The Student Room Group

Labour plans to add 20% VAT to Private School fees.

I'm curious to know what people's thoughts are on TSR, about Labour's plans to start charging 20% VAT on private school fees. The idea is that this additional revenue would be invested into the state sector to improve the quality of schooling there.

At face value, it looks like a typical "tax the rich and spend it on the public good" sort of policy, but to me it looks like it's actually a plan that would harm the state sector, state educated pupils, and less wealthy people in general rather than helping them. For a few reasons:

1.

Fewer people will be able to afford to go to private school. They will need to go to state schools instead, which will increase the burden on those schools (many of which are already overpopulated). At present, private school parents help the state sector by paying tax towards it but not using it, but this would reduce.

2.

The students who would otherwise be going to private school are likely to be ahead of the competition in terms access to the best state schools (e.g. they can typically afford to buy houses in more expensive areas, tuition for 11+ exams etc.) which will make it more difficult for other students to access the best state schools.

3.

Private schools will no longer provide as many scholarships and bursaries to those who otherwise couldn't afford to go, nor will they do as much to help their local student communities. It will become less affordable to them, and they won't even need to in order to maintain their charitable status (as they no longer get a VAT exemption for it).

4.

Private school class sizes will reduce, whilst state school class sizes will increase, affecting the quality of teaching at both and increasing the gap between the two.


To me, this seems to limit people's access to the best education even more than it already is. But curious to hear your thoughts.
(edited 3 weeks ago)

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I agree with it, because it is a luxury rather than an essential.
Good

I’d rather it was 100% or a complete ban. And a full removal of HMRC charitable status.
This is one of those policies that on the face it seem egalitarian, but if enacted will just make it more difficult for middle class parents to access private education, which will further become the preserve of the rich. The displaced students will put further strain on the state education system. How private schools will react to the loss in revenue is not clear, though; some may further increase costs, others may reduce bursaries, scholarships, and charitable activities. What we should actually be focusing on is increasing the quality of state education so that private education seems less beneficial in comparison.
I'm happy with that. I think there should also be a law preventing any parent from paying for an educational advantage for their child, like buying books for them to read, or buying a house in a good/outstanding catchement area, or paying for private tutors, or just generally being interested in their kid's education. All the money that parents spend on cultural capital should be paid direct to the government as taxes. That would stop anyone ever buying a better start in life for their kids. So yeah, tax them out of existence!
Original post by flowersinmyhair
I agree with it, because it is a luxury rather than an essential.

But who actually benefits from this policy...?
Original post by PQ
Good

I’d rather it was 100% or a complete ban. And a full removal of HMRC charitable status.

I think banning private schools altogether is a separate issue from increasing taxes on them.

If you're continuing to allow them to exist but just increasing taxes on them, you still have a two tier system. But as far as I can see, you're just increasing the gap between those two tiers. If the problem with private schools is the fact that they're only accessible to people with money, that just becomes even more so the case, doesn't it?
Original post by tazarooni89
But who actually benefits from this policy...?

The government and hopefully society in general because they will have more money to spend on things that most people use
I have no problem wit VAT on school fees.

Any parent who now has a problem with paying the fees should cancel their Netflix subscription, stop buying avocado toast and get a side hustle.
Original post by flowersinmyhair
The government and hopefully society in general because they will have more money to spend on things that most people use

But they'll also have more people using those things (namely state schools), so the amount they need to spend on them would increase.
Original post by Gazpacho.
I have no problem wit VAT on school fees.

Any parent who now has a problem with paying the fees should cancel their Netflix subscription, stop buying avocado toast and get a side hustle.

I don't think it's so much a case of of parents having problems paying the fees, but rather the state schools having a problem coping with the influx of so many extra pupils.
Original post by tazarooni89
But they'll also have more people using those things (namely state schools), so the amount they need to spend on them would increase.

The amount of money they will get will be more than the cost of however many children move to state school as a result of the change
Original post by tazarooni89
I don't think it's so much a case of of parents having problems paying the fees, but rather the state schools having a problem coping with the influx of so many extra pupils.

How big will this influx be? Can you quantify it?I suspect the answer is no as you are wildly speculating.

It is also a very weak argument. The rise in private school fees has substantially outstripped inflation over the last 30 years yet we have not seen a significant switch to state schools. Also worth noting that there are a little over 1.1 million more pupils in the school system than in 2010. Local issues aside, the system has coped just fine.
Original post by flowersinmyhair
The amount of money they will get will be more than the cost of however many children move to state school as a result of the change


What makes you so sure of that?
Original post by Gazpacho.
How big will this influx be? Can you quantify it?I suspect the answer is no as you are wildly speculating.

