Whitehall “braced for private schools collapse” 6

[ICouldBeVioletSky]

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

@Araminta1003 ,

‘Incidentally, Elon Musk did Physics as his bachelor major. Do you honestly think he would do a better job as a leader. He can’t actually become US president because he is not a natural born US citizen. I am sure plenty of Americans are grateful for that.’

No, he would be a disaster. I am not suggesting that every politician needs to have a STEM degree, but we need a reasonable number to do so, so they can understand and use statistics intelligently to inform the debate.

We also need humanities graduates to put the moral and ethical dimensions, which is what Musk totally lacks.

But look at the total misunderstanding of 11,000 vs 3,000 in a population sample of close to 600,000. If you were to decide policy based on that kind of statistical ignorance, it would be an issue.

The previous poster said it’s just 5 years increase in one year, what’s the big deal? Again, just ignorant because they’ve never been reliant on a salary.

of course any price hike can push people out, do you think parents are advocating for price hikes or something?

I don’t think there have been many family wealth posters offering their own equivalent tax rises for the state system that is used. More that those who don’t use it should pay.

This is just wrong; and clearly your strong point as a governor (I’m also a school governor and a trustee of two additional educational charities in the non-school sector) was not the finance side.

Much of the increases in staffing costs has been not in “inflation busting pay increases”, but in pensions costs, NI and other overheads, including general inflationary costs that have risen dramatically in the last few years. You are confusing cost increases with how you can make cuts. The costs of running any business have increased because of huge leaps in the cost of energy, food, transport, maintenance of buildings, etc. All businesses have been facing increased costs. But contrary to what you are assuming, private schools cannot actually cut those costs easily. (The average school accounts for an independent school look pretty much the same as a state academy. Could your state school easily make 20% cuts in its budget? If not, why do you think the average independent school can? Their budgets don’t look much different.)

If there’s been a lot of inflation in energy, general running costs, etc., you can’t just cut that. You can’t just make those 20% cost savings on inelastic costs. The only things you have that you can cut is staff. And contrary to your perceptions, most private schools are not actually full of a huge “pyramid” of staff and they are not top-heavy with overpaid people. The vast majority of private schools are not Eton. They really do not have lots of staff being overpaid. As you point out, the staff are not actually paid huge inflation busting figures. So, follow that through, and you realise that if you start cutting staff, it’s the teachers and admin staff and ordinary employees who suffer. Is the Head going to be cutting him or herself? They’re probably paid on average not that much more than an Academy head. Would taking a pay cut of a few thousand suddenly make up for 20% of the school’s operating budget? (Don’t be daft.)

Most private schools have already been subject to huge increases in pension costs which have caused some to have to come out of previously highly valued pension schemes (eg. GST schools). It’s just simply idiocy (and financial illiteracy) to suggest that private schools can easily save 20% in costs without making staff redundant. And what’s the bloody point of that? Stick it to the rich parents but at the expense of making more music teachers, admin staff, maintenance staff and dinner ladies redundant? Is that the Labour policy you want to see? Doesn’t seem that redistributive to me.

@FairMindedMaiden ,

So many people have been forced out of private education due to a school putting up the fees yet another inflation +3%. It is the nature of private education that some pupils are forced out every year, and that is tremendously sad for them.

If you have also read my previous posts, you will see that I hate the way that this has been brought in all at once and with no regard for pupils being forced out mid-phase. But you should also question schools who don’t try and look after their pupils until they can complete a phase, either by using reserves to phase in the increase or by granting bursaries for the difference for those that can’t afford to pay it.

Of course not, nice easy bit of virtue signalling.

@KendricksGin i believe that there are several factors into this, which is why the discussion is confusing.

1. a general increase in personal taxes over time (freezing of thresholds) in combination with the increase in NI and with the abolition of non-dom status. Now we have VAT as well. These families are hugely mobile and at one point, they will just say “enough”.

We know several families (not UK nationals where one make around 500k in the UK and also has income from abroad- and employ several people. They also have children in independent schools. Main earners will leave / have left and this is a massive cost to the treasury (lost tax revenue, loss of jobs). These children will be moved to best possible schools in Switzerland, Italy, Monaco or Dubai - will not be put in state schools.

2. an increase over time in private school fees. For smaller schools, these are driven primarily by the increased staff costs (NI and massive increase in pension costs, not posh facilities). Now the VAT has been slammed on as well. Here we will see an impact on families with SEN children where families were stretched to the absolute limit. These children will need to be educated elsewhere (at great cost) and where smaller schools close, additional children will also need to be educated elsewhere.

3. middle class families where they decide that it is just too much. These children will be swiftly moved to grammar school areas at appropriate exit points.

As a result of the combined policies, the government loses a massive amount of tax from the first group (less money overall - and any funds are not ring fenced).

with regards to any benefits for the influx, state schools will not see group 1, group 2 will cause huge costs and be disruptive and group 3 will take places from lower income families (but cost the government money).

Again, funds are not ring fenced, this will be an overall negative impact on total tax intake - less money for state schools.

There will be zero benefit from any “private school influx” (see above).

overall, it is bad policy.

Yes I agree it’s a bad policy. I just don’t think suggestions of mass exodus from the UK purely from a 20% tax on fees is credible and assertions like that detract from the credibility of the arguments against, many of which are valid.

It seems I have been labelled as one of two family wealth posters. Could you please tell me where I have said any of that?

KendricksGin · Today 14:43
Which comments would those be? FWIW I am a 'family wealth' type. Your anger may be affecting your judgement.

I completely agree, there are different factor in play, impacting different groups differently.

I believe the real story is the nuanced message I posted with the three different groups (exodus from UK only group 1). What are your thoughts on that?

