Independent School Fees: VAT

Lord Hacking Excerpts

Monday 21st October 2024 Lords Chamber

Asked by

[Lord Hacking]

To ask His Majesty’s Government what estimates they have made of the pupil migration arising out of the proposed VAT on independent school fees, and what is the exact basis of such estimates.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, in July, the Government set out their view that the number of pupils who may switch schools as a result of these changes represents a very small proportion of overall pupils in the state sector. Projections from the Institute for Fiscal Studies suggest that this is likely to represent less than 0.5% of total UK state school pupils, with any movement expected to take place over several years. At the Budget, the Government will set out our assessment of the expected impacts and a tax information and impact note. This assessment will be consistent with the costings of this policy by the Office for Budget Responsibility. In making this assessment, the Government will consider pass-through of VAT to school fees as well as the likely elasticity of demand.

[Lord Hacking (Lab)]

My Lords, I am very grateful to my noble friend for answering my Question. He cites the IFS report that advised that there would be a very small pupil migration of between 3% and 7%. The question is whether that is correct. Do the findings of the IFS provide any clear indication of parents’ ability to pay a 20% increase in the cost of school fees? Also, should not the Government listen to the parents of pupils in independent schools in the various parent surveys? In recent surveys, between 18% and 26% have said that they will not be able to pay this increase and will have to take their child or children out of independent schools.

[Lord Livermore (Lab)]

At the Budget, we will set out an assessment of the expected impacts of this policy in the normal way by publishing a tax information and impact note. In this assessment, we will consider, first, the likely pass-through of VAT to school fees. Here, after a cover of VAT on input costs, we expect schools to be liable for VAT of an average of around 15% of their fee income. The Government expect that private schools will take steps to absorb a significant proportion of this VAT liability. Secondly, we will consider the likely elasticity of demand, which will be consistent with the elasticity used by the OBR in the costing of this policy. It is worth noting that, despite a 75% real-terms increase in fees since 2000, the number of children in independent schools has remained steady, which suggests an inelastic demand for private school places.