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.”

Private school parents should just get better paid jobs. Or take in ironing. Isn't that what poor people are always told?

@CurlewKate

Or alternatively if high earning parents no longer have to pay for private school fees and send their children to state schools then a fair number (predictably women) will simply reduce the number of days they work thereby reducing taxable income.

I mean parents (and again predictably mothers) might be willing to work long hours in well paid but highly stressful jobs if they believe they are doing it to give their children a better future. But they are much much less likely to do this for the sake of a new car or a fancy holiday. They would just cut their hours - I know I would for sure.

There are quite a few parents considering this. There’ll be couples retiring early too if they no longer have school fees. Some of those are in the medical and teaching professions, so it’s not just the tax revenue which will be lost, but valuable employees working in jobs which are struggling to recruit.

Absolutely. And the economy values not just teachers and doctors. Not all higher-earners are pointless value-destroying bureaucrats in public sector or in big corporations. Plenty of architects, engineers, entrepreneurs, small businesses, middle managers, accountants, lawyers...you name it.....we all have customers, employers and employees who are worse off if we work less or quit (whether now, or as you say later in life). and all of the related economic activity is taxable (VAT, income tax, corporation tax etc.)

Nobody has thought any of this through, but to quote the Adam Smith Insitute: "it would be a foolish government that takes risks with the labour supply, value creation and tax contribution of higher earners".

I just can’t understand the logic behind introducing a policy with unknown risks and consequences which raises a relatively tiny amount of money. I could almost understand it if it was forecast to raise a meaningful amount of tax, but it isn’t.

Even the questionable IFS report estimate only amounts to around 1% of the state education budget. In reality, it will be less than that because of the questionable assumptions made in that report. For example, that estimate assumes that every parent who moves from private to state spends every penny saved on school fees on other goods and services subject to 20% VAT. They don’t seem to have considered that parents might spend the money on foreign holidays, savings, lump sum gifts to children, or pension contributions which will attract tax relief.

...or very likely tutoring, which is VAT-free (for now...) and has a strong element of "grey economy" i.e. cash-in-hand work going on.

I say "for now" of course. Anyone using tutoring should realise they're next for the pitchforks.

One issue for the 'just earn more' approach is that many of those most affected are paying fees from PAYE income that is already at very high marginal tax rates. E.g. I was speaking to a hospital consultant friend the other day and she and her DH (also hospital Dr) are at the point where for every £1k extra they earn they take less than £200 home. That's a combination of 60% tax (inc loss of personal alowance), NI, pension contributions and student loans. They'd worked out that between them they'd have to earn £50k more gross to pay the VAT on fees. That's not likely to be possible anyway but there's clearly no point in doing that much extra work just to pay lots of tax. There would perhaps be some personal benefit through increased pension but Labour are also saying that they'll reverse Hunt's changes to pensions so that just puts them back in the position of fearing huge tax bills for pension contributions.

The only reason they were using private school anyway was to allow them both to work full time in a way that worked for their family (flexible wrap around care, close to the hospital, all homework, reading and clubs like swimming done at school so allowing them to have down time with kids at evenings and weekends). The obvious answer is to both cut back on hours worked and move the the state school, which is exactly what they are planning and, they said, others in their postion at work are planning the same thing. They are both burnt out and in areas that are struggling to recruit so it's a benefit for them but another cost to greater waiting list time etc for their patients.

So putting VAT on private school fees is going to deprive us of a whole raft of public service workers? Interesting perspective.

Not specifically public sector workers no, though I imagine that being in fixed pay scales (that have had below inflation rises) makes it more difficult to move jobs and increase earnings so I suppose there's a plausible argument that they might be distinctly affected. I think it'll be a choice made by lots of people in high 5/low 6 figure jobs who pay fees from PAYE income, regardless of sector. The choice to move to state and work less is something picked up in the Adam Smith paper mentioned up thread. My recollection is that the IFS paper specificially said they were not considering the potential for reduced labour supply so it's not in their figures.

@CurlewKate

I think it is irrelevant whether it causes a reduction in hours or early retirement in the public sector or private sector.

