VAT: Independent Schools

Kit Malthouse Excerpts

Tuesday 8th October 2024 Commons Chamber

[Damian Hinds]

My right hon. Friend is correct: substantial export earnings come from the sector, and from a globally mobile set of families. But I would go further; in addition to the direct export earnings effect, there is also an indirect effect. For companies deciding where to site their European headquarters, English education is a big factor. That is partly because of our brilliant state schools, which have improved so much over the past 14 years, but the availability of independent schools is also a factor.

[Kit Malthouse (North West Hampshire) (Con)]

The shadow Secretary of State makes a strong point about the sanctity of zero-rating VAT for education. I am concerned that children’s clothes, which are currently exempt from VAT, may be the next target. Notwithstanding the impact that the change to VAT will have on individual families, does he agree that private and prep schools—my constituency has five—are enormous employers of people involved in building maintenance, such as electricians and plumbers, and that the impact on the wider economy could well be profound?

[Mr Speaker]

Order. I remind Members to look towards the Chair when they are speaking, or what they say will not be picked up by the mics; I then struggle to hear them. I know that the Minister was struggling as well. If Members keep the chatter down, it will help us both.

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Education (Stephen Morgan)]

I thank the Opposition for bringing forward the debate. While the focus has been on private schools and the implications of the planned tax changes, it has allowed us to consider what is important in education. It is important to support the aspirations of all young people and their parents, and it is essential that all young people receive a good education in a safe and supportive environment.

It is certainly true that many parents choose to seek that provision in the private sector. The Government will always support their right to choose where to educate their children, but most parents do not have that choice, and all parents have high aspirations for their children. We therefore need to prioritise our efforts and consider how we can better serve the 94% of children in our state-funded schools.

Ending the tax breaks on VAT and business rates for private schools is a necessary decision to drive high and rising standards across our state schools and give every young person the best start in life. It will generate additional funding to help improve public services, including the Government’s commitments relating to children and young people.

This money will allow the Government to expand early years childcare for all by opening 3,000 new nurseries, thus helping parents back to work. The Government will recruit 6,500 new teachers and improve teacher and headteacher training as part of restoring teaching to the career of choice for the very best graduates. The Treasury is of course responsible for tax policy and has led on the publication of the draft legislation and technical consultation since July. As the Exchequer Secretary set out, VAT will apply to tuition and boarding fees charged by private schools for terms starting on or after 1 January 2025. It is right that we end tax breaks as soon as possible to raise the funding needed to deliver those educational priorities. The Treasury is assessing the impact of these changes in advance of the Budget. The independent Office for Budget Responsibility will certify the Government’s costings for these measures at the Budget and that will also include the interaction with other VAT receipts.

[Kit Malthouse]

Will the Minister give way?

[Stephen Morgan]

I am going to make some progress. The right hon. Gentleman spoke earlier. I know that many Members are concerned about children with SEND. [Interruption.] Members can shout as much as they like, but I have some really important points to make about SEND. I know I speak for the country—the right hon. Gentleman certainly does not. I assure Members that the Treasury has sought to ensure that these changes do not disadvantage pupils who need provision that is unavailable in the state sector.

Let me be clear: pupils who need a local authority-funded place in a private school, including those with a local authority-funded EHCP, will not be affected by the changes. That is because local authorities are able to reclaim VAT when they are charged. For other pupils, this change should not mean that they will automatically face 20% higher fees. The Government expect private schools to take steps to minimise fee increases, including through reclaiming VAT incurred in supplying education and boarding. I also note that IFS analysis shows that the number of children in private schools has remained steady despite a 20% real-terms increase in average private school fees since 2020 and a 55% rise since 2003.

Members from both sides of the House mentioned transfers to the state-funded sector. There are always some pupils moving between the private and state-funded school sectors. Approximately 50 maintained private schools close every year, for a range of reasons. Where schools do close, pupils may transfer to another private school or move into the state sector. We simply do not accept, in the case of recent closures, that this has had any connection to our policy on VAT. Quite simply, the evidence does not bear that out. The number of pupils who might switch following these changes represents a very small proportion of overall pupil numbers in the state sector. Any displacement is likely to take place over several years, and will mostly come from parents choosing not to place their children in the private sector to begin with, rather than children leaving the private sector. All children of compulsory school age are entitled to a state-funded school place if they need one. I understand that moving schools can be a challenging experience, and local authorities and schools already have processes to support pupils moving between schools.

A number of Members also raised concerns about capacity. There are always a range of pressures on state-funded school places, and the Department for Education works to support local authorities to ensure that every local area has sufficient places for children who need them. That is business as usual and local authorities and schools already have a range of options to increase capacity where it is needed. We are confident that the state sector will be able to accommodate any additional pupils and that there will not be a significant impact on state education as a whole.

I congratulate my hon. Friend the Member for North East Derbyshire (Louise Jones) on her maiden speech. I know she will be a real champion for children and young people in her community. I also welcome my hon. Friend the Member for Bury North (Mr Frith) back to this place and congratulate my hon. Friend the Member for Glasgow East (John Grady) on his maiden speech—he spoke eloquently and with passion about his constituency and the needs of his constituents. It was also a real pleasure to hear the maiden speech from the hon. Member for Isle of Wight East (Joe Robertson), who described so well his beautiful constituency, a place I enjoyed holidaying in as a child. I look forward to working with him on issues affecting the Solent region. My hon. Friend the Member for Tipton and Wednesbury (Antonia Bance) gave an excellent maiden speech. It was evident that she will be a strong voice in this place, nationally and for her community. I congratulate the hon. Member for Horsham (John Milne) on his maiden speech, and I wish him well on his unexpected new role in this place and on delivering opportunity for all.

The hon. Member for South Shropshire (Stuart Anderson) and others mentioned military families; I know that colleagues in the Ministry of Defence and the Foreign, Commonwealth and Development Office will closely monitor the impact on affected military families, considering support via the continuity of education allowance scheme. Small faith schools were raised by a few Members; those schools meet the needs of dedicated faith communities, often at low cost. I know that Treasury colleagues have met representatives from those schools to ensure fairness. A number of right hon. and hon. Members spoke about the impact assessment. As my hon. Friend the Exchequer Secretary to the Treasury set out, we are considering the impact of the policies and will publish a tax information and impact note at the Budget in the usual way.

In conclusion, this Government were elected to deliver change across our country, not least in our schools. Our mission to break down the barriers to opportunity is exactly what our country needs. This party is showing that education is once again at the forefront of national life. I urge Members across the House to demonstrate that by voting against the motion.

Question put.

The House proceeded to a Division.