Independent School Fees: VAT

Jonathan Lord Excerpts

Wednesday 21st February 2024 Westminster Hall

[Andrew Lewer]

I thank my hon. Friend for that question, which is indeed the major thrust of what I have to say. As chair of the all-party group, I am delighted every year to sponsor the Independent Schools Council’s annual “Celebrating Partnerships” report, which gives parliamentarians and stakeholders from across the sector the opportunity to come together to celebrate the fantastic work that the independent sector does in partnership. Three quarters of independent schools are now in partnerships with state schools. That is not the old swimming pool every other Tuesday afternoon for an hour or two; they are embedded, mutually beneficial partnerships.

Given how influential and impactful the sector is for wider society, it is in disappointment that I stand in opposition to the Labour party’s policy position on independent education—the introduction of a 20% VAT fee on independent school fees. I urge the current Government and my Conservative party colleagues to be robust in their stance of not imposing VAT on school fees. I look forward to the Minister’s analysis of that, but given that the Opposition are currently well ahead in the polls, and it is at least possible that they could form a Government in the next Parliament, it is important that this debate has been granted. It is important that we take the time to scrutinise what I believe is an ill-thought-out policy. Although I welcome the fact that Labour’s plans for independent education under the right hon. and learned Member for Holborn and St Pancras (Keir Starmer) are not as draconian, undemocratic and questionable in law as they were when he served in the shadow Cabinet of the right hon. Member for Islington North (Jeremy Corbyn)—when it looked like the party was trying to abolish the sector entirely—they are still very worrying indeed.

The principle of parental choice is supported by article 2 of the first protocol of the European convention on human rights, which was incorporated into domestic law by the Human Rights Act 1998. It says that

“the State shall respect the right of parents to ensure such education and teaching in conformity with their own religious and philosophical convictions.”

However, is that right to choose being assisted, if said choice is made increasingly difficult by a huge tax rise? I do not think it is. It is also a fundamental principle that we do not tax the supply of education, and the Value Added Tax Act 1994 exempts education, including nurseries and universities, alongside independent schools. That principle is international in scope and the UK would be an outlier if Labour abandoned that policy. For example, EU nations, Australia and the USA do not apply sales taxes to education.

Beyond the core principles, there are many reasons why the policy could be harmful and doomed to fail. First, parents residing in the UK who make the decision to send their children to independent schools already contribute to the state education sector by paying their fair share of taxes. I have made that very clear in the Main Chamber when debating this subject, and the repeated use of terms such as “tax breaks” and “tax reliefs” should be avoided. Independent schools are taxed in the same way as other education providers and charities, and they provide more than £5 billion in tax annually, which is more than three times what Labour thinks it will raise from VAT. UK parents who pay school fees do so from already taxed income.

Now that the Labour party has put this policy forward, I am sure we will hear today that it has done so because it believes in educational excellence for everyone and not a reserved few. However, by introducing the policy a Labour Government would simply make independent schools even more elite than Labour already perceives them to be by pricing out hard-working parents who can just about afford to pay the fees to invest in their children’s futures. Those who can easily absorb the 20% will do so, and perhaps that is what the Labour party wants: to make private schools more elite so that it is more difficult for politicians like me to make the case for them.

I will use the jacuzzi and private jet analogy to demonstrate my point. Many of us will never have a jacuzzi in our gardens, but could probably afford to install one if we chose to do so. On the other hand, a private jet is, for virtually everyone, an unobtainable fantasy for a distant elite with no connection to our lives. That is what Labour wants independent education to be—the private jet, not the jacuzzi. Of course, that is purely figurative as a parallel and not related to the crucial importance of educational choice.

It has been said that these are not issues we should worry about, and that independent schools can simply absorb the VAT increase so that they do not pass it on to parents. That is a naive view, with many independent schools up and down the country being very small, operating on tight margins and unable to do that. A quarter of all schools in the Independent Schools Council have fewer than 155 pupils. They are not wealthy institutions that are able to absorb VAT.

[Mr Jonathan Lord (Woking) (Con)]

I congratulate my hon. Friend on securing this important debate. Several headteachers of independent schools in my constituency of Woking have come to me and said that they are worried that many parents will not able to afford to keep their children at their schools with the VAT increase, and one or two are worried about the future of their schools. My hon. Friend has had conversations with the independent sector and the groups representing it; has Labour taken into account that there might be a massive increase in students having to go to the state sector due to schools closing, which would completely kibosh any potential financial gains it is claiming?

[Andrew Lewer]

It would. My hon. Friend’s point leads me nicely into my belief that the naivety of Labour’s position is underlined by a hidden agenda to have smaller schools in the midlands and the north closed and absorbed by the state. Underlining that is perhaps the fact that the shadow Education Secretary, since taking up her post in 2021, has not visited an independent school with at least the aim or willingness to discuss the impact of her policy. My hon. Friend has spoken to people in the sector, as have I and many other people here.

