Labour’s schools VAT raid ‘will cost public up to £650m’

Jeremy Hunt pledged that 'taxes will go down under a Conservative government because we will do the hard work necessary to keep our economy competitive'
Jeremy Hunt said the gap between what Labour would spend and what it would raise was £2,100 per working household - Aaron Chown/PA

Labour’s private school VAT raid will hit taxpayers in the pocket, Treasury analysis shows.

Sir Keir Starmer has vowed to end private schools’ exemption from 20 per cent VAT, which he has said would raise £1.6 billion a year. The money he hopes to raise has been earmarked for five separate education pledges, including £2,400 golden hellos for teachers and mental health staff in every school.

But the policy risks raising less money than is needed to fund the party’s promises.

Treasury analysis found that if the policy forced almost 100,000 pupils out of private schools and into state education this would require the Government to spend an extra £650 million per year.

Estimates indicate the tax may raise as little as £1.35 billion per year, meaning almost half risks going straight out of the Treasury again to pay for pupils who have been taken out of private schools.

Treasury analysis found that Labour would only be able to afford three of the five education policies with the estimated £700 million they would have left.

Cancel policies or raise taxes

It raises the prospect that the party would either have to cancel some of their policies or raise taxes to pay for them.

Labour on Friday disputed the figures, claiming they were based on flawed data which had been provided to the Treasury by Conservative political advisers. The party also rejected suggestions that there would be any cost to the state from an exodus of fee-paying pupils.

The Treasury analysis looked at 15 Labour policies and was unveiled by Jeremy Hunt on Friday. He warned that the party’s spending plans would lead to a £38 billion black hole.

The Chancellor said the gap between what Labour would spend and what it would raise was £2,100 per working household.

Treasury officials were asked to look at the knock-on costs if the extra cost of school fees led to either 5 per cent, 11 per cent or 17 per cent of students leaving the independent sector. They found that if 17 per cent – or 100,000 pupils – were forced out it would cost the state £650 million a year.

‘Tax on aspiration doesn’t add up’

The figure was taken from a report commissioned by the Independent Schools Council, an interest group that represents the private sector. Labour has also promised to use the money to recruit an extra 6,500 teachers and to fund early language interventions in every primary school. The party also wants to subject private schools to business rates, raising another £120 million per year.

Craig Tracey, the deputy chairman of the Conservative Party, said: “Not only will Labour’s tax on aspiration punish families, but it doesn’t even add up. Once again Labour are spending money they don’t have, meaning more borrowing and higher taxes on working people to plug the gap.”

It came as the Commons education select committee released a report highlighting a “crisis” in teacher retention and recruitment in the state sector, particularly in subjects such as physics, maths and foreign languages.

Jeremy Hunt Chancellor Conservative Labour Keir Starmer
The Chancellor's speech singled out 15 different Labour policies - HENRY NICHOLLS/AFP

Robin Walker, Tory MP and chairman of the committee, said that the Labour VAT policy would “certainly add costs and pressures to what is already a pressurised secondary part of the state sector.”

He told The Telegraph: “I think [Labour] will no doubt be trumpeting some of the stuff in my report about teacher shortages as saying that this shows that we need more teachers, but actually the risk is if people leave independent schools, they will increase that need.”

Meanwhile, analysis by The Telegraph predicts that boarding school fees would eat up more than 90 per cent of the highest earners’ disposable income if Labour got into power.

Average fees have now hit a record £42,459 a year, and if VAT were applied and passed onto parents, they would jump to £50,951 - the equivalent of 93 per cent of the highest earners’ take-home pay.

Divided by ‘ocean of deep blue water’

In a speech in central London, the Chancellor said there was “an ocean of deep blue water” between the Tories who plan to cut taxes and Labour who would hike them.

Speaking in front of the slogan “Labour’s tax rises”, he refused to be drawn on which taxes the Conservatives would cut if they win the next election.

Darren Jones, Labour’s shadow chief secretary to the Treasury, responded by effectively ruling out tax cuts on workers if his party wins power.

“We have no plans to increase taxes on working people, we’ve been very clear on that. We’re just not going to be doing that,” he said.