VAT: Independent Schools

Alicia Kearns Excerpts

Tuesday 8th October 2024 Commons Chamber

[Damian Hinds]

No, independent schools do pay tax on supplies. No tax is charged on education, whether in an independent school or in other settings, and that is a very long-standing principle.

Let me clear up one very important definitional point, which I ask colleagues to reflect on. There is no tax break involved. It would be a tax break if a person who had a child at an independent school and was not taking a place at a state school were charged less tax as a result. That does not happen in the United Kingdom. Everybody contributes to state sector education, whether or not they take up a place.

The principle of no tax on learning is a fast one, and once we loosen it, we do not know where we will go. Where might the Treasury look next? Private nurseries, perhaps? Music lessons? Private tutoring? What is the philosophical difference between independent school education and private tutoring?

[Alicia Kearns (Rutland and Stamford) (Con)]

Let me make a point to demonstrate how rushed and ill thought through this policy is. My understanding is that if a child in a nursery has turned five but the other children in the class have not, all the parents in that nursery year will have to pay VAT on their child’s nursery fees. That is how badly this has been thought through.

[Damian Hinds]

My hon. Friend is right. That comes from the rushed nature of the legislation. The sloppy drafting means that children who are not of school age get dragged into this tax if they happen to be in the same room as children who are, and there are concerns about what might follow in other borderline cases.

The Government claim that the policy is about revenue, not politics, but having read the Secretary of State’s twitterings, I think hon. Members could be forgiven for mistaking the motivation. It is entirely spurious, for multiple reasons, to link this tax to 6,500 teachers, mental health support or anything else. The money will go into general Exchequer receipts, and anyway, 6,500 teachers is not that many in the scheme of things, given the 468,000 there are now. That is a compound growth rate of 0.3% over five years—and, by the way, a lot fewer teachers than we recruited in the last five years. Mental health support teams are already being rolled out, and they cover primary schools as well as secondary schools. It is not clear what the difference is in the new Government’s policy on mental health support, other than that it will not include primary schools.

To the extent that the VAT revenue could be hypothecated, it looks a lot more like that revenue would reduce cuts to education resourcing, rather than increasing it. If the policy is about revenue, not politics, the Government could easily commit to one simple thing today. They are confident, they tell us, that the policy will raise a large sum of money and not create large costs. Will they commit to measuring and reporting back on that, and if it turns out, against expectations, that they were wrong, will they reverse it?

--- Later in debate ---

[James Murray]

I am not quite sure what happened there, but I will carry on. I was making an important point, which is that the Government will monitor closely the impact of our policy changes on affected diplomatic and military families, with any changes to the scheme being considered as part of the ongoing spending review.

[Alicia Kearns]

Will the hon. Gentleman give way on that point?

[James Murray]

I will make a bit of progress. In our consultation on the technical detail of this policy, we have been engaging widely and in depth, and the views of MPs are an important part of that. As I said earlier, it has been a tough but necessary decision to end tax breaks for private schools. We believe it is the right decision, and one we need to implement as soon as possible to help raise the funding that we need to deliver our priorities for state education in this country. We are determined to make sure that education, which is available for all, is of the highest possible quality, because that is how we ensure that we meet the aspiration of every parent to get the best possible education for their children.

--- Later in debate ---

[Alicia Kearns (Rutland and Stamford) (Con)]

I welcome the hon. and gallant Member for North East Derbyshire (Louise Jones) to her place. We need more people in Parliament who have service in their hearts. I also thank her for her good comments about her predecessor and in particular for her comments about Corporal Riley, which I know my hon. Friend the Member for Huntingdon (Ben Obese-Jecty) felt deeply. I thank her for taking the time to do that.

Sadly, I turn to a decision by the Government that does not have service to the country at its heart. This is a cruel, vindictive policy that will damage the prospects of children in both state and independent schooling. It is particularly damaging also for rural economies, which seem to have been entirely overlooked. In Rutland and Stamford, we have 10 independent schools that cater for a vast number of pupils—particularly those from military families and those with SEND—and what is common to all those families is how hard they work for their children to have the right education for them.

I have received heartbreaking emails from parents who have had to sacrifice the education they have worked so hard for. One was from a mother of twins who are midway through their GCSE year. There is no space in the state sector for them—twins who now question whether they will be able to sit their GCSEs because of this policy.

The entire county of Rutland has zero available state school spaces in years 10 and 11, and only three SEND spaces.

[Ben Coleman (Chelsea and Fulham) (Lab)]

rose—

[Alicia Kearns]

Is the hon. Gentleman just going to stand, or will he ask to intervene?

[Ben Coleman]

Will the hon. Member give way?

[Alicia Kearns]

There we go.

[Ben Coleman]

I am most grateful to the hon. Member. Does she not think that a little bit of an apology from her and her colleagues for the disgraceful SEND system that they left as a legacy is merited? As people cannot get EHCPs or support in the state sector, and councils and cash-strapped families are turning to the private sector, should she not apologise for the legacy that she and her colleagues have left the country?

