In a fit of what can only be described as frenzied desperation the Daily Mail has run two front pages in succession on a five-year-old Labour policy to remove charitable status from private schools and levy VAT on fees. It’s unclear why they’ve picked now to declare there is “fury” about “Keir Starmer’s class war”. I don’t recall the same fury when the radical socialist Michael Gove made the same suggestion in 2017. Presumably the paper has run out of other things to say.
Nevertheless it’s worth examining its claims given this confected rage will no doubt be reproduced ad nauseam in the run-up to the next election campaign. There are two parts to the Labour policy, which are often conflated. The first, to remove charitable status, would mean private schools losing out on around £150m a year in business rates relief. In practice I suspect Labour would end up just removing the tax exemption rather than charitable status, given it’s a lot simpler legally and achieves the same goal. This is not a substantial sum for the private schools sector – around 1.5 per cent of fee income – and even their lobby groups don’t try to pretend it would be unaffordable.
The more significant policy is VAT on fees. This could bring in around £1.5bn, taking account of the VAT schools would be able to reclaim if they were charging it to parents. Labour wants to spend this on various policies to support the state sector. The Mail claims it would actually cost the government £400m because so many pupils would be “forced” (poor dears) into the state sector.
This figure is taken from a 2018 report commissioned by the umbrella body for private schools, the Independent Schools Council (ISC), and produced by Baines Cutler, a business that provides financial advice and consultancy to private schools.
The methodology involved asking 21 schools, which had contributed to Baines Cutler work before, how much of the cost of VAT on fees they would pass on to parents. Then the consultants take parent earnings data and make an assumption about how many couldn’t afford the fees any more. It’s hard to tell what was taken into account because none of this data is published, but what about the fact that many parents have assets and financial support from family that goes beyond their immediate earnings? Or indeed could increase their earnings.
Anyway, all of these assumptions are layered together to produce an assertion that it is “virtually certain” that the parents of 17.1 per cent pupils (90,800) would not be able to afford the fees anymore. Unfortunately for Baines Cutler and the ISC, even then the policy would still net around £600 million a year. So they then make a bunch of other assumptions, including that schools would stop offering as many fee concessions even though most of these are a small percentage of the fees and removing them would be financially self-defeating. They then assume that 26,500 pupils would stop going even though their parents could afford it because their schools would close or have to reduce their offering enough to be unappealing. How Baines Cutler decided on that specific number is unclear. And then on top of that they assume more state schools would need to be built even though, due to birth rates falling, the overall drop in pupil numbers over the next few years will be higher than the total privately educated population. Only by adding in all of these additional assumptions do they manage to produce the claim that the policy would cost £400m a year.
This analysis makes too many assumptions to be useful. In reality most private schools, whose average fees are two and half times the cost of a state sector place, would surely cut their cloth based on what parents could afford, which is what they always do. If they needed to absorb the VAT increase they could simply bring their teacher-pupil ratio (9:1) marginally closer to the state school average (18:1). If some really couldn’t afford to stay open they could apply to become state funded academies, as long as they drop their fees and academic selection. That would be win/win – the schools stay open and the state gets free assets.
The one group of schools that would find themselves in genuine difficulty as a result of the policy are not ISC members but small, mostly very religious, private schools whose offering is very different to Eton and Harrow. This affects a very small number of children. Likewise there are some specialist private schools for serious special needs, though as their places are mostly state funded anyway the policy shouldn’t make a difference to viability.
Overall the policy is an entirely reasonable one. There is no justification for private schools, or parents, to get tax breaks given their primary role in society is to allow undue privilege to be passed on to the next generation. There would almost certainly be a substantial net revenue boost that could be used to fund policies that helped children who need additional support. There’s no political danger for Labour either, it’s a popular policy with only 10 per cent of people agreeing with the status quo and 47 per cent saying private schools should lose their tax exemptions. Even the Mail’s “fury” is not really about the issue at all, but its editors’ inability to find any good attack lines on Labour.