The Labour government has confirmed its commitment to change the way private school fees are taxed, as outlined in its manifesto. The King's Speech announced plans to eliminate the current VAT exemption on private school fees, which the government claims will fund 6,500 new teachers in England.

What are Private Schools and How Many Are There?

Private schools, also known as independent schools, charge tuition fees to most of their students. While renowned schools like Eton and Harrow charge around £50,000 annually, the average fee across the UK is approximately £15,000. There are about 2,500 private schools in the UK, educating around 7% of all pupils, including about 570,000 in England. These schools enjoy more freedom compared to state-funded schools and do not have to follow the national curriculum. Some local authorities fund children with special educational needs and disabilities to attend private schools.

What is VAT and How Does it Apply to Private Schools?

Value Added Tax (VAT) is a 20% tax on many goods and services in the UK. Currently, private schools are exempt from charging VAT on their fees due to a legal exemption for educational organizations. Additionally, about half of England's private schools are registered as charities, entitling them to an 80% reduction on business rates.

How Will the Government Change the Way Fees are Taxed?

Labour's manifesto promised to end the VAT exemption and business rate relief for private schools, rather than stripping them of their charitable status. The King's Speech confirmed the removal of the VAT exemption, which is projected to fund 6,500 new teachers in England. The Institute for Fiscal Studies (IFS) estimates that this policy could generate around £1.6 billion annually, potentially increasing state school spending in England by 2%.

The VAT exemption removal would apply across the UK, but each nation's government would decide how to allocate the additional funds. Prime Minister Sir Keir Starmer assured that children with legally-binding education health care plans (EHCPs) attending private schools due to state sector shortages would be exempt from the VAT increase. However, former Conservative education minister Claire Coutinho highlighted that Labour had no plans for the thousands of children without EHCPs but currently in private education.

Will Private School Fees Go Up?

The removal of the VAT exemption doesn't necessarily mean a direct 20% fee increase. The IFS notes that without the exemption, schools could deduct the VAT they pay on goods and services, potentially offsetting fee increases. Private schools may respond differently, with some possibly raising fees more than others. The IFS predicts a potential decline in private school attendance by 3-7%, equating to 20,000 to 40,000 fewer pupils, though this would vary among schools.

What Would the Plans Mean for State Schools?

During the general election campaign, Labour leaders assured that the policy would not increase class sizes in state schools. IFS research indicates that the state sector could accommodate the additional pupils, as overall student numbers are expected to drop by 700,000 by 2030. However, regional variations in pupil numbers could put pressure on class sizes in some state schools. Teaching unions have expressed concerns about a crisis in teacher recruitment and retention, exacerbated by issues of pay and workload. The Independent Schools Council (ISC) warns that the policy might force smaller private schools to close and reduce the availability of fee-reducing bursaries, making private education more exclusive.