Adding VAT to private school fees could raise “very little” extra money to spend on state education if a quarter of pupils leave the independent school sector as a result, a think tank has said –Tes reports.
Forcing private schools to charge VAT on their fees is also likely to have the smallest impact on the most expensive schools and the wealthiest parents, according to a detailed analysis by education think tank EDSK.
In September 2021, the Labour party said, if elected, it would end the charitable status of England’s private schools, raising an estimated £1.6 billion from VAT and £100 million from business rates.
The announcement has sparked outcry, with leading private school headteachers and others suggesting that is poses an existential threat to some independent schools.
Many were alarmed when Kilgraston School, a well-known girls’ Catholic boarding school in Scotland, recently announced it would be closing at the end of term, partially blaming the Scottish government’s recent removal of business rates relief on independent schools north of the border.
The EDSK paper, which provides a detailed analysis of how the £1.6 billion figure may have been reached, finds that charging VAT on private school fees is likely to raise far less than that per year.
It claims that the calculations behind the figure are “flawed” and do not take into account a drop-off in demand for private schools if VAT is added to fees – which would require extra spending to educate these pupils in state schools.
The report says the projections also included adding VAT on fees for nursery-aged children in private schools, even though no political party supports charging VAT on childcare for 2 to 4-year-olds.
In addition, the income projections simply added 20 per cent – the standard rate of VAT – to the fees of even the most expensive private schools, yet these are typically boarding schools and their accommodation is exempt from VAT.
The paper suggests that even under a “best case” scenario – based on the projection that only 5 per cent of pupils would quit private schools – the addition of VAT to private school fees would only raise around £1 billion a year.
Under a “worst case” scenario – in which 25 per cent of pupils leave private schools – adding VAT to fees would raise very little new revenue, especially when additional administration costs for HMRC are taken into account.
The think tank also warns that by forcing private schools to charge VAT on their fees they may also become eligible to reclaim any VAT that the school incurred on recent large capital projects.
Tom Richmond, director of EDSK and author of the report, said: “Claims of £1.6 billion a year being raised from adding VAT to private school fees look far too optimistic, particularly if any more than a small number of pupils end up leaving private schools and moving to the state sector instead.”
Francis Green, co-founder of Private Education Policy Forum (PEPF) and professor of work and education Economics at UCL, said the research raised some “valid points” but there were question marks around some of its findings.
He added: “On balance, scrapping tax breaks for private schools would amount to a small, somewhat symbolic but overall positive step towards addressing the educational inequality caused by the two-tiered education system in England and Wales.”