Whitehall “braced for private schools collapse” 6

[ICouldBeVioletSky]

Continuation of previous threads to discuss VAT on independent school fees.

As for the prediction that the VAT policy will end up a net cost to the state, we only have to agree to disagree for a few years and then we'll see. It's estimated that 10% migration is the break-even point from an immediate financial point of view (ie without counting any cost to the students' wellbeing and future attainment.). We'll soon see how numbers change over the next 2-5 years.

The long term consequences to productivity will be harder to pin down.

But if you believe (as you seem to) that school funding improves educational outcomes - and presumably as a teacher you believe that educational achievement feeds success and productivity - then presumably you'd agree that reduced state funding per state student would harm future productivity?

Given that the government hasn't funded the teacher's pay rises by increasing the per student funding, it's not really a stretch to predict that they likewise won't genuinely increase the overall education budget in real terms to cover the students migrating. That's obviously a human judgement, not a direct financial link.

As for the students who switch, whilst it's true that many students thrive in state schools, it's pretty obvious that those private students whose parents took more financial risk to send them private because they weren't thriving in state will be disproportionately affected by the VAT.

I'd love an economist to do a full analysis in 5 years time. Even if they don't, I'll be drawing my own conclusions from: whether the percentage of students in private school has shifted, whether there is any reduction in the percentage of private students with SEN (since disproportionate migration of students with SEN - which I expect - would lower the threshold at which it starts costing the state), and possibly try to figure out whether private schools increase their proportion of international students (although that's hard to get numbers on). I propose you do the same.

@EasternStandard
Agreed-It is likely that hardly any money will be made from the VAT rise. I think there will also be far more leaving the private sector in September when the academic year ends and people who have held out until the end of the academic year leave along with all the Year 11 students moving to state sixth forms and many Year 6 students moving to state secondaries.

What about us parents that are moving our DCs from state to private in September? There seems to be no mention of this … only about the loss….views need to be balanced.

Is that a year 6 to year 7 move? Among people switching between the two sectors (in actuality or in their plans) I would think people going state to private would be in the minority - I would guess most of these moves would be a state primary to private secondary plan that can still be afforded even post VAT.

That's always been a popular transition. The question is whether the numbers changing from state to private at Y7 (and other years) are stable compared to previous years, or whether fewer than in previous years make that change. We'll have to wait until September to know.

Quoted @Shambles123 to include context, but actually an answer to @Floatingthrough

Excellent set of questions. I hope that an independent educational think tank such as the Nuffield Trust actually does this analysis and lets us know. Now is a good time to suggest that to them.

My personal guess (not based on anything statistical) is that there will be proportionately a very high percentage of SEND pupils forced to move away from private schools among this 10-13K of currently moving, even before the end of summer term 2025 leavers’ exodus or Sept 2025 expected cohort non-joining. As much as the parents of children with SEND will be desperately wanting them to be able to stay in their private school if that’s working for the child.

Many of the SEND pupils’ families are using private school as a last resort, lower income families with kids in private schools will be less able, or unable, to absorb the increase in fees. They haven’t expected to need to pay for this, haven’t saved for it, don’t just have that money available.

Then there’s the fact that SEND needs tends to run in families and the more children you have who have the same type of needs in any one family (if state school provision isn’t accessible to the DC) then it magnifies the VAT+ fees shock to the family budget.

I agree that the transfer of thousands of pupils from private to state will likely not be given any additional government funding.

Making all that worse for all state school pupils present and future is that at the same time there’s such a breakdown in the system for assessment of EHCPs at local authority level, due to lack of resources in local authorities.

This means that the additional funding that state schools should in theory get to provide kids who have EHCPs with extra adult time or other resources they need, is taking years instead of months to be assessed and then come through to the school. During of which time the additional costs of having a kid in school with SEND but no EHCP, are borne entirely by the state school. These are sunk costs. Schools have no retrospective ability to claim back the additional resource that they have needed to spend, when a pupil is finally assessed and evidenced to need an EHCP.

So state schools have the choice to either pay to support the SEND kids they have without an EHCP and then blow their own very very tight school budgets… or, they can not spend that money on helping kids who need it and then watch classroom attainment fall, see difficult classroom behaviour rise, see more pupils absenteeism due to emotional based school avoidance and more exclusions from education. Plus all the staff issues that this level of classroom issues brings. This policy is terrible for state schools and private schools.

