining 93%.

It isn't 93% of 7% though. The exemptions that already take the figure below 93% of 7% are:

• state boarding schools
• SEN with EHCPs and no known total for that
• potentially military
• 7-10% that will leave
• plus the % that won't even start due to this policy

VAT is often used to change behaviour and in this situation will do so. You therefore have diminished returns year on year.
If >10% of pupils leave then the net income is £0%.
The net income has to consider cost of implementation, legal challenges etc.

That's why we are saying that the income will not cover the cost of EHCP process.

Now add in changes in parental behaviour regarding income tax. As I suggested in my earlier post, if I choose not to send my DS to private school that will create a 400k deficit for the Treasury. It doesn’t take many similar cases to wipe out the VAT

@CatkinToadflax as the LA is in breach of the timescales, you can force them to act, including via judicial review if they ignore your other attempts to solve the situation.

7% -10% leaving from more than half of small schools (less than 100 pupils) would put them under and they’d have to close. In some areas you are then looking at 100% pupils then having to move to state school as there’s no alternative. I know people are desperate to have a pop at 6 year old Tarquin, but don’t dress it up as some virtuous act because it’s not. It’s simple spite aimed at children.

The chances of 100% of pupils in a failing independent school having to move to a state school really are pretty tiny. This isn't about having a pop at Tarquin, this is about a poster suggesting that the tax take on this will be outweighed by the expenses involved in the parents of some private school pupils with SEN applying for EHCPs.

Who said it would be 93% of 7%? It's 93% of all private school pupils.

She means that for small schools a few families leaving will be enough to tip them into no longer being viable. At that point the school closes so 100% of the children have to leave, even if most could have paid the VAT. If you live rurally, or in an area with few private schools, or the private school catered for a particular need, then those children are likely to go into the state sector. Of course in some areas there will be enough private provision for there to be a choice.

Where would they go if there aren’t any others in the area? What percentage of families would sell up and move? Why are you defending any policy that would result in school closures? Is your dislike for these children really that strong?

Not if the independent school closes. There have been several over the last month or so. Where do you think those kids go?

That’s a risk that anyone takes when sending to a small private school though. Most of them are very close to not being financially viable so there is always a chance the school will shut before your child has completed their education there. This has always been the case. More so since inflation, the cost of living crisis and whatever Liz Truss did to mortgages has meant schools have had to put their fees up and parents are less likely to have enough disposable income to pay them.

I don’t remember hundreds of threads bemoaning ‘will nobody think of the children’ though.

Yes that’s all true. It’s one of the reasons why the lower estimates of children moving out of the sector look unrealistic.

“Lord Pannick, who has taken on some of the UK’s most high-profile court cases, backed legal advice warning that making private schools subject to VAT was likely to breach ECHR law.
He told The Telegraph: “It would be strongly arguable that for a new government to impose VAT on independent schools would breach the right to education.
“That is because all other educational services will remain exempt from VAT and the charging of VAT on independent schools alone is designed to impede private education, and will have that effect.”

Ah well, since the because is incorrect his lordship is likely incorrect about the human rights law too. Not all educational services are VAT exempt.

In addition the human right to education is not a right to a private, exclusive education that is superior to the education for the 93% of children from less economically advantaged families,

To boarding schools.

How? You’re not paying the 400k to the Treasury now, so how is it a loss? If you send the child to state school, you will likely spend the money on other things- bigger house, luxury holidays & cars and these purchases will have some tax on them. Or you will invest the savings and then pay CGT on the earnings. Or you hoard it and there will be IHT when you die.

The Treasury is only losing out if they keep this tax free private school racket going.

But most of them would have moved out anyway. And lots of smaller schools will close anyway.

I can give or take the Labour VAT plan. But it’s a bit disingenuous to claim that this is the issue when it’s one factor among many. A lot of which have been directly or indirectly caused by the Tories.

Slight different between that and a deliberate aim to close down schools.

That’s not true.

Total fees for 14 years are 250k. I need to use 470k salary to fund this which is split 250k fees and 220k income tax. If I don’t use private school I put the 470k into a pension and pay no income tax on it.

I also don’t pay 50k VAT and the state has to spend 112k funding my DS 14 years at state school.

Total loss to the Treasury is 220+50+112 = £382k for one child.

Pension can be passed tax free to my DS and regardless of that I’ll have passed him all my assets to ensure I stay below the IHT limit well before time.

So if I use private schools I pay 270k in additional tax whereas if I use state schools I present the taxpayer with a bill for 112k and keep 470k extra in my pension. That’s why this policy will be a huge loser for taxpayers but of course Labour don’t want people to do the sums and realise that.

.

But it’s not an aim to close down schools? The aim is to tax a premium educational service to improve the bog standard education everyone else gets. If these schools cannot change their business model to remain a going concern, that is a knock on effect unrelated to the aim.

Just like the environmental taxes every household and business pays are not levied to impoverish households or bankrupt businesses, but to ensure a cleaner environment for future generations.

Your maths are off.

The state isn’t going to spend an extra £112k to educate your child. The state doesn’t work that way. They will spend the same and just adjust the £/pupil amounts to fit within the budget. Governments back costs into the budget, they rarely do bottoms up costs and then fund the budget. State schools need more kids anyway to stay open (at no extra cost) as the economies of scale are getting less favourable due to lower birth rate. This is not a loss.

Any loss to the treasury should be calculated as the difference between a) using the £470k salary to pay for private education or b) chucking it all into a pension.

1. If you put £470k into a pension, you will pay income tax on your pension when you or any beneficiaries who inherit it withdraw those funds as pension income either as a draw down or annuity. Pensions are tax deferred, not tax exempt. There are also taxes if the lump sum, lifetime or death benefit allowances are exceeded. As the sum will likely grow a lot between now and when you can withdraw (state pension age minus ten years), you will likely end up paying more than £270k in total income taxes over the 20-30yrs you withdraw pension income even though your marginal rate may be lower than 40%.

1. If you choose to pay for private school, you would pay the £220k income tax and then £50k VAT for a total of £270k taxes in the same year you earn it over and above the 40% income tax threshold.

There is no massive loss to the Treasury by you choosing one path or the other.

The thing is, if the VAT is applied and EVERY parent pays the additional 20% and no children leave indie schools, will this be enough money to get state ed back to where it’s meant to be?

I strongly suspect not. Where are all the additional teachers coming from? How is the government going to pay the increase in teachers’ pensions (with contributions which have just gone up again)? What about the indie families who will have cut down on spending in the local economy as they are now paying the VAT? Fewer meals out, trips to the theatre/cinema/bowling etc means local businesses will feel the pinch.

This is a popular policy for Labour as it seems to be levelling the playing field but it’s really just a policy of envy.

I think things will be interesting and 4 years from
now I doubt that state ed will have improved one iota- but we shall see.