Labour’s plans for VAT on Private Schools

[Busydadof2]

The Labour Party has proposed introduction of VAT on private schools.

In the scheme of things the money they will bring in from this is tiny compared with total expenditure on state schools, while it will drive more burden on the state system as some parents leave private schools. I think this is a populist ploy to get traditional Labour voters to vote for what is in any other sense a centrist party.

Have you considered signing this petition to make sure the policy gets scrutinised and the weight of public sentiment against it is known?

Change.org petition: Stop Labour from adding 20% VAT to private school fees and forcing kids to change schools

www.change.org/p/stop-labour-from-adding-20-vat-to-private-school-fees-and-forcing-kids-to-change-schools

Various perspectives from the signatories of this vote come to mind and resonate with our own situation, including this: “I work in a state school with over 30 in a class and oversubscribed. My 2 kids went or go to private schools and we have sacrificed loads to do this. We are NOT wealthy, many of the kids at the school I work at live in bigger houses and have much more disposable income than we do. We chose to send our kids to private school rather than live in a bigger house instead of our semi detached on a main road. We holiday in the UK every year and I work full time. I buy my clothes on the high street or in charity shops. Many parents at the school my kids attend are in exactly the same situation. I agree there are some very wealthy parents there too and the addition of VAT will not even make an impact on them, they will pay it without batting an eyelid. All this will do is push the kids like ours back into an already oversubscribed state system, increase class sizes even more and create a bigger divide as private education will become truly elitist.”

According to the IFS, 20-40,000 children will move.

Tax, private school fees and state school spending | Institute for Fiscal Studies (ifs.org.uk)

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The IFS assessment is just awful economics. Nobody knows how families will respond - and the choices of a generation ago are a poor guide. If and when families respond by going state, the demand and supply side effects are extremely uncomfortable - not only does the state sector pick up the tab at £8k per pupil (generously assuming no increase in Local Authority and Department expenditure), but families will experience a very dramatic income effect which may lead to many higher-earners working less or quitting. There is no way this is a good way to raise money.

IFS and school fees - Economics with Mr Chips (substack.com)

As an aside I look forward to those on the Left citing this ‘Brexit Benefit’. This policy couldn’t have happened under EU membership as Education is exempt.

How will the law exclude its eventual application to private tutoring and university fees? Other VAT levies are aimed at whole services, not ones the government of the day singles out from within a sector.

In effect every* university student, even if they take out a loan, is going private by paying fees for their tertiary education.

I don’t own a car. I don’t have a mortgage. We live in a three bed flat and rent one room out. I don’t get my hair/nails done and barely spend any money on clothing. I’ve been screwed by three major economic crises and watched London crumble. I work three jobs to send our only child to private school because I wouldn’t even send a dog to the state schools in our catchment area. It’s crap and it will take at least 10 years to fix this Tory mess. I’m 50 and I’m in senior management but not rich. I’m happy to pay some tax but not something that pushes us to homeschool. And that’s exactly what I would have to do. Homeschool. Yes, there are some nice state schools in other areas of the country, but we also can’t just move out and then we have high travel costs and more commute time. It’s all a mess. But just because this current government made a mess doesn’t mean people like me should pay for how f*cked we have been for so long.

How much is the school out of interest? I tend to find when people mention they don’t get their hair/nails done and that’s why they can afford a house/private school and they aren’t “actually” rich they are actually high earners talking bollocks.

my haircuts cost £100 a year. I could never have a haircut for the rest of my life and it wouldn’t pay for a term!

You could always do what the left-wing middle class do and use the money to buy into the catchment of a good state school.

Then you could blame the Tories for everything, proudly declare a belief in state education and still get your kids privileged schooling.

And the best bits are that if you buy you’ll make money on the property and, either way, catchment hunting is immune to a change of government. Marvellous!

£1,100 per month. I’m quite a tomboy. I’ve never been much into lots of things. I used to get my nails and haircut or root tint once a month before, but I am saying that yes I have to be a lot more careful with my money. No, I’m actually not rich. My home doesn’t even come close to looking rich. But in terms of how I budgeted it was basically making a list and cutting out everything. I’m a foster kid btw. I was on the streets for three years and I don’t have family or anyone to rely on. I worked two jobs through university and would do unpaid internships, sometimes just barely eating. So I have no family connections, no luxuries, no family. And as some immigrant kid from a Filipino mother, it wasn’t easy.

