Private School VAT solution?

[HappyCompromise]

I’m seeing a lot of these threads. The arguments getting very toxic.

An idea I had to make it fairer would be introduce the VAT on a rolling basis.

So from whichever date it’s Y7 which has to pay +VAT. The school is allowed to reclaim a 1/7th VAT spend (or whatever that is as a proportion of year groups they service).

Y2 - Years 7 & 8 are now paying. Schools reclaim 2/7ths of their VAT spend?
etc. etc.

So at least the current cohorts can finish their education unhindered.

Would both sides be happy with that?

A more recent report by the independemt thinktank Adam Smith Institue critiques the IFS report as based on "old and thin" evidence. It all depends on how many people withdraw or don't send their children to private school as a result (what they term "migration").

The effect on the public purse:

• We used the IFS’ data inputs and assessments as a baseline for our own analysis, and explored further quantified variables;

• In a highly optimistic migration scenario of 5%, we indicate a net fiscal impact of £1.02 billion, a reduction of £0.38bn from the IFS’ estimate;

• Between 10-15% migration, we indicate that the tax would generate no net revenue;

• In a 25% migration scenario, we indicate that the tax could generate a loss to the Exchequer of £1.58 billion;

• We outline several further downside risks that apply in each scenario.

www.google.com/amp/s/www.adamsmith.org/research/short-term-thinking-analysing-the-effect-of-applying-vat-to-school-fees%3fformat=amp

Interesting. And certainly high number leave private education maybe it does become financially disadvantageous.

But worth remembering the IFS is politically neutral whereas the ASI is a political lobbying group that was (still is?) pro privatisation of public bodies. That does make me a bit cynical of their findings in case they are reading the way they want things to be vs how they are.

To put it in context, numbers fell this year by 2.7% as a result of the proposed policy. If it kicks in the percentage will be much higher. And you also need to take into account smaller, less profitable private schools that will go under as a result, not just individual families withdrawing children.

And that's without considering private schools no longer offering bursaries to underprivileged children, having to charge state schools to use their facilities which they currently do for free, amd countless other ways private schools will be less "charitable" and have to start generating more money.

We will end up with a truly elite system where only the really wealthy can afford private school. Lots of SEN children who can't cope with state schools will require extra state-funded provision as well.

It's another "Brexit will give the NHS millions" type policy.

It says that it is independent, politically neutral and non-partisan https://www.adamsmith.org/about-the-asi

But as we know, lots of organisations that are meant to be impartial are not (looking at you BBC).

It seems as though they have used the same modelling as the IFS but the IFS have guessed the percentage of private school students who will be withdrawn, and Adam Smith are giving us the range of outcomes based on the different percentages that might happen. I mean, no one can accurately predict how many families will withdraw or not send their children or how many private schools will have to close.

Having done a bit more reading about the Adam Smith Institute two things stand out-

1. They are self described neoliberals. They want low tax and I fear that is influencing what they say.

1. Their funding comes from private individuals and businesses. In their words:

“the Adam Smith Institute accepts no government funding. Most of our funding comes from private individuals who believe in liberty and want to see a freer world; the rest comes from various foundations, businesses and the sales of our books.”

Smells fishy to me to be honest.

www.desmog.com/adam-smith-institute/

Interesting, so a couple of people are pro the idea. But not that many.

I do think it’s much fairer. It’s one thing pulling up the ladder and it’s another thing tipping it over whilst people are currently on it.

I do think they need to consider those in school already. Or a means tested exemption like tax free childcare or something!

That's highly unlikely. They contract in a lot of work, to say nothing of what they're spending on professional services, recruitment, advertising, etc. All of it attracts VAT.

I get what you're saying, but from what I can see they're just taking the IFS figures and modelling them the same way but looking at the consequences of 5%, 10/15% and 25% leaving the private system rather than the IFS's guesstimate of 6-7%.

What is the evidence for the 2.7% figure? Private school rolls have certainly been falling, but that is mostly due to parents being skint after mortgage and fuel cost rises, along with the general population fall which is also affecting state schools.

If children with SEN get properly assessed so that they can get EHCPs, I would say that is all to the good.

The House of Lords. Paragraph 3.1

https://lordslibrary.parliament.uk/independent-schools-proposed-vat-changes/#:~:text=It%20found%20that%20enrolments%20at,collecting%20data%20on%20new%20starters.

