Private schools to go bust in the coming recession

[ampletime]

The mother of all recessions is coming in my view. The world economy is pushing towards a large scale and deep debt crises. This follows the explosion of government deficits, borrowing, and leverage in recent decades and now that debt is growing due to high interests. Governments are in eye watering debt, individuals are in debt and so are private schools.
In the last 5 years private schools have been on spending sprees with new builds and new facilities mostly for marketing appeal rather than need. But it’s all been funded on debt. I work for a building service solution company and the number of private schools in the last 5 years have exploded on our books all funded by debt.

I know of one boarding school now in trouble and they have sold off their build and it will be converted to flats.

Be careful folks out there. Times are not as good as these schools portray.

because its entrenching social inequities... and genuinely, no I would not pay for private school for my kids if I won the lottery- unless of course their school was crap.

Mugboat so you would pay for private school if ‘their school was crap’? That’s why a lot of people pay.

If more people were strident about this then perhaps we would see change.
Alastair Campbell and his partner Fiona Millar have strident about it for years and both are positions of influence.

@Barbadossunset

I should also add that I’m only mildly opposed to private schools - you can spend your money how you like, and I do think that private specialist SEN provision should be supported - but I am opposed to what in most cases are essentially businesses receiving preferential tax treatment.

It’s the grammar system that results in a two tier state system that gets my goat (hence we have always chosen not to live in grammar areas).

SabrinaThwaite fair enough.

Yes to charity. Legally they are charities that is not changing.

And yes to essential service which is why no VAT in other countries

This is a political ploy and gimmick to get people going. It won’t deliver much if any benefit.

You've extrapolated, with faux outrage. Remember you know nothing of my own background. So a for your lecture.

Do you pretend that NO young people, who need support and don't get it, experience issues that use up teaching time? Because that would be a ridiculous assertion.

Plenty of kids who are carers, live in one-income households, rely on benefits, have an absent parent, are homeless, are suffering themselves with illness or disability etc etc etc are well behaved in school, all day, every day is obviously true.

But you can see the educational outcomes across the national statistics as clear as I can - it is a national priority to address the widening gap the Tories have deliberately caused.

I guess we'll see, if it gets implemented!

Sometimes these policies fizzle out. It has high public support.

Personally I think private schools should operate entirely without subsidy, as they're not an essential service. I can't speak to international comparisons, but that's by-the-by really. This is a UK policy.

It’s really not a subsidy.

VAT is an extra tax. It’s just not attracting the extra tax.

And it will damage the sector. Schools will close. Any other sector and you’d see realistic posts on how bad that is to force closures.

It’s really poor. And yes there’s support because this myth of subsidy has been built up, but mostly people love the idea of taking away from others, particularly dc.

A subsidy is a direct or indirect payment to individuals or firms, usually in the form of a cash payment from the government or a targeted tax cut

You can argue it is a justified subsidy (I disagree), but you're wrong to pretend it isn't a subsidy.

@TizerorFizz Agree that there are lots of schools with not very much by way of endowments - they will be the ones to suffer the most and, if the charitable status goes regardless, will likely reduce the bursaries and other charitable activities as their budgets become tighter and they try to remain viable. But some of the them may well need to close down. As many have said, not the Eton, Winchester or Cheltenham or Roedean of this world, who likely will survive regardless.

I note that nobody advocating the VAT on schools has cared to comment on whether they would advocate that for private insurance and private health...I am genuinely interested in their views. (And also on whether those advocating the elimination of private schools also favour a similar 'no choice' approach when it comes to the NHS, the use of private health providers and avoidance of waiting lists).

FWIW, then yes I would agree to VAT on private healthcare (saying that as someone that has self funded for treatment).

Do you think every product that doesn’t incur VAT is getting a ‘subsidy’?

It’s not. It’s just not attracting an extra tax.

There are many extra taxes that sometimes get applied. The items that don’t attach them don’t use this politicised language of subsidy.

Thanks for the answer. And from your previous responses, I infer (please correct me if I am wrong) that you do not advocate the elimination of private schools either but both systems co-existing. Which seems definitely a more moderate and (imho) consistent approach than others.

Would you mind explaining what the subsidy is? I am not sure I follow the argument.

“But the VAT subsidy is not defensible. Private schools are not really charities, we all know what their purpose is. They should pay their own way without state support - and a special tax loophole is a form of state support. They provide a non-essential service, so VAT should apply.”

No other country worldwide levies VAT on education at 20 per cent. London and other large Cities attract high tax payers from all over the world, many of whom send their DC to private schools. The pound is tanking already and on a long term downward trajectory. Young successful educated people simply won’t come to the UK anymore nor stay to pay into the coffers. NHS is on its knees, massively ageing population etc. Once the tide turns and UK education no longer attractive as a whole, the unis will suffer even more as well.

Some of you do not realise that the game is now to attract the international well educated to pay high taxes for the rest of the country and to retain the young well educated. We will just lose out to Germany, Dubai, Singapore, Switzerland, Frankfurt etc etc. The poor will suffer the most. Wealth management and City of London is already massively suffering. Morality is only part of it. If you want to help the poor, you need cash. Our Government has not got nearly as much power or cash that everyone makes out. The majority of people do not even pay their way in taxes.

Given how little cash this VAT policy will raise, it is bonkers.

Oh is this MidnightOnceMore 's understanding of the subsidy?

