As the Guardian has noted this morning:
Predictions that adding VAT to private school fees would set off a wave of parents moving children to the state sector have been proved wrong at their first key test, according to figures from councils in England.
While critics including the former chancellor Jeremy Hunt had predicted that up to 90,000 children could flood the state sector if VAT of 20% was charged, most councils say they have seen no impact from the policy in applications to start at state secondary schools later this year.
Let me be clear, I am not suggesting based on this one article that there will be no behavioural response to this tax change. There is bound to be some. It would be absurd to pretend otherwise. What I will, however, confidently predict is that the behavioural change will be vastly smaller than was claimed by the likes of Jeremy Hunt. It will be almost insignificant.
There is very good reason for that. Private school fees are very obvious conspicuous consumption.
Most parents do not pay them because they think their child will necessarily get a better education. After all, many children from state schools get to our best universities. State schools are capable of educating children to the highest standards. Private school fees are, instead, paid to indicate status and privilege, and so opportunity, and there is no doubt that they succeed for some in delivering all those things.
In that case, parents who have committed to this route will do everything they can to avoid taking their children out of private schools. To do so would crush their sense of identity, and maybe that of the child that they have imbued with a sense of their superiority, as well as a fear of state-school children. Of course those parents will hang on for as long as possible without changing their behaviour. Their bizarre sense of shame if forced to do so will mean they will hang on with making payments until long after it is wise.
There is, another important dimension to this, though. Most of the critics of the Taxing Wealth Report that I published last year said that the proposals I made would have massive behavioural consequences, and that the economy would essentially collapse as a result as all the highest paid and wealthy people left the UK as a consequence of being asked to pay a bit more in tax. I did suggest this change to VAT in that report. I am unrepentant for doing so.
I am equally unrepentant for suggesting that the overall behavioural response to imposing more tax on the wealthy will be minimal. What matters to the rich is their status as wealthy people within the communities within which they live. Class warfare is alive, well, and rampant amongst those who consume conspicuously. A bit of tax will not change that, and nor will these people move. If they did, they would not understand the subtle rules of wealth display and signalling likely to exist in the communities to which they would move, leaving much of their reason d'etre so displaced that the cost of moving is never worth considering.
Income and wealth are for the rich all about status, not money. A bit of extra tax will not change that, but it could make the world a much better place.
So, let me offer a slightly unusual thought. Should we tax status and privilege more, because people are willing to pay tax to keep it?
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It does open up the argument that since they will pay more , they might expect more say (they have enough that already) but I fully support your assertions.
I would argue that the wealthy already have more say, because money gives you options. The less well off do not have that privilege.
I’d say your argument has all the evidence to back it up, from the structure of law and law enforcement favouring wealth, govt policy favouring wealth (inequality is the policy), taxation favouring wealth (CGT, pension tax relief, NI contributions, council tax), MSM favouring wealth (no working class perspectives to be found here, but Charles Windsor’s music tastes are headline news as hundreds of poor people are killed by govt policy each week). Poor people are rarely invited to speak, are rarely quoted (except to add colour), rarely afforded credibility. The best you get is a derogatory vox pop.
Ian
Do you think that the rich are ever satiated?
If so, why do they always come back for more?
Like most extremists.
The rich are never satiated. Any billionaire proves this. Most people could quite happily retire with £1million. But not only are billionaire not satisfied with their first billion and want more, but they want to take away the scraps from those who really need them. It’s like kicking people when they are down.
My experience is you are right
Didnt the Junkers – Prussian Aristocracy have to pay a tax based on their status?
But as Warren Buffett said, “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”
I remember the 1960s quite well. With one exception. (in my area) those that went to what were then poorly funded private schools were those not bright enough (or perhaps tough enough) to survive in the state sector. Gradual defunding of the state sector changed that – over time. To move back to the status-quo ante will require consistent pressure on the private sector – more taxes and consistent funding of the state-sector & the abolition of all the nonsense surrounding academies etc. The state, via local government, with funding fit for purpose is the route forward. Private schools? squeeze ’em till the pips squeak – socially divisive and econometrically unsound since resources are diverted to educate a section of the population defined by money not talent/capability.
I saw this video yesterday and it made me think of how long the “tax is bad” narrative has been ingrained in British people.
https://youtu.be/HsLrOKwU7VQ?si=2l1FbAP-fWMHWNrq
I think less if McCartney for that. But I am not a massive McCartney fan anyway.