It is also a very weak argument. The rise in private school fees has substantially outstripped inflation over the last 30 years yet we have not seen a significant switch to state schools. Also worth noting that there are a little over 1.1 million more pupils in the school system than in 2010. Local issues aside, the system has coped just fine.

No, I personally can't quantify it. But then I also don't see any quantification suggesting that it would only be a small number of extra pupils the state sector has to deal with. If nothing else it seems to be quite a risk.

But not only that, my other issue is that the two tier system will still exist. But the private schools would be even more so the preserve of the rich and even less accessible to those of ordinary backgrounds than they already are. Surely the aim should be to widen access to the best opportunities rather than reduce them.
Original post by tazarooni89
No, I personally can't quantify it. But then I also don't see any quantification suggesting that it would only be a small number of extra pupils the state sector has to deal with. If nothing else it seems to be quite a risk.

But not only that, my other issue is that the two tier system will still exist. But the private schools would be even more so the preserve of the rich and even less accessible to those of ordinary backgrounds than they already are. Surely the aim should be to widen access to the best opportunities rather than reduce them.


Already addressed your first point. School fees have consistently risen without a corresponding reduction in the percentage of pupils attending private school. Ergo, it is illogical to conclude a further increase would result in a increase of state pupils that will put pressure on the current system.

As for your second point, you haven't made an argument to widen access, simply made an argument against any change to status quo that sees only 6% of pupils benefit from the possibly advantage of private school, the vast majority of whom already come from the socioeconomic background where success, be it academic or career, is already a given unless they really screw up.

If you are serious about increasing opportunities across the board rather than for a small minority, attempting to sort out the teaching recruitment crisis at secondary level created by the Conservatives and those who vote for them is a good place to start. Which takes us full circle all the way back to how the revenue raised can be used.
(edited 3 weeks ago)
Original post by Gazpacho.
Already addressed your first point. School fees have consistently risen without a corresponding reduction in the percentage of pupils attending private school. Ergo, it is illogical to conclude a further increase would result in a increase of state pupils that will put pressure on the current system.

As for your second point, you haven't made an argument to widen access, simply made an argument against any change to status quo that sees only 6% of pupils benefit from the possibly advantage of private school, the vast majority of whom already come from the socioeconomic background where success, be it academic or career, is already a given unless they really screw up.

If you are serious about increasing opportunities across the board rather than for a small minority, attempting to sort out the teaching recruitment crisis at secondary level created by the Conservatives and those who vote for them is a good place to start. Which takes us full circle all the way back to how the revenue raised can be used.

I think there's a difference between school fees rising gradually over a long period of time, versus having a 20% slab added to them in one go. The way people respond to one isn't necessarily the way they respond to the other. I think private education is an example of a relatively inelastic good. For the sake of continuity, parents tend to prefer to keep their kids in one school even in the face of small price changes. It would take a bigger, more sudden price shock to actually make them switch.

My thread isn't about coming up with ideas more generally for how to widen access to the best education; that's a separate discussion. It's specifically about this policy that Labour is going for, and whether it's a good idea or not.
Original post by tazarooni89
I'm curious to know what people's thoughts are on TSR, about Labour's plans to start charging 20% VAT on private school fees. The idea is that this additional revenue would be invested into the state sector to improve the quality of schooling there.

At face value, it looks like a typical "tax the rich and spend it on the public good" sort of policy, but to me it looks like it's actually a plan that would harm the state sector, state educated pupils, and less wealthy people in general rather than helping them. For a few reasons:

1.

Fewer people will be able to afford to go to private school. They will need to go to state schools instead, which will increase the burden on those schools (many of which are already overpopulated). At present, private school parents help the state sector by paying tax towards it but not using it, but this would reduce.

2.

The students who would otherwise be going to private school are likely to be ahead of the competition in terms access to the best state schools (e.g. they can typically afford to buy houses in more expensive areas, tuition for 11+ exams etc.) which will make it more difficult for other students to access the best state schools.

3.

Private schools will no longer provide as many scholarships and bursaries to those who otherwise couldn't afford to go, nor will they do as much to help their local student communities. It will become less affordable to them, and they won't even need to in order to maintain their charitable status (as they no longer get a VAT exemption for it).

4.

Private school class sizes will reduce, whilst state school class sizes will increase, affecting the quality of teaching at both and increasing the gap between the two.


To me, this seems to limit people's access to the best education even more than it already is. But curious to hear your thoughts.

The interesting thing about this policy debate is that while all your arguments are logical on the face of it, the actual data really doesn't back them up. I would really recommend reading a report from the Institute for Fiscal Studies (published over the summer) on this topic. It really dispels a lot the arguments you've (and many other reasonable people) have made.

