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.”

@CurlewKate

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

Firstly VAT on private school fees from a taxation perspective doesn't actually raise that much - if you take a total raise of £1.6 billion less the additional cost of education for those switching to state of £400 million (IFS figures) gives a raise of £1.2 billion which is approximately 1% of the education budget. So my question to you is whether your support for VAT on school fees is based on raising tax revenues (in which case it's not very effective) or you feel that private education as a concept is unfair.

If it is because you feel it is unfair as a concept then presumably you would also support VAT on tutoring or private health care. Otherwise this would be an inconsistency.

If you are concerned about raising tax revenue then a far more effective means would be to apply CGT on all house sales including principal residences, after all this is effectively unearned money.

Please could you have a go, then? What size impact and how small a number of people?

Nobody on this side is pretending. And we have the slight advantage that, being feepayers, we know about the economics we and others all face.

I agree with that, although the policy is really just a bit of red meat for the Labour left. It’s not going to improve state schooling.

The estate agents must be happy though. All those ex-independent parents competing with the middle class left to buy into good schools’ catchment areas!

God you’re actually insufferable.

coming to different conclusions to you or having different values and principles to you doesn’t mean im bitter or jealous of some username on mumsnet because they claim to have an economics alevel or whatever you think I’m jealous off. It’s proper playground talk. It sounds like you’ve never actually graduated from your private school debating club.

@CurlewKate

281,980 jobs supported by ISC schools across the country include:
• 152,290 teachers and support staff directly employed by the schools themselves;
• 33,550 indirect jobs in the supply chain, supported by their procurement of goods and services from third party businesses; and
• 96,140 induced jobs supported in the UK consumer economy, by the salary-funded spending of school and supply chain staff.
£4.3 billion in tax revenues for the UK exchequer is made up of:
• Some £2.0 billion in direct taxes, paid by ISC schools themselves, and by their staff on their salaries;
• Another £0.4 billion of indirect taxation collected along the schools’ supply chain; and
• £1.9 billion of induced taxation generated by the salaryfunded spending of employees.

The net contribution to UK GVA in 2021 from independent schools was £16.5 billion. To that you need to factor in £4.4 billion that is saved every year by providing places for pupils who could otherwise be expected to take up a place in the state sector.

How much of that would you like to lose? Because with the negative attitudes of selective universities and employers, the fact that the best state schools get better results, and there is already considerable fluidity between educational sectors for a great many families you should anticipate losing a fair bit. Let's say the private sector contracts by 20%, which is realistic given that 30% of children receive help with fees, some of that £4 billion is coming out of your pocket.

If it comes out of income tax it will affect about 30 million people to the tune of about £140 per year. Not a huge amount in itself but with increasingly expensive energy etc etc not desirable for public services.

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!!

Accusing anyone of playground talk after that is very amusing. I would be fascinated to hear about these "values and principles".

I wouldn’t want to make you bitter and jealous of them :)

Yes to that

Appreciate the pp detailing the economics, its key to any policy

I have a masters and a career in economics, but you're right that it only takes A-level economics to know about the "income effect"and the tradeoff between income and leisure, which is the argument you're not engaging with. You might look it up here.

Then the facts which private school parents have first hand experience of. (1) We're not the millionaire stereotypes that the class warfare gang peddle. We're almost all hard-working higher-earning and very much higher-taxpaying people with jobs that deliver value to people and (2) that value also generates further tax. Here we are telling you, and we should know better than anyone, that (3) we, and people like us, might not afford VAT and might then demand the non-existent unfunded free taxpayer-funded state school places we're entitled to, and if we do we'll (4) reconsider whether we need to work, pay tax and deliver value in whatever thing we do. Maybe we'll be happy for others to pay for our free taxpayer-funded school place too. And that (5) significantly affects the cost/benefit analysis for this heinously bad tax that no other country in the world has.

You're not engaging with the arguments or facts. You're taking the piss out of us, ha ha. I can take a joke. Is that because it's uncomfortable for you? But I'd rather we had these discussions with people who are interested in making the country better rather than being content to make it more sh1t.

Since the cost/benefit analysis for this tax fails, the only possible justification for this policy is your "values and principles" are level-down at all costs. Since that's not actually making anyone's life better, and many people's lives worse (not just our children, like anyone's even thinking about children here, but teachers, support staff, state school families and the various people who quite like the work we do)... I can't help concluding it's the green-eyed monster at work.

