Independent Schools: VAT and Business Rates Relief

Neil O'Brien Excerpts

Monday 3rd March 2025 Westminster Hall

[Dr Arthur]

I find it really interesting that Conservative and Liberal Democrat Members are talking about how wrong it is to place VAT on school fees, even though they thought nothing about introducing university fees, which place a huge cost on education, particularly for people from poorer backgrounds.

[Neil O’Brien (Harborough, Oadby and Wigston) (Con)]

That was 1998!

[Dr Arthur]

The massive rise in tuition fees came later. Hon. Members know exactly what I am talking about. [Interruption.] Can I speak, please? Nobody here is questioning the motives of parents—every single parent who sends their children to an independent school wants the best for their children—but what we are questioning is, if we were to scrap this policy, what would we cut instead? I am just not hearing an answer. This policy will generate additional income for the constituency of the hon. Member for Edinburgh West (Christine Jardine). Where does she want that to be cut from instead? What does she say to the majority of people in Edinburgh who voted for parties that supported this policy?

--- Later in debate ---

[Neil O’Brien (Harborough, Oadby and Wigston) (Con)]

It is a pleasure to serve under your chairmanship, Mrs Lewell-Buck. We have had some superb speeches on all sides of the House today, starting with my hon. Friend the Member for Berwickshire, Roxburgh and Selkirk (John Lamont) who led us brilliantly. I thank the nearly 115,000 people who triggered this debate by signing a petition against the education tax, and particularly those who are here today.

There is a good reason why all previous Governments of all colours have avoided taxing education. It is hard to imagine a Tony Blair Government doing what this one are now doing. In fact, we know that he slapped the idea down hard when it was suggested. Likewise, Clement Attlee did not do it, and nor did Harold Wilson or Jim Callaghan. The rest of Europe does not do it. But under this Government, schools are being hit by a triple whammy of VAT, business rates and higher national insurance. Even some Government Ministers have their doubts about this. The Chief Secretary to the Treasury, no less, told the girls at Redmaids’ high school in 2022 that he opposed his party’s policy on taxing independent schools and said that it would not bring in what his own party was claiming. What an extraordinary thing for the Chief Secretary to have said.

As the Labour hon. Member for Ealing Central and Acton (Dr Huq) said, the Government are doing exactly what they promised they would not do by raising tax on working people. The Government’s claim is that they need to find some money. I note that they are able to find billions and billions to fund their bizarre payment to Mauritius to take our own territory off of us, but even if I could not think of anywhere that the Government could save some money—and I can—my advice would be that, if they want to tax people who have more money, they should tax people who have more money, rather than taxing education. The problem with taxing education is that it catches people who are not rich; it catches people who are sacrificing so much to invest in education. That is unselfish and has wider social benefits. If the Government wanted to tax fancy cars or holidays, or meals out or something like that, I would at least understand, but taxing investment in education is a mistake—and starting it halfway through a school year makes it worse and is vindictive.

In my constituency on the edge Leicester, we benefit from lots of different types of people, but particularly from second-generation communities who really value education. I see whole extended families in my constituency coming together to spend what money they have not on fancy cars or luxuries, but on school. In the biggest independent school in my constituency, Leicester grammar, probably the most common occupation among parents is to be a doctor working in the NHS, and being a doctor is still a very common dream for the pupils there, too. Education has these wider social benefits, and I am struck that the Government praise these people one minute and then wallop them the next; one minute they love them, and the next they hate them.

The other common reason that my constituents end up paying twice over for education is that their child has some sort of special needs. They first pay the tax, then they do not use the service that they paid for and then they pay again themselves to get what they think is the right thing for their child. Parents know what the EHCP system is like and they can see the ever-rising demand, so instead of adding to that demand they pay up themselves out of their own pocket. They are content to make sacrifices to get the care they need for their child and their special needs.

Independent schools educate more than 130,000 pupils with SEND, of which around 100,000 do not have EHCPs. This is one of the big challenges created by the education tax: if a significant chunk—maybe not even a big chunk—of that 100,000 or so children with special needs but no EHCP are taxed into the state system, that will be a huge new load on a special needs system that has already seen demand explode over recent years. Councils are already struggling, and will have to do more assessments and find even greater resources.

We know that 100,000 figure from both the Government’s own data and the ISC’s census, but behind every statistic is a real child. There was an example recently of how this is playing out just over the border from us into Lincolnshire: a girl was forced to move school because her parents could not afford the new tax, and the council has now gone from paying nothing to spending £8,200 a year of taxpayers’ money to transport her a long way to the nearest school that can take her.

Some of these cases are profoundly sad. There was a report in The Independent recently about a girl who was hospitalised for eight months last year with a rare brain condition, which left her needing a very high level of support and unable to cope with the change of school placement. The daughter had attended a private school, which her dad says they had just about afforded, but the 20% charge on top made it unaffordable. She had been living in intensive care, and once she came out, she had only eight months left at her old school because she was in year 11. Her father raised her plight with the DFE, and he says of the letter back from Ministers:

“I could have smashed my head against a wall when I got that letter, I was so angry and upset. It’s so heartless.”