"A statement released by the ISC in advance of the publication of their 2024 census, said that Labour’s VAT proposals had already resulted in a decrease in the number of children joining independent schools.[42] It found that enrolments at independent schools for the 2023–24 academic year fell by 2.7%. This was the largest annual drop since 2011, when the ISC began collecting data on new starters."

I’ve voted YABU because I don’t feel that education should be taxed at all. The EU doesn’t allow it for very good reason. It’s a slippery slope when we start taxing things just because only some people can afford it. What next? University fees, private health care, nurseries etc? Not everyone can afford those things. This policy has nothing to do with raising money. The answer is to make state schools so good across the board that people don’t feel the need to use private schools.

Interesting also that Labour can only bring in this policy because of Brexit...

Alfreddoeblin
And there in one post is the sense of arrogance encapsulated. We can’t all be adept debaters like Eton educated Rishi 🙄

Rishi is an old Wykehamist, not an old Etonian! I'm sure he would be horrified to be bundled together with the Eton boys

@Ozgirl75 exactly!

This is why I hate it so much.
It's to show they are going after the rich.
It's not got any real substance to actually help our children in the state system at all.

The IFS-affiliated research guess-estimate is based on histórica data that most economist would consider highly suspicious on account of not considering either adjustment period or income effect. Basically, they base their estimate on historical data (eg, the decrease in numbers associated with real term fees increases over 20 years) - that obviates that gradual increases have a different effect to sudden ones as people can adjust their behaviour. It also obviates that an increase in the midst of a cost of living crisis is different to an increase when there is more disposable income. in both fronts, any estimate that ignores these two issues would under-estimate the impact.

IFS affiliated research is not gospels (neither is that by the Adam Smith Institute) - some researchers as relatively junior / topics are challenging / peer review is internal. Unfortunately, people have latched on the headline and have not looked at some of the assumptions underpinning it.

Yabu because the policy isn't supposed to be fair and reasonable. It's supposed to be unfair and mean in order to generate whining like this. It is being spectacularly successful and every single thread whining about it is helping to convince more of the 93% who don't use private education that they are glad about the policy and happy to vote Labour. Any of the 7% affected who might have otherwise voted Labour who switches away will be replaced by several from the 93%.

Political movements need scaegoats to unite against. :People who can afford a better education than the state is willing to fund" are taking theit turn. Frankly it's a better and more robust target than people arriving in small boats.

That's interesting. The problem is that even if it were definite that the policy wouldn't raise any money I think most Labour supporters would still be in favour of it to punish the "rich". It's class warfare.

in both fronts, any estimate that ignores these two issues would under-estimate the impact.

Yeah - I can defnately see how that's the case. It's far easier to boil a frog slowly and all that. I also agree with @Persianpuss that's it's notable this is an example of Brexit's famous 'taking back control' in being a change we could not have made in EU.

Unfortunately, people have latched on the headline and have not looked at some of the assumptions underpinning it.

I think this is unfair. I think between us we've dug down far deeper than can reasonably be expected for every announced policy from either side.

So they don't pay for gas and electric, stationery, building work/maintenance, cleaning products, computers, internet connection? I think they probably have quite a lot of vat to offset.

They do, but I doubt that extends to half the fee income.

very vast majority will be wage related and property related whether that’s lease costs / loan interest.

anyway it’s a boring debate and it doesn’t matter, it’s a political hit to capitalise on societal division and not much more than that.

itll just increase the wealth divide.

No. It’s robbery and attack. Private school partners already pay for state service and not using it, and they are most likely to pay higher tax. So why it is any fair or acceptable to tax again?

Funny how the reason for rising fees has been put down to increasing costs including gas/electric. Maybe they were lying about the reasons for the increases.

Not sure why half the fee income is relevant, the increase does not need to be 20% because it won't cost the school 20% when they reclaim the VAT they have paid.

The reason for the VAT exemption is that the schools are "charities". A reason it's being disputed is that many/most of them aren't obviously doing a great deal that's charitable, beyond rather token efforts.

I'd be perfectly happy to let them keep their VAT exempt status, provided they can demonstrate that their primary purpose is a genuinely charitable one, to a standard that would convince an ordinary person on the street. This should be done on a school-by-school basis.

I should have said "some" people - whether out of lack of understanding / not reading the whole paper / ulterior motives, I can't possibly comment.