It is amazing how people continue to assert that the reason private school fees increase FASTER than inflation is because…um, inflation and has nothing to do with facilities and competing to attract the wealthy.

But where is the data to support this. It is really hard to find good data to prove this one way or another but here is an Indie article from 2016 (before NI rises, pension fund changes etc) showing how dramatically private school fees have risen over over 25 years until then and why.

www.independent.co.uk/news/uk/home-news/the-charts-that-shows-how-private-school-fees-have-exploded-a7023056.html

How far they are out as a proportion of the total number of state students is relevant for knowing how likely it is that state schools will be overwhelmed. (Although that is going to be so localised that nation-wide numbers aren't very useful)

How far they are out as a proportion of the total number of remaining private students is relevant for knowing how likely it is that the policy will make/lose money. The VAT is collected from remaining private students, and the additional state cost is to educate previously private students who switch. The number of state students is irrelevant for this.

They said that 3000 would shift by this point, leaving 590,483. That's 0.508%

Actually 11,009 shifted, leaving 582,477. That's 1.89%. They are out by a factor of 2.7.

If it continues along this trajectory, then the policy would be expected to bring in approximately £0.5bn instead of £1.3bn.

I agree that it's too soon to tell exactly what will happen. Characteristics of students leaving in-year may be different to those who will leave/not join at a natural transition point - which is what matters for the long term tax-take from this policy (if it were to survive more than 4 years). So the government assumptions may be more or less accurate in the longer term. But personally, I'd flag it Amber - and start monitoring it more carefully and planning what to do if it continues or gets worse.

Sorry I read too quickly and thought you were accusing me of politics of envy about wealth when I responded. Was just saying that to illustrate that envy was not a factor in any of my comments.

I agree with what you wrote. Excellent synopsis.

Interestingly, I’ve just had an email from the ICAEW about VAT recoverability before registration for private schools.

Apparently the ICAEW became aware that private schools were being told by HMRC that they could not recover any VAT on pre-registration services if any of the service was used for exempt purposes prior to registration. A simple example would be that HMRC was saying if a school took out an annual subscription in October 2024, that they could not recover any VAT on any of that cost.

Whereas the actual rules state that schools can recover VAT on the proportion of the subscription from 1 Jan 2025 onwards, when their supply of education became subject to VAT.

The ICAEW wrote to HMRC asking them to correct what they were telling schools, and they have now done so.

I’m sure it wasn’t deliberate misleading on HMRCs part, to try to minimise VAT reclaimed by private schools… but it doesn’t fill me with much confidence that anyone at HMRC actually knows what they are talking about (which is nothing new tbh).

Here's how that has changed over the last 20 years btw. I found a spreadsheet with the numbers up to 2019 here and added in the 2024 and 2025 numbers. Annoyingly, the government seem to have changed the format of what they gather in 2020, so I'm missing a few years, but it still gives a pretty good idea.

The column in blue is the change in private students as a percentage of the remaining private students - which is what is relevant for the VAT take.

Still think it's insignificant?

@strawberrybubblegum ,

It is incredibly hard to tell without the intervening years between 2020-2023!

What I can see is a +3% change between 2019 to 2024, roughly 0.6% per annum, which has only been partially reversed by the 1.9% decline.* *

Part of this is demographics. The school age population has peaked and is now declining but I suspect a part of this was a big shift into private education after Covid, when state schools couldn’t compete with private in providing remote education.

Well precisely @strawberrybubblegum - my point was illustrating in percentage terms how much Labour have underestimated the figures. 3000 vs 11000 is more than 3.5 times!
We have form for underestimating behaviours, especially as regards immigration. As you all know, I am pro immigration. But this is a perfect example of where we can extrapolate quite reasonably that they have likely underestimated the actual leavers by at least that much too. If people left that quickly, as the policy just came in, it really shows you something about behaviour and how reactive it is going to be.
Perhaps you could draw on a physics experiment analogy to mansplain to us all @Newbutoldfather

And Musk also has an Economics degree. And ample experience of running businesses. But he is emotionally reactive, so hardly a steady hand for leadership of any country.
Being a successful politicians requires a cool mind and steady hand and diplomacy above all else I would assume. And some human kindness and care. As well as whatever degree and experience a Cabinet should collectively have.

@Araminta1003 misandry as well as ageism? Not a good look.

Kudos for working this out.

@Araminta1003 ,

Don’t you understand that 3.5x is irrelevant?

Imagine if I said I thought the mean distance to the sun was 150.02 million km and the actual distance was 150.08 million km. What you are saying that I have made a 300% error as 0.08 is 4x 0.02.

My estimate is actually pretty good.

And in the short term at least the vat take will be lower if a fairly high percentage of parents have pre paid fees before July 2024 and are therefore not liable for the vat.

@Newbutoldfather - it’s not irrelevant because we are talking POLITICS here and human behaviour.
The next election will apparently be run on how many less immigrant in real number terms have arrived and how it gets presented. So if it’s going to be 1100000 instead of 300000 - that’s going to be a problem. And whether they change the criteria if not including temporary students gets buried as well. As you see I am using the same proportion, deliberately, for effect.

It is how it is presented and how right and wrong they were. If they take peak immigration figures and go on about how they have reduced it in percentage terms compared to then nobody cares either. People want the hard numbers and what politicians told them would happen.
Here they promised VAT bonanza and 6500 teachers. We all knew that is in percentage terms not much extra staff! But people want the hard numbers. And they promised the 1.5-1.7 billion of extra money coming in to the coffers from VAT bonanza and NONE of that is happening if they underestimated the figures and human behaviour.