Completely agree @EHCPerhaps . I wonder how much longer Labour will overlook our children’s needs for. Exactly as the Tories did.

You are spot on with your predictions and concerns @EHCPerhaps save for your assumption that eventually, after battling through the system for a few years, SEN kids will get an EHCP and schools will get funding to support them.

It’s increasingly clear from the noises being made in and around government that the EHCP system will be reformed so that only those with the very highest needs will get any meaningful support. We will go from having a broken EHCP system to effectively no system at all. I fear it will only be those with multiple and fairly severe learning and/or physical difficulties who will qualify. And that the large numbers of children with ADHD/autism/EBSA etc will be left with nothing more than a breakout room and some specialist software if they are lucky.

So the gloomy forecast in your final paragraph will become the new normal indefinitely, rather than “just” a grim interim state of affairs.

The irony for my child is that he actually had an EHCP with 1:1 support in place before starting Reception. Even then, his placement was a complete disaster with no mainstream state alternative offered for years. I am selfishly relieved that he’s now 19 and coming to the end of his schooling. But we now have adult social care to navigate instead. And to see state SEN provision looking like it could become even worse than when my son’s needs were left completely unmet, makes me very sad. I’m not sure I’ve got the energy to be angry anymore after nearly two decades of fighting for him and the rest of his lifetime to carry on fighting for him - but I bloody well should be angry. It’s not hyperbole, before anyone says it is. It’s disabled children’s lives.

But the typical reply (the one given by the government) is: "No worries. We have falling rolls. State schools will welcome the incoming students." The implication here is that these students will actually BRING money (to schools).

It's an argument which is often made, but obviously the government could choose to increase education funding to still keep whatever overall education budget they chose without enticing private students into state. Which way results in the higher per-student funding - for the same net cost - depends on how much VAT they bring in vs how many students move over.

In that case, is this the state using fiscal policy to manipulate competition in the education market for its own financial advantage?

If we were still following EU law, it looks likely to me that the state boarding VAT exemption would fall foul of the directives against government bodies providing VAT exempt paid services causing distortion of competition against private companies which are not exempt. Probably likewise where associated services such as sports and music lessons attract VAT if provided at a private school but are exempt if provided at a state school even by the same external provider. Not sure about the education itself.

Article 13(1) of Directive 2006/112 provides as follows:
‘States, regional and local government authorities and other bodies governed by public law shall not be regarded as taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with those activities or transactions.

However, when they engage in such activities or transactions, they shall be regarded as taxable persons in respect of those activities or transactions where their treatment as non-taxable persons would lead to significant distortions of competition.'

Here's some commentary on cases where HMRC lost in CJEU including Bridport and West Dorset Golf Club Ltd

But now that we are not in the EU, the government can change laws in whatever way they choose, including distorting competition against anyone they don't like.

The number of EHCPs rose by 11.5% from 2023 to 2024 and 71% from 2018 to 2024.
I think this is a result of a number of factors: increased awareness of SEN, inclusion policies and possibly an actual increase in SEN children. The older the father, the higher the chance of autism and people are having children later. Due to inclusion, more SEN children are going to mainstream state schools and their needs are not being met. To be honest, I don't think a normal teacher in a state school teaching a class of 30 can meet the needs of children with more serious SEN. The labour government wants more inclusion but unless there are specialist units in mainstream schools, I don't think this will work.
On the other hand, if we had a voucher system, parents of SEN children could use the voucher and top up to send their children to private schools that are better able to cater for their children's needs.

“On the other hand, if we had a voucher system, parents of SEN children could use the voucher and top up to send their children to private schools that are better able to cater for their children's needs”

this will never happen @Runemum . The VAT policy will end up losing money (is my firm belief) given how many children that will move and also given the likely occurrence of SEN of the children that do move.

there is no money for SEN children, they were not excepted from the policy as that would make it “too expensive “ according to government’s own documents, they really wanted to squeeze out money from SEN parents. The thought that they would try to help SEN parents is not on their map.

I was just listening to a podcast discussing the Harvard-Trump debacle and they raised this point of other countries welcoming the international students affected (as you say, these will typically be the brightest and most go-getting of the student cohort). Broadly, everybody sane on every part of the political spectrum seems to agree that what is happening with Harvard, i.e. targeting educational institutions for vengeful ideological reasons, is mad and wrong.

