Will Labour actually gain some revenue for slapping VAT on school fees, or is it heading for fiscal embarrassment as so many private school pupils are decanted into the state sector that the taxpayer will suffer a net loss? The question has been batted around for months as everyone ponders a great unknowable: how many parents would throw in the towel when faced with a higher bill for educating Barnabus and Fenella, and send them to the local comp instead?
An early indication has been provided on Friday by the Independent Schools Council (ISC), which claims that the number of pupils enrolled in independent schools (or at least those affiliated to the ISC) has fallen by 10,000 – or 1.7 per cent – in a year. Educating this number of pupils in the state sector, it says, would cost £93 million. Worse, though, might be to come. The biggest drop in pupil numbers, according to the ISC, is among year 7 pupils – the first year of secondary school. Their numbers are down 4.6 per cent in a year. While parents might be expected to strain every sinew to keep children at schools they already attend, you would expect them to be more inclined to baulk at a sudden jump in the cost of private education at the point their children are starting at new schools. In other words, that 4.6 per cent drop in year 7 pupils might be expected, over the next seven years, to feed through to overall numbers of pupils of independent secondary schools.
First, let’s deal with the fiscal implications for the coming year. There are just over 550,000 pupils enrolled at ISC schools. If each were paying the average day school fees of £6,021 per term, or £18,063 per year, the overall VAT bill would come to very close to £2 billion. However, when their fees become liable for VAT, private schools will also be able to reclaim VAT on some of their costs, so the overall tax take will be lower than this. The government has estimated that putting VAT on school fees will raise £1.5 billion.
Painful though parents might find the coming year, it does not look as if the government is going to make a net loss. On the negative side of the ledger is the cost of state education for children who have been removed from the independent sector. The ISC puts this at £93 million – which is only 6.2 per cent of £1.5 billion. But has the ISC got its figures right? The Institute for Fiscal Studies (IFS) put the cost of state education last year at £6,300 per pupil in primary schools and £6,900 per pupil at secondary schools. Hence, if 10,000 children are suddenly shunted into the state sector you might expect it to cost taxpayers somewhere in the region of £66 million, rather than £93 million. It might, indeed, be less than this, given that 4.7 per cent of pupils (on ISC figures for this year’s census) are non-British and their parents live overseas. Any of these pupils who have been withdrawn from UK independent schools will presumably not be transferring to UK state schools.
But what about the ISC’s claim that the rolls of independent schools have fallen by 10,000 in the past year? While it might be tempting to attribute this entirely to VAT being added to school fees, demographics comes into it, too. This is especially true when we look at the ISC’s claim that the number of Year 7 (11 year olds) has fallen by 4.6 per cent over the past year. The Office for National Statistics (ONS) population estimates shows that there was a slight bulge in the number of children born around 2011. In 2022 there were 425,205 11-year-olds living in the UK, 423,339 10-year-olds, 412,248 9-year-olds and 401,602 8-year-olds. As this population bulge works its way through the school system the overall number of Year 7 pupils is inevitably going to fall. If independent schools are to maintain their pupil numbers in this age group they are going to have to work hard to attract a higher proportion of the overall number of children. Put it another way, some of the 10,000 children who have apparently gone missing from the rolls of independent schools over the past year might not actually exist – and therefore will not have to be educated in the state sector.
None of this means that putting VAT in private school fees is fair, or that it is a wise policy. But on the figures available so far it does not look as if the government is going to be fiscally embarrassed by the policy – at least not for now.
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