I have this morning published what might be one of the least surprising proposals to be made in the Taxing Wealth Report 2024. I suggest that abolishing the VAT exemption for services supplied by private schools might raise approximately £1.6 billion in tax a year.
The proposal is unsurprising because the Institute for Fiscal Studies has discussed it and suggested that this saving might arise, and the Labour Party accepts that this reform is necessary.
Brief Summary
- The VAT exemption on the supply of education by private schools be abolished.
- This is necessary to improve the vertical equity of taxation when the current exemption for VAT charges on private school fees provides a benefit very largely enjoyed by the wealthiest in society.
- Removing this exemption might raise £1.6 billion in additional tax revenues per annum.
- This change would be administratively straightforward.
- There are likely that there will be few behavioural consequences arising from this change.
Discussion
The reform is unadventurous and obvious. Given the scale of the privilege within our society that private education appears to provide to those who take advantage of it, to provide it with an unnecessary subsidy when those partaking of it are already amongst the highest earners or wealthiest people in the country appears inappropriate. The abolition of this relief appears in that case to be an essential part of a programme intended to address inequality in UK society created by our tax system.
Cumulative value of recommendations made
The seven recommendations now made as part of the Taxing Wealth Report 2024 would, taking this latest proposal into account, raise total additional tax revenues of approximately £70.2 billion per annum.
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[…] Source: http://www.taxresearch.org.uk […]
Good points. Couple of comments:
1. Although it’s not removing the VAT exemption on education I think you’re proposing. It’s removing private schools’ charitable status. This is what gives them their VAT exempt status.
2. Brexit is not relevant. It’s always been possible under EU rules to withdraw the VAT exemption for private education – as Greece showed. The EU VAT Directive does not prevent it.
No, it is VAT exemption I am proposing to remove. Being a charity does not provide VAT exemption.
I mention the charitable status route because that’s how to bring in business rates AND VAT exemption. These are both included in the IFS estimated you quote. It’s Labour policy, too. This is helpful:
https://commonslibrary.parliament.uk/research-briefings/sn05222/
Trying via the VAT exemption is tricky as it creates a roadmap for avoidance and legal challenge.
I accept the business rates point
But VAT exemption is vital.
Just to be clear, educational services are VAT exempt where they are provided by an “eligible body”. An eligible body includes, schools, universities, government departments and other institutions. supplementary rules extend the VAT exemption to examination services,
vocational training, private tuition, research, youth clubs and associations.
It is only private schools you are suggesting are removed as eligible bodies? Universities such as the one you work at would be unaffected by your proposed rule changes? What about private tuition and youth clubs?
“There are likely that there will be few behavioural consequences arising from this change.” Whilst unlikely to affect the very wealthy, you don’t think a 20% increase in fees would affect parents on lower incomes from being able to afford them?
Why not read what I have written?
And read what the IFS have said ion behavioural changes?
Come back when you have.
Alo please interpret what I say in plain English. I referred to schools. Why do you think thaty meant anything else?
Why do you have to be so rude? I was politely asking for clarification.
One reason I asked was because I would expect a growth in private tuition if this can be delivered free of VAT and since 16 year olds can attend a University and there’s nothing to stop Universities teaching towards A levels, that would also be an alternate route, free of VAT charges. You said that the changes would be administratively straightforward but I suspect that the reaction to them would not be straightforward.
As for what the IFS say, I find it odd that when research by the IFS, HMRC or other bodies appears to support your arguments you use this as proof that you are right but if it doesn’t, you dismiss it as unreliable.
Why am I rude to trolls? Because they deserve it and your account has trolling characteristics, as do your comments. After 17 years doing this it is pretty easy to known where somenone is coming from and heading for.
I support this proposed change. It is the right thing to do.
However, I do not agree that there will be few behavioural consequences. I think you overstate what the IFS says about this. I suspect there is a significant minority of parents of children in private schools, or who are considering sending their children to private schools, who in essence impoverish themselves by doing so. They make sacrifices, they go without, in order to fund the school fees. Many of these will simply not be able to afford to pay the increased fees. Some will have to withdraw their children, perhaps more will not send them in the first place. These children will then need educating by the state.
My concern is not so much with the financial cost of educating these extra children, which – although it would be nice to see harder numbers – be financed by the extra VAT revenues, but with the practical transitional implementation in state schools. Where, in the short term, will state schools find the extra places, the extra teachers, the extra school buildings? You may have noticed that school buildings are a particular problem at present.
Such difficulties are likely to be highly localised, as private schools are not uniformly spread throughout the country, and propensity to use private schools is influenced already by state provision, such as shortage of places, whether there are grammar schools distorting provision, and the quality of the existing state schools.
Your proposal would be better thought through if it had answers to any of these issues.
Your claim is naive.
The changing school population due to changing birth rates imposes much bigger issues than any small number of transfers from private schools would.
And where will the resources come from? Have you not noticed I have suggested £70 billionn of possible tax rises so far that might let us address these issues?
