Private Schools Don’t Have to Pass VAT Costs to Parents, Says Labour Leader

Labour leader Keir Starmer holds five month old Hazel as he joins party members in Chatham, Kent, where Labour has taken overall control of Medway Council for the first time since 1998 on May 5, 2023. Gareth Fuller/PA Wire

Labour leader Keir Starmer has said that private schools don’t have to pass increased VAT costs to parents, while discussing the party policy on taxing independent schools.

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.

The party has now changed its approach, arguing it doesn’t have to remove the charitable status in order to impose a 20 percent VAT on private schools in England.

In this case, independent schools will still be able to claim gift aid on donations and not pay tax on annual profits, which must be reinvested in education.

Should Labour win the next general election, it aims to impose a 20 percent VAT on private schools in England in its first year in power.

Speaking to BBC’s “Political Thinking with Nick Robinson” podcast, the Labour leader said the policy was not an “attack on private schools.”

“It’s just saying an exemption you have had is going to go,” Sir Keir said.

He added that the schools don’t have to pass the costs on to the parents by raising fees.

“And each of the schools is going to have to ask themselves whether that’s what they want to do,” he said.

Chief executive of the Independent Schools Council (ISC) Julie Robinson said that “an additional punitive tax on parents who pay school fees” was unfair.

Ms. Robinson called on Labour to “find a better solution that isn’t just punishing parents and punishing a type of school.”

VAT Revenue

According to Labour, VAT on private school fees would yield £1.6 billion a year, which could be invested in state schools instead.

However, a recent report by the EDSK education think tank has questioned Labour’s calculations, calling them “very optimistic.” Labour’s doesn’t account for pupils driven away from private to state schools as a result of the tax, the think tank argued.

The revenue yield for the government would be less than a third of what Labour has claimed, EDSK added. In response, Labour rejected the findings of the report, calling it “not a serious piece of research.”

The Conservative Party has echoed the concern that taxing independent schools would negatively impact state schools.

Education Secretary Gillian Keegan has said that without the VAT tax policy in place, the government will provide £2 billion per year for schools, which is more than under Labour’s plan.

Minister of State for Education Nick Gibb said that making independent education less affordable could create “place pressures on state-funded schools which have limited capacity.”

He confirmed that the government had no plans to change the tax status of independent schools.

U-Turn

Labour’s U-turn on removing the private schools’ charitable status was confirmed by the party spokesman on Wednesday.

If it wins the election, said the spokesman, Labour will remove “unfair tax breaks,” enjoyed by private schools and channel the funding to “desperately needed teachers and mental health counselling in every secondary school.”

It comes after shadow education Secretary Bridget Phillipson outlined a similar position in January. She called for a new committee to consider a reform of private schools’ tax status. Her motion, however, was defeated during a House of Commons debate.

There are around 2,500 private schools in England and Wales. Half of them are registered as charities, the government confirmed in 2022.

If Labour takes away the tax relief associated with charitable status for independent schools, it would create a two-tier system within the charity sector, ISC has warned.

The council spokesperson said that it would set a precedent and “any charity seen as not reflecting the political ideology of the government of the day could be subject to additional taxes.”