Private schools in the UK will most likely for the first time be subject to a sales tax of 20%, known in the UK as value added tax (VAT). The implications of imposing a consumption tax on the UKs independent day and boarding school fees will be complex and there will be winners, losers and yet for the majority of families in the UK make little or no difference at all.
UK Schools facts and figures
In the UK there are around 30000 state schools including primary schools from reception aged 4 to year 6 (aged 11) and secondary schools from year 7 (aged 11) through to year 13 (aged 18). The average cost to educate one child in the state sector is estimated to be around £7000-£8000 per year. In addition to the state schools a small proportion of parents choose to send their children to one of the 2500 fee paying private schools for a whole range of reasons and needs, from academic to children with special educational needs (SEND) such as Autism, and other complex learning needs. Teacher staff ratios in private schools are half that of the state sector offering smaller class sizes and in many cases a more nurturing learning environment.
Some families choose to send their children to private schools that suit their children’s talents such as Sylvia Young’s Theatre School in Marylebone. 60% of pupils at an independent school attend a school aligned with their faith. The majority of Islamic schools within the Independent Schools Council (ISC) charge less than £6000 per year.
Approximately a total of 593000 children attend independent schools in the UK which accounts for 6.5% of all children attending school, a slight drop from 7% in 2010. The average fee in 2024 is around £15000 per year with many schools (as mentioned some faith schools) charging less and the elite schools such as Eton, Harrow and Winchester (the same school attended by the Prime Minister Rishi Sunak) charging up to around £50000 per year. Just over half of the independent schools have Charitable status whilst the remaining majority are non-profit schools and VAT exempt.
SEND Pupils
A significant proportion of pupils who attend private school, 120000 pupils (around a third) receive support for SEND of whom most do not have an Education, Health and Care Plan (EHCP). Parents of children with an ECHP receive additional funding from the UK government that can be present on additional teaching and resources to support those SEND children. The Education Policy Institute has warned that the funding for SEND pupils in the state sector is “struggling to meet the needs of some of our most vulnerable children.” which explains to some degree why parents of SEND children use their own resources to fund the fees for private schools that cater specifically to children with additional learning needs.
Increasing Costs on Private Schools
According to The Institute of Fiscal Studies (IFS) Private school fees have risen 20% since 2010 in real terms (55% real term increase since 2003) yet the numbers attending private schools have stayed the same. It could be argued that an increase in school fees due to VAT would have little to no impact in demand. However, the IFS has predicted that the overall increase passed onto parents is expected to be around 15% and around 20000-40000 children will be leaving the private school system as a result of the VAT fee increases.
The Plan to add 20% VAT to school fees
The Labour party plans to add 20% to private school fees and cancel the 80% business rate relief. It is not clear yet the impact this will have on independent schools with charitable status, however, companies in the UK reclaim VAT on purchases and it is estimated by the IFS that the increase in school fees would effectively be around 15%. The Scottish National Party (SNP) abolished the business rate relief on private schools in Scotland two years ago and in Edinburgh, the nation’s capital, there are a high number of independent schools.
Some parents in Scotland have withdrawn their children from those private schools resulting in a displacement of children scrambling to find alternative state funded schools and in some cases smaller private schools were forced to close.
‘Eligible bodies’ are exempt from VAT and this includes services involving childcare so that counts nurseries. Presumably there will be an element of the boarding day fee (involving childcare) that will remain exempt from VAT and possibly part of the day school day if they qualify for childcare. Education and vocational training providers are eligible bodies as are independent schools with charitable status or run as non-profit. A change in the law is likely and charitable status schools may lose their exemption; at the present time no one really knows how this will pan out.
School fees for children with an ECHP will maintain their VAT exemption, however many SEND children (around 240000) do not have an ECHP and therefore those parents will see a rise in their school fee.
Pay school fees in advance to avoid VAT
A number of schools offer fees in advance schemes. Parents can choose to pay funds to the school for a return of 1% to 4% to go towards future fees. VAT is due of sales at time of supply and therefore should parents choose to pay in advance there is a possibility that they will still be subject to the VAT in the future. Private schools that offer a fees in advance scheme use a separate account for the parents schools fees and those funds are then transferred later as the new invoices are raised so the point of sale would be in the future. Such a scheme is unlikely to work to avoid the future VAT increases.