(1) As others have suggested, there's very very little evidence that private school attendance would shrink significantly nor quickly in response to the imposition of VAT. Here, it's unlikely many parents will pull their kids out halfway through even if it's potentially too expensive for some, so the drop in attendance is more likely to be a slow decay rather than a sharp fall. Attendance also seems to be relatively resistant to higher fees, private school day fees have gone up almost 80% since 2000, yet wages have gone up less than 20%, but there's a difference better a continuous increase vs a sudden 15-20% increase (assuming schools pass the entire tax across to parents), so it's difficult to forecast. The IFS estimate it will lead to a 3-7% drop in attendance, which seems pretty small. I'm not sure I follow the point made on private school parents helping the state by paying tax and not using, I get the logic, but this is more than made up for by the imposition of VAT which makes more revenue than the increase on state schooling expenditure according to the IFS?

(2) This doesn't seem like a very important point. Partly because it's simply a distributional transfer. Partly because most private schools are in areas where there's already very good state schools, so it's unlikely to cause an extra squeeze on things like house prices.

(3) The long-touted scholarship and bursary point is a bit of a cultural myth. Again, when you look at the actual data, The Times found that only 3% of private school kids even get 1/3 off their fees via bursaries, and within that only 1% get scholarships. It's not like bursaries or scholarships are very prevalent at all in reality.

(4) Your fourth point just makes no sense. Why would private school class sizes drop if these schools now had a bigger cost (VAT), this would obviously increase classes as there's less net funding per pupil so that likely results in larger class sizes. And yes, the mechanism would also raise state school classes sizes naturally, but given the % that go to private schools is very small and the % of those that drop out is likely very small, I'm not sure how you conclude that's it would make any noticable difference in state school class sizes. And this is all against the backdrop of state school pupil numbers falling dramatically at the moment, so this increase in pupils would be very easily absorbed in reality.

(5) Although this point wasn't made by you in this specific post, others have made it, but I think we really need to get out of the idea that VAT on private schools will significantly impact typical households. UCL's family resource survey finds that private school attendance by those in the 50th percentile of household income (i.e. average earners) with school aged children is about 2%. When you look at households who are in the top 20% of incomes, only about 5% send their kids to private school. For households with school aged children who are in the top 10% of earners, only 10% send their kids to private school. Yet from the top 10% to the top 1% private school attendance rises to 45%. So be under no illusions, it's certainly not middle income households who lose out from this tax. And even those who do lose out, it's a choice, most of our consumption is hit by VAT, why would elite education not be included in a sensible country? And how do you expect politicians to improve state education if they don't have to send their kids to state school, it just creates perverse incentives all over the place.
(edited 3 weeks ago)
Original post by BenRyan99
The interesting thing about this policy debate is that while all your arguments are logical on the face of it, the actual data really doesn't back them up. I would really recommend reading a report from the Institute for Fiscal Studies (published over the summer) on this topic. It really dispels a lot the arguments you've (and many other reasonable people) have made.


1.

I agree it's difficult to forecast. The drop in the number of private school pupils might not be particularly high, but it also might be far higher than we expect. I don't think we've had an equivalent situation take place before that we can compare it to (given that a sudden increase is different from a gradual one). So if nothing else I'd say we're risking a shock to the state sector even if not necessarily causing one.

2.

I don't really understand your point here. I'm not saying that this policy will cause a squeeze on house prices. I'm saying the private pupils who enter the state system will probably be entering the best and most competitive schools to get into rather than the worst ones (because they can afford the higher prices in those areas, can afford 11+ tuition etc.) So the issue I'm raising is more about displacing pupils who could have otherwise gone to better schools and now have to go to less good ones.

3.

The point about scholarships and bursaries isn't intended to be the most significant point here. It accounts for a minority of people attending private schools. However it's still better than nothing, and my point is that without any tax incentive even this will stop.

4.

I would expect private school class sizes to drop because there are fewer pupils, but not necessarily less funding per pupil (because the people who remain in private schools are those who can afford higher fees and maintain the same funding per pupil). I wasn't aware however, that the numbers of state school pupils are significantly dropping at the moment. Why would that be?


I think we've both made reasonable points, but I also think not everyone will be uniformly affected by this. The impacts we're describing may be more pronounced in some local authorities than others, for example. I don't find it hard to imagine that there will be at least some people ending up far worse off than they are now. The question is really, is there enough benefit to offset that.
(edited 3 weeks ago)
You need to factor in that many private schools are planning ahead for the VAT increase, and aren't necessarily going to pass it all on to parents in the first instance. So there will mostly be a gradual rise in fees, not a sudden sharp increase as you're anticipating. Parents with kids in the upper years will probably see them through to the end of their GCSEs and A Levels, so again there won't be a mass exodus.

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