Independent Schools: VAT Exemption

Lord Etherton Excerpts

Thursday 5th September 2024 Lords Chamber

[Lord Etherton (CB)]

My Lords, I too am grateful to the noble Lord, Lord Lexden, for securing this important debate. I agree with many of the concerns expressed by previous speakers, including the need for more comprehensive consultation; the need to delay the imposition of VAT until next September; and an exemption for schools providing for children with special educational needs and disabilities, as well as for small faith schools and boarding schools for the children of soldiers and diplomats, who rely on boarding education for their children in order to carry out their duties.

I shall concentrate on the contributions made by some independent schools for the benefit of state schools and deprived children. The helpful briefing of the ISC states that there were 9,248 partnerships between ISC schools and state schools or community groups in the 2023-24 academic year. Last year, ISC schools gave £1.1 billion in assistance, more than half of which was means-tested. My point, in short, is that this contribution must in some meaningful way be recognised if the proposed new VAT regime is imposed.

I wish to give as a live example one metropolitan independent school—not Eton or Harrow. It supplies teachers directly to state schools: last year the equivalent of three full-time teachers. Substantial amounts were applied in partnership projects, equivalent to approximately 2.7% of total turnover. In addition, the school spends approximately £3.5 million a year on bursaries—8% of turnover. The majority of this comes from donations. Critically, more than 50% of parents give donations for bursaries and partnerships. Taking an overview, more than 10% of the school’s turnover was applied last year to bursaries and partnerships, a significant proportion of which came from donations from parents.

The obvious concern is that parents who pay VAT at 20% will be less inclined to give donations that would have been applied for bursaries and partnerships. I suggest that the Government should consider carefully ways in which, if VAT is imposed on the fees paid to independent schools, allowance is made to recognise the significant amount paid by some independent schools for the benefit of less-advantaged state schools and pupils and, indeed, to incentivise the giving of such assistance.

I put forward for consideration by the Government two possible approaches. One is to have a reduced rate of VAT where a certain percentage of the independent school’s turnover is applied in bursaries, partnership projects and other assistance. The second is to treat money, or money’s worth, applied for bursaries, partnership projects and other assistance as deductible from the fees paid by parents in order to arrive at a net figure for the purposes of VAT.

Assuming as I do that the Government’s intention is not a spiteful attack on independent schools but a genuine attempt to improve state schools, it seems obvious that the Government should not disincentivise the financial assistance for state schools and disadvantaged pupils currently derived from parental donations in the independent education sector, but encourage such donations alongside the intention to impose VAT on independent schools’ fee income. If, as I hope, these ideas are of some interest to the Minister, I suggest that a meeting with her, attended by those with appropriate expertise, be arranged.