Private school : VAT : labour

[Usernamerequired123]

I have recently come across this petition. Not sure if many of you have seen this.

https://www.change.org/p/stop-labour-from-adding-20-vat-to-private-school-fees-and-forcing-kids-to-change-schools?recruiter=false&utmsource=shareepetition&utmcampaign=psffcomboshareeinitial&utmmedium=whatsapp&utmmcontent=washarecopy376858822en-GB%3Acv451328&recruiteddbyid=44b8f4b0-d22c-11ee-82d6-61cc5900aa84&shareebanditexp=initial-37685882-en-GB

As I said.

Agree. When we look back on the data in 5 year’s time we won’t see a cliff edge, but a gradual increase in movement away from private that starts 2 years ago and continues for several years until it levels off. No idea what the total movement will be, but I do know several families that have preemptively moved to state because they are very concerned about this policy on top of very high COL fee rises and don’t want to find themselves forced into a move at an inopportune time.

You may have reached such a conclusion about the work that's being done by people you don't know, paid for by other people you don't know, for customers you don't know, in industries that you don't know.

I think anyone reading the sub-thread will have realised you don't know and would tend to assume people's employers and customers are best placed to evaluate the value of their work. Seeing as they pay for it rather than shooting off on mumsnet.

Others may hopefully also understand that one less higher earner in the workplace is an economic contraction, even if as somebody assumed their place is filled by another on the same pay, which may or may not happen.

If the job needed doing and the pay was appropriate then the employer would replace the person, I don't think that is a controversial statement?

If your employer couldn't replace you one day a week, they could replace you all 5 days!
You may contribute more to your pension pot now to reduce your tax bill now, but you will pay tax on it eventually when you get your pension

That misses the point. Contracts at higher levels are based on attracting and retaining talent. Once an employer is satisfied they’ve made the correct hire the balance of power to some degree moves to the employee who can then demand quite significant flexibility. I know of many employees in such roles who work 4 day weeks or similar. Their employer has no desire to replace them in large part because they are paid for knowledge and experience rather than hours worked. The employer wants access to that persons knowledge and experience. If that is available for 4 days per week instead of 5 it hardly matters.

As for pensions I get 45% tax relief when I pay in. I can take 25% of my pot tax free at retirement and then pay a far lower marginal rate on the rest when withdraw it.

Put £1m in a pension pot and save 450k in tax. You can then take 250k out tax free when you retire and the remaining 750k could be withdrawn gradually over 15 years without ever paying more than 20% tax. You also get your personal allowance back when taking your pension meaning over 15 years another 180k of the withdrawal is tax free.

In total you save 450k tax while filling up the pot and only pay 20% on 570k = 114k when you take it out. That means I save £336k in tax in total. It is way more tax efficient than taking it all as salary.

@JessS1990 your view of employment is pretty transactional. Many high earners can demand high salaries because of their ability to drive value creation for their employer, and that can be highly specific to the individual, the company and the industry. About 60-70% of my job is fairly straightforward and easily replaced, but 30-40% is really difficult to find the right combination of skills in a single individual. It is also the bit that is most critical for the customers I serve. Some people ARE very difficult to replace, meaning they can demand higher salaries and/or set their own parameters on work hours. their choices around workforce participation can drive overall economic activity up or down.

Get over yourself.
Employer won’t agree to reducing hours if they can’t get someone to make up the hours.
Plus how many people do you think actually earn 500k and also have kids in private school and would decide to pull them out on that kind of salary?
Honestly the amount of ‘economics’ on this is just so out of touch of reality!!
no one really gives a crap about people on 500k moaning about having to pay more in school fees!!

Are they the same kind of talented people who caused the 2008 crash?

It's true that some people have very specific skills and can command a very high salary and wouldn't be easy for an employer to replace. However, I think there's quite a bit of exaggeration going on here..... I highly doubt there are thousands of extremely high earning people who'll leave the workplace and who can't be replaced if Labour implement this policy.

I don't know the difference between "I earn 500k" and "I put 500k into my pension over several years". But I'm going to say people talking about economics don't know what they're talking about. @Janedoe82 seriously?

"I highly doubt there are thousands of extremely high earning people who'll leave the workplace and who can't be replaced if Labour implement this policy." This is even more amazing. So, if one person leaves, they'll "be replaced" and you can imagine there's no harm to the economy or public finances. By that "logic" we can all knock off. We're all replaceable, right?

A quits, B takes A's job. Even if we generously (and improbably) assume B is equally effective and earns the same, the country's taxable output is still less by the amount of whatever B was doing before.

And we're not talking about "extremely high earning people". Those on £hundreds of k will likely just pay that VAT. We're talking about the much greater numbers on the margin of affording private school, earning (say) somewhere in the top 3 or 4 deciles, especially where it's their second income (2/3 of private school families) and their marginal disutility of work, which is very strongly affected by high tax rates and childcare withdrawal.

Marginalism - Wikipedia

You misunderstood what I wrote. The 500k is total income over a period of time not in a single year. The economics on the thread are my precise circumstances so are far from theoretical.

As for higher earners being able to negotiate shorter working weeks well that happens all the time. As I explained if you are in a role where knowledge and experience are what attracts the higher salary rather than number of hours worked then of course there is less need for you to have a 5 day contract than if you were doing a manual job for example where your output was directly related to your physical input. In many cases the employer quite likes being able to pay 80% salary to cover the role and the employee doesn’t lose anywhere near 20% of their income due to high marginal income tax rate.

In many cases, as with all purchases, it will be as much about perceived value as affordability. The point I make is that if someone in my circumstances suddenly decides that PA is no longer value them on the Treasury and tax payers will find there’s a huge financial hole to fill that will have to be paid by other taxpayers. 300k is a conservative estimate.