"“But the VAT subsidy is not defensible. Private schools are not really charities, we all know what their purpose is. They should pay their own way without state support - and a special tax loophole is a form of state support. They provide a non-essential service, so VAT should apply.”

MidnightOnceMore could you be more precise on what the 'special tax loophole' as it's really not clear what you mean. Do you mean the fact that education is VAT exempt? That's not a loophole and is nothing to do with charitable status. Is it something else?

I think it's probably based on a misunderstanding of the situation. It's not surprising that people are confused because the way that the politicians have talked about it has been inaccurate and conflated the VAT/charity issue. There seems to be a misapprehension that state schools pay VAT on services they receive whilst private schools don't. In fact, as explained up thread, both pay VAT but state schools can largely reclaim their VAT whereas private schools can't. So at present the VAT system 'subsidises' state schools.

Do you pretend that NO young people, who need support and don't get it, experience issues that use up teaching time? Because that would be a ridiculous assertion

All kinds of kids use up teaching time for all kinds of reasons. Being disadvantaged (however you want to define that) is only part of that bigger picture. Children who in no way shape or form could be considered disadvantaged can, and do, take up teaching time too. It is not fair that children with the disadvantaged label on them are assumed to have behaviour issues.

it is a national priority to address the widening gap the Tories have deliberately caused

you can pretend that state education issues, as they stand, can be solved by levying some kind of subsidy from the private sector and spending on children who are labelled ‘disadvantaged’. But until you address the wider issues affecting education - teacher shortages, recruitment and retention issues, workload, increasing levels of poor and dangerous behaviour, actual physical abuse directed at school staff, tighter budgets, removal of support staff, schools treated as the answer to all things young people (look at waiting lists for CAMHS, for example), an expectation that more is achieved every year with less money - it is nothing other than a drop in the ocean.

The bit I really do not understand is the Maths. If I were a young parent choosing schooling for my DC now there is no way I would choose private, because I would feel the new Government has it in for me. So I would move into a good state catchment and I would home tutor or tutor for grammar/top stream comp. The rest of the cash I would save, let’s say 10000 to 20000 I would put in my DC’s ISA yearly (zero taxation) and would spend on foreign holidays or a house in France. Neither of which would make the Government any cash. It would cost them. Coupled with the fact that the school fees would have gone on extra created jobs at a private school - those people paying taes, net net and the fact they have to pay for my DC’s education until 18, will leave them massively out of pocket. So the Maths massively does not add up. I don’t think it will filter through for a while because I doubt private school parents already signed up will leave en masse day 1. However, it will be like people coming off fixed rate mortgages. And net net, the Government coffers will suffer massively in the long run.

This is the crux of it. The report Labour commissioned said that people would continue to pay and they are using this to justify their decision. As a parent of two children in prep, I will find the funds until they hit 11 as I am not going to disrupt their education but we have already set plans to do exactly as you suggest for secondary. We can't afford secondary fees with VAT added on, we were already debating whether they were worth it. The fact that the (likely) new government want to do all they can to penalise parents of children in private seals the deal.

As a result, we will take up two places in a good state secondary, they will pay for 7 years of DC's education, I will cut my working hours in half once there are no fees to pay (less income tax) and we will be able to save more. We are far from the only ones with this idea - it is a common line of thinking amongst many of my children's classmates.

When Bridget Philipson was on the Q&A on here she appeared to say that the Labour party hadn't done their own maths on this policy but were relying on this report https://ifs.org.uk/sites/default/files/2023-07/IFS-Report-R263-Tax-private-school-fees-and-state-school-spending.pdf

That report assumes that:

1. There'll be very low drop off in the number of private school pupils - but notes that there is very thin evidence to work on for this (see p19-21)
2. That those who do stop paying fees will instead spend that money on other goods and services (now or in the future) that will attract VAT so would make no net difference to the VAT take on the money.

Both of those are questionable assumptions and the report notes there is a great deal of uncertainty.

Presumably a responsible government would want to do much more work on this before introducing changes that will affect the schooling of half a million children, the livelihoods of many working in the sector and the country's successful international reputation for educational services.

@morechocolateneededtoday That is exactly what will happen. Parents will move to the catchment area of the best schools in even greater numbers. This forces up house prices. Yet again the left won’t care as it doesn’t affect them.

Plus @Ayalga We don’t see private health in the same light. Now nhs waiting times are so huge, it’s not seen as dreadful to pay privately. Not much different to the view taken by parents who educate privately. Health vat could be next though! Then look at the waiting lists!

You’re definitely not the only ones. Applications from our private primary to the nearest state grammar this year were higher than previous years, and there are less being sent to private secondaries. There will also be a lot already in the secondary system who will struggle through to GCSE level and switch to state for sixth form. I’ll await the complaints when people realise that there is increased competition for places at the better state schools…….

I’ve tried to explain this on previous threads. It’s not a “subsidy”, in the same way that the government isn’t subsidising basic food or flights (both of which attract no VAT). Are the government “subsidising” our energy bills because we don’t pay 20% VAT? What about children’s clothes?

VAT is a luxury tax. Private schooling is the definition of luxury: something you don't need but you want.

So is university.

So are afterschool clubs like Kumon, sports, and Scouts and private tutoring

So is childcare under 3.

So are school trips.

So are school dinners

Lets scrap them all just because there are some people who can’t afford them.

Exactly people don’t attach the idea of ‘subsidy’ to a loaf of bread

It’s just a way to get people going. People who use private pay twice anyway