Is Imposing VAT on Private Schools a Good Idea?

The aim of Labour’s plan to impose 20% VAT on private schools is to address the perceived inequalities that private education creates and raise money for underfunded state schools. However, the plan has key flaws that mean that these aims are unlikely to be achieved.

Impact on Middle Earners - The proposed VAT on private school fees will generally affect middle earners, those who sacrifice home-owning prospects or holidays to pay school fees. By contrast, the extremely wealthy will be largely unaffected. Many middle earners send their children to private school due to their children’s special needs or the poor quality of local state schools. As a result of this VAT, these middle-earning children will be forced to switch to ill-equipped state schools and receive lower quality education, while the very wealthy will remain in private schools.

Despite aiming to decrease inequality between those who are wealthy and those who aren’t, this policy could end up reducing the quality of education for working class children

Pressure on State Schools - Those who cannot afford to pay the VAT will send their children to already overstretched state schools. State schools are in a state of crisis, with teachers underpaid and depleted resources. A higher intake may strain schools, increase waiting lists and leave children without places at their preferred school. Therefore, despite aiming to decrease inequality between those who are wealthy and those who aren’t, this policy could end up reducing the quality of education for working class children.

Uncertainties Around Implementation - Although studies have been conducted to estimate how much VAT will raise, there is significant variation in these estimates. There is therefore uncertainty over whether the extra funding needed for children switching to the state sector would be less than the extra revenue brought in. Moreover, private schools will likely find methods to circumvent the VAT, such as reclassifying school fees as boarding fees, which are not subject to this proposed VAT. Therefore, there are innate flaws in Labour’s plan.

Despite feelings that imposing VAT on private schools will harm middle-income families and put even more pressure on the struggling state sector, the plan is a good idea because it is financially sound and the consequences for private schools have been overstated.

Extra Revenue - Private schools charging VAT will bring in a lot of much-needed revenue for the government to spend. The Institute for Fiscal Studies (IFS) estimates that the measure could bring in £1.3-1.5 billion and if Labour pumps this money into state education, huge numbers of children will benefit from greater funding. children. The IFS also estimates that the measure will lead to 3-7% of privately educated children moving to the state sector, requiring extra funding of £100-300 million, well short of the extra revenue that VAT would bring in.

Private School Wealth - It is notable that private schools are not obliged to pass on the effects of VAT charges to parents. Many have significant wealth already thanks to the high fees they charge and generous endowments they receive. This puts private schools in a good position to absorb much of this VAT charge, meaning that parents, some of whom make significant sacrifices to privately educate their children, won’t have to pay significantly more.

Imposing VAT likely means the same proportion of children could benefit from the private sector but those in the state sector will be better off

Private School Demand - Private school fees have risen significantly in the past few decades and are around double what they would be had they risen in line with inflation. Despite this, the demand for private education has remained fairly stable, with 6.05% of British children being educated privately in 2022 compared to 5.98% in 2002. This suggests that fee increases don’t seem to significantly reduce the number of parents who can afford private education. Therefore, imposing VAT likely means the same proportion of children could benefit from the private sector but those in the state sector will be better off, making the measure seem completely justified.