Labour’s big policy for education – making private schools pay VAT – will be for Keir Starmer’s administration a political albatross similar to Tony Blair’s ban on hunting, passed a generation ago.
Blair’s fudge, which soaked up far more time in parliament than debate about the Iraq war, was a pyrrhic victory of class warfare along with what Lord Mandelson described as the purely “transactional” – the payback for a £1m donation in 1996 made by the late Brian Davies, founder of the International Fund for Animal Welfare.
The big problem with Labour’s VAT policy is that it’s not properly detailed or costed and is unlikely to raise the £1.7bn that Sir Kier claims state schools need so desperately. So how will this key Labour policy help bankrupt local councils and hit every homeowner regardless of whether they even have children at school?
First, good policy is well described and costed, but it has really fallen to non-political groups like EDSK to produce any detailed analysis. Almost every credible source shows Labour’s policy goal of raising £1.7bn p.a. is highly improbable. Indeed it is likely to put further pressure on the DfE’s Treasury allocation which has been ‘temporarily’ topped up to the tune of £3bn p.a. to cover the cost of increased employer contributions to teacher pensions which jumped from 14% in 2016 to 28.6% in April 2024.
Second, few people seem to understand that a huge chunk of education spending comes from outside the core education budget (i.e. what the government allocates in the budget each year for K12 education). Take a look at your Council Tax Bill and see how much is for Non-Adult Social Care (NASC). I have a £1622 bill from North Norfolk Council in front of me and £1086 (67%) is for NASC, money that pays for young people (under 25) who have an Education, Care and Health Plan (ECHP). Norfolk currently has a £100m SEND/ECHP deficit for the schools it controls (see Appendix C) and has had its “safety valve” deal (extra money from the DfE to cut the deficit) suspended.
So how does this tie up to Labour’s private school VAT plan?
Private schools, both charitable and for-profit, educate a large proportion of students with ECHPs, especially those with complex challenges. Government schools also educate students with ECHPs, but most of their SEND funding (up to £6000 pa plus additional allowances) already goes for students without an ECHP.
Labour say there won’t be VAT on fees for students with an ECHP, but how they deliver this within schools that educate students both with and without ECHPs (as many do) will be administratively complex and costly. Of the detailed analysis and surveys I have reviewed, most estimate that between 11%-30% (66,000 – 180,000) of students at private school will switch to the state system. That’s a real cost to the government but what will really accelerate the cost of ECHPs is that many parents who will no longer be able to afford private schools will be able to fund private diagnoses of SEND as part of an ECHP application.
In 2015 there were 240,183 students with an ECHP. By January 2023 this had more than doubled to 517,049. In 2019 local authorities in England transported an average of 911 SEND/ECHP pupils with each costing £6,280. By 2023, this had grown to 1300 (+43%) at an average cost of £8,299 (+32%). According to County Councils Network, 182 ECHPs are granted per day. The accrued deficit (just the deficit not the cost) of England’s 152 local authorities relating specifically to ECHPs was £2.4bn in 2023 and will rise to £3.6bn in 2024/25. That deficit alone is more than 2x the total amount Labour claims it will raise via its private schools VAT policy, except that those on the hook to pay for it aren’t parents of school-age children, but everyone who owns or rents a home in England through their council tax.
Imposing huge education-related costs onto local authorities is a key driver for up to 20% of local authority chief executives who say they are ‘very or fairly likely’ to issue Section 114 notices in 2024/25 (effective bankruptcy). This has been well covered in the The New Statesman using data from the Local Government Association
Let’s get back to the impact of Labour’s VAT policy. The reality is that while students with an ECHP can go to a variety of schools (see Appendix A below), those with the most high level SEND requirements (via their ECHPs) are educated and supported by independent schools. Whether charities or for-profit (25% and growing), they are providing essential services that can’t be met by the public sector. With the number of ECHPs growing rapidly (see Appendix 2) the cost will skyrocket for reasons not in Labour’s calculations. How local authorities meet this challenge is unclear, but the short-term outcomes are predictable:
- fewer and reduced services
- rates will increase by as much as local authorities can squeeze (up to 3% p.a. but more if they hold a referendum and up to 5% p.a. for social care).
Labour’s policy of applying VAT to private schools will be complex to the point of impossibility, be open to legal challenges and almost certainly lead to an escalation in ECHPs.
Right now it is homeowners and renters who are being hardest squeezed to fund the education needs of just over 500,000 young people. Labour’s policy means that the burden of funding a key area of education falls onto people who are already struggling with the cost of living.
It will be in parliament from the start of 2025 that we start to see how much time Keir Starmer’s administration will need to spend getting its private school VAT policy into law. Even if they secure the huge majority the polls predict, the political time and subsequent expense of implementing this ill-considered policy will make Tony Blair’s fox-hunting fudge and lack of political debate about the Iraq war pale into insignificance (politically and financially). Tally Ho, and chase that political and financial fox!
Appendix A: Institutions that provide ECHP/SEN care
- Maintained school or nursery (mainstream or special)
- Academies (inc. Academy Specialist schools, Alternate Provision Academies & Academy boarding schools), Studio Schools, UTC, (mainstream or special)
- An institution in the Further Education sector
- Non-Maintained Specialist Schools – seem to all be charities (is there a difference or are they just charitable private schools by a different name?) governed by Non-Maintained Special Schools (England) Regulations 2015
- Section 41 schools. There are currently 222 in England with nine awaiting approval and 136 who have withdrawn since 2014
- An independent/private school including those “specially organised to make provision with pupils for SEN”. There is no distinction between whether these are charities or for profit
Appendix B: Percentage of students with ECHP/SEN
- Rough breakdown by age (2015 to 2023)
Age less than five: 4.1% from 11,250 to 21,087 (87% or 9.6% p.a.) - Age 5-10: 36.2% from 91,045 to 168,694 (85% or 9.4% p.a.)
- Age 11-16: 36% from 112,340 to 186,093 (65% or 7.2% p.a.)
- Age 16-19: 20.5% from 25,583 to 105,900 (314% or 34% p.a.)
- Age 19-25: 6.8% from 10 to 35,275 (35265%)
- 71.8% male, 28.1% are female (2023 data only)
- 68.4% are white (2023 data only)
Appendix C
38 Councils in England have “safety value’ deals with the DfE where if they agree to a programme of cuts to SEND support to get their deficits under ‘control’, they get additional financial support. The effect is that councils like Norfolk (£100m SEND/ECHP deficit) are both having to try and reduce demand (by making support harder to obtain) as well as reducing supply. However according to Sam Freedman (@Samfr on X) parents who take local authorities to tribunal in relation to SEND/ECHPs, win 98% of the time. Where councils can’t meet their “safety value” deficit reduction commitment the DfE suspend commitment with Freedman noting five councils have now had £18m withheld. In terms of the £2.4bn+ deficit the withheld funds only equate to 0.75% of this rapidly growing financial mire, something that Labour seem happy to say silent about, even thought they must know their VAT plan may actually make the existing SEND/ECHP funding fiasco worse. It is unclear whether any Academy Trusts or similarly government funded school groups have been offered similar “safety valve” deals.