I understand totally that a few individuals might take their foot of the gas if they decide they no longer want to pay school fees. It’s the assumption that this will be numerous enough and that these people will be so irreplaceable that this will have a measurable effect on the economy that is frankly quite self important and arrogant. For most jobs mentioned the next junior person will step up, someone down the ladder gets a promotion earlier than expected and who knows, maybe they buy that starter home or earns enough to step of uc, if anything it’s potentially a net benefit to tax payer in a lot of cases for these hypothetical parents to leave their jobs. So unless you think it’s swathes of doctors and nurses and teachers all waiting to retire early but are hanging on for school fees then I just don’t see how you can claim that. Additionally following your own argument if anything it sounds like a net positive effect on the children who will see more of their poor parents who were otherwise working all hours for something they could barely afford and potentially damaging their health for it.

this isn’t for “no benefit” this is estimated to raise £1bn. £1bn is huge I don’t know why people keep saying it isn’t. Expanding free school meals to every child on universal credit would only cost half that. We could do some great things with the money.

When they talked about tripling university fees everyone said the number of attending students would plummet and universities would close. It hasn’t. University places have increased and I can see the universities wealth increase just by walking around my city and seeing all the new buildings sprout up. Of course private schools will say they will close and talk about pulling items back. They want parents to kick up a stink on their behalf and to keep their profit margins which is ultimately where this fee increase would hit the most. That doesn’t mean they will actually close.

there is no chance the schools will shrug and just pass on 20% of fees and then close when no one can afford it. They will make cuts, be less selective, claim back VAT where they couldn’t before which will make huge savings for them and probably try and stagger any increase across a couple of years to soften the blow and hide it alongside the yearly inflationary increase. ultimately the increase that parents will see will likely be closer to 4% pa for 2-3 years to reach 10-12%total. Parents will grumble and a few will drop out/not start but most will just absorb it as part of the yearly inflationary increase.

my beliefs since someone asked are that I do not believe that businesses should be allowed to masquerade as charities. I know vatable and charity status are not one and the same but they are linked. I’d love to remove private school charity status as well. I see no reason why these profit making entities shouldn’t be asked to contribute more to the public purse.

As for the argument as to whether we should tax tutors as well, first I think U.K. tax law is wonderfully inconsistent and there would be nothing to prevent us adding one more inconsistency. Secondly I don’t think it would be a disaster if we did so I’m not sure it’s really some sort of gotcha. A huge chunk of independent tutors wouldn’t even make the VAT threshold anyway. If anything it might lessen entry barriers to more independent tutors by allowing them to price more competitively than larger companies who have to charge VAT.

It’s amazing that you think anything about your posts would make me jealous of you. For one I know nothing about you to be jealous off. It’s just arrogant to believe that you are so definitely correct that anyone who disagrees with you is ignorant or jealous.

@Trufflump i don’t think anyone is claiming any single sector will feel the loss due to private school parents stepping down or stepping out, we are arguing that this hasn’t been factored into the net impact on the estimated tax haul. £1.6bn is a small proportion of the ed budget, but it it is also a wild overestimate of the true net tax take when you also consider how it might change other behaviours. My own personal situation- I went from paying £60-70k in tax per year pre kids, stayed at home until they started school and then to about £5k per year when they started at state primary. I had no interest in working more, and given poor wrap around at our state school it would have been difficult to do so. When we moved to private due to SEN I had to work more, but also was able to work more due to better wraparound and the knowledge that all extracurricular activities could happen at school. I am gradually getting back to my pre-kid income, and last year paid £40k in tax. If we had to move to state, I would drop back to that £5k because I don’t love working that much, but also would need to facilitate all of the extracurriculars myself. So the net impact of our one family could be a £4k gain if we stay in private and pay VAT OR it could be a £45-50k loss (my lower tax plus need for state to pay for my children’s education). It doesn’t take too many families opting out to cancel the gains from parents that stay

I understand totally that a few individuals might take their foot of the gas if they decide they no longer want to pay school fees. It’s the assumption that this will be numerous enough and that these people will be so irreplaceable that this will have a measurable effect on the economy that is frankly quite self important and arrogant.
I'm not sure that's fair. Labour are arguing that this is a revenue raising policy and the various research papers are testing that with models that range from a positive to negative economic impact. People are talking about the assumptions and uncertainties raised in those papers. The Adam Smith paper looks at the labour supply issue in detail and that's a reasonable part of the discussion. The UK has a huge problem with productivity and skills in many sectors and there are already real difficulties in recruitment and retention in lots of areas, especially those where there is an international market place for particular skills. Certainly in my workplace we have real difficulties, partly because of the high marginal tax rates meaning that it's difficult to make a meaningful difference to take home pay. More and more people are working part time, not applying for promotions and retiring early because the additional work isn't financially worth it. In an international market place we're becoming less competititve because high marginal tax + expensive housing + poor schooling means it's more attractive to go elsewhere. VAT on school fees isn't a standalone factor, it's feeding into a problem that's already there.