The unwillingness to engage speaks volumes. Who would propose massive changes to the chemical industry or the high street retail industry without taking the trouble to speak to people involved in that sector to assess the impact? It is quite unthinkable. I also question why the policy is aimed only at taxing the supply of children’s education, which is arguably the most pivotal, and not at education for adults via universities, for example, or other forms of education such as private tutoring, which is the alternative private education leg-up provision of extra advantage that many on the left as well as not on the left utilise. There are no plans for VAT there; I wonder why.

Perhaps most important of all is the effect that the policy would have on independent schools’ ability to operate. If independent schools cannot absorb the VAT increase or parents cannot afford the fees, many of them would have to close. That would be disastrous for two important reasons. First, we would see the children go into the state sector, increasing the burden on other children and teachers. The Opposition believe that that can be offset by funds raised by the policy, but we are yet to see any consensus on the true impact.

The Institute for Fiscal Studies states that the policy will raise half a billion pounds less than Labour has committed in spending pledges. The education specialist think-tank EDSK puts the likely revenue even lower, leaving Labour more than £1 billion overdrawn on its spending plans. Most worrying is the IFS finding that the evidence of impact on children and families is “quite thin”—alongside 30-year-old data, it relied on the experience of Catholic schools in America—so it is tax first and repent later.

I am sure we will hear that this is a bogus claim and that there might not be a mass exodus, and that might be evidenced by the fact that as inflation has risen and independent school fees have gone up, we have not seen many children leave the sector. However, the ISC has found that 20% of parents who currently send their children to independent schools say they will be priced out and have to educate their children in the state sector. Those are the parents who will be making a difficult choice and might be forced into pulling their children out of the schools they have been educated in, and when they are at a key stage in their education. Perhaps most strikingly, the Baines Cutler report has calculated, using real data from schools and parents, that the predicted income-related drop-off if the policy is enacted would be nearly 100,000 children—one sixth of all the children educated in the sector who need somewhere to be educated.

Even more crucial is the impact on independent schools that provide specialist provision where the state sector does not go—independent specialist schools with small budgets that educate children with particular needs. Department for Education data shows that there are more than 100,000 pupils receiving special educational needs support in independent schools, some with education, health and care plans and some without. Moreover, many independent schools provide specialist faith schooling or provision for military families—something I saw the benefit of in my own education.

When it comes specifically to special educational needs and disabilities provision, what we will see is that parents who can no longer afford to pay the fees will seek out an EHCP if they do not have one, which will lead to more pressure on families, on local authorities at tribunal and on local authority budgets. I am interested to know whether there has been any realistic impact assessment of that.

If schools were to close as a result of the policy, the children would not have the provision they need. It will very much be the case that the schools will have to stop the excellent partnership work they do in order to cover their costs, or reduce their offer of bursaries to disadvantaged pupils, thereby reducing social mobility and making these institutions even more elite. That is the point. Such a regressive tax will seek to harm independent schools on the tightest of margins.

Even if the policy’s impacts are not seen immediately, I fear that the long-term negative consequences will be dire. It is the schools that Labour are not thinking about that will be hardest hit—small faith schools and special needs schools. That capacity sees some special needs support for 96,000 children who are not on an EHCP. Labour has exempted the EHCP pupils from VAT on fees, but not other students with special educational needs. That is 96,000 children facing disrupted education, with state provision further stretched and worse for all those who need it. Families are therefore incentivised to apply for EHCPs. Labour should exempt all pupils with special educational needs from VAT on fees. If it does not, the pressures will be laid at its door.

Similarly, small faith schools up and down the country could not be further from the stereotype that has been presented. They often charge low fees—often lower to the taxpayer than the cost of local state schools, because they are supported by local congregations and voluntary efforts. They are frequently very small, they cannot absorb VAT, and their families and supporters cannot find 20% more at a moment’s notice. They will face deficit and closure, and will be harder hit than the better-known schools that I am sure many have in their heads when proposing this.

There is a slow-burn issue as well, whereby parents perhaps persist for an extra year or two for a child who is in the middle, but then decide not to go ahead for a child who has not entered the system yet. There is also a danger of smaller schools becoming insolvent—having to assess that the increased risks of becoming technically insolvent prevent them from struggling on and pushing through. This needs to be considered in the round and not just as a standalone. Given that we have heard hardly anything else about supporting education from the Labour party, I am not sure voters are being presented with very much.

To conclude, independent schools play a vital role in educating our children. They provide specialist provision and excellent partnership work. The Labour party wants to pull all that up and put it at risk, for the sake of raising a questionable £1.5 billion, which is not enough to offset the damage it will inflict. I hope those listening who are in positions to influence this will take these points away. I look forward to the Treasury Minister’s further thoughts about the VAT details. We need to ensure that this ill-thought-out policy does not put unnecessary strain on hard-working families who want a better future for their children.