The private schools debate: Is adding VAT a ‘totemic’ move?
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Labour’s policy to add the value added tax on private schools will come into effect on 1 January 2025. But how much will this impact the education landscape in the UK?
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Read time: 4 minutes
In brief…
- Labour made a manifesto pledge to add a VAT charge to private school fees, which they are currently exempt from.
- The party claims it could fund 6,500 new teachers in England, that it won’t force private school’s to close and won’t overwhelm state schools.
- The News Agents say the move is more of a totemic one, and won’t have a radical impact.
What’s the story?
Labour has not been shy about the fact it needs to raise more funds to fix the £22 billion fiscal black hole it alleges was left behind by the Conservatives.
But before it even knew about this, it made a manifesto pledge to raise money by adding a value added tax (VAT) on private school fees.
Currently, private schools do not have to charge the standard 20% rate of VAT on their fees because of a legal exemption for organisations providing education.
So what impact will adding this charge have on the education landscape? Could the increase in fees see private schools close and state schools become overwhelmed with students?
Or is this more of a symbolic policy aimed at simply stopping a tax break for the wealthy?
What has Labour argued?
The party says it is removing the current exemption private schools have from paying VAT to fund 6,500 new teachers in England.Keir Starmer has insisted there is “no evidence” to suggest private schools will have to close due to these plans.
He said: "I think they will adapt. They've had lots of increases in costs over the last 14 years and they've accommodated it.
"There's no evidence to show these schools will close. They don't have to pass the cost on to parents."Lewis points out that rather than becoming overwhelmed, there are “state schools closing because of the rapid decline in roles, because people are having fewer kids because they can't afford it.”
How will it work?
VAT at the standard rate of 20% will be added to private school fees from 1 January 2025.
It will apply to around 2,500 private schools in the UK. Around 7% of all students are privately educated.
Half of England's private schools have charitable status, which means they also receive an 80% reduction on business rates. These are taxes on properties used for commercial purposes.
Rather than scrapping private schools’ charitable status entirely, Labour pledged to end VAT exemption and business rate relief in its general election manifesto.
What’s The News Agents take?
Emily argues that the policy will have “virtually no impact on the education landscape”.
“I think it won't raise a huge amount of money. I think it's a totemic move”, she says.
That’s partly because it affects such a small percentage of the population.
Emily adds: “I bet that the parents, the families, will be absolutely furious. And then they'll make their decision.
“The ones that will want to carry on with private education will do it, the ones that think, ‘am I getting a particularly good deal here’ will move. But I don't think it will have a massively radical impact.”
Lewis agrees: “It won't have much effect, because you're talking about quite small numbers.”
The one thing it does do, Emily says, is it “speaks to fairness”.
“Why would you give people that can afford it a loophole?”, she asks.
Lewis makes a similar argument.
He says: “When people say things like ‘we won't be able to afford it if they do this’, that's like saying ‘I could afford a Lamborghini if only the government didn't charge VAT on it.’”
The sales VAT, Lewis notes, applies to most things that people buy. So why should it differ if choosing to buy a private education?
“Historically, we haven't done so on private education. That's a change, but I can see why it polls well. Basically, you're making an argument for a tax break on a luxury good in terms of the effect it will have on the education system.”
Jon says he is interested to see whether the policy will raise money.
But he adds: “The problem that Labour have got themselves into is…they ruled out so many tax increases on VAT or National Insurance, on income tax, on corporation tax…that leaves them limited room for maneuver.”
Listen in full on The News Agents.
