Labour’s strategy of adding VAT to private school fees has been questioned by a think tank that reported the policy to be based on flawed calculations.
The size of the revenue unlocked by Labour’s policy seems “very optimistic,” said the report, adding that it doesn’t account for pupils driven away from private to state schools as a result of the tax. Such change would require extra funding to educate these pupils in state schools.
If implemented, the addition of VAT would lead to a 5 percent decrease in private school numbers, the report said, referring to data in the Labour Party manifesto in 2019.
However, the think tank argued that Labour’s numbers represented the impact of rising fees over the course of two decades rather than a substantial one-off rise. EDSK set the lower estimate in pupil drop-off from private schools to 5 percent and the upper estimate to 25 percent.
In the lower drop-off estimate the addition of VAT to private schools fees in 2022 would generate close to £1 billion a year. Under the upper estimate scenario—when 25 percent of private school pupils switch to state schools—the total would be £19 million.
“A crude midpoint between the upper and lower estimates for pupil drop-off would result in around £486 million a year in new revenue for the government – less than a third of what is currently claimed to be the likely impact of charging 20 per cent VAT on private school fees,” the report said.
In 2021 Labour pledged that its government would end the charitable status of England’s private schools, which would disqualify them from the tax exemptions that come with it.
EDSK noted that several legal and accounting issues may emerge from removing the charitable status of private schools and adding VAT on their fees.
Future Revenue
The policy would be unlikely to affect the wealthiest families “who send their children to the most expensive private schools,” EDSK said.“Smaller, mostly primary, private schools would be a very different story,” said EDSK Director Tom Richmond on Twitter.
The richest households “may be able to avoid the extra tax altogether,” according to the report.
Families who can afford to pay private school fees for more than one year in advance—before the policy is introduced—will be able to avoid the new tax entirely “and in the process deny the government an average of around £2,000-2,500 per pupil for every year of advance fees,” said the report.
“Even if parents cannot afford to pay for as many as 14 years of private education in one go, every year of fees paid in advance that does not attract VAT would nonetheless have an immediate impact on the government’s future revenue.”
Labour said that the EDSK report rested on flawed assumptions and left more questions than it answered.
“We do not accept that the numbers of students leaving the sector would be anywhere near those cited in this report, something which previous research from the respected Institute for Fiscal Studies has also been clear about. The report also assumes that money not spent on private schools would not be spent on other VAT-able goods and services: that shows that this is simply not a serious piece of research,” Labour said.
Labour reiterated that its policy is to invest in state schools by “ending the tax breaks private schools enjoy.”