A final point to consider is that many PS parents are older than the average state school parent as it would be pretty much impossible to self fund the fees if you were younger. This means that many are also factoring in retirement which for at least one parent may well happen well before their children leave school. It is another factor that could lead to far lower taxation being paid if people start winding down careers or retiring early if they no longer need to pay the fees.

@Janedoe82

"Get over yourself.
Employer won’t agree to reducing hours if they can’t get someone to make up the hours."

If you are an employee earning £250k plus then the rules of the game change. It really is different to a normal paid job.

The only reason someone gets paid £250k plus is that they have very specialist skills and experience. If there were loads of people who could do that job then the company wouldn't have to pay £250k.

So the employer would undoubtedly agree to reduce the hours of someone on £250k because if they don't then they risk the employee leaving, finding a replacement would be very difficult and much more expensive and lastly they know that even if the employee drops to 4 days then they will still get 5 days of work out of them (working evenings and weekends unpaid etc) but only have to pay for 4 days.

@elisamun

, "I think there's quite a bit of exaggeration going on here..... I highly doubt there are thousands of extremely high earning people who'll leave the workplace and who can't be replaced if Labour implement this policy."

I agree it would be an exaggeration that thousands of high earners would leave their jobs over this policy.

But I don't think it is an exaggeration to say that thousands of high earners would reduce their hours or days worked over this policy

Most private school parents are on no where near £500k a year. You need to earn around £160k to put you in the top 1% of earners. The top 5% earn around £85k. 6% go to private school - 20% at sixth form level.

@1dayatatime quite possibly some would, if they're working more than they want/ in a job they don't enjoy just to pay school fees. I don't know where you get the figure of thousands from though.

I just think this particular point is being over egged though - particularly as some of the private school parents have themselves admitted that if this policy were brought in, they'd move to the catchment of more desirable schools, which would likely mean maintaining their earning because house prices are likely to be significantly higher.

@elisamun

"@1dayatatime quite possibly some would, if they're working more than they want/ in a job they don't enjoy just to pay school fees. I don't know where you get the figure of thousands from though. "

I think that a lot of people earning over say £150k are working way more hours than they want (unpaid evenings, weekends and holidays). You don't get to earn that kind of money and expect 9-5 hours- you basically work whatever hours are expected of you. Equally when you are under that level of pressure and long hours then again I think a lot of these high earners don't enjoy the job they do either but can't get out because the money is so good.

As for the "thousands" yes you are right it's just a figure I randomly chose. No one will know the true impact until the measure is brought in.

@elisamun i don’t think anyone is saying the majority will leave work or reduce work or even that the majority will leave PS, but relatively small shifts have an outsize impact on the cumulative tax take of the proposed policy. If a few percentage points more students either switch from or never start private AND some of those parents reduce their income tax or other VAT contributions this policy quickly goes from £1billion+ tax take to zero, and may even result in a net loss (especially when you factor in implementation and legal costs).

and that’s not factoring in the social impact for the children and families impacted (both those that are currently in PS who have to move as well as those that might be displaced as a result of that movement). Impact might not be widespread, but for some specific localities it might cause noticeable disruption.

i think what all of us PS parents are asking for is an honest appraisal of the proposed policy and its impact bot financially and socially.

That's exactly it. This policy is being claimed to raise £1.5bn or whatever it is today, based on extremely optimistic assumptions. It only takes a small behavioural change (kids go state, parents reduce hours, a few school closures) to take some £hundreds of millions off the total. A less optimistic outcome sees losses>gains.

We should have a complete and honest appraisal, and it should reflect opportunity cost. The opportunity cost, of course, is "how we could raise money in better ways". Taking £1.5bn more in income tax, for example, whether you pitch it at the top decile, third, or half will

• raise money with much greater certainty
• require no legislation - and thus no avoidance/enforcement challenge
• not disrupt anyone's education
• ensure "the rich" that get great state schools today while buying VAT-free tutoring also contribute to improving state schools
• better reflect the social benefit of all forms of education rather than upholding the interests of state education only

Alternatively we could be like Finland and say EVERYONE needs to pay more taxes in return for better public services. But I don't hear anyone making that case.

PS: It's not a "get out" to say people will just move house. Moving house is a waste of resources and a huge deadweight cost to society and results in displacement of another child from whatever is the "preferred" state setting.

Not all.

Some private school parents are perfectly happy to pay VAT on what is not an essential purchase.

Do you also expect a complete and honest appraisal of the Rwanda scheme?

"Some private school parents are perfectly happy to pay VAT on what is not an essential purchase."

Do you actually know any such parents? I have my doubts. Anyone who (individually) thinks this is a good cause, is free to donate money to the government. The website is not widely used.

In contrast, I would hope anyone who can read and write would realise that an "honest appraisal of the proposed policy" is a precursor to collective action. You'd say "Mmmm, I'm 'happy' to pay more tax, but I recognise that not everyone will be, and there can and will be unintended consequences". You might also say "I have spare money but many don't". Obvious things to consider.

"Do you also expect a complete and honest appraisal of the Rwanda scheme?" @JessS1990 I hesitate to dignify your question, but I want all government policies to be carefully considered for costs and benefits so that we try to avoid being guided by emotions like anger and envy.

@JessS1990 i can tell someone has ceded an argument on its merits when they resort to ‘what about-ism’.

I quite agree.
The government and its supporters do seem to be just left with whatabouts rather than trying to explain why we should vote for them on the merits of their time in government.

@JessS1990 i’m neither in the current government nor one of its supporters, so not entirely sure who you are talking to. If Labour stick to their guns on this and maintain an antagonistic stance on private education, they will lose my vote, though. I just can’t support a party that seems intent on going after my children in order to score political points with a poorly conceived policy that is uncertain to generate any revenue.