Labour’s plans to implement 20% VAT on private education may have even wider unintended consequences for UK PLC than already well set out in multiple reports. First, let me say that I think this new tax is Keir Starmer’s equivalent of Tony Blair’s fox hunting legislation – ill-conceived, transactional and damaging to the UK. For anyone who supports it, I am still waiting for them to show me any case studies where this has worked; the only instance I am aware of is in Greece where it was tried, failed and was overturned PDQ.
Recent analysis from the Adam Smith Institute looks at some of the possible longer-term implications such as whether having a larger sum of disposable income may encourage parents to work less or even retire earlier. Both are possibilities but less likely than parents continuing to work and still invest in education, just not as much via private schools. For example they may spend more on tutoring, saving for tertiary education (both in the UK and elsewhere) and putting money into non-taxable benefits such as Junior ISAs (net net a cost to taxpayers) or even buying properties for their children (directly and via limited companies). The idea of labour contraction and reduced spending ignores the substitution effect, but there is an additional area of substitution that I have yet to see covered in any analysis – that of families migrating to countries where private education is cheaper and/or not taxed. A version of this has been simmering away for a decade with migrant families sending their children back to countries of origin for education. This has been a theme in Indian, African and some Southeast Asian communities, especially where families have strong local ties.
My contention is that migration to countries that favour private education (or at least don’t actively oppose it) will increase, especially amongst families where one or more parent has a highly marketable skill set. Australia, my home, will I think be the major beneficiary. According to a recent story from the Australian Broadcasting Corporation (ABC) 1,974 British medical professionals relocated to Australia in 2022-23; a jump of 67% from 2022.
Australia has an annual skilled migration target and the categories amongst the largest numbers allowed are:
Nurses 17,859
Software programmers 8,405
Secondary teachers 8,716
Pre-primary teachers 3,321
Looking at the numbers, there is already, undeniably a brain drain of talent from the UK to Australia, something quite different to when I was growing up. But it’s even more damaging as Australia also offers visas for entrepreneurs and investors; these are more complicated and have several sub-categories. For investors and entrepreneurs, Australia’s tax regime isn’t hugely better than the current (pre-Labour budget) UK system, except in two main areas. The first is that Australia has no death duties, a huge difference for families wanting to pass on assets to children. Next is the unsexy but economically important issue of pensions. All Australian workers have to have a pension and currently employers have to put in 11.5% p.a. (12% from 2025; known as Eligible employees super guarantee). For doctors and teachers this is a big drop from England where they get 30% and 28.3% respectively, but in Australia these aren’t notional government schemes actually funded by taxpayers. For example there are mega schemes such as HESTA (for hospital and community service employees) with 1m members and A$86bn of real assets. Similarly, teachers can join funds like Aware (a specialist edu super fund) with more than 270,000 educators who have seen their retirement savings grow by an average of 8.83% over 10 years (also the Super Fund of the Year 2024).
So, to throw further dust into the eye of Labour’s ill-considered VAT plans for private education, we now should be trying to account for the huge cost of the growing number of entrepreneurs, investors and professionals leaving the UK for countries where private education is encouraged. Australia, with almost 44% of children in private education, is the most likely destination. Australia already has 1.1m British migrants and those who will soon add to this total are exactly the families, skills and money the UK will regret losing. It’s already hurting education and the NHS, but imposing VAT on private education will make that much worse. Remember, you read about it here first.