To be fair, Mike Yarwood wrote the sketch, but then again, the Beatles did write Taxman (1 for you, 19 for me).
That was a George Harrison song
Yarwood was a Tory
I was pleased to see this Guardian article this morning. It is what I expected.
Only about 6% of children go to private schools. It is probably reasonable to assume that these include many of the top few percent of the wealthy in this country.
Clearly, in this case, the evidence suggests that when the are taxed they don’t change their spending much. They like to maintain their conspicuous consumption. Their marginal propensity to spend is low.
If they send their children to private school, which is has now had its tax perk removed, they have less disposable income. All this has done is to reduce the amount they save.
Taxing the wealthy is a good idea. Period.
But if you want to reduce their consumption they would have to be taxed many times more than the desired reduction in their consumption. Otherwise they would just reduce the amount they save to maintain their conspicuous consumption.
Tim
There is a point in the moderation policy about being repetitive. It there for good reason. It is especially appropriate when you know you are irritating me. Sorry, but I am a human being.
Richard
Apologies for repetition and irritation. 🙁
“will do everything they can to avoid taking their children out of **** PRIVATE ***** schools” typo?
Corrected. Thanks. Early morning writing has risks.
I think you mean “to avoid taking their childrren out of private schools” – about half way down.
Corrected. Thanks.
A simple example of the interplay between money and status is when buying rounds of drinks. An impoverished student with any sense will likely accept the largesse of the group in order to be able to keep drinking, although many fritter away some of their student loans early buying some social status with rounds of their own they can’t really afford.
Meanwhile, the professional or the manager doesn’t ever want to be seen as ‘cheap’ and will ensure they are buying at least their share of rounds. The most senior manager is often expected to buy the first, that comes with their status.
This means that one side gains financially from spending less for their drinking, while the other gains social status.
Most of us are used to this interchange, and most of us broadly understand where we side on that interplay between spending and status.
This continues elsewhere, with providing accommodation to friends without asking for contributions towards food, hosting a BBQ, throwing parties, etc. There are many places where given spare resource people seek status through spending.
I would go further and say the spending should seem as effortless as possible, whatever the scale. Those who complain how much of burden it is to manage that spending undermine their own status. They don’t want to appear more like a stereotypical ‘benefit mum’ who comments on how they’re going to have to tap up their baby daddy to fund their spending habits. They went to instead appear more like the truly wealthy where almost any amount of spending is genuinely inconsequential to them.
There are, of course, exceptions. While some engage in conspicuous consumption (or visible philanthropy), there are some that spend their wealth quietly. That can be fine, too.
The problem is more those who do not understand what it is to have less and resent being asked to contribute more. The ones who say they ‘have to’ jack up the rent on one of their many properties while shouting to their wife that they’re taking the ‘Rangie today, not the Jaggie’. They can be generous, too, especially to friends, but they lack the understanding of the economic realities the majority face in order to have compassion.
Ignorant wealth is problematic. You see that with the billionaires in the US, who simply don’t understand what it’s like to need the things they’re trying to destroy.
This makes perfect sense and I wonder what implications it has for your previous post on defence spending? In that post you suggested that taxing the wealthy was the obvious solution because only they have consumption that can be foregone and the resources released used for defence. On the face of it, the VAT on private schools doesn’t appear to have reduced consumption of private education but maybe they have merely shifted their pattern of consumption i.e reduced it in other areas. I guess when deciding on the level of tax required to fund more defence there would need to be some thought put into this….or alternatively just massively tax that consumption that was competing for resources with defence (private jets for instance)?
Some thought would be needed, but let’s be clear, soldiers come from all over the place.
In 2024 the UK lost 10,800 millionaires, double the number for the previous year. For perspective this is the equivalent of losing the tax take from 528,000 average taxpayers. This is approximately the size of Manchester. Many of those who leave are entrepreneurs and job creators.
Are you saying this is of no relevance?
Yes
Right now they’re heading this way from the US.
You small minded trolls always count flows one way.
And think of all the tax our new migrants generate.
“And think of all the tax our new migrants generate”
I don’t think very much and maybe net net they fill 2% of the tax lost through millionaires leaving. If you think different then enlighten us.
The answer was in the comment just made
And you are a racist troll.