What is relevant is that it will cause a reduction in income tax revenues that impacts the rest of Govt spending.

Will it be a “whole raft”? No one knows. What is certain though is that some families will decide to switch to the state sector and stop/reduce their employment in whatever area they work in; public sector or otherwise.

The IFS paper said something slightly different - that the extra VAT amounts to a "2-3% increase in overall expenditure" which implies a household income of over £100k after tax....say £150k gross...which is a heap more than many private school families actually earn...and that increase in tax "might" cause a labour supply effect.

They don't consider the labour supply effect if, instead, families chuck it in and go state and put their feet up. Which as we're discussing, is a colossal omission.

Thanks MisterChips. In the Exec Summary (point 7) they say We have not accounted for potential reductions in labour supply and I took that to mean tht they had not considered the choice to move to state and either reduce working now or increase pension contributions to work less in the future.

Unfortunately there are a lot of scenarios the IFS report seems to have overlooked; scenarios which are blindingly obvious to many parents.

I do love the way private school people chop and change according to need. They are usually ordinary people in ordinary jobs scrimping and saving. Today they are incredibly highly paid and highly skilled so the prospect of 7% of them backing off a bit or taking early retirement would be a massive blow to the economy......

Yes and they are so special and irreplaceable that absolutely no one else would be stepping up and into their roles if they retired early or went part time . Didn’t you see? Some of them are accountants!!

Waiting for someone to come in and insist that actually 90% of that 7% are highly trained specialist nhs doctors and surgeons now..

@Trufflump "Waiting for someone to come in and insist that actually 90% of that 7% are highly trained specialist nhs doctors and surgeons now"

Apart for the ones that are dedicated highly skilled state school teachers....

"I do love the way private school people chop and change according to need. They are usually ordinary people in ordinary jobs scrimping and saving. Today they are incredibly highly paid and highly skilled"

"Yes and they are so special and irreplaceable that absolutely no one else would be stepping up and into their roles"

Yep, there's the angry jealous brigade again. Trust me, this policy won't make you feel better about yourself or your relationship with other people.

We've all been completely consistent. You can be a higher earner scrimping and saving. That's what we do. If people on (say) £50k after tax and £110k before tax were that easily replaced, they wouldn't be paid so much.

Oh, I do love being called "angry and jealous" for having principles and pointing out inconsistencies! 🤣

People at private school come from different backgrounds. Some will be scrimping and saving and might have to switch to state. Others might be in well paid jobs, but not high enough to justify school fees, and might switch to state and give up work. Others are so wealthy that the VAT won’t make any difference to them (these are in the minority). Others will struggle through, making cutbacks elsewhere.

There are some who work in the NHS and who are teachers though, and may well give up work. There are hardly queues of people waiting to fill these roles.

@CurlewKate "I do love the way private school people chop and change according to need. They are usually ordinary people in ordinary jobs scrimping and saving. Today they are incredibly highly paid and highly skilled"

Nope, sorry, no change. I'm still a single mum, scrimping & saving. Nothing's changed, sadly. DS has GCSEs this summer so I have to pay the exam fees as well. But he's nearly there.

I've got the fees to pay for the summer term but I've had to put the MOT and two new springs on a credit card. And the bill from the plumber when the central heating pump jammed last week. 🙄

As long as nothing else goes wrong before next pay day we should be ok.

Then I've got May, June, July and August pay days to save £3k for first term of 6th form. 😅

Jealous of you, why would I be? I don’t even know you!

Convincing yourself people only criticise your arguments because they are jealous of you is proper playground behaviour.

The imposition of VAT on private school fees will have an impact on a small number of people. It is useless to pretend that it will be damaging to society.

I don't know what your particular emotions are nor if it's about me.

But, like Labour, you're not really engaging with the consequences, costs and benefits of this policy. To understand the costs and benefits you have to understand (you don't have to like) the economics of those affected by this class war tax. Nothing else is relevant.

If you want to advocate for the policy without reasonably discussing the costs and benefits, then I can't explain it other than through anger or jealousy. If there's another reason, please let me know.