Will the New VAT Rate on Private Schools Actually be a Social Leveller?

Image courtesy: Wikimedia Commons

Christmas is coming. It’s going to be a cold one for the pensioners on the losing end of the Autumn Budget. Similarly, farmers will be pretty cheerless, and retail and hospitality bosses have wounds to lick. All while the economy struggles. 

Personally I’ve now heard enough about the Budget that I’m sick of the word. But this festive season, as we approach the midpoint of the 2020s, maybe it’s worth asking just what it suggests about what lies in store (Spoilers, it’s not great.)

One point in particular from the Budget that’s getting a bit less interest right now - probably because it’s viewed as such an open goal for Labour - is the new VAT rate on private schools. Private schools are tremendously unpopular in the public perception, with ‘exclusive’, ‘elitist’, and ‘snobby’ leading in word association surveys. They’re viewed as closely tied to the spectacularly unpopular Conservative party, compounding a long-established feeling that these schools cater only to the rich. 

Private school fees average out at about £17,000 per year, which can look like an insane number if, like me, you’re in the economic band that requires meal planning based on the contents of the supermarket discount shelf. Some schools charge upwards of £50,000, stretching the imagination further. Taxing some of this money would certainly be good for the country’s balance sheet, but, as a neat addition, it’s a chance to look tough on those who’ve got more than they need. 

The new VAT rate is set at 20%, and schools can either pass on this extra to fee payers by raising their costs, or factor it into what they charge. Revenue raised will then be used to fund state education, which is pretty crucial when schools are literally crumbling. The government has promised new teachers, new nurseries, and Ofsted reform with the money. The Budget has indeed delivered a significant increase in education funding, with almost £7bn now earmarked for the sector, an increase of about 20% from previous policy. This is great.

But unfortunately, things in the education sector are really bad.

As an example, the school budget is increasing by £2.3bn, but £1bn will be going straight to special education needs and disability services. This is slightly problematic given that this is not even enough to clean out the existing SEND deficit, which is set to reach £4.6bn by 2026. The number of children who need this support is rapidly rising, and very often they can only get it in private schools - which are now more costly, and in some cases struggling or even closing as pupils are pulled out. 

But circling back to the people benefiting from private schools - let’s remember that they are, in fact, people. Wealthy, internationally mobile people, being actively courted by favourable tax regimes in jurisdictions such as Spain and Italy. Non-doms in particular, of whom there are around 80,000 in the UK, contributing an average of £500,000 in tax per year, have little tying them to the country.

These individuals can probably afford a bit extra on school fees. However, there are other, more painful tax changes coming as well, and while the financial cost may be small, taxing children's futures feels symbolic. 

There are also plenty of less wealthy families (though no one can agree quite how many), who will be forced to switch back to state education. That creates an extra burden for the public system, and would be a move towards further ring-fencing paid education. 

All of which is not to suggest that the idea of taxing private schools is wrong - merely that it should not be read as an easy solution. Revenue sources must be found if Labour hopes to achieve its targets for growth and reform. But the Britain of 2025 will not be the Britain of 2015 - even less the Britain of 2005. 

In the new reality, there are no easy answers.