Independent Schools: VAT and Business Rates Exemptions

Alec Shelbrooke Excerpts

Tuesday 8th October 2024 Westminster Hall

[Sir Alec Shelbrooke (Wetherby and Easingwold) (Con)]

It is a pleasure to serve under your chairmanship, Dame Caroline. The Government are about to realise the reality of governance over manifesto ideology. Fundamentally, this policy will remove the ability of people to send their children to local primary schools as places get filled by those who currently can just about afford to use private schools. As there is limited time, I have a series of questions that I would like to put to the Minister. To be fair to him, this is not his Department—education Ministers are running away from their policy—so I doubt he will be able to answer them today, but perhaps he can take them away. Some of them have been covered, but I think it is important to get them on the record.

Will the Minister confirm whether a low-income family whose child is in receipt of a bursary would be liable for VAT on the total school fees? Would a staff member in receipt of an employee discount on fees also be liable? With boarding schools already at 86% capacity and some already withdrawing from the market, will the continuity of education allowance for military families still be able to house the 4,200 who currently use it? Will arts schools be exempt? If so, and we are starting to exempt schools, is this even legal? If we do not exempt art schools, that means people who have the talent to go will have to be in the vicinity of the school or travel. That is going to withdraw a huge amount of opportunity from those in the arts sector.

What mitigation is there going to be for the financial planning of international pupils? They have a choice of a global market. As my hon. Friend the Member for Bromsgrove (Bradley Thomas) mentioned, this is a £2.1 billion export market. Again, is it going to be legal to exempt certain schools, such as those involved with SEND provision? What impact will there be on council budgets? There is an issue for those of us who represent vast rural communities: if children are taken out of the private sector and put into the state sector, the state will to have to fund the transport for those children to go to school. Upon whose budget will that fall? Fundamentally —there is evidence of this from every council—if primary schools are already close to capacity, will the state pay to put those children into private places? Will parents then be taxed on that as an in-kind benefit or will the law be retrospectively changed—which, of course, would suit the Prime Minister and a lot of people with free wardrobes?

--- Later in debate ---

[Nigel Huddleston (Droitwich and Evesham) (Con)]

It is a pleasure to serve under your chairmanship today, Dame Caroline. May I first congratulate my hon. Friend and constituency neighbour, the Member for Bromsgrove (Bradley Thomas) on securing this important debate? I thank all those who have participated today; we have heard some very insightful contributions. I am also glad to have the shadow Secretary of State for Education, my right hon. Friend the Member for East Hampshire (Damian Hinds), sitting beside me today.

We can see from the large number of contributions, particularly from Opposition Members, how important this issue is to Members and their constituents, many of whom are greatly distressed by the Government’s proposals. We believe they are flawed in both design and execution, or at least planned execution, which is perhaps why so few Members from the Government party are here to defend them today. The policy will move away from a long-held principle that educational services are not taxed in this country, or in most developed economies. We have five broad categories of concern: the impact on state schools, the impact on overall Government finances, the timing of the proposals, consideration of exemptions, and the impact on SEND and EHCP provision. I shall turn to each of these briefly.

First, it is clear that the policy will have a detrimental impact not only on the independent sector, but on the state sector. The imposition of a 20% VAT tax hike overnight will clearly mean that some families will no longer be able to afford the fees. That is basic economics. In addition, the imposition of business rates will further disrupt the business model of independent schools and make less money available for bursaries and subsidies, which many parents rely on. Inevitably, that will mean children leaving the private sector and moving to the state system, putting an additional burden on many state schools, some of which do not have the capacity. It will also make fewer spaces available at good and outstanding local state schools where spaces would otherwise have been available, because more pupils would have taken the independent route. This is not a fear or scaremongering; this is reality. It is happening now.

According to the Independent Schools Council, more than 10,000 pupils have already been pulled from independent schools. One think-tank has estimated that far from bringing additional money into the Treasury, the policy could cost the taxpayer £1.6 billion, which brings me to my second point about the impact on overall Government finances.

Out of total Government spending of more than £1.2 trillion, is this policy really the top target of the new Government? It smacks of the politics of envy, not of careful deliberation and consideration of evidence. On the topic of overall Government finances, will the Department for Education get more funding from the Treasury if the number of state pupils exceeds expectations, or will they be expected to pay for it within existing budgets? Have the Government set aside capital for additional new school places if that is needed?

Regarding the timing of the proposals, it is unfathomable why the Government are considering introducing this policy in the middle of the school year. Why? It does not make any sense to cause so much mid-year disruption to so many schools, pupils and families.

[Sir Alec Shelbrooke]

This will clearly be open to legal challenge, which stands very little chance of being in the courts within the next three months. As it gets held up, will this policy not cause mass disruption by being introduced in the middle of the academic year?

[Nigel Huddleston]

My right hon. Friend raises another important point, and I believe some legal challenges are already in place. Regarding timing, is the Minister truly confident that the policy could be implemented within weeks? Is His Majesty’s Revenue and Customs adequately resourced and prepared for it? Is the legislation ready? Is the legislation and guidance sufficiently clear? Even if the answer to all of the above is yes, is it fair on independent schools to expect them to suddenly get their heads around new legislation, register for VAT, implement new systems and processes, and logistically carry out the execution of this policy, all before Christmas? The answer is clearly no. I implore the Minister at least to delay the implementation, and carefully consider some exemptions and special considerations, my fourth category of concerns, which have been raised by many hon. Members today.

The rushed policy appears not to have properly considered carve-outs for pupils from military families, students on the music and dance scheme, children attending small or small faith schools, those paying low fees or who are on bursaries, or children in exam years who may have to move to another school that does not offer their current subject, offers different syllabuses, or has different examination boards. I hope that when we finally see the impact assessment, we will see some consideration of those matters.

My fifth category of concern is what consideration has been given to pupils with special educational needs and those with an EHCP or who are in the process of getting an EHCP.