If we paid teachers appropriately we could solve the staffing problem virtually overnight. Abolishing Ofsred would help. And schools would be built if we had a sensible migration policy.
I smell excuses on your part.
If we paid the teachers appropriately so as to solve the staffing problem virtually overnight how much of your £1.6bn from this measure would you be left with? If you plan on using your other measures to finance this you should say so rather than claiming £1.6bn from this measure alone.
But in any event my point wasn’t so much about the financial resourcing of the extra state school provision but about the practical way this can be implemented in the short term. The government has not done a good job of managing existing school population changes as it is.
One of the many problems with the current government is that it is highly incompetent. Whilst I hope after the next election for a change of government I’m not particularly optimistic that a new government will prove significantly more competent.
Whilst abolishing the VAT exemption should be done. It should likely be done more gradually, such as by transitional measures around fees for pupils already present, or gradually increasing the VAT rate. This would provide time to provision the extra capacity needed in the state sector. Otherwise existing state school pupils will likely suffer from this measure in the short term.
Did you really think I was proposing to raise tax for the fun of it rather than to assist the governmment to undertake the spedning required to address the fundamental issues that we have in society, one of which is severe underpayment of teachers and other public servants? I am staggered by your comment.
But I have to agree with you, this government is incompetent. I am rather hoping for a differemnt one soon.
And all I really hear from you is special pleading for those with wealth.
You chose the wrong place to do that.
The government has to build lots of new schools anyway with the RAAC problem. It can just build them bigger and better.
I don’t think Richard is saying that only money saved through the education system can be used for the education system. All tax changes are in one pot.
Education in this country is also as messed up as the NHS by bad politics – we must remember that. It’s just another political football these days.
State schools have improved to the point where teachers have worked with examiners to teach exam and study technique as much as the subjects themselves (and they have improved during Covid and austerity to produce kids with good grades). They have essentially as much as possible copied how private schools work – looking at the craft of studying – something I was never taught until I went to University as a mature student.
But this is not enough for private schools who would like to (or already have) opted out of the GCSE and the A Level curriculum to use this as a marketing tool or exclusive and superior segmentation selling point to those in society who think they are better than everyone else, saying that GCSE’s just produce ‘rote learning’ for example.
Pardon me, but doesn’t the learning process involve rote learning as a legitimate technique? Ask any undergraduate medical student dealing with the human anatomy. So, yet another false assertion from the purveyors of the class system.
No – the twisted people who run England’s public schools (and whom inherited essentially public institutions stolen from communities by vested interests) know who their potential customers are and play to that audience. It’s pure snobbery at work here – no state school places? I wonder why? It’s all to do with chronic under- investment – not just schools but in jobs, infrastructure, transport etc., all which feeds into education and vice versa.
And it is on that point where it is legitimate to tax public schools, many of which seem minted to me. I’m sure a system that is fairer to the poorer public schools could be created, but none of the ones I know about are short of anything – including hubris.
It would also be useful to see how state schools are exploited by the charging regimes created by the academy system, separation from the LEAs plus the PFI built ones too.
Basically we’ve been taking money out of state schools and letting public schools keep theirs and then are surprised that the latter produces ‘perceived’ better results!
My view goes beyond tax actually – I’d nationalise public schools, effectively doing what the Americans did in the mid 60’s to Southern State’s segregated school and university system and MAKE them take ‘state’ students. It would stop them being seen as yet another ‘rich man’s burden’.
But the Southern states response was to give white families vouchers to go their own exclusive white private schools – truth if there ever was one as to why private schools exist anywhere. Private schools are a canary in the coalmine as far as I am concerned. They need to be abolished, but in the limited political intellect of our times, taxing them will do.
A few thoughts on ways private schools could make up lost revenue once their charitable status ends…
As with any business you need to find a way to maintain or increase the income you receive.
Options would include increasing their fees, finding ways to cut costs or increasing volume.
Increasing fees would have little impact on the already wealthy (who will just eat the charges) but could I suppose impact anyone who makes a significant salary sacrifice to send their children to private school.
Alternatively, schools will have to cut costs. Solar panels on the school chapel perhaps, ditch the rifle range and the fencing classes.
The final option is to keep fees the same and increase volume. Will this mean that private schools will have to have larger class sizes?
Given the huge sacrifices schools have to make in the state sector, my sympathy is somewhat limited.
To be fair the simplest way in which the schools could cut costs would be to abolish the measures that they have taken to protect their charitable status, which would no longer be necessary. Those measures are often subsidised, or sometimes free, means tested places at the school. When everybody in a class is paying the full amount that will help. Other measures that are used for charitable purposes include cheap (or free) community use of their facilities and inviting local state primary schools to use them for nothing.
After those arrangements are abolished they will be rather less diverse and less engaged with the local community, but there would be a definite cost saving.
Whether that is a good or bad thing is entirely debatable, but this is definitely one easy option they will look at.