They are expensive – and about to get more so, assuming Labour wins the next election. So do the sums still add up for private schools? Simon Wilson reports
What has Labour got planned?
If elected, as now seems likely, Labour is committed to removing the VAT exemption on private-school fees, meaning that (other things being equal) fees will rise by 20%. By charging VAT but letting schools retain charitable status, those institutions will still retain some tax benefits. These include gift aid on donations, VAT relief on products and services, and exemptions from stamp duty, capital-gains and corporation tax. Average school fees across the UK in the last academic year (2022-2023) were £15,200, net of bursaries and scholarships, so adding VAT will mean parents stumping up an extra £3,000 or so. At elite private schools, it will mean considerably more. In London, top-performing day schools (such as Latymer Upper, St Paul’s and Westminster) charge between about £24,000 a year and £34,000. VAT on top means almost another five or six thousand. And top-end boarding schools now typically charge fees around the £50,000 mark (Eton’s current yearly fee is £49,998), so parents will be stumping up another ten grand per pupil.
Will the schools absorb some of it?
That remains to be seen. Many schools offer discounts for payment in advance, and some parents are already trying to minimise tax by paying more up front. The main lobby group for private schools, the Independent Schools Council, argues that imposing VAT would be self-defeating, as significant numbers of parents would be forced to pull their children from private schools – lowering the VAT tax take and imposing additional costs on the state sector that outweigh the gains. However, the Institute of Fiscal Studies, in an in-depth analysis by Luke Sibieta, published last summer, disagrees. They estimate that removing tax exemptions would raise about £1.6bn a year in additional revenue. That’s an effective VAT rate of 15%, factoring in input deductions and exemptions for specialist provision, and including some additional revenue from charging business rates on private schools in England (as is already done in Scotland).
Would pupils be forced out?
In the past, the effect of fee rises on demand has been weak. Overall, fees are up
55% in real terms since 2003, and up 20% in real terms just since 2010. But despite
the stiff rises, the share