OTOH, this podcast mentioned that the Trump administration is also planning to hit these elite institutions by massively increasing taxes on their endowments. Also, of course motivated by Trump's vengeful ideology against "wokery." I am vaguely and genuinely wondering whether this measure would be quite as universally disagreed with...

My parents were obsessed with the voucher system close to half a century ago.

But it makes no sense. Should people be able to opt out of the NHS and get a voucher to use towards private insurance or directly to pay hospitals for private care? Should people who don’t drive be given vouchers equivalent to road tax to spend on taxis?

No one uses everything the government offers but it is there for us if we want it.

There are low tax societies with massive Gini coefficients like Singapore. I have known people who live there and it is a nice place, albeit a little boring. But, on the whole, in Europe we have gone with higher taxes and more redistribution. I think, on the whole, this makes for a happier society (although there are a lot of issues right now).

Should people be able to opt out of the NHS and get a voucher to use towards private insurance or directly to pay hospitals for private care? Should people who don’t drive be given vouchers equivalent to road tax to spend on taxis?

In some European countries, people pay for medical care directly then get most of it reimbursed by social insurance.

Likewise, a much larger proportion of European roads are toll roads.

The way things are here isn't the only way to do things - or always the best.

If getting a voucher for private school and partial reimbursement of private medical care results in a more educated, healthier population... paid for partly themselves (only partly, ie they still benefit from the same government subsidy: making it a fairly shared out use of taxes as well as keeping it affordable to more people)... and so costing the state less... then that could well be better than our own failing systems.

Those comparisons are not very useful. Everyone uses roads regardless of whether or not they drive. No one is going to opt out of the NHS entirely because it is the default for emergency medical assistance. It’s also extremely difficult to quantify how much any given individual ought to receive in a health voucher system. Health needs vary hugely between individuals (diabetics are very expensive, whilst generally healthy adults pay cost literally nothing for years). By contrast, there is conveniently a per pupil sum allocated to each child! And if parents opt to use private schooling they will not use state education at all during that period (unlike someone with private health insurance who has a heart attack and needs an NHS ambulance and operation). And the private school system has historically shared resources for free or at subsidised rates with the state system, whereas I’m pretty sure private hospitals offer nothing by way of charitable facility sharing to the NHS.
Your post implies, though, that policies ought to be somewhat consistent. Well, interestingly, if I pay privately for a medical procedure such as an additional scan during pregnancy, or an emergency GP appointment, I do not pay VAT on it. In the case of, say, a mole removal this might actually have a bearing in whether or not I need additional treatment, or even whether or not I survive, which as privilege goes is pretty huge.
At any rate, a better comparison would be nurseries where in effect a voucher system does operate for universal free hours, and no one pays any VAT at all, regardless of whether the vouchers pay for all or none of the hours, and regardless of whether the nursery is attached to a state school or a swish private nursery with macrobiotic meals provided during 16 hours a day of wraparound care for which parents pay top up fees. Odd!

@RoseAndGeranium ,

The nursery system is the outlier here, probably because there aren’t sufficient government nurseries.

And road tax is for the making and maintenance of roads for cars. The damage to roads is directly proportional to the mass of a vehicle to the power of 4. Pedestrians cost effectively zero to use roads.

The nursery system is the outlier here, probably because there aren’t sufficient government nurseries

Sweet summer child. It's nothing to do with availability of nurseries or fairness. It's entirely to do with voter popularity.

The free hours system is means tested and underfunded: designed to extract re-distribute even more cash from parents who need wrap-around to work to those who work less. Again.

Let me guess, your wife didn't work when your kids were small.

Of course pedestrian usage of roads causes negligible damage. But even though I do not drive I require roads so I can catch the bus, use taxis, enjoy the goods delivered to me by supermarkets and other providers, enjoy the goods I buy at shops which were transported around the country by massive trucks that damage roads more than cars, receive visits from friends who do drive, have my home mended by contractors who use the road to reach my property, expect that in case of emergency an ambulance or fire engine would reach me in good time — hopefully you can see where I’m going with this. Saying that I don’t ‘use’ the roads because I don’t drive is like saying that someone who hasn’t been a victim of crime doesn’t use the police. And anyway, car owners do pay additional taxes so I’m not really sure what point you’re making or why anybody should be getting a voucher. It’s not like road tax pays for people to have cars, so I don’t know why it should pay for anyone to ride in a taxi.