My only profound belief is the education system is so bad, especially in London, that I wouldn’t subject my son to that. The amount of times I see the kids dealing drugs openly on the street, the amount of knife crime that has increased in our area, we have 32 kids to a class and they cut SEN funding so there are a lot fewer SEN Classes and everyone is thrown into a classroom. This is all the years of Tory rule. I’m not going to make a political statement by sending my son to a terrible school full of bullying. I hear the stories all the time. I was bullied at secondary school. Two friends committed suicide from bullying during the years I was there. And I always vowed that if I had a child, I would do everything for him not to endure what I endured.

you might not feel rich but you are mortgage free in London and can afford £13k a year in school fees. You ARE wealthy.

The average person who sends their kids to state school could live on beans and toasts and give up hair cuts and cars completely and still never afford private school. I bloody wish I could work a few extra hours and give up my car and save £13k a year! Different planet sometimes.

"Some people are poor, you are not as poor, your experiences don't count". This does not enlighten the debate, unless anyone wants to argue for a society of absolute equality of outcome.

The point instead is

• people making huge sacrifices for private school do so with little money to spare. The idea they can all rustle up 20pc VAT is for the birds. This is about economics and the choices of families at the margin of affordability. The facts that other families are hard up, while still other families, in state and private schools, have swanky cars and travel first class, are of zero relevance. Put the anger and envy aside, the policy impact is decided by those like @Mother2375 at the margin.
• when people like @Mother2375 do make these choices, it's brilliant for state schools and the public finances, because they pay ££££ of tax to earn the fees while freeing up the state resources to focus on others.
• there's galloping inequality within state schools and I don't see anyone getting stinky about it. Bridget Phillipson and her banker husband can tout their state school credentials but I bet they won't be falling over themselves to secure a place in an undersubscribed special measures comp. Catchment area all the way, while tucking money aside for tuition fees and a couple of house deposits. Fair enough, so spare us the "so privileged" rubbish at private schools only.

She isn’t poor though. And claiming the only reason she can afford private school is because she gets her nails done is tone deaf.

chucking in that she’s a hard worker etc just implies that the average pleb isn’t and that if they cared about their kids education more they’d pull their socks up and take on a Saturday job to get kids into private school.

I'd love somebody from labour to explain what they'd like somebody in your position to actually do. Is the 20% VAT a behavioural/'sin' tax to change behaviour, or is it meant to increase the burden on families already saving the public purse and class sizes by educating privately?

I was interested to see that some independent schools e.g. Cognita already pay VAT. Interestingly, the nearest Cognita school to me is cheaper than some of the charitable trust private schools near me. I wonder if some of the private schools could spend less on facilities and not pass on the VAT to parents. I think many people send their children to private school to have smaller classes and less disruption in lessons. A good swimming pool is nice but not the number one reason people send their children to private schools.

I don't know anything about Cognita but would you mind explaining what the VAT is on? All schools pay VAT when they buy goods and services. Do you just mean this or do you also mean that parents pay VAT on fees in the way that Labour is suggesting? I am not sure how that would work as at the moment education is an exempt supply for VAT.

Neither she, nor I, said she's poor. Neither she, nor I, said anything about other people not being hard workers, or not caring about their children's education. Why do you insinuate things that people don't say.

I know that's the divisive class war story some people are determined to tell, but as I said it's not the point when we're debating this policy.

Some people can't afford private school, that's true. Many of those people are indeed hard-up and hard-working. Making independent school even more expensive and exclusive will ensure more people can't afford private school. That will do no good at all for the public finances, or for those that depend on the state system.

And, lest we forget, there's clear societal benefit in private education, as agreed by every other country in the world. Nobody else taxes education, Labour are going to make the UK an international outlier.

Surely the answer for parents who might find increased school fees a struggle is to get a better paid job? Or is that only a solution for the poor.....

I didn’t use the phrase about being poor first, you did. I didn’t bring up her being A hard worker first, she did by implying she can only afford it because she works multiple jobs and sacrifices getting manincures and haircuts. It’s absolutely tone deaf and irrelevant. She can afford private school because she is wealthy. Why she is wealthy is irrelevant and denying she is wealthy because there are people much wealthier than her is ignorant.

As any A-level economist will confirm, it's irrelevant that some people are poorer and some richer; irrelevant that lots of people (rich and poor, state school and private school) work hard, irrelevant that other people (rich and poor, state school and private school) don't work a stroke. We live a diverse society and it takes all sorts. What's relevant is the actual choices made by private school parents.

You said that her hard work implied she thinks other people don't work hard. "chucking in that she’s a hard worker etc just implies that the average pleb isn’t". She never said that, you made it up. I think she is allowed to say "I'm a hard worker" without you assigning to her such unfortunate beliefs.

And nobody's denying it requires a high income to earn school fees. What we're saying, and which is relevant, is that if you're paying school fees from income (and paying tens of £k in taxes) with little to spare, you're (1) not in a position to pay VAT (2) already giving state schools and the public finances a massive helping hand. We should encourage as many people as possible to do the same.

