The Commons: Consequences For Britain’s Private Schools
The decision by the government over Christmas to raise the threshold on inheritance tax for farmers has signaled yet another U-turn announced in recent months, following similar reversals on some of their early policies. One policy that appears to have been more successful however has been the decision to impose a 20% rise in Value Added Tax (VAT) on private schools, a flagship Labour policy that had been announced prior to their election win in 2024.
Private schools had not previously had to charge VAT on top of their fees, due to an exemption for organizations providing education. At the same time, such schools also received an 80% reduction on business rates, due to their charitable status.
This had long been controversial however, in a country where the private school system had long been seen as a symbol of class and privilege. Research has shown that the top jobs in the media, business, and politics remain dominated by a relatively small number of people benefiting from private education, with only a third of CEOs from both businesses and charities having attended non-fee paying schools, whilst almost half of permanent secretaries within the civil service, newspaper columnists, and political commentators attended private schooling.
Institutions such as Eton or Oxford University continue to remain synonymous with those at the very top of government, raising important implications around inequality and the worldviews of government leaders. Eton College had previously charged its students around £52,749 per year for education and boarding yet has continued to be listed as a charitable institution, with all the tax breaks therein.
Ahead of the election in 2024, the Labour Party dropped plans to remove this charitable status. However, upon taking government it pressed ahead with steps to remove the other tax breaks these schools received, confirming at the start of the year that they would still be imposing a 20% VAT on private school fees, as well as removing in April the 80% business rates relief that private schools had received.
The government stated that this would allow them to raise an extra £1.725 billion a year, that would then go towards public finances, including the state school’s sector. Education Secretary Bridget Phillipson branded the previous tax breaks as a "luxury we cannot afford," stating that the government’s policy would be a "route to better life chances… and a stronger society and economy".
At the time however, some raised concerns that a greater tax burden for private schools would only serve to drive middle families out of private schooling and, in fact, put greater pressure on state schools. Julie Robinson, Chief Executive of the Independent Schools Council (ISC), claimed that this would have a negative effect on families and children across both state and independent schools, whilst the Conservative Party described the move as "vindictive policy that will worsen the education of every single child, regardless of the school they are educated in".
Since then, several private and independent schools have had to shut down over the past year, with many citing the VAT hike as a significant factor in this. In August, Our Lady's Abingdon school in Oxfordshire, which had been in operation for 160 years, stated that it would be closing down, claiming that it was "mainly the introduction of VAT on school fees, higher National Insurance contributions, the ending of business rates relief for independent schools, and rising operational costs" that had forced the closure. Last month, the Meadows Montessori School in Ipswich announced it too would be closing down, citing the same reasons.
I doubt the Government fully grasped the scale of what would happen,” stated Hugh Viney, chief executive of Minerva Virtual Academy. "Independent schools operate on tight margins, and many parents are balancing budgets that leave no room for a sudden 20 per cent hike. VAT didn't correct inequality; it punished aspiration and forced middle-income families into difficult decisions. SEND children are particularly vulnerable in this scenario. Private schools often provide specialist support that simply isn't available in many state schools.”
This potential impact on middle-class families, or children with special needs, was echoed by Don Poh, CEO of Lorna Whiston Schools. “Small, independently operated schools with narrow service areas or already operating on thin profit margins, will be forced to close due to their inability to absorb the increased costs,” Don Poh argues, “while elite schools will easily be able to pass the increase in costs along to wealthier parents.”
Poh goes on to state that the move has the potential to exacerbate educational inequality, “as private schools will become increasingly exclusive, allowing fewer and fewer families to take advantage of the benefits of private education, and primarily benefiting families at the top end of the economic spectrum.”
However, whilst the numbers of pupils moving leaving private schools has gone up, it is far from clear how much the VAT rise is responsible for this. Whilst fees appear to have gone up on average, research shows that in many cases, many independent schools actually were able to lower their fees, whilst the amount of private schools bursaries have also gone up. It has also been pointed out that the drop in enrolment figures is in line with the national trend from prior to the VAT change, whilst the government has pointed out that fees overall have continued to be on the rise across the past few decades.
Meanwhile, HMRC has reported that the amount of revenue gained from the tax increase has in fact exceeded what was expected. In spite of concerns that the payments of fees in advance alongside declining pupil figures would in fact cost the taxpayer more, Treasury sources stated that they were “on track to raise the revenue forecast if not slightly exceed it”. This news was welcomed by the Chancellor, Rachel Reeves. “Last year, when we announced things like the non-doms, like the [tax increase for] private equity, like the VAT on private school fees, there was so much bleating that it wasn’t going to raise the money – that people would leave,” Reeves stated. “The OBR will publish updated numbers on all of those things.”
The ISC have attempted to challenge the VAT rise in court, alongside the parent-led group Education not Discrimination, who had argued that the policy went against the legal right to education, it being discriminatory against families sending their children to low-fee faith schools or with special needs children, for whom state education might not therefore be suitable. At the High Court, it was argued that this left families without a suitable school in their area to meet the needs of their children, and that the policy was "unprecedented" throughout Europe. Ultimately however, the challenge was dismissed by judges who maintained this was within the rights of the government as part of efforts for raising revenue.
Since the outcome of this case, some of the families involved have stated that they still intend to appeal the decision, having been supported in this by the Christian Legal Centre. But with the apparent success that the government has had in gaining revenue from this, it is likely that this is one key policy that they will be sticking to.