“and maybe that of the child that they have imbued with a sense of their superiority, as well as a fear of state-school children”
I went to a private school on the Assisted Places scheme in the 90s. They are every bit as snobby as you’d imagine and there really is fear and hostility towards those in the state sector, especially if they are working class. They get their results through hot housing not great teaching. The readily admit that their pupils often don’t do as well at University after the pressure has been removed
It was only after I left University and became friends with people in my city who hadn’t gone to private schools did I realise how much more at ease with themselves they were and far better adjusted. I have a friend who went to Westminster school who says exactly the same.
Private schools are deeply damaging places.
Alexander Armstrong of tv fame is “really angry” about the VAT, and is now “extremely poor” – “In our case, private school is the only place available for our children to learn music”. (Today’s Independent)
He’s probably right about the music, this is the point. Stewart Lee pointed out that private schools have better theatres than the towns he was touring. The wealthy are well provided for and have no reason to care about the quality of schooling for everyone else. It’s the class system all over.
Agreed.
He went to Eton. Privilege is baked in.
We can’t be certain how parents and schools will respond to VAT on fees. We can speculate – and FWIW, I don’t expect to see private schools losing kids in droves – but there is no substitute for evidence and (as Richard notes) it initially seems that government school roles for September. There is no substitute for facts.
No doubt, there will be any number of sob stories in the press (as there were with changes to inheritance tax on farms) and each one will be very tough for the individuals involved. However, it is fundamental to any tax system that it be seen as “fair” by the vast majority; too many special treatments bring the system into disrepute and are a green light for tax fraud leading to a collapse of the system. There is no reason why this particular product, bought only by the wealthy, should get special treatment and, despite the pain of transition for some families, must happen.
Your broader question about taxing status and privilege? Yes, why not tax “luxury items” over and above VAT? Charging for Knighthoods, OBEs etc? Well, Lloyd George was doing it 100 years ago and some would suggest it hasn’t stopped. At least a clear charge by the State might reduce the level of corruption.
When I look at the vehicles lined up to collect children from the private school near where I work I see no evidence of hardship due to the rise in VAT- an endless procession of Porsches, BMWs, Volvos, Teslas etc…most of them SUVs – an extremely ostentatious display of wealth if ever I saw one.
Personally I would abolish all private education as it only feeds privilege and destroys community.
Sadly I see the evidence of conspicuous consumption increasing exponetially all around me in Cambridge….even in the relatively modest street I moved into over 30 years ago. SUVs, huge, costly extensions, children at private school, when in my daughter’s time there were none – yet around the corner there are people sleeping in doorways….I see so many broken looking people up and down the main street. Such graphic inequality, so in your face – I find it hard to see on a daily basis even at this level. And yes…..this is everywhere.
@AndrewBx
https://www.taxresearch.org.uk/Blog/2025/03/10/the-rich-dont-change-their-behaviour-because-of-a-bit-of-additional-tax/comment-page-1/#comment-1010223
https://www.independent.co.uk/news/uk/politics/eu-workers-uk-tax-treasury-brexit-migrants-british-citizens-a8542506.html
https://assets.publishing.service.gov.uk/media/5bfd2209e5274a0fce0e285f/The_Fiscal_Impact_of_Immigration_on_the_UK.pdf
From a fiscal point of view, restricting inmigration from EEA was a really bad idea.
Even for non EEA migrants, their fiscal lifetime contribution is positive.
As for the rich, the regressive tax system allows them to pay a lower proportion of their income in tax, than the poor, not counting avoidance schemes and that they tend to receive their money as profits or capital gains, at a lower rate of tax than income.
https://www.independent.co.uk/news/uk/home-news/lowest-earners-more-tax-richest-office-national-statistics-inequality-council-tax-vat-equality-trust-a7704331.html
https://www.lse.ac.uk/research/research-for-the-world/economics/how-much-tax-do-the-rich-really-pay
https://equalitytrust.org.uk/news/press-release/uk-still-taxes-the-poorest-more-than-the-richest/
As for those on the lowest income, ie: benefits, their effective marginal tax rates once they start earning, are huge, at levels that the rich would scream about all the way down Tufton St.
If you want to know what happens to a Western economy when immigrants are sacked/deported in large numbers, just watch the USA. As for the effect of knee jerk, politically motivated tighter visa restrictions, watch the NHS, Council services, child & Social care, to see the effect of clamping down on immigration, even in private facilities. As for university finances…
I did wonder what the Bx in your handle stood for…
I added the Bx
It was to differentiate from other Andrew’s who are not now blocked.
I don’t recall millionaires in the 1970s (the word billionaire was never heard) threatening to leave the country if their taxes weren’t reduced …