Independent Schools: VAT and Business Rates Exemptions

Sarah Olney Excerpts

Tuesday 8th October 2024 Westminster Hall

[Sarah Olney (Richmond Park) (LD)]

It is a pleasure to serve under your chairmanship, Dame Caroline. I congratulate the hon. Member for Bromsgrove (Bradley Thomas) on securing this important debate and thank all Members who contributed so eloquently.

The Liberal Democrats do not support imposing VAT on private school fees. We do not support treating independent schools differently to other independent education providers for VAT purposes.

VAT is a complicated tax with many quirks and exemptions. Goods and services that are outwardly similar can be given different tax treatments based on the smallest of variations and those different tax treatments can have a large impact on the eventual cost borne by the consumer. Administering VAT and negotiating its various intricacies creates a huge burden for organisations that provide VAT-able goods and services to the public, and that burden is expensive.

All forms of education have always been exempt from VAT for the simple reason that taxing education services would disincentivise people from purchasing them. As with healthcare services—also exempt from VAT—it has never before been considered good public policy to discourage people from purchasing education. Additionally, exempting education providers from VAT frees them from the burden and expense of administering the tax, which means that money that otherwise would be spent on educating children does not have to be spent on tax returns.

The Government propose that their new tax treatment should be applied only to the provision of private schooling, but taxing some forms of education and not others would almost inevitably create loopholes. Creative accountants will find ways of delivering education services that fall outside the VAT legislation, while other education providers—which the Government did not intend to tax—will unwittingly find themselves caught up in it. The risks of those distortions increase if the legislation is hastily framed, with insufficient time for scrutiny.

Of the 615,000 children in private schools in this country, almost 100,000 are being educated privately because they have special educational needs but do not have an EHCP. The Government have announced that they plan to exclude privately educated pupils with an EHCP from VAT on school fees. That is a welcome step, but does not protect those who do not have an EHCP from a steep rise in fees. The parents of many of those children will find that they cannot afford the increase, throwing the future of their children’s education into doubt. Moreover, there will be an increase in demand for local authorities to issue EHCPs stating that the local authority must fund a private school place. Local authority resources for special education needs and disabilities are already stretched to breaking point, and additional demand will be impossible to manage. The inevitable result will be that thousands of children with SEND will be forced into the state sector all at once, which will be enormously disruptive and potentially traumatic for those children, as well as being immensely difficult for state schools to manage.

It is not just children with SEND who will be affected. There will be many thousands of other children across the country whose parents will find that they can no longer afford to keep them in their current school. Those children will experience enormous disruption to their education as they are forced to change schools and, for many, the upheaval of being separated from their friends and a familiar environment. The Government should reflect carefully on whether the benefits of the policy they are intent on pursuing is worth the damage that it will cause to these children’s education and wellbeing.

I have been contacted by many schools in my constituency who say that even a small reduction in their roll as a result of this change will make their situation untenable. Between parents who cannot afford to pay their children’s fees and schools that cannot keep their doors open, the state will need to find space, and resources, for an influx of new students. That influx will not be evenly distributed. In my constituency it is estimated that more than 45% of children attend a fee paying private school. In common with other parts of London, demand for state primary places is down, so younger children will be easily accommodated. However, secondary schools are experiencing great pressure for places, and a rise in requests for in-year admissions will be difficult to meet.

The Liberal Democrats believe that a better alternative to charging VAT on school fees is to encourage private schools to support their local communities, by building links with local state schools and sharing facilities. There are already good examples of these kinds of partnerships happening all over the country and we believe that those can be developed further. Last week, I visited Lowther primary school in Barnes. As I was being shown round the school by Leo, Talia, Elia, Milla, Nick and Abdullah, they were keen to tell me about the swimming lessons they enjoyed at St Paul’s school, a nearby boys’ independent school. The schools link up for a range of activities, and I was very impressed to see the trophy that the children won in the recent Lego competition hosted by St Paul’s. A majority of independent schools have already developed similar partnerships with local schools and the Liberal Democrats want to see that become the norm with every single school.

In conclusion, the Liberal Democrats are opposed to the Government’s plans to impose VAT on private school fees because we believe that it is wrong to tax education, however it is provided. Imposing this increase in fees will cause a precipitate increase in costs for families, resulting in many being forced to undertake a forced, disruptive change in schools. That change will have a disproportionate impact on children with SEND, which will not just create hardship for those children and their parents, but also enormous difficulties for the local authorities and state schools that will be required to provide alternative schooling. There are other routes to equalising outcomes between those educated privately and those educated in the state sector, and the Liberal Democrats believe that communities can be strengthened by encouraging partnerships between different schools, of which there are already many excellent examples.