Keir Starmer insists his plan to place VAT on independent school fees is not ideological. It’s a ‘difficult decision’, he says, but necessary to raise revenue which will be used to hire 6,500 teachers for state schools. He wants the independent sector to ‘thrive’. Few would deny that state schools need better funding, but it is important to question whether the policy will be successful at raising money and also to examine what a thriving independent sector looks like, how it can contribute to education more broadly – and how the VAT plan threatens all that.
Labour has claimed for some time that the policy would raise £1.7 billion. This initial figure was based on a 2011 Fabian Review article that simply calculated 20 per cent of the sector’s fee income.
A structural flaw in basing calculations on a blanket 20 per cent figure is that all schools will be able to reclaim VAT input, so schools that have made greater capital investments will struggle less. Taxing education may be philosophically regressive, but doing so through current VAT structures makes it economically regressive too. Less well-off schools will potentially pay more tax than the wealthy ones. If, as some claim, this proposal is a thinly veiled attack on a small number of famous schools – Eton, Harrow, Winchester, Rugby – then it might not work out that way.
The simple truth is that education is an ecosystem. It thrives on diversity and interdependence
Still, even if the figure is closer to 15 per cent after recoveries, that cost is a significant challenge for any independent school – and this is before factoring in Labour’s other proposal, to remove business rates relief from those schools operated by charitable trusts. The key question is how much of this burden needs to be passed on to parents through fee increases.
Some schools may seek to absorb the additional cost, leaving fees unchanged. However, there is only a handful of schools that could realistically afford to do this. Some parents might also wonder how bloated their fees have become if this is an option in the first place. Either way, while protecting parents may seem a prudent, even noble, plan in the short term, it does not constitute a sustainable long-term strategy. In the end, most schools recognise the inevitable: as a consumption tax, VAT will end up being shouldered by the fee-paying parents.
Labour’s statement that schools need only control costs and not pass anything to parents is naive at best and misleading at worst. Where are schools meant to cut costs? Most schools spend the bulk of their budget on staff and already operate extremely efficiently elsewhere. As with any organisation, they would not be able to cut up to a fifth of their budget overnight. The extent of any cost-cutting – and ultimately the risk to jobs – will depend on the reaction of parents to fee increases.
Labour seems confident that parents will not pull their children out of private schools in droves. Bridget Phillipson, the Education Secretary, says parents have had ‘ample time’ to prepare for the changes. Cheerleaders for the policy argue that parents are used to fee rises and independent school pupil numbers have grown over the last generation regardless.
However, incremental increases are very different to a whacking one-off hit. Estimates of fallout from the sector – i.e. parents who will withdraw children from independent education, not to be replaced – run from nothing right up to 25 per cent. Many proponents of the policy quote the lowest figure of 3 per cent, taken from a report by the Institute for Fiscal Studies. However, student numbers – according to the latest figures from the Independent Schools Council – are already down 2.7 per cent just on the threat of VAT.
The government is therefore taking a huge gamble budgeting for state schools under the assumption that just 3 per cent of pupils from independent schools will shift to the state sector. There are also 17 caveats in the report. If the lowest figure is shaky, in the spirit of equality we might extend our scepticism to include the higher fallout estimate. Split the difference, then, and we are still left with almost 90,000 children leaving independent education. But only with the revenue target in mind, this is also a lot of families that cannot be taxed.
The impact on the state sector could be profound, but what of the effect on the independent sector? There will be regional variations, but it will hold true that fewer pupils means less income, and this means tough decisions on staffing. If the sector ‘cuts its cloth’ to avoid passing costs on to parents, as encouraged by the government, the result could be up to several tens of thousands of staff redundancies. Schools may seek to control the magnitude of staffing losses by, for example, increasing income from commercial activity (letting premises in the holidays is a favourite). But schools have been doing this for years so, for many, the pips have already squeaked in that lemon.
VAT will certainly affect the independent sector’s involvement in the Teachers’ Pension Scheme. This defined benefit scheme, widely considered worthy of the commitments and expertise of teachers, has become too expensive. Employer contributions stand at 28.68 per cent, having risen in two chunky increments from 16.48 per cent in March 2019. These contributions are met directly by independent schools; in the state system, they are met by public funds. As the number of independent schools leaving the scheme rises, so too does pressure on the scheme’s cash flow.
Ultimately, some independent schools may well go out of business. Darwinism in education can be especially cruel – many small independent schools that are breaking even do a fantastic job for their pupils and communities. It is hard to see a greater good in hastening the demise of such schools through excessive taxation. Fewer schools also means less tax, not just from VAT but the staff costs and other purchases attracting tax that add to the public purse. It would seem highly probable therefore, that the tax will fail. There are too many obstacles stopping it from raising the targeted amount, or indeed raising anything at all when associated costs are considered.
But, beyond any tax measure, the simple truth is that education is an ecosystem. It thrives on diversity and interdependence. Too often independent schools are positioned as a problem or a detriment to education and society as a whole. Nothing could be further from the truth. State and independent schools should be allowed to co-exist, working together to best meet the needs of every child. Our new government has rightly recognised the important role of the private and voluntary sectors in healthcare, and a similar approach, ‘unburdened by doctrine’, as Starmer put it in his first speech as Prime Minister, would be welcome in education.
The government should be working to improve accessibility to independent schools, not restricting it through taxation. Firstly, it should expand the demonstrably outstanding work of the Royal National Children’s SpringBoard Foundation, which places in boarding schools children who most need educational opportunities. Secondly, it should establish a carefully targeted voucher scheme for lower-income families which would allow them to spend all or part of the public funding set aside for their children’s schooling on independent school fees.
Bursary support in the independent sector this year is at an all-time high of £1.4 billion. Both these initiatives would enable independent schools to further increase the number of means-tested bursaries.
It is in these kinds of partnerships and collaborations between the independent and state sectors that we find the true purpose of modern independent education. In an Olympic year, it is appropriate also to acknowledge the partnerships our schools have with national sporting bodies, to ensure talent is identified and nurtured. The Good Schools Guide has recently reported that a third of Team GB members were educated at independent schools, many funded through bursaries and scholarships.
Instead, Labour has produced a policy which is not good for social mobility, special educational needs, single-sex education, specialist activity, heritage, rural communities or Britain’s competitiveness in the global education market. The Treasury will probably not have much to show for it either. Our children deserve better than this gamble.
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