Why aren’t people angrier at schools passing on full 20% VAT rise

[Newbutoldfather]

From what I can read, schools can claw back around 5% of the 20% of the VAT rise and, arguably, for the rich and famous schools, more than that due to past capital expenditure.

And yet most of these are passing on the entire 20% to parents so, in effect, a sneaky 5% fee rise, on top of this year’s existing fee rise.

So, why no anger or threads on here about it?

“There are a lot of very literal minded people on here.”

And governments should communicate clearly. “Schools can reduce base fees in order that parents do not have a 20% increase in one go” is a far better and clearer statement.

Exactly

But many schools can’t afford to reduce base fees!!!

The government is making it sound like they are all swimming in cash which is completely untrue for all but the most ‘elite’.

Lots of schools haven’t announced their fee rises yet. The amount they’ll be able to reclaim as input VAT depends on their expenditure. Staff costs are the majority of expenditure in all private schools, and there’s no input VAT atttubuted to that. Schools with low capital expenditure will be able to claim less than those with higher capital expenditure.

In addition to the VAT though, there’s also the business rate relief which is being removed (a large cost to many schools), plus changes to the TPS.

I agree. My point was that it would be a clearer statement.

I’m not sure the government themselves actually understands this though.

Yes, they do. They want to convey something slightly different though.

Just as the Tories banged on about “free childcare hours” when we all know that the subsidy amount isn’t enough for them to be actually free.

@Sandysoles ,

‘OP - fees and vat are literal things. The schools have to balance the books and they have to collect VAT at 20% of the fees. If the school can’t afford to reduce the fees then the customer will have to pay the fees +20%, anything else is tax evasion!!’

Incorrect

The net vat rate is around 15%, as they can claim back around 5%, maybe more initially as they can go back 4 years on building work expenses.

If you want me to be really literal, if the fees were, say £100, if they cut the net fees to £95, charge parents £19 of vat, so net £114 to the parents, and claim £5 back, they are left with £114-19+5=£100, the same as before. And all of this is amazingly, totally legal! Here the net fees the parents see are up 14%.

they are charities? oh behave

The 5% figure had been plucked out of thin air as an average figure. Some will be able to claim more than this. Some will be able to claim much less. There are many schools with very little capital expenditure who won’t be able to claim much input VAT back. In addition to this, they will also have business rates to pay which will be a large cost.

I think you took my post in a different way to how I meant it. I said making money, not making profit…even charities need to make money.

OP - your reasoning is faulty. You are assuming a 5% clawback, but this depends on recent capital expenditure. This is obviously going to be lower in the schools with the tightest margins. They don’t build new buildings every year!! You are also ignoring the fact that they need to take inflation + business rates into account. State teachers have been given a 5% pay rise, which all schools will need to match (unless you want teachers to leave your dc’s school) salaries are by far the biggest expenditure.

I think that tells you everything you need to know about private education.

Charitable status or not, they need to balance the books. That only happens when more money comes in than goes out. A 20% increase in costs needs to be passed on.

But the VAT they'll claim back is VAT they are paying their suppliers - its not additional money for them.

Yes. Also, reducing costs in order to balance the books at a private school is not easy to do. A large proportion of operational costs at private schools are staff wage related and making some teachers redundant and perhaps reducing subjects on offer may mean a loss of confidence in the services provided from the parents’ point of view.

Also, some schools have longer waiting lists and greater prestige than others. If a high in demand school passes on the full 20%, they can replace withdrawn enrolments with those from the waiting list. So the school profile is important in terms of how much of the VAT it can pass on.

@WalkingaroundJardine in my opinion it will be the less expensive schools with good reputations that carry on. As well as the ones where the parents don't need to worry about vat. Eg. The school I went to now will charge around £38k a year for day pupils. It has parents that just about manage the current fees. Those families will not necessarily want to use the state sector but do have the option to move to a less expensive school such as where DD is ensconced which is around £28k with vat. I know of quite a few families looking to move from that school to ours. It has a good rep academically, musically and pastorally.
Our school has a waiting list this term and 80 families looked round at the recent open day. The school only has 500 pupils so all seems going ok. Conversely the nearest competitor was able to offer a next-week start to a friends daughter looking to urgently move from state due to bullying so clearly has space. She applied to our school first but there was no space
.

And governments should communicate clearly. “Schools can reduce base fees in order that parents do not have a 20% increase in one go” is a far better and clearer statement.

Which they should extend with. “But regardless of what you pay; 20% is coming to us!”

@Sandysoles ,

‘State teachers have been given a 5% pay rise, which all schools will need to match (unless you want teachers to leave your dc’s school) salaries are by far the biggest expenditure.’

If they are, and they are, how do you explain this?

20% real-terms increase in average private school fees since 2010-

The independent Institute for Fiscal Studies says the average teacher's pay is 6% lower in real terms now than it was 14 years ago, and is no higher in value than it was in 2001. Experienced teachers have taken the brunt of that, with a real-terms reduction of 11% since 2010.29

That’s a 26% divergence.

@LivelyBlake ,

‘But the VAT they'll claim back is VAT they are paying their suppliers - its not additional money for them.’

Yes, it is additional money. They always paid the suppliers plus VAT and couldn’t reclaim it. Now they can.

That is additional money relative to when they were VAT free.

OP - the massive increase in pension contributions, national insurance, energy costs, inflation in other supplies (second highest cost is food + fuel) has needed to be covered, that’s why fees have risen. + reduced income over lockdowns when many schools gave a significant fee reduction.

Your anger is misplaced- this is the governments doing.

This

I find it strange that people aren't scrutinising the schools able to 'only' pass on 10/12% - if you've suddenly been able to cut the base fee by that much it sounds like things weren't very carefully managed before...

I get the impression most of the schools applying the full 20% aren’t struggling for pupils.

It’s the same with the popular nurseries near me - prices keep going up, not doing the free hours etc.

Supply and demand I guess - they’re businesses ultimately, why not charge as much as they think they can.

OP I just want to say thank you for posting in the 'private school' thread. Can't we get all the dozens of threads a day on VAT moved here?