Yes, there are too few government nurseries — although, in my area state run nurseries have closed down or are struggling because parents choose private nurseries instead as they offer longer hours and tend to provide food rather than needing packed lunches, and also do more ‘school ready’ work with the children.
There are also too few state run schools in some areas (hence all the taxi bills) and too few suitable schools for some children in most areas.
The government does not in any case offer free hours for children below the age of two, or some children before the age of three, and even then only 15 free hours to many. Yet no VAT is applied to nursery fees for those parents who choose to put their children into childcare beyond what the state provides.
I can’t afford to send my daughter to nursery for more than those 15 hours, and I certainly couldn’t afford private nursery top up fees or wraparound care. Arguably my daughter is disadvantaged by this. There is a chance she will begin school less ‘ready’ than her peers who have spent full days at preschools, particularly the pricier private ones I’ve mentioned above. Yet there’s no VAT on the top up fees or the extra hours and the government does indeed subsidise the fees through what is effectively a voucher system.
You say nurseries are the outlier. But Wes Streeting has talked quite a bit about encouraging the use of private healthcare by those who can afford it to relieve pressure on the NHS. And in the care home system it is commonly the case that if a patient qualifies for some government funding this will be administered in effectively voucher form, with the patient or patient’s family topping up whatever the council payment does not cover. Privately run care homes will sometimes also provide spaces for fully council paid rooms, reportedly at a discount so that these patients’ care is subsidised by the private residents of the home. Again: not enough care homes. But my point is that increasingly it’s not nurseries that are the outlier. It’s schools.

intriguing that nurseries are the outlier whilst disabled children whose needs can’t be met in state schools are not.

@RoseAndGeranium just in case you have a niggle of self doubt - and I think we all sometimes worry that we aren't doing the right thing for our children - please believe me when I tell you that your DD will not be disadvantaged by spending only the 15 funded hours per week at nursery.

The older my DD gets, the more clearly I see how our values and ideas - as well as our love and care - feed our children and become part of them. We don’t realise it's happening until they say something surprising - or go against the flow - 10 years later!

From what I see in your posts, spending more time with you will be entirely to her benefit.

At the risk of further derailing the thread, there’s no such thing as “road tax”. Vehicle Excise Duty is a tax on cars that are “on the road” but it’s just another way of raising money for general government coffers. It’s not hypothecated so doesn’t specifically pay for anything road-related.

But much like VAT on schools people wrongly believe/are misled into believing that it’s funding something specifically related to the tax.

Thank you for taking the time to post such a kind reply. You’re right that second guessing one’s decisions seems to be part and parcel of parenthood. My older child really did struggle when he started school, and I have certainly wondered whether more time at nursery (he’s a late summer born so his free hours only covered one academic year of nursery) might have helped. But your post made me think about the amazing curiosity he has about the world, and the way he will sometimes dive back into an interest we explored together before he started school, and I hope that being at home gave him strengths beyond the fine motor skills and so on that we’re such a worry in his Foundation Stage year.

For what it’s worth, I’ve very much enjoyed reading all your posts on this thread. You’re one of several people from whom I’ve learned quite a bit. Thank you!

@ICouldBeVioletSky ,

That was my point!

i don’t think we have any hypothecated taxes bar NI (and is that even hypothecated any more?).

But talk of vouchers is precise this; assuming the tax is hypothecated, so if you are not using state schools, you shouldn’t pay for them.

To be fair, all the talk of the tax going to help state schools was a bit of a con and implied the VAT was somehow hypothecated.

@Newbutoldfather
But the government stated that they planned to use the money on 6500 teachers in state schools.
A voucher system in education does not mean that people who don't have a child can claim money back. If England and Wales were to have a voucher system, the voucher could only be used at a school for people with children. A child between 4-18 would be assigned a voucher each year.
I also don't think people in the UK will agree to a voucher system though because people will think it is unfair that those who are poorer can't top up for a better school. However, in reality the state school system is completely unfair with disadvantaged children going to the worst schools (see the Sutton Trust research).