I’d love to remove private school charity status as well. I see no reason why these profit making entities shouldn’t be asked to contribute more to the public purse. Charities aren't able to make a profit, any surplus goes to the charitable objects. Those schools that are charities are not profit making.

Also the suggestion that schools will just ‘cut back’ doesn’t seem to consider that the majority of any cutting would come from teaching and support staff (the vast majority of costs are salaries after all), which reduces tax take in addition to inflicting real personal harm to those affected. Sometimes industries need to streamline in order to survive, but I wouldn’t celebrate the loss of livelihood for those that lose out.

and not on topic at all, but you must be living under a rock if you think the HE sector is thriving now.

All your assumptions are based on no one else stepping in to take that private school place or no one else stepping in to earn that tax you don’t want to earn. That’s where it falls down.

@Trufflump our school is not at full capacity (most aren’t outside of the small set of selective), so there is no reason to assume someone would take our spot when it becomes 20% more expensive.

and your conception of an economy that has a fixed amount of labour demand and perfectly responsive labour supply is pretty naive. Sounds like you need a crash course in economics fundamentals. Like many private school parents I am self employed, and most of my business relies on my ability to generate new demand for my services. I am literally growing economic output when I choose to work. I also have a specialised skill set that is difficult to replace - if I don’t work there aren’t many that are both able to and interested in taking up the slack.

"it’s potentially a net benefit to tax payer in a lot of cases for these hypothetical parents to leave their jobs. "

"Additionally following your own argument if anything it sounds like a net positive effect on the children who will see more of their poor parents who were otherwise working all hours for something they could barely afford and potentially damaging their health for it."

Does anyone remember The Good Life? I'm sympathetic to the latter quote from @Trufflump - dear old Barbara and Tom - but I'd leave it to families to figure it out.

But the first quote is definitely where a crash-course is indicated. The Leadbetters might have been uptight and stressed, but they were vastly bigger helpers to the taxpayer than the Goods.

If you have a position whereby you pay £60k tax, there will be no shortage of people willing to fill it !

"willing and capable"??? In the last few years I've interviewed several people for roles at / near that level. On half the occasions, despite tens of applicants, I've not hired anyone.

Well @ageratum1 I am self employed at the moment. Anyone who thinks they can do so are welcome to set up their own shop and do the same today - no need for me to step down.

there are lots of jobs on payroll that are in shortage as well - like @MisterChips we often had senior roles go infilled for years at my previous firm. It isn’t always as simple as promoting the next most senior person, and it can take years or decades for supply to adjust to demand when specific training and or qualifications are required.

If only we had the skilled labour so readily available. That is certainly a situation we need to get to.

Current reality however is over 2 million working age adults on longterm sick, another million have chosen early retirement. https://www.google.com/amp/s/www.bbc.co.uk/news/business-68639144.amp

We want to generate more highly skilled labour and incentivise them to work and pay taxes....

I would suggest that a senior role unfilled for several years is not really needed?

Don't worry because apparently everyone coming in on a small boat is a highly skilled doctor according to some! ;-)
But the labour party could simply end movement of capital overseas as they used to do before Maggie repealed it

@ageratum1 only if the business has no desire to grow

It's as if you think growing the economy will generate more taxes, serve more customers better and generally help everyone be better off.

I find the anti-private school sentiments hilarious. I would assume they come from individuals with no children. Currently just over 7% of UK children are in independent schools of which about 50% come from families in the top 10% of earners. The 20% is likely to push significant numbers of children back into state education increasing pressure on schools. So if you live in a good catchment area the chances of your child getting into that good state school will be significantly reduced. On top of which the perceived re-coupment of taxes would be less than 2% of current gov spending on education, hardly transformative. Oh and then there are SEN students, a significant number of which are supported through private educational establishments. You may as wll wave goodbye to that support unless the government is prepared to step up.