I have been trying to write something sensible about the Labour Party’s policy of applying VAT to private school fees and removing their charitable business rates discount (80%). But after reading several long and boring reports, tracking the issue back to 1997 and writing over 5000 words, I’m still struggling to find clarity.
Stepping back, what worries me about this is that Labour’s policy seems based on delivering a political goal more than raising money to address inequity. Whatever amount is raised in the short term (likely to be significantly less than £1.6bn), will it make any difference to state schools who will be the ones having to educate more students? In my research I have seen hardly any comment from schools or multi-academy trusts, which is odd given the high media profile of many of their leaders.
Let’s say for argument’s sake that the scheme raises £1bn (VAT and business rates) of which about £750m might be allocated to schools and £250m to local councils in England (Scotland removed business rate exemptions in 2022). Total funding for 2024/5 will be £58.8bn so an extra £1bn would add 1.7% or about £112 per student. Except that’s not how the funding would work unless it was specifically ring-fenced via something like the Pupil Premium, which on current projections should be £2.9bn in 2023/4. If not it would go into the wider funding pot used to fund teachers’ pay increases at 5.2% in Sep 2022, a £1000 one-off payment in 2023 and 6.5% (pending) for 2023/24 plus the associated increase in employer contributions to the Teachers’ Pension Scheme (roughly 2.8%). With spending on salaries and pensions accounting for about 70% of all K12 education spending, that comes to £41.6bn. However, the government also contributes an extra £2bn to teachers’ pensions from outside the education budget, twice the notional £1bn that might be raised by VAT/business rates and an accounting rounding error compared to the £481bn deficit (2021) in the England and Wales Teachers’ Pension Scheme.
So the sum raised is likely to be small and the actual educational impact, unlikely to be distinguishable from the wider ‘noise’ in measured educational outcomes.
Surrounding this debate are the reports from the Independent Schools Council (ISC), the Institute of Fiscal Studies (IFS) and a few minor noise makers who think they have something to contribute to this debate. There is only one report I find both credible and realistic and that is the 2018 KPMG/Banes Cutler report for the ISC. Others may come from more heavyweight economic consultancies like Oxford Economics (2022 for the ISC) and the IFS (2010 & 2023), but these all seem to use overly complex models with some odd assumptions about how to measure economic impact, for example that the demand for private schooling is inelastic (demand does not reduce when prices rise). Except that it does especially where parents have more educational choice, access to tutoring and online services and who are increasingly aware of how to game the ‘levelling up’ policies which now impact university admissions).
Among the minor noise makers one stands out not for the quality of their research or thinking but because their name seems to breach the Trade Descriptions Act (TDA). The Private Education Policy Forum (PEPF) should, to comply with the TDA, call itself the Anti-Private Education Policy Forum (ASPEPF) as in its short existence (via two limited companies) it has only written anti-private education rhetoric, lacking both rigour and balance.
Both the ISC and their members should had a better campaign to oppose this policy given it has been discussed at the highest level in the Labour party since 1997 (according to Alasdair Campbell in his diaries Vol.1 The Blair Years). Equally, after 25+ years, Labour should have a detailed policy far beyond Sunder Katwala’s limited musing in the Fabian Review’s Winter 2010/11 edition, which Labour claims as the idealogical basis of their current policy. Sir Keir Starmer’s team have had to backtrack on their VAT announcement to exempt Special Education Needs (SEND) providers, an issue highlighted in the ISC’s 2018 report and by the IFS. If a major political party can’t get a significant policy right within 18 months of an election they are likely to win, are they lazy and arrogant or unready to govern? What makes this a particularly interesting political issue is that while the Conservatives government claims to be pro private schools and oppose Labour’s plans, one of their most senior members, who was arguably their most successful Secretary of State for Education, is also supports imposing VAT and in 2017, six month before the general election Labour lost, Michael Gove, wrote in the Times, an article titled, Put VAT on private school fees & soak the rich
Rather than seeking the counsel of Sir Tony Blair and his ilk, perhaps Labour should study how the Australian Labor party won government in 2022 after nine years in opposition. Anthony Albanese’s government has shown real leadership and depth of policy, particularly in education (generally a state rather than federal responsibility) to the extent they have been prepared to alienate their traditional supporters in the education unions with their planned major reforms to university teacher training.
If Labour showed the same depth of policy and talent they would win by force of ideas rather than Conservative ineptitude. It’s a nice dream, but these rarely survive the realpolitik of Westminster.
The bottom line is that changes to VAT and business rates will have a real impact on private schools that have charitable status (the majority). However, fast growing international school businesses like Inspired Education (who recently acquired Wetherby Prep in London) don’t have this challenge as all of their schools are for-profit and already charge VAT.
Sadly, after 5000 plus words and too much reading, this is the best I can manage without totally boring my small readership. I have left out far more than I have included and would happily debate this in more detail, confident no one will ever ask me.
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