Independent Schools: VAT and Business Rates Relief

Torsten Bell Excerpts

Monday 3rd March 2025 Westminster Hall

[The Parliamentary Secretary to the Treasury (Torsten Bell)]

It is a pleasure to serve under your chairship, Mrs Lewell-Buck, for this debate secured not by an hon. Member, as is often the case, but by public petitioners, including some who are present in the Public Gallery. The public paying attention to an issue is good grounds for it being debated. I also thank the hon. Member for Berwickshire, Roxburgh and Selkirk (John Lamont) for introducing the debate—also, for closing it shortly—and all hon. Members who have spoken during it.

There are lots of things that are not common ground on this issue, as I will come on to, but I will start by noting that we are all motivated by the same determination to support the aspirations of every parent in the UK to get the best education for their children. In that context, we should all congratulate the hon. Member for Twickenham (Munira Wilson) on her good news and agree with my hon. Friend the Member for Ealing Central and Acton (Dr Huq) that we all know people who have made a wide range of decisions about the educational choices for their children and that no one here is judging other parents’ choices.

The best education for children is also what motivates the Government to break down barriers to opportunity to ensure that every child has access to high-quality education—and every child includes the 94% of children who attend state schools. The reforms to VAT and business rates that we are debating will raise about £1.8 billion a year; I will come on to the questions about the costing shortly. That will help to improve state education.

In the autumn Budget, the Government announced a £2.3 billion increase to the core schools budget, and it is to deliver such commitments—not for any other purpose—that we have made the tough but necessary decisions that we are debating today. The hon. Member for Harborough, Oadby and Wigston (Neil O’Brien) called for even larger increases in spending on schools, but it was noteworthy that he did not set out the means by which such increases would be paid for.

I will briefly outline the policy changes that the Government are making, before turning to the important issues that hon. Members have raised during the debate. Since 1 January, education services provided by private schools have been subject to VAT. While private schools are now required to charge VAT, they are also able, as has been discussed, to recover the VAT that they incur when purchasing goods and services. The Government are also legislating to remove the eligibility for charitable rate relief from private schools that are charities in England. This is intended to take effect in England from April; it is already the case in Scotland and is being taken forward in Wales.

As I have said, the goal of those changes is to provide additional funding for the state education sector. However, I fully recognise that they will increase the cost for some parents and carers who have chosen a private education for their children. This change is necessary, but I am not hiding from the reality that any rise in costs is unwelcome for those affected by them.

[Gregory Stafford]

We disagree on whether this change is going to raise any money. However, I want to understand the policy point being made here, namely that to raise the money to fund the state education sector, the Government have decided to raise tax on the independent education sector. Why did they decide to raise money from the education sector rather than from any other sector, or from any other rich individuals?

[Torsten Bell]

I thank the hon. Member for his intervention. I might be a bit more sympathetic to Conservative Members focusing on this change if I saw them supporting any of the revenue measures that we have had to take to start turning around public services and improving the public finances. They oppose this measure, they oppose changes on national insurance, and they oppose cuts to the winter fuel payment and the rest. Now, I will make some progress.

On the timing of implementation, as my hon. Friend the Member for Paisley and Renfrewshire North (Alison Taylor) pointed out, this change was clearly signposted in Labour’s manifesto. Also, His Majesty’s Revenue and Customs is working hard to support schools through this change by providing bespoke support to schools alongside comprehensive guidance on how they can register for VAT. A dedicated mailbox for queries has also been made available to schools and their tax representatives.

Several hon. Members have discussed the impact that the changes will have on pupils and their families, and on state schools and private schools more widely. Many Members have understandably returned to questions that were addressed in the tax information and impact note, or to the Government’s response to the consultation that was conducted between July and September last year.

The issue of costings was raised by the hon. Member for Boston and Skegness (Richard Tice). The underlying methodologies used were certified by the independent Office for Budget Responsibility, and the costings take into account exactly the issues that he raised about behavioural responses.

On the issue of pupils moving schools or sectors, we recognise that there will be some movement of that kind. However, we believe that the number of students who will switch to the state sector represents less than 0.5% of all UK state pupils, so we are confident that the state sector will be able to accommodate any change.

The hon. Member for Farnham and Bordon (Gregory Stafford) raised the issue of school closures. The evidence suggests that around 50 private schools close each year during normal business. Although we would expect some additional closures, we have not seen any evidence to revise our view that the overall number of extra closures will be modest—perhaps something in the order of 100 schools over three years.

We also recognise the concerns that have been raised about the impact on pupils with special educational needs, including by the hon. Member for South West Hertfordshire (Mr Mohindra). That is why we will ensure that those pupils with the most acute additional needs, whose needs can be met only in private schools, will be unaffected. For example, in England, where attendance at a private school is required by a child’s EHCP, that child’s parents or carers will not pay VAT and councils supporting them will be able to reclaim the VAT. In Wales, post-16 provision of this kind is funded by the Welsh Government rather than by councils. They cannot reclaim VAT in the same way, so ringfenced funding will be provided until 2028-29, when responsibility will pass to local authorities.

More broadly, we are committed to transforming the system of supporting children and young people with SEN, because it is badly needed, as the hon. Members for Esher and Walton (Monica Harding) and for Tiverton and Minehead (Rachel Gilmour) clearly set out. The Budget announced a £1 billion uplift to high needs funding in 2025-26, providing additional support for more than 1 million children in the state sector with special educational needs and disabilities.

The hon. Members for Surrey Heath (Dr Pinkerton) and for Windsor (Jack Rankin) raised the issue of service families, but I fear they downplayed the increase of more than 12% in the continuity of education allowance from the Ministry of Defence. The issue of faith schools was also raised. They are an important part of our educational landscape, but the argument that private faith schools should be exempt from these changes is not compelling. An exemption would reduce the revenue available for pupils in state schools, including those of faith, and would be inconsistent with this Government’s strong view that a state education is suitable for children of all faiths and for children of no faith.

[Damian Hinds]

On faith-based education, the Minister is quite right that there are large numbers of faith-based schools in the state sector. However, there are some denominations and particular religious traditions for which there are not large numbers of schools, and whose actually charge fees sometimes considerably below the average cost of a state school place. Does he recognise that there may be a case for an exemption in such cases?

[Torsten Bell]

I recognise the description of the status quo as the right hon. Gentleman describes it, but I reiterate my view and the Government’s view that a state education is suitable for all families of all faiths.

A public petition has decided that we should have today’s debate. On those grounds alone, it is right that we have had it. I recognise many of the points that hon. Members have raised, even if I have attempted to set out why the Government believe that in some cases they are overdone. As we rightly debate the impact of these policies, we must recognise the reason that they have been made: the priority that we must attach to providing extra resources for our state schools—resources that I have not heard a huge number of suggestions for replacing today. These are schools where 94% of our children are educated, and where this Government will deliver an education system fit for all.