Should a school offer prepayment of school fees for future years it may be possible to avoid the future VAT increase providing that the government does not change the law on what is meant by the ‘time of supply’ for the sale. We would advise parents to seek a letter in writing from the school that they would not be charged retrospectively safeguarding them from any surprise bills in the future.
Private Schools | Benefits or Costs to Society
Society Benefits
First let’s consider the benefits of private schools. There is less funding required. As already mentioned the cost of each pupil is over £7000 per year. That is saving the taxpayer over £4bn pounds per year.
The fact that many, but not necessarily all, privately educated pupils go onto higher paid jobs means that more tax will be paid raising revenue for the government. Pupils receiving a private education benefit from a first class education with endless opportunities such as Combined Cadet Force, outstanding facilities in music, sport and drama. Some of those pupils may enter public service, the armed forces, and make significant contributions to society from talents they have developed. Some critics will argue that VAT is not applied to investments and that is exactly what education is, and therefore all education should be exempt from VAT including private schools. Whereas others argue that a private school education is a luxury service that is only accessible by the privileged few and therefore should incur value added tax at the full rate of 20%.
Private schools do offer means tested bursaries for children who qualify academically and whose families would not be able to afford to send their children to those schools. They also offer scholarships with discounted fees. At Rugby School, Warwickshire, for example, 1 in 8 of the school’s 865 pupil’s is in receipt of financial assistance in the form of a means tested bursary.
Many private schools have partnerships with state schools which include teachers from private schools teaching in sixth forms where there is a shortage of specialist teachers and also career guidance, support with UCAS University applications and careers talks from leaders of industry providing additional opportunities for state sector pupils.
Society Costs
There is a cost of segregation. It could be argued that the networks available to current and former pupils of private schools could hinder social mobility. Children from state schools would not have access to those valuable networks which could provide connections for future careers and access to work experience and internships. The lack of access to those powerful networks could prevent pupils from state schools receiving opportunities to higher paid and skilled jobs.
How will the £1.5bn raised be redistributed
Labour has some ambitious spending plans for the revenue it expects to generate from VAT. Below are the announcements it made in its 2024 election manifesto.
- 6500 new expert teachers
- Increase teacher and headteacher training
- Delivering work experience and careers advice for all young people
- Early language development in primary schools
- Ofsted reform
- Over 3,000 new nurseries
- Mental health support for every school
- Young Futures Hubs
What impact will the policy of taxing private schools have on the state sector?
The total budget for spending on Education in the UK was £116bn, and it is estimated that up to £60bn was spent on schools. This new policy to tax private schools will allow the government to train an additional 6500 teachers. That means that out of the nation’s 30000 state primary and secondary schools 1 in 3 will benefit from an additional new teacher. Training for teachers and headteachers should help to improve the performance of all state and secondary primary schools, depending on how much additional training is allocated and to how many schools.
The initiative to install 3000 new nurseries into primary schools, that have the building capacity to do so, is an excellent one. This will double the current capacity of nursery places providing parents with more choice and enable more children to attend their local nursery within their primary school in time for reception at age 4. Children’s learning would benefit from the continuity from nursery into reception and the communities and relationships as a result of creating the new nurseries within the primary school setting would become stronger.
The numbers of children leaving the private sector and parents choosing not to send their children to an independent school is unknown, however if the IFS is correct that 20000-40000 children will migrate from private to state it is logical that some state school class sizes will increase. There would be an increase in SEND children attending state schools putting more pressure on teachers that will have to cope with the additional number and learner needs of those pupils. On the other hand in areas such as Central London, Camden, and Westminster where state school pupil numbers are dropping, an influx of new pupils from private schools would reduce the risk of closure of those state schools in the future. Over the course of the next 5 years there will be 1 million less school aged children as a result of the declining birth rate so state schools would have the capacity to accept increasing numbers. However, the decline will not be evenly spread and so some regions across the UK will welcome increased numbers of pupils from private schools, whilst others will struggle to cope.
