VAT: Colleges and Schools

Lord Faulkner of Worcester Excerpts

Monday 23rd February 2015 Lords Chamber

Asked by

[Lord Faulkner of Worcester]

To ask Her Majesty’s Government what assessment they have made of the effect of VAT on the finances of sixth form colleges and non-maintained special schools.

[Baroness Garden of Frognal (LD)]

My Lords, the Department for Education estimates that for sixth-form colleges their VAT costs are equivalent to approximately 3% of their income. Non-maintained special schools are able to cover the full costs of provision, including VAT costs incurred, from their total funding from the Education Funding Agency and local authorities. The effect of VAT on their finances is therefore minimal.

[Lord Faulkner of Worcester (Lab)]

My Lords, this is not a satisfactory situation at all, and has been the subject of a letter written by 76 Members of Parliament of all parties to the Education Secretary. They make the point that maintained schools and academies are able to reclaim VAT on their purchases but sixth-form colleges are not. The effect on those establishments is the loss of around £335,000 a year, even though they are highly graded by Ofsted and, indeed, perform better than the majority of other schools and colleges, being rated as good or outstanding. As far as the special schools are concerned, my information is a little different from that which the Minister has just given us, and I should be grateful if she would look again at that information, because my understanding is that they are at a serious competitive disadvantage compared with local authority special schools and special academies. I am thinking particularly of colleges such as New College Worcester, which caters for blind and partially sighted pupils.

[Baroness Garden of Frognal]

I entirely agree with the noble Lord about the high standard of sixth-form colleges and the great service they provide. The position is that schools are able to retain VAT costs because they are part of the local government sector, and academies are able to reclaim VAT beca use specific legislation allows them to do so. Sixth-form colleges are liable for VAT because they were categorised as private sector organisations by the Office for National Statistics. Non-maintained schools would normally include VAT in the fees they charge outside and, in that respect, they would be able to reclaim the VAT that they have paid.