[Alicia Kearns]

I am so pleased that the hon. Gentleman is repeating the lines that the Whips gave him for this morning’s Westminster Hall debate. I was not talking about SEND. It is deeply discourteous to the House to intervene on a Member with a point that is completely separate from the point that they are making; he will come to learn that in time.

As I said, the entire county of Rutland has zero available state school places for years 10 and 11. That means children will now not be able to get their education. I ask the Minister directly: what would he say to 16-year-olds who are to be forced out of their school in January with no alternative place to go and nowhere to do their studies? This is a vindictive policy, and it is absolutely wrong.

I want to touch on the contribution to local rural economies. In Rutland, education is the biggest single employer. As I said, we have 10 schools across 11 sites. In 2022-23, one secondary school in Rutland and Stamford contributed £50 million to UK GDP. It contributed £30 million to local GDP, £14 million was paid in tax to HMRC, and savings of £5.5 million were made to local schools through school places that were not taken. Some 70% of this school’s expenditure is on staffing and, with the imposition of VAT, it is forecast to make a loss for the first time ever. Jobs are being lost. When 70% of the budget is staffing, what does a school do? Cuts have to be made in people’s jobs. More than 2,000 people locally are employed directly by independent schools, and that is not to mention those working in the supply chain, whether driving buses, providing food or flowers, or working in cafés and shops. Rural economies do not have many options at the moment, and independent schools are a bedrock for them. The economic impact of these jobs on rural communities should be considered in an impact assessment, but I very much doubt one has been carried out.

Looking at the national economic picture, the Adam Smith Institute concluded that every child in independent schooling contributes £28,000 to the public finances. The average £2,700 saved on VAT makes a return to the taxpayer of 1,040%. If 5% of independent school pupils leave, the Government will generate £1 billion through this policy. If 10% to 15% of pupils leave, the Government will generate no revenue. If 25% of pupils leave, the Government will lose £1.58 billion, because they are doing something vindictive and wrong.

[Richard Foord (Honiton and Sidmouth) (LD)]

Does the hon. Lady agree that people putting their children through independent school are paying twice? They pay once through their fees and once through income tax. If they are removed from the system, that will mean less money for education.

[Alicia Kearns]

The hon. Gentleman is absolutely right. These parents have already paid into the state school system as if their child were going to state school, and they are net contributors to the local education system and the tax system, because they have chosen to ease the pressures on state schools by taking their child out. This is basic economics, and that is why the Government do not understand it.

Independent schools make a huge and optional contribution to the national teachers’ pension scheme. Some could choose to mitigate their increased costs from the imposition of VAT by opting out of the TPS. What assessment has the Minister made of the impact that this would have on the financial viability of the TPS?

Additionally, a number of independent schools in my constituency provide homes for children in foster care who would otherwise have no stability. These are the kind of schemes they will have to stop. That will again result in increased costs and impact on the state sector, which will have to pick these things up.

It is a long-standing international norm to exempt education from sales taxes. Nurseries, universities, tutors and other education providers are not included in Labour’s proposed VAT increase, although as per my intervention on my right hon. Friend the Member for East Hampshire (Damian Hinds), there is a toddler tax, which any parent with a five-year-old child in nursery school will suddenly find themselves paying. It is ironic that the Labour party says that it believes in free university education for all, yet many who take up apprenticeships or go into work will not go to university. Why does Labour think that all of us who do not go to university should pay for other people to go to university, but somehow, when it comes to this issue, we should pay for others?

There is also a question about the legality. Senior lawyers, including Lord Pannick, have argued that this proposal will breach European convention on human rights rules on educational choice and access. What assessment have the Government made of the legality of this policy?

I am already seeing the damage of this policy in the heartbreaking dilemmas facing families who have contacted me for help. For some pupils halfway through their exam years, there are no places in the state system. The requests are clear: the Government must delay the implementation until at least the end of this school year, so that children are not disrupted in their education. We need to exempt those pupils in years 10 to 13, so they can take their exams without the added pressure of a school move. We need to help local authorities to boost EHCP assessments rapidly, and we need to undertake a regional assessment of available state school places to exempt pupils who live in areas with no availability, such as Rutland.

I understand that the Labour party wants to make an ideological attack on education and choice, but I urge Ministers to sit down and think this through. The richest will continue to attend private schools and absorb the increased costs, while families who sacrifice day after day will suffer. For those who are interested, I did go to my local comprehensive, and my children go to their local comprehensive, but I think it is right that we support choice for all. Tony Blair once said, “Education, education, education.” I urge the Minister to listen to the ghosts of Labour past and to do what is right for all children at both state and private schools, not what is right for reasons of ideological dogma, which is what the Labour party is currently doing day after day.

[Several hon. Members rose—]