The Government claim that this is a great and vital revenue raiser, but in reality, that has always been highly uncertain. The rate at which it will shift pupils into state education is hard to predict, and the effects of this large group of children with SEN moving makes it even more uncertain. Pupil movement out of independent schools is already three times higher than predicted, as has been noted in the debate. Some 10,000 fewer pupils are in independent schools already, according to the September 2024 ISC pupil numbers survey. The drop was largest in the transition years, with a drop of just over 4.5% in year 7 entrance.

The Government want to present all the parents who end up sending their children to independent schools as incredibly wealthy, but according to analysis by Diarmid Mackenzie, around 90,000 families who use independent schools are on below average incomes. They will be the ones who are most affected, and independent schools will become more exclusive.

The hon. Member for Paisley and Renfrewshire North (Alison Taylor) talked about the ability of schools because of this change to reclaim historical VAT on capital spending. That is worth about £5 million for Eton, but nothing at all for lots of smaller schools that are less well resourced—and some of them are not well resourced.

I think of a small Christian school in Leicester, which got in touch with me because it was so concerned about this. Its income per pupil is probably below those of the neighbouring state schools, its fees are low, the teachers could get paid a lot more elsewhere and the parents are definitely not rich. Why do those people do it? They do it because it is a labour of love, and it is a labour of love for others, too. There are all kinds of reasons that children end up in the independent sector. Maybe it is their special needs; maybe it is faith; maybe it is to do with language; or maybe it is a particular educational approach that works for their child. In a word, this is pluralism.

On the other side of the ledger, what do we have to show for it? The Government occasionally try to claim that the money is ringfenced for some purpose or other, but of course the truth is, as the Minister knows, that there are no ringfences at the Treasury. In the troubled schools Bill, we see measures that will unwind the educational reforms to state schools that propelled England up the international league tables. The Institute for Fiscal Studies says that, over the last Parliament, per pupil spending in mainstream schools rose by about 11% between 2019 and 2024 when adjusted for inflation. That is an 11% per pupil real-terms increase, but for this coming year, the IFS has pointed out that state schools’ costs are going up faster than their income, with costs up 3.6% and funding up only 2.8%. It is therefore not the case that the education tax is unlocking some great funding bonanza for those of us who have got our kids in state schools. In fact, I see that the National Education Union has recently relaunched its “Stop School Cuts” campaign.

There are 43 schools that have closed or announced closure since Labour came to power, and many of them have explicitly pointed to the education tax as the thing that tipped them over the edge. Schools that have closed include Hemdean House school, Abercorn school, Portland Place school, River House Montessori school, Alton school, Conifers school, Kilgraston school, the Study school, Ursuline preparatory school, the Hampshire school, St Joseph’s preparatory school in Stoke-on-Trent, Wings school, Argyll House, Chartfield school, Gracefield preparatory school, Lawrence House, North London Rudolf Steiner school, Redbourn Park secondary school, Sheiling school, the Copper academy, the GFC school, the Prepatoria school, Ashcroft school, Downham preparatory school, LIFE Wirral Sports school, Iona school, Brighton Waldorf school, Progress Schools, Summit school, Advance Education, Tashbar boys nursery, Maidwell Hall school near me in Northamptonshire, Loughborough Amherst school, Godolphin prep in Salisbury, the Village school for girls in Camden, Highfield prep in Maidenhead, Oxford House school in Colchester, Carrdus school in Oxfordshire, Bedstone college in Bucknell and Fairfield PNEU school in Backwell. Schools that have merged and reduced in numbers include Headington and Rye St Antony; Orchard House and Chiswick and Bedford Park; and Westbury House and the Study schools.

I read those out because, as well as the number of children who will move into the state sector and have their education disrupted in that way—which seems to be much higher than the Government predicted—a huge number will have their education disrupted even if they end up in another independent school. That is precisely what is happening to a lot of parents in my constituency because of local closures. The Government will say that those children are privileged; I say they are children. Being forced to change schools and perhaps being separated from friends is disruptive and bad, whoever they are.

The Government have often countered that not many pupils will be affected. We hear about the small percentage of pupils who will move, and how easy it will be for the state sector to accommodate them. We hear much less about how much extra that will cost, and we have heard nothing from the Government about the 10,000 fewer children in independent schools I already mentioned. The official impact predictions for VAT estimated that 3,000 pupils would leave this academic year; now we have seen 10,000 in the first term. There are still five months until August, so it may get worse before the year is out.

If the number of pupils leaving the sector continues to run at three times the predicted levels, we would face not just—“just”—35,000 pupils displaced, but more than 100,000. In many cases, they will struggle to get a state school place. In at least 27 authorities, schools are full in certain age cohorts and, since Labour announced this policy, pupil number projections in the state sector have been revised up nationally—significantly so in many local authorities. That means fewer people in the state system will get their first choice of school.

Although there is uncertainty about the fiscal impact of this policy, there is no uncertainty about it not being the best way to raise revenue. The other day, the Chancellor announced the introduction of a special new business rates relief for the film industry, even as the Government take away business rates relief for schools. The argument is, “The film industry is good. This is an investment in our future”—but schools are an investment in our future. The argument is, “This is good culturally. This is part of our culture”—but education is good for our culture as well.

I will come to an end. There is uncertainty about the fiscal impact of this measure, but there is no uncertainty about it causing a lot of misery for parents with special needs kids and for parents who do not want to have their kids’ education disrupted. The Government are doing this for political reasons. There is no doubt that this is not the best way to raise revenue; this is a purely political decision and it is having significant, real-world, bad effects on our constituents right across this country.