Rachel Reeves today faced claims she is pursuing the ‘politics of envy’ as she announced VAT will be charged on private school fees from January.
The Chancellor confirmed Labour will push ahead with their controversial manifesto promise to end tax breaks for private schools.
She also announced immediate action to prevent the ‘pre-payment’ of fees by parents as a means of getting around the 20 per cent hike.
There are fears that Ms Reeves’ decision to impose VAT on fees in the middle of the academic year will wreak havoc on schools’ budgets.
There have also been warnings about a flood of pupils being dragged out of schools halfway through the academic year, if parents are left unable to afford added costs.
Rachel Reeves today faced claims she is pursuing the ‘politics of envy’ as she announced VAT will be charged on private school fees from January
The Chancellor confirmed Labour will push ahead with their controversial manifesto promise to end tax breaks for private schools
Ms Reeves also announced immediate action to prevent the ‘pre-payment’ of fees by parents as a means of getting around the 20 per cent hike
The Chancellor this afternoon announced a range of revenue-raising and cost-saving measures as she outlined a £22billion ‘black hole’ in the public finances.
A Treasury document revealed private school and boarding fees will be subject to VAT at 20 per cent from 1 January 2025.
Parents of private schools pupils were also warned they would not be able to pay fees for the next academic year up front, as a means of getting around the hike.
‘The Government will legislate in the Finance Bill with retrospective effect to provide that fees paid from 29 July 2024 pertaining to the term starting in January 2025 onwards to be subject to VAT,’ the Treasury said.
It also rejected claims that schools in the state sector would be swamped with pupils transferring from private schools as a result of the action.
The doument added: ‘The Government recognises that these policy changes may lead to increased costs for some parents and carers, and that some pupils may subsequently move into the state education sector.
‘The number of pupils who may switch schools as a result of these changes represent a very small proportion of overall pupil numbers in the state sector.
‘The Government is therefore confident that the state sector will be able to accommodate any additional pupils and that there will not be a significant impact on the state education system as a whole.’
Tory leadership candidate James Cleverly, the former home secretary, hit out at Ms Reeves’ action.
He said: ‘This is an ideological decision that will hit small independent schools. Don’t let them spin it as a necessity. It’s the politics of envy.’
In their general election manifesto, Labour pledged to use the money raised from ending tax breaks for private schools to fund a series of pledges.
This included the recruitment of 6,500 extra teachers in the state sector, among other measures such as providing 3,000 new nurseries.
The Institute for Fiscal Studies previously estimated that removing tax exemptions from private schools would raise about £1.6billion a year in extra tax revenue.
But, according to the Sunday Times, research by HMRC in January showed – in the most extreme case – the policy would bring in far less.
It reported that officials modelled three scenarios taking into account how much would be raised if Labour’s plan led to more pupils moving to state schools.
Data from the Independent Schools Council’s 2023 census found there were 554,316 pupils at private schools in the UK, representing about 5.9 per cent of all pupils.
Under their worst-case scenario, HMRC planned for 17 per cent of private pupils, about 94,000, moving to state schools.
This would see the policy of removing tax exemptions for private schools raise just £650million in extra revenue in 2025-26 because of the added cost of funding children in the state system.
In a second scenario, HMRC calculated that if 11 per cent of pupils moved to state education, about 60,000, the policy would raise £900million.
A 5 per cent shift of privately educated pupils to the state sector, about 28,000 pupils, would raise £1.15 billion.
A Treasury spokesman said: ‘The Government is committed to breaking down barriers to opportunity, ensuring every child has access to high-quality education. To do this, the Government is ending tax breaks for private schools, helping to raise revenue to fund state education priorities.’
