Labour’s private school tax raid based on ‘flawed calculations’

Labour’s private school tax raid is based on flawed calculations and could raise no money, a think tank has claimed.

Adding VAT to private school fees is a flagship Labour education policy which it has repeatedly claimed would bring in £1.6 billion a year to invest in state schools.

However, researchers have claimed that the policy would raise far less, and possibly none at all.

EDSK, an education think tank, traced back Labour’s claim the policy would raise £1.6 billion to a study published over a decade ago and found that the calculations had mistakenly included over 50,000 pupils who were being educated in state-funded schools.

A report by the think tank also said it believed that the £1.6 billion calculation included adding VAT on fees for privately educated nursery-aged children, which is not Labour’s policy.

The most expensive schools are likely to be the least impacted by the policy because wealthy parents could pay more fees in advance to avoid the policy and boarding school accommodation is exempt from VAT, the report warned.

Private schools that have built new swimming pools, sports halls, music and drama studios, laboratories or lecture halls could be able to recover VAT that they have incurred on major building or refurbishment projects under the HMRC’s Capital Goods Scheme, it said.

Researchers noted that Labour’s calculation also does not account for the likelihood that some children would have to move to the state sector if VAT was imposed.

A recent survey of parents by the Independent Schools Council found that private schools could lose at least a fifth of their pupils if 20 per cent VAT was added to fees.

Researchers’ best-case scenario found that VAT on school fees would raise £1 billion a year, or £600 million less than Labour has claimed.

Under its worst-case scenario analysis, in which 25 per cent of pupils leave private schools, any revenue from charging VAT on school fees would be wiped out by the burden of those pupils on the state sector.

‘Labour’s claims are far too optimistic’

Tom Richmond, director of EDSK and a former ministerial adviser at the Department for Education, said: “Claims of £1.6 billion a year being raised from adding VAT to private school fees look far too optimistic, particularly if any more than a small number of pupils end up leaving private schools and moving to the state sector instead.”

He said: “Adding VAT on fees is also likely to have the least impact on the most expensive private schools and the wealthiest parents. This could reduce the level of public support that any government can expect to gain from such a move.”

A Labour source said: “Labour does not recognise the numbers cited in this report, which rest on flawed assumptions and leaves more questions than it answers.”

They said that Labour does not accept that the numbers of students leaving the sector “would be anywhere near those cited in this report”.

“The report also assumes that money not spent on private schools would not be spent on other VAT-able goods and services: that shows that this is simply not a serious piece of research,” they added.

“Labour’s position, and our policy, remains clear: we will invest in our state schools by ending the tax breaks private schools enjoy.”