The country needs people like @Mother2375 pulling the cart. The country doesn't need to say to such people "hey, we don't value the tens of £k in tax you pay, stop doing it, demand that unfunded non-existent state school place, halve your workload and taxes and put your feet up!"

My friend who is working at an independent school is telling me that her school plans to not pass all the VAT onto parents if Labour gets in as they would lose too many parents. They are going to delay renovating some buildings instead and they are going to make some other changes too. They are already planning for this.

Here is what I read a about VAT on a website:

How would a VAT charge affect the level of school fees?
Like any other business which makes VAT taxable supplies, if a school were obliged to charge VAT on the supplies it makes, it would in turn be able to set-off the amount of VAT which the school has itself paid on goods and services supplied to it and which have been incurred for the purposes of the business (for example utility bills, repairs and maintenance costs or professionals’ fees). In addition, the VAT charged on capital expenditure (eg on new buildings or other major projects), may also be recoverable, including on projects completed before the change in VAT status.
For these “VAT recovery” reasons, schools are unlikely to need to pass on a full 20 per cent increase in the overall cost to parents and should be able to reduce the VAT exclusive fee somewhat before the VAT charge is added (leading to an overall increase of, perhaps, 15 per cent rather than the full 20 per cent).
From https://www.farrer.co.uk/news-and-insights/vat-on-school-fees-qa/

Cognita runs about 40 schools in the UK and as far as I know they don't claim charitable status.

Cognita runs about 40 schools in the UK and as far as I know they don't claim charitable status. Thanks I'd not heard of them. But charitable status doesn't affect the question of whether education is subject to VAT - it isn't for any provider. I think possibly the pp simply meant that the school paid VAT on services like any other school?

I am no expert on this but I read these articles about charitable status and VAT.

https://blog.shorts.uk.com/vat-on-private-school-fees-latest
In 2022, around half of UK independent schools were registered as charities. The government defines a charity as an institution “established for charitable purposes only, and subject to High Court jurisdiction”. Private schools seeking to advance education may qualify as charities, providing they can demonstrate that they exist for the public benefit.
In addition to not having to charge VAT on school fees, charitable status provides schools with notable tax benefits, including tax exemptions, reduced business rates, and Gift Aid on donations. The charitable status of private schools is also a current topic in UK politics.

I also read this article, which is old but discusses how the cognita schools did not claim charitable status or the tax breaks related to it.
https://www.theguardian.com/commentisfree/2009/jul/25/private-schools-cognita

I also read this newer article, which discusses cognita too and how fees might even go down if more private equity firms decide to run private schools.
https://www.thearticle.com/labours-class-war-on-private-education-could-backfire

I am guessing that the premise of those posters supporting VAT on private school fees is that why should those with sufficient funds be able to access a "better" education than those who don't have the money.

On this logic surely private health care should also be taxed on the basis of why should those with sufficient funds be able to access quicker / better healthcare than those who don't have the money.

And tutoring, music lessons, sports clubs, childcare, residential summer camps, drama groups, books.

All vat exempt.

Uk book market 4bn. Tutoring 2to 4 billion.

To be clear I support the VAT exemption, consistently applied, because of social benefit arising from all the above. But "the rich" buy more books and tutoring etc. The only reason Labour aren't targeting these exemptions is middle England might notice this is pitchforks class warfare. Much better politically to point at "the rich" being the private school crowd.

Gotta keep saying it...nowhere else in the world taxes education. This isn't ironing out an anomaly, it's creating a new one.

@MisterChips

That's interesting - nowhere in the world taxes education.

A Labour policy only made possible by Brexit - somewhat ironic

Hi Runemum, thanks for that. This bit in your link As things stand, under UK VAT law, education provision by eligible bodies is an exempt supply for the purposes of VAT. Registered independent (private) schools currently fall into this category. Private/independent school fees are, therefore, VAT-exempt. is completely right and that's what I mean - all independent schools are 'eligible bodies' regardless of whether they are charities or not. That means that the education that they provide is exempt from VAT in the same way as it is for Universities etc. The only way that an independent school woudn't fall in to this category would be if it wasn't registered and so were operating illegally (in which case I doubt they'd be too worried about VAT)! I don't know anything about Cognita but I am assuming that they are doing everything legally!

The complication is that non-profit providers that meet certain conditions are also 'eligible bodies'. If the VAT notice is amended to just remove independent schools from the list of eligible bodies then (at least some of) those that are charities are likely to fall into that exemption. To achieve thier aim Labour would have to amend both aspects, but the latter would need some careful consideration if they wanted to avoid catching other charities that might provide education.

The tax notice with the list of eligible bodies is here: www.gov.uk/guidance/vat-on-education-and-vocational-training-notice-70130#section-4