Conclusions
Winners
State schools would receive more funding for training and those schools that are allocated more teachers may be able to reduce class sizes providing that there is little or no spill over of new pupils from local private schools joining. There will be some parents who are priced out of private school education but still well off enough to be able to move to within the catchment area of a better state selective school.
Primary schools receiving a class for nursery would strengthen community links and improve continuity of Early learning for children moving from nursery to reception class at age 4. Young future Hubs would also benefit communities and additional career guidance and work experience would provide improved opportunities for young people.
There will be many children within the state sector who will benefit, however there may be more that do not and even see a worsening of opportunities or having to cope with larger class sizes.
Losers
The immediate impact on families with lower incomes whose children attend private schools. To be more accurate, middle income families already struggling with the high cost of living due to inflation will feel the full force of an abrupt increase in school fees. Some will decide to uproot their children and find an alternative state school. In some cases the alternative school could be further away from their immediate area.
Some of the best state schools will find that they become oversubscribed and the associated catchment area will become ever smaller making it even harder for families to send their children to the best local state schools.
Smaller independent schools will be forced to close meaning that the staff in those schools will lose their jobs and larger numbers of children will need to find alternative schooling. One such private school, Alton School, Hampshire, educating children from nursery right through to sixth form has already announced that it will be closing from 31st August this year due to the “adverse economic and political factors”. Portland Place School in central London will also be closing on 31st August 2024. Another school closing as reported in The Telegraph 1st June will be Downham Preparatory school in Norfolk that teaches up to the age of 13. It charges £7800-11820 with around a third of its pupils having special educational needs and complex problems ranging from autism to social and emotional problems. Those families with SEND children will have an even tougher task to find an alternative school place that will provide for their needs.
Then there are the bursaries offered to children in private schools who would never be able to afford the private school fees. The number of bursaries and fee assisted places would fall as a result of VAT meaning less children from low socioeconomic backgrounds would be able to benefit from a private school education.
The imposing of VAT on private schools will only make those schools more elite and reduce social mobility. The Institute of Economic Affairs (IEA) has stated that “Under the current system, if you’re sending your child to Eton (termly fee: £16,666), the VAT exemption saves you about £7,500 per year, whereas if you’re at an independent school charging £12,000 per year it only saves you around £1,800. If you want to help the ‘squeezed middle’ it’s really difficult to think of a less efficient means than the status quo.” If the point of adding VAT to private school fees was to make a fairer society and widen social mobility, the opposite is true.
Class sizes in a number of state schools will inevitably increase and will be prohibitive to learning with overcrowding of classrooms. The children in those schools may, if they are fortunate, benefit from a better qualified teacher but at the cost of a policy that unintentionally created a larger class size.
Finally, those state schools that benefit from partnerships with the private schools access to specialised A-level teachers, careers advice and access to work experience may find that those state schools are no longer able to provide as much support as before the VAT increase. Children in state school sixth forms will undoubtedly be affected.
Concluding remarks
No one really knows whether there will be lots of children migrating from the private sector or to the state sector or whether the government can genuinely raise the full £1.5bn it is anticipating. Parents who have enough disposable income to pay the higher fees will simply pay the VAT as an indirect tax and have little or no consequential impact on their disposable income. For some parents the change in schools will have an inconsequential impact such as those transferring to an excellent grammar school in time for the 11+ in year 7 or Year 12 for sixth form. Some parents will employ tutors to gain places at grammar schools and other selective schools. Whilst for other families who reluctantly uproot their children (some of whom will have special learning needs and, or will have to travel further to school) from their current school and transfer to state schools will feel let down by the policy to increase fees through VAT.
There will be a few children in the state sector who will benefit fully from improved standards, better teachers and headteachers assuming their class sizes do not grow. However, the policy of adding 20% VAT to private school fees carries a lot of what if’s and unintentional negative consequences to the state sector and to the squeezed middle class. Until this policy is implemented we will yet to learn how much funding will be raised and to whom it will prosper.
Update 9th November 2024
Most independent schools have now completed their consultation period to determine the increase in school fees from January 2025. The percentage increase in fees from the Spring term in 2025 for some of the schools are as follows:
Eton School fees to increase by 20%. GDST school fees will increase by 12% (including South Hampstead High School). Highgate School will increase by 10%. Northbridge House School fees will increase by 12.5%.