Independent School Fees: VAT

Debate between Lord Livermore and Lord Lexden

Thursday 13th March 2025 Lords Chamber

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

My Lords, the result of imposing VAT on school fees has been to help raise revenue to fund the Government’s objective that every child has access to high-quality education, including the 94% of children who are educated in the state sector. The Government have published a tax impact and information note setting out an analysis of the impacts of this policy. The Government’s costings, set out in a detailed costings note, have been certified by the independent Office for Budget Responsibility. We remain confident in those assessments but will of course continue to monitor the impact of the reforms.

[Lord Lexden (Con)]

My Lords, what are the Government to say to the mother of a child with special needs whose independent school is closing because of their education tax? She writes to me: “Shell-shocked does not cover it. My child is autistic. State secondary was an utter disaster. She felt safe and happy. Her heart is now broken”. What are they to say to the head of a small independent school in Derbyshire with 120 pupils, who writes to me: “I am battling to save my life’s work”? How would members of the Government feel if they were forced to move their child to a new school in the middle of an academic year, particularly if exams were in the offing? How should the sudden imposition of an unprecedented education tax on 1 January, after a rushed consultation last summer when schools were on holiday, be described? One word does it: cruel.

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his question, and I pay tribute to his involvement in this sector. As he will know, probably better than me, there has historically been a significant turnover within the private school sector, with around 3% of private schools—roughly 75 in the UK—opening and closing each year, with the overall number of private schools remaining stable. Since this policy was announced in July, private schools have continued to open in England in line with historic trends.

Independent School Fees: VAT

Debate between Lord Livermore and Lord Lexden

Monday 21st October 2024 Lords Chamber

[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.

[Lord Lexden (Con)]

Should we not all be grateful to the noble Lord, Lord Hacking, who has sent a very thorough report to the Prime Minister, showing the dire consequences that the Government’s education tax will have? Is it not time that the Government realised that their education tax—the first in our history—is likely to force a large number of parents, particularly those using small special needs schools in the independent sector, to move their children next term to state schools which are wholly unprepared for them?

[Lord Livermore (Lab)]

The answer to the noble Lord’s question is no, because the assumptions underlying that report are incorrect. We expect that a large number of private schools will take steps to absorb a significant proportion of this VAT liability, so the majority of